NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
The consolidated condensed financial statements have been prepared by Cirrus Logic, Inc. (“Cirrus Logic,” “we,” “us,” “our,” or the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission (the “Commission”). The accompanying unaudited consolidated condensed financial statements do not include complete footnotes and financial presentations. As a result, these financial statements should be read along with the audited consolidated financial statements and notes thereto for the year ended March 28, 2020, included in our Annual Report on Form 10-K filed with the Commission on May 20, 2020. In our opinion, the financial statements reflect all material adjustments, including normal recurring adjustments, necessary for a fair presentation of the financial position, operating results and cash flows for those periods presented. The preparation of financial statements in conformity with United States (“U.S.”) generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect reported assets, liabilities, revenues and expenses. Actual results could differ from those estimates and assumptions. Moreover, the results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the entire year.
2. Recently Issued Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU requires credit losses on financial instruments, including available-for-sale debt securities, to be presented as an allowance rather than a write-down. Unlike current U.S. GAAP, the credit losses could be reversed with changes in estimates, and recognized in current year earnings. This ASU is effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods. The Company adopted this ASU in the first quarter of fiscal year 2021, with no material impact to the financial statements.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU eliminates step two of the goodwill impairment test. An impairment charge is to be recognized for the amount by which the current value exceeds the fair value. This ASU is effective for annual periods beginning after December 15, 2019, including interim periods. Early adoption is permitted, for interim or annual goodwill impairment tests performed after January 1, 2017, and should be applied prospectively. The Company adopted this ASU in the first quarter of fiscal year 2021, with no material impact to the financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. This ASU adjusts current required disclosures related to fair value measurements. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within that fiscal year. The Company adopted this ASU in the first quarter of fiscal year 2021, with no material impact to the financial statements.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40), Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This ASU provides guidance on the accounting for implementation costs related to a cloud computing arrangement that is a service contract. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within that fiscal year. The Company adopted this ASU in the first quarter of fiscal year 2021,with prospective application and no material impact to the financial statements.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The ASU removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This ASU is effective for fiscal years beginning after December 15, 2020, including interim periods within that fiscal year, with early adoption permitted. The Company is currently evaluating the impact of this ASU, but does not expect a material impact to the financial statements upon adoption.
In January 2020, the FASB issued ASU No. 2020-01, Investments - Equity Securities (Topic 321) - Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) – Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (a consensus of the FASB Emerging Issues Task Force). This ASU clarifies the interaction of the accounting for equity securities, investments accounted for under the equity method of accounting, and the accounting for certain forward contracts and purchased options. This ASU is effective for fiscal years beginning after
December 15, 2020, including interim periods within that fiscal year, with early adoption permitted. The Company is currently evaluating the impact of this ASU, but does not expect a material impact to the financial statements upon adoption.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The ASU, effective immediately for reporting periods through December 31, 2022, provides accounting relief for contract modifications that replace an interest rate impacted by reference rate reform (e.g., LIBOR) with a new alternative reference rate. The guidance is applicable to investment securities, receivables, debt, leases, hedging relationships and other contractual arrangements. The Company adopted this ASU in the first quarter of fiscal year 2021, with no material impact to the financial statements.
3. Marketable Securities
The Company’s investments have been classified as available-for-sale securities in accordance with U.S. GAAP. Marketable securities are categorized on the consolidated condensed balance sheet as "Marketable securities", within the short-term or long-term classification, as appropriate.
The following table is a summary of available-for-sale securities at June 27, 2020 (in thousands):
|
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|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 27, 2020
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Estimated
Fair Value
(Net Carrying
Amount)
|
Corporate debt securities
|
$
|
294,015
|
|
|
$
|
6,727
|
|
|
$
|
(72)
|
|
|
$
|
300,670
|
|
Non-U.S. government securities
|
12,879
|
|
|
316
|
|
|
—
|
|
|
13,195
|
|
U.S. Treasury securities
|
5,267
|
|
|
108
|
|
|
—
|
|
|
5,375
|
|
|
|
|
|
|
|
|
|
Agency discount notes
|
889
|
|
|
—
|
|
|
—
|
|
|
889
|
|
Total securities
|
$
|
313,050
|
|
|
$
|
7,151
|
|
|
$
|
(72)
|
|
|
$
|
320,129
|
|
The Company typically invests in highly-rated securities with original maturities generally ranging from one to three years. The Company's specifically identified gross unrealized loss of $0.1 million related to securities with total amortized costs of approximately $7.7 million at June 27, 2020. There were no securities that had been in a continuous unrealized loss position for more than 12 months as of June 27, 2020. The Company may sell certain of its marketable securities prior to their stated maturities for strategic reasons including, but not limited to, anticipated or actual changes in credit rating and duration management. The Company records an allowance for credit loss when a decline in investment market value is due to credit-related factors. When evaluating an investment for impairment, the Company reviews factors including the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer, changes in market interest rates and whether it is more likely than not the Company will be required to sell the investment before recovery of the investment’s cost basis. As of June 27, 2020, the Company does not consider any of its investments to be impaired.
The following table is a summary of available-for-sale securities at March 28, 2020 (in thousands):
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|
|
|
|
|
|
|
|
|
As of March 28, 2020
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Estimated
Fair Value
(Net Carrying
Amount)
|
Corporate debt securities
|
$
|
286,668
|
|
|
$
|
1,157
|
|
|
$
|
(3,993)
|
|
|
$
|
283,832
|
|
Non-U.S. government securities
|
12,483
|
|
|
260
|
|
|
—
|
|
|
12,743
|
|
U.S. Treasury securities
|
8,839
|
|
|
167
|
|
|
—
|
|
|
9,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities
|
$
|
307,990
|
|
|
$
|
1,584
|
|
|
$
|
(3,993)
|
|
|
$
|
305,581
|
|
The Company's specifically identified gross unrealized loss of $4.0 million related to securities with total amortized costs of approximately $172.9 million at March 28, 2020. There were no securities that had been in a continuous unrealized loss position for more than 12 months as of March 28, 2020. As of March 28, 2020, the Company did not consider any of its investments to be impaired.
The cost and estimated fair value of available-for-sale securities by contractual maturities were as follows (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
June 27, 2020
|
|
|
|
March 28, 2020
|
|
|
|
Amortized
|
|
Estimated
|
|
Amortized
|
|
Estimated
|
|
Cost
|
|
Fair Value
|
|
Cost
|
|
Fair Value
|
Within 1 year
|
$
|
29,447
|
|
|
$
|
29,943
|
|
|
$
|
22,012
|
|
|
$
|
22,008
|
|
After 1 year
|
283,603
|
|
|
290,186
|
|
|
285,978
|
|
|
283,573
|
|
Total
|
$
|
313,050
|
|
|
$
|
320,129
|
|
|
$
|
307,990
|
|
|
$
|
305,581
|
|
4. Fair Value of Financial Instruments
The Company has determined that the only material assets and liabilities in the Company’s financial statements that are required to be measured at fair value on a recurring basis are the Company’s cash equivalents and marketable securities portfolio. The Company defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
•Level 1 - Quoted prices in active markets for identical assets or liabilities.
•Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
•Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The Company’s cash equivalents and marketable securities portfolio consist of money market funds, debt securities, non-U.S. government securities, U.S. Treasury securities and securities of U.S. government-sponsored enterprises and are reflected on our consolidated condensed balance sheets under the headings cash and cash equivalents, marketable securities, and long-term marketable securities. The Company determines the fair value of its marketable securities portfolio by obtaining non-binding market prices from third-party pricing providers on the last day of the quarter, whose sources may use quoted prices in active markets for identical assets (Level 1 inputs) or inputs other than quoted prices that are observable either directly or indirectly (Level 2 inputs) in determining fair value.
The Company's long-term revolving credit facility, described in Note 8, bears interest at a base rate plus applicable margin or LIBOR plus applicable margin. As of June 27, 2020, there are no amounts drawn under the credit facility and the fair value is zero.
As of June 27, 2020 and March 28, 2020, the Company has no material Level 3 assets or liabilities. There were no transfers between Level 1, Level 2, or Level 3 measurements for the three months ended June 27, 2020.
The following summarizes the fair value of our financial instruments at June 27, 2020 (in thousands):
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|
|
Quoted Prices
in Active
Markets for
Identical
Assets
Level 1
|
|
Significant
Other
Observable
Inputs
Level 2
|
|
Significant
Unobservable
Inputs
Level 3
|
|
Total
|
Assets:
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|
|
|
|
|
|
|
Cash equivalents
|
|
|
|
|
|
|
|
Money market funds
|
$
|
249,837
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
249,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
Corporate debt securities
|
$
|
—
|
|
|
$
|
300,670
|
|
|
$
|
—
|
|
|
$
|
300,670
|
|
Non-U.S. government securities
|
—
|
|
|
13,195
|
|
|
—
|
|
|
13,195
|
|
U.S. Treasury securities
|
5,375
|
|
|
—
|
|
|
—
|
|
|
5,375
|
|
|
|
|
|
|
|
|
|
Agency discount notes
|
—
|
|
|
889
|
|
|
—
|
|
|
889
|
|
|
|
|
|
|
|
|
|
|
$
|
5,375
|
|
|
$
|
314,754
|
|
|
$
|
—
|
|
|
$
|
320,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following summarizes the fair value of our financial instruments at March 28, 2020 (in thousands):
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
Level 1
|
|
Significant
Other
Observable
Inputs
Level 2
|
|
Significant
Unobservable
Inputs
Level 3
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
Cash equivalents
|
|
|
|
|
|
|
|
Money market funds
|
$
|
237,714
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
237,714
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
Corporate debt securities
|
$
|
—
|
|
|
$
|
283,832
|
|
|
$
|
—
|
|
|
$
|
283,832
|
|
Non-U.S. government securities
|
—
|
|
|
12,743
|
|
|
—
|
|
|
12,743
|
|
U.S. Treasury securities
|
9,006
|
|
|
—
|
|
|
—
|
|
|
9,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,006
|
|
|
$
|
296,575
|
|
|
$
|
—
|
|
|
$
|
305,581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5. Derivative Financial Instruments
Foreign Currency Forward Contracts
The Company uses foreign currency forward contracts to reduce the earnings impact that exchange rate fluctuations have on non-U.S. dollar balance sheet exposures. The Company recognizes both the gains and losses on foreign currency forward contracts and the gains and losses on the remeasurement of non-U.S. dollar denominated assets and liabilities within "Other income (expense)" in the consolidated condensed statements of income. The Company does not apply hedge accounting to these foreign currency derivative instruments.
As of June 27, 2020, the Company held one foreign currency forward contract denominated in British Pound Sterling with a notional value of $24.6 million. The fair value of this contract was not material as of June 27, 2020.
The before-tax effect of derivative instruments not designated as hedging instruments was as follows (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
June 27,
|
|
June 29,
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
Location
|
Gain (loss) recognized in income:
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
$
|
1,183
|
|
|
$
|
(2,363)
|
|
|
|
|
|
|
Other income (expense)
|
6. Accounts Receivable, net
The following are the components of accounts receivable, net (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
June 27,
|
|
March 28,
|
|
2020
|
|
2020
|
Gross accounts receivable
|
$
|
136,539
|
|
|
$
|
153,998
|
|
Allowance for doubtful accounts
|
—
|
|
|
—
|
|
Accounts receivable, net
|
$
|
136,539
|
|
|
$
|
153,998
|
|
7. Inventories
Inventories are comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
June 27,
|
|
March 28,
|
|
2020
|
|
2020
|
Work in process
|
$
|
111,679
|
|
|
$
|
82,494
|
|
Finished goods
|
87,653
|
|
|
64,231
|
|
|
$
|
199,332
|
|
|
$
|
146,725
|
|
8. Revolving Credit Facility
On July 12, 2016, Cirrus Logic entered into an amended and restated credit agreement (the “Credit Agreement”) with Wells Fargo Bank, National Association, as Administrative Agent, and the Lenders party thereto, for the purpose of refinancing an existing credit facility and providing ongoing working capital. The Credit Agreement provides for a $300 million senior secured revolving credit facility (the “Credit Facility”). The Credit Facility matures on July 12, 2021. The Credit Facility is required to be guaranteed by all of Cirrus Logic’s material domestic subsidiaries (the “Subsidiary Guarantors”). The Credit Facility is secured by substantially all of the assets of Cirrus Logic and any Subsidiary Guarantors, except for certain excluded assets.
Borrowings under the Credit Facility may, at our election, bear interest at either (a) a base rate plus the applicable margin (“Base Rate Loans”) or (b) a LIBOR rate plus the applicable margin (“LIBOR Rate Loans”). The applicable margin ranges from 0% to 0.50% per annum for Base Rate Loans and 1.25% to 2.00% per annum for LIBOR Rate Loans based on the Leverage Ratio (as defined below). A commitment fee accrues at a rate per annum ranging from 0.20% to 0.30% (based on the Leverage Ratio) on the average daily unused portion of the commitment of the lenders. The Credit Agreement contains certain financial covenants providing that (a) the ratio of consolidated funded indebtedness to consolidated EBITDA for the prior four fiscal quarters must not be greater than 3.00 to 1.00 (the “Leverage Ratio”) and (b) the ratio of consolidated EBITDA for the prior four consecutive fiscal quarters to consolidated fixed charges (including amounts paid in cash for consolidated interest expenses, capital expenditures, scheduled principal payments of indebtedness, and income taxes) for the prior four consecutive fiscal quarters must not be less than 1.25 to 1.00 as of the end of each fiscal quarter. The Credit Agreement also contains negative covenants limiting the Company’s or any Subsidiary’s ability to, among other things, incur debt, grant liens, make investments, effect certain fundamental changes, make certain asset dispositions, and make certain restricted payments.
As of June 27, 2020, the Company had no amounts outstanding under the Credit Facility and was in compliance with all covenants under the Credit Agreement.
9. Revenues
Disaggregation of revenue
We disaggregate revenue from contracts with customers based on the ship to location of the customer. The geographic regions that are reviewed are the United States and countries outside of the United States (primarily located in Asia).
Total net sales based on the disaggregation criteria described above are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
June 27,
|
|
June 29,
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
Non-United States
|
$
|
238,497
|
|
|
$
|
234,042
|
|
|
|
|
|
United States
|
4,076
|
|
|
4,211
|
|
|
|
|
|
|
$
|
242,573
|
|
|
$
|
238,253
|
|
|
|
|
|
Performance obligations
The Company's single performance obligation is the delivery of promised goods to the customer. The promised goods are explicitly stated in the customer contract and are comprised of either a single type of good or a series of goods that are substantially the same, have the same pattern of transfer to the customer, and are neither capable of being distinct nor separable from the other promised goods in the contract. This performance obligation is satisfied upon transfer of control of the promised goods to the customer, as defined per the shipping terms within the customer's contract. The vast majority of the Company's contracts with customers have an original expected term length of one year or less. As allowed by Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers, the Company has not disclosed the value of any unsatisfied performance obligations related to these contracts.
The Company’s products typically include a warranty period of one to three years. These warranties qualify as assurance-type warranties, as goods can be returned for product non-conformance and defect only. As such, these warranties are accounted for under ASC 460, Guarantees, and are not considered a separate performance obligation.
Contract balances
Payments are typically due within 30 to 60 days of invoicing and terms do not include significant financing components or noncash consideration. There have been no material impairment losses on accounts receivable. There are no material contract assets or contract liabilities recorded on the consolidated condensed balance sheets.
Transaction price
The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring the promised goods to the customer. Fixed pricing is the consideration that is agreed upon in the customer contract. Variable pricing includes rebates, rights of return, warranties, price protection and stock rotation. Rebates are granted as a customer account credit, based on agreed-upon sales thresholds. Rights of return and warranty costs are estimated using the "most likely amount" method by reviewing historical returns to determine the most likely customer return rate and applying materiality thresholds. Price protection includes price adjustments available to certain distributors based upon established book price and a stated adjustment period. Stock rotation is also available to certain distributors based on a stated maximum of prior billings.
The Company estimates all variable consideration at the most likely amount that it expects to be entitled. The estimate is based on current and historical information, including recent sales activity and pricing, available to the Company. Variable consideration is only included in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The Company defers all variable consideration that does not meet the revenue recognition criteria.
10. Restructuring Costs
During the fourth quarter of fiscal year 2020, the Company approved a restructuring plan (the “MEMS Restructuring”), including discontinuing efforts relating to the microelectromechanical systems ("MEMS") microphone product line, which allowed the Company to concentrate resources on projects with an anticipated larger return on investment. The MEMS Restructuring is substantially complete as of the first quarter of fiscal year 2021.
The following table details the total restructuring charges presented in the consolidated condensed statements of income within the "Restructuring Costs" line item (in thousands):
|
|
|
|
|
|
|
Three Months Ended
|
|
June 27,
|
|
2020
|
Disposal of equipment
|
$
|
130
|
|
Other exit costs
|
222
|
|
Total
|
$
|
352
|
|
Restructuring liabilities are presented in the “Other accrued liabilities” line item of our consolidated condensed balance sheet. The activity related to restructuring liabilities is detailed below (in thousands):
|
|
|
|
|
|
|
Restructuring Liability
|
Beginning balance as of March 28, 2020
|
$
|
982
|
|
Other exit costs
|
222
|
|
Cash payments
|
(703)
|
|
Ending balance as of June 27, 2020
|
$
|
501
|
|
11. Income Taxes
Our provision for income taxes is based on estimated effective tax rates derived from an estimate of annual consolidated earnings before taxes, adjusted for nondeductible expenses, other permanent items, and any applicable income tax credits.
The following table presents the provision for income taxes (in thousands) and the effective tax rates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
June 27,
|
|
June 29,
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
Income before income taxes
|
$
|
20,362
|
|
|
$
|
6,051
|
|
|
|
|
|
Provision for income taxes
|
$
|
2,153
|
|
|
$
|
1,433
|
|
|
|
|
|
Effective tax rate
|
10.6
|
%
|
|
23.7
|
%
|
|
|
|
|
Our income tax expense was $2.2 million and $1.4 million for the first quarters of fiscal years 2021 and 2020, respectively, resulting in effective tax rates of 10.6% and 23.7% for the first quarter of fiscal years 2021 and 2020, respectively. Our effective tax rate for the first quarter of fiscal year 2021 was lower than the federal statutory rate primarily due to the effect of income earned in certain foreign jurisdictions that is taxed below the federal statutory rate and excess tax benefits from stock-based compensation. Our effective tax rate for the first quarter of fiscal year 2020 was higher than the federal statutory rate primarily due to interest accrued on unrecognized tax benefits recorded discretely in the quarter, partially offset by the effect of income earned in certain foreign jurisdictions that is taxed below the federal statutory rate.
The Company records unrecognized tax benefits for the estimated risk associated with tax positions taken on tax returns. At June 27, 2020, the Company had unrecognized tax benefits of $36.2 million, all of which would impact the effective tax rate if recognized. The Company’s total unrecognized tax benefits are classified as “Non-current income taxes" in
the consolidated condensed balance sheets. The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes. As of June 27, 2020, the balance of accrued interest and penalties, net of tax, was $3.9 million.
On July 27, 2015, the U.S. Tax Court issued an opinion in Altera Corp. et al. v. Commissioner which concluded that the regulations relating to the treatment of stock-based compensation expense in intercompany cost-sharing arrangements were invalid. In 2016 the U.S. Internal Revenue Service appealed the decision to the U.S. Court of Appeals for the Ninth Circuit (the “Ninth Circuit”). On July 24, 2018, the Ninth Circuit issued a decision that was subsequently withdrawn and a reconstituted panel conferred on the appeal. On June 7, 2019, the Ninth Circuit reversed the decision of the U.S. Tax Court and upheld the cost-sharing regulations. On February 10, 2020, Altera Corp. filed a Petition for a Writ of Certiorari with the Supreme Court of the United States, which was denied by the Supreme Court on June 22, 2020. Although the issue is now resolved in the Ninth Circuit, the Ninth Circuit's opinion is not binding in other circuits. The potential impact of this issue on the Company, which is not located within the jurisdiction of the Ninth Circuit, is unclear at this time. We will continue to monitor developments related to this issue and the potential impact of those developments on the Company's current and prior fiscal years.
The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax in multiple state and foreign jurisdictions. Fiscal years 2017 through 2020 remain open to examination by the major taxing jurisdictions to which the Company is subject, although carry forward attributes that were generated in tax years prior to fiscal year 2017 may be adjusted upon examination by the tax authorities if they have been, or will be, used in a future period. The Company's federal income tax returns for fiscal years 2017, 2018, and 2019 are under examination by the U.S. Internal Revenue Service. The Company believes it has accrued adequate reserves related to the matters under examination. The Company is not under an income tax audit in any other major taxing jurisdiction.
12. Net Income Per Share
Basic net income per share is based on the weighted effect of common shares issued and outstanding and is calculated by dividing net income by the basic weighted average shares outstanding during the period. Diluted net income per share is calculated by dividing net income by the weighted average number of common shares used in the basic net income per share calculation, plus the equivalent number of common shares that would be issued assuming exercise or conversion of all potentially dilutive common shares outstanding. These potentially dilutive items consist primarily of outstanding stock options and restricted stock grants.
The following table details the calculation of basic and diluted earnings per share for the three months ended June 27, 2020 and June 29, 2019 (in thousands, except per share amounts):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
June 27,
|
|
June 29,
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
Net income
|
$
|
18,209
|
|
|
$
|
4,618
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
58,313
|
|
|
58,540
|
|
|
|
|
|
Effect of dilutive securities
|
1,967
|
|
|
1,718
|
|
|
|
|
|
Weighted average diluted shares
|
60,280
|
|
|
60,258
|
|
|
|
|
|
Basic earnings per share
|
$
|
0.31
|
|
|
$
|
0.08
|
|
|
|
|
|
Diluted earnings per share
|
$
|
0.30
|
|
|
$
|
0.08
|
|
|
|
|
|
The weighted outstanding shares excluded from our diluted calculation for the three months ended June 27, 2020 and June 29, 2019 were 240 thousand and 734 thousand, respectively, as the shares were anti-dilutive.
13. Legal Matters
From time to time, we are involved in legal proceedings concerning matters arising in connection with the conduct of our business activities. We regularly evaluate the status of legal proceedings in which we are involved in order to assess whether a loss is probable or there is a reasonable possibility that a loss or additional loss may have been incurred, and to determine if accruals are appropriate. We further evaluate each legal proceeding to assess whether an estimate of possible loss or range of loss can be made.
Based on current knowledge, management does not believe that there are any pending matters that could potentially have a material adverse effect on our business, financial condition, results of operations or cash flows. However, we are engaged in various legal actions in the normal course of business. There can be no assurances in light of the inherent uncertainties involved in any potential legal proceedings, some of which are beyond our control, and an adverse outcome in any legal proceeding could be material to our results of operations or cash flows for any particular reporting period.
14. Stockholders’ Equity
Common Stock
The Company issued a net 0.1 million shares of common stock during each of the three months ended June 27, 2020 and June 29, 2019, pursuant to the Company's equity incentive plans.
Share Repurchase Program
Since inception, approximately $80 million of the Company’s common stock has been repurchased under the Company’s 2019 $200 million share repurchase program, leaving approximately $120 million available for repurchase under this plan as of June 27, 2020. During the three months ended June 27, 2020, the Company repurchased no shares of its common stock.
15. Segment Information
We determine our operating segments in accordance with FASB guidelines. Our Chief Executive Officer (“CEO”) has been identified as the chief operating decision maker under these guidelines.
The Company operates and tracks its results in one reportable segment, but reports revenue in two product lines, Portable and Non-Portable and Other. Our CEO receives and uses enterprise-wide financial information to assess financial performance and allocate resources, rather than detailed information at a product line level. Additionally, our product lines have similar characteristics and customers. They share support functions such as sales, public relations, supply chain management, various research and development and engineering support, in addition to the general and administrative functions of human resources, legal, finance and information technology. Therefore, there is no complete, discrete financial information maintained for these product lines.
Revenues from our product lines are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
June 27,
|
|
June 29,
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
Portable Products
|
$
|
210,661
|
|
|
$
|
202,938
|
|
|
|
|
|
Non-Portable and Other Products
|
31,912
|
|
|
35,315
|
|
|
|
|
|
|
$
|
242,573
|
|
|
$
|
238,253
|
|
|
|
|
|