NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
1.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
Unaudited Interim Financial Information
—The accompanying unaudited, condensed consolidated financial statements have been prepared according to the rules and regulations of the United States (the “U.S.”) Securities and Exchange Commission (“SEC”) and, in the opinion of management, reflect all adjustments, which include normal recurring adjustments, necessary for a fair statement of the condensed consolidated balance sheets, condensed consolidated statements of operations, condensed consolidated statement of comprehensive loss and condensed consolidated statements of cash flows of MACOM Technology Solutions Holdings, Inc. (“MACOM”, the “Company”, “us”, “we” or “our”) for the periods presented. We prepare our interim financial information using the same accounting principles we use for our annual audited consolidated financial statements. Certain information and note disclosures normally included in the annual audited consolidated financial statements have been condensed or omitted in accordance with prescribed SEC rules. We believe that the disclosures made in our condensed consolidated financial statements and the accompanying notes are adequate to make the information presented not misleading.
The consolidated balance sheet at
October 2, 2015
is as reported in our audited consolidated financial statements as of that date. Our accounting policies are described in the notes to our
October 2, 2015
consolidated financial statements, which were included in our Annual Report on Form 10-K for our fiscal year ended
October 2, 2015
filed with the SEC on
November 24, 2015
. We recommend that the financial statements included in this Quarterly Report on Form 10-Q be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for our fiscal year ended
October 2, 2015
.
Principles of Consolidation—
We have
one
reportable segment, semiconductors and modules. The accompanying consolidated financial statements include our accounts and the accounts of our majority-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Certain prior period financial statement amounts, including Automotive business discontinued operations, have been adjusted to conform to current reported presentation.
We have a 52 or 53-week fiscal year ending on the Friday closest to the last day of September. The fiscal years 2016 and 2015 include 52 weeks. To offset the effect of holidays, for fiscal years in which there are 53 weeks, we include the extra week arising in our fiscal years in the first quarter.
Use of Estimates
—The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities during the reporting periods, the reported amounts of revenue and expenses during the reporting periods, and the disclosure of contingent assets and liabilities at the date of the financial statements. On an ongoing basis, we base estimates and assumptions on historical experience, currently available information, and various other factors that management believes to be reasonable under the circumstances. Actual results may differ materially from these estimates and assumptions.
Recent Accounting Pronouncements
—Our Recent Accounting Pronouncements are described in the notes to our October 2, 2015 consolidated financial statements, which were included in our Annual Report on Form 10-K.
In November 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (ASU) No. 2015-17,
Balance Sheet Classification of Deferred Taxes
. This update simplifies the presentation of deferred income taxes by eliminating the current requirements to classify deferred income tax assets and liabilities between current and noncurrent. The amendments in this update require that deferred tax assets and liabilities be classified as noncurrent in a classified statement of financial position. For public business entities, the standard is effective in the annual reporting periods beginning after December 15, 2016. Early adoption is permitted as of the beginning of any interim or annual reporting period and can be applied either prospectively or retrospectively to all periods presented. We have elected to adopt this standard early and have implemented the change prospectively as of the second quarter of fiscal 2016; prior periods were not adjusted. Upon adoption in the second quarter of fiscal 2016, we included
$31.4 million
of current deferred income tax assets with our noncurrent deferred income tax assets; no adjustments were made to deferred tax liabilities.
In February 2016, the FASB issued ASU 2016-02,
Leases
, which
increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Certain qualitative and quantitative disclosures are required, as well as a retrospective recognition and measurement of impacted leases. The new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2018, with early adoption permitted. We are evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures
.
In March 2016, the FASB issued ASU 2016-09,
Improvements to Employee Share-Based Payment Accounting,
which simplifies several aspects of the accounting for employee share-based payment transactions for both public and nonpublic entities,
including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows. Early adoption is permitted and the updated standard must be adopted no later than our fiscal first quarter of fiscal 2018. We are evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures
.
2. ACQUISITIONS
Acquisition of FiBest Limited—
On December 9, 2015, we completed the acquisition of FiBest Limited (“FiBest”) a Japan-based merchant market component supplier of optical sub-assemblies ("FiBest Acquisition"). We acquired FiBest to expand our position in optical networking components. In connection with the FiBest Acquisition, all of the outstanding equity interests (including outstanding options) of FiBest were exchanged for aggregate consideration of
$59.1 million
including cash of
$47.5 million
and assumed debt of
$11.6 million
. We funded the FiBest Acquisition with cash on hand. For the
nine months ended
July 1, 2016
, we recorded transaction costs of
$2.7 million
as selling, general and administrative expense related to this acquisition. There were
no
transaction costs were recorded in the three months ended
July 1, 2016
. The FiBest Acquisition was accounted for as a stock purchase and the operations of FiBest have been included in our consolidated financial statements since the date of acquisition.
We recognized the FiBest assets acquired and liabilities assumed based upon the fair value of such assets and liabilities measured as of the date of acquisition. The aggregate purchase price for FiBest is being allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The excess of the purchase price over the fair value of the acquired net assets represents cost and revenue synergies specific to the Company, as well as non-capitalizable intangible assets, such as the employee workforce acquired, and has been allocated to goodwill, none of which will be tax deductible.
During the quarter ended July 1, 2016, we recorded an adjustment of
$1.1 million
primarily related to an adjustment of the deferred tax liability associated with the acquisition of FiBest. The purchase accounting is preliminary and subject to completion of certain areas such as the valuation of acquired inventory, and therefore the purchase price allocation remains preliminary. The adjustments arising from the completion of the outstanding matters may materially affect the preliminary purchase accounting. We expect to finalize our allocation of purchase price during calendar year 2016. The adjusted preliminary allocation of purchase price as of
July 1, 2016
, is as follows (in thousands):
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|
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|
|
|
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Preliminary Allocation
|
|
|
Allocation Adjustments
|
|
|
Adjusted Allocation
|
|
|
|
|
|
|
|
|
Current assets
|
$
|
10,850
|
|
|
$
|
—
|
|
|
|
10,850
|
|
Intangible assets
|
45,650
|
|
|
|
—
|
|
|
|
45,650
|
|
Other assets
|
3,334
|
|
|
|
—
|
|
|
|
3,334
|
|
Total assets acquired
|
59,834
|
|
|
|
—
|
|
|
|
59,834
|
|
Liabilities assumed:
|
|
|
|
|
|
|
|
Debt
|
11,627
|
|
|
|
—
|
|
|
|
11,627
|
|
Deferred income taxes
|
12,932
|
|
|
|
(1,131
|
)
|
|
|
11,801
|
|
Other liabilities
|
3,968
|
|
|
|
—
|
|
|
|
3,968
|
|
Total liabilities assumed
|
28,527
|
|
|
|
(1,131
|
)
|
|
|
27,396
|
|
Net assets acquired
|
31,307
|
|
|
|
1,131
|
|
|
|
32,438
|
|
Consideration:
|
|
|
|
|
|
|
|
Cash paid upon closing, net of cash acquired
|
47,517
|
|
|
|
—
|
|
|
|
47,517
|
|
Goodwill
|
$
|
16,210
|
|
|
$
|
(1,131
|
)
|
|
$
|
15,079
|
|
The components of the acquired intangible assets on a preliminary basis were as follows (in thousands):
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Useful Lives (Years)
|
Developed technology
|
$
|
9,400
|
|
|
|
7
|
Customer relationships
|
36,250
|
|
|
|
10
|
|
$
|
45,650
|
|
|
|
|
The overall weighted-average life of the identified intangible assets acquired in the FiBest Acquisition is estimated to be
9.4 years
and the assets are being amortized over their estimated useful lives based upon the pattern over which we expect to receive the economic benefit from these assets.
The following is a summary of FiBest revenue and earnings included in MACOM's accompanying condensed consolidated statements of operations for the
three and nine months ended
months ended
July 1, 2016
(in thousands):
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|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
Revenue
|
$
|
10,191
|
|
|
$
|
21,296
|
|
Loss before income taxes
|
|
(1,150
|
)
|
|
|
(3,717
|
)
|
Unaudited Supplemental Pro Forma Data—
The pro forma statements of operations data for the three and
nine months ended
July 1, 2016
and
July 3, 2015
, below, give effect to the FiBest Acquisition, described above, as if it had occurred at October 4, 2014. These amounts have been calculated after applying our accounting policies and adjusting the results of FiBest to reflect; transaction costs, retention compensation expense, the impact of the step-up to the value of acquired inventory, as well as the additional intangible amortization that would have been charged assuming the fair value adjustments had been applied and incurred since October 4, 2014. This pro forma data is presented for informational purposes only and does not purport to be indicative of our future results of operations.
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|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
Nine Months Ended
|
|
|
|
July 1, 2016
|
|
|
July 3, 2015
|
|
|
July 1, 2016
|
|
|
July 3, 2015
|
Revenue
|
$
|
142,288
|
|
$
|
112,938
|
|
$
|
399,267
|
|
$
|
323,262
|
|
Net income (loss)
|
|
24,276
|
|
|
|
5,440
|
|
|
|
(2,509
|
)
|
|
|
(14,724
|
)
|
Acquisition of Aeroflex/Metelics Inc.—
On December 14, 2015, we acquired Aeroflex/Metelics, Inc. ("Metelics”), a diode supplier for aggregate cash consideration of
$38.0 million
, subject to customary working capital and other adjustments ("Metelics Acquisition"). We acquired Metelics to expand our diode business. We funded the acquisition with cash on hand. The Metelics Acquisition was accounted for as a stock purchase and the operations of Metelics have been included in our consolidated financial statements since the date of acquisition. For the
nine months ended
July 1, 2016
, we recorded transaction costs of
$0.5 million
as selling, general and administrative expenses related to this acquisition. For the three months ended
July 1, 2016
, no material transaction costs were recorded.
We recognized the Metelics assets acquired and liabilities assumed based upon the fair value of such assets and liabilities measured as of the date of acquisition. The aggregate purchase price for Metelics is being allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The excess of the purchase price over the fair value of the acquired net assets represents cost and revenue synergies specific to the Company, as well as non-capitalizable intangible assets, such as the employee workforce acquired, and has been allocated to goodwill, which will be tax deductible due to a 338(h)(10) election.
During the quarter ended April 1, 2016, we recorded an adjustment of
$1.8 million
primarily associated with inventory which reduced current assets acquired. The purchase accounting is preliminary and subject to completion including certain fair value measurements, particularly the finalization of the valuation of acquired inventory and fixed assets, as well as, the finalization of the working capital adjustment with the seller. The adjustments arising from the completion of the outstanding matters may materially affect the preliminary purchase accounting.We expect to finalize our allocation of purchase price during calendar year 2016. The adjusted preliminary allocation of purchase price as of
July 1, 2016
, is as follows (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
Preliminary Allocation
|
|
|
Allocation Adjustments
|
|
|
Adjusted Allocation
|
|
|
|
|
|
|
|
|
|
Current assets
|
$
|
15,250
|
|
|
$
|
(1,835
|
)
|
|
$
|
13,415
|
|
Intangible assets
|
19,700
|
|
|
|
—
|
|
|
|
19,700
|
|
Other assets
|
6,249
|
|
|
|
—
|
|
|
|
6,249
|
|
Total assets acquired
|
41,199
|
|
|
|
(1,835
|
)
|
|
|
39,364
|
|
Liabilities assumed:
|
|
|
|
|
|
|
|
Other liabilities
|
7,401
|
|
|
|
—
|
|
|
|
7,401
|
|
Total liabilities assumed
|
7,401
|
|
|
|
—
|
|
|
|
7,401
|
|
Net assets acquired
|
33,798
|
|
|
|
(1,835
|
)
|
|
|
31,963
|
|
Consideration:
|
|
|
|
|
|
|
|
Cash paid upon closing, net of cash acquired
|
38,000
|
|
|
|
—
|
|
|
|
38,000
|
|
Goodwill
|
$
|
4,202
|
|
|
$
|
1,835
|
|
|
$
|
6,037
|
|
The components of the acquired intangible assets on a preliminary basis were as follows (in thousands):
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Useful Lives (Years)
|
Developed technology
|
$
|
1,000
|
|
|
|
7
|
Customer relationships
|
18,700
|
|
|
|
10
|
|
$
|
19,700
|
|
|
|
|
The overall weighted-average life of the identified intangible assets acquired in the Metelics Acquisition is estimated to be
9.8 years
and the assets are being amortized over their estimated useful lives based upon the pattern over which we expect to receive the economic benefit from these assets.
The following is a summary of Metelics revenue and earnings included in our accompanying condensed consolidated statements of operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
July 1, 2016
|
|
July 1, 2016
|
Revenue
|
|
$
|
9,861
|
|
|
$
|
22,113
|
|
Income before income taxes
|
|
596
|
|
|
422
|
|
Unaudited Supplemental Pro Forma Data—
The pro forma statements of operations data for the three and
nine months ended
July 1, 2016
and
July 3, 2015
, below, give effect to the Metelics Acquisition, described above, as if it had occurred at October 4, 2014. These amounts have been calculated after applying our accounting policies and adjusting the results of Metelics to reflect the transaction costs, the impact of the step-up to the value of acquired inventory, as well as, the additional intangible amortization that would have been charged assuming the fair value adjustments had been applied and incurred since October 4, 2014. This pro forma data is presented for informational purposes only and does not purport to be indicative of our future results of operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
July 1, 2016
|
|
July 3, 2015
|
|
July 1, 2016
|
|
July 3, 2015
|
Revenue
|
|
$
|
142,288
|
|
|
$
|
118,000
|
|
|
$
|
400,477
|
|
|
$
|
337,392
|
|
Net income (loss)
|
|
22,182
|
|
|
7,616
|
|
|
(3,521
|
)
|
|
(8,132
|
)
|
Acquisition of BinOptics Corporation—
On December 15, 2014, we completed the acquisition of BinOptics Corporation (“BinOptics”) a supplier of high-performance photonic semiconductor products ("BinOptics Acquisition"). In accordance with the related agreement and plan of merger, all of the outstanding equity interests (including outstanding warrants) of BinOptics were exchanged for aggregate consideration of approximately
$208.4 million
in cash. In addition we paid
$14.6 million
as part of a related retention escrow agreement designed to retain certain BinOptics employees. This
$14.6 million
was included in the terms of the purchase agreement and has been accounted for as a post-closing prepaid expense. We funded the BinOptics Acquisition with a combination of cash on hand and the incurrence of
$100.0 million
of additional borrowings under our existing Revolving Facility. For the nine months ended
July 3, 2015
, we recorded transaction costs of
$4.1 million
related to the BinOptics Acquisition.
The BinOptics Acquisition was accounted for as a stock purchase and the operations of BinOptics have been included in our consolidated financial statements since the date of acquisition.
We have recognized BinOptics' assets acquired and liabilities assumed based upon the fair value of such assets and liabilities measured as of the date of acquisition. The aggregate purchase price for BinOptics has been allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The excess of the purchase price over the fair value of the acquired net assets represents cost and revenue synergies specific to the Company, as well as non-capitalizable intangible assets, such as the employee workforce acquired, and has been allocated to goodwill, none of which is tax deductible.
We finalized our allocation of purchase price during the first quarter of fiscal year 2016. The final allocation of purchase price as of January 1, 2016, is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 2, 2015 Allocation
|
|
Allocation Adjustments
|
|
January 1, 2016 Adjusted Allocation
|
|
|
|
|
|
|
Current assets
|
$
|
23,674
|
|
|
$
|
(1,100
|
)
|
|
$
|
22,574
|
|
Intangible assets
|
136,900
|
|
|
400
|
|
|
137,300
|
|
Other assets
|
9,194
|
|
|
—
|
|
|
9,194
|
|
Total assets acquired
|
169,768
|
|
|
(700
|
)
|
|
169,068
|
|
Liabilities assumed:
|
|
|
|
|
|
Debt
|
2,535
|
|
|
—
|
|
|
2,535
|
|
Deferred income taxes
|
33,345
|
|
|
99
|
|
|
33,444
|
|
Other liabilities
|
13,106
|
|
|
—
|
|
|
13,106
|
|
Total liabilities assumed
|
48,986
|
|
|
99
|
|
|
49,085
|
|
Net assets acquired
|
120,782
|
|
|
(799
|
)
|
|
119,983
|
|
Consideration:
|
|
|
|
|
|
Cash paid upon closing, net of cash acquired
|
208,352
|
|
|
—
|
|
|
208,352
|
|
Goodwill
|
$
|
87,570
|
|
|
$
|
799
|
|
|
$
|
88,369
|
|
The components of the acquired intangible assets were as follows (in thousands):
|
|
|
|
|
|
|
|
Amount
|
|
Useful Lives (Years)
|
Developed technology
|
$
|
17,500
|
|
|
7
|
Customer relationships
|
119,800
|
|
|
10
|
|
$
|
137,300
|
|
|
|
The overall weighted-average life of the identified intangible assets acquired in the BinOptics Acquisition is estimated to be
9.6 years
and the assets are being amortized over their estimated useful lives based upon the pattern over which we expect to receive the economic benefit from these assets.
Unaudited Supplemental Pro Forma Data—
The pro forma statements of operations data for the three and nine months ended
July 3, 2015
, below, give effect to the BinOptics Acquisition, described above, as if it had occurred at September 28, 2013. These amounts have been calculated after applying our accounting policies and adjusting the results of BinOptics to reflect the transaction costs, retention compensation expense, the impact of the step-up to the value of the acquired inventory, as well as additional intangible amortization that would have been charged assuming the fair value adjustments to intangible assets had been applied and incurred since September 28, 2013. This pro forma data is presented as of
July 3, 2015
for informational purposes only and does not purport to be indicative of our future results of operations.
|
|
|
|
|
|
|
|
|
Three Months Ended
|
Nine Months Ended
|
|
July 3, 2015
|
July 3, 2015
|
Revenue
|
$
|
130,663
|
|
$
|
382,279
|
|
Net income
|
13,178
|
|
2,317
|
|
3. DISCONTINUED OPERATIONS
In August 2015, we sold our Automotive business to Autoliv ASP Inc. ("Autoliv") as the Automotive business was not consistent with our long-term strategic vision from both a growth and profitability perspective. The agreed consideration included
$82.1 million
in cash paid at closing and
$18.0 million
payable in
eighteen months
pending resolution of any contingencies as part of an indemnification agreement, plus the opportunity to receive up to an additional
$30.0 million
in cash based on achievement of revenue-based earnout targets through 2019. Additionally, we entered into a Consulting Agreement pursuant to which we may provide Autoliv with certain non-design advisory services for a period of
two years
following the closing of the transaction for up to
$15.0 million
in cash.
During fiscal year 2015, we recorded a pre-tax gain on the sale of the Automotive business of
$61.8 million
based on the
$82.1 million
received at closing on August 17, 2015 as described above. The remainder of the consideration to be received from Autoliv, if any, including any amounts related to the consulting agreement, will be accounted for in discontinued operations when the contingencies are finalized and the proceeds, if any, become realizable over the next several years.
The accompanying consolidated statement of operations includes the following operating results related to this divested business (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
July 1, 2016
|
|
July 3, 2015
|
|
July 1, 2016
|
|
July 3, 2015
|
Revenue
|
|
$
|
—
|
|
|
$
|
21,605
|
|
|
$
|
—
|
|
|
$
|
62,367
|
|
Cost of revenue
|
|
—
|
|
|
14,317
|
|
|
—
|
|
|
41,004
|
|
Gross profit
|
|
—
|
|
|
7,288
|
|
|
—
|
|
|
21,363
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Research and development
|
|
—
|
|
|
646
|
|
|
—
|
|
|
1,960
|
|
Selling, general and administrative
|
|
—
|
|
|
836
|
|
|
—
|
|
|
2,187
|
|
Restructuring charges
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total operating expenses
|
|
—
|
|
|
1,482
|
|
|
—
|
|
|
4,147
|
|
Income from discontinued operations
|
|
—
|
|
|
5,806
|
|
|
—
|
|
|
17,216
|
|
Other income
|
|
1,875
|
|
|
4,000
|
|
|
5,625
|
|
|
4,000
|
|
Gain on sale
|
|
—
|
|
|
—
|
|
|
308
|
|
|
—
|
|
Income before income taxes
|
|
1,875
|
|
|
9,806
|
|
|
5,933
|
|
|
21,216
|
|
Income tax provision
|
|
676
|
|
|
3,535
|
|
|
2,139
|
|
|
7,648
|
|
Income from discontinued operations
|
|
$
|
1,199
|
|
|
$
|
6,271
|
|
|
$
|
3,794
|
|
|
$
|
13,568
|
|
|
|
|
|
|
|
|
|
|
Above includes depreciation and amortization of
|
|
$
|
—
|
|
|
$
|
45
|
|
|
$
|
—
|
|
|
$
|
168
|
|
Cashflow from Operating Activities
|
|
—
|
|
|
8,588
|
|
|
—
|
|
|
12,332
|
|
Cashflow from (used in) Investing Activities
|
|
—
|
|
|
(5
|
)
|
|
3,750
|
|
|
(255
|
)
|
Other income recorded during the
three and nine months ended
July 1, 2016
related to the consulting agreement. The gain on sale recorded during the
nine months ended
July 1, 2016
related to the adjustment of accruals established at the time of the sale of the Automotive business. Amounts recorded during the three and nine months ended
July 3, 2015
were from ongoing operating activities prior to the sale.
4. INVESTMENTS
All investments are classified as available-for-sale. The amortized cost, gross unrealized holding gains or losses, and fair value of our available-for-sale investments by major investments type are summarized in the tables below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Gross
Unrealized
Holding Gains
|
|
Gross
Unrealized
Holding Losses
|
|
Aggregate Fair
Value
|
|
|
|
|
|
|
|
|
Corporate bonds
|
$
|
14,781
|
|
|
$
|
11
|
|
|
$
|
(72
|
)
|
|
$
|
14,720
|
|
Agency bonds
|
9,010
|
|
|
—
|
|
|
(4
|
)
|
|
9,006
|
|
Total investments
|
$
|
23,791
|
|
|
$
|
11
|
|
|
$
|
(76
|
)
|
|
$
|
23,726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 2,
2015
|
|
Net Realized/Unrealized Losses and Discount Amortization
|
|
Purchases
and
Issuances
|
|
Sales and
Settlements
|
|
July 1,
2016
|
Corporate bonds
|
$
|
24,462
|
|
|
$
|
(321
|
)
|
|
$
|
21,941
|
|
|
$
|
(31,362
|
)
|
|
$
|
14,720
|
|
Agency bonds
|
15,095
|
|
|
(98
|
)
|
|
3,004
|
|
|
(8,995
|
)
|
|
9,006
|
|
Total investments
|
$
|
39,557
|
|
|
$
|
(419
|
)
|
|
$
|
24,945
|
|
|
$
|
(40,357
|
)
|
|
$
|
23,726
|
|
The contractual maturities of available-for-sale investments were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
July 1, 2016
|
|
October 2, 2015
|
Less than 1 year
|
$
|
11,008
|
|
|
$
|
16,259
|
|
Over 1 year
|
12,718
|
|
|
23,298
|
|
Total investments
|
$
|
23,726
|
|
|
$
|
39,557
|
|
Available-for-sale investments are reported at fair value and as such, their associated unrealized gains and losses are reported as a separate component of stockholders’ equity within accumulated other comprehensive loss.
5. FAIR VALUE
We group our financial assets and liabilities measured at fair value on a recurring basis in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:
|
|
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-driven valuations in which all significant inputs are observable or can be derived principally from, or corroborated with, observable market data.
|
Level 3
- Fair value is derived from valuation techniques in which one or more significant inputs are unobservable, including assumptions and judgments made by us.
|
Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis
We measure certain assets and liabilities at fair value on a recurring basis such as our financial instruments and derivatives. There have been no transfers between Level 1, 2 or 3 assets or liabilities during the
three and nine months ended
July 1, 2016
.
Money market funds are actively traded and consist of highly liquid investments with original maturities of
90 days or less
. They are measured at their net asset value ("NAV") and classified as Level 1. Corporate and agency bonds are categorized as Level 2 assets except where sufficient quoted prices exist in active markets, in which case such securities are categorized as Level 1 assets. These securities are valued using third-party pricing services. These services may use, for example, model-based pricing methods that utilize observable market data as inputs. Broker dealer bids or quotes on securities with similar characteristics may also be used.
The fair values of the contingent consideration liabilities were estimated based upon a risk-adjusted present value of the probability-weighted expected payments by us. Specifically, we considered base, upside and downside scenarios for the operating metrics upon which the contingent payments are to be based. Probabilities were assigned to each scenario and the probability-
weighted payments were discounted to present value using risk-adjusted discount rates. The maximum possible payment of contingent consideration is
$1.5 million
.
The fair value of the stock warrants has been estimated using a Black-Scholes option pricing model giving consideration to the quoted market price of the common stock on that date, an exercise price of
$14.05
, expected life of
4.5 years
, expected volatility of
35.6%
and risk free rate of
1.0%
. Any significant change in these assumptions could have a material impact on the fair value of the stock warrants.
These estimates include significant judgments and actual results could materially differ and have a material impact upon the values of the recorded liabilities. Any changes in the estimated fair values of the liabilities in the future will be reflected in our earnings and such changes could be material.
Assets and liabilities measured at fair value on a recurring basis consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1, 2016
|
|
Fair Value
|
|
Active Markets for Identical Assets (Level 1)
|
|
Observable Inputs (Level 2)
|
|
Unobservable Inputs (Level 3)
|
Assets
|
|
|
|
|
|
|
|
Money market funds
|
$
|
1,079
|
|
|
$
|
1,079
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Agency bonds
|
9,006
|
|
|
—
|
|
|
9,006
|
|
|
—
|
|
Corporate bonds
|
14,720
|
|
|
—
|
|
|
14,720
|
|
|
—
|
|
Total assets measured at fair value
|
$
|
24,805
|
|
|
$
|
1,079
|
|
|
$
|
23,726
|
|
|
$
|
—
|
|
Liabilities
|
|
|
|
|
|
|
|
Contingent consideration
|
$
|
816
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
816
|
|
Common stock warrant liability
|
25,563
|
|
|
—
|
|
|
—
|
|
|
25,563
|
|
Total liabilities measured at fair value
|
$
|
26,379
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
26,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 2, 2015
|
|
Fair Value
|
|
Active Markets for Identical Assets (Level 1)
|
|
Observable Inputs (Level 2)
|
|
Unobservable Inputs (Level 3)
|
Assets
|
|
|
|
|
|
|
|
Money market funds
|
$
|
15,000
|
|
|
$
|
15,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
US treasuries and agency bonds
|
15,095
|
|
|
—
|
|
|
15,095
|
|
|
—
|
|
Corporate bonds
|
24,462
|
|
|
—
|
|
|
24,462
|
|
|
—
|
|
Total assets measured at fair value
|
$
|
54,557
|
|
|
$
|
15,000
|
|
|
$
|
39,557
|
|
|
$
|
—
|
|
Liabilities
|
|
|
|
|
|
|
|
Contingent consideration
|
$
|
1,150
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,150
|
|
Common stock warrant liability
|
21,822
|
|
|
—
|
|
|
—
|
|
|
21,822
|
|
Total liabilities measured at fair value
|
$
|
22,972
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
22,972
|
|
The changes in assets and liabilities with inputs classified within Level 3 of the fair value hierarchy consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 2,
2015
|
|
Net Realized/Unrealized Losses Included in Earnings
|
|
Purchases
and
Issuances
|
|
Sales and
Settlements
|
|
Transfers in
and/or (out)
of Level 3
|
|
July 1,
2016
|
Contingent consideration
|
$
|
1,150
|
|
|
$
|
66
|
|
|
$
|
—
|
|
|
$
|
(400
|
)
|
|
$
|
—
|
|
|
$
|
816
|
|
Common stock warrant liability
|
$
|
21,822
|
|
|
$
|
3,741
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
25,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 3,
2014
|
|
Net Realized/Unrealized Losses Included in Earnings
|
|
Purchases
and
Issuances
|
|
Sales and
Settlements
|
|
Transfers in
and/or (out)
of Level 3
|
|
July 3,
2015
|
Trading Securities
|
$
|
250
|
|
|
$
|
—
|
|
|
$
|
250
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
500
|
|
Contingent consideration
|
$
|
820
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
820
|
|
Common stock warrant liability
|
$
|
15,801
|
|
|
$
|
15,671
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
31,472
|
|
6. INVENTORIES
Inventories consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
July 1,
2016
|
|
October 2,
2015
|
Raw materials
|
$
|
64,261
|
|
|
$
|
44,329
|
|
Work-in-process
|
14,002
|
|
|
3,086
|
|
Finished goods
|
38,815
|
|
|
32,528
|
|
Total
|
$
|
117,078
|
|
|
$
|
79,943
|
|
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
July 1,
2016
|
|
October 2,
2015
|
Land, buildings and improvements
|
$
|
12,564
|
|
|
$
|
10,981
|
|
Construction in process
|
16,627
|
|
|
25,898
|
|
Machinery and equipment
|
118,542
|
|
|
89,852
|
|
Leasehold improvements
|
12,729
|
|
|
9,161
|
|
Furniture and fixtures
|
1,820
|
|
|
983
|
|
Computer equipment and software
|
12,369
|
|
|
9,307
|
|
Total property and equipment
|
174,651
|
|
|
146,182
|
|
Less accumulated depreciation and amortization
|
(74,199
|
)
|
|
(62,423
|
)
|
Property and equipment, net
|
$
|
100,452
|
|
|
$
|
83,759
|
|
Depreciation and amortization expense related to property, plant and equipment for the
three and nine months ended
July 1, 2016
was
$5.7 million
and
$15.2 million
, respectively. Depreciation and amortization expense related to property and equipment for the
three and nine months ended
July 3, 2015
was
$3.7 million
and
$11.7 million
, respectively.
8. DEBT
On May 8, 2014 we entered into a credit agreement ("Credit Agreement") with a syndicate of lenders. Our Credit Agreement provides for term loans in an aggregate principal amount of
$350.0 million
, which mature in
May 2021
("Term Loans") and a revolving credit facility of
$130.0 million
, which matures in
May 2019
("Revolving Facility"). The effective interest rate on our Term Loans was
4.5%
as of
July 1, 2016
. We also pay a quarterly unused line fee for the Revolving Facility in the range of
0.25%
to
0.375%
(based on our total net leverage ratio being within certain defined ranges) as well as overall agency fees. As of
July 1, 2016
, we had
no
borrowings under the Revolving Facility. We incurred
$8.7 million
in fees for the issuance of the Credit Agreement which were recorded as deferred financing costs and are being amortized over the life of Credit Agreement as interest expense. As of
July 1, 2016
, approximately
$6.0 million
of deferred financing costs remain unamortized. The Credit Agreement contains covenants that require among other items maintenance of certain financial ratios. As of
July 1, 2016
, we were in compliance with all financial covenants related to our debt obligations under the Credit Agreement.
As of
July 1, 2016
, the following remained outstanding on the Term Loans (in thousands):
|
|
|
|
|
Principal balance
|
$
|
343,000
|
|
Unamortized discount
|
(1,813
|
)
|
Total Term Loans
|
341,187
|
|
Current portion
|
3,500
|
|
Long-term, less current portion
|
$
|
337,687
|
|
As of
July 1, 2016
, the minimum principal payments under the Term Loans in future fiscal years were as follows (in thousands):
|
|
|
|
|
2016 (rest of fiscal year)
|
$
|
875
|
|
2017
|
3,500
|
|
2018
|
3,500
|
|
2019
|
3,500
|
|
2020
|
3,500
|
|
Thereafter
|
328,125
|
|
Total
|
$
|
343,000
|
|
The fair value of the Term Loans was estimated to be approximately
$342.6 million
as of
July 1, 2016
and was determined using Level 3 inputs, including a quoted rate from a bank.
9. INTANGIBLE ASSETS
Amortization expense related to intangible assets is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
July 1,
2016
|
|
July 3,
2015
|
|
July 1,
2016
|
|
July 3,
2015
|
Cost of revenue
|
$
|
6,440
|
|
|
$
|
6,932
|
|
|
$
|
20,249
|
|
|
$
|
19,638
|
|
Selling, general and administrative
|
6,415
|
|
|
3,201
|
|
|
17,142
|
|
|
7,350
|
|
Total
|
$
|
12,855
|
|
|
$
|
10,133
|
|
|
$
|
37,391
|
|
|
$
|
26,988
|
|
Intangible assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
July 1,
2016
|
|
October 2,
2015
|
Acquired technology
|
$
|
165,319
|
|
|
$
|
162,536
|
|
Customer relationships
|
206,142
|
|
|
144,070
|
|
In-process research and development
|
8,000
|
|
|
8,000
|
|
Trade name
|
3,400
|
|
|
3,400
|
|
Total
|
382,861
|
|
|
318,006
|
|
Less accumulated amortization
|
(112,005
|
)
|
|
(74,340
|
)
|
Intangible assets — net
|
$
|
270,856
|
|
|
$
|
243,666
|
|
A summary of the activity in intangible assets and goodwill follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Acquired
Technology
|
|
Customer
Relationships
|
|
In-Process Research and Development
|
|
Trade Name
|
|
Goodwill
|
Balance at October 2, 2015
|
$
|
411,352
|
|
|
$
|
162,536
|
|
|
$
|
144,070
|
|
|
$
|
8,000
|
|
|
$
|
3,400
|
|
|
$
|
93,346
|
|
Acquired
|
87,665
|
|
|
10,400
|
|
|
55,350
|
|
|
—
|
|
|
—
|
|
|
21,915
|
|
Currency translation adjustment
|
11,108
|
|
|
1,803
|
|
|
6,722
|
|
|
—
|
|
|
—
|
|
|
2,583
|
|
Other intangibles purchased
|
668
|
|
|
668
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Impairments of intangible assets
|
(10,088
|
)
|
|
(10,088
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Balance at July 1, 2016
|
$
|
500,705
|
|
|
$
|
165,319
|
|
|
$
|
206,142
|
|
|
$
|
8,000
|
|
|
$
|
3,400
|
|
|
$
|
117,844
|
|
As of
July 1, 2016
, our estimated amortization of our intangible assets in future fiscal years, subject to the completion of the purchase price allocation for the FiBest and Metelics acquisitions, was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 Remaining
|
2017
|
2018
|
2019
|
2020
|
Thereafter
|
Total
|
Amortization expense
|
$
|
12,802
|
|
51,341
|
|
48,420
|
|
41,786
|
|
33,716
|
|
71,391
|
|
$
|
259,456
|
|
Our trade name is an indefinite-lived intangible assets. During development, in-process research and development ("IPR&D") is not subject to amortization and is tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. The impairment test consists of a comparison of the fair value to its carrying amount. If the carrying value exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. Once an IPR&D project is complete, it becomes a definite long-lived intangible asset and is evaluated for impairment in accordance with our policy for long-lived assets.
Accumulated amortization for acquired technology and customer relationships was
$70.7 million
and
$41.4 million
, respectively, as of
July 1, 2016
, and
$45.6 million
and
$16.7 million
, respectively, as of
July 3, 2015
.
During the second quarter of fiscal year
2016
, we made a strategic decision to exit the product line and end programs associated with our GaN-on Silicon Carbide license and technology transfer to focus on development of our GaN-on-Silicon efforts. As a result of this strategic decision, we determined that the intangible assets and contractual commitments under the long term technology licensing and transfer agreement signed in July 2013, as well as certain dedicated fixed assets and inventory, would no longer have any future benefit. The associated charges incurred during the nine months ended July 1, 2016 were
$13.8 million
which included a write-off of
$10.1 million
of intangible assets,
$0.6 million
of fixed assets,
$1.0 million
of contractual commitments and
$2.0 million
of inventory.
10. STOCKHOLDERS' EQUITY
We have authorized
10 million
shares of
$0.001
par value preferred stock and
300 million
shares of
$0.001
par value common stock as of
July 1, 2016
and
October 2, 2015
. The outstanding shares of our common stock as of
July 1, 2016
and
October 2, 2015
, presented in the accompanying consolidated statements of stockholders’ equity exclude
5,000
and
11,000
unvested shares of restricted stock awards, respectively, issued as compensation to employees that remained subject to forfeiture.
Common Stock Warrants
—In March 2012, we issued warrants to purchase
1,281,358
shares of common stock for
$14.05
per share. The warrants expire
December 21, 2020
, or earlier as per the terms of the agreement, including immediately following consummation of a sale of all or substantially all assets or capital stock or other equity securities, including by merger, consolidation, recapitalization, or similar transactions. We do not currently have sufficient registered and available shares to immediately satisfy a request for registration, if such a request were made. As of
July 1, 2016
, no exercise of the warrants had occurred and no request had been made to register the warrants or any underlying securities for resale by the holders.
We are recording the estimated fair values of the warrants as a long-term liability in the accompanying consolidated financial statements with changes in the estimated fair value being recorded in the accompanying statements of operations. The following is a summary of the activity of the warrant liability (in thousands):
|
|
|
|
|
Balance at October 2, 2015
|
$
|
21,822
|
|
Change in estimated fair value
|
3,741
|
|
Balance at July 1, 2016
|
$
|
25,563
|
|
11. EARNINGS (LOSS) PER SHARE
The following table sets forth the computation for basic and diluted net loss per share of common stock (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
July 1, 2016
|
|
July 3, 2015
|
|
July 1, 2016
|
|
July 3, 2015
|
Numerator:
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
$
|
21,353
|
|
|
$
|
1,756
|
|
|
$
|
(7,462
|
)
|
|
$
|
(19,385
|
)
|
Income from discontinued operations
|
1,199
|
|
|
6,271
|
|
|
3,794
|
|
|
13,568
|
|
Net income (loss)
|
$
|
22,552
|
|
|
$
|
8,027
|
|
|
$
|
(3,668
|
)
|
|
$
|
(5,817
|
)
|
Warrant liability gain
|
(15,339
|
)
|
|
(546
|
)
|
|
—
|
|
|
—
|
|
Net income (loss) attributable to common stockholders
|
$
|
7,213
|
|
|
$
|
7,481
|
|
|
$
|
(3,668
|
)
|
|
$
|
(5,817
|
)
|
Denominator:
|
|
|
|
|
|
|
|
Weighted average common shares outstanding-basic
|
53,516
|
|
|
53,098
|
|
|
53,253
|
|
|
50,433
|
|
Dilutive effect of options and warrants
|
1,772
|
|
|
2,076
|
|
|
—
|
|
|
—
|
|
Weighted average common shares outstanding-diluted
|
55,288
|
|
|
55,174
|
|
|
53,253
|
|
|
50,433
|
|
Common stock (loss) earnings per share-basic:
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
0.40
|
|
|
$
|
0.03
|
|
|
$
|
(0.14
|
)
|
|
$
|
(0.38
|
)
|
Discontinued operations
|
0.02
|
|
|
0.12
|
|
|
0.07
|
|
|
0.27
|
|
Net common stock earnings (loss) per share-basic
|
$
|
0.42
|
|
|
$
|
0.15
|
|
|
$
|
(0.07
|
)
|
|
$
|
(0.12
|
)
|
Common stock (loss) earnings per share-diluted:
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
0.11
|
|
|
$
|
0.02
|
|
|
$
|
(0.14
|
)
|
|
$
|
(0.38
|
)
|
Discontinued operations
|
0.02
|
|
|
0.11
|
|
|
0.07
|
|
|
0.27
|
|
Net common stock earnings (loss) per share-diluted
|
$
|
0.13
|
|
|
$
|
0.14
|
|
|
$
|
(0.07
|
)
|
|
$
|
(0.12
|
)
|
The table above excludes the effects of
2,006
and
2,127
shares for the nine months ended
July 1, 2016
and
July 3, 2015
, respectively, of potential shares of common stock issuable upon exercise of stock options, restricted stock and stock units, and warrants as the inclusion would be antidilutive.
12. COMMITMENTS AND CONTINGENCIES
Litigation
—From time to time we may be subject to commercial disputes, employment issues, claims by other companies in the industry that we have infringed their intellectual property rights and other similar claims and litigations. Any such claims may lead to future litigation and material damages and defense costs. Other than as set forth below, we were not involved in any material pending legal proceedings during the quarter ended
July 1, 2016
.
GaN Lawsuit Against Infineon
.
On April 26, 2016, we and our wholly-owned subsidiary Nitronex, LLC brought suit against International Rectifier Corporation (“International Rectifier”), Infineon Technologies Americas Corporation, and Infineon Technologies AG (collectively, “Infineon”) in the Federal District Court for the Central District of California, seeking injunctive relief, monetary damages, and specific performance of certain contractual obligations. The suit arises out of agreements relating to GaN patents that were executed several years ago by Nitronex Corporation (acquired by MACOM in 2014) and International Rectifier (acquired by Infineon in 2015). We assert claims for breach of contract, breach of the covenant of good faith and fair dealing, declaratory judgment of contractual rights, and declaratory judgment of non-infringement of patents. Infineon moved to dismiss MACOM’s complaint on July 5, 2016 on various procedural grounds. On July 19, 2016, we filed a first amended complaint omitting International Rectifier as a defendant (since we had been advised that formal legal entity no longer exists), making other amendments intended to moot the grounds for Infineon’s motion to dismiss, and adding a further claim of breach of contract based on some of Infineon’s GaN-on-Si product activities. If successful, the relief sought in our first amended complaint would, among other remedies, require Infineon to assign back to us certain GaN-related Nitronex patents that were previously assigned to International Rectifier and enjoin Infineon from proceeding with its marketing and sales of certain types of GaN-on-Si products.
13. RESTRUCTURINGS
We have periodically implemented restructuring actions in connection with broader plans to reduce staffing, reduce our internal manufacturing footprint and, generally, reduce operating costs. The restructuring expenses are primarily comprised of direct and incremental costs related to headcount reductions including severance and outplacement fees for the terminated employees, as well as facility close costs.
The following is a summary of the costs incurred and remaining balances included in accrued expenses for the
nine months ended
July 1, 2016
(in thousands):
|
|
|
|
|
Balance as of October 2, 2015
|
$
|
943
|
|
Current period adjustments
|
2,100
|
|
Payments
|
(1,158
|
)
|
Balance as of July 1, 2016
|
$
|
1,885
|
|
The restructuring expenses recorded to date are expected to be paid through the remainder of fiscal year
2016
. Our restructuring charges incurred to date are primarily employee related with non-employee related charges determined to be immaterial. We expect to incur additional restructuring costs in the range of approximately
$3.0 million
to
$5.0 million
during the remainder of calendar year 2016 as we complete restructuring actions primarily associated with the Metelics Acquisition.
14. SHARE-BASED COMPENSATION
Stock Plans
As of
July 1, 2016
, we had
7.9 million
shares available for future issuance under our 2012 Omnibus Incentive Plan (as Amended and Restated) (the "2012 Plan"). Under the 2012 Plan, we have the ability to issue incentive stock options, non-statutory stock options, performance-based non-statutory stock options, stock appreciation rights, restricted stock (RSAs), restricted stock units ("RSUs"), performance-based stock units, performance shares, and other equity-based awards to employees, directors and outside consultants. Options granted to date primarily vest over a
four
-year period with
25%
vesting at the end of one year and the remaining vesting monthly thereafter, and generally have a term of up to
10 years
. Certain of the share-based awards granted and outstanding as of
July 1, 2016
are subject to accelerated vesting upon a changes in control. The financial impact of any modifications to share-based awards during the periods presented was not material. As of
July 1, 2016
, total unrecognized compensation cost related to the employee stock purchase plan was not material.
Share-Based Compensation
The following table shows a summary of share-based compensation expense included in the Condensed Consolidated Statement of Operations for the three and
nine
months ended
July 1, 2016
and
July 3, 2015
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
July 1,
2016
|
|
July 3,
2015
|
|
July 1,
2016
|
|
July 3,
2015
|
Cost of revenue
|
$
|
652
|
|
|
$
|
477
|
|
|
$
|
1,602
|
|
|
$
|
1,372
|
|
Research and development
|
1,903
|
|
|
1,272
|
|
|
5,411
|
|
|
3,399
|
|
Selling, general and administrative
|
3,626
|
|
|
2,904
|
|
|
12,394
|
|
|
9,010
|
|
Total stock-based compensation expense
|
$
|
6,181
|
|
|
$
|
4,653
|
|
|
$
|
19,407
|
|
|
$
|
13,781
|
|
As of
July 1, 2016
, the total unrecognized compensation costs related to outstanding stock options and RSUs expected to vest was
$50.6 million
, which we expect to recognize over a weighted-average period of
2.7
years.
Stock Options
We had
1.1 million
stock options outstanding as of
July 1, 2016
, with a weighted-average exercise price per share of
$22.94
and weighted-average remaining contractual term of
6.0 years
. The aggregate intrinsic value of the stock options outstanding as of
July 1, 2016
was
$10.7 million
which represents our closing stock price value on the last trading day of the period in excess of the weighted-average exercise price multiplied by the number of options outstanding.
During the
three months ended
July 1, 2016
, we granted
5,000
performance options which will vest subject to certain revenue and gross margin targets being achieved. These performance stock options were valued at
$10.54
per share at the date of grant using the Black-Scholes option pricing model. Also, during the
nine months ended
July 1, 2016
, we granted
300,000
performance-based non-qualified stock options with a grant date fair value of
$3.5 million
that are subject to vesting only upon the market price of the Company’s underlying public stock closing above a certain price target within
seven years
of the date of grant. These performance options with market conditions are valued using a Monte Carlo simulation model. Compensation cost is recognized regardless of the number of awards that are earned based on the market condition. Compensation cost is recognized on a straight-line basis over the estimated service period of approximately
three years
. In the event that the Company’s common stock achieves the target price of
$64.22
per share based on a 30 day trailing average prior to the end of the estimated service period, any remaining unamortized compensation cost will be recognized.
The total intrinsic value of options at the time of exercise was
$0.4 million
and
$3.0 million
for the
three and nine months ended
July 1, 2016
and was
$2.6 million
and
$3.6 million
for the
three and nine months ended
July 3, 2015
.
Restricted Stock, Restricted Stock Units and Performance-Based Restricted Stock Units
A summary of restricted stock, restricted stock unit and performance-based restricted stock unit activity for the
nine
months ended
July 1, 2016
, is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted-
Average
Grate Date Fair Value
|
|
Aggregate
Intrinsic
Value
|
Balance at October 2, 2015
|
1,692
|
|
|
$
|
25.30
|
|
|
$
|
48,375
|
|
Granted
|
766
|
|
|
$
|
39.98
|
|
|
|
Vested and released
|
(748
|
)
|
|
$
|
23.90
|
|
|
|
Forfeited, canceled or expired
|
(49
|
)
|
|
$
|
30.04
|
|
|
|
Balance at July 1, 2016
|
1,661
|
|
|
$
|
32.56
|
|
|
$
|
53,800
|
|
Restricted stock, restricted stock units and performance-based restricted stock units that vested during the
nine months ended
July 1, 2016
and
July 3, 2015
had fair value of
$26.4 million
and
$21.4 million
as of the vesting date, respectively.
15. INCOME TAXES
We are subject to income tax in the United States as well as other tax jurisdictions in which we conduct business. Earnings from non-U.S. activities are subject to local country income tax and may also be subject to current U.S. income tax. For interim periods, we record a tax provision or benefit based upon the estimated effective tax rate expected for the full fiscal year, adjusted for material discrete taxation matters arising during the interim periods.
The difference between the U.S. federal statutory income tax rate of
35%
and our effective income tax rates for the three and nine months ended
July 1, 2016
and
July 3, 2015
, was primarily impacted in all periods by changes in fair values of the common stock warrant liability which is neither deductible nor taxable for tax purposes, income taxed in foreign jurisdictions at generally lower tax rates, non-deductible compensation, research and development tax credits and non-deductible merger expenses, offset by U.S. state income taxes.
The balance of the unrecognized tax benefit as of
July 1, 2016
and
October 2, 2015
did not change and remained at
$1.7 million
. The unrecognized tax benefits primarily relate to positions taken by us in our 2014 US tax filings. The entire balance of unrecognized tax benefits, if recognized, will reduce income tax expense. It is our policy to recognize any interest and penalties accrued related to unrecognized tax benefits in income tax expense. During the quarter ending
July 1, 2016
, we did not make any payment of interest and penalties.
As disclosed in
Note 2 - Acquisitions
, our purchase accounting for the FiBest Acquisition, including income taxes, is preliminary and subject to revision upon obtaining and analyzing additional information. Related to the FiBest Acquisition, we recorded, on a preliminary basis, an aggregate net deferred income tax liability acquired in the FiBest Acquisition which is estimated to be
$11.8 million
which includes the net deferred income tax asset of
$2.5 million
relating to net operating loss ("NOL") carryforwards and a net deferred income tax liability of
$14.3 million
related to the difference between the book and tax basis of the intangible and other assets acquired. Related to the Metelics Acquisition we do not anticipate the recording of any deferred taxes due to a Section 338(h) (10) election which will permit us to have tax basis equal to the purchase price.
16. RELATED PARTY TRANSACTIONS
GaAs Labs, LLC ("GaAs Labs"), a former stockholder and an affiliate of directors John and Susan Ocampo, continues to engage us to provide administrative and business development services to GaAs Labs on a time and materials basis. There are no minimum service requirements or payment obligations and the agreement may be terminated by either party with
30 days
notice.
In the
nine months ended
July 1, 2016
, we recorded charges to GaAs Labs of less than
$0.1
million for services provided pursuant to this agreement and have recorded these amounts as other income in the accompanying condensed consolidated statements of operations. All amounts were recorded in the first quarter of fiscal year 2016. In the
nine
months ended
July 1, 2016
and
July 3, 2015
we recorded revenue of
$0.1
million and
$0.2 million
, respectively, associated with product sales to a public company with a common director.
17. SUPPLEMENTAL CASH FLOW INFORMATION
As of
July 1, 2016
and
July 3, 2015
, we had
$0.9 million
and
$0.8 million
in unpaid amounts related to purchases of property and equipment and intangibles included in accounts payable and accrued liabilities during each period, respectively. These amounts have been excluded from the payments for purchases of property and equipment in the accompanying condensed consolidated statements of cash flows until paid.
The following is supplemental cash flow information regarding non-cash investing and financing activities (in thousands):
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
July 1,
2016
|
|
July 3,
2015
|
Cash paid for interest
|
$
|
12,285
|
|
|
$
|
11,521
|
|
Cash paid for income taxes
|
$
|
1,080
|
|
|
$
|
890
|
|
18. GEOGRAPHIC AND SIGNIFICANT CUSTOMER INFORMATION
We have
one
reportable operating segment that designs, develops, manufactures and markets semiconductors and modules. The determination of the number of reportable operating segments is based on the chief operating decision maker’s use of financial information for the purposes of assessing performance and making operating decisions. In evaluating financial performance and making operating decisions, the chief operating decision maker primarily uses consolidated revenue, gross profit and operating income (loss).
Information about our operations in different geographic regions, based upon customer locations, is presented below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
Revenue by Geographic Region
|
July 1,
2016
|
|
July 3,
2015
|
|
July 1,
2016
|
|
July 3,
2015
|
United States
|
$
|
39,763
|
|
|
$
|
34,067
|
|
|
$
|
110,747
|
|
|
$
|
116,252
|
|
Asia Pacific (1)
|
91,820
|
|
|
64,700
|
|
|
251,281
|
|
|
164,652
|
|
Other Countries (2)
|
10,705
|
|
|
10,291
|
|
|
29,613
|
|
|
27,141
|
|
Total
|
$
|
142,288
|
|
|
$
|
109,058
|
|
|
$
|
391,641
|
|
|
$
|
308,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
Long-Lived Assets by Geographic Region
|
|
July 1,
2016
|
|
October 2,
2015
|
United States
|
|
$
|
84,129
|
|
|
$
|
72,617
|
|
Asia Pacific (1)
|
|
13,452
|
|
|
8,740
|
|
Other Countries (2)
|
|
2,871
|
|
|
2,402
|
|
Total
|
|
$
|
100,452
|
|
|
$
|
83,759
|
|
|
|
(1)
|
Asia Pacific represents China, Taiwan, Hong Kong, Japan, Singapore, India, Thailand, Korea, Australia, Malaysia and the Philippines.
|
|
|
(2)
|
No international country or region represented greater than 10% of the total net long-lived assets or revenue as of the dates presented, other than the Asia-Pacific region as presented above.
|
The following is a summary of customer concentrations as a percentage of revenue and accounts receivable as of and for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
Revenue
|
July 1,
2016
|
|
July 3,
2015
|
|
July 1,
2016
|
|
July 3,
2015
|
Customer A
|
16
|
%
|
|
8
|
%
|
|
16%
|
|
6%
|
Customer B
|
12
|
%
|
|
12
|
%
|
|
12%
|
|
13%
|
Customer C
|
9
|
%
|
|
14
|
%
|
|
11%
|
|
18%
|
|
|
|
|
|
|
|
|
Accounts Receivable
|
|
July 1,
2016
|
|
October 2,
2015
|
Customer A
|
|
13
|
%
|
|
14
|
%
|
Customer B
|
|
15
|
%
|
|
10
|
%
|
Customer C
|
|
14
|
%
|
|
22
|
%
|
No other customer represented more than
10%
of revenue or accounts receivable in the periods presented in the accompanying consolidated financial statements. For the three and
nine
months ended
July 1, 2016
and
July 3, 2015
, our top
ten
customers represented
63%
and
63%
and
56%
and
57%
of total revenue, respectively.