NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
MACOM Technology Solutions Holdings, Inc. (the Company) was incorporated in Delaware on March 25, 2009. We are a leading provider of high-performance analog semiconductor solutions that enable the next-generation internet applications, the cloud connected apps economy and the modern, networked battlefield across the radio frequency (RF), microwave, millimeterwave and photonic spectrum. We design and manufacture differentiated, high-value products for customers who demand high performance, quality and reliability.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation, Basis of Presentation and Reclassification
—We have
one
reportable segment, semiconductors and modules. The accompanying consolidated financial statements include our accounts and the accounts of our majority-owned subsidiaries. Certain prior period financial statement amounts, including debt issuance costs, have been adjusted to conform to currently reported presentations. All intercompany balances and transactions have been eliminated in consolidation.
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
included
52
weeks and fiscal year
2014
included
53
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 from these estimates and assumptions.
Discontinued Operations—
In the fourth quarter of fiscal year 2015, we divested our Automotive business. In the second quarter of fiscal year 2014, we sold assets of the non-core wireless business of Mindspeed. The operating results of these businesses are reflected in discontinued operations.
Foreign Currency Translation and Remeasurement
—Our consolidated financial statements are presented in U.S. dollars. While the majority of our foreign operations use the U.S. dollar as the functional currency, the financial statements of our foreign operations for which the functional currency is not the U.S. dollar are translated into U.S. dollars at the exchange rates in effect at the balance sheet dates (for assets and liabilities) and at average exchange rates (for revenue and expenses). The unrealized translation gains and losses on the net investment in these foreign operations are accumulated as a component of other comprehensive income (loss).
The financial statements of our foreign operations where the functional currency is the U.S. dollar, but where the underlying transactions are transacted in a different currency, are remeasured at the exchange rate in effect at the balance sheet date with respect to monetary assets and liabilities. Nonmonetary assets and liabilities, such as inventories and property and equipment and related statements of operations accounts, such as cost of revenue and depreciation, are remeasured at historical exchange rates. Revenue and expenses, other than cost of revenue, amortization and depreciation, are translated at the average exchange rate for the period in which the transaction occurred. The net gains and losses on foreign currency remeasurement are reflected in selling, general and administrative expense in the accompanying consolidated statements of operations. Net foreign exchange transaction gains and losses for all periods presented were immaterial.
Cash and Cash Equivalents
—Cash equivalents are primarily composed of short-term, highly-liquid instruments with an original maturity of three months or less and consists primarily of money market funds and commercial paper.
Investments
—We classify our investments as available-for-sale. Our investments classified as available-for-sale are recorded at fair value based upon third party pricing at period end. Unrealized gains and losses that are deemed temporary in nature are recorded in accumulated other comprehensive income and loss as a separate component of stockholders’ equity.
A decline in the fair value of any security below cost that is deemed other than temporary results in a charge to earnings and the corresponding establishment of a new cost basis for the security. Premiums and discounts are amortized (accreted) over the life of the related security as an adjustment to its yield. Dividend and interest income are recognized when earned. Realized gains and losses are included in earnings and are derived using the specific identification method for determining the cost of investments sold.
Inventories
—Inventories are stated at the lower of cost or market. We use a combination of standard cost and moving weighted-average cost methodologies to determine the cost basis for our inventories, approximating a first-in, first-out basis. The standard cost of finished goods and work-in-process inventory is composed of material, labor and manufacturing overhead, which approximates actual cost. In addition to stating inventory at the lower of cost or market, we also evaluate inventory each reporting period for excess quantities and obsolescence, establishing reserves when necessary based upon historical experience, assessment of economic conditions and expected demand. Once recorded, these reserves are considered permanent adjustments to the carrying value of inventory.
Property and Equipment
—Property and equipment are stated at cost, less accumulated depreciation and amortization. Expenditures for maintenance and repairs are charged to expense as incurred, whereas major improvements that significantly extend the useful life of the assets are capitalized as additions to property and equipment.
Property and equipment are depreciated or amortized using the straight-line method over the following estimated useful lives:
|
|
|
Asset Classification
|
Estimated Useful Life In Years
|
Buildings and improvements
|
40
|
Machinery and equipment
|
2 – 7
|
Computer equipment and software
|
2 – 5
|
Furniture and fixtures
|
7 – 10
|
Leasehold improvements
|
Shorter of useful life or term of lease
|
Goodwill and Indefinite-lived Intangible Assets
—We have goodwill and certain intangible assets with indefinite-lives which are not subject to amortization; these are reviewed for impairment annually as of August 31st and more frequently if events or changes in circumstances indicate that the assets may be impaired. For our assessment of goodwill impairment we compare the carrying value of the reporting unit to the fair value of the Company. For our assessment of in-service indefinite-lived assets we compare the carrying value of the asset to the estimated fair value of the asset. For indefinite-lived assets not in service, such as in-process research and development, we performed a qualitative assessment using an assumption of ‘more likely than not’ to determine if there were any impairment indicators. If impairment exists, a loss would be recorded to write down the value of the assets to their implied fair values. There have been no impairments of goodwill or indefinite-lived intangible assets in any period presented through
September 30, 2016
.
Other Intangible Assets
—Our other intangible assets, including acquired technology and customer relationships, are definite-lived assets and are subject to amortization. We amortize definite-lived assets over their estimated useful lives, which range from
five
to
ten
years, generally based on the pattern over which we expect to receive the economic benefit from these assets.
Impairment of Long-Lived Assets
—Long-lived assets include property and equipment and definite-lived intangible assets subject to amortization. We evaluate long-lived assets for recoverability when events or changes in circumstances indicate that their carrying amounts may not be recoverable. Circumstances which could trigger a review include, but are not limited to, significant decreases in the market price of the asset or asset group, significant adverse changes in the business climate or legal factors, the accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset, current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset and a current expectation that the asset will more likely than not, be sold or disposed of significantly before the end of its previously estimated useful life.
In evaluating a long-lived asset for recoverability, we estimate the undiscounted cash flows expected to result from our use and eventual disposition of the asset. If the sum of the expected undiscounted cash flows is less than the carrying amount of the asset, an impairment loss, equal to the excess of the carrying amount over the fair value of the asset, is recognized. In fiscal year 2016 we recorded impairment charges related to our strategic decision to exit a product line and end programs associated with our GaN-on Silicon Carbide license and technology transfer. There were no impairments of long-lived assets in any prior periods presented. Intangible assets related to in-process research and development acquired are not amortized until the underlying asset begins revenue generating activity, at which time it is amortized over its estimated useful life. Intangibles related to abandoned in-process research and development projects are expensed in the period the project is abandoned. There were no significant expenses related to abandoned in-process research and development projects in any prior period presented.
Revenue Recognition
—We recognize revenue when: (i) persuasive evidence of an arrangement exists; (ii) delivery or services have been rendered; (iii) the price is fixed or determinable; and (iv) collectability is reasonably assured. We recognize revenue with the transfer of title and risk of loss and provide for reserves for returns and other allowances.
We generally do not provide customers other than distributors the right to return product, with the exception of warranty related matters. Shipping and handling fees billed to customers are recorded as revenue while the related costs are classified as a component cost of revenue. We provide warranties for certain products and accrue the costs of warranty claims in the period the related revenue is recorded.
Prior to fiscal year 2015, we had concluded that we had insufficient information as well as limited experience in estimating the effect of the right of distributors to return product and price protection and, accordingly, used the sell through approach of revenue recognition. Under this approach, we would recognize revenue from sales after the distributor resold the product to its end customer (the sell through basis). After concluding an extensive three year study of distributor related transactions, we completed an evaluation of our
revenue recognition policy and concluded that it was appropriate to recognize revenue to distributors at the time of shipment to the distributor (sell-in basis).
During fiscal year 2015, we concluded that we had sufficient data to predict future price adjustments from distributors and had a basis of being able to reasonably estimate these future price adjustments. Accordingly, on a consolidated basis, revenue from distribution customers was impacted by a change in estimate. Revenues from distributors accounted for approximately
10-15%
of total consolidated revenue at that time. The terms of certain agreements with distribution customers provide for rights of return and compensation credits until such time as our products are sold by the distributors to their end customers. We have agreements with some distribution customers for various programs, including compensation, volume-based pricing, obsolete inventory, new products and stock rotation. Sales to these distribution customers, as well as the existence of compensation programs, are in accordance with terms set forth in written agreements with these distribution customers. In general, credits allowed under these programs are capped based upon individual distributor agreements. We record charges associated with these programs as a reduction of revenue at the time of sale with a corresponding adjustment to accounts receivable based upon historical activity. Our policy is to use a
12 month
rolling historical experience rate and an estimated general reserve percentage in order to estimate the necessary allowance to be recorded.
During fiscal year ended October 2, 2015, we recorded corresponding adjustments related to this change in estimate to recognize previously deferred revenues. The full year impact of this change in estimate resulted in additional revenue of
$17.4 million
and a net income of
$7.7 million
, or
$0.15
earnings per share during fiscal year 2015. We also established a new reserve of
$6.0 million
for the fiscal year ended October 2, 2015 related to future rebates and returns under various programs associated with our distributor agreements.
Research and Development Costs
—Costs incurred in the research and development of products are expensed as incurred.
Income Taxes
—Deferred tax assets and liabilities are recognized based on temporary differences between the financial reporting and income tax bases of assets and liabilities, using rates anticipated to be in effect when such temporary differences reverse. A valuation allowance against net deferred tax assets is required if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
We provide reserves for potential payments of tax to various tax authorities related to uncertain tax positions and other issues. Reserves are based on a determination of whether and how much of a tax benefit is taken by us in our tax filings or positions and that are more likely than not to be realized following an examination by taxing authorities. We recognize the financial statement benefit of an uncertain tax position only after considering the probability that a tax authority would sustain the position in an examination. For tax positions meeting a “more-likely-than-not” threshold, the amount recognized in the financial statements is the benefit expected to be realized upon settlement with the tax authority. For tax positions not meeting the threshold, no financial statement benefit is recognized. Potential interest and penalties associated with such uncertain tax positions are recorded as a component of income tax expense.
Earnings Per Share
—Basic net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the period, excluding the dilutive effect of common stock equivalents. Diluted net income (loss) per share reflects the dilutive effect of common stock equivalents, such as stock options, warrants and restricted stock units, using the treasury stock method.
Fair Value Measurements
—Financial assets and liabilities are measured at fair value. Fair value is an exit price, representing the amount that would be received from the sale of an asset or paid to transfer a liability at the measurement date under current market conditions in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, we group financial assets and liabilities in a three-tier fair value hierarchy, according to the inputs used in measuring fair value as follows: Level 1—observable inputs such as quoted prices in active markets for identical assets and liabilities; Level 2—inputs other than quoted prices in active markets that are observable either directly or indirectly, such as quoted prices in active markets for similar assets and liabilities, quoted prices for identical assets and liabilities in markets that are not active and model-based valuation techniques for which significant assumptions are observable in active markets; and, Level 3—unobservable inputs for which there is little or no market data, requiring us to develop our own assumptions for model-based valuation techniques. This hierarchy requires us to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair value due to the short-term nature of these assets and liabilities.
Contingent Consideration
—We estimate and record at the acquisition date, the fair value of contingent consideration making up part of the purchase price consideration for acquisitions. Additionally, at each reporting period, we estimate the change in the fair value of contingent consideration and any change in fair value is recognized in the consolidated statements of operations. We estimate the fair value of contingent consideration by discounting the associated expected cash flows, using a probability-weighted, discounted cash flow model. The estimate of the fair value of contingent consideration requires subjective assumptions to be made regarding future operating results, discount rates and probabilities assigned to various potential operating result scenarios.
Share-Based Compensation
—We account for all share-based compensation arrangements using the fair value method. We recognize compensation expense over the requisite service period of the award, which is generally the vesting period, using the straight-line method and providing that the minimum amount of compensation recorded is equal to the vested portion of the award. We record
the expense in the consolidated statements of operations in the same manner in which the award recipients’ salary costs are classified. We use the Black-Scholes option-pricing model to estimate the fair value of stock options with service and performance conditions, inclusive of assumptions for risk-free interest rates, dividends, expected terms and estimated volatility. We derive the risk-free interest rate assumption from the U.S. Treasury’s rates for U.S. Treasury zero-coupon bonds with maturities similar to the expected term of the award being valued. We base the assumed dividend yield on its expectation of not paying dividends in the foreseeable future. We calculate the weighted-average expected term of the options using the simplified method, which is a method of applying a formula that uses the vesting term and the contractual term to compute the expected term of a stock option. The decision to use the simplified method is based on a lack of relevant historical data, due to our limited operating experience. In addition, due to our limited historical data, we incorporate the historical volatility of comparable companies with publicly available share prices to determine estimated volatility. The accounting for stock options requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
Guarantees and Indemnification Obligations
—We enter into agreements in the ordinary course of business with, among others, customers, distributors and original equipment manufacturers (OEM). Most of these agreements require us to indemnify the other party against third-party claims alleging that a Company product infringes a patent and/or copyright. Certain agreements in which we grant limited licenses to specific Company trademarks require us to indemnify the other party against third-party claims alleging that the use of the licensed trademark infringes a third-party trademark. Certain of these agreements require us to indemnify the other party against certain claims relating to property damage, personal injury or the acts or omissions, its employees, agents or representatives. In addition, from time to time, we have made certain guarantees in the form of warranties regarding the performance of Company products to customers.
We have agreements with certain vendors, creditors, lessors and service providers pursuant to which we have agreed to indemnify the other party for specified matters, such as acts and omissions, its employees, agents or representatives.
We have procurement or license agreements with respect to technology that are used in our products and agreements in which we obtain rights to a product from an OEM. Under some of these agreements, we have agreed to indemnify the supplier for certain claims that may be brought against such party with respect to our acts or omissions relating to the supplied products or technologies.
Our certificate of incorporation and agreements with certain of our directors and officers and certain of our subsidiaries’ directors and officers provide them indemnification rights, to the extent legally permissible, against liabilities incurred by them in connection with legal actions in which they may become involved by reason of their service as a director or officer. As a matter of practice, we have maintained director and officer liability insurance coverage, including coverage for directors and officers of acquired companies.
We have not experienced any losses related to these indemnification obligations in any period presented and no claims with respect thereto were outstanding as of
September 30, 2016
and
October 2, 2015
. We do not expect significant claims related to these indemnification obligations and, consequently, have concluded that the fair value of these obligations is negligible. No liabilities related to indemnification liabilities have been established.
Recent Accounting Pronouncements
—In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09,
Revenue from Contracts with Customers
. ASU 2014-09 requires revenue recognition to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 sets forth a new revenue recognition model that requires identifying the contract, identifying the performance obligations, determining the transaction price, allocating the transaction price to performance obligations and recognizing the revenue upon satisfaction of performance obligations. The amendments in ASU 2014-09 can be applied either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the update recognized at the date of the initial application along with additional disclosures. On July 9, 2015, the FASB voted to defer the effective date by one year to interim and annual reporting periods beginning after December 15, 2017, and permitted early adoption of the standard, but not for periods beginning on or before the original effective date of December 15, 2016. We have not yet selected a transition method and are currently evaluating the impact of ASU 2014-09.
In April 2015, the FASB issued ASU 2015-03,
Simplifying the Presentation of Debt Issuance Costs
. To simplify presentation of debt issuance costs, ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015-03 is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2015, and early adoption is permitted. We have retroactively adopted this guidance for our fiscal year ended October 2, 2015, and as a result we reclassified the debt issuance costs associated with our Term Loans as a direct reduction of the recognized debt liabilities in our accompanying consolidated balance sheet.
In September 2015, the FASB issued ASU 2015-16,
Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments,
which eliminates the requirement for an acquirer in a business combination to account for measurement-period adjustments retrospectively. Acquirers would now recognize measurement-period adjustments during the period in which they determine the amount of the adjustment. This ASU is effective for annual and interim reporting periods beginning after December 15, 2015, including interim periods within those fiscal years, and should be applied prospectively to adjustments for provisional amounts that occur after the effective date with early adoption permitted for financial statements that have not been issued. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.
In November 2015, the FASB issued 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 our current deferred income tax assets with our noncurrent deferred income tax assets; no adjustments were made to deferred tax liabilities. Refer to Note 16 to the Consolidated Financial Statements for additional information.
In January 2016, the FASB issued ASU 2016-01,
Recognition and Measurement of Financial Liabilities
. This update makes amendments to the guidance in U.S. GAAP on the classification and measurement of financial instruments. The new standard significantly revises an entity's accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. It also amends certain disclosure requirements associated with the fair value of financial instruments. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We are evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures.
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.
In June 2016, the FASB issued ASU 2016-13,
Measurement of Credit Losses on Financial Instruments
. This update amends the guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For available for sale debt securities, credit losses should be measured in a manner similar to current GAAP; however, this update will require that credit losses be presented as an allowance rather than as a write-down. ASU 2016-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. We are evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures.
In August 2016, the FASB issued ASU 2016-15,
Classification of Certain Cash Receipts and Cash Payments
. This Update addresses debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions and separately identifiable cash flows and application of the predominance principle. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. We are evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures.
In October 2016, the FASB issued ASU 2016-16,
Intra-Entity Transfers of Assets Other Than Inventory
. This update amends the guidance on recognizing the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. Consequently, the amendment eliminates the exception for an intra entity transfer of an asset other than inventory. ASU 2016-16 is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. We are evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures.
3. 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 fiscal year ended
September 30, 2016
, we recorded transaction costs of
$2.7 million
as selling, general and administrative expense related to this acquisition. 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 fiscal year ended
September 30, 2016
, we recorded adjustments to our preliminary allocation of
$0.9 million
primarily related to a deferred tax liability and inventory valuation associated with the acquisition of FiBest. The purchase accounting is preliminary and subject to completion of certain areas and therefore the purchase price allocation remains preliminary as of
September 30, 2016
. The adjustments arising from the completion of the outstanding matters could materially affect the preliminary purchase accounting. We expect to finalize our allocation of purchase price when our review has been completed during calendar year 2016. The adjusted preliminary allocation of purchase price as of
September 30, 2016
, is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preliminary Allocation
|
|
|
Allocation Adjustments
|
|
|
Adjusted Allocation
|
|
|
|
|
|
|
|
|
Current assets
|
$
|
10,850
|
|
|
$
|
(405
|
)
|
|
$
|
10,445
|
|
Intangible assets
|
45,650
|
|
|
|
—
|
|
|
|
45,650
|
|
Other assets
|
3,334
|
|
|
|
(17
|
)
|
|
|
3,317
|
|
Total assets acquired
|
59,834
|
|
|
|
(422
|
)
|
|
|
59,412
|
|
Liabilities assumed:
|
|
|
|
|
|
|
|
Debt
|
11,627
|
|
|
|
—
|
|
|
|
11,627
|
|
Deferred income taxes
|
12,932
|
|
|
|
(1,274
|
)
|
|
|
11,658
|
|
Other liabilities
|
3,968
|
|
|
|
—
|
|
|
|
3,968
|
|
Total liabilities assumed
|
28,527
|
|
|
|
(1,274
|
)
|
|
|
27,253
|
|
Net assets acquired
|
31,307
|
|
|
|
852
|
|
|
|
32,159
|
|
Consideration:
|
|
|
|
|
|
|
|
Cash paid upon closing, net of cash acquired
|
47,517
|
|
|
|
—
|
|
|
|
47,517
|
|
Goodwill
|
$
|
16,210
|
|
|
$
|
(852
|
)
|
|
$
|
15,358
|
|
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 our accompanying consolidated statements of operations for the fiscal year ended
September 30, 2016
(in thousands):
|
|
|
|
|
|
|
Amount
|
Revenue
|
$
|
30,540
|
|
Loss before income taxes
|
|
(4,616
|
)
|
Unaudited Supplemental Pro Forma Data—
The pro forma statements of operations data for the fiscal year ended
September 30, 2016
and
October 2, 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.
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
September 30, 2016
|
|
|
October 2, 2015
|
Revenue
|
$
|
551,964
|
|
$
|
444,991
|
|
Net income (loss)
|
|
(3,324
|
)
|
|
|
36,715
|
|
Acquisition of Aeroflex/Metelics Inc.
—
On December 14, 2015, we acquired Aeroflex/Metelics, Inc. (Metelics), a diode supplier for aggregate cash consideration of
$37.1 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 fiscal year ended
September 30, 2016
, we recorded transaction costs of
$0.5 million
as selling, general and administrative expenses related to this acquisition.
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 fourth quarter ended
September 30, 2016
, we recorded an adjustment to our preliminary allocation of
$3.5 million
primarily associated with the physical inventory and fixed assets review which reduced current and other assets acquired and increases to intangible assets. During fiscal year 2016, we finalized the working capital adjustment resulting in a reduction of the cash consideration paid of
$0.9 million
. The purchase accounting is preliminary and subject to completion including certain fair value measurements. The adjustments arising from the completion of the outstanding matters may materially affect the preliminary purchase accounting. We will finalize our allocation of purchase price during calendar year 2016. The adjusted preliminary allocation of purchase price as of
September 30, 2016
, is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preliminary Allocation
|
|
Allocation Adjustments
|
|
Adjusted Allocation
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
15,250
|
|
|
$
|
(2,636
|
)
|
|
$
|
12,614
|
|
Intangible assets
|
|
19,700
|
|
|
1,200
|
|
|
20,900
|
|
Other assets
|
|
6,249
|
|
|
(3,160
|
)
|
|
3,089
|
|
Total assets acquired
|
|
41,199
|
|
|
(4,596
|
)
|
|
36,603
|
|
Liabilities assumed:
|
|
|
|
|
|
|
Other liabilities
|
|
7,401
|
|
|
(200
|
)
|
|
7,201
|
|
Total liabilities assumed
|
|
7,401
|
|
|
(200
|
)
|
|
7,201
|
|
Net assets acquired
|
|
33,798
|
|
|
(4,396
|
)
|
|
29,402
|
|
Consideration:
|
|
|
|
|
|
|
Cash paid upon closing, net of cash acquired
|
|
38,000
|
|
|
(875
|
)
|
|
37,125
|
|
Goodwill
|
|
$
|
4,202
|
|
|
$
|
3,521
|
|
|
$
|
7,723
|
|
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
|
19,900
|
|
|
10
|
|
$
|
20,900
|
|
|
|
The overall weighted-average life of the identified intangible assets acquired in the Metelics Acquisition is estimated to be
9.9
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 consolidated statements of operations for the fiscal year ended
September 30, 2016
(in thousands):
|
|
|
|
|
|
|
|
Amount
|
Revenue
|
|
$
|
33,552
|
|
Income before income taxes
|
|
3,372
|
|
Unaudited Supplemental Pro Forma Data—
The pro forma statements of operations data for the fiscal year ended
September 30, 2016
and
October 2, 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.
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
September 30, 2016
|
|
October 2, 2015
|
Revenue
|
|
$
|
553,174
|
|
|
$
|
459,048
|
|
Net income (loss)
|
|
1,183
|
|
|
45,107
|
|
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 fiscal year ended October 2, 2015, we recorded transaction costs of approximately
$4.2 million
related to the BinOptics Acquisition in selling, general and administrative expense in the accompanying consolidated statements of operations.
The BinOptics Acquisition was accounted for as a 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, was 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.
The following is a summary of BinOptics revenue and earnings included in our consolidated statements of operations for the fiscal year ended October 2, 2015 (in thousands):
|
|
|
|
|
|
Fiscal Year Ended
|
|
October 2, 2015
|
Revenue
|
$
|
61,549
|
|
Income before income taxes
|
354
|
|
Unaudited Supplemental Pro Forma Data—
The pro forma statements of operations data for the fiscal year ended October 2, 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 additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant and equipment and intangible assets and additional interest expense on acquisition-related borrowings had been applied and incurred since September 28, 2013. This pro forma data is presented for informational purposes only and does not purport to be indicative of our future results of operations.
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
October 2, 2015
|
October 3, 2014
|
Revenue
|
$
|
428,440
|
|
$
|
384,452
|
|
Net income (loss) from continuing operations
|
(3,489
|
)
|
(98,119
|
)
|
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 as of
September 30, 2016
and
October 2, 2015
are summarized in the tables below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
Amortized Cost
|
Gross Unrealized Holding Gains
|
Gross Unrealized Holding Losses
|
Aggregate Fair Value
|
Corporate bonds
|
|
$
|
14,894
|
|
|
$
|
9
|
|
|
$
|
(103
|
)
|
|
$
|
14,800
|
|
Commercial paper
|
|
2,978
|
|
|
—
|
|
|
(4
|
)
|
|
2,974
|
|
US treasuries and agency bonds
|
|
6,004
|
|
|
1
|
|
|
(3
|
)
|
|
6,002
|
|
Total investments
|
|
$
|
23,876
|
|
|
$
|
10
|
|
|
$
|
(110
|
)
|
|
$
|
23,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 2, 2015
|
|
Amortized Cost
|
Gross Unrealized Holding Gains
|
Gross Unrealized Holding Losses
|
Aggregate Fair Value
|
Corporate bonds
|
|
$
|
24,546
|
|
|
$
|
5
|
|
|
$
|
(89
|
)
|
|
$
|
24,462
|
|
US treasuries and agency bonds
|
|
15,108
|
|
|
3
|
|
|
(16
|
)
|
|
15,095
|
|
Total investments
|
|
$
|
39,654
|
|
|
$
|
8
|
|
|
$
|
(105
|
)
|
|
$
|
39,557
|
|
The contractual maturities of available-for-sale investments were as follows (in thousands):
|
|
|
|
|
|
September 30, 2016
|
Less than 1 year
|
$
|
8,976
|
|
Over 1 year
|
14,800
|
|
Total investments
|
$
|
23,776
|
|
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 income (loss).
We have determined that the gross unrealized losses on its available for sale securities at
September 30, 2016
and
October 2, 2015
are temporary in nature. No available for sale securities were held as of October 3, 2014. We review our investments to identify and evaluate investments that have indications of possible impairment. The techniques used to measure the fair value of our investments are described in Note 5 -
Fair Value
. Factors considered in determining whether a loss is temporary include the length of time and extent to which fair value has been less than the cost basis, the financial condition and near-term prospects of the investee, and our intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value. Substantially all of our fixed income securities are rated investment grade or better.
We received proceeds from sales of available-for-sale securities of
$51.6 million
during the fiscal year ended
September 30, 2016
. During fiscal year ended
October 2, 2015
we did not receive proceeds from sales of available-for-sale securities. Such sales resulted in the recording of gross realized gains of
$0.1 million
and gross realized losses of
$0.2 million
during the year ended
September 30, 2016
, which have been recorded within other income (expense). The Company did not hold available for sale securities during the year ended October 3, 2014.
Other Investments
—We determined the appropriate classification of our investments at the time of acquisition and re-evaluate such determination at each balance sheet date. We record at cost non-marketable equity investments where we do not have the ability to exercise significant influence or control and periodically reviews such investments for impairment.
During fiscal year 2015, we made a minority investment of
$0.5 million
in the convertible debt of a privately-held U.S. based company. This investment was included in the assets sold in connection with the Automotive business.
During fiscal year 2014, we made a minority investment of
$5.0 million
in the equity of a privately-held U.S. based company. This minority equity investment was accounted for under the cost method and is included on the consolidated balance sheets in other long-term assets. During the second fiscal quarter of 2015, the privately-held U.S. based company was sold to a third party which provided the Company with information that the underlying value of the investment had been impaired at April 3, 2015. Accordingly, the Company recorded an impairment charge of
$3.5 million
which is included in Other Expense in the Consolidated Statement of Operations during fiscal year 2015. The Company received
$1.5 million
in exchange for the equity investment during fiscal year 2015. There are no other investments outstanding at
September 30, 2016
or
October 2, 2015
.
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 fiscal year ended
September 30, 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 and commercial paper 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. We generally use quoted prices for recent trading activity of assets with similar characteristics to the debt security or bond being valued. The securities and bonds priced using such methods are generally classified as Level 2. Broker dealer bids or quotes on securities with similar characteristics may also be used.
Assets and liabilities measured at fair value on a recurring basis consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
Fair Value
|
|
Active Markets for Identical Assets (Level 1)
|
|
Observable Inputs (Level 2)
|
|
Unobservable Inputs (Level 3)
|
Assets
|
|
|
|
|
|
|
|
Money market funds
|
$
|
1,172
|
|
|
$
|
1,172
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Commercial paper
|
102,928
|
|
|
—
|
|
|
102,928
|
|
|
—
|
|
US treasuries and agency bonds
|
6,002
|
|
|
—
|
|
|
6,002
|
|
|
—
|
|
Corporate bonds
|
14,799
|
|
|
—
|
|
|
14,799
|
|
|
—
|
|
Total assets measured at fair value
|
$
|
124,901
|
|
|
$
|
1,172
|
|
|
$
|
123,729
|
|
|
$
|
—
|
|
Liabilities
|
|
|
|
|
|
|
|
Contingent consideration
|
$
|
848
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
848
|
|
Common stock warrant liability
|
38,253
|
|
|
—
|
|
|
—
|
|
|
38,253
|
|
Total liabilities measured at fair value
|
$
|
39,101
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
39,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Warrant liability
|
21,822
|
|
|
—
|
|
|
—
|
|
|
21,822
|
|
Total liabilities measured at fair value
|
$
|
22,972
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
22,972
|
|
The quantitative information utilized in the fair value calculation of our Level 3 liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inputs
|
Liabilities
|
Valuation Technique
|
|
Unobservable Input
|
|
September 30, 2016
|
|
October 2, 2015
|
Contingent consideration
|
Discounted cash flow
|
|
Discount rate
|
|
12.9%
|
|
16.0%
|
|
|
|
Probability of achievement
|
|
75% - 100%
|
|
75% - 90%
|
|
|
|
Timing of cash flows
|
|
1 year
|
|
2 years
|
Warrant liability
|
Black-scholes model
|
|
Volatility
|
|
43.2%
|
|
36.0%
|
|
|
|
Discount rate
|
|
1.14%
|
|
1.30%
|
|
|
|
Expected life
|
|
4.2 years
|
|
5.2 years
|
|
|
|
Exercise price
|
|
$14.05
|
|
$14.05
|
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
.
As of
September 30, 2016
and
October 2, 2015
, the fair value of the common stock warrant liability has been estimated using a Black-Scholes option pricing model. Prior to September 30, 2016, expected volatility was based on our own historical trading experience averaged with the historical volatility of our publicly-traded peer companies since we lacked sufficient historical data to use our own volatility on a stand-alone basis. As of September 30, 2016, we have begun to use our own historical trading history to calculate estimated volatility since we now had sufficient historical experience based on the remaining term of the warrants.
The changes in assets and liabilities with inputs classified within Level 3 of the fair value hierarchy consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2016
|
|
October 2,
2015
|
|
Net Realized/Unrealized Losses (Gains) Included in Earnings
|
|
Purchases
and
Issuances
|
|
Sales and
Settlements
|
|
Transfers in
and/or (out)
of Level 3
|
|
September 30,
2016
|
Contingent consideration
|
$
|
1,150
|
|
|
$
|
98
|
|
|
$
|
—
|
|
|
$
|
(400
|
)
|
|
$
|
—
|
|
|
$
|
848
|
|
Warrant liability
|
$
|
21,822
|
|
|
$
|
16,431
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
38,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2015
|
|
October 3,
2014
|
|
Net Realized/Unrealized Losses (Gains) Included in Earnings
|
|
Purchases
and
Issuances
|
|
Sales and
Settlements
|
|
Transfers in
and/or (out)
of Level 3
|
|
October 2,
2015
|
Trading securities
|
$
|
250
|
|
|
$
|
—
|
|
|
$
|
500
|
|
|
$
|
(750
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
Contingent consideration
|
$
|
820
|
|
|
$
|
330
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,150
|
|
Warrant liability
|
$
|
15,801
|
|
|
$
|
6,021
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
21,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2014
|
|
September 27,
2013
|
|
Net Realized/Unrealized Losses (Gains) Included in Earnings
|
|
Purchases
and
Issuances
|
|
Sales and
Settlements
|
|
Transfers in
and/or (out)
of Level 3
|
|
October 3,
2014
|
Trading securities
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
250
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
250
|
|
Contingent consideration
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
820
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
820
|
|
Warrant liability
|
$
|
11,873
|
|
|
$
|
3,928
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
15,801
|
|
6. ACCOUNTS RECEIVABLES ALLOWANCES
Summarized below is the activity in our accounts receivable allowances including customer returns, doubtful accounts and other items as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
2016
|
2015
|
2014
|
Balance - beginning of year
|
$
|
5,745
|
|
$
|
725
|
|
$
|
514
|
|
Provision (recoveries), net
|
10,453
|
|
11,010
|
|
250
|
|
Charge-offs
|
(12,919
|
)
|
(5,990
|
)
|
(39
|
)
|
Balance - end of year
|
3,279
|
|
5,745
|
|
725
|
|
The balance at the end of the fiscal year primarily includes compensation credits and customer returns allowance of
$3.0 million
,
$5.5 million
and
$0.4 million
and allowance for doubtful accounts of
$0.2 million
for fiscal years
2016
,
2015
and
2014
, respectively.
7. INVENTORIES
Inventories consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
October 2, 2015
|
Raw materials
|
$
|
67,378
|
|
|
$
|
44,329
|
|
Work-in-process
|
9,157
|
|
|
3,086
|
|
Finished goods
|
38,400
|
|
|
32,528
|
|
Total
|
$
|
114,935
|
|
|
$
|
79,943
|
|
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30,
2016
|
|
October 2,
2015
|
Land, buildings and improvements
|
$
|
12,572
|
|
|
$
|
10,981
|
|
Construction in process
|
9,415
|
|
|
25,898
|
|
Machinery and equipment
|
129,639
|
|
|
89,852
|
|
Leasehold improvements
|
12,152
|
|
|
9,161
|
|
Furniture and fixtures
|
1,469
|
|
|
983
|
|
Computer equipment and software
|
12,954
|
|
|
9,307
|
|
Total property and equipment
|
178,201
|
|
|
146,182
|
|
Less accumulated depreciation and amortization
|
(79,034
|
)
|
|
(62,423
|
)
|
Property and equipment — net
|
$
|
99,167
|
|
|
$
|
83,759
|
|
Depreciation and amortization expense related to property and equipment for fiscal years
2016
,
2015
and
2014
was $
20.4 million
,
$15.7 million
and
$14.0 million
, respectively.
9. DEBT
On May 8, 2014, we entered into a credit agreement (Credit Agreement) with a syndicate of lenders that provided for term loans in an aggregate principal amount of
$350.0 million
, which mature in
May 2021
(Initial Term Loans) and a revolving credit facility of
$100.0 million
initially, which matures in
May 2019
(Revolving Facility). In February 2015, we executed an amendment to the Credit Agreement that increased our aggregate borrowing capacity under the Revolving Facility to $
130 million
. The Initial Term Loans were issued with an original issue discount of
0.75%
, which is being amortized over the term of the Initial Term Loans using the straight-line method, which approximates the effective interest rate method.
On August 31, 2016 we entered into an amendment (Incremental Term Loan Amendment) to our Credit Agreement which provided for incremental term loans in an aggregate principal amount of
$250.0 million
, which mature in
May 2021
(Incremental Term Loans, together with the Initial Term Loans, Term Loans). The terms of the Incremental Term Loans are identical to the terms of the Initial Term Loans, other than with respect to upfront fees, original issue discount and arrangement, structuring or similar fees payable in connection therewith. The Incremental Term Loans were issued with an original issue discount of
0.95%
, which is being amortized over the term of the Incremental Term Loans using the straight-line method, which approximates the effective interest rate method.
Borrowings under the Initial Term Loans and Incremental Term Loans bear interest (payable quarterly) at: (i) for LIBOR loans, a rate per annum equal to the LIBOR rate (subject to a floor of
0.75%
), plus an applicable margin of
3.75%
and (ii) for base rate loans, a rate per annum equal to the greater of (x) the prime rate quoted in the print edition of the Wall Street Journal, Money Rates Section, (y) the federal funds rate plus one-half of
1.00%
, and (z) the LIBOR rate applicable to a one-month interest period plus
1.00%
(but in each case, not less than
1.75%
), plus an applicable margin of
2.75%
. Borrowings under the Revolving Facility bear interest (payable quarterly) at: (i) for LIBOR loans, a rate per annum equal to the LIBOR rate, plus an applicable margin in the range of
2.00%
to
2.50%
(based on our total net leverage ratio being within certain defined ranges); and, (ii) for base rate loans, a rate per annum equal to the prime rate, plus an applicable margin in the range of
1.00%
to
1.50%
(based on our total net leverage ratio being within certain defined ranges). The effective interest rate on our Initial Term Loans and Incremental Term Loans was
4.5%
as of
September 30, 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
September 30, 2016
, we had
no
borrowings under the Revolving Facility.
The combined Initial Term Loans and Incremental Term Loans are payable in quarterly principal installments of approximately
$1.5 million
on the last business day of each calendar quarter, beginning on
September 30, 2016
, with the remainder due on the maturity date. In the event that we divest a business, the net cash proceeds of the divestment are generally to be applied to repayment of outstanding Term Loans except to the extent we reinvest such proceeds in assets useful for its business within
18 months
of receiving the proceeds. To the extent we enter into a binding agreement to reinvest such proceeds within
18 months
of receiving them, we have until the later of
18 months
following its receipt of the proceeds and
6 months
following the date of such agreement to complete the reinvestment.
At the signing of the Credit Agreement and the Incremental Term Loan Amendment, the entire
$350.0 million
principal amount of the Initial Term Loans and
$250.0 million
principal amount of the Incremental Term Loans, respectively, were funded. The Term Loans and Revolving Facility are secured by a first priority lien on substantially all of our assets and provide that we must comply with certain financial covenants. We incurred
$8.7 million
in fees for the issuance of the Credit Agreement and
$3.1 million
in fees for the issuance of the Incremental Term Loan Amendment, which were recorded as deferred financing costs and are being amortized over the life of the Credit Agreement as interest expense. As of
September 30, 2016
, approximately
$8.8 million
of deferred financing
costs remain unamortized, of which
$7.5 million
related to the Incremental Term Loans is recorded as a direct reduction of the recognized debt liabilities in our accompanying consolidated balance sheet, and
$1.3 million
related to the Revolving Facility is recorded in other assets in our accompanying consolidated balance sheet.
The Term Loans and Incremental Term Loans are secured by a first priority lien on substantially all of our assets and provide that we must comply with certain financial and non-financial covenants. As of
September 30, 2016
, we were in compliance with all financial and non-financial covenants under the Credit Agreement and we had
$591.5 million
of outstanding Term Loan borrowings under the Credit Agreement and
$130.0 million
of borrowing capacity under our Revolving Facility.
As of
September 30, 2016
, the following remained outstanding on the Term Loans:
|
|
|
|
|
Principal balance
|
$
|
591,487
|
|
Unamortized discount
|
(4,051
|
)
|
Total Term loans
|
587,436
|
|
Current portion
|
6,051
|
|
Long-term, less current portion
|
$
|
581,385
|
|
As of
September 30, 2016
, the minimum principal payments under the Term Loans in future fiscal years were as follows (in thousands):
|
|
|
|
|
2017
|
$
|
6,051
|
|
2018
|
6,051
|
|
2019
|
6,051
|
|
2020
|
6,051
|
|
2021
|
567,283
|
|
Total
|
$
|
591,487
|
|
The fair value of the Term Loans was estimated to be approximately
$595.9 million
as of
September 30, 2016
, and was determined using Level 2 inputs, including a quoted rate from a bank.
In fiscal year 2016 we retroactively adopted ASU 2015-03, and as a result we classified $
7.5 million
and $
5.4 million
of debt issuance costs for fiscal years ended
September 30, 2016
and
October 2, 2015
, respectively, as a direct reduction of long term debt in our accompanying consolidated balance sheet.
In connection with the FiBest Acquisition during fiscal year 2016, we assumed $
11.6 million
of debt, of which approximately
$3.1 million
was outstanding as of
September 30, 2016
.
In connection with the BinOptics Acquisition during fiscal year 2015, we assumed debt of approximately
$2.5 million
of which approximately $
0.5 million
was outstanding as of
September 30, 2016
, which is included in the current portion of long term debt.
10. EMPLOYEE BENEFIT PLANS
We established a defined contribution savings plan under Section 401(k) of the Code (Section 401(k)) on October 1, 2009 (
401
(k) Plan). The
401
(k) Plan follows a calendar year, covers substantially all U.S. employees who meet minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pretax basis, subject to legal limitations. Our contributions to the plan may be made at the discretion of the board of directors. During the fiscal year ended
September 30, 2016
, we contributed
$1.9
million to our
401
(k) Plan for calendar year
2015
. There were
no
contributions made by us to the
401
(k) Plan for calendar year
2016
through
September 30, 2016
.
Our employees located in foreign jurisdictions meeting minimum age and service requirements participate in defined contribution plans whereby participants may defer a portion of their annual compensation on a pretax basis, subject to legal limitations. Company contributions to these plans are discretionary and vary per region. We expensed contributions of
$1.1
million,
$1.0
million and
$1.0
million for fiscal years
2016
,
2015
and
2014
, respectively.
11. ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30,
2016
|
|
October 2,
2015
|
Compensation and benefits
|
$
|
32,563
|
|
|
$
|
20,711
|
|
Interest payable
|
4,314
|
|
|
3,502
|
|
Distribution costs
|
3,584
|
|
|
3,091
|
|
Restructuring costs
|
3,104
|
|
|
943
|
|
Asset retirement obligations
|
2,932
|
|
|
—
|
|
Professional fees
|
1,706
|
|
|
2,167
|
|
Rent and utilities
|
1,310
|
|
|
1,458
|
|
Product warranty
|
1,039
|
|
|
656
|
|
Software licenses
|
90
|
|
|
1,223
|
|
Other
|
3,726
|
|
|
4,356
|
|
Total
|
$
|
54,368
|
|
|
$
|
38,107
|
|
12. COMMITMENTS AND CONTINGENCIES
Operating Leases
—We have non-cancelable operating lease agreements for office, research and development and manufacturing space in the United States and foreign locations. We also have operating leases for certain equipment, automobiles and services in the United States and foreign jurisdictions. These lease agreements expire at various dates through 2026, and certain agreements contain provisions for extension at substantially the same terms as currently in effect. Lease escalation clauses, rent abatements and/or concessions, such as rent holidays and landlord or tenant incentives or allowances, are typically included in the determination of straight-line rent expense over the lease term.
Future minimum lease payments for the next five fiscal years as of
September 30, 2016
, are as follows (in thousands):
|
|
|
|
|
2017
|
$
|
9,245
|
|
2018
|
6,715
|
|
2019
|
5,865
|
|
2020
|
3,188
|
|
2021
|
1,560
|
|
Thereafter
|
5,475
|
|
Total minimum lease payments
|
$
|
32,048
|
|
Rent expense incurred under non-cancelable operating leases was
$7.0 million
,
$6.5 million
and
$6.6 million
in fiscal years
2016
,
2015
and
2014
, respectively.
Asset Retirement Obligations
—We are obligated under certain facility leases to restore those facilities to the condition in which we or our predecessors first occupied the facilities. We are required to remove leasehold improvements and equipment installed in these facilities prior to termination of the leases. As of the end of fiscal years
2016
,
2015
and
2014
, the estimated costs for the removal of these assets are recorded as asset retirement obligations was
$4.3 million
,
$1.3 million
and
$1.8 million
, respectively.
Unused Letter of Credit
—As of
September 30, 2016
, we had outstanding unused letters of credit from a bank aggregating
$0.4
million.
Purchase Commitments
—As of
September 30, 2016
, we had outstanding non-cancelable purchase commitments aggregating $
1.1 million
pursuant to inventory supply arrangements.
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 year ended
September 30, 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 (Infineon Americas), and Infineon Technologies AG (Infineon 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. 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) and adding a further claim of breach of contract based on some of Infineon’s GaN-on-Si product activities, among other changes.
The suit arises out of agreements relating to GaN patents that were executed in 2010 by Nitronex Corporation (acquired by MACOM in 2014) and International Rectifier (acquired by Infineon AG 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. 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. On August 9, 2016, we moved for a preliminary injunction on our Third Claim for Relief, which seeks a declaration that the 2010 exclusive license from Infineon to MACOM is still in effect, and asking the Court to enjoin Infineon from acting inconsistently with that license. On August 17, 2016, both Infineon entities moved to dismiss our claims asserted against them on various grounds. In an order dated October 31, 2016, the Court: (a) granted MACOM’s motion for preliminary injunction; (b) denied Infineon Americas’ motion to dismiss; and (c) granted in part and denied in part Infineon AG’s motion to dismiss.
With respect to the above legal proceeding, we have not been able to reasonably estimate the amount or range of any possible loss, and accordingly have not accrued or disclosed any related amounts of possible loss in the accompanying consolidated financial statements.
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 related to restructuring actions taken (in thousands):
|
|
|
|
|
|
Total
|
Balance - September 27, 2013
|
$
|
145
|
|
Current period charges
|
14,823
|
|
Payments
|
(14,167
|
)
|
Balance - October 3, 2014
|
801
|
|
Current period charges
|
1,280
|
|
Payments
|
(1,138
|
)
|
Balance - October 2, 2015
|
943
|
|
Current period charges
|
3,465
|
|
Payments
|
(1,304
|
)
|
Balance at September 30, 2016
|
$
|
3,104
|
|
The restructuring expenses recorded to date are expected to be paid through the remainder of calendar year 2016. We expect to incur additional restructuring costs in the range of approximately
$1.0 million
and
$3.0 million
during the remainder of calendar year 2016 as we complete restructuring actions primarily associated with the Metelics Acquisition.
14. PRODUCT WARRANTIES
We establish a product warranty liability at the time of revenue recognition. Product warranties generally have terms of between
12 months
and
60 months
and cover nonconformance with specifications and defects in material or workmanship. For sales to distributors, our warranty generally begins when the product is resold by the distributor. The liability is based on estimated costs to fulfill customer product warranty obligations and utilizes historical product failure rates. Should actual warranty obligations differ from estimates, revisions to the warranty liability may be required.
Product warranty liability activity is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years
|
|
|
|
2016
|
|
2015
|
|
2014
|
Balance — beginning of year
|
$
|
656
|
|
|
$
|
446
|
|
|
$
|
318
|
|
Impact of acquisition
|
413
|
|
|
50
|
|
|
202
|
|
Provisions
|
(30
|
)
|
|
160
|
|
|
(74
|
)
|
Balance — end of year
|
$
|
1,039
|
|
|
$
|
656
|
|
|
$
|
446
|
|
15. INTANGIBLE ASSETS
Amortization expense related to amortized intangible assets is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years
|
|
2016
|
|
2015
|
|
2014
|
Cost of revenue
|
$
|
26,615
|
|
|
$
|
27,285
|
|
|
$
|
18,787
|
|
Selling, general and administrative
|
23,640
|
|
|
11,695
|
|
|
1,806
|
|
Total
|
$
|
50,255
|
|
|
$
|
38,980
|
|
|
$
|
20,593
|
|
Intangible assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30,
2016
|
|
October 2,
2015
|
Acquired technology
|
$
|
165,397
|
|
|
$
|
162,536
|
|
Customer relationships
|
207,674
|
|
|
144,070
|
|
In-process research and development
|
8,000
|
|
|
8,000
|
|
Trade name
|
3,400
|
|
|
3,400
|
|
Total
|
384,471
|
|
|
318,006
|
|
Less accumulated amortization
|
(124,869
|
)
|
|
(74,340
|
)
|
Intangible assets — net
|
$
|
259,602
|
|
|
$
|
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 3, 2014
|
$
|
188,777
|
|
|
$
|
131,953
|
|
|
$
|
24,670
|
|
|
$
|
17,970
|
|
|
$
|
3,400
|
|
|
$
|
10,784
|
|
Net intangibles acquired
|
224,470
|
|
|
17,500
|
|
|
119,400
|
|
|
—
|
|
|
—
|
|
|
87,570
|
|
Placed in service
|
—
|
|
|
9,780
|
|
|
—
|
|
|
(9,780
|
)
|
|
—
|
|
|
—
|
|
Adjustment to fair value
|
(190
|
)
|
|
—
|
|
|
—
|
|
|
(190
|
)
|
|
—
|
|
|
—
|
|
Goodwill allocation to discontinued operations
|
(5,008
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,008
|
)
|
Other intangibles purchased
|
3,303
|
|
|
3,303
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Balance at October 2, 2015
|
411,352
|
|
|
162,536
|
|
|
144,070
|
|
|
8,000
|
|
|
3,400
|
|
|
93,346
|
|
Net intangibles acquired
|
85,762
|
|
|
10,400
|
|
|
54,950
|
|
|
—
|
|
|
—
|
|
|
20,412
|
|
Adjustment to fair value
|
16,801
|
|
|
1,881
|
|
|
8,654
|
|
|
—
|
|
|
—
|
|
|
6,266
|
|
Impairments of intangible assets
|
(10,088
|
)
|
|
(10,088
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other intangibles purchased
|
668
|
|
|
668
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Balance at September 30, 2016
|
$
|
504,495
|
|
|
$
|
165,397
|
|
|
$
|
207,674
|
|
|
$
|
8,000
|
|
|
$
|
3,400
|
|
|
$
|
120,024
|
|
As of
September 30, 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
2018
|
2019
|
2020
|
2021
|
Thereafter
|
Amortization expense
|
$
|
51,647
|
|
48,742
|
|
42,045
|
|
33,914
|
|
27,613
|
|
44,241
|
|
Our trade name is an indefinite-lived intangible asset. 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 qualitative assessment using an assumption of ‘more likely than not’ to determine if there were any impairment indicators. If impairment exists, a 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 the acquired technology and customer relationships, was $
76.7
million and $
48.1
million, respectively, as of
September 30, 2016
, and $
52.0
million and $
22.3
million, respectively, as of
October 2, 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-SiC license and technology transfer to focus on development of our GaN-on-SiC 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 property and equipment, $
1.1 million
of contractual commitments and $
2.0 million
of inventory.
16. INCOME TAXES
Deferred income taxes reflect the net effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. The components of our deferred tax assets and liabilities are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30,
2016
|
|
October 2,
2015
|
Current deferred tax assets:
|
|
|
|
Accrued liabilities
|
$
|
—
|
|
|
$
|
11,332
|
|
Inventory
|
—
|
|
|
5,043
|
|
Deferred revenue
|
—
|
|
|
(3
|
)
|
Accounts receivable
|
—
|
|
|
51
|
|
Federal net operating loss
|
—
|
|
|
11,186
|
|
Other current deferred tax assets
|
—
|
|
|
—
|
|
Discontinued operations
|
—
|
|
|
2,703
|
|
Deferred compensation
|
—
|
|
|
3,468
|
|
Valuation allowance
|
—
|
|
|
(2,349
|
)
|
Current net deferred tax assets
|
$
|
—
|
|
|
$
|
31,431
|
|
Non-current deferred tax assets (liabilities):
|
|
|
|
Federal and foreign net operating losses and credits
|
$
|
85,256
|
|
|
$
|
70,448
|
|
Intangible assets
|
(49,725
|
)
|
|
(44,196
|
)
|
Property and equipment
|
(2,730
|
)
|
|
(2,977
|
)
|
Other non-current deferred tax assets
|
21,855
|
|
|
292
|
|
Discontinued operations
|
9,100
|
|
|
9,191
|
|
Deferred compensation
|
5,545
|
|
|
1,066
|
|
Deferred gain
|
19,011
|
|
|
23,531
|
|
Valuation allowance
|
(10,471
|
)
|
|
(9,116
|
)
|
Non-current net deferred tax assets (liabilities)
|
77,841
|
|
|
48,239
|
|
Total deferred tax asset
|
$
|
77,841
|
|
|
$
|
79,670
|
|
Included in the above table are the attributes of our Japan jurisdiction which is in a net liability position of $
11.8 million
and comprised primarily of a liability of $
14.9 million
relating to intangible assets offset by a $
2.9 million
net operating loss.
In fiscal year 2016 we adopted ASU No. 2015-17,
Balance Sheet Classification of Deferred Taxes.
Upon adoption we included our current deferred income tax assets with our noncurrent deferred income tax assets; no adjustments were made to deferred tax liabilities.
As of
September 30, 2016
, we have
$195.7 million
of gross federal net operating loss (NOL) carryforwards consisting of
$2.2 million
relating to the BinOptics Acquisition and
$193.5 million
relating to prior acquisitions. The federal net operating loss carryforwards will expire at various dates through 2035. The reported net operating loss carryforward includes any limitation under Sections
382
and
383
of the Internal Revenue Code of 1986, as amended, which applies to an ownership change as defined under Section 382. As of
September 30, 2016
, we also have
$7.0 million
of gross net operating loss carryforwards in Japan which will expire at various dates through 2025.
During the fourth quarter of fiscal 2016, we identified and corrected a prior period error where we understated our income tax benefit during 2013 through 2015. This was a result of the incorrect recording of intercompany pretax income among a few of our operating entities and due to the fact that these entities had different statutory tax rates. The out-of-period correction resulted in a $
3.9 million
increase in income tax benefit in the fiscal year ended September 30, 2016 of which $
1.7 million
, $
1.0 million
and $
1.2 million
related to the prior fiscal years 2015, 2014 and 2013, respectively.
The domestic and foreign income (loss) from continuing operations before taxes were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years
|
|
2016
|
|
2015
|
|
2014
|
United States
|
$
|
(46,593
|
)
|
|
$
|
(34,251
|
)
|
|
$
|
(60,836
|
)
|
Foreign
|
25,022
|
|
|
18,851
|
|
|
19,936
|
|
(Loss) income from operations before income taxes
|
$
|
(21,571
|
)
|
|
$
|
(15,400
|
)
|
|
$
|
(40,900
|
)
|
The components of the provision (benefit) for income taxes are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years
|
|
2016
|
|
2015
|
|
2014
|
Current:
|
|
|
|
|
|
Federal
|
$
|
(5,861
|
)
|
|
$
|
(19,015
|
)
|
|
$
|
712
|
|
State
|
(766
|
)
|
|
688
|
|
|
(419
|
)
|
Foreign
|
906
|
|
|
1,092
|
|
|
2,181
|
|
Current provision (benefit)
|
(5,721
|
)
|
|
(17,235
|
)
|
|
2,474
|
|
Deferred:
|
|
|
|
|
|
Federal
|
(8,163
|
)
|
|
10,845
|
|
|
(16,557
|
)
|
State
|
(502
|
)
|
|
(4,131
|
)
|
|
(756
|
)
|
Foreign
|
(2,603
|
)
|
|
(1,302
|
)
|
|
(725
|
)
|
Change in valuation allowance
|
(994
|
)
|
|
1,965
|
|
|
(522
|
)
|
Deferred provision (benefit)
|
(12,262
|
)
|
|
7,377
|
|
|
(18,560
|
)
|
Total provision (benefit)
|
$
|
(17,983
|
)
|
|
$
|
(9,858
|
)
|
|
$
|
(16,086
|
)
|
Our net deferred tax asset relates predominantly to our operations in the United States. A valuation allowance is recorded when, based on assessment of both positive and negative evidence, management determines that it is not more likely than not that the assets are recoverable. Such assessment is required on a jurisdictional basis.
The
$10.5 million
of valuation allowance as of
September 30, 2016
relates primarily to state NOL and tax credit carryforwards assumed in the Mindspeed Acquisition and UK tax credit and NOL carryforwards whose recovery is not considered more likely than not. The
$11.5 million
of valuation allowance as of
October 2, 2015
related primarily to state NOL carryforwards assumed in the Mindspeed Acquisition and UK tax credit and NOL carryforwards whose recovery is not considered more likely than not. The change during the year ending
September 30, 2016
of
$1.0 million
primarily relates to state NOL and tax credit carryforwards.
Our effective tax rates differ from the federal and statutory rate as follows:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years
|
|
2016
|
|
2015
|
|
2014
|
Federal statutory rate
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
Foreign rate differential
|
40.1
|
|
|
30.5
|
|
|
11.2
|
|
State taxes net of federal benefit
|
1.0
|
|
|
3.5
|
|
|
1.8
|
|
Warrant liabilities
|
(26.7
|
)
|
|
(13.7
|
)
|
|
(3.4
|
)
|
Change in valuation allowance
|
3.0
|
|
|
(6.0
|
)
|
|
(0.3
|
)
|
Research and development credits
|
16.9
|
|
|
16.1
|
|
|
1.9
|
|
Correction of prior period
|
18.3
|
|
|
—
|
|
|
—
|
|
Provision to return adjustments
|
3.5
|
|
|
9.9
|
|
|
—
|
|
Nondeductible compensation expense
|
(9.2
|
)
|
|
(8.9
|
)
|
|
(1.5
|
)
|
Nondeductible legal fees
|
(1.8
|
)
|
|
(4.1
|
)
|
|
(1.9
|
)
|
Nitronex losses
|
—
|
|
|
—
|
|
|
(2.6
|
)
|
Other permanent differences
|
3.3
|
|
|
1.6
|
|
|
(0.8
|
)
|
Effective income tax rate
|
83.4
|
%
|
|
63.9
|
%
|
|
39.4
|
%
|
For fiscal years
2016
,
2015
and
2014
, the effective tax rates to calculate the tax benefit on
$21.6 million
,
$15.4 million
and
$40.9 million
, respectively, of pre-tax loss from continuing operations were
83.4%
,
63.9%
and
39.4%
, respectively. The effective income tax rate for fiscal years
2016
,
2015
and
2014
were primarily impacted by a lower income tax rate in many foreign jurisdictions in which our foreign subsidiaries operate, research and development tax credits, and the fair market value adjustment of warrant liabilities. For fiscal years 2015 and 2016, the rate was impacted by a retroactive enactment of the R&D tax credit from fiscal years 2014 and 2015, respectively, and a larger shift of the revenue associated with foreign entities taxed at lower rates as part of our auto divestiture. In addition, the effective income tax rate for fiscal year 2014 was impacted by pre-acquisition Nitronex losses.
All earnings of foreign subsidiaries are considered indefinitely reinvested for the periods presented. Undistributed earnings of all foreign subsidiaries as of
September 30, 2016
aggregated
$105.3 million
, with Ireland and Grand Cayman accounting for
$45.0 million
and
$56.3 million
, respectively. It is not practicable to determine the U.S. federal and state deferred tax liabilities associated with such foreign earnings.
Activity related to unrecognized tax benefits is as follows (in thousands):
|
|
|
|
|
|
Amount
|
Balance - October 3, 2014
|
(1,670
|
)
|
Additions based on tax positions
|
—
|
|
Reductions based on tax positions
|
—
|
|
Balance - October 2, 2015
|
$
|
(1,670
|
)
|
Additions based on tax positions
|
—
|
|
Reductions based on tax positions
|
—
|
|
Balance at September 30, 2016
|
$
|
(1,670
|
)
|
The balance of the unrecognized tax benefit as of
September 30, 2016
, is included in other long-term liabilities in the accompanying consolidated balance sheets. 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 fiscal year
2016
, we did not make any payment of interest and penalties. There was nothing accrued in the consolidated balance sheets for the payment of interest and penalties at
September 30, 2016
, as the remaining unrecognized tax benefits would only serve to reduce our current federal and state NOL carryforwards, if ultimately recognized.
A summary of the fiscal tax years that remain subject to examination, as of
September 30, 2016
, for the Company’s significant tax jurisdictions are:
|
|
|
Jurisdiction
|
Tax Years Subject to Examination
|
United States—federal
|
2013 - forward
|
United States—various states
|
2013 - forward
|
Ireland
|
2012 - forward
|
Generally, we are no longer subject to federal income tax examinations for years before 2013, except to the extent of loss and tax credit carryforwards from those years.
17. SHARE-BASED COMPENSATION PLANS
Stock Plans
We have
three
equity incentive plans: the Amended and Restated 2009 Stock Incentive Plan (2009 Plan), the 2012 Omnibus Incentive Plan (2012 Plan) and the 2012 Employee Stock Purchase Plan (ESPP).
Upon the closing of the IPO, all shares that were reserved under the 2009 Plan but not awarded were assumed by the 2012 Plan. No additional awards will be made under the 2009 Plan. Under the 2012 Plan, we have the ability to issue incentive stock options (ISOs), non-statutory stock options (NSOs), performance based non-statutory stock options, stock appreciation rights, restricted stock (RSAs), restricted stock units (RSUs), performance-based stock units (PRSUs), performance shares and other equity-based awards to employees, directors and outside consultants. The ISOs and NSOs must be granted at a price per share not less than the fair value of our common stock on the date of grant. Options granted to date primarily vest based on certain market-based and performance-based criteria as described below. Certain of the share-based awards granted and outstanding as of
September 30, 2016
, are subject to accelerated vesting upon a sale of the Company or similar changes in control. Options granted generally have a term of
7
to
10
years.
As of
September 30, 2016
, we had
13.9 million
shares available for future issuance under the 2012 Plan. The financial impact of any modifications to share-based awards during the periods presented was not material.
Share-Based Compensation
The following table shows a summary of share-based compensation expense included in the Consolidated Statement of Operations during the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years
|
|
2016
|
|
2015
|
|
2014
|
Cost of revenue
|
$
|
2,150
|
|
|
$
|
1,949
|
|
|
$
|
1,771
|
|
Research and development
|
6,568
|
|
|
5,447
|
|
|
2,818
|
|
Selling, general and administrative
|
18,236
|
|
|
12,039
|
|
|
6,688
|
|
Total
|
$
|
26,954
|
|
|
$
|
19,435
|
|
|
$
|
11,277
|
|
Amounts presented above included share-based compensation expense in fiscal years 2015 and 2014, related to employees terminated in conjunction with the Automotive divestiture in August 2015, of $
0.4 million
and $
0.3 million
, respectively.
As of
September 30, 2016
, the total unrecognized compensation costs, adjusted for estimated forfeitures, related to outstanding stock options, restricted stock awards and units including awards with time-based and performance based vesting was
$49.2 million
, which we expect to recognize over a weighted-average period of
2.8
years.
Stock Options
A summary of stock option activity for fiscal year
2016
is as follows (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted-Average Exercise Price per Share
|
|
Weighted-Average Remaining Contractual Term (in Years)
|
|
Aggregate Intrinsic Value
|
Options outstanding - October 2, 2015
|
889
|
|
|
$
|
18.40
|
|
|
|
|
|
Granted
|
305
|
|
|
32.22
|
|
|
|
|
|
Exercised
|
(130
|
)
|
|
9.61
|
|
|
|
|
|
Forfeited, canceled or expired
|
(16
|
)
|
|
40.04
|
|
|
|
|
|
Options outstanding - September 30, 2016
|
1,048
|
|
|
$
|
23.18
|
|
|
5.79
|
|
20,073
|
|
Options vested and expected to vest - September 30, 2016
|
1,048
|
|
|
$
|
23.18
|
|
|
5.79
|
|
20,073
|
|
Options exercisable - September 30, 2016
|
508
|
|
|
$
|
12.91
|
|
|
5.68
|
|
14,939
|
|
Aggregate intrinsic value represents the difference between our closing stock price on
September 30, 2016
, and the exercise price of outstanding, in-the-money options. The total intrinsic value of options exercised was
$3.7 million
,
$7.1 million
and
$7.6 million
for fiscal year
2016
,
2015
and
2014
, respectively.
Stock Options with Performance-based Vesting Criteria
In April 2016, we granted
5,000
non-qualified stock options which will vest subject to certain performance metrics such as 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.
In April 2015 and May 2015, the Company granted
225,000
non-qualified stock options which will vest subject to certain performance metrics such as revenue and gross margin targets being achieved. The aggregate fair value of these stock options was approximately $
2.0 million
on the date of grant and are subject to vesting based on performance and service conditions being met. We used a Black-Scholes valuation model for estimating the fair value on the date of grant of $
10.35
and $
10.12
per option share, respectively. The fair value of stock options are affected by valuation assumptions, including volatility, the Company’s stock price, expected term of the option, risk-free interest rate and expected dividends. These stock options will fully vest and become exercisable if certain performance criteria are met or exceeded in any period of four consecutive fiscal quarters completed during the term of the options based on pre-established revenue and gross margin targets. The stock options have a term of
seven
years, assuming continued employment with or services to the Company, and have an average exercise price of $
34.06
and equal to the closing price of the Company’s common stock on the date of grant.
The weighted average Black-Scholes input assumptions used for calculating the fair value of stock options are as follows:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years
|
|
2016
|
|
2015
|
|
2014
|
Risk-free interest rate
|
1.2
|
%
|
|
1.2
|
%
|
|
—
|
%
|
Expected term (years)
|
4.0
|
|
|
4
|
|
|
0
|
|
Expected volatility
|
31.8
|
%
|
|
36.2
|
%
|
|
—
|
%
|
Expected dividends
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
Stock Options with Market-based Vesting Criteria
In November 2015, we granted
300,000
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 our underlying public stock closing above a certain price target within
seven
years of the date of grant. These non-qualified stock options with market related vesting conditions were valued using a Monte Carlo simulation model. Share-based compensation expense is recognized regardless of the number of awards that are earned based on the market condition and is recognized on a straight-line basis over the estimated service period of approximately
three
years. In the event that the Company’s underlying public 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.
In September 2015, we granted
30,000
stock options awards, with an exercise price of $
29.80
, under the 2012 Plan with a grant date fair value of $
0.4 million
that are subject to vesting only upon the market price of the Company's underlying public stock closing
at $
63.60
for at least a consecutive
three
trading day period. These stock options' fair value of $
12.38
per option was estimated using a Monte Carlo simulation model based on the market conditions vesting condition. Compensation cost is recognized on a straight-line basis over the estimated service period of approximately
three
years, expiring in September 2022.
In April 2014, we granted stock options as to
405,000
shares of common stock with a grant date fair value of $
3.5 million
that are subject to vesting only upon the market price of our underlying public stock closing above a certain price target within
ten
years of the grant date. Due to the market condition upon which vesting is based, the fair value of the awards was estimated using a Monte Carlo simulation model. Compensation expense is recognized regardless of the number of awards that are earned based on the market condition and is recognized on a straight-line basis over the estimated service period of three years. During 2015, our common stock closed at a price of $
34.79
per share, exceeding the target price of $
32.55
per share, which resulted in the recognition of approximately $
2.5 million
of compensation expense.
The weighted average Monte Carlo input assumptions used for calculating the fair value of stock options are as follows:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years
|
|
2016
|
|
2015
|
|
2014
|
Risk-free interest rate
|
2.1
|
%
|
|
1.9
|
%
|
|
2.7
|
%
|
Expected term (years)
|
7
|
|
|
7
|
|
|
10
|
|
Expected volatility
|
36.5
|
%
|
|
37.4
|
%
|
|
42.6
|
%
|
Restricted Stock Awards and Units
A summary of restricted stock awards and units activity for fiscal year
2016
is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted-Average Grant Date Fair Value
|
|
Aggregate Intrinsic Value
|
Issued and unvested - October 2, 2015
|
1,692
|
|
|
$
|
25.30
|
|
|
$
|
48,375
|
|
Granted
|
864
|
|
|
39.73
|
|
|
|
Vested
|
(750
|
)
|
|
23.88
|
|
|
|
Forfeited, canceled or expired
|
(98
|
)
|
|
33.36
|
|
|
|
Issued and unvested shares - September 30, 2016
|
1,708
|
|
|
32.76
|
|
|
$
|
72,165
|
|
As of
September 30, 2016
, the aggregate intrinsic value of vesting restricted stock units including time-based and performance units was
$67.3 million
for fiscal year
2016
. The total fair value of restricted stock awards and units vesting was
$26.5 million
,
$23.3 million
and
$9.2 million
for the fiscal years
2016
,
2015
and
2014
, respectively.
PRSU awards, which are also included in the table above, have two vesting conditions (1) based on performance where awards are divided into
three
equal tranches and will vest based on achieving certain adjusted earnings per share (EPS) growth targets and (2) a service condition where the employee must be employed on May 15th of the following year once the performance condition being met. Depending on the actual performance achieved, a participant may earn between
0%
to
300%
of the targeted shares for each tranche which is determined based on a straight-line interpolation applied for the achievement between the specified performance ranges. PRSU awards were granted during fiscal year 2015 and 2016 with performance criteria and service conditions have been met on the first tranche of fiscal year 2015 awards resulting in a vesting at
300%
of targeted shares. The performance criteria for the first tranche of the fiscal year 2016 awards and the second tranche of the fiscal year 2015 awards have met and are expected to vest assuming continued employment with, or services to us, through the vest date of May 15th following the date of when the performance criteria has been met. Incremental PRSU awards that could ultimately vest if all performance criteria are achieved would be
240,585
shares assuming a maximum of
300%
of the targeted shares.
Employee Stock Purchase Plan (ESPP)
The ESPP allows eligible employees to purchase shares of our common stock at a discount through payroll deductions of up to
15%
of their eligible compensation, subject to any plan limitations.
In administering the ESPP, the board of directors has limited discretion to set the length of the offering periods thereunder.
As of
September 30, 2016
, total unrecognized compensation cost related to the ESPP was not material. In fiscal years
2016
and
2015
, approximately
154,000
and
176,000
, respectively, of shares of common stock were issued under the ESPP.
The 2012 Plan contains an “evergreen” provision, pursuant to which the number of shares of common stock available for issuance under the 2012 Plan can be increased on the first day of each fiscal year equal by the lesser of (a)
4.0%
of outstanding common stock on a fully diluted basis as of the end of the immediately preceding fiscal year, (b)
1.9 million
shares of common stock and (c) a lesser amount determined by the board of directors; provided, however, that any shares from any increases in previous years that are not actually issued will continue to be available for issuance under the 2012 Plan. The ESPP also contains an “evergreen” provision, pursuant to which the
number of shares of common stock available for issuance under the ESPP can be increased on the first day of each fiscal year equal by the lesser of (a)
1.25%
of outstanding common stock on a fully diluted basis as of the end of the immediately preceding fiscal year, (b)
550,000
shares of common stock and (c) a lesser amount determined by the board of directors; provided, however, that any shares from any increases in previous years that are not actually issued will continue to be available for issuance under the ESPP. In fiscal year
2016
, pursuant to the evergreen provisions, the number of shares of common stock available for issuance under the 2012 Plan and the ESPP were increased by
1.9 million
shares and
550,000
shares, respectively.
18. 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
September 30, 2016
and
October 2, 2015
. The outstanding shares of common stock as of
September 30, 2016
and
October 2, 2015
, presented in the accompanying consolidated statements of stockholders’ equity, exclude
3,300
and
11,000
unvested shares of restricted stock awards, respectively, issued as compensation to employees that were 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
September 30, 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.
19. 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 fiscal year ended
September 30, 2016
, we recorded charges to GaAs Labs of
$0.1 million
and
$0.1 million
in fiscal years
2016
and
2014
, respectively, for services provided pursuant to this agreement.
No
charges were recorded in fiscal year
2015
. We have recorded these amounts as other income in the accompanying consolidated statements of operations.
In fiscal years
2016
,
2015
and
2014
, we recorded revenue of
$0.1
million,
$1.1
million and
0.2
million, respectively, associated with product sales to a public company with a common director.
20. DISCONTINUED OPERATIONS
In August of fiscal year 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.
In fiscal year 2014, subsequent to closing the Mindspeed Acquisition, we divested the wireless business of Mindspeed. The operations of the wireless business are included in discontinued operations through the date of sale. There was no initial gain or loss on the sale which closed in February 2014. The selling price of the wireless business was
$12.3 million
and was received upon settlement of all indemnification holdbacks during fiscal year 2014. The final settlement of
$1.6 million
was received in September 2015, and recorded as a pre-tax gain within discontinued operations.
Additionally during fiscal year 2014, we sold non-core assets representing one product line, receiving cash proceeds aggregating
$12.0 million
. We have no continuing interests in these assets. There was
no
gain or loss on the sale, which closed in May 2014, and results of this product line are included in continuing operations.
The accompanying consolidated statement of operations includes the following operating results related to these divested businesses (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive Business
|
|
Mindspeed Wireless Business
|
|
Fiscal Years
|
|
Fiscal Years
|
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
2014
|
Revenue
|
$
|
—
|
|
|
$
|
71,712
|
|
|
$
|
79,473
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,439
|
|
Cost of revenue
|
—
|
|
|
46,931
|
|
|
51,425
|
|
|
—
|
|
|
—
|
|
|
1,249
|
|
Gross profit
|
—
|
|
|
24,781
|
|
|
28,048
|
|
|
—
|
|
|
—
|
|
|
1,190
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
—
|
|
|
2,319
|
|
|
2,334
|
|
|
—
|
|
|
—
|
|
|
4,531
|
|
Selling, general and administrative
|
—
|
|
|
2,441
|
|
|
3,586
|
|
|
—
|
|
|
—
|
|
|
1,078
|
|
Restructuring charges
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,962
|
|
Total operating expenses
|
—
|
|
|
4,760
|
|
|
5,920
|
|
|
—
|
|
|
—
|
|
|
8,571
|
|
Income from discontinued operations
|
—
|
|
|
20,021
|
|
|
22,128
|
|
|
—
|
|
|
—
|
|
|
(7,381
|
)
|
Other income
|
7,500
|
|
|
4,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Gain on sale
|
308
|
|
|
61,771
|
|
|
—
|
|
|
—
|
|
|
1,550
|
|
|
—
|
|
Income (loss) before income taxes
|
7,808
|
|
|
85,792
|
|
|
22,128
|
|
|
—
|
|
|
1,550
|
|
|
(7,381
|
)
|
Income tax provision (benefit)
|
2,786
|
|
|
32,652
|
|
|
8,032
|
|
|
—
|
|
|
559
|
|
|
(2,776
|
)
|
Income (loss) from discontinued operations
|
$
|
5,022
|
|
|
$
|
53,140
|
|
|
$
|
14,096
|
|
|
$
|
—
|
|
|
$
|
991
|
|
|
$
|
(4,605
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Above includes depreciation & amortization of
|
$
|
—
|
|
|
$
|
189
|
|
|
$
|
302
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Cashflow from Operating Activities
|
$
|
—
|
|
|
$
|
(9,513
|
)
|
|
$
|
16,945
|
|
|
$
|
—
|
|
|
$
|
991
|
|
|
$
|
(4,605
|
)
|
Cashflow from Investing Activities
|
$
|
7,500
|
|
|
$
|
(505
|
)
|
|
$
|
(275
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Other income recorded during the fiscal year ended
September 30, 2016
, related to the Consulting Agreement with Autoliv. The gain on sale recorded during the fiscal year ended
September 30, 2016
, related to the adjustment of accruals established at the time of the sale of the Automotive business. Amounts recorded during the fiscal year ended
October 2, 2015
, were from ongoing operating activities prior to the sale of the Automotive business.
21. EARNINGS PER SHARE
The following table set forth the computation for basic and diluted net income (loss) per share of common stock (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years
|
|
2016
|
|
2015
|
|
2014
|
Numerator:
|
|
|
|
|
|
Income (loss) from continuing operations
|
$
|
(3,588
|
)
|
|
$
|
(5,542
|
)
|
|
$
|
(24,814
|
)
|
Income (loss) from discontinued operations
|
5,022
|
|
|
54,131
|
|
|
9,491
|
|
Net income (loss)
|
1,434
|
|
|
48,589
|
|
|
(15,323
|
)
|
Warrant liability gain
|
—
|
|
|
—
|
|
|
—
|
|
Net income (loss) attributable to common stockholders
|
$
|
1,434
|
|
|
$
|
48,589
|
|
|
$
|
(15,323
|
)
|
Denominator:
|
|
|
|
|
|
Weighted average common shares outstanding-basic
|
53,364
|
|
|
51,146
|
|
|
47,009
|
|
Dilutive effect of options and warrants
|
—
|
|
|
—
|
|
|
—
|
|
Weighted average common shares outstanding-diluted
|
53,364
|
|
|
51,146
|
|
|
47,009
|
|
Common stock earnings per share-basic:
|
|
|
|
|
|
Continuing operations
|
$
|
(0.07
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.53
|
)
|
Discontinued operations
|
0.09
|
|
|
1.06
|
|
|
0.20
|
|
Net common stock earnings per share-basic
|
$
|
0.03
|
|
|
$
|
0.95
|
|
|
$
|
(0.33
|
)
|
Common stock earnings per share-diluted:
|
|
|
|
|
|
Continuing operations
|
$
|
(0.07
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.53
|
)
|
Discontinued operations
|
0.09
|
|
|
1.06
|
|
|
0.20
|
|
Net common stock earnings per share-diluted
|
$
|
0.03
|
|
|
$
|
0.95
|
|
|
$
|
(0.33
|
)
|
The table above excludes the effects of
1,855
,
2,056
and
1,408
shares for the fiscal years ended
2016
,
2015
and
2014
, respectively, of potential shares of common stock issuable upon exercise of stock options, restricted stock and restricted stock units and warrants as the inclusion would be antidilutive.
22. SUPPLEMENTAL CASH FLOW INFORMATION
As of
September 30, 2016
and
October 2, 2015
, we had
$0.8 million
and $
3.2 million
, respectively, in unpaid amounts related to purchases of property and equipment and intangibles included in accounts payable and accrued liabilities during each period. These amounts have been excluded from the payments for purchases of property and equipment in the accompanying consolidated statements of cash flows until paid.
Upon closing the Mindspeed Acquisition, we assumed $
40.2 million
of the seller's indebtedness, all of which was paid in fiscal year 2014.
The following is supplemental cash flow information regarding noncash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years
|
|
2016
|
|
2015
|
|
2014
|
Cash paid for interest
|
$
|
16,335
|
|
|
$
|
15,607
|
|
|
$
|
6,994
|
|
Cash paid (refunded) for income taxes
|
$
|
(373
|
)
|
|
$
|
22,676
|
|
|
$
|
4,668
|
|
23. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The components of accumulated other comprehensive income (loss), net of income taxes, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency items
|
|
Other items
|
|
Total
|
Balance - October 3, 2014
|
$
|
(1,264
|
)
|
|
$
|
(90
|
)
|
|
$
|
(1,354
|
)
|
Foreign currency translation adjustment
|
(918
|
)
|
|
—
|
|
|
(918
|
)
|
Other adjustment, net of tax
|
—
|
|
|
90
|
|
|
90
|
|
Unrealized gain/loss on short term investments
|
—
|
|
|
(97
|
)
|
|
(97
|
)
|
Balance - October 2, 2015
|
(2,182
|
)
|
|
(97
|
)
|
|
(2,279
|
)
|
Foreign currency translation, net of tax
|
11,320
|
|
|
—
|
|
|
11,320
|
|
Unrealized gain/loss on short term investments
|
—
|
|
|
(2
|
)
|
|
(2
|
)
|
Balance at September 30, 2016
|
$
|
9,138
|
|
|
$
|
(99
|
)
|
|
$
|
9,039
|
|
24. 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years
|
Revenue by Geographic Region
|
2016
|
|
2015
|
|
2014
|
United States
|
$
|
155,998
|
|
|
$
|
152,974
|
|
|
$
|
134,436
|
|
Asia Pacific (1)
|
346,670
|
|
|
231,369
|
|
|
148,141
|
|
Other Countries (2)
|
41,670
|
|
|
36,266
|
|
|
56,612
|
|
Total
|
$
|
544,338
|
|
|
$
|
420,609
|
|
|
$
|
339,189
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
September 30,
2016
|
|
October 2,
2015
|
Long-Lived Assets by Geographic Region
|
|
United States
|
$
|
79,832
|
|
|
$
|
72,617
|
|
Asia Pacific (1)
|
16,614
|
|
|
8,740
|
|
Other Countries(2)
|
2,721
|
|
|
2,402
|
|
Total
|
$
|
99,167
|
|
|
$
|
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 total sales and accounts receivable as of and for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years
|
Revenue
|
2016
|
|
2015
|
|
2014
|
Customer A
|
15
|
%
|
|
8
|
%
|
|
4
|
%
|
Customer B
|
12
|
%
|
|
12
|
%
|
|
10
|
%
|
Customer C
|
11
|
%
|
|
18
|
%
|
|
19
|
%
|
|
|
|
|
|
|
|
|
September 30,
2016
|
|
October 2,
2015
|
Accounts Receivable
|
|
Customer A
|
11
|
%
|
|
14
|
%
|
Customer B
|
16
|
%
|
|
10
|
%
|
Customer C
|
11
|
%
|
|
22
|
%
|
No other customer represented more than 10% of revenue or accounts receivable in the periods presented in the accompanying consolidated financial statements. In fiscal years
2016
,
2015
and
2014
, our top
ten
customers represented an aggregate of
62%
,
57%
and
52%
of total revenue, respectively.
25. QUARTERLY FINANCIAL DATA (UNAUDITED)
(In thousands, except per share data)
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First Quarter
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Second Quarter
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Third Quarter
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Fourth Quarter
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Fiscal Year
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Fiscal Year 2016
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Revenue
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$
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115,774
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$
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133,579
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|
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$
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142,288
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|
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$
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152,697
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|
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$
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544,338
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Gross profit
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60,318
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65,525
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|
73,962
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|
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81,804
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281,609
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Income (loss) from continuing operations (1)
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(16,770
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)
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(12,045
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)
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21,353
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3,874
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(3,588
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)
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Income (loss) from discontinued operations (1)
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1,199
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1,396
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1,199
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1,228
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5,022
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Per share data (2)
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Income (loss) from continuing operations, basic
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$
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(0.32
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)
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$
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(0.23
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)
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$
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0.40
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$
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0.07
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$
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(0.07
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)
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Income (loss) from discontinued operations, basic
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$
|
0.02
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|
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$
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0.03
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|
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$
|
0.02
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|
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$
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0.02
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|
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$
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0.09
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Per share data (2)
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Income (loss) from continuing operations, diluted
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$
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(0.32
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)
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$
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(0.23
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)
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$
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0.11
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$
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0.07
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$
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(0.07
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)
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Income (loss) from discontinued operations, diluted
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$
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0.02
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$
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0.03
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$
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0.02
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|
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$
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0.02
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|
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$
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0.09
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|
|
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Fiscal Year 2015
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Revenue
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$
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96,556
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$
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102,431
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$
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109,058
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|
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$
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112,564
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$
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420,609
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Gross profit
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47,419
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46,714
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52,496
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56,961
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203,590
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Income (loss) from continuing operations
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(9,963
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)
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(11,176
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)
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1,756
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13,841
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(5,542
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)
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Income (loss) from discontinued operations (1)
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3,657
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3,639
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6,271
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40,564
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54,131
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Per share data (2)
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|
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|
|
|
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Income (loss) from continuing operations, basic
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$
|
(0.21
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)
|
|
$
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(0.22
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)
|
|
$
|
0.03
|
|
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$
|
0.26
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|
|
$
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(0.11
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)
|
|
Income (loss) from discontinued operations, basic
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$
|
0.08
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|
|
$
|
0.07
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|
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$
|
0.12
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|
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$
|
0.76
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|
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$
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1.06
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|
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Per share data (2) (3)
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|
|
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|
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Income (loss) from continuing operations, diluted
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$
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(0.21
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)
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$
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(0.22
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)
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$
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0.03
|
|
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$
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0.08
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|
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$
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(0.11
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)
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Income (loss) from discontinued operations, diluted
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$
|
0.08
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|
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$
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0.07
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|
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$
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0.11
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$
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0.74
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$
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1.06
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____________
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(1)
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During the fourth quarter of fiscal year 2015 we divested our Automotive business.
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(2)
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Earnings per share calculations for each of the quarters are based on the weighted average number of shares outstanding and included common stock equivalents in each period. Therefore, the sums of the quarters do not necessarily equal the full year earnings per share.
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(3)
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Diluted income (loss) per shares for the fiscal third quarter 2016 and 2015, and fiscal fourth quarter 2015, exclude
$15.3 million
,
$0.5 million
and
$9.7 million
, respectively, related to warrant liability gain.
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