QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period endedSeptember 28, 2019
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ____ to ____
Commission File Number 0-17795
CIRRUS LOGIC, INC.
(Exact name of registrant as specified in its charter)
Delaware
77-0024818
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
800 W. 6th Street
Austin,
Texas
78701
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code:
(512)
851-4000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Trading Symbol
Name of each exchange on which registered
Common stock, $0.001 par value
CRUS
The NASDAQ Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes☑ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding12 months (or for such shorter period that the registrant was required to submit and post such files). Yes☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
☑
Accelerated Filer
☐
Non-accelerated Filer
☐
Smaller Reporting Company
☐
Emerging Growth Company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☑
The number of shares of the registrant's common stock, $0.001 par value, outstanding as of October 28, 2019 was 57,799,337.
CIRRUS LOGIC, INC.
FORM 10-Q QUARTERLY REPORT
QUARTERLY PERIOD ENDEDSEPTEMBER 28, 2019
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1.
Financial Statements
Consolidated Condensed Balance Sheets - September 28, 2019 (unaudited) and March 30, 2019
The accompanying notes are an integral part of these consolidated condensed financial statements.
3
CIRRUS LOGIC, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(in thousands, except per share amounts; unaudited)
Three Months Ended
Six Months Ended
September 28,
September 29,
September 28,
September 29,
2019
2018
2019
2018
Net sales
$
388,912
$
366,305
$
627,165
$
620,788
Cost of sales
180,979
181,186
296,738
311,110
Gross profit
207,933
185,119
330,427
309,678
Operating expenses
Research and development
88,239
96,381
177,069
194,313
Selling, general and administrative
33,018
33,160
62,538
65,944
Total operating expenses
121,257
129,541
239,607
260,257
Income from operations
86,676
55,578
90,820
49,421
Interest income
2,530
1,805
5,074
3,511
Interest expense
(280)
(280)
(539)
(539)
Other expense
(568)
(378)
(946)
(168)
Income before income taxes
88,358
56,725
94,409
52,225
Provision (benefit) for income taxes
12,148
(1,448)
13,581
(1,676)
Net income
$
76,210
$
58,173
$
80,828
$
53,901
Basic earnings per share
$
1.31
$
0.96
$
1.39
$
0.88
Diluted earnings per share
$
1.27
$
0.93
$
1.34
$
0.86
Basic weighted average common shares outstanding
58,011
60,472
58,276
60,967
Diluted weighted average common shares outstanding
60,213
62,431
60,260
62,810
The accompanying notes are an integral part of these consolidated condensed financial statements.
4
CIRRUS LOGIC, INC.
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands; unaudited)
Three Months Ended
Six Months Ended
September 28,
September 29,
September 28,
September 29,
2019
2018
2019
2018
Net income
$
76,210
$
58,173
$
80,828
$
53,901
Other comprehensive income (loss), before tax
Foreign currency translation gain (loss)
(1,427)
204
(1,403)
(1,986)
Unrealized gain on marketable securities
385
198
2,500
239
Cumulative effect of adoption of ASU 2018-02
—
—
(257)
—
Provision for income taxes
(81)
(42)
(525)
(50)
Comprehensive income
$
75,087
$
58,533
$
81,143
$
52,104
The accompanying notes are an integral part of these consolidated condensed financial statements.
5
CIRRUS LOGIC, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands; unaudited)
Six Months Ended
September 28,
September 29,
2019
2018
Cash flows from operating activities:
Net income
$
80,828
$
53,901
Adjustments to reconcile net income to net cash generated by operating activities:
Depreciation and amortization
37,911
45,296
Stock-based compensation expense
25,540
25,925
Deferred income taxes
(1,919)
(1,497)
Loss on retirement or write-off of long-lived assets
5
883
Other non-cash adjustments
453
216
Net change in operating assets and liabilities:
Accounts receivable, net
(97,305)
(100,448)
Inventories
19,904
63,054
Other assets
(6,816)
(4,001)
Accounts payable and other accrued liabilities
61,525
(516)
Income taxes payable
(2,291)
(3,863)
Net cash generated by operating activities
117,835
78,950
Cash flows from investing activities:
Maturities and sales of available-for-sale marketable securities
90,922
30,295
Purchases of available-for-sale marketable securities
(121,100)
(31,118)
Purchases of property, equipment and software
(9,333)
(18,842)
Investments in technology
(4,730)
(2,248)
Net cash used in investing activities
(44,241)
(21,913)
Cash flows from financing activities:
Issuance of common stock, net of shares withheld for taxes
3,374
228
Repurchase of stock to satisfy employee tax withholding obligations
(1,202)
(2,015)
Repurchase and retirement of common stock
(70,001)
(94,997)
Net cash used in financing activities
(67,829)
(96,784)
Net increase (decrease) in cash and cash equivalents
5,765
(39,747)
Cash and cash equivalents at beginning of period
216,172
235,604
Cash and cash equivalents at end of period
$
221,937
$
195,857
The accompanying notes are an integral part of these consolidated condensed financial statements.
6
CIRRUS LOGIC, INC.
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands; unaudited)
Common Stock
Additional Paid-In Capital
Accumulated Deficit
Accumulated Other Comprehensive Income / (Loss)
Total
Three Months Ended
Shares
Amount
Balance, June 30, 2018
60,990
$
61
$
1,325,226
$
(184,673)
$
(13,518)
$
1,127,096
Net income
—
—
—
58,173
—
58,173
Change in unrealized gain (loss) on marketable securities, net of tax
—
—
—
—
156
156
Change in foreign currency translation adjustments
—
—
—
—
204
204
Issuance of stock under stock option plans and other, net of shares withheld for employee taxes
108
—
169
(957)
—
(788)
Repurchase and retirement of common stock
(1,274)
(1)
—
(54,996)
—
(54,997)
Stock-based compensation
—
—
13,131
—
—
13,131
Balance, September 29, 2018
59,824
$
60
$
1,338,526
$
(182,453)
$
(13,158)
$
1,142,975
Balance, June 29, 2019
58,121
$
58
$
1,375,719
$
(258,899)
$
372
$
1,117,250
Net income
—
—
—
76,210
—
76,210
Change in unrealized gain (loss) on marketable securities, net of tax
—
—
—
—
304
304
Change in foreign currency translation adjustments
—
—
—
—
(1,427)
(1,427)
Issuance of stock under stock option plans and other, net of shares withheld for employee taxes
224
—
3,115
(584)
—
2,531
Repurchase and retirement of common stock
(559)
—
—
(30,001)
—
(30,001)
Stock-based compensation
—
—
13,758
—
—
13,758
Balance, September 28, 2019
57,786
$
58
$
1,392,592
$
(213,274)
$
(751)
$
1,178,625
Six Months Ended
Balance, March 31, 2018
61,960
$
62
$
1,312,372
$
(139,345)
$
(11,361)
$
1,161,728
Net income
—
—
—
53,901
—
53,901
Change in unrealized gain (loss) on marketable securities, net of tax
—
—
—
—
189
189
Change in foreign currency translation adjustments
—
—
—
—
(1,986)
(1,986)
Issuance of stock under stock option plans and other, net of shares withheld for employee taxes
167
—
229
(2,014)
—
(1,785)
Repurchase and retirement of common stock
(2,303)
(2)
—
(94,995)
—
(94,997)
Stock-based compensation
—
—
25,925
—
—
25,925
Balance, September 29, 2018
59,824
$
60
$
1,338,526
$
(182,453)
$
(13,158)
$
1,142,975
Balance, March 30, 2019
58,954
$
59
$
1,363,677
$
(222,430)
$
(1,066)
$
1,140,240
Net income
—
—
—
80,828
—
80,828
Change in unrealized gain (loss) on marketable securities, net of tax
—
—
—
—
1,975
1,975
Change in foreign currency translation adjustments
—
—
—
—
(1,403)
(1,403)
Issuance of stock under stock option plans and other, net of shares withheld for employee taxes
279
—
3,375
(1,203)
—
2,172
Cumulative effect of adoption of ASU 2016-02, net of tax
—
—
—
(726)
—
(726)
Cumulative effect of adoption of ASU 2018-02
—
—
—
257
(257)
—
Repurchase and retirement of common stock
(1,447)
(1)
—
(70,000)
—
(70,001)
Stock-based compensation
—
—
25,540
—
—
25,540
Balance, September 28, 2019
57,786
$
58
$
1,392,592
$
(213,274)
$
(751)
$
1,178,625
The accompanying notes are an integral part of these consolidated condensed financial statements.
7
CIRRUS LOGIC, INC.
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
The consolidated condensed financial statements have been prepared by Cirrus Logic, Inc. (“Cirrus Logic,” “we,” “us,” “our,” or the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission (the “Commission”). The accompanying unaudited consolidated condensed financial statements do not include complete footnotes and financial presentations. As a result, these financial statements should be read along with the audited consolidated financial statements and notes thereto for the year ended March 30, 2019, included in our Annual Report on Form 10-K filed with the Commission on May 24, 2019. In our opinion, the financial statements reflect all material adjustments, including normal recurring adjustments, necessary for a fair presentation of the financial position, operating results and cash flows for those periods presented. The preparation of financial statements in conformity with United States (“U.S.”) generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect reported assets, liabilities, revenues and expenses. Actual results could differ from those estimates and assumptions. Moreover, the results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the entire year. Additionally, certain prior period amounts have been reclassified to conform to current year presentation, with no impact to earnings.
2. Recently Issued Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02, Leases, which the Company adopted in the first quarter of fiscal year 2020. The new standard provides a number of optional practical expedients in transition. We elected the use-of-hindsight practical expedient and the ‘package of practical expedients’ which permit us not to reassess our prior conclusions about lease identification, lease classification and initial direct costs. The new standard also provides practical expedients for an entity’s ongoing accounting. We elected the short-term lease recognition exemption for all leases that qualify. This means, for qualifying leases, which are those with initial terms of less than twelve months, we will not recognize right-of-use ("ROU") assets or lease liabilities. We also do not separate lease and non-lease components for all classes of assets. Most of our operating lease commitments were subject to the new standard and recognized as ROU assets and operating lease liabilities upon adoption, which materially increased the total assets and total liabilities that we reported relative to such amounts prior to adoption.
In applying the use-of-hindsight practical expedient, we re-assessed whether we were reasonably certain to exercise extension options within our lease agreements. This resulted in the lease term being extended on a number of leases. The previously capitalized initial direct costs and accrued lease payments were recalculated assuming these extended lease terms had always applied, resulting in an adjustment of $0.7 million net of tax, to opening retained earnings on transition.
On adoption, we recognized additional operating liabilities, with corresponding ROU assets based on the present value of the lease payments over the lease term under current leasing contracts for existing operating leases. In addition, existing capitalized initial direct costs and accrued lease payments were reclassified from prepayments and accruals to the ROU asset. There was no income statement or material cash flow statement impact on adoption, nor were prior periods adjusted.
The effects of the changes made to our balance sheet at adoption were as follows (in thousands):
Balance at March 30, 2019
Impact from ASU 2016-02 Adoption
Balance at March 31, 2019
Financial statement line item:
Prepaid assets
$
30,794
$
(2,833)
$
27,961
Right-of-use lease assets
—
149,746
149,746
Lease liabilities
—
(14,899)
(14,899)
Other accrued liabilities
(16,339)
11,071
(5,268)
Non-current lease liabilities
—
(143,085)
(143,085)
Other long-term liabilities
(9,889)
(965)
(10,854)
Accumulated deficit
(222,430)
965
(221,465)
8
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU requires credit losses on available-for-sale debt securities to be presented as an allowance rather than a write-down. Unlike current U.S. GAAP, the credit losses could be reversed with changes in estimates, and recognized in current year earnings. This ASU is effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods. Early adoption is permitted for annual periods beginning after December 15, 2018, including interim periods. The Company is currently evaluating the impact of this ASU, but does not expect a material impact to the financial statements upon adoption.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU eliminates step two of the goodwill impairment test. An impairment charge is to be recognized for the amount by which the current value exceeds the fair value. This ASU is effective for annual periods beginning after December 15, 2019, including interim periods. Early adoption is permitted, for interim or annual goodwill impairment tests performed after January 1, 2017, and should be applied prospectively. An entity is required to disclose the nature of and reason for the change in accounting principle upon transition. That disclosure should be provided in the first annual period and in the interim period within the first annual period when the entity initially adopts the amendments in this update. The Company is currently evaluating the impact of this ASU, but does not expect a material impact to the financial statements upon adoption.
In February 2018, the FASB issued ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This ASU allows for the classification of stranded tax effects resulting from the Tax Cuts and Jobs Act (the “Tax Act”) from accumulated other comprehensive income to retained earnings. This ASU is effective for annual periods beginning after December 15, 2018, with early adoption permitted. The standard should be applied in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in tax rate is recognized. The Company adopted this ASU in the first quarter of fiscal year 2020 and elected to reclassify the stranded tax effects of $0.3 million from accumulated other comprehensive income to retained earnings in the period of adoption.
In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. This ASU expands the scope of Topic 718 to include all share-based payment transactions for acquiring goods and services from nonemployees and will apply to all share-based payment transactions in which the grantor acquires goods and services to be used or consumed in its own operations by issuing share-based payment awards. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year, with early adoption permitted. The Company adopted this ASU in the first quarter of fiscal year 2020, with no material impact to the financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. This ASU adjusts current required disclosures related to fair value measurements. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within that fiscal year, with early adoption permitted. The Company is currently evaluating the impact of this ASU, but does not expect a material impact to the financial statements upon adoption.
In August 2018, the Commission adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the disclosure requirements on the analysis of stockholders' equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders' equity presented in the balance sheet must be provided in a note or separate statement. The analysis should present a reconciliation of the beginning balance to the ending balance of each period for which a statement of comprehensive income is required to be filed. The final rule was published in the Federal Register on October 4, 2018, effective November 5, 2018. The Company adopted the amendments in the first quarter of fiscal year 2020. See consolidated condensed statements of stockholders' equity.
3.Marketable Securities
The Company’s investments that have original maturities greater than 90 days have been classified as available-for-sale securities in accordance with U.S. GAAP. Marketable securities are categorized on the consolidated condensed balance sheet as short- and long-term marketable securities, as appropriate.
9
The following table is a summary of available-for-sale securities at September 28, 2019 (in thousands):
As of September 28, 2019
Amortized Cost
Gross Unrealized Gains
Gross Unrealized Losses
Estimated Fair Value (Net Carrying Amount)
Corporate debt securities
$
234,115
$
2,810
$
(30)
$
236,895
Non-U.S. government securities
14,404
111
(7)
14,508
U.S. Treasury securities
9,891
32
(22)
9,901
Total securities
$
258,410
$
2,953
$
(59)
$
261,304
The Company typically invests in highly-rated securities with original maturities generally ranging from one to three years. The Company's specifically identified gross unrealized loss of $0.1 million relatedtosecurities with total amortized cost of approximately $28.2 million atSeptember 28, 2019. Securities in a continuous unrealized loss position for more than 12 months as of September 28, 2019 had an aggregate amortized cost of $5.5 million and an immaterial amount of aggregate unrealized loss. The Company may sell certain of its marketable securities prior to their stated maturities for strategic reasons including, but not limited to, anticipated or actual changes in credit rating and duration management. When evaluating an investment for other-than-temporary impairment, the Company reviews factors including the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer, changes in market interest rates and whether it is more likely than not the Company will be required to sell the investment before recovery of the investment’s cost basis. As of September 28, 2019, the Company did not consider any of its investments to be other-than-temporarily impaired.
The following table is a summary of available-for-sale securities at March 30, 2019 (in thousands):
As of March 30, 2019
Amortized Cost
Gross Unrealized Gains
Gross Unrealized Losses
Estimated Fair Value (Net Carrying Amount)
Corporate debt securities
$
215,098
$
1,027
$
(600)
$
215,525
Non-U.S. government securities
13,209
8
(40)
13,177
Agency discount notes
450
—
(1)
449
Total securities
$
228,757
$
1,035
$
(641)
$
229,151
The Company’s specifically identified gross unrealized losses of $0.6 million relatedtosecurities with total amortized cost of approximately $123.1 million atMarch 30, 2019. Securities in a continuous unrealized loss position for more than 12 months as of March 30, 2019 had an aggregate amortized cost of $120.3 million and an aggregate unrealized loss of $0.6 million.The Company may sell certain of its marketable securities prior to their stated maturities for strategic reasons including, but not limited to, anticipated or actual changes in credit rating and duration management. When evaluating an investment for other-than-temporary impairment, the Company reviews factors including the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer, changes in market interest rates and whether it is more likely than not the Company will be required to sell the investment before recovery of the investment’s cost basis. As ofMarch 30, 2019, the Company did not consider any of its investments to be other-than-temporarily impaired.
The cost and estimated fair value of available-for-salesecuritiesby contractual maturities were as follows(in thousands):
September 28, 2019
March 30, 2019
Amortized
Estimated
Amortized
Estimated
Cost
Fair Value
Cost
Fair Value
Within 1 year
$
22,527
$
22,563
$
70,490
$
70,183
After 1 year
235,883
238,741
158,267
158,968
Total
$
258,410
$
261,304
$
228,757
$
229,151
10
4.Fair Value of Financial Instruments
The Company has determined that the only material assets and liabilities in the Company’s financial statements that are required to be measured at fair value on a recurring basis are the Company’s cash equivalents and marketable securities portfolio. The Company defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and signi