Integrated Device Technology Earnings 2018-12-30

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

10-Q 1 idti-12302018x10q.htm 10-Q Document

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________

FORM 10-Q

______________________________

(Mark One)



/x/	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 30, 2018 OR



/ /	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File No. 0-12695

INTEGRATED DEVICE TECHNOLOGY, INC.

(Exact Name of Registrant as Specified in Its Charter)



DELAWARE (State or Other Jurisdiction of Incorporation or Organization)	94-2669985 (I.R.S. Employer Identification No.)
6024 SILVER CREEK VALLEY ROAD, SAN JOSE, CALIFORNIA (Address of Principal Executive Offices)	95138 (Zip Code)

Registrant's Telephone Number, Including Area Code: (408) 284-8200

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 ý No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý 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 definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company”and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	ý	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 provided 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 o No ý

The number of outstanding shares of the registrant's Common Stock, $.001 par value, as of February 1, 2019 was approximately 129,283,320.

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INTEGRATED DEVICE TECHNOLOGY, INC.

QUARTERLY REPORT ON FORM 10-Q

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PART I-FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets as of December 30, 2018 and April 1, 2018	3
	Condensed Consolidated Statements of Operations for the three and nine months ended December 30, 2018 and December 31, 2017	4
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended December 30, 2018 and December 31, 2017	5
	Condensed Consolidated Statements of Cash Flows for the nine months ended December 30, 2018 and December 31, 2017	6
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4.	Controls and Procedures	40

PART II-OTHER INFORMATION

Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	54
Item 3.	Defaults Upon Senior Securities	54
Item 4.	Mine Safety Disclosures	54
Item 5.	Other Information	54
Item 6.	Exhibits	55
	Signatures	57

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

INTEGRATED DEVICE TECHNOLOGY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS



(Unaudited, in thousands)	December 30, 2018			April 1, 2018
Assets
Current assets:
Cash and cash equivalents	$	287,239		$	136,873
Short-term investments	157,129			222,026
Accounts receivable, net	119,909			108,779
Inventories	66,142			68,702
Prepayments and other current assets	14,860			12,734
Total current assets	645,279			549,114
Property, plant and equipment, net	90,877			86,845
Goodwill	420,117			420,117
Intangible assets, net	163,585			180,781
Deferred tax assets	10,970			11,764
Other assets	46,772			61,910
Total assets	$	1,377,600		$	1,310,531
Liabilities, Convertible Notes Conversion Obligation And Stockholders' Equity
Current liabilities:
Accounts payable	$	48,461		$	41,070
Accrued compensation and related expenses	46,497			44,002
Short-term convertible notes	310,535			—
Current portion of bank loan	192,698			2,000
Other accrued liabilities	45,434			26,524
Total current liabilities	643,625			113,596
Deferred tax liabilities	11,723			10,221
Long-term income tax payable	23,706			25,034
Convertible notes	—			299,551
Long-term bank loan, net	—			191,073
Other long-term liabilities	27,386			25,684
Total liabilities	706,440			665,159
Commitments and contingencies (Note 13)
Convertible notes conversion obligation	63,214			—
Stockholders' equity:
Preferred stock: $0.001 par value: 10,000 shares authorized; no shares issued	—			—
Common stock: $0.001 par value: 350,000 shares authorized; 128,992 and 129,531 shares outstanding as of December 30, 2018 and April 1, 2018, respectively	129			130
Additional paid-in capital	2,767,300			2,752,784
Treasury stock at cost: 131,922 and 128,518 shares as of December 30, 2018 and April 1, 2018, respectively	(1,926,814		)	(1,801,624		)
Accumulated deficit	(227,299		)	(301,155		)
Accumulated other comprehensive loss	(5,370		)	(4,763		)
Total stockholders' equity	607,946			645,372
Total liabilities, convertible notes conversion obligation and stockholders' equity	$	1,377,600		$	1,310,531

The accompanying notes are an integral part of these condensed consolidated financial statements.

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INTEGRATED DEVICE TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS



	Three Months Ended						Nine Months Ended
(Unaudited, in thousands, except per share data)	December 30, 2018			December 31, 2017			December 30, 2018			December 31, 2017
Revenues	$	240,587		$	217,075		$	704,587		$	618,186
Cost of revenues	91,311			88,690			275,120			263,001
Gross profit	149,276			128,385			429,467			355,185
Operating expenses:
Research and development	62,496			49,836			170,239			147,027
Selling, general and administrative	58,573			40,689			148,321			127,116
Total operating expenses	121,069			90,525			318,560			274,143
Operating income	28,207			37,860			110,907			81,042
Other-than-temporary impairment loss on investment	(841		)	—			(2,841		)	—
Interest expense	(7,177		)	(6,638		)	(21,407		)	(20,369		)
Interest income and other, net	(2,868		)	1,570			1,240			6,500
Income before income taxes	17,321			32,792			87,899			67,173
Benefit from (provision for) income taxes	4,285			(101,033		)	(73		)	(100,020		)
Net income (loss)	$	21,606		$	(68,241	)	$	87,826		$	(32,847	)
Net income (loss) per share:
Basic	$	0.17		$	(0.51	)	$	0.68		$	(0.25	)
Diluted	$	0.16		$	(0.51	)	$	0.65		$	(0.25	)
Weighted average shares:
Basic	129,074			132,689			129,283			133,087
Diluted	137,182			132,689			135,438			133,087

The accompanying notes are an integral part of these condensed consolidated financial statements.

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INTEGRATED DEVICE TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)



	Three Months Ended						Nine Months Ended
(Unaudited, in thousands)	December 30, 2018			December 31, 2017			December 30, 2018			December 31, 2017
Net income (loss)	$	21,606		$	(68,241	)	$	87,826		$	(32,847	)
Other comprehensive income (loss), net of taxes:
Currency translation adjustments	(556		)	597			(3,554		)	3,229
Change in net unrealized gain (loss) on investments, net of tax	2,376			(893		)	2,677			(682		)
Actuarial gain on post-employment and post-retirement benefit plans, net of tax	270			—			270			—
Total other comprehensive income (loss)	2,090			(296		)	(607		)	2,547
Comprehensive income (loss)	$	23,696		$	(68,537	)	$	87,219		$	(30,300	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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INTEGRATED DEVICE TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS



	Nine Months Ended
(Unaudited, in thousands)	December 30, 2018			December 31, 2017
Cash flows from operating activities:
Net income (loss)	$	87,826		$	(32,847	)
Adjustments:
Depreciation	20,463			19,395
Amortization of intangible assets	32,068			32,004
Amortization of debt issuance costs and debt discount	11,599			11,056
Other-than-temporary impairment loss on investment	2,841			—
Realized loss on available-for-sale securities	652			—
Impairment of available-for-sale securities	1,325			—
Stock-based compensation expense, net of amounts capitalized in inventory	68,170			38,348
Deferred income tax	2,297			62,622
Changes in assets and liabilities, net of acquisitions:
Accounts receivable, net	(166		)	(5,582		)
Inventories	2,701			6,913
Prepayments and other assets	(265		)	1,748
Accounts payable	8,718			(4,656		)
Accrued compensation and related expenses	2,494			4,277
Deferred income on shipments to distributors	—			1,536
Income taxes payable and receivable	(5,454		)	32,062
Other accrued liabilities and long-term liabilities	4,364			(3,824		)
Net cash provided by operating activities	239,633			163,052
Cash flows from investing activities:
Business acquisitions, net of cash acquired	—			(237,716		)
Asset acquisition	—			(12,956		)
Purchases of property, plant and equipment, net	(25,882		)	(24,018		)
Purchases of intangible assets	(4,427		)	(3,581		)
Purchase of non-marketable equity securities	(950		)	(11,341		)
Purchases of short-term investments	(63,092		)	(199,140		)
Proceeds from sales of short-term investments	81,389			93,003
Proceeds from maturities of short-term investments	46,539			33,668
Net cash provided by (used in) investing activities	33,577			(362,081		)
Cash flows from financing activities:
Proceeds from issuance of common stock	9,417			7,843
Repurchases of common stock	(125,189		)	(84,811		)
Payment of capital lease obligations	(834		)	(935		)
Proceeds of Initial Term B Loan, net of discount and issuance costs	—			194,252
Principal payments of long-term bank loan	(990		)	(1,500		)
Payment of contingent consideration	(2,790		)	—
Net cash provided by (used in) financing activities	(120,386		)	114,849
Effect of exchange rates on cash and cash equivalents	(2,458		)	2,426
Net increase (decrease) in cash and cash equivalents	150,366			(81,754		)
Cash and cash equivalents at beginning of period	136,873			214,554
Cash and cash equivalents at end of period	$	287,239		$	132,800

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Supplemental disclosure of cash flow information	Nine Months Ended
(Unaudited, in thousands)	December 30, 2018		December 31, 2017
Non-cash investing and financing activities:
Additions to property, plant and equipment included in accounts payable	$	920	$	1,314
Additions to intangible assets included in accounts payable and other accrued liabilities	$	11,872	$	1,446
Fair value of partially vested employee equity awards related to pre-combination services that were assumed as part of the business acquisition	$	—	$	3,400
Contingent consideration in connection with the asset acquisition included in other accrued liabilities and other long-term liabilities	$	—	$	4,080

The accompanying notes are an integral part of these condensed consolidated financial statements.

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INTEGRATED DEVICE TECHNOLOGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Summary of Significant Accounting Policies

Nature of Business. Integrated Device Technology, Inc. ("IDT" or the "Company") designs, develops, manufactures and markets a broad range of integrated circuits for the advanced communications, computing, consumer and automotive industries.

Pending Merger with Renesas Electronics Corporation. On September 10, 2018, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Renesas Electronics Corporation, a Japanese corporation (“Renesas”). The Merger Agreement and the Merger (as defined below) have been approved by the boards of directors of both companies.

The Merger Agreement provides that Chapter Two Company (“Merger Sub”), which was formed following the date of the Merger Agreement as a Delaware corporation and a wholly owned direct subsidiary of Renesas will be merged with and into the Company (the “Merger”), with the Company continuing as the surviving corporation and a direct wholly owned subsidiary of Renesas.

At the effective time of the Merger, each outstanding share of common stock, par value $0.001 per share, of the Company (a “Company Share”), other than shares held by stockholders who have validly exercised their appraisal rights under Delaware law, and certain shares owned by the Company, Renesas and their subsidiaries, will be automatically converted into the right to receive $49.00 in cash, without interest.

The Merger Agreement contains customary representations, warranties and covenants. The consummation of the Merger is conditioned on the receipt of the approval of the Company's stockholders, as well as the satisfaction of other customary closing conditions, including domestic and foreign regulatory approvals and performance in all material respects by each party of its obligations under the Merger Agreement. Consummation of the Merger is not subject to a financing condition.

On January 15, 2019, the Company’s stockholders approved the proposal to adopt the Merger Agreement and approve the transactions contemplated thereby, including the Merger. Both the Company and Renesas have received regulatory antitrust approval for the proposed transaction in those foreign jurisdictions where a filing was required, which included China, Germany, Hungary, and Korea. In addition, the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, for the proposed transaction expired at 11:59 p.m., Eastern time, on October 22, 2018. The Merger remains subject to review by the Committee on Foreign Investment in the United States (“CFIUS”). The initial 45-day review period, which was to conclude on January 2, 2019, was tolled pursuant to section 1709 of the Foreign Investment Risk Review Modernization Act of 2018 as a result of the U.S. government partial shutdown that commenced in December 2018. Following the resumption of operations by the relevant U.S. government agencies on January 25, 2019, CFIUS informed the parties that the initial review period would conclude on February 5, 2019. Recently, CFIUS informed the parties that its national security review has been extended and this additional phase of the CFIUS review will conclude no later than March 22, 2019. The review relating to International Traffic in Arms Regulation (“ITAR”) for the proposed transaction has concluded. The Merger Agreement contains certain termination rights for the Company and Renesas, including if a governmental body prohibits the Merger or if the Merger is not consummated before June 10, 2019, subject to the two three-month extensions in order to obtain required regulatory approvals. Upon termination of the Merger Agreement under certain specified circumstances, either the Company or Renesas will be required to pay the other party a termination fee of $166.4 million.

The Company recorded transaction-related costs of $4.5 million and $8.4 million, principally for outside financial advisory, legal and related fees and expenses associated with the pending acquisition during the three and nine months ended December 30, 2018, respectively. These costs are recorded in selling, general and administrative expense included in the Condensed Consolidated Statement of Operations for the three and nine months ended December 30, 2018. Additional transaction-related costs are expected to be incurred through the closing of the Merger.

Basis of Presentation. The Company's fiscal year is the 52 or 53 week period ending on the Sunday closest to March 31. In a 52 week year, each fiscal quarter consists of 13 weeks. In a 53 week year, the additional week is usually added to the third quarter, making such quarter consist of 14 weeks. The first, second and third quarters of fiscal 2019 and fiscal 2018 were 13 week periods.

Principles of Consolidation. The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All inter-company accounts and transactions have been eliminated.

Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Significant Accounting Policies. For a description of significant accounting policies, see Note 1, Summary of Significant Accounting Policies to the consolidated financial statements included in the Company's annual report on Form 10-K for the fiscal year ended April 1, 2018. There have been no material changes to the Company's significant accounting policies since the filing of the annual report on Form 10-K other than Revenue Recognition Policy detailed below.

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Revenue Recognition Policy Effective April 2, 2018

Effective April 2, 2018, the Company adopted Financial Accounting Standards Board or FASB ASU No. 2014-09, Revenue from Contracts with Customers ("ASC Topic 606") using the modified retrospective method applied to those contracts which were not completed as of April 2, 2018.

The Company recognizes revenue when control of its goods and services is transferred to its customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for its services. Sales taxes are excluded from revenue. The Company determines revenue recognition through the following steps:


•	Identification of the contract or contracts with a customer


•	Identification of the performance obligation in the contract


•	Determination of the transaction price


•	Allocation of the transaction price to the performance obligations in the contract


•	Recognition of revenue when, or as, the Company satisfies a performance obligation

The Company’s revenue results from semiconductor products sold through three channels: direct sales to original equipment manufacturers ("OEMs") and electronic manufacturing service providers ("EMSs"), consignment sales to OEMs and EMSs, and sales through distributors. Revenue for semiconductor products is recognized when the control is transferred to the customer, which is typically upon shipment to customers. Distributors have rights to price protection, ship from stock pricing credits and stock rotation. The Company accounts for the right of returns, rebates and other pricing adjustments as variable consideration and uses the portfolio approach to estimate these amounts based on the expected amount to be provided to customers and reduce the revenue recognized. The Company utilizes historical experience and market trends to estimate the reserves. Historically, differences between actual and estimated credits have not been material.

For proprietary software licenses that constitute functional intellectual properties, revenue is recognized at the later of when (i) the license term starts and (ii) the software is made available to customers.

The Company recognizes revenue from per-unit royalty-based IP licenses in the period the licensee consumes the licenses. The revenues from fixed-price support or maintenance performance obligations are recognized ratably over the support period consistently with the stand-ready nature of these performance obligations.

The Company’s non-recurring engineering (“NRE”) contracts with customers may include multiple performance obligations. For NRE arrangements, the Company allocates revenue to each performance obligation based on its relative standalone selling price. Revenue is recognized over time in the amount to which the Company has a right to invoice, if the right to consideration from the customer is in an amount that corresponds reasonably with the value to the customer of the entity’s performance completed to date.

Practical Expedients and Elections

The Company recognizes commission costs as incurred for costs to obtain a contract when the amortization period would have been one year or less. As a result, no commission costs are capitalized.

The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which the Company recognizes revenue at the amount to which the Company has the right to invoice for services performed. The Company does not disclose the nature of the performance obligations and the remaining duration of the performance obligations.

The Company has elected to account for shipping and handling costs as fulfillment costs after the customer obtains control of the goods.

The Company also elects to exclude amounts collected from customers for all sales taxes from the transaction price.

The Company has adopted the practical expedient which states an entity need not adjust the promised amount of consideration for the effects of a significant financing component if the entity expects, at contract inception, that the period between when the entity transfers a promised good or service to the customer and when the customer pays for that good or service will be one year or less.

In the opinion of management, these condensed consolidated financial statements, consisting only of normal recurring adjustments, reflect all adjustments which are necessary for the fair statement of the condensed consolidated financial statements for the interim period.

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Accounting Pronouncements Recently Adopted

Adoption of ASC Topic 606:

On May 28, 2014, FASB issued ASC Topic 606, which creates a single source of revenue guidance under US generally accepted accounting principles for all companies, in all industries, effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Under the new standard, an entity is required to recognize revenue upon transfer of promised goods or services to customers in an amount that reflects the expected consideration received in exchange for goods and services. The FASB also issued additional guidance that defines a five-step process in order to achieve this core principle, which may require the use of judgment and estimates, and also requires expanded qualitative and quantitative disclosures relating to the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers, including significant judgments and estimates used. The new standard permits adoption either by using (i) a full retrospective approach for all periods presented in the period of adoption or (ii) a modified retrospective approach with the cumulative effect of initially applying the new standard recognized at the date of initial application and providing certain additional disclosures. This new guidance supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance throughout the industry topics of the standard.

Effective April 2, 2018, the Company adopted ASC Topic 606 using the modified retrospective method applied to those contracts which were not completed as of April 2, 2018. Results for reporting periods beginning after April 2, 2018 are presented under ASC Topic 606. Prior period amounts are not adjusted and continue to be reported in accordance with its historic accounting under ASC Topic 605. The sale of semiconductor products accounts for the substantial majority of the Company’s consolidated revenue and recognition for such product sales has remained the same under ASC Topic 606 as that under Topic 605. Additionally, other revenue streams remain substantially unchanged. Hence, there was no impact on the opening accumulated deficit as of April 2, 2018 due to the adoption of Topic 606. The Company expects the ongoing impact of the new revenue standard to be immaterial to the consolidated financial statements. Additionally, the balance sheet presentation of certain reserve balances previously shown net within accounts receivable are now presented as refund liabilities within “Other Accrued Liabilities” on the Condensed Consolidated Balance Sheets. Refer to Significant Accounting Policies section above for the Company’s practical expedients and elections.

Other recently adopted pronouncements:

In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which changes the current accounting related to (i) the classification and measurement of certain equity investments, (ii) the presentation of changes in the fair value of financial liabilities measured under the fair value option that are due to instrument-specific credit risk, and (iii) certain disclosures associated with the fair value of financial instruments. Most notably, ASU 2016-01 requires that equity investments, with certain exemptions, be measured at fair value with changes in fair value recognized in net income as opposed to other comprehensive income. The guidance further clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. The Company adopted this guidance in the first quarter of fiscal 2019 on a retrospective basis and concluded that there is no cumulative effect adjustment. The Company has elected to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer (referred to as the measurement alternative). See Note 6 for details.

In October 2016, the FASB issued ASU 2016-16, Intra-Entity Transfers of Assets Other Than Inventory, which requires entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. This amends current GAAP which prohibits recognition of current and deferred income taxes for all types of intra-entity asset transfers until the asset has been sold to a third party or otherwise recovered through use. The Company adopted the new guidance in the first quarter of fiscal 2019. Upon adoption, the Company applied a modified retrospective transition approach and recognized the unamortized portion of the deferred tax charge of $13.9 million through a cumulative-effect adjustment to accumulated deficit.

In March 2018, the FASB issued ASU 2018-05, Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. The amendments allow companies to record provisional amounts during a measurement period that is similar to the measurement period used when accounting for business combinations. As of April 1, 2018, the Company has made reasonable estimates of the effects on its existing deferred tax balances and the one-time repatriation tax recording provisional charges as a component of income tax expense from continuing operations. The accounting was considered complete as of December 30, 2018. There were no material adjustments made to the provisional amounts during the three months ended December 30, 2018.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805), which clarifies the definition of business. The update provides a more robust framework to use in determining when a set of assets and activities is a business. The new guidance provides a screen to determine when a set of assets and activities is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. The new guidance becomes effective in fiscal years beginning after December 15, 2017, though early adoption is permitted. The Company adopted the new guidance prospectively in the first quarter of fiscal 2019. There was no material impact in the period of adoption.

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In May 2017, the FASB issued ASU No. 2017-09, Compensation–Stock Compensation (Topic 718): Scope of Modification Accounting, which amends the requirements related to accounting in changes to stock compensation awards. The guidance in ASU 2017-09 is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. The Company adopted the new guidance in the first quarter of fiscal 2019. There was no material impact in the period of adoption.

Accounting Pronouncements Not Yet Effective for Fiscal 2019

In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows an entity to elect to reclassify the stranded tax effects resulting from the change in income tax rate from the Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings. The amendments in this update are effective for periods beginning after December 15, 2018. The Company plans to adopt the new standard effective the first quarter of fiscal 2020. The Company does not believe that the adoption of this new accounting guidance will have any material impact on its consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles–Goodwill and Other (Topic 350), which simplifies the measurement of goodwill by eliminating the Step 2 impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. The new guidance requires an entity to compare the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The new guidance becomes effective for goodwill impairment tests in fiscal years beginning after December 15, 2019, though early adoption is permitted. The Company does not believe that the adoption of this new accounting guidance will have any material impact on its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments–Credit Losses, which changes the accounting for recognizing impairments of financial assets. Under the new guidance, credit losses for certain types of financial instruments will be estimated based on expected losses. The new guidance also modifies the impairment models for available-for-sale debt securities and for purchased financial assets with credit deterioration since their origination. The new guidance will be effective for the Company starting in the first quarter of fiscal 2021. Early adoption is permitted starting in the first quarter of fiscal 2020. The Company is in the process of determining the effects the adoption will have on its consolidated financial statements.

In February 2016, the FASB issued an ASU 2016-02, Leases (Topic 842). In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases which clarifies, corrects or consolidates authoritative guidance issued in ASU 2016-02 and is effective upon adoption of ASU 2016-02. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. All leases create a right-of-use asset and a liability for the lessee in accordance with FASB Concepts Statement No. 6, Elements of Financial Statements, and, therefore, recognition of those lease assets and lease liabilities represents an improvement over previous GAAP, which did not require lease assets and lease liabilities to be recognized for most leases. The new guidance is effective for annual and interim periods beginning after December 15, 2018 and must be applied using a modified retrospective approach, with certain practical expedients available. The Company plans to adopt the new standard effective the first quarter of fiscal 2020 and expects to elect certain available transitional practical expedients. The Company expects that the new standard will have an impact on its consolidated financial statements, which consists primarily of a balance sheet gross-up of right-of-use assets and lease liabilities on the Condensed Consolidated Balance Sheets upon adoption, which will increase the Company's total assets and liabilities.

Note 2. Net Income (Loss) Per Share

Basic net income (loss) per share is computed using the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is computed using the weighted-average number of common and dilutive potential common shares outstanding during the period. Potential common shares include employee stock options, restricted stock units, performance-based stock units and convertible notes. For purposes of computing diluted net income (loss) per share, weighted average potential common shares do not include potential common shares that are anti-dilutive under the treasury stock method.

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The following table sets forth the computation of basic and diluted net income (loss) per share:



	Three Months Ended					Nine Months Ended
(in thousands, except per share amounts)	December 30, 2018		December 31, 2017			December 30, 2018		December 31, 2017
Numerator (basic and diluted):
Net income (loss)	$	21,606	$	(68,241	)	$	87,826	$	(32,847	)
Denominator:
Weighted average common shares outstanding, basic	129,074		132,689			129,283		133,087
Dilutive effect of employee stock options, restricted stock units and performance stock units	4,853		—			4,534		—
Dilutive effect of convertible notes	3,255		—			1,621		—
Weighted average common shares outstanding, diluted	137,182		132,689			135,438		133,087
Basic net income (loss) per share	$	0.17	$	(0.51	)	$	0.68	$	(0.25	)
Diluted net income (loss) per share	$	0.16	$	(0.51	)	$	0.65	$	(0.25	)

Potential dilutive common shares of two thousand and 3.5 million pertaining to employee stock options, restricted stock units and performance-based stock units were excluded from the calculation of diluted earnings (loss) per share for the three months ended December 30, 2018 and December 31, 2017, respectively, because the effect would have been anti-dilutive. Potential dilutive common shares of 29 thousand and 3.4 million pertaining to employee stock options, restricted stock units and performance stock units were excluded from the calculation of diluted earnings (loss) per share for the nine months ended December 30, 2018 and December 31, 2017, respectively, because the effect would have been anti-dilutive.

In accordance with ASC 260, Earnings per Share, the Convertible Notes will not impact the denominator for diluted net income (loss) per share unless the average price of the Company's common stock, as calculated under the terms of the Convertible Notes, exceeds the conversion price of $33.45 per share. Likewise, the denominator for diluted net income (loss) per share will not include any effect from the warrants unless the average price of the Company's common stock, as calculated under the terms of the warrants, exceeds $48.66 per share. For the three and nine months ended December 30, 2018, the Company included the Convertible Notes in the calculation of diluted earnings per share of common stock because the average market price of the Company's stock was above the conversion price. The Company could potentially exclude the Convertible Notes in the future if the average market price is below the conversion price. The denominator for diluted net loss per share for the three and nine months ended December 31, 2017 does not include any effect from the Convertible Notes.

The denominator for diluted net income (loss) per share for each of the three and nine months ended December 30, 2018 and December 31, 2017 also does not include any effect from the convertible note hedge transaction, or the Note Hedges. In future periods, the denominator for diluted net income (loss) per share will exclude any effect of the Note Hedges, as their effect would be anti-dilutive. In the event an actual conversion of any or all of the Convertible Notes occurs, the shares that will be delivered to us under the Note Hedges are designed to neutralize the dilutive effect of the shares that the Company will issue under the Convertible Notes. Refer to Note 15 for further discussion regarding the Convertible Notes.

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Note 3. Revenue



Disaggregated Revenue by Timing of Recognition*	Three Months Ended				Nine Months Ended
(in thousands)	December 30, 2018		December 31, 2017		December 30, 2018		December 31, 2017
Goods/services transferred at a point in time	$	239,919	$	216,000	$	700,140	$	616,472
Goods/services transferred over time	668		1,075		4,447		1,714
Total Revenue	$	240,587	$	217,075	$	704,587	$	618,186

* For other disaggregated revenue information, refer to Note 18.



Contract Balances and Refund Liabilities
The following table provides information about contract assets, refund liabilities and contract liabilities on the condensed consolidated balance sheets:
(in thousands)				April 2, 2018
(in thousands)	December 30, 2018			(as adjusted**)
Contract assets - unbilled revenue	$	1,306		$	1,595
Refund liabilities - price adjustment and other revenue reserves	$	(14,356	)	$	(10,964	)
Contract Liabilities - short-term	$	(774	)	$	(778	)
Contract Liabilities - long-term	$	(774	)	$	(1,354	)

** The "as adjusted" balances at April 2, 2018 reflect the comparative amounts under ASC Topic 606.

Contract assets consist of the Company’s unbilled revenue to transfer goods or services to a customer for which the Company has yet to receive consideration or the amount is due from the customer. Contract assets are included in “Accounts Receivable, Net” on the Condensed Consolidated Balance Sheets.

The beginning and ending balances of contract assets in the third quarter of fiscal 2019 were $0.8 million and $1.3 million, respectively. During the three and nine months ended December 30, 2018, contract assets increased by $1.1 million and $2.3 million, respectively, associated with unbilled revenue for additional goods and services transferred to customers, which was offset by decreases of $0.6 million and $2.6 million, respectively, primarily due to invoices issued to customers.

Refund liabilities consist of variable consideration estimates for returns, rebates, price protection, ship from stock pricing credits and stock rotation. Such reserves were previously shown net within “Accounts Receivable, Net” and are now presented within “Other Accrued Liabilities” on the Condensed Consolidated Balance Sheets effective April 2, 2018.

Contract liabilities consist of the Company’s obligation to transfer goods or services to a customer for which the Company has received consideration or the amount is due from the customer. Contract liabilities are classified as short-term or long-term within “Other Accrued Liabilities” or “Other Long-term Liabilities”, respectively, on the Condensed Consolidated Balance Sheets.

Remaining Performance Obligations

As of the end of a reporting period, some of the performance obligations associated with contracts will have been unsatisfied or only partially satisfied. In accordance with the practical expedients available in the guidance, the Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected duration of one year or less, and the remaining duration of the performance obligations for contracts with an original expected duration of greater than one year. As of December 30, 2018, the Company’s remaining performance obligations from contracts with an original expected duration of greater than one year is $7.5 million.

Practical Expedients

The Company has elected to apply the practical expedient to expense commission costs as incurred for costs to obtain a contract when the amortization period would have been one year or less. As a result, no commission costs are capitalized. The Company records these costs within selling, general and administrative expenses on the Condensed Consolidated Statements of Operations.

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Note 4. Acquisitions

GigPeak, Inc.

On April 4, 2017, the Company completed its purchase all of the outstanding shares of GigPeak, Inc, a publicly held company mainly operating in the United States, for approximately $250.1 million (the "Acquisition"). GigPeak was a global supplier of semiconductor integrated circuits and software solutions for high-speed connectivity and high-quality video compression over the network and the cloud. The Company funded the Acquisition from its available cash on hand and net proceeds from borrowings under its credit facility entered into on April 4, 2017 with JP Morgan Chase Bank, N.A. as administrative agent and the various lenders signatory thereto (the "Credit Agreement"). The Credit Agreement provides for a $200.0 million term loan facility (the "Initial Term B Loan"). Refer to Note 16 for details.

Total consideration consisted of the following:



(in thousands)
Cash paid to GigPeak shareholders	$	246,717
Fair value of partially vested employee equity awards related to pre-combination services	3,400
Total purchase price	250,117
Less: cash acquired	(9,001		)
Total purchase price, net of cash acquired	$	241,116

In connection with the Acquisition, the Company assumed unvested restricted stock units ("RSUs") originally granted by GigPeak and converted them into IDT RSUs. IDT included $3.4 million, representing the portion of the fair value of the assumed GigPeak unvested equity awards associated with service rendered through the date of the Acquisition, as a component of the total estimated acquisition consideration. As of April 4, 2017, the total unrecognized stock-based compensation expense, net of estimated forfeitures, was also $3.4 million, which is expected to be recognized over the remaining weighted average service period of 2.6 years.

The Company allocated the purchase price to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The excess purchase price over those fair values was recorded as goodwill. Because the Acquisition was structured as a stock acquisition for income tax purposes, none of the asset step-up or asset recognition required by purchase accounting, including the goodwill described below, is deductible for tax purposes.

The fair value of accounts receivable, other current assets, accounts payable, and other accrued liabilities were generally determined using historical carrying values given the short-term nature of these assets and liabilities. The fair values for acquired inventory, property, plant and equipment and intangible assets were determined with the assistance of a third-party valuation using discounted cash flow analysis, and estimate made by management. The fair values of certain other assets and liabilities were determined internally using historical carrying values and estimates made by management. During the second quarter of fiscal 2018, the Company obtained additional information in regards to inventory, deferred tax assets, accounts receivable and assumed liabilities and recorded purchase accounting adjustments which were not considered to be material.

The financial results of the GigPeak business have been included in the Company’s Condensed Consolidated Statements of Operations from April 4, 2017, the closing date of the acquisition. Goodwill is primarily attributable to the assembled workforce of GigPeak, anticipated synergies and economies of scale expected from the operations of the combined company.

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The Company's allocation of the purchase price is as follows:
(in thousands)	Estimated Fair Value
Cash and cash equivalents	$	9,001
Accounts receivable	14,806
Inventories	18,399
Prepayments and other current assets	2,641
Property, plant and equipment	2,434
Goodwill	113,192
Intangible assets	97,860
Deferred tax assets	7,610
Other assets	1,501
Accounts payable	(5,753		)
Accrued compensation and related expenses	(3,279		)
Other accrued liabilities	(3,538		)
Long-term income tax payable	(1,253		)
Other long-term liabilities	(3,504		)
Total purchase price	$	250,117

A summary of the fair value of intangible assets and their estimated useful lives is as follows:



(in thousands)	Estimated Fair Value		Estimated Useful Life
Developed technology	$	56,000	5 years
Customer contracts and related relationships	28,900		5 years
Order backlog	200		1 year
Software licenses	2,560		less than a year
In-process research and development ("IPR&D")	10,200
Total	$	97,860

IPR&D represents the fair value of incomplete research and development projects that had not reached technological feasibility as of the date of acquisition. IPR&D consisted of various projects. As of the acquisition date, the estimated remaining costs to complete and the estimated fair value of the IPR&D projects were approximately $7.5 million and $10.2 million, respectively. The IPR&D projects will either be amortized or impaired depending upon whether the project is completed or abandoned. The fair value of IPR&D was determined using the MPEE method under the income approach. This method reflects the present value of the projected cash flows that are expected to be generated by the IPR&D less charges representing the contribution of other assets to those cash flows. A discount rate of 17% was used to discount the cash flows to the present value. The acquired IPR&D will not be amortized until completion of the related products which is determined by when the underlying projects reach technological feasibility and commence commercial production. In fiscal 2018, $1.2 million of purchased IPR&D projects reached technological feasibility and was reclassified as core and developed technology and began being amortized over its estimated useful life. In addition, in fiscal 2018, the Company recognized a total of $2.0 million impairment charge related to certain IPR&D projects, which was recorded in Research and Development Expense in the Condensed Consolidated Statements of Operations. During the three and nine months ended December 30, 2018, $3.9 million and $7.0 million of purchased IPR&D projects, respectively, reached technological feasibility and were reclassified as core and developed technology and began being amortized over its estimated useful life. Refer to Note 11 for additional information.

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Note 5. Fair Value Measurements

Financial Assets Measured at Fair Value on a Recurring Basis:

The following table summarizes the Company’s financial assets measured at fair value on a recurring basis as of December 30, 2018:



	Fair Value at Reporting Date Using
(in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Total
Assets
Cash Equivalents and Short-Term Investments:
Money market funds	$	149,836	$	—	$	149,836
Asset-backed securities	—		9,555		9,555
Corporate bonds	—		100,467		100,467
Bank deposits	—		72,737		72,737
Repurchase agreement	—		18,741		18,741
Total assets measured at fair value	$	149,836	$	201,500	$	351,336

The following table summarizes the Company’s financial assets measured at fair value on a recurring basis as of April 1, 2018:



	Fair Value at Reporting Date Using
(in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Total
Assets
Cash Equivalents and Short-Term Investments:
US government treasuries and agencies securities	$	60,272	$	—	$	60,272
Money market funds	48,847		—		48,847
Asset-backed securities	—		16,687		16,687
Corporate bonds	—		109,605		109,605
International government bonds	—		2,638		2,638
Corporate commercial paper	—		9,034		9,034
Bank deposits	—		45,080		45,080
Repurchase agreements	—		142		142
Total assets measured at fair value	$	109,119	$	183,186	$	292,305

U.S. government treasuries and U.S. government agency securities as of April 1, 2018 do not include any U.S. government guaranteed bank issued paper.

The securities in Level 1 are highly liquid and actively traded in exchange markets or over-the-counter markets. Level 2 fixed income securities are priced using quoted market prices for similar instruments, non-binding market prices that are corroborated by observable market data. There were no transfers into or out of Level 1 or Level 2 financial assets during the three and nine months ended December 30, 2018.

Deferred Compensation Plan:

The deferred compensation plan assets of $16.4 million and $16.9 million as of December 30, 2018 and April 1, 2018, respectively, are carried on the Condensed Consolidated Balance Sheets at their fair value which were determined on the basis of market prices observable for similar instruments and are considered Level 2 in the fair value hierarchy. See Note 14 for additional information on the Employee Benefit Plans.

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Convertible Notes:

The Convertible Notes are carried on the Condensed Consolidated Balance Sheets at their original issuance value including accreted interest, net of unamortized debt discount and issuance cost. The Convertible Notes are not marked to fair value at the end of each reporting period. The fair value of Convertible Notes was $577.0 million and $422.0 million as of December 30, 2018 and April 1, 2018, respectively, which was determined on the basis of market prices observable for similar instruments and is considered Level 2 in the fair value hierarchy. See Note 15 for additional information on the Convertible Notes.

Bank Loan:

The Term B-1 Loan is carried on the Condensed Consolidated Balance Sheets at its outstanding principal balance including accreted interest, net of unamortized debt discount and issuance cost. The fair value of the Term B-1 Loan and the Initial Term B Loan was $193.4 million and $199.6 million as of December 30, 2018 and April 1, 2018, respectively. The Company classified the Term B-1 Loan as Level 2 fair value measurement hierarchy as the debt is not actively traded and has variable interest structure based upon market rates currently available to the Company for debt with similar terms and maturities. Refer to Note 16 for additional information.

Others:

In fiscal 2017, IDT purchased substantially all of the assets and liabilities of Synkera Technologies, Inc. (Synkera) for total purchase consideration of approximately $2.8 million, of which $1.5 million was paid in cash at closing and $1.3 million was recorded as a liability representing the fair value of contingent cash consideration of up to $1.5 million. The liability was recognized for the Company’s estimate of the fair value of contingent consideration on the acquisition date based on probability-based attainment of certain milestones. This fair value measurement is based on significant inputs not observed in the market and thus represents a Level 3 measurement, which reflects the Company’s own assumptions concerning the milestones related to the acquired business in measuring fair value. During the nine months ended December 30, 2018, the Company paid $0.7 million upon the achievement of certain milestones. The fair value of the liability measured using significant unobservable inputs (Level 3) was approximately $0.6 million and $1.3 million as of December 30, 2018 and April 1, 2018, respectively.

In fiscal 2018, the Company purchased certain assets of SpectraBeam, LLC ("SpectraBeam") for a total purchase consideration of $17.0 million, of which $12.9 million was paid in cash at closing and $4.1 million was recorded as a liability representing the contingent cash consideration. The liability was recognized for the Company’s estimate of the fair value of contingent consideration on the acquisition date based on probability-based attainment of certain milestones. The fair value measurement is based on significant inputs not observed in the market and thus represents a Level 3 measurement, which reflects the Company’s own assumptions concerning the milestones related to the asset acquisition in measuring fair value. During the nine months ended December 30, 2018, the Company paid $2.1 million upon the achievement of certain milestones. The fair value of the liability measured using significant unobservable inputs (Level 3) was approximately $2.0 million and $4.1 million as of December 30, 2018 and April 1, 2018, respectively.

Note 6. Investments

Available-for-Sale Securities

The amortized cost and fair value of available-for-sale investments as of December 30, 2018 were as follows:



(in thousands)	Cost			Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Money market funds	$	149,836		$	—	$	—	$	149,836
Asset-backed securities	9,555			—		—		9,555
Corporate bonds	100,467			—		—		100,467
Bank deposits	72,737			—		—		72,737
Repurchase agreements	18,741			—		—		18,741
Total available-for-sale investments	351,336			—		—		351,336
Less amounts classified as cash equivalents	(194,207		)	—		—		(194,207		)
Short-term investments	$	157,129		$	—	$	—	$	157,129

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The amortized cost and fair value of available-for-sale investments as of April 1, 2018 were as follows:



(in thousands)	Cost			Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
U.S. government treasuries and agencies securities	$	61,166		$	—	$	(894	)	$	60,272
Money market funds	48,847			—		—			48,847
Asset-backed securities	16,797			—		(110		)	16,687
Corporate bonds	111,266			43		(1,704		)	109,605
International government bonds	2,650			—		(12		)	2,638
Corporate commercial paper	9,034			—		—			9,034
Bank deposits	45,080			—		—			45,080
Repurchase agreements	142			—		—			142
Total available-for-sale investments	294,982			43		(2,720		)	292,305
Less amounts classified as cash equivalents	(70,279		)	—		—			(70,279		)
Short-term investments	$	224,703		$	43	$	(2,720	)	$	222,026

The cost and estimated fair value of available-for-sale securities as of December 30, 2018, by contractual maturity, were as follows:



(in thousands)	Amortized Cost		Estimated Fair Value
Due in 1 year or less	$	288,211	$	288,211
Due in 1-2 years	49,120		49,120
Due in 2-5 years	14,005		14,005
Total investments in available-for-sale securities	$	351,336	$	351,336

As of December 30, 2018, the Company did not have any investments in an unrealized position for which an other-than-temporary impairment had not been recognized. The following table shows the gross unrealized losses and fair value of the Company’s investments with unrealized losses as of April 1, 2018, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position.



	Less Than 12 Months					12 Months or Greater					Total
(in thousands)	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
Corporate bonds	$	78,726	$	(1,324	)	$	23,286	$	(380	)	$	102,012	$	(1,704	)
Asset-backed securities	14,147		(90		)	2,540		(20		)	16,687		(110		)
U.S. government treasuries and agencies securities	25,352		(221		)	34,920		(673		)	60,272		(894		)
International government bonds	—		—			2,638		(12		)	2,638		(12		)
Total	$	118,225	$	(1,635	)	$	63,384	$	(1,085	)	$	181,609	$	(2,720	)

During the three months ended December 30, 2018, the Company recognized an impairment of $1.3 million on available-for-sale investments based on its evaluation of available evidence and the Company's intent to sell these investments during the fourth quarter of fiscal 2019 to fully settle the outstanding balance of its Term B-1 Loan. Gains and losses recognized in earnings are credited or charged to interest income and other on the condensed consolidated statements of operations. Substantially all of the Company’s unrealized losses on its available-for-sale marketable debt instruments can be attributed to fair value fluctuations in an unstable credit environment that resulted in a decrease in the market liquidity for debt instruments.

Non-marketable Equity Securities

As of December 30, 2018 and April 1, 2018, the Company holds capital stock of privately-held companies with total amount of $25.4 million and $27.3 million, respectively. During the nine months ended December 30, 2018, the Company purchased preferred shares of a privately-held company for $1.0 million. These investments in stocks (included in Other Assets on the Condensed

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Consolidated Balance Sheets) are accounted for as cost-method investments, as the Company owns less than 20% of the voting securities and does not have the ability to exercise significant influence over operating and financial policies of each entity. The Company measures equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer (referred to as the measurement alternative). The Company recorded impairment charges of $0.8 million and $2.8 million for certain investment during the three and nine months ended December 30, 2018, respectively. There was no impairment charge during the three and nine months ended December 31, 2017.

Note 7. Stock-Based Employee Compensation

Total stock-based compensation expense, related to all of the Company’s share-based awards, was comprised as follows:



	Three Months Ended				Nine Months Ended
(in thousands)	December 30, 2018		December 31, 2017		December 30, 2018		December 31, 2017
Cost of revenues	$	919	$	790	$	2,776	$	2,186
Research and development	17,701		6,816		32,666		18,871
Selling, general and administrative	18,850		5,974		32,728		17,291
Total stock-based compensation expense	$	37,470	$	13,580	$	68,170	$	38,348

In November 2018, the Company’s Board of Directors, in connection with the Merger Agreement, approved the following amendments to equity awards held by certain of the Company’s executive officers:


•	Acceleration of the vesting date and exercisability of unvested stock options to December 26, 2018.

•

Conversion of certain restricted stock units (RSUs) and performance-based RSUs (PSUs) into restricted stock awards (RSAs) and acceleration of vesting for portion of the total RSAs on December 26, 2018. The remaining RSAs which were not covered by vesting acceleration will continue to vest based on the original vesting schedules of the respective RSUs and PSUs, and subject to the executive officers continuing to provide services to the Company.

The Company recorded $20.0 million of stock-based compensation expense related to the acceleration of unvested stock options and certain RSAs. Also, the Company recorded $37.7 million of treasury stock representing withholding of employees’ vested RSAs for tax withholding purposes. Such amount was considered an outlay to repurchase the Company’s equity instrument and was classified as a financing activity in the Condensed Consolidated Statement of Cash Flows.

The amount of stock-based compensation expense that was capitalized during the periods presented above was immaterial.

Note 8. Stockholders' Equity

Stock Repurchase Program. On April 24, 2018, the Company's Board of Directors approved an increase to the share repurchase authorization of $400 million. In the nine months ended December 30, 2018, the Company repurchased 2.6 million shares for $87.5 million. As of December 30, 2018, approximately $419.3 million was available for future purchase under the share repurchase program. Shares repurchased were recorded as treasury stock and resulted in a reduction of stockholder's equity. Due to the pending merger with Renesas, the Company suspended further repurchases under its repurchase program effective September 11, 2018.

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Note 9. Balance Sheet Detail



(in thousands)	December 30, 2018			April 1, 2018
Inventories, net
Raw materials	$	3,738		$	4,345
Work-in-process	37,728			45,713
Finished goods	24,676			18,644
Total inventories, net	$	66,142		$	68,702
Accounts receivable, net
Accounts receivable, gross	$	121,637		$	120,953
Allowance for returns, price credits and doubtful accounts (1)	(1,728		)	(12,174		)
Total accounts receivable, net	$	119,909		$	108,779
Property, plant and equipment, net
Land	$	11,535		$	11,535
Machinery and equipment	305,210			285,784
Building and leasehold improvements	51,311			50,722
Total property, plant and equipment, gross	368,056			348,041
Less: accumulated depreciation (2)	(277,179		)	(261,196		)
Total property, plant and equipment, net	$	90,877		$	86,845



Other accrued liabilities
Accrued restructuring costs (3)	$	1,386	$	4,637
Current income tax payable	4,783		6,281
Refund liabilities (1)	14,356		—
Other (4)	24,909		15,606
Total other accrued liabilities	$	45,434	$	26,524



Other long-term obligations
Deferred compensation related liabilities	$	16,324	$	16,310
Other (5)	11,062		9,374
Total other long-term liabilities	$	27,386	$	25,684

(1) Upon adoption of ASC Topic 606 under the modified retrospective method, price adjustment and other revenue reserves were presented in “Other Accrued Liabilities” effective April 2, 2018. Those reserves were previously included in “Accounts Receivable, Net”. Refer to Note 3 for additional information.

(2) Depreciation expense was $7.0 million and $6.2 million for the three months ended December 30, 2018 and December 31, 2017, respectively. Depreciation expense was $20.5 million and $19.4 million for the nine months ended December 30, 2018 and December 31, 2017, respectively.

(3) Includes accrued severance costs related to various restructuring actions. Refer to Note 12 for additional information.

(4) Other current liabilities consist primarily of current portion of liability for contingent consideration, merger-related expenses associated with the pending merger with Renesas, current portion of deferred revenue and other accrued unbilled expenses.

(5) Other long-term obligations consist primarily of non-current portion of deferred revenue and other long-term accrued liabilities.

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Note 10. Accumulated Other Comprehensive Income (Loss)

Changes in the balance of accumulated other comprehensive income (loss) by component, net of tax, for the nine months ended December 30, 2018 consisted of the following:



(in thousands)	Cumulative translation adjustments			Unrealized gain (loss) on available-for-sale investments			Pension adjustments		Total
Balance as of April 1, 2018	$	(2,151	)	$	(2,677	)	$	65	$	(4,763	)
Other comprehensive income (loss) before reclassifications	(3,554		)	700			270		(2,584		)
Amounts reclassified out of accumulated other comprehensive loss	—			1,977			—		1,977
Net current-period other comprehensive income (loss)	(3,554		)	2,677			270		(607		)
Balance as of December 30, 2018	$	(5,705	)	$	—		$	335	$	(5,370	)

Comprehensive income components consisted of:



(in thousands)	Nine Months Ended December 30, 2018		Location
Realized loss on available-for-sale securities	$	652	Interest income and other, net
Impairment of available-for-sale securities	1,325		Interest income and other, net
Total amounts reclassified out of accumulated other comprehensive income (loss)	$	1,977

Note 11. Goodwill and Intangible Assets, Net

During the first quarter of fiscal 2019, the Company revised the composition of its reportable segments as a result of certain organizational changes (Refer to Note 18 for details). Goodwill was reallocated between the two reportable segments using a relative fair value approach. As a result, the Company completed assessments of any potential goodwill impairment for all reportable segments immediately prior to and after the reallocation and determined that no impairment existed.

Goodwill balances by reportable segment as of December 30, 2018 and April 1, 2018 are as follows:



	Reportable Segments
(in thousands)	Communications			Computing, Consumer and Industrial		Total
Balance as of April 1, 2018	$	141,300		$	278,817	$	420,117
Reallocation of goodwill	(21,206		)	21,206		—
Balance as of December 30, 2018	$	120,094		$	300,023	$	420,117

Goodwill balances as of December 30, 2018 and April 1, 2018 were net of $920.3 million in accumulated impairment losses. Intangible asset balances as of December 30, 2018 and April 1, 2018 are summarized as follows:



	December 30, 2018
(in thousands)	Gross Assets		Accumulated Amortization			Net Assets
Purchased intangible assets:
Developed technology	$	343,403	$	(242,876	)	$	100,527
Trademarks	5,391		(5,391		)	—
Customer relationships	201,997		(158,543		)	43,454
Intellectual property licenses	7,500		(4,800		)	2,700
Software licenses	20,894		(3,990		)	16,904
Total purchased intangible assets	$	579,185	$	(415,600	)	$	163,585

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	April 1, 2018
(in thousands)	Gross Assets		Impairment			Accumulated Amortization			Net Assets
Purchased intangible assets:
Developed technology	$	336,402	$	—		$	(223,882	)	$	112,520
Trademarks	5,391		—			(5,391		)	—
Customer relationships	201,997		—			(149,416		)	52,581
Intellectual property licenses	7,500		—			(3,901		)	3,599
Software licenses	6,023		—			(943		)	5,080
Total amortizable purchased intangible assets	557,313		—			(383,533		)	173,780
In-process research and development (IPR&D)	9,017		(2,016		)	—			7,001
Total purchased intangible assets	$	566,330	$	(2,016	)	$	(383,533	)	$	180,781

Amortization expense for the three months ended December 30, 2018 and December 31, 2017 was $11.3 million and $10.4 million, respectively. Amortization expense for the nine months ended December 30, 2018 and December 31, 2017 was $32.1 million and $32.0 million, respectively. During the nine months ended December 31, 2017, the Company recorded an accelerated amortization charge of $2.0 million related to certain software licenses as the estimated future cash flows expected resulting from the use of the assets were less than the carrying amount.

The intangible assets are being amortized over estimated useful lives of 1 to 7 years.

Based on the intangible assets recorded as of December 30, 2018, the expected future amortization expense for intangible assets is as follows (in thousands):



Fiscal Year	Amount
2019 (Remaining 3 months)	$	11,498
2020	46,589
2021	45,633
2022	40,350
2023 and thereafter	19,515
Total intangible assets	$	163,585

Note 12. Restructuring

The following table shows the provision of the restructuring charges and the liability remaining as of December 30, 2018:



(in thousands)	Amount
Severance and related charges:
Balance as of April 1, 2018	$	4,637
Provision	1,891
Payments and other adjustments	(5,142		)
Balance as of December 30, 2018	$	1,386
Facility and related charges:
Balance as of April 1, 2018	$	2,281
Provision	315
Payments and other adjustments	(2,233		)
Balance as of December 30, 2018	$	363

As part of an effort to streamline operations with changing market conditions and to create a more efficient organization, the Company has undertaken restructuring actions to reduce its workforce and consolidate facilities. The Company’s restructuring expenses consist primarily of severance and termination benefit costs related to the reduction of its workforce, asset impairment charges and lease obligation charges related to a facility that is no longer used.

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Integration-related Restructuring Plans

In fiscal 2018, the Company implemented planned cost reduction and restructuring activities in connection with the acquisition of GigPeak. Accordingly, the Company reduced headcount by 46 and recorded severance costs of approximately $2.7 million, of which $2.1 million was paid during fiscal 2018 and $0.6 million was paid in the nine months ended December 30, 2018.

In connection with the GigPeak integration, the Company recorded $2.8 million in fiscal 2018 for lease obligation charges related to a facility that the Company had determined to meet the cease-use date criteria. The fair value of this liability at the cease-use date was determined based on the remaining cash flows for lease rentals, and minimum lease payments, reduced by estimated sublease rentals, discounted using a credit adjusted risk free rate in accordance with ASC 420, Exit or Disposal Cost Obligations. During the three months ended September 30, 2018, the Company entered into a lease termination agreement and paid a lease termination fee of $1.5 million for the early termination of the lease. No penalties were incurred as a result of the early termination. As of December 30, 2018, the total accrued balance was $0.2 million, which is expected to be paid by the fourth quarter of fiscal 2019.

Other Restructuring Plans

In fiscal 2018, the Company exited certain non-strategic businesses and reduced headcount by 63. The Company recorded employee severance costs of approximately $5.1 million, of which $2.3 million was paid during fiscal 2018. The Company recorded additional accruals of $0.5 million and paid $3.3 million in the nine months ended December 30, 2018. During the three months ended September 30, 2018, the Company reduced headcount by 18 and recorded an accrual of $1.4 million related to this action, of which $0.6 million was paid during the three months ended December 30, 2018. As of December 30, 2018, the total accrued balance for employee severance costs related to those actions was $0.8 million, which is expected to be paid by the first quarter of fiscal 2020. The balance of facility and related charges also included a $0.2 million lease liability related to the cease-use of a design center, which is expected to be fully paid in fiscal 2022.

In fiscal 2017, the Company prepared a workforce-reduction plan with respect to employees and closed its remaining business in France. The Company has substantially completed payments of termination benefits and the total accrued balance related to this action was $0.8 million as of April 1, 2018. The Company paid $0.5 million during the first quarter of fiscal 2019. Accordingly, the total accrued balance for employee severance costs related to this action was $0.3 million as of December 30, 2018. The Company expects to complete this action by the fourth quarter of fiscal 2019.

In fiscal 2015, the Company prepared a workforce-reduction plan with respect to employees of its HSC business in France and the Netherlands. The Company has substantially completed payments of termination benefits and the total accrued balance related to this action was $0.6 million as of April 1, 2018. The Company paid $0.3 million during the three months ended December 30, 2018. The Company expects to complete this action by the fourth quarter of fiscal 2019.

Note 13. Commitments and Contingencies

Warranty

The Company maintains an accrual for obligations it incurs under its standard product warranty program and customer, part, or process specific matters. The Company’s standard warranty period is one year, however in certain instances the warranty period may be extended to as long as two years. Management estimates the fair value of the Company’s warranty liability based on actual past warranty claims experience, its policies regarding customer warranty returns and other estimates about the timing and disposition of product returned under the standard program. Customer, part, or process specific accruals are estimated using a specific identification method. Historical profit and loss impact related to warranty returns activity has been minimal. The total warranty accrual was $0.1 million and $0.3 million as of December 30, 2018 and April 1, 2018, respectively.

Litigation

On September 10, 2018, the Company and Renesas announced that they had entered into an Agreement and Plan of Merger, dated as of September 10, 2018. On November 20, 2018, a purported class action was filed in Santa Clara County Superior Court (Phalen v. Integrated Device Technology, Inc., et al., Case No. 18CV338946). On November 26, 2018, a purported class action was filed in the United States District Court of Delaware (Rosenblatt v. Integrated Device Technology, Inc., et al., Case No. 18-cv-01860-LPS). On November 28, 2018, a second purported class action was filed in the United States District Court of Delaware (Wang v. Integrated Device Technology, Inc., et al., Case No. 18-cv-01885-LPS). On November 30, 2018, a purported class action was filed in the United States District Court for the Northern District of California (Neeld v. Integrated Device Technology, Inc., et al., Case No. 3:18-cv-07217-SI). The Company was named as a defendant in all four class action complaints. The Phalen complaint asserted claims for breach of fiduciary duties, and sought to enjoin the proposed transaction between the Company and Renesas as well as certain other equitable relief, unspecified damages and attorneys’ fees and costs. The Rosenblatt, Wang, and Neeld complaints asserted claims under Sections 14 and 20 of the Securities Exchange Act of 1934, alleging that the Preliminary Proxy Statement on Schedule 14A filed by the Company with the SEC contained material omissions and misstatements, and sought to enjoin the proposed transaction between the Company and Renesas as well as certain other equitable relief, unspecified damages and attorneys’ fees and costs. On or around January 23, 2019, Phalen voluntarily dismissed his complaint with prejudice. On or around January

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31, 2019, Rosenblatt and Wang voluntarily dismissed their complaints with prejudice. On or around February 1, 2019, Neeld voluntarily dismissed his complaint with prejudice.

In January 2012, Maxim I Properties, a general partnership that had purchased a certain parcel of real property (the Property) in 2003, filed a complaint in the Northern District of California naming approximately 30 defendants, including the Company ("Defendants"), alleging various environmental violations of the federal Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA") and Resource Conservation and Recovery Act ("RCRA"), the California Hazardous Substance Account Act ("HSAA"), and other common law claims (the Complaint). The Complaint alleged that Defendants including the Company “…generated, transported, and/or arranged for the transport and/or disposal of hazardous waste to the Property.” On August 15, 2012, Maxim I Properties voluntarily dismissed its Complaint without prejudice. However, another defendant, Moyer Products, Inc., counter-claimed against the plaintiff, Maxim, and cross-claimed against the remaining co-Defendants, including the Company. Thus, the Company remains a cross-defendant in this action.

In a related, but independent action, the California Department of Toxic Substances Control ("DTSC") notified the Company in September 2012 that the Company, and more than 50 other entities, were being named as respondents to DTSC's Enforcement Order, as “a generator of hazardous waste.” In April 2013, the Company, along with the other “respondent” parties, entered into a Corrective Action Consent Agreement ("CACA") with the DTSC, agreeing to conduct the Property investigation and corrective action selection. The CACA supersedes the DTSC's Enforcement Order. The District Court for the Northern District of California stayed the Maxim/Moyer litigation pending the Property investigation under the CACA and DTSC's corrective action selection.

Property investigation activity took place between April 2013 and June 2015. On June 23, 2015, the DTSC deemed the Property investigation complete. The DTSC continues to evaluate corrective action alternatives. The Company will continue to vigorously defend itself against the allegations in the Complaint and evaluate settlement options with Moyer upon notification from DTSC of its corrective action selection. No specific corrective action has been selected yet, and thus no specific monetary demands have been made.

The Company may also be a party to various other legal proceedings and claims arising in the normal course of business from time to time. With regard to the matters listed above, along with various other legal proceedings and claims and future matters that may arise, potential liability and probable losses or ranges of possible losses due to an unfavorable litigation outcome cannot be reasonably estimated at this time. Generally, litigation is subject to inherent uncertainties, and no assurance can be given that the Company will prevail in any particular lawsuit or claim. Pending lawsuits, claims as well as potential future litigation, could result in substantial costs and diversion of resources and could have a material adverse effect on the Company's financial condition, results of operations or cash flows.

Note 14. Employee Benefit Plans

401(k) Plan

The Company sponsors a 401(k) retirement matching plan for qualified domestic employees. The Company recorded expenses of approximately $2.3 million and $1.9 million in matching contributions under the plan during the nine months ended December 30, 2018 and December 31, 2017, respectively.

Deferred Compensation Plans

Effective November 1, 2000, the Company established an unfunded deferred compensation plan to provide benefits to executive officers and other key employees. Under the plan, participants can defer any portion of their salary and bonus compensation into the plan and may choose from a portfolio of funds from which earnings are measured. Participant balances are always 100% vested. As of December 30, 2018 and April 1, 2018, obligations under the plan totaled approximately $16.3 million, respectively. Additionally, the Company has set aside assets in a separate trust that is invested in corporate owned life insurance intended to substantially fund the liability under the plan. As of December 30, 2018 and April 1, 2018, the deferred compensation plan assets were approximately $16.4 million and $16.9 million, respectively.

During the first quarter of fiscal 2013, the Company assumed a deferred compensation plan associated with the acquisition of Fox Enterprises, Inc. Under this plan, participants in retirement are entitled to receive a fixed amount from the Company on a monthly basis. The Company has purchased life insurance policies with the intention of funding the liability under this plan. As of both December 30, 2018 and April 1, 2018, the deferred compensation plan assets were approximately $0.4 million. As of both December 30, 2018 and April 1, 2018, the liabilities under this plan were approximately $0.8 million.

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Note 15. Convertible Senior Notes, Warrants and Hedges

Convertible Notes Offering

On October 29, 2015, the Company priced its private offering of $325.0 million in aggregate principal amount of 0.875% Convertible Senior Notes due 2022 ("Initial Convertible Notes"). On November 3, 2015, the initial purchasers in such offering exercised in full the over-allotment option to purchase an additional $48.8 million in aggregate principal amount of Convertible Notes (“Additional Convertible Notes”, and together “Convertible Notes”). The aggregate principal amount of Convertible Notes is $373.8 million. The net proceeds from this offering were approximately $363.4 million, after deducting the initial purchasers’ discounts and commissions and the offering expenses.

The Convertible Notes are governed by the terms of an indenture, dated November 4, 2015 (“Indenture”), between the Company and a trustee. The Convertible Notes are the senior unsecured obligations of the Company and bear interest at a rate of 0.875% per annum, payable semi-annually in arrears on May 15 and November 15 of each year, commencing May 15, 2016. The Convertible Notes will mature on November 15, 2022, unless earlier repurchased or converted. At any time prior to the close of business on the business day immediately preceding August 15, 2022, holders may convert their Convertible Notes at their option only under the following circumstances: (1) during any fiscal quarter commencing after the fiscal quarter ending on April 3, 2016 (and only during such fiscal quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of Convertible Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the common stock and the conversion rate on each such trading day; or (3) upon the occurrence of specified corporate events. On or after August 15, 2022 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their notes at any time, regardless of the forgoing circumstances.

The conversion rate for the Convertible Notes will initially be 29.8920 shares of common stock per $1,000 principal amount of Convertible Notes, which corresponds to an initial conversion price of approximately $33.45 per share of common stock. The conversion rate is subject to adjustment from time to time upon the occurrence of certain events, including, but not limited to, the issuance of certain stock dividends on common stock, the issuance of certain rights or warrants, subdivisions, combinations, distributions of capital stock, indebtedness, or assets, the payment of cash dividends and certain issuer tender or exchange offers.

At the debt issuance date, the Convertible Notes, net of issuance costs, consisted of the following:



(in thousands)	November 3, 2015
Liability component
Principal	$	274,435
Less: Issuance cost	(7,568		)
Net carrying amount	266,867
Equity component *
Allocated amount	99,316
Less: Issuance cost	(2,738		)
Net carrying amount	96,578
Convertible Notes, net	$	363,445

* Recorded on the Condensed Consolidated Balance Sheets within additional paid-in capital.

The following table includes total interest expense recognized related to the Convertible Notes during the three and nine months ended December 30, 2018 and December 31, 2017:



	Three Months Ended				Nine Months Ended
(in thousands)	December 30, 2018		December 31, 2017		December 30, 2018		December 31, 2017
Contractual interest expense	$	826	$	827	$	2,480	$	2,480
Amortization of debt discount	3,437		3,254		10,173		9,631
Amortization of debt issuance costs	271		270		811		811
	$	4,534	$	4,351	$	13,464	$	12,922

The net liability component of Convertible Notes is comprised of the following as of December 30, 2018:

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(in thousands)	December 30, 2018
Net carrying amount as of April 1, 2018	$	299,551
Amortization of debt issuance costs during the period	10,173
Amortization of debt discount during the period	811
Net carrying amount as of December 30, 2018	$	310,535

During both the three and nine months ended December 30, 2018 and December 31, 2017, the Company paid contractual interest on the Convertible Notes of approximately $1.6 million and $3.3 million, respectively. See Note 5 to the Company's condensed consolidated financial statements for fair value disclosures related to the Company's Convertible Notes.

The price of the Company’s common stock was greater than or equal to 130% of the conversion price for at least 20 trading days during the 30 consecutive trading days ending on the last trading day of fiscal quarter ended December 30, 2018. Therefore, as of December 30, 2018, the conversion threshold had been met and the Convertible Notes became convertible at the holders’ option beginning on December 31, 2018 and ending on March 31, 2019. As such, the $310.5 million carrying value of the Convertible Notes as of December 30, 2018 was classified as a current liability and the $63.2 million difference between the principal amount and the carrying value of the Convertible Notes was reclassified from shareholders' equity to convertible debt conversion obligation in the mezzanine equity section of the Condensed Consolidated Balance Sheet as of December 30, 2018. The determination of whether or not the Convertible Notes are convertible must continue to be performed on a quarterly basis. Consequently, the Convertible Notes may be reclassified as long-term debt and the convertible debt conversion obligation may be reclassified within shareholders' equity if the conversion threshold is not met in future quarters.

Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of common stock or a combination of cash and shares of common stock, at the Company’s election. Holders will not receive any additional cash payment or additional shares of the Company's common stock representing accrued and unpaid interest, if any, upon conversion of a Convertible Note, except in limited circumstances. Instead, interest will be deemed to be paid by the cash and shares, if any, of the Company’s common stock paid or delivered, as the case may be, to such holder upon conversion of a Convertible Note. As of December 30, 2018, the Company had not received conversion notices and no conversions had taken place.

Convertible Note Hedge and Warrant Transactions

In connection with the pricing of the Convertible Notes, on October 29, 2015, the Company entered into convertible note hedge transaction (the "Initial Bond Hedge"), with JPMorgan Chase Bank, National Association (the “Option Counterparty”) and paid $81.9 million.

On October 29, 2015, the Company also entered into separate warrant transaction (the "Initial Warrant Transaction") with the Option Counterparty and received $49.4 million.

In connection with the exercise of the Over-Allotment Option, on November 3, 2015, the Company entered into a convertible note hedge transaction (the “Additional Bond Hedge”, and together with the Initial Bond Hedges, the “Bond Hedge”) with the Option Counterparty and paid $12.3 million. On November 3, 2015, the Company also entered into separate additional warrant transaction (the “Additional Warrant Transaction”, and together with the Initial Warrant Transaction, the “Warrant Transactions”) with the Option Counterparty and received $7.4 million. Total amount paid for the purchase of bond hedge and total amount received for the sale of warrants were $94.2 million and $56.8 million, respectively.

The Bond Hedges are generally expected to reduce the potential dilution upon conversion of the Convertible Notes and/or offset any payments in cash, shares of common stock or a combination of cash and shares of common stock, at the Company’s election, that the Company is required to make in excess of the principal amount of the Convertible Notes upon conversion of any Convertible Notes, as the case may be, in the event that the market price per share of common stock, as measured under the terms of the Bond Hedges, is greater than the strike price $33.45 of the Bond Hedges, which initially corresponds to the conversion price of the Convertible Notes and is subject to anti-dilution adjustments substantially similar to those applicable to the conversion rate of the Convertible Notes. The Warrant Transactions will separately have a dilutive effect to the extent that the market value per share of common stock, as measured under the terms of the Warrant Transactions, exceeds the applicable strike price of the warrants issued pursuant to the Warrant Transactions (the “Warrants”). The initial strike price of the Warrants is $48.66 per share. The Bond Hedges and Warrants are not marked to market. The value of the Bond Hedges and Warrants were initially recorded in stockholders' equity and continue to be classified as stockholders' equity in accordance with ASC 815-40, Derivatives and Hedging–Contracts in Entity's Own Equity. As of December 30, 2018 and April 1, 2018, no warrants have been exercised.

Note 16. Term B Loan

On April 4, 2017, the Company, JP Morgan Chase bank, N.A.("JP Morgan") as administrative agent and a group of lenders entered into a credit agreement that provides for variable rate term loans in aggregate principal amount of $200.0 million, with an original term of 7 years (the "Initial Term B Loan"). After payment of transaction costs associated with the Credit Agreement, the Company received net proceeds from the Initial Term B Loan of approximately $194.3 million, which was used to partially finance the acquisition of GigPeak and other payments related to such transaction.

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On May 29, 2018 (the "Closing Date"), the Company entered into Amendment No. 1 (the “Amendment”) to its Credit Agreement, for the purpose of, among other things, reducing the interest margin applicable to loans under the Credit Agreement by 0.50%, all of which was treated as a debt modification. On the Closing Date, the aggregate principal amount of the term loans outstanding under the Credit Agreement was approximately $198.0 million. Under the Amendment, the lenders agreed to provide to IDT new term loans (the “Term B-1 Loan”) in the same aggregate principal amount as the outstanding Initial Term B Loan. Such Term B-1 Loan was used to refinance the outstanding Initial Term B Loan in full. The maturity date of the Term B-1 Loan is April 4, 2024; provided that if any of the Company's Convertible Notes are outstanding on August 16, 2022, the maturity date of which had not otherwise been extended to a date that is no earlier than 91 days after April 4, 2024, the Term B-1 Loan maturity date shall instead be August 16, 2022, unless the Company and its guarantors shall have cash, permitted investments and/or unwithdrawn revolving credit commitments in an aggregate amount not less than the aggregate principal amount of then outstanding Convertible Notes.

The Company will repay the principal amount of the Term B-1 Loan on the last day of each March 31, June 30, September 30 and December 31, in an amount equal to 0.25% of the principal amount of the Term B-1 Loan; and on the maturity date, as described above, in an amount equal to the remainder of the outstanding principal amount of the Term B-1 Loan. The Company may prepay the Term B-1 Loan, in whole or in part, at any time without premium or penalty, subject to certain conditions, and amounts repaid or prepaid may not be reborrowed. The interest rate of the Term B-1 Loan is based on adjusted LIBO rate which is equal to the LIBO rate for such interest period multiplied by statutory reserve rate, plus an applicable margin of 2.5% (3.0% prior to the Amendment). For the three-month periods ended December 30, 2018 and December 31, 2017, the interest rate on the Term B-1 Loan and the Initial Term B Loan was approximately 4.80% and 4.15%, respectively.

The following table summarizes the outstanding borrowings as of December 30, 2018 and April 1, 2018:



(in thousands)	December 30, 2018			April 1, 2018
Outstanding principal balance	$	197,010		$	198,000
Unamortized debt issuance costs and debt discount	(4,312		)	(4,927		)
Outstanding principal, net of unamortized debt issuance costs and debt discount	$	192,698		$	193,073
Classified as follows:
Current portion of bank loan	$	192,698		$	2,000
Long-term bank loan	$	—		$	191,073

As of December 30, 2018, the Company has reclassified the Term B-1 Loan with net carrying amount of $192.7 million to short-term liability based on its intent and ability to fully settle the Term B-1 Loan within the next twelve months and prior to the close of the Merger.

The Company made payments totaling $1.0 million towards the outstanding principal balance of the Term B-1 Loan during the nine months ended December 30, 2018. The following table includes the total interest expense recognized during the three and nine months ended December 30, 2018 and December 31, 2017, respectively:



	Three Months Ended				Nine Months Ended
(in thousands)	December 30, 2018		December 31, 2017		December 30, 2018		December 31, 2017
Contractual interest expense	$	2,390	$	2,015	$	7,049	$	6,398
Amortization of debt issuance costs and debt discount	205		205		615		614
Total	$	2,595	$	2,220	$	7,664	$	7,012

The Credit Agreement contains customary affirmative and negative covenants, including covenants that limit or restrict the Company and its subsidiaries’ ability to, among other things, incur indebtedness, grant liens, merge or consolidate, dispose of assets, make investments, make acquisitions, enter into transactions with affiliates, pay dividends or make distributions and repurchase stock. The Credit Agreement includes customary events of default, including among others, nonpayment of principal or interest, material inaccuracy of representations and failure to comply with covenants. Under certain circumstances, a default interest rate will apply on all overdue obligations under the Credit Agreement at a per annum rate equal to 2.00% above the applicable interest rate for any overdue principal and 2.00% above the rate applicable for base rate loans for any other overdue amounts. The occurrence of an event of default could result in the acceleration of obligations. The Company is in compliance with the covenants as of December 30, 2018.

See Note 5 to the Company's consolidated financial statements for fair value determination.

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Note 17. Income Taxes

During the three and nine months ended December 30, 2018, the Company recorded an income tax benefit of $4.3 million and $0.1 million, respectively. The Company recorded an income tax expense of $101.0 million and $100.0 million during the three and nine months ended December 31, 2017, respectively.

The income tax benefit recorded in the three and nine months ended December 30, 2018 was primarily due to the tax benefit from excess tax benefits on stock-based compensation and the impacts of the current year U.S. taxation of certain income of the Company’s foreign subsidiaries and an increase in higher-taxed earnings in foreign jurisdictions, partially offset by tax benefits from U.S. research and development and future foreign tax credit arising from withholding taxes on unrepatriated foreign earnings. The income tax expense recorded in the nine months ended December 31, 2017 was primarily due to the reduction of the deferred tax liability related to amortization of acquired intangible assets as well as the tax benefit from excess tax benefits on stock-based compensation.

The Company’s effective tax rate was significantly less than the U.S. federal statutory rate of 21% in all periods primarily due to the benefits of lower-taxed earnings in foreign jurisdictions, including Malaysia, where a tax holiday is in effect through fiscal 2021.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (“TCJA”). The TCJA provides for numerous significant tax law changes and modifications including, among other things, reducing the U.S. federal corporate tax rate from 35 percent to 21 percent; requiring companies to pay a one-time transition tax on certain unremitted earnings of foreign subsidiaries; generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; and creating a new limitation on deductible interest expense. Certain provisions of the TCJA began to impact the Company fiscal year 2018, while other provisions began to impact the Company beginning in fiscal year 2019.

The SEC staff issued Staff Accounting Bulletin 118 which allows companies to record provisional amounts during a measurement period that is similar to the measurement period used when accounting for business combinations. As of April 1, 2018, the Company has made reasonable estimates of the effects on its existing deferred tax balances and the one-time repatriation tax recording provisional charges of $10.3 million and $103.9 million, respectively, as a component of income tax expense from continuing operations.

The $10.3 million charge for the effect on the Companies deferred tax balances resulted from the reduction of the corporate income tax rate to 21%. U.S. GAAP requires companies to remeasure their deferred tax assets and liabilities as of the date of enactment, with resulting tax effects accounted for in the reporting period of enactment. The Company remeasured deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future.

The $103.9 million charge for the one-time repatriation tax increased other accrued liabilities by $1.5 million, increased long-term income taxes payable by $24.1 million, and reduced deferred tax assets, for the utilization of tax attributes, by $78.3 million. The liabilities resulting from the repatriation tax are payable over a period of up to eight years. The provisional amount was based on the Company’s total post-1986 earnings and profits (“E&P”) of its foreign subsidiaries. The majority of these earnings were historically permanently reinvested outside the United States, thus no taxes had previously been provided for these earnings. In addition, the one-time repatriation tax is based in part on the amount of those earnings held in cash and other specified assets either as of the end of fiscal year 2018 or the average of the year-end balances for fiscal years 2016 and 2017.

The TCJA creates a new Global Intangible Low-Taxed Income (“GILTI”) requirement under which certain income earned by controlled foreign corporations (“CFC”s) must be included currently in the gross income of the CFCs’ U.S. shareholder. GILTI is the excess of the shareholder’s “net CFC tested income” over the net deemed tangible income return, which is currently defined as the excess of (1) 10 percent of the aggregate of the U.S. shareholder’s pro rata share of the qualified business asset investment of each CFC with respect to which it is a U.S. shareholder over (2) the amount of certain interest expense taken into account in the determination of net CFC-tested income.

Under U.S. GAAP, the Company is allowed to make an accounting policy choice of either (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost method”) or (2) factoring such amounts into a company’s measurement of its deferred taxes (the “deferred method”). The Company’s selection of an accounting policy with respect to the new GILTI tax rules will depend, in part, on analyzing the Company’s global income to determine what the impact is expected to be. The Company has elected to treat any future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost method”).

As of December 30, 2018, the Company completed its accounting for the tax effects of the enactment of the TCJA and had no material adjustments made to the provisional amounts recorded in the prior fiscal year, and the SAB 118 measurement period subsequently ended on December 22, 2018. Although the Company no longer considers these amounts to be provisional, the determination of the Tax Act’s income tax effects may change following future legislation or further interpretation of the Tax Act

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based on the publication of recently proposed U.S. Treasury regulations and guidance from the Internal Revenue Service and state tax authorities.

In fiscal year 2018, in connection with the TCJA and review of the Company’s projected offshore cash flows, and global cash requirements, the Company determined that historical foreign earnings would no longer be permanently reinvested. The Company plans to continue to repatriate its offshore earnings to the U.S. for domestic operations, and has accrued for the related tax impacts accordingly.

As of December 30, 2018, the Company continues to maintain a valuation allowance against the Company's net deferred tax assets in certain foreign and state jurisdictions, as the Company is not able to conclude that it is more likely than not that these deferred tax assets will be realized. The Company reached this decision based on judgment, which included consideration of historical operating results and projections of future profits. The Company will continue to monitor the need for the valuation allowance on a quarterly basis.

The Company benefits from tax incentives granted by local tax authorities in certain foreign jurisdictions. In the fourth quarter of fiscal 2011, the Company agreed with the Malaysia Industrial Development Board to enter into a new tax incentive agreement which is a full tax exemption on statutory income for a period of 10 years commencing April 4, 2011. This tax incentive agreement is subject to the Company meeting certain financial targets, investments, headcounts and activities in Malaysia.

As of December 30, 2018, the Company is under examination in Malaysia for fiscal years 2012 through 2017, in Canada for fiscal year 2018, in France for calendar years 2013 through 2014, and in India for fiscal years 2017 through 2018. Although the final outcome of each examination is uncertain, based on currently available information, the Company believes that the ultimate outcome will not have a material adverse effect on its financial position, cash flows or results of operations.

The Company's open years in the U.S. federal jurisdiction are fiscal year 2015 and later years. In addition, the Company is effectively subject to federal tax examination adjustments for tax years ended on or after fiscal year 2000, in that the Company has tax attribute carryforwards from these years that could be subject to adjustments, if and when utilized. The Company's open years in various state and foreign jurisdictions are fiscal years 2011 and later.

The Company does not expect a material change in unrecognized tax benefits within the next twelve months.

Note 18. Segment Information

The Chief Operating Decision Maker is the Company’s President and Chief Executive Officer.

During the first quarter of fiscal 2019, the Company reorganized its operating segment structure resulting in a change to the composition of its reportable segments. Prior to the reorganization, some product groups of the acquired GigPeak business were aggregated into the Communications segment while the rest were included in the Computing, Consumer and Industrial segment. As a result of the reorganization, the entire GigPeak business was aggregated to the Computing, Consumer and Industrial segment. The segment financial results for the three and nine months ended December 31, 2017 have been adjusted to conform to the new reportable segment structure effective April 2, 2018.

The Company's reportable segments include the following:


•	Communications segment: includes clock and timing solutions, radio frequency (RF), flow-control management such as multi-port products, telecommunication interface, high-speed static random access memory, first in and first out memory, digital logic and frequency control solutions and Serial RapidIO® switching solutions.


•	Computing, Consumer and Industrial segment: includes clock generation and distribution products, high-performance server memory interfaces, wireless power, PCI Express®, signal integrity, power management solutions, signal integrity products, optical interconnect, video distribution and contribution solutions and sensing products for mobile, automotive and industrial solutions.

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The tables below provide information about these segments:



Revenues by segment	Three Months Ended				Nine Months Ended
	December 30, 2018		December 31, 2017		December 30, 2018		December 31, 2017
(in thousands)			(1)				(1)
Communications	$	73,589	$	63,333	$	214,059	$	181,839
Computing, Consumer and Industrial	166,998		153,742		490,528

Price	48.44	EPS	1
Shares	137	P/E	61
MCap	6,645	P/FCF	32
Net Debt	-287	EBIT	141
TEV	6,358	TEV/EBIT	45
TTM 2018-12-30, in MM, except price, ratios

10-Q	2018-12-30	Filed 2019-02-06
10-Q	2018-09-30	Filed 2018-11-06
10-Q	2018-07-01	Filed 2018-08-07
10-K	2018-04-01	Filed 2018-05-18
10-Q	2017-12-31	Filed 2018-02-06
10-Q	2017-10-01	Filed 2017-11-07
10-Q	2017-07-02	Filed 2017-08-08
10-K	2017-04-02	Filed 2017-05-19
10-Q	2017-01-01	Filed 2017-02-07
10-Q	2016-10-02	Filed 2016-11-08
10-Q	2016-07-03	Filed 2016-08-09
10-K	2016-04-03	Filed 2016-05-20
10-Q	2016-01-03	Filed 2016-02-09
10-Q	2015-09-27	Filed 2015-10-29
10-Q	2015-06-28	Filed 2015-08-05
10-K	2015-03-29	Filed 2015-05-19
10-Q	2014-12-28	Filed 2015-02-04
10-Q	2014-09-28	Filed 2014-11-05
10-Q	2014-06-29	Filed 2014-08-06
10-K	2014-03-30	Filed 2014-05-28
10-Q	2013-12-29	Filed 2014-02-07
10-Q	2013-09-29	Filed 2013-11-06
10-Q	2013-06-30	Filed 2013-08-08
10-K	2013-03-31	Filed 2013-05-29
10-Q	2012-12-30	Filed 2013-02-07
10-Q	2012-09-30	Filed 2012-11-08
10-Q	2012-07-01	Filed 2012-08-08
10-K	2012-04-01	Filed 2012-05-21
10-Q	2012-01-01	Filed 2012-02-10
10-Q	2011-10-02	Filed 2011-11-09
10-Q	2011-07-03	Filed 2011-08-12
10-K	2011-04-03	Filed 2011-05-31
10-Q	2011-01-02	Filed 2011-02-10
10-Q	2010-09-26	Filed 2010-11-03
10-Q	2010-06-27	Filed 2010-08-04
10-K	2010-03-28	Filed 2010-05-25
10-Q	2009-12-27	Filed 2010-02-04

8-K	2019-03-29
8-K	2019-03-22
8-K	2019-01-29
8-K	2019-01-28
8-K	2019-01-15
8-K	2018-12-21
8-K	2018-10-29
8-K	2018-10-22
8-K	2018-09-18
8-K	2018-09-10
8-K	2018-07-30
8-K	2018-05-29
8-K	2018-04-30
8-K	2018-01-29

EX-31.1	idti-12302018xex311.htm
EX-31.2	idti-12302018xex312.htm
EX-32.1	idti-12302018xex321.htm
EX-32.2	idti-12302018xex322.htm

IDTI 10Q Quarterly Report

Integrated Device Technology Earnings 2018-12-30