UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended March 27, 2011
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. 0-14225
EXAR CORPORATION
(Exact Name of Registrant as specified in its charter)
Delaware | 94-1741481 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
48720 Kato Road, Fremont, CA 94538
(Address of principal executive offices, Zip Code)
Registrants telephone number, including area code: (510) 668-7000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class | Name of exchange on which registered | |
Common Stock, $0.0001 Par Value | The NASDAQ Global Market |
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 the Securities Act. Yes ¨ No x
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No x
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 x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on it corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨ Accelerated filer x | ||
Non-accelerated filer ¨ (Do not check if a smaller reporting company) |
Smaller reporting company ¨ |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x
The aggregate market value of the outstanding voting stock held by non-affiliates of the Registrant as of September 26, 2010 was approximately $118.4 million based upon the closing price reported on The NASDAQ Global Market as of the last business day of the Registrants most recently completed second fiscal quarter. Approximately 23.7 million shares of common stock held by officers, directors and persons known to the Registrant to hold 5% or more of the Registrants outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
The number of shares outstanding of the Registrants Common Stock was 44,590,821 as of May 27, 2011, net of 19,924,369 treasury shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrants 2011 Definitive Proxy Statement to be filed not later than 120 days after the close of the 2011 fiscal year are incorporated by reference into Part III, Items 10, 11, 12, 13 and 14 of this Report.
EXPLANATORY NOTE
This Amendment No. 1 on Form 10-K/A (this Amendment) amends Exar Corporations (the Company) Annual Report on Form 10-K for the fiscal year ended March 27, 2011, originally filed on June 10, 2011 (the Original Filing). The Company is filing this Amendment solely to correct an administrative error on the Report of Independent Registered Public Accounting Firm on page 60 of the Original Filing. Although the Company had received an executed copy of the Report of Independent Registered Public Accounting Firm prior to the filing date, the Original Filing inadvertently excluded the signature of PricewaterhouseCoopers LLP on the Report of Independent Registered Public Accounting Firm. Items 8, 9A and 15 of the Original Report, which have been revised solely to add the conformed signature of PricewaterhouseCoopers LLP in the Report of Independent Registered Public Accounting Firm, have been included in this filing to correct the inadvertent exclusion. In addition, we are also including Exhibits 31.1, 31.2, 32.1 and 32.2 required by the filing of this amendment.
Except as described above, no other changes have been made to the Original Filing. This Amendment should be read in conjunction with the Original Filing and our filings made with the SEC subsequent to the Original Filing.
ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page | ||||
60 | ||||
61 | ||||
62 | ||||
Consolidated Statements of Stockholders Equity and Comprehensive Income (Loss) |
63 | |||
64 | ||||
65 |
59
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Exar Corporation:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, stockholders equity and comprehensive income (loss), and of cash flows present fairly, in all material respects, the financial position of Exar Corporation and its subsidiaries at March 27, 2011 and March 28, 2010, and the results of their operations and their cash flows for each of the three years in the period ended March 27, 2011 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 27, 2011, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Companys management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Managements Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements and on the Companys internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
San Jose, California
June 10, 2011
60
EXAR CORPORATION AND SUBSIDIARIES
(In thousands, except share amounts)
March 27, 2011 |
March 28, 2010 |
|||||||
ASSETS | ||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 15,039 | $ | 25,486 | ||||
Short-term marketable securities |
185,960 | 186,598 | ||||||
Accounts receivable (net of allowances of $1,165 and $831) |
9,776 | 13,461 | ||||||
Accounts receivable, related party (net of allowances of $358 and $605) |
3,194 | 4,323 | ||||||
Inventories |
21,962 | 15,000 | ||||||
Other current assets |
3,562 | 5,106 | ||||||
Total current assets |
239,493 | 249,974 | ||||||
Property, plant and equipment, net |
38,009 | 42,941 | ||||||
Goodwill |
3,184 | 3,085 | ||||||
Intangible assets, net |
15,390 | 31,957 | ||||||
Other non-current assets |
2,139 | 5,357 | ||||||
Total assets |
$ | 298,215 | $ | 333,314 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY | ||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 8,794 | $ | 9,828 | ||||
Accrued compensation and related benefits |
6,069 | 6,619 | ||||||
Deferred income and allowances on sales to distributors |
4,632 | 4,227 | ||||||
Deferred income and allowances on sales to distributor, related party |
10,680 | 10,650 | ||||||
Short-term lease financing obligations |
1,681 | 3,540 | ||||||
Other accrued expenses |
5,381 | 7,058 | ||||||
Total current liabilities |
37,237 | 41,922 | ||||||
Long-term lease financing obligations |
12,558 | 13,454 | ||||||
Other non-current obligations |
3,841 | 3,806 | ||||||
Total liabilities |
53,636 | 59,182 | ||||||
Commitments and contingencies (Notes 16 and 17) |
||||||||
Stockholders equity: |
||||||||
Preferred stock, $.0001 par value; 2,250,000 shares authorized; no shares outstanding |
| | ||||||
Common stock, $.0001 par value; 100,000,000 shares authorized; 44,519,663 and 43,839,514 shares outstanding at March 27, 2011 and March 28, 2010, respectively |
4 | 4 | ||||||
Additional paid-in capital |
728,139 | 720,455 | ||||||
Accumulated other comprehensive income (loss) |
(287 | ) | 1,282 | |||||
Treasury stock at cost, 19,924,369 shares at March 27, 2011 and March 28, 2010 |
(248,983 | ) | (248,983 | ) | ||||
Accumulated deficit |
(234,294 | ) | (198,626 | ) | ||||
Total stockholders equity |
244,579 | 274,132 | ||||||
Total liabilities and stockholders equity |
$ | 298,215 | $ | 333,314 | ||||
See accompanying notes to consolidated financial statements.
61
EXAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Fiscal Years Ended | ||||||||||||
March 27, 2011 |
March 28, 2010 |
March 29, 2009 |
||||||||||
Sales: |
||||||||||||
Net sales |
$ | 101,721 | $ | 97,676 | $ | 74,620 | ||||||
Net sales, related party |
44,284 | 37,202 | 40,498 | |||||||||
Total net sales |
146,005 | 134,878 | 115,118 | |||||||||
Cost of sales: |
||||||||||||
Cost of sales |
54,992 | 48,728 | 41,811 | |||||||||
Cost of sales, related party |
20,972 | 17,581 | 19,933 | |||||||||
Amortization of purchased intangible assets |
6,044 | 5,187 | 3,129 | |||||||||
Total cost of sales |
82,008 | 71,496 | 64,873 | |||||||||
Gross profit |
63,997 | 63,382 | 50,245 | |||||||||
Operating expenses: |
||||||||||||
Research and development |
51,098 | 48,511 | 31,829 | |||||||||
Selling, general and administrative |
45,432 | 48,861 | 38,962 | |||||||||
Impairment of intangible assets and goodwill |
7,485 | | 59,676 | |||||||||
Total operating expenses |
104,015 | 97,372 | 130,467 | |||||||||
Loss from operations |
(40,018 | ) | (33,990 | ) | (80,222 | ) | ||||||
Other income and expense, net: |
||||||||||||
Interest income and other, net |
5,925 | 7,030 | 9,693 | |||||||||
Interest expense |
(1,258 | ) | (1,296 | ) | (1,253 | ) | ||||||
Impairment charges on investments |
(62 | ) | (317 | ) | (1,789 | ) | ||||||
Total other income and expense, net |
4,605 | 5,417 | 6,651 | |||||||||
Loss before income taxes |
(35,413 | ) | (28,573 | ) | (73,571 | ) | ||||||
Provision for (benefit from) income taxes |
255 | (463 | ) | (535 | ) | |||||||
Net loss |
$ | (35,668 | ) | $ | (28,110 | ) | $ | (73,036 | ) | |||
Loss per share: |
||||||||||||
Basic and diluted loss per share |
$ | (0.81 | ) | $ | (0.64 | ) | $ | (1.70 | ) | |||
Shares used in the computation of loss per share: |
||||||||||||
Basic and diluted |
44,218 | 43,584 | 42,887 | |||||||||
See accompanying notes to consolidated financial statements.
62
EXAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME (LOSS)
(In thousands, except share amounts)
Common Stock | Treasury Stock | Additional Paidin- Capital |
Accumulated Deficit |
Accumulated Other Compre- hensive Income (Loss) |
Total Stockholders Equity |
|||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||
Balance, March 30, 2008 |
62,216,783 | $ | 4 | (18,288,021 | ) | $ | (235,538 | ) | $ | 702,218 | $ | (97,480 | ) | $ | 1,873 | $ | 371,077 | |||||||||||||||
Comprehensive loss: |
||||||||||||||||||||||||||||||||
Net loss |
(73,036 | ) | (73,036 | ) | ||||||||||||||||||||||||||||
Other comprehensive income: |
||||||||||||||||||||||||||||||||
Change in unrealized gains on marketable securities, including tax of $485 |
(1,071 | ) | (1,071 | ) | ||||||||||||||||||||||||||||
Total comprehensive loss |
$ | (74,107 | ) | |||||||||||||||||||||||||||||
Reclassification of deferred compensation liability |
210 | 210 | ||||||||||||||||||||||||||||||
Issuance of common stock through employee stock plans |
635,959 | 3,518 | 3,518 | |||||||||||||||||||||||||||||
Issuance of common stock for vested restricted stock units |
117,437 | |||||||||||||||||||||||||||||||
Withholding of common shares for tax obligations on vested restricted stock units |
(9,539 | ) | (60 | ) | (60 | ) | ||||||||||||||||||||||||||
Stock-based compensation |
4,901 | 4,901 | ||||||||||||||||||||||||||||||
Acquisition of treasury stock |
(1,636,348 | ) | (13,445 | ) | (13,445 | ) | ||||||||||||||||||||||||||
Balance, March 29, 2009 |
62,960,640 | $ | 4 | (19,924,369 | ) | $ | (248,983 | ) | $ | 710,787 | $ | (170,516 | ) | $ | 802 | $ | 292,094 | |||||||||||||||
Comprehensive loss: |
||||||||||||||||||||||||||||||||
Net loss |
(28,110 | ) | (28,110 | ) | ||||||||||||||||||||||||||||
Other comprehensive income: |
||||||||||||||||||||||||||||||||
Change in unrealized gains on marketable securities, including tax of $289 |
480 | 480 | ||||||||||||||||||||||||||||||
Total comprehensive loss |
$ | (27,630 | ) | |||||||||||||||||||||||||||||
Issuance of common stock through employee stock plans |
83,553 | 538 | 538 | |||||||||||||||||||||||||||||
Issuance of common stock in connection with Hifn acquisition |
418,026 | 2,709 | 2,709 | |||||||||||||||||||||||||||||
Deferred salary option adjustment, net |
1,325 | 20 | 20 | |||||||||||||||||||||||||||||
Issuance of common stock for vested restricted stock units |
349,409 | 3 | 3 | |||||||||||||||||||||||||||||
Withholding of common shares for tax obligations on vested restricted stock units |
(49,070 | ) | (347 | ) | (347 | ) | ||||||||||||||||||||||||||
Tax benefit from stock plans |
780 | 780 | ||||||||||||||||||||||||||||||
Stock-based compensation |
5,965 | 5,965 | ||||||||||||||||||||||||||||||
Balance, March 28, 2010 |
63,763,883 | $ | 4 | (19,924,369 | ) | $ | (248,983 | ) | $ | 720,455 | $ | (198,626 | ) | $ | 1,282 | $ | 274,132 | |||||||||||||||
Comprehensive loss: |
||||||||||||||||||||||||||||||||
Net loss |
(35,668 | ) | (35,668 | ) | ||||||||||||||||||||||||||||
Other comprehensive loss: |
||||||||||||||||||||||||||||||||
Change in unrealized gains on marketable securities, including tax of $0 |
(1,569 | ) | (1,569 | ) | ||||||||||||||||||||||||||||
Total comprehensive loss |
$ | (37,237 | ) | |||||||||||||||||||||||||||||
Issuance of common stock through employee stock plans |
195,087 | 1,208 | 1,208 | |||||||||||||||||||||||||||||
Issuance of common stock in connection with Hifn acquisition |
4,196 | 27 | 27 | |||||||||||||||||||||||||||||
Issuance of common stock for vested restricted stock units |
619,561 | |||||||||||||||||||||||||||||||
Withholding of common shares for tax obligations on vested restricted stock units |
(138,695 | ) | (969 | ) | (969 | ) | ||||||||||||||||||||||||||
Tax benefit from stock plans |
37 | 37 | ||||||||||||||||||||||||||||||
Stock-based compensation |
7,381 | 7,381 | ||||||||||||||||||||||||||||||
Balance, March 27, 2011 |
64,444,032 | $ | 4 | (19,924,369 | ) | $ | (248,983 | ) | $ | 728,139 | $ | (234,294 | ) | $ | (287 | ) | $ | 244,579 | ||||||||||||||
See accompanying notes to consolidated financial statements.
63
EXAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Fiscal Years Ended | ||||||||||||
March 27, 2011 |
March 28, 2010 |
March 29, 2009 |
||||||||||
Cash flows from operating activities: |
||||||||||||
Net loss |
$ | (35,668 | ) | $ | (28,110 | ) | $ | (73,036 | ) | |||
Reconciliation of net loss to net cash provided by (used in) operating activities: |
||||||||||||
Intangible assets impairment and goodwill |
7,485 | | 59,676 | |||||||||
Depreciation and amortization |
19,414 | 20,825 | 14,446 | |||||||||
Stock-based compensation expense |
7,381 | 5,965 | 4,934 | |||||||||
Other than temporary loss on investments |
62 | 317 | 1,789 | |||||||||
Changes in operating assets and liabilities, net of effects of acquisitions: |
||||||||||||
Accounts receivable and accounts receivable, related party |
4,814 | (5,121 | ) | 4,407 | ||||||||
Inventories |
(6,962 | ) | 6,256 | (1,510 | ) | |||||||
Other current and non-current assets |
2,756 | (204 | ) | 819 | ||||||||
Accounts payable |
(1,202 | ) | 2,473 | (3,410 | ) | |||||||
Accrued compensation and related benefits |
(1,495 | ) | (925 | ) | (1,032 | ) | ||||||
Other accrued expenses |
(245 | ) | (2,030 | ) | (2,205 | ) | ||||||
Income taxes payable |
263 | | 94 | |||||||||
Deferred income and allowance on sales to distributors and related party distributor |
435 | 4,195 | (1,704 | ) | ||||||||
Net cash (used in) provided by operating activities |
(2,962 | ) | 3,641 | 3,268 | ||||||||
Cash flows from investing activities: |
||||||||||||
Purchases of property, plant and equipment and intellectual property, net |
(3,656 | ) | (5,830 | ) | (2,255 | ) | ||||||
Purchases of short-term marketable securities |
(157,609 | ) | (166,229 | ) | (264,087 | ) | ||||||
Proceeds from maturities of short-term marketable securities |
74,459 | 114,414 | 199,064 | |||||||||
Proceeds from sales of short-term marketable securities |
82,294 | 46,426 | 42,467 | |||||||||
Other investment activities |
(219 | ) | (42 | ) | (227 | ) | ||||||
Acquisition of Neterion, net of cash acquired |
| (8,544 | ) | | ||||||||
Acquisition of Galazar, net of cash acquired |
| (4,445 | ) | | ||||||||
Acquisition of Hifn, net of cash acquired |
| (40,344 | ) | | ||||||||
Net cash used in investing activities |
(4,731 | ) | (64,594 | ) | (25,038 | ) | ||||||
Cash flows from financing activities: |
||||||||||||
Repurchase of common stock |
| | (13,445 | ) | ||||||||
Proceeds from issuance of common stock |
1,208 | 541 | 3,518 | |||||||||
Repayment of lease financing obligations |
(3,962 | ) | (3,104 | ) | (1,317 | ) | ||||||
Net cash used in financing activities |
(2,754 | ) | (2,563 | ) | (11,244 | ) | ||||||
Net decrease in cash and cash equivalents |
(10,447 | ) | (63,516 | ) | (33,014 | ) | ||||||
Cash and cash equivalents at the beginning of period |
25,486 | 89,002 | 122,016 | |||||||||
Cash and cash equivalents at the end of period |
$ | 15,039 | $ | 25,486 | $ | 89,002 | ||||||
Supplemental disclosure of non-cash investing and financing activities: |
||||||||||||
Issuance of common stock in connection with Hifn acquisition |
27 | 2,709 | | |||||||||
Cash paid for income taxes |
179 | 185 | 164 | |||||||||
Cash received from income taxes refund |
3,078 | | | |||||||||
Cash paid for interest |
1,289 | 1,327 | 1,200 | |||||||||
Property, plant and equipment acquired under capital lease |
1,808 | 2,012 | 2,571 |
See accompanying notes to consolidated financial statements.
64
EXAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED MARCH 27, 2011, MARCH 28, 2010 AND MARCH 29, 2009
NOTE 1. DESCRIPTION OF BUSINESS
Exar Corporation was incorporated in California in 1971 and reincorporated in Delaware in 1991. Exar Corporation and its subsidiaries (Exar or we) is a fabless semiconductor company that designs, sub-contracts manufacturing and sells highly differentiated silicon, software and subsystem solutions for industrial, telecom, networking and storage applications.
On March 16, 2010, we completed the acquisition of Neterion, Inc. (Neterion), a supplier of 10 Gigabit Ethernet (GbE) controller silicon and card solutions optimized for virtualized data centers located in Sunnyvale, California.
On June 17, 2009, we completed the acquisition of Galazar Networks, Inc. (Galazar), a fabless semiconductor company focused on carrier grade transport over telecom networks based in Ottawa, Ontario, Canada. Galazars product portfolio addressed transport of a wide range of datacom and telecom services including Ethernet, SAN, TDM and video over SONET/SDH, PDH and OTN networks.
On April 3, 2009, we completed the acquisition of hi/fn, inc. (Hifn), a provider of network-and storage-security and data reduction products located in Los Gatos, California.
Certain reclassifications have been made to the prior year consolidated financial statements to conform to the current years presentation. Such reclassification had no effect on previously reported results of operations or stockholders equity.
NOTE 2. ACCOUNTING POLICIES
Basis of PresentationOur fiscal years consist of 52 or 53 weeks. In a 52-week year, each fiscal quarter consists of 13 weeks. The three fiscal years 2011, 2010 and 2009 are each comprised of 52-weeks. Fiscal year 2012 will consist of 53 weeks.
Principles of ConsolidationThe consolidated financial statements include the accounts of Exar Corporation and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated.
Use of Management EstimatesThe preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including (1) revenue recognition; (2) valuation of inventories; (3) income taxes; (4) stock-based compensation; (5) goodwill; and (6) long-lived assets. Actual results could differ from these estimates and material effects on operating results and financial position may result.
Business CombinationsThe estimated fair value of acquired assets and assumed liabilities and the results of operations of acquired businesses are included in our consolidated financial statements from the effective date of the purchase. The total purchase price is allocated to the estimated fair value of assets acquired and liabilities assumed. (See Note 3Business Combinations.)
Cash and Cash EquivalentsWe consider all highly liquid debt securities and investments with maturities of 90 days or less from the date of purchase to be cash and cash equivalents. Cash and cash equivalents also consist of cash on deposit with banks and money market funds.
65
EXAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
FISCAL YEARS ENDED MARCH 27, 2011, MARCH 28, 2010 AND MARCH 29, 2009
InventoriesInventories are recorded at the lower of cost or market, determined on a first-in, first-out basis. Cost is computed using the standard cost, which approximates average actual cost. Inventory is written down when conditions indicate that the selling price could be less than cost due to physical deterioration, obsolescence, changes in price levels, or other causes. The write-down of excess inventories is generally based on inventory levels in excess of twelve months of demand, as judged by management, for each specific product.
Property, Plant and EquipmentProperty, plant and equipment, including assets held under capital leases and leasehold improvements, are stated at cost less accumulated depreciation and amortization. Depreciation for machinery and equipment is computed using the straight-line method over the estimated useful lives of the assets, which ranges from three to ten years. Buildings are depreciated using the straight-line method over an estimated useful life of 30 years. Assets held under capital leases and leasehold improvements are amortized over the shorter of the terms of the leases or their estimated useful lives. Land is not depreciated.
Non-Marketable Equity SecuritiesNon-marketable equity investments are accounted for at historical cost and are presented on our consolidated balance sheets within other non-current assets.
Other-Than-Temporary ImpairmentAll of our marketable and non-marketable investments are subject to periodic impairment reviews. Investments are considered to be impaired when a decline in fair value is judged to be other-than-temporary, as follows:
Marketable investmentsWhen the resulting fair value is significantly below cost basis and/or the significant decline has lasted for an extended period of time, we perform an evaluation to determine whether the marketable equity security is other than temporarily impaired. The evaluation that we use to determine whether a marketable equity security is other than temporarily impaired is based on the specific facts and circumstances present at the time of assessment, which include significant quantitative and qualitative assessments and estimates regarding credit ratings, collateralized support, the length of time and significance of a securitys loss position and intent and ability to hold a security to maturity or forecasted recovery. Other-than-temporary declines in value of our investments are reported in the impairment charges on investments line in the consolidated statements of operations.
Non-marketable equity investmentsWhen events or circumstances are identified that would likely have a significant adverse effect on the fair value of the investment and the fair value is significantly below cost basis and/or the significant decline has lasted for an extended period of time, we perform an impairment analysis. The indicators that we use to identify those events and circumstances include:
| the investment managers evaluation; |
| the investees revenue and earnings trends relative to predefined milestones and overall business prospects; |
| the technological feasibility of the investees products and technologies; |
| the general market conditions in the investees industry; and |
| the investees liquidity, debt ratios and the rate at which the investee is using cash. |
Investments identified as having an indicator of impairment are subject to further analysis to determine if the investment is other than temporarily impaired, and if so, the investment is written down to its impaired value. When an investee is not considered viable from a financial or technological point of view, the entire investment is written down. Impairment of non-marketable equity investments is recorded in the impairment charges on investments line in the consolidated statements of operations.
66
EXAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
FISCAL YEARS ENDED MARCH 27, 2011, MARCH 28, 2010 AND MARCH 29, 2009
GoodwillGoodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination. We evaluate goodwill for impairment on an annual basis or whenever events and changes in circumstances suggest that the carrying amount may not be recoverable. Impairment of goodwill is tested at the reporting unit level by comparing the reporting units carrying amount, including goodwill, to the fair value of the reporting unit. The fair values of the reporting units are estimated using a combination of the income, or discounted cash flows, approach and the market approach, which utilize comparable companies data. If the carrying amount of the reporting unit exceeds its fair value, goodwill is considered impaired and a second step is performed to measure the amount of impairment loss, if any. Because we have one reporting unit, we utilize the entity-wide approach to assess goodwill for impairment. During our annual goodwill impairment analysis in the fourth quarters of fiscal year 2011 and fiscal year 2010, fair value exceeded carrying value and no impairment was recorded.
In the third quarter of fiscal year 2009, the rapid and severe deterioration of worldwide economic conditions affected our industry and led customers to scale down their levels of production. As a result of these impairment indicators, we considered the potential impairment of goodwill. Indicators that required us to perform an interim impairment review consisted of further weakening in new orders from our customers throughout the third quarter and into the fourth quarter of fiscal year 2009, as well as the uncertainty of the magnitude and duration of the recession as evidenced by industry analysts expectations that demand for semiconductors would remain weak until economic conditions improve. In addition, we experienced a significant decline in our stock price that reduced our market capitalization below our net asset carrying value for an extended period of time. We performed an interim goodwill impairment analysis and recorded a $46.2 million impairment loss that was included in the impairment of intangible assets and goodwill line in the consolidated statements of operations. (See Note 9Goodwill and Intangible Assets).
Long-Lived AssetsWe assess the impairment of long-lived assets when events or changes in circumstances indicate that the carrying value of the assets or the asset grouping may not be recoverable. Factors that we consider in deciding when to perform an impairment review include significant negative industry or economic trends, and significant changes or planned changes in our use of the assets. These factors can also be referred to as triggering events. We measure the recoverability of assets that will continue to be used in our operations by comparing the carrying value of the asset grouping to our estimate of the related total future undiscounted net cash flows. If an asset groupings carrying value is not recoverable through the related undiscounted cash flows, the asset grouping is considered to be impaired. The impairment is measured by comparing the difference between the asset groupings carrying value and its fair value. Long-lived assets such as goodwill; intangible assets; and property, plant and equipment are considered non-financial assets, and are recorded at fair value only if an impairment charge is recognized.
Impairments of long-lived assets are determined for groups of assets related to the lowest level of identifiable independent cash flows. We operate with one asset group on an enterprise basis. As a result, we believe the lowest identifiable cash flows reside at the enterprise level.
When we determine that the useful lives of assets are shorter than we had originally estimated, we accelerate the rate of depreciation and/or amortization over the assets new, shorter useful lives.
Substantially all of our property, plant and equipment and other long-lived assets are located in the United States.
In-process research and developmentIn-process research and development (IPR&D) assets are considered indefinite-lived intangible assets and are not subject to amortization until their useful life is
67
EXAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
FISCAL YEARS ENDED MARCH 27, 2011, MARCH 28, 2010 AND MARCH 29, 2009
determined. IPR&D assets must be tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. The impairment test consists of a comparison of the fair value of the IPR&D assets with their carrying values. If the carrying amount of the IPR&D asset exceeds its fair value, an impairment loss must be recognized in an amount equal to that excess. After an impairment loss is recognized, the adjusted carrying amount of the IPR&D assets will be their new accounting basis. Subsequent reversal of a previously recognized impairment loss is prohibited. The initial determination and subsequent evaluation for impairment of the IPR&D asset requires management to make significant judgments and estimates. Once an IPR&D project has been completed, the useful life of the IPR&D asset is determined and amortized accordingly. If the IPR&D asset is abandoned, the remaining carrying value is written off.
Income TaxesDeferred taxes are recognized using the asset and liability method, whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, operating losses and tax credit carryforwards. Valuation allowances are provided if it is more likely than not that some or all of the deferred tax assets will not be realized.
Revenue RecognitionWe recognize revenue in accordance with Financial Accounting Standards Board (FASB) authoritative guidance for Revenue Recognition. Four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the price is fixed or determinable; and (4) collectability is reasonably assured.
We derive revenue principally from the sale of our products to distributors and to OEMs or their contract manufacturers. Our delivery terms are primarily FOB shipping point, at which time title and all risks of ownership are transferred to the customer.
Non-distributorsFor non-distributors, revenue is recognized when title to the product is transferred to the customer, which occurs upon shipment or delivery, depending upon the terms of the customer order, provided that persuasive evidence of a sales arrangement exists, the price is fixed or determinable, collection of the resulting receivables is reasonably assured, there are no customer acceptance requirements and there are no remaining significant obligations. Provisions for returns and allowances for non-distributor customers are provided at the time product sales are recognized. An allowance for sales returns and allowances for non-distributor customers are recorded based on historical experience or specific identification of an event necessitating an allowance.
DistributorsAgreements with our two primary distributors permit the return of 3% to 5% of their purchases during the preceding quarter for purposes of stock rotation. For one of these distributors, a scrap allowance of 2% of the preceding quarters purchases is permitted. We also provide discounts to certain distributors based on volume of product they sell for a specific product with a specific volume range for a given customer over a period not to exceed one year.
We recognize revenue from each of our distributors using either of the following bases. Once adopted, the basis for revenue recognition for a distributor is maintained unless there is a change in circumstances indicating the basis for revenue recognition for that distributor is no longer appropriate.
| Sell-in BasisRevenue is recognized upon shipment if we conclude we meet the same criteria as for non-distributors and we can reasonably estimate the credits for returns, pricing allowances and/or other concessions. We record an estimated allowance, at the time of shipment, based upon historical patterns of returns, pricing allowances and other concessions (i.e., sell-in basis). |
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EXAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
FISCAL YEARS ENDED MARCH 27, 2011, MARCH 28, 2010 AND MARCH 29, 2009
| Sell-through BasisRevenue and the related costs of sales are deferred until the resale to the end customer if we grant more than limited rights of return, pricing allowances and/or other concessions or if we cannot reasonably estimate the level of returns and credits issuable (i.e., sell-through basis). Under the sell-through basis, accounts receivable are recognized and inventory is relieved upon shipment to the distributor as title to the inventory is transferred upon shipment, at which point we have a legally enforceable right to collection under normal terms. The associated sales and cost of sales are deferred and are included in deferred income and allowance on sales to distributors in the consolidated balance sheet. When the related product is sold by our distributors to their end customers, at which time the ultimate price we receive is known, we recognize previously deferred income as sales and cost of sales. |
Sell-through revenue recognition is highly dependent on receiving pertinent and accurate data from our distributors in a timely fashion. Distributors provide us periodic data regarding the product, price, quantity, and end customer when products are resold as well as the quantities of our products they still have in stock. We must use estimates and apply judgments to reconcile distributors reported inventories to their activities. Any error in our judgment could lead to inaccurate reporting of our net sales, gross profit, deferred income and allowances on sales to distributors and net income.
Software became an element of our revenue upon the acquisition of Hifn in April 2009. To date, software revenue has been an immaterial portion of our net sales.
Research and Development ExpensesResearch and development costs consist primarily of salaries, employee benefits, mask tooling costs, depreciation, amortization, overhead, outside contractors, facility expenses, and non-recurring engineering fees. Expenditures for research and development are charged to expense as incurred. In accordance with FASB authoritative guidance for the costs of computer software to be sold, leased or otherwise marketed, certain software development costs are capitalized after technological feasibility has been established. The period from achievement of technological feasibility, which we define as the establishment of a working model, until the general availability of such software to customers, has been short, and therefore software development costs qualifying for capitalization have been insignificant. Accordingly, we have not capitalized any software development costs in fiscal years 2011, 2010 and 2009.
In connection with the Hifn acquisition in April 2009, we assumed a contractual agreement under which certain research and development costs are eligible for reimbursement. Amounts collected under this arrangement are offset against research and development expense. During fiscal year 2011 and fiscal year 2010, we received $5.0 million and $4.6 million, respectively, for work performed, which was recorded as an offset to research and development expenses.
Advertising ExpensesWe expense advertising costs as incurred. Advertising expenses for fiscal years 2011, 2010 and 2009 were not material.
Comprehensive Income (Loss)Comprehensive income (loss) includes charges or credits to equity related to changes in unrealized gains or losses on marketable securities, net of taxes. Comprehensive income (loss) for fiscal years 2011, 2010 and 2009 has been disclosed within the consolidated statements of stockholders equity and comprehensive income (loss).
Foreign CurrencyThe accounts of foreign subsidiaries are remeasured to U.S. dollars for financial reporting purposes by using the U.S. dollar as the functional currency and exchange gains and losses are reported in income and expenses. These currency gains or losses are reported in interest income and other, net in the
69
EXAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
FISCAL YEARS ENDED MARCH 27, 2011, MARCH 28, 2010 AND MARCH 29, 2009
consolidated statements of operations. Monetary balance sheet accounts are remeasured using the current exchange rate in effect at the balance sheet date. For non-monetary items, the accounts are measured at the historical exchange rate. Revenues and expenses are remeasured at the average exchange rates for the period. Foreign currency transaction losses were not material for fiscal years 2011, 2010 and 2009.
Concentration of Credit Risk and Significant CustomersFinancial instruments potentially subjecting us to concentrations of credit risk consist primarily of cash, cash equivalents, short-term marketable securities, accounts receivable and long-term investments. The majority of our sales are derived from distributors and manufacturers in the communications, industrial, storage and computer industries. We perform ongoing credit evaluations of our customers and generally do not require collateral for sales on credit. We maintain allowances for potential credit losses, and such losses have been within managements expectations. Charges to bad debt expense were insignificant for fiscal years 2011, 2010 and 2009. Our policy is to invest our cash, cash equivalents and short-term marketable securities with high credit quality financial institutions and limit the amounts invested with any one financial institution or in any type of financial instrument. We do not hold or issue financial instruments for trading purposes.
We sell our products to distributors and OEMs throughout the world. Future Electronics, Inc. (Future), a related party, was and continues to be our largest distributor. Future, on a worldwide basis, represented 30%, 28% and 35% of net sales in fiscal years 2011, 2010 and 2009, respectively. No other OEM customer or distributor accounted for 10% or more of our net sales in fiscal year 2011, 2010 or 2009.
Concentration of Other RisksThe majority of our products are currently fabricated at Globalfoundries Singapore Pte. Ltd. (f.k.a. Chartered Semiconductor Manufacturing Ltd.), Episil Technologies Inc. (Episil) in Taiwan, and Hangzhou Silan Microelectronics Co. Ltd. and Hangzhou Silan Integrated Circuit Co. Ltd. (collectively Silan) in the Peoples Republic of China (PRC), and are assembled and tested by other third-party subcontractors located in Asia. A significant disruption in the operations of one or more of these subcontractors would impact the production of our products for a substantial period of time which could have a material adverse effect on our business, financial condition and results of operations.
Fair Value of Financial InstrumentsWe estimate the fair value of our financial instruments by using available market information and valuation methodologies considered to be appropriate. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. The use of different market assumptions and/or estimation methodologies could have a material effect on estimated fair value amounts. The estimated fair value of our carrying values of cash and cash equivalents, short-term marketable securities, accounts receivable, accounts payable and accrued liabilities at March 27, 2011, March 28, 2010 and March 29, 2009 was not materially different from the carrying values presented in the consolidated balance sheets due to the relatively short periods to maturity of the instruments.
Stock-Based CompensationThe estimated fair value of the equity-based awards, less expected forfeitures, is amortized over the awards vesting period on a straight-line basis. Determining the fair value of stock-based awards at the grant date requires considerable judgment, including estimating expected volatility, forfeiture rate, expected term and risk-free interest rate. If factors change and we employ different assumptions, stock-based compensation expense may differ significantly from what we have recorded in the prior years. In addition, we follow the with-and-without intra-period allocation approach in our tax attribute calculations.
Recent Accounting Pronouncements
In December 2010, the FASB issued an update to its existing guidance on goodwill and other intangible assets. This guidance modifies Step 1 of the goodwill impairment test for reporting units with zero or negative
70
EXAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
FISCAL YEARS ENDED MARCH 27, 2011, MARCH 28, 2010 AND MARCH 29, 2009
carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if there are qualitative factors indicating that it is more likely than not that a goodwill impairment exists. The qualitative factors are consistent with the existing guidance which requires goodwill of a reporting unit to be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2010, which is beginning March 28, 2011 for us. We are currently evaluating the impact of implementing this guidance on our business, financial condition and results of operations.
In January 2010, the FASB Emerging Issues Task Force issued new authoritative guidance addressing certain measurements and disclosures about purchases, sales, issuances, and settlements in Level 3 fair value measurements. We are currently evaluating the impact of implementing the disclosures about purchases, sales, issuances, and settlements in Level 3 fair value measurements on our financial position and result of operations, which are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. Historically, we have not held investments with Level 3 fair value measurements.
NOTE 3. BUSINESS COMBINATIONS
We periodically evaluate potential strategic acquisitions to build upon our existing library of intellectual property, human capital and engineering talent, in order to expand our capabilities in the areas in which we operate or to acquire complementary businesses.
We account for each business combination by applying the acquisition method, which requires (i) identifying the acquiree; (ii) determining the acquisition date; (iii) recognizing and measuring the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest of Exar in the acquiree at their acquisition date fair value; and (iv) recognizing and measuring goodwill or a gain from a bargain purchase.
Assets acquired and liabilities assumed in a business combination that arise from contingencies are recognized at fair value on the acquisition date if fair value can be determined during the measurement period. If fair value cannot be determined, we typically account for the acquired contingencies using existing guidance for a reasonable estimate.
To establish fair value, we measure the price that would be received to sell an asset or paid to transfer a liability in an ordinary transaction between market participants. The measurement assumes the highest and best use of the asset by the market participants that would maximize the value of the asset or the group of assets within which the asset would be used at the measurement date, even if the intended use of the asset is different.
Goodwill is measured and recorded as the amount by which the consideration transferred, generally at the acquisition date fair value, exceeds the acquisition date fair value of identifiable assets acquired, the liabilities assumed, and any non-controlling interest of Exar in the acquiree. To the contrary, if the acquisition date fair value of identifiable assets acquired, the liabilities assumed, and any non-controlling interest of Exar in the acquiree exceeds the consideration transferred, it is considered a bargain purchase and we would recognize the resulting gain in earnings on the acquisition date.
IPR&D assets are considered an indefinite-lived intangible asset and are not subject to amortization until its useful life is determined to be no longer indefinite. IPR&D assets must be tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. The impairment
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EXAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
FISCAL YEARS ENDED MARCH 27, 2011, MARCH 28, 2010 AND MARCH 29, 2009
test consists of a comparison of the fair value of the IPR&D asset with its carrying amount. If the carrying amount of the IPR&D asset exceeds its fair value, an impairment loss must be recognized in an amount equal to that excess. After an impairment loss is recognized, the adjusted carrying amount of the IPR&D assets will be its new accounting basis. Subsequent reversal of a previously recognized impairment loss is prohibited. The initial determination and subsequent evaluation for impairment of the IPR&D asset requires management to make significant judgments and estimates. Once the IPR&D projects have been completed, the useful life of the IPR&D asset is determined and amortized accordingly. If the IPR&D asset is abandoned, the remaining carrying value is written off.
Acquisition-related costs, including finders fees, advisory, legal, accounting, valuation and other professional or consulting fees are accounted for as expenses in the periods in which the costs are incurred and the services are received, with the exception that the costs to issue debt or equity securities are recognized in accordance with other applicable GAAP.
Acquisition of Neterion
On March 16, 2010, we completed the acquisition of Neterion, Inc. (Neterion), a supplier of 10 GbE controller silicon and card solutions optimized for virtualized data centers based in Sunnyvale, California. Neterions results of operations and estimated fair value of assets acquired and liabilities assumed were included in our consolidated financial statements beginning March 17, 2010.
Consideration
We paid approximately $2.3 million in cash for Neterion, representing the fair value of total consideration transferred.
Acquisition-Related Costs
Acquisition-related costs relating to Neterion, which are included in the selling, general and administrative line on the consolidated statement of operations, were not material in fiscal year 2011. In fiscal year 2010, we recorded $0.5 million in acquisition-related costs relating to Neterion.
Restructuring Costs
For disclosure regarding restructuring costs, see Note 7Restructuring & Other contained herein.
Purchase Price Allocation
The allocation of the purchase price to Neterions tangible and identifiable intangible assets acquired and liabilities assumed was based on their estimated fair values at the date of acquisition.
The excess of the purchase price over the tangible and identifiable intangible assets acquired and liabilities assumed has been allocated to goodwill. The $464,000 in goodwill resulted primarily from our expected synergies from the integration of Neterions technology into our product offerings. Goodwill is not deductible for tax purposes.
72
EXAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
FISCAL YEARS ENDED MARCH 27, 2011, MARCH 28, 2010 AND MARCH 29, 2009
The fair value allocated to each of the major classes of tangible and identifiable intangible assets acquired and liabilities assumed in the Neterion acquisition was as follows (in thousands):
As of March 16, 2010 |
||||
Identifiable tangible assets |
||||
Cash and cash equivalents |
$ | 747 | ||
Accounts receivable |
313 | |||
Inventories |
617 | |||
Other current assets |
311 | |||
Other assets |
651 | |||
Accounts payable and accruals |
(592 | ) | ||
Other liabilities |
(2,920 | ) | ||
Debt |
(6,963 | ) | ||
Total identifiable tangible assets, net |
(7,836 | ) | ||
Identifiable intangible assets |
9,700 | |||
Total identifiable assets, net |
1,864 | |||
Goodwill |
464 | |||
Fair value of total consideration transferred |
$ | 2,328 | ||
Subsequent to the Neterion acquisition, there were no adjustments to the fair value allocated to each of the major classes of tangible and identifiable intangible assets acquired and liabilities assumed on March 16, 2010.
Identifiable Intangible Assets
The following table sets forth the components of the identifiable intangible assets acquired in the Neterion acquisition, which are being amortized over their estimated useful lives, with a maximum amortization period of six years, on a straight-line basis with no residual value:
Fair Value | Useful Life | |||||||
(in thousands) | (in years) | |||||||
Existing technology |
$ | 5,600 | 4.0 | |||||
Patents/Core technology |
900 | 6.0 | ||||||
In-process research and development |
800 | | ||||||
Customer relationships |
2,100 | 6.0 | ||||||
Tradenames/Trademarks |
100 | 2.0 | ||||||
Non-Compete Agreements |
100 | 1.3 | ||||||
Order backlog |
100 | 0.2 | ||||||
Total acquired identifiable intangible assets |
$ | 9,700 | ||||||
We allocated the purchase price using the established valuation techniques described below.
Inventories The value allocated to inventories reflects the estimated fair value of the acquired inventory based on the expected sales price of the inventory, less reasonable selling margin. The estimated fair value of raw materials is generally equal to their book value, due to the fact that raw materials have not been used to develop any finished goods or work-in-progress and therefore, there is no value added to the raw materials.
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EXAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
FISCAL YEARS ENDED MARCH 27, 2011, MARCH 28, 2010 AND MARCH 29, 2009
Intangible assetsThe fair values of existing technology, patents/core technology, in-process research and development, customer relationships, tradenames/trademarks, non-compete agreements and order backlog were determined using the income approach, which discounted expected future cash flows to present value, taking into account multiple factors including, but not limited to, the stage of completion, estimated costs to complete, utilization of patents/core technology, the risks related to successful completion, and the markets served. The cash flows were discounted at rates ranging from 4% to 33%. The discount rate used to value the existing intangible assets was 20%.
Acquired In-Process Research and DevelopmentThe IPR&D project underway at Neterion at the acquisition date related to the X3500 product series and as of such acquisition date had incurred approximately $2.9 million in expense. This project was abandoned in March 2011 when we exited the 10 GbE market, resulting in a charge of $0.8 million in fiscal year 2011. (See Note 9Goodwill and Intangible Assets).
Acquisition of Galazar
On June 17, 2009, we completed the acquisition of Galazar Networks, Inc. (Galazar), a fabless semiconductor company focused on carrier grade transport over telecom networks based in Ottawa, Ontario, Canada. Galazars product portfolio addressed transport of a wide range of datacom and telecom services including Ethernet, SAN, TDM and video over SONET/SDH, PDH and OTN networks. Galazars results of operations and estimated fair value of assets acquired and liabilities assumed were included in our consolidated financial statements beginning June 18, 2009.
Consideration
We paid approximately $5.0 million in cash for Galazar, representing the fair value of total consideration transferred. This amount included approximately $1.0 million contingent consideration that, for the purposes of valuation, was assigned a 95% probability or a fair value of $0.95 million. This payment was contingent on Galazar achieving a project milestone within a twelve-month period following the close of the transaction. This milestone was met during the three months ended December 27, 2009 and $1.0 million was paid in cash. The additional $50,000 was expensed and included in the research and development line on the consolidated statement of operations for fiscal year 2010.
Acquisition-Related Costs
Acquisition-related costs, or deal costs, relating to Galazar are included in the selling, general and administrative line on the consolidated statement of operations. No acquisition-related costs relating to Galazar were incurred during fiscal year 2011. In fiscal year 2010, we recorded $0.9 million in acquisition-related costs relating to Galazar.
Purchase Price Allocation
The allocation of the purchase price to Galazars tangible and identifiable intangible assets acquired and liabilities assumed was based on their estimated fair values at the date of acquisition.
The excess of the purchase price over the tangible and identifiable intangible assets acquired and liabilities assumed has been allocated to goodwill. The $372,000 in goodwill resulted primarily from our expected synergies from the integration of Galazars technology into our product offerings. Goodwill is not deductible for tax purposes.
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EXAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
FISCAL YEARS ENDED MARCH 27, 2011, MARCH 28, 2010 AND MARCH 29, 2009
The fair value allocated to each of the major classes of tangible and identifiable intangible assets acquired and liabilities assumed in the Galazar acquisition was as follows (in thousands):
As of June 17, 2009 |
||||
Identifiable tangible assets |
||||
Cash and cash equivalents |
$ | 506 | ||
Other current assets |
909 | |||
Other assets |
250 | |||
Accounts payable and accruals |
(93 | ) | ||
Accrued compensation and related benefits |
(230 | ) | ||
Other obligations |
(224 | ) | ||
Total identifiable tangible assets, net |
1,118 | |||
Identifiable intangible assets |
3,460 | |||
Total identifiable assets, net |
4,578 | |||
Goodwill |
372 | |||
Fair value of total consideration transferred |
$ | 4,950 | ||
Subsequent to the Galazar acquisition, there were no adjustments to the fair value allocated to each of the major classes of tangible and identifiable intangible assets acquired and liabilities assumed on June 17, 2009.
Identifiable Intangible Assets
The following table sets forth the components of the identifiable intangible assets acquired in the Galazar acquisition, which are being amortized over their estimated useful lives, with a maximum amortization period of six years, on a straight-line basis with no residual value:
Fair Value | Useful Life | |||||||
(in thousands) | (in years) | |||||||
Existing technology |
$ | 2,100 | 6.0 | |||||
Patents/Core technology |
400 | 6.0 | ||||||
In-process research and development |
300 | | ||||||
Customer relationships |
500 | 6.0 | ||||||
Tradenames/Trademarks |
100 | 3.0 | ||||||
Order backlog |
60 | 0.3 | ||||||
Total acquired identifiable intangible assets |
$ | 3,460 | ||||||
We allocated the purchase price using the established valuation techniques described below.
Intangible assetsThe fair value of existing technology, patents/core technology, in-process research and development, customer relationships, tradenames/trademarks and order backlog were determined using the income approach, which discounted expected future cash flows to present value, taking into account multiple factors including, but not limited to, the stage of completion, estimated costs to complete, utilization of patents and core technology, the risks related to successful completion, and the markets served. The cash flows were discounted at rates ranging from 5% to 35%. The discount rate used to value the existing intangible assets was 28%.
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EXAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
FISCAL YEARS ENDED MARCH 27, 2011, MARCH 28, 2010 AND MARCH 29, 2009
Acquired In-Process Research and DevelopmentThe IPR&D project underway at Galazar at the acquisition date relates to the MXP2 product and as of such acquisition date had incurred approximately $2.3 million in expense. The total research and development expense expected to be incurred to complete the project is estimated at $12.0 million, based on the project development timeline and resource requirements, and is expected to be completed by February 2012. The percentage of completion for the project was estimated at 51% at the acquisition date.
Acquisition of Hifn
On April 3, 2009, we completed the acquisition of hi/fn, inc. (Hifn), a provider of network-and storage-security and data reduction products located in Los Gatos, California. Hifns results of operations and estimated fair value of assets acquired and liabilities assumed were included in our consolidated financial statements beginning April 4, 2009.
Consideration
The following table summarizes the consideration paid for Hifn, representing the fair value of total consideration transferred (in thousands):
Amounts | ||||
Cash |
$ | 56,825 | ||
Equity instruments |
2,784 | |||
Total consideration paid |
$ | 59,609 | ||
The $2.8 million estimated fair value for equity instruments represented approximately 429,600 shares of Exars common stock, valued at $6.48 per share, the closing price reported on The NASDAQ Global Market on April 3, 2009 (the acquisition date).
Acquisition-Related Costs
Acquisition-related costs, or deal costs, relating to Hifn are included in the selling, general and administrative line on the consolidated statement of operations. Acquisition-related costs incurred in fiscal year 2011 relating to Hifn were not material. In fiscal year 2010, we incurred $3.8 million of acquisition-related costs relating to Hifn.
Purchase Price Allocation
The allocation of the purchase price to Hifns tangible and identifiable intangible assets acquired and liabilities assumed was based on their estimated fair values at the date of acquisition. Subsequent to the acquisition, we recorded $1.0 million in restructuring expenses relating to Hifn for fiscal year 2010, relating to severance and a building lease obligation in Los Gatos, California. Severance costs relating to Hifn incurred during fiscal year 2011 were immaterial.
The excess of the purchase price over the tangible and identifiable intangible assets acquired and liabilities assumed has been allocated to goodwill. The $2.2 million in goodwill resulted primarily from our expected future product sales synergies from combining Hifns products with our product offerings. Goodwill is not deductible for tax purposes.
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EXAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
FISCAL YEARS ENDED MARCH 27, 2011, MARCH 28, 2010 AND MARCH 29, 2009
The fair value allocated to each of the major classes of tangible and identifiable intangible assets acquired and liabilities assumed on April 3, 2009 in the Hifn acquisition was as follows (in thousands):
As of April 3, 2009 |
||||
Identifiable tangible assets |
||||
Cash and cash equivalents |
$ | 16,468 | ||
Short-term marketable securities |
14,133 | |||
Accounts receivable |
2,982 | |||
Inventories |
4,269 | |||
Other current assets |
1,683 | |||
Property, plant and equipment |
2,013 | |||
Other assets |
1,721 | |||
Accounts payable and accruals |
(586 | ) | ||
Accrued compensation and related benefits |
(1,860 | ) | ||
Other current liabilities |
(2,963 | ) | ||
Total identifiable tangible assets, net |
37,860 | |||
Identifiable intangible assets |
19,500 | |||
Total identifiable assets, net |
57,360 | |||
Goodwill |
2,249 | |||
Fair value of total consideration transferred |
$ | 59,609 | ||
Subsequent to the Hifn acquisition, there were no adjustments to the fair value allocated to each of the major classes of tangible and identifiable intangible assets acquired and liabilities assumed on April 3, 2009.
Identifiable Intangible Assets
The following table sets forth the components of the identifiable intangible assets acquired in the Hifn acquisition, which are being amortized over their estimated useful lives, with a maximum amortization period of seven years, on a straight-line basis with no residual value:
Fair Value | Useful Life | |||||||
(in thousands) | (in years) | |||||||
Existing technology |
$ | 9,000 | 5.0 | |||||
Patents/Core technology |
1,500 | 5.0 | ||||||
In-process research and development |
1,600 | | ||||||
Customer relationships |
1,300 | 7.0 | ||||||
Tradenames/Trademarks |
700 | 3.0 | ||||||
Order backlog |
900 | 0.5 | ||||||
Research and development reimbursement contract |
4,500 | 1.5 | ||||||
Total acquired identifiable intangible assets |
$ | 19,500 | ||||||
We allocated the purchase price using the established valuation techniques as described below.
InventoriesInventories acquired in connection with the Hifn acquisition were finished goods. The value allocated to inventories reflects the estimated fair value of the acquired inventory based on the expected sales price of the inventory, less reasonable selling margin.
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EXAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
FISCAL YEARS ENDED MARCH 27, 2011, MARCH 28, 2010 AND MARCH 29, 2009
Property, plant and equipmentThe basis used for our analysis is the fair value in continued use, which is expressed in terms of the price a willing and informed buyer would pay contemplating continued use as part of the assets in place for the purpose for which they were designed, engineered, installed, fabricated and erected.
Intangible assetsThe fair value of existing technology, patents/core technology, in-process research and development, customer relationships, tradenames/trademarks, order backlog and research and development reimbursement contract were determined using the income approach, which discounted expected future cash flows to present value, taking into account multiple factors including, but not limited to, the stage of completion, estimated costs to complete, utilization of patents and core technology, the risks related to successful completion, and the markets served. The cash flows were discounted at rates ranging from 5% to 30%. The discount rate used to value the existing intangible assets was 14%.
Acquired In-Process Research and DevelopmentThe IPR&D projects underway at Hifn at the acquisition date were in the security processors and flow through product families, each consisting of one project, and as of such acquisition date Hifn had incurred approximately $2.6 million and $1.1 million in costs related to those projects, respectively. The percentage of completion for these projects, at the date of acquisition, was 90% and 30%, respectively. The total research and development expenditures expected to be incurred to complete the security processors and flow through projects were approximately $2.1 million and $0.7 million, respectively, based on project development timelines and resource requirements. The IPR&D projects for flow through and security processors were completed in January 2010 and July 2010, respectively, and are in production. The fair value, at date of acquisition, for both IPR&D projects, is being amortized over an estimated useful life of five years.
NOTE 4. BALANCE SHEET DETAILS
Our property, plant and equipment consisted of the following (in thousands) as of the dates indicated:
March 27, 2011 |
March 28, 2010 |
|||||||
Land |
$ | 11,960 | $ | 11,960 | ||||
Building |
24,398 | 24,022 | ||||||
Machinery and equipment |
46,863 | 46,040 | ||||||
Software and licenses |
37,785 | 35,543 | ||||||
Property, plant and equipment, total |
121,006 | 117,565 | ||||||
Accumulated depreciation and amortization |
(82,997 | ) | (74,624 | ) | ||||
Total property, plant and equipment, net |
$ | 38,009 | $ | 42,941 | ||||
Depreciation and amortization expense for fiscal years 2011, 2010 and 2009 was $9.1 million, $9.5 million and $8.4 million, respectively.
Our inventories consisted of the following (in thousands) as of the dates indicated:
March 27, 2011 |
March 28, 2010 |
|||||||
Work-in-progress and raw materials |
$ | 12,068 | $ | 9,318 | ||||
Finished goods |
9,894 | 5,682 | ||||||
Total inventories |
$ | 21,962 | $ | 15,000 | ||||
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EXAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
FISCAL YEARS ENDED MARCH 27, 2011, MARCH 28, 2010 AND MARCH 29, 2009
Our other accrued expenses consisted of the following (in thousands) as of the dates indicated:
March 27, 2011 |
March 28, 2010 |
|||||||
Accrued legal and professional services |
$ | 1,630 | $ | 4,063 | ||||
Accrued sales and marketing expenses |
1,036 | 878 | ||||||
Accrued manufacturing expenses, royalties and licenses |
1,873 | 1,584 | ||||||
Accrued restructuring expenses |
288 | 239 | ||||||
Other |
554 | 294 | ||||||
Total other accrued expenses |
$ | 5,381 | $ | 7,058 | ||||
NOTE 5. CASH, CASH EQUIVALENTS AND SHORT-TERM MARKETABLE SECURITIES
Fair Value of Financial Instruments
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. GAAP describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value as follows:
Level 1Quoted prices in active markets for identical assets or liabilities.
Level 2Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Our investment assets, measured at fair value on a recurring basis, as of March 27, 2011 were as follows (in thousands, except for percentages):
Level 1 | Level 2 | Total | ||||||||||||||
Assets: |
||||||||||||||||
Money market funds |
$ | 7,403 | $ | | $ | 7,403 | 4 | % | ||||||||
U.S. Treasury securities |
20,726 | | 20,726 | 10 | % | |||||||||||
Asset-backed securities |
| 24,242 | 24,242 | 13 | % | |||||||||||
Agency mortgage-backed securities |
| 35,565 | 35,565 | 18 | % | |||||||||||
Agency pool mortgage-backed securities |
| 3,522 | 3,522 | 2 | % | |||||||||||
Corporate bonds and notes |
| 78,588 | 78,588 | 41 | % | |||||||||||
Government and agency bonds |
| 23,317 | 23,317 | 12 | % | |||||||||||
Total investment assets |
$ | 28,129 | $ | 165,234 | $ | 193,363 | 100 | % | ||||||||
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EXAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
FISCAL YEARS ENDED MARCH 27, 2011, MARCH 28, 2010 AND MARCH 29, 2009
Our investment assets, measured at fair value on a recurring basis, as of March 28, 2010 were as follows (in thousands, except for percentages):
Level 1 | Level 2 | Total | ||||||||||||||
Assets: |
||||||||||||||||
Money market funds |
$ | 19,616 | $ | | $ | 19,616 | 9 | % | ||||||||
U.S. Treasury securities |
15,839 | | 15,839 | 8 | % | |||||||||||
Asset-backed securities |
| 17,801 | 17,801 | 9 | % | |||||||||||
Agency mortgage-backed securities |
| 42,514 | 42,514 | 21 | % | |||||||||||
Agency pool mortgage-backed securities |
| 4,413 | 4,413 | 2 | % | |||||||||||
Corporate bonds and notes |
| 62,122 | 62,122 | 30 | % | |||||||||||
Government and agency bonds |
| 43,909 | 43,909 | 21 | % | |||||||||||
Total investment assets |
$ | 35,455 | $ | 170,759 | $ | 206,214 | 100 | % | ||||||||
Our cash, cash equivalents and short-term marketable securities as of March 27, 2011 and March 28, 2010 were as follows (in thousands):
March 27, 2011 |
March 28, 2010 |
|||||||
Cash and cash equivalents |
||||||||
Cash in financial institutions |
$ | 7,636 | $ | 5,870 | ||||
Cash equivalents |
||||||||
Money market funds |
7,403 | 19,616 | ||||||
Total cash and cash equivalents |
$ | 15,039 | $ | 25,486 | ||||
Short-term marketable securities |
||||||||
U.S. government and agency securities |
$ | 44,043 | $ | 59,747 | ||||
Corporate bonds and commercial paper |
78,588 | 62,122 | ||||||
Asset-backed securities |
24,242 | 17,801 | ||||||
Mortgage-backed securities |
39,087 | 46,928 | ||||||
Total short-term marketable securities |
$ | 185,960 | $ | 186,598 | ||||
Our marketable securities include municipal securities, commercial paper, asset-backed and mortgage-backed securities, corporate bonds and U.S. government securities. We classify investments as available-for-sale at the time of purchase and re-evaluate such designation as of each balance sheet date. We amortize premiums and accrete discounts to interest income over the life of the investment. Our available-for-sale securities, which we intend to sell as necessary to meet our liquidity requirements, are classified as cash equivalents if the maturity date is 90 days or less from the date of purchase and as short-term marketable securities if the maturity date is greater than 90 days from the date of purchase.
All marketable securities are reported at fair value based on the estimated or quoted market prices as of each balance sheet date, with unrealized gains or losses, net of tax effect, recorded in accumulated other comprehensive income (loss) within stockholders equity except those unrealized losses that are deemed to be other than temporary which are reflected in the impairment charges on investments line on the consolidated statements of operations.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
FISCAL YEARS ENDED MARCH 27, 2011, MARCH 28, 2010 AND MARCH 29, 2009
Realized gains or losses on the sale of marketable securities are determined by the specific identification method and are reflected in the interest income and other, net line on the consolidated statements of operations.
Our net realized gains (losses) on marketable securities were as follows for the periods indicated (in thousands):
Fiscal Years Ended | ||||||||||||
March 27, 2011 |
March 28, 2010 |
March 29, 2009 |
||||||||||
Gross realized gains |
1,271 | 599 | 783 | |||||||||
Gross realized losses |
(1,173 | ) | (550 | ) | (205 | ) | ||||||
Net realized gains |
$ | 98 | $ | 49 | $ | 578 | ||||||
The following table summarizes our investments in cash equivalents and marketable securities as of March 27, 2011 and March 28, 2010 (in thousands):
March 27, 2011 | ||||||||||||||||||||
Amortized Cost |
Unrealized | Fair Value | ||||||||||||||||||
Gross Gains(1) |
Gross Losses(1) |
Net Gain (Loss)(1) |
||||||||||||||||||
Money market funds |
$ | 7,403 | $ | | $ | | $ | | $ | 7,403 | ||||||||||
U.S. government and agency securities |
44,117 | 145 | (219 | ) | (74 | ) | 44,043 | |||||||||||||
Corporate bonds and commercial paper |
77,957 | 694 | (63 | ) | 631 | 78,588 | ||||||||||||||
Asset and mortgage-backed securities |
63,370 | 172 | (213 | ) | (41 | ) | 63,329 | |||||||||||||
Total investments |
$ | 192,847 | $ | 1,011 | $ | (495 | ) | $ | 516 | $ | 193,363 | |||||||||
March 28, 2010 | ||||||||||||||||||||
Amortized Cost |
Unrealized | Fair Value | ||||||||||||||||||
Gross Gains(1) |
Gross Losses(1) |
Net Gain (Loss)(1) |
||||||||||||||||||
Money market funds |
$ | 19,616 | $ | | $ | | $ | | $ | 19,616 | ||||||||||
U.S. government and agency securities |
58,943 | 835 | (31 | ) | 804 | 59,747 | ||||||||||||||
Corporate bonds and commercial paper |
61,240 | 900 | (18 | ) | 882 | 62,122 | ||||||||||||||
Asset and mortgage-backed securities |
64,329 | 496 | (96 | ) | 400 | 64,729 | ||||||||||||||
Total investments |
$ | 204,128 | $ | 2,231 | $ | (145 | ) | $ | 2,086 | $ | 206,214 | |||||||||
(1) | Gross of tax impact |
The asset-backed securities are comprised primarily of premium tranches of auto loans and credit card receivables, while our mortgage-backed securities are primarily from Federal agencies. We do not own auction rate securities nor do we own securities that are classified as subprime. As of the date of this Annual Report, we have sufficient liquidity and do not intend to sell these securities to fund normal operations nor realize any significant losses in the short term; however, these securities are available for use, if needed, for current operations.
Management determines the appropriate classification of cash equivalents or short-term marketable securities at the time of purchase and reevaluates such classification as of each balance sheet date. The investments are adjusted for amortization of premiums and accretion of discounts to maturity and such accretion/
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EXAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
FISCAL YEARS ENDED MARCH 27, 2011, MARCH 28, 2010 AND MARCH 29, 2009
amortization is included in the interest income and other, net line in the consolidated statement of operations. Cash equivalents and short-term marketable securities are reported at fair value with the related unrealized gains and losses included in the accumulated other comprehensive income (loss) line in the consolidated balance sheets. As of March 27, 2011, there was approximately $0.3 million of net unrealized losses including tax expense from our level 1 and level 2 investments.
We periodically review our investments in unrealized loss positions for other-than-temporary impairments. This evaluation includes, but is not limited to, significant quantitative and qualitative assessments and estimates regarding credit ratings, collateralized support, the length of time and significance of a securitys loss position, our intent to not sell the security, and whether it is more likely than not that we will not have to sell the security before recovery of its cost basis. Other-than-temporary declines in value of our investments are reported in the impairment charges on investments line in the consolidated statements of operations.
In fiscal year 2010, an investment in GSAA Home Equity with a cost of $425,000 was downgraded from a AAA rating to a CCC rating. As a result of the reduction in the rating, quantitative analysis showing an increase in the default rate and decrease in prepayment rate of the investment, we recorded an other-than-temporary impairment charge of $91,000 during the second quarter of fiscal year 2010. In the three months ended September 26, 2010, due to further decline in the investment, we recorded an additional other-than-temporary impairment charge of $62,000. In the three months ended December 26, 2010, we sold this investment resulting in an immaterial loss from its adjusted basis.
In September 2008, Lehman Brothers Holdings Inc. (Lehman) filed a petition under Chapter 11 of the U.S. Bankruptcy Code with the U.S. Bankruptcy Court for the Southern District of New York. As a result of Lehmans bankruptcy filing, we recorded an other-than-temporary impairment charge of $0.6 million during fiscal year 2009. In the three months ended March 27, 2011, we sold this investment resulting in an immaterial gain from its adjusted basis.
The amortized cost and estimated fair value of cash equivalents and marketable securities classified as available-for-sale at March 27, 2011 and March 28, 2010 by expected maturity were as follows (in thousands):
March 27, 2011 | March 28, 2010 | |||||||||||||||
Amortized Cost |
Fair Value | Amortized Cost |
Fair Value | |||||||||||||
Less than 1 year |
$ | 78,378 | $ | 78,684 | $ | 108,812 | $ | 109,562 | ||||||||
Due in 1 to 5 years |
114,469 | 114,679 | 95,316 | 96,652 | ||||||||||||
Total |
$ | 192,847 | $ | 193,363 | $ | 204,128 | $ | 206,214 | ||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
FISCAL YEARS ENDED MARCH 27, 2011, MARCH 28, 2010 AND MARCH 29, 2009
The following table summarizes the gross unrealized losses and fair values of our investments in an unrealized loss position as of March 27, 2011 and March 28, 2010, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position (in thousands):
March 27, 2011 | ||||||||||||||||||||||||
Less than 12 months | 12 months or greater | Total | ||||||||||||||||||||||
Fair Value |
Gross Unrealized Losses |
Fair Value |
Gross Unrealized Losses |
Fair Value |
Gross Unrealized Losses |
|||||||||||||||||||
U.S. government and agency securities |
$ | 25,936 | $ | (219 | ) | $ | 325 | $ | (4 | ) | $ | 26,261 | $ | (223 | ) | |||||||||
Corporate bonds and commercial paper |
16,516 | (63 | ) | 1,948 | (9 | ) | 18,464 | (72 | ) | |||||||||||||||
Asset and mortgage-backed securities |
34,143 | (200 | ) | | | 34,143 | (200 | ) | ||||||||||||||||
Total |
$ | 76,595 | $ | (482 | ) | $ | 2,273 | $ | (13 | ) | $ | 78,868 | $ | (495 | ) | |||||||||
March 28, 2010 | ||||||||||||||||||||||||
Less than 12 months | 12 months or greater | Total | ||||||||||||||||||||||
Fair Value |
Gross Unrealized Losses |
Fair Value |
Gross Unrealized Losses |
Fair Value |
Gross Unrealized Losses |
|||||||||||||||||||
U.S. government and agency securities |
$ | 5,399 | $ | (31 | ) | $ | | $ | | $ | 5,399 | $ | (31 | ) | ||||||||||
Corporate bonds and commercial paper |
8,851 | (18 | ) | | | 8,851 | (18 | ) | ||||||||||||||||
Asset and mortgage-backed securities |
23,802 | (69 | ) | 353 | (27 | ) | 24,155 | (96 | ) | |||||||||||||||
Total |
$ | 38,052 | $ | (118 | ) | $ | 353 | $ | (27 | ) | $ | 38,405 | $ | (145 | ) | |||||||||
NOTE 6. RELATED PARTY TRANSACTION
Affiliates of Future, Alonim Investments Inc. and two of its affiliates (collectively Alonim), own approximately 7.6 million shares, or approximately 17%, of our outstanding common stock as of March 27, 2011. As such, Alonim is our largest stockholder.
Our sales to Future are made under a distribution agreement that provides protection against price reduction for its inventory of our products and other sales allowances. We recognize revenue on sales to Future when Future sells the products to its end customers. Future has historically accounted for a significant portion of our net sales.
Futures contribution to our total net sales were as follows for the periods indicated:
Fiscal Years Ended | ||||||||||||
March 27, 2011 |
March 28, 2010 |
March 29, 2009 |
||||||||||
Future |
30 | % | 28 | % | 35 | % |
Futures expenses for marketing promotional materials reimbursed were as follows for the periods indicated (in thousands):
Fiscal Years Ended | ||||||||||||
March 27, 2011 |
March 28, 2010 |
March 29, 2009 |
||||||||||
Future |
$ | 28 | $ | 8 | $ | 52 |
83
EXAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
FISCAL YEARS ENDED MARCH 27, 2011, MARCH 28, 2010 AND MARCH 29, 2009
NOTE 7. RESTRUCTURING & OTHER
During the fourth quarter of fiscal year 2011, we decided to exit the data center virtualization market, and, in connection therewith, to stop development of our 10GbE network interface cards. We determined that the current economic and market environment did not provide the potential to deliver acceptable returns on the required investments in these products. As a result, in the fourth quarter of fiscal year 2011 we abandoned all related in-process research and development. In addition, we began to actively market for sale the related assets of our 10GbE technology, consisting primarily of underlying existing and core technology intangible assets. Charges related to this decision in the fourth quarter of fiscal year 2011 totaled approximately $11.1 million and included $7.5 million for the impairment of intangible assets, which is included within the impairment of intangible assets and goodwill line in our consolidated statements of operations, $2.1 million for the write-off of inventory, which is included within the cost of sales line in our consolidated statements of operations, and $1.2 million in severance related costs, which is included primarily within the research and development line in our consolidated statements of operations. The majority of the severance related costs were paid out in fiscal year 2011.
The intangible asset impairment charge of $7.5 million consists of $0.8 million to the write-off abandoned IPR&D acquired in the Neterion acquisition and $6.7 million to write-down the carrying value of intangible assets that are held for sale to $0.2 million at March 27, 2011, which represents their estimated fair value less costs to sell based on third-party bids received to date.
During the quarter ended December 26, 2010, we vacated our facility in Framingham, Massachusetts and recorded a restructuring reserve of $134,000 for the remaining payments owed on this site. We expect this balance to be paid by November 2011 when the lease expires.
In connection with the Neterion acquisition in March 2010, we assumed a lease obligation for a facility in Sunnyvale, California. We vacated the facility in May 2010 and recorded a restructuring reserve of approximately $234,000, during the quarter ended June 27, 2010, for the remaining payments due on this site. This balance is expected to be paid by August 2011 when the lease expires.
In connection with the acquisition of Sipex Corporation (Sipex) in August 2007, our management approved and initiated plans to restructure the operations of the combined company to eliminate certain duplicative activities, reduce costs and better align product and operating expenses with then current economic conditions. These costs were accounted for as liabilities assumed as part of the business combination. The costs remaining as of March 27, 2011 and March 28, 2010 relate to office space in Belgium that has been vacated but is under lease until March 2012 and were $81,000 and $209,000, respectively.
Our restructuring liabilities were included in the other accrued expenses line in our consolidated balance sheets, and the activities affecting the liabilities for fiscal year 2011 are summarized as follows (in thousands):
Facility Costs |
||||
Balance at March 28, 2010 |
$ | 239 | ||
Payments |
(318 | ) | ||
Additional accruals |
367 | |||
Balance at March 27, 2011 |
$ | 288 | ||
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EXAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
FISCAL YEARS ENDED MARCH 27, 2011, MARCH 28, 2010 AND MARCH 29, 2009
NOTE 8. LONG-TERM INVESTMENT
Our long-term investment consists of our investment in Skypoint Telecom Fund II (US), L.P. (Skypoint Fund). Skypoint Fund is a venture capital fund that invests primarily in private companies in the telecommunications and/or networking industries. We account for this non-marketable equity investment under the cost method. We periodically review and determine whether the investment is other-than-temporarily impaired, in which case the investment is written down to its impaired value.
Our investment in TechFarm Ventures L.P. (TechFarm Fund), to which we contributed our total commitment to the fund of $4.0 million in capital since we became a limited partner in May 2001, had a carrying amount of zero as of March 27, 2011 and March 28, 2010, reflecting the net of the capital contribution and the cumulative impairment charges.
As of March 27, 2011 and March 28, 2010, our long-term investments balances, which are included in the other non-current assets line on the consolidated balance sheet, were as follows (in thousands):
March 27, 2011 |
March 28, 2010 |
|||||||
Skypoint Fund |
$ | 1,563 | $ | 1,440 | ||||
We have made $4.7 million in capital contributions to Skypoint Fund since we became a limited partner in July 2001. We contributed $186,000 and $41,000 to the fund during fiscal years of 2011 and 2010, respectively. As of March 27, 2011, we have a remaining potential capital commitment of approximately $0.3 million should the general partner decide to request it up to June 30, 2011.
The carrying amount of $1.6 million reflects the net of the capital contributions, cumulative impairment charges and capital distributions. We received capital distributions of $63,000 and $36,000, respectively, during fiscal year 2011 and fiscal year 2010.
Impairment
We analyzed the fair value of the underlying investments of Skypoint Fund and TechFarm Fund and concluded portions of the carrying value were other-than-temporarily impaired and recorded impairments for fiscal years ended March 27, 2011, March 28, 2010 and March 29, 2009 as follows (in thousands):
Fiscal Years Ended | ||||||||||||
March 27, 2011 |
March 28, 2010 |
March 29, 2009 |
||||||||||
Skypoint Fund |
$ | | $ | 226 | $ | 737 | ||||||
TechFarm Fund(1) |
| | 466 |
(1) | TechFarm Fund has had a carrying amount of zero since March 29, 2009. |
NOTE 9. GOODWILL AND INTANGIBLE ASSETS
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination. We evaluate goodwill for impairment on an annual basis or whenever events and changes in circumstances suggest that the carrying amount may not be recoverable. We
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EXAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
FISCAL YEARS ENDED MARCH 27, 2011, MARCH 28, 2010 AND MARCH 29, 2009
conduct our annual impairment analysis in the fourth quarter of each fiscal year. Impairment of goodwill is tested at the reporting unit level by comparing the reporting units carrying amount, including goodwill, to the fair value of the reporting unit. The fair value of the reporting unit is estimated using a combination of the income approach that uses discounted cash flows and the market approach that utilizes comparable companies data. If the carrying amount of the reporting unit exceeds its fair value, goodwill is considered impaired and a second step is performed to measure the amount of impairment loss. Because we have one reporting unit, we utilize an entity-wide approach to assess goodwill for impairment.
In the fourth quarter of fiscal year 2011, we conducted our annual impairment review comparing the fair value of our one reporting unit with its carrying value. As of the test date and as of year-end, and before consideration of a control premium, the fair value, which was estimated as our market capitalization, exceeded the carrying value of our net assets. As a result, no impairment was recorded for fiscal year 2011.
In the fourth quarter of fiscal year 2010, we conducted our annual impairment review comparing the fair value of our one reporting unit with the carrying value. Based on the results at the time of our analysis, the fair value, which was estimated as our market capitalization, exceeded the carrying value of our net assets. As a result, no impairment was recorded for fiscal year 2010.
In the third quarter of fiscal year 2009, the rapid and severe deterioration of worldwide economic conditions affected our industry and led customers to scale down their levels of production. As a result of these impairment indicators, we considered the potential impairment of goodwill. Indicators that required us to perform an interim impairment review consisted of further weakening in new orders from our customers throughout the third quarter and into the fourth quarter of fiscal year 2009, as well as the uncertainty of the magnitude and duration of the recession as evidenced by industry analysts expectations that demand for semiconductors would remain weak until economic conditions improve. In addition, we experienced a significant decline in our stock price that reduced our market capitalization below our net asset carrying value for an extended period of time. We performed an interim goodwill impairment analysis and recorded a $46.2 million impairment loss that was included in the impairment of intangible assets and goodwill line in the consolidated statements of operations.
The changes in the carrying amount of goodwill for fiscal years 2011 and 2010 were as follows (in thousands):
Amount | ||||
Balance as of March 29, 2009 |
$ | | ||
Goodwill addition in connection with the Hifn acquisition |
2,249 | |||
Goodwill addition in connection with the Galazar acquisition |
372 | |||
Goodwill addition in connection with the Neterion acquisition |
464 | |||
Balance as of March 28, 2010 |
$ | 3,085 | ||
Goodwill additions, impairments and adjustments |
99 | |||
Balance as of March 27, 2011 |
3,184 | |||
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EXAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
FISCAL YEARS ENDED MARCH 27, 2011, MARCH 28, 2010 AND MARCH 29, 2009
Intangible Assets
Our purchased intangible assets at March 27, 2011 and March 28, 2010 were as follows (in thousands):
March 27, 2011 | March 28, 2010 | |||||||||||||||||||||||
Carrying Amount(1) |
Accumulated Amortization |
Net Carrying Amount |
Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
|||||||||||||||||||
Existing technology |
$ | 33,613 | $ | (22,095 | ) | $ | 11,518 | $ | 35,621 | $ | (15,734 | ) | $ | 19,887 | ||||||||||
Patents/Core technology |
3,906 | (2,340 | ) | 1,566 | 4,492 | (1,688 | ) | 2,804 | ||||||||||||||||
In-process research and development |
300 | | 300 | 2,200 | | 2,200 | ||||||||||||||||||
Research and development reimbursement contract |
4,500 | (4,500 | ) | | 4,500 | (2,496 | ) | 2,004 | ||||||||||||||||
Customer backlog |
1,400 | (1,400 | ) | | 1,400 | (1,325 | ) | 75 | ||||||||||||||||
Distributor relationships |
1,264 | (1,019 | ) | 245 | 1,264 | (919 | ) | 345 | ||||||||||||||||
Customer relationships |
2,905 | (1,424 | ) | 1,481 | 4,670 | (777 | ) | 3,893 | ||||||||||||||||
Non-compete agreement |
77 | (77 | ) | | 100 | (3 | ) | 97 | ||||||||||||||||
Tradenames/Trademarks |
1,025 | (745 | ) | 280 | 1,077 | (425 | ) | 652 | ||||||||||||||||
Total |
$ | 48,990 | $ | (33,600 | ) | $ | 15,390 | $ | 55,324 | $ | (23,367 | ) | $ | 31,957 | ||||||||||
(1) | The carrying amount as of March 27, 2011 is presented net of intangible asset impairment charges of approximately $7.5 million and $13.5 million recorded during fiscal year 2011 and fiscal year 2009, respectively. |
Long-lived assets are amortized on a straight-line basis over their respective estimated useful lives. We evaluate the remaining useful life of our long-lived assets that are being amortized each reporting period to determine whether events and circumstances warrant a revision to the remaining period of amortization. If the estimate of an intangible assets remaining useful life is changed, the remaining carrying amount of the long-lived asset is amortized prospectively over the remaining useful life. Long-lived assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. We compare the carrying value of long-lived assets to our projection of future undiscounted cash flows attributable to such assets and, in the event that the carrying value exceeds the future undiscounted cash flows, we record an impairment charge equal to the excess of the carrying value over the assets fair value. Although the assumptions used in projecting future revenues and gross margins are consistent with those used in our annual strategic planning process, intangible asset impairment charges might be required in future periods if our assumptions are not achieved.
IPR&D assets are considered indefinite-lived intangible assets and are not subject to amortization until their useful life is determined. IPR&D assets are evaluated for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired.
During the fourth quarter of fiscal year 2011, we decided to exit the data center virtualization market, and, in connection therewith, to stop development of our 10GbE network interface cards. We determined that the current economic and market environment did not provide the potential to deliver acceptable returns on the required investments in these products. As a result, in the fourth quarter of fiscal year 2011 we abandoned all related in-process research and development. In addition, we began to actively market for sale the related assets of our 10GbE technology, consisting primarily of underlying existing and core technology intangible assets.
87
EXAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
FISCAL YEARS ENDED MARCH 27, 2011, MARCH 28, 2010 AND MARCH 29, 2009
Charges related to this decision in the fourth quarter of fiscal year 2011 included $7.5 million for the impairment of intangible assets, which is included within the impairment of intangible assets and goodwill line in our consolidated statements of operations.
The intangible asset impairment charge of $7.5 million consists of $0.8 million to the write-off abandoned IPR&D acquired in the Neterion acquisition and $6.7 million to write-down the carrying value of intangible assets that are held for sale to $0.2 million at March 27, 2011, which represents their estimated fair value less costs to sell based on third-party bids received to date. In June 2011, we completed the asset sale process and received $0.2 million, net of selling costs.
As noted in the Goodwill discussion above, in the third quarter of fiscal year 2009, there were certain events that gave rise to impairment indicators and as a result we analyzed our long-lived assets for impairment. The analysis determined that the carrying amount of the intangible assets exceeded the implied fair value under the test for impairment and the difference was allocated to the intangible assets of the impacted asset group on a pro-rata basis using the relative carrying amounts of the assets. We recorded an impairment charge of approximately $13.5 million, which is included in the impairment of intangible assets and goodwill line in the consolidated statements of operations of which $9.8 million related to existing technology, $1.4 million to patents/core technology, $1.3 million to distributor relationships, $0.9 million to customer relationships and $0.1 million to tradenames/trademarks.
The aggregate amortization expenses for our purchased intangible assets for fiscal years ended March 27, 2011, March 28, 2010 and March 29, 2009 were as follows (in thousands, except weighted average lives):
Weighted Average Lives |
March 27, 2011 |
March 28, 2010 |
March 29, 2009 |
|||||||||||||
(in months) | (in thousands) | |||||||||||||||
Existing technology |
65 | $ | 6,361 | $ | 4,936 | $ | 4,281 | |||||||||
Patents/Core technology |
61 | 652 | 499 | 408 | ||||||||||||
In-process research and development |
63 | | | | ||||||||||||
Research and development reimbursement contracts |
24 | 2,004 | 2,496 | | ||||||||||||
Customer backlog |
6 | 75 | 985 | | ||||||||||||
Distributor relationships |
72 | 100 | 102 | 280 | ||||||||||||
Customer relationships |
80 | 647 | 317 | 159 | ||||||||||||
Non-compete agreement |
15 | 74 | 3 | | ||||||||||||
Tradenames/Trademarks |
35 | 320 | 275 | 52 | ||||||||||||
Total |
$ | 10,233 | $ | 9,613 | $ | 5,180 | ||||||||||
The estimated future amortization expenses for our purchased intangible assets are summarized below (in thousands):
Fiscal Year |
Amount | |||
2012 |
$ | 5,152 | ||
2013 |
4,468 | |||
2014 |
3,886 | |||
2015 |
1,362 | |||
2016 |
426 | |||
2017 and thereafter |
96 | |||
Total estimated amortization |
$ | 15,390 | ||
88
EXAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
FISCAL YEARS ENDED MARCH 27, 2011, MARCH 28, 2010 AND MARCH 29, 2009
NOTE 10. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share excludes dilution and is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the periods. Diluted earnings per share (EPS) reflects the potential dilution that would occur if outstanding stock options or warrants to purchase common stock were exercised for common stock, using the treasury stock method, and the common stock underlying outstanding restricted stock units (RSUs) was issued.
A summary of our loss per share for the three fiscal years of 2011, 2010 and 2009 was as follows (in thousands, except per share amounts):
March 27, 2011 |
March 28, 2010 |
March 29, 2009 |
||||||||||
Net loss |
$ | (35,668 | ) | $ | (28,110 | ) | $ | (73,036 | ) | |||
Shares used in computation: |
||||||||||||
Weighted average shares of common stock outstanding used in computation of basic loss per share |
44,218 | 43,584 | 42,887 | |||||||||
Dilutive effect of stock options and restricted stock units |
| | | |||||||||
Shares used in computation of diluted loss per share |
44,218 | 43,584 | 42,887 | |||||||||
Loss per sharebasic and diluted |
$ | (0.81 | ) | $ | (0.64 | ) | $ | (1.70 | ) | |||
Options to purchase shares of common stock and unvested restricted stock units for shares of common stock were excluded from our loss per share calculation under the treasury stock method for the periods presented and were as follows (in thousands):
March 27, 2011(1) |
March 28, 2010(1) |
March 29, 2009(1) |
||||||||||
Options and RSUs |
316 | 337 | 214 |
(1) | As we incurred a net loss, we did not consider the impact of potentially dilutive instruments in the weighted average number of shares calculation as their inclusion would have been anti-dilutive. Had we had income for these periods, our diluted shares would have increased by the aforementioned amount. |
The following shares were not included in the computation of diluted shares outstanding because they were anti-dilutive under the treasury stock method (in thousands, except per share amounts):
March 27, 2011 |
March 28, 2010 |
March 29, 2009 |
||||||||||||||||||||||
Shares | Prices | Shares | Prices | Shares | Prices | |||||||||||||||||||
Options |
6,187 | $ | 5.44 - $86.10 | 4,800 | $ | 7.08 - $86.10 | 4,500 | $ | 5.44 - $86.10 | |||||||||||||||
Warrants |
280 | 9.63 | 280 | 9.63 | 280 | 9.63 | ||||||||||||||||||
RSUs |
| | 3 | 7.03 | 56 | 7.12 | ||||||||||||||||||
Total |
6,467 | 5,083 | 4,836 | |||||||||||||||||||||
Our application of the treasury stock method in determining the dilutive effect of stock options and RSUs includes assumed cash proceeds from option exercises, the average unamortized stock-based compensation expense for the period, and the estimated deferred tax benefit or detriment associated with stock-based compensation expense.
89
EXAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
FISCAL YEARS ENDED MARCH 27, 2011, MARCH 28, 2010 AND MARCH 29, 2009
NOTE 11. COMMON STOCK REPURCHASES
From time to time, we acquire outstanding common stock in the open market to partially offset dilution from our equity award programs, to increase our return on our invested capital and to bring our cash to a more appropriate level for our company.
On August 28, 2007, we announced the approval of a share repurchase plan (2007 SRP) and authorized the repurchase of up to $100 million of our common stock.
During fiscal years 2011 and 2010, we did not repurchase any shares of our common stock.
As of March 27, 2011, the remaining authorized amount for share repurchases under the 2007 SRP was $11.8 million. The 2007 SRP does not have a termination date. We may continue to utilize our share repurchase plan, which would reduce our cash, cash equivalents and/or short-term marketable securities available to fund future operations and to meet other liquidity requirements.
NOTE 12. EMPLOYEE BENEFIT PLANS
Exar Savings Plan
The Exar Savings Plan, as amended and restated, covers our eligible U.S. employees. The Exar Savings Plan provides for voluntary salary reduction contributions in accordance with Section 401(k) of the Internal Revenue Code as well as matching contributions from the company based on the achievement of specified operating results.
Our matching contributions to the plan for the three fiscal years of 2011, 2010 and 2009 were as follows (in thousands):
March 27, 2011 |
March 28, 2010 |
March 29, 2009 |
||||||||||
Matching contributions |
$ | 404 | $ | 442 | $ | 336 |
Executive and Employee Incentive Compensation Programs
Our incentive compensation programs provide for incentive awards for substantially all employees based on the achievement of personal objectives and our operating performance results. Our incentive compensation programs may be amended or discontinued at the discretion of our board of directors.
Our paid and unpaid incentive compensation for the three fiscal years of 2011, 2010 and 2009 were as follows (in thousands):
March 27, 2011 |
March 28, 2010 |
March 29, 2009 |
||||||||||
Paid incentive compensation |
$ | | $ | 118 | $ | 468 | ||||||
Unpaid incentive compensation |
| 118 | 300 |
90
EXAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
FISCAL YEARS ENDED MARCH 27, 2011, MARCH 28, 2010 AND MARCH 29, 2009
NOTE 13. STOCK-BASED COMPENSATION
Employee Stock Participation Plan (ESPP)
Our ESPP permits employees to purchase common stock through payroll deductions at a purchase price that is equal to 95% of our common stock price on the last trading day of each three-calendar-month offering period. Our ESPP is non-compensatory.
The following table summarizes our ESPP transactions during the fiscal periods presented (in thousands, except per share amounts):
Shares of Common Stock |
Weighted Average Price |
|||||||
Authorized to issue: |
4,500 | | ||||||
Reserved for future issuance: |
||||||||
Fiscal year ending March 27, 2011 |
1,480 | | ||||||
Fiscal year ending March 28, 2010 |
1,549 | | ||||||
Issued: |
||||||||
Fiscal year ending March 27, 2011 |
69 | $ | 6.41 | |||||
Fiscal year ending March 28, 2010 |
59 | 6.64 | ||||||
Fiscal year ending March 29, 2009 |
56 | 7.08 |
Equity Incentive Plans
We currently have three equity incentive plans including the Exar Corporation 2006 Equity Incentive Plan (the 2006 Plan) and two other equity plans assumed upon our August 2007 acquisition of Sipex: the Sipex Corporation Amended and Restated 2002 Non-Statutory Stock Option Plan and the Sipex Corporation 2006 Equity Incentive Plan (collectively, the Sipex Plans). The Sipex Corporation 2000 Non-Qualified Stock Option Plan expired October 31, 2010.
The 2006 Plan authorizes the issuance of stock options, stock appreciation rights, restricted stock, stock bonuses and other forms of awards granted or denominated in common stock or units of common stock, as well as cash bonus awards. RSUs granted under the 2006 Plan are counted against authorized shares available for future issuance on a basis of two shares for every RSU issued. The 2006 Plan allows for performance-based vesting and partial vesting based upon level of performance. Grants under the Sipex Plans are only available to former Sipex employees or employees of Exar hired after the Sipex acquisition. At our annual meeting on September 15, 2010, our stockholders approved an amendment to the 2006 Plan to increase the aggregate share limit under the 2006 Plan by an additional 5.5 million shares to 8.3 million shares. At March 27, 2011, there were 6.0 million shares available for future grant under all our equity incentive plans.
91
EXAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
FISCAL YEARS ENDED MARCH 27, 2011, MARCH 28, 2010 AND MARCH 29, 2009
The following table summarizes information about our stock options outstanding at March 27, 2011:
Options Outstanding | Options Exercisable | |||||||||||||||||||
Range of |
Number Outstanding As of March 27, 2011 |
Weighted Average Remaining Contractual Terms (in years) |
Weighted Average Exercise Price |
Number Exercisable As of March 27, 2011 |
Weighted Average Exercise Price |
|||||||||||||||
$ 3.60 - $6.16 |
1,224,948 | 5.40 | $ | 5.98 | 171,108 | $ | 5.81 | |||||||||||||
6.22 - 6.97 |
1,194,542 | 4.86 | 6.60 | 367,666 | 6.55 | |||||||||||||||
7.00 - 7.48 |
1,281,850 | 5.37 | 7.27 | 252,997 | 7.33 | |||||||||||||||
7.56 - 8.57 |
1,502,177 | 4.24 | 8.25 | 862,936 | 8.31 | |||||||||||||||
8.81 - 18.00 |
525,947 | 2.84 | 12.70 | 502,962 | 12.69 | |||||||||||||||
5,729,464 | 4.74 | $ | 7.61 | 2,157,669 | $ | 8.72 | ||||||||||||||
Valuation Assumptions
The assumptions used in calculating the fair value of stock-based compensation represent our estimates, but these estimates involve inherent uncertainties and the application of management judgments which include the expected term of the share-based awards, stock price volatility and forfeiture rates. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future.
Valuation Methodwe compute the fair value of stock options utilizing the Black-Scholes option pricing model.
Expected Termwe estimate the expected life of options granted based on historical exercise and post-vest cancellation patterns, which we believe are representative of future behavior.
Volatilityour expected volatility is based on historical data of the market closing price for our common stock as reported by The NASDAQ Global Market under the symbol EXAR and the expected term of our stock options.
Risk-Free Interest Ratethe risk-free interest rate assumption is based on the observed interest rate of the U.S. Treasury appropriate for the expected term of the option to be valued.
Dividend Yieldwe do not currently pay dividends and have no plans to do so in the future. Therefore, we have assumed a dividend yield of zero.
We have used the following weighted average assumptions to calculate the fair values of options granted during the years presented:
March 27, 2011 |
March 28, 2010 |
March 29, 2009 |
||||||||||
Expected term of options (years) |
4.4 | 4.7 4.9 | 4.6 4.8 | |||||||||
Risk-free interest rate |
1.3 2.0 | % | 2.1 2.5 | % | 1.7 3.2 | % | ||||||
Expected volatility |
39 40 | % | 37 38 | % | 30 38 | % | ||||||
Expected dividend yield |
| | | |||||||||
Weighted average estimated fair value |
$ | 2.28 | $ | 2.43 | $ | 2.56 |
92
EXAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
FISCAL YEARS ENDED MARCH 27, 2011, MARCH 28, 2010 AND MARCH 29, 2009
Stock Option Activities
A summary of stock option transactions during the periods indicated for all stock option plans was as follows:
Outstanding Options / Quantity |
Weighted Average Exercise Price |
Weighted Average Remaining Contractual Term (in years) |
Aggregate Intrinsic Value(1) (in thousands) |
In-the-money Options Vested and Exercisable (in millions) |
||||||||||||||||
Balance at March 30, 2008 |
5,086,297 | $ | 13.23 | 3.85 | $ | 2,383 | 0.7 | |||||||||||||
Granted |
2,152,475 | 7.92 | ||||||||||||||||||
Exercised |
(579,142 | ) | 5.38 | |||||||||||||||||
Cancelled |
(2,526,228 | ) | 16.18 | |||||||||||||||||
Forfeited |
(727,311 | ) | 11.07 | |||||||||||||||||
Balance at March 29, 2009 |
3,406,091 | $ | 9.48 | 5.37 | $ | 129 | 0.2 | |||||||||||||
Granted |
2,687,450 | 6.81 | ||||||||||||||||||
Exercised |
(26,343 | ) | 5.63 | |||||||||||||||||
Cancelled |
(262,629 | ) | 14.22 | |||||||||||||||||
Forfeited |
(459,065 | ) | 8.49 | |||||||||||||||||
Balance at March 28, 2010 |
5,345,504 | $ | 8.01 | 5.38 | $ | 1,882 | 0.2 | |||||||||||||
Granted |
2,113,190 | 6.60 | ||||||||||||||||||
Exercised |
(125,920 | ) | 6.07 | |||||||||||||||||
Cancelled |
(308,595 | ) | 11.02 | |||||||||||||||||
Forfeited |
(1,294,715 | ) | 6.93 | |||||||||||||||||
Balance at March 27, 2011 |
5,729,464 | $ | 7.61 | 4.74 | $ | 147 | 0.1 | |||||||||||||
Vested and expected to vest at March 27, 2011 |
5,482,432 | $ | 7.65 | 4.70 | $ | 138 | ||||||||||||||
Vested and exercisable at March 27, 2011 |
2,157,669 | $ | 8.72 | 3.79 | $ | 51 | ||||||||||||||
(1) | The aggregate intrinsic values in the table above represent the total pre-tax intrinsic value, which is based on the closing price of our common stock of $6.08, $7.32 and $6.17 as of March 27, 2011, March 28, 2010 and March 29, 2009, respectively. These were the amounts which would have been received by option holders if all option holders exercised their options as of that date. |
Options exercised for the three fiscal years of 2011, 2010 and 2009 were as follows (in thousands):
March 27, 2011 |
March 28, 2010 |
March 29, 2009 |
||||||||||
Intrinsic value of options exercised |
$ | 100 | $ | 29 | $ | 1,302 | ||||||
Cash received related to option exercises |
765 | 148 | 3,116 | |||||||||
Tax benefit recorded |
2,300 | 2,503 | 1,307 |
RSUs
We issue RSUs to employees and non-employee directors. RSUs generally vest on the first or third anniversary date from the grant date, although the RSUs issued in exchange for options tendered in our option
93
EXAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
FISCAL YEARS ENDED MARCH 27, 2011, MARCH 28, 2010 AND MARCH 29, 2009
exchange program in the third quarter of fiscal year 2009 vested in two equal annual installments. Prior to vesting, RSUs do not have dividend equivalent rights, do not have voting rights and the shares underlying the RSUs are not considered issued and outstanding. Shares are issued on the date the RSUs vest.
A summary of RSU transactions during the periods indicated for all stock option plans is as follows:
Shares | Weighted Average Grant-Date Fair Value |
Weighted Average Remaining Contractual Term in Years |
Aggregate Intrinsic Value(1) (in thousands) |
Unrecognized Stock-based Compensation Cost(2) (in millions) |
||||||||||||||||
Unvested at March 30, 2008 |
304,933 | $ | 12.20 | 1.41 | $ | 2,497 | $ | 2.5 | ||||||||||||
Granted |
598,409 | 7.18 | ||||||||||||||||||
Issued and released |
(117,437 | ) | 6.90 | |||||||||||||||||
Cancelled |
(55,668 | ) | 9.16 | |||||||||||||||||
Unvested at March 29, 2009 |
730,237 | $ | 8.36 | 1.14 | $ | 4,506 | $ | 2.0 | ||||||||||||
Granted |
557,784 | 7.24 | ||||||||||||||||||
Issued and released |
(349,409 | ) | 6.90 | |||||||||||||||||
Cancelled |
(104,408 | ) | 8.54 | |||||||||||||||||
Unvested at March 28, 2010 |
834,204 | $ | 8.20 | 1.04 | $ | 6,106 | $ | 4.2 | ||||||||||||
Granted |
399,183 | 6.76 | ||||||||||||||||||
Issued and released |
(618,411 | ) | 6.90 | |||||||||||||||||
Cancelled |
(57,878 | ) | 7.52 | |||||||||||||||||
Unvested at March 27, 2011 |
557,098 | $ | 7.17 | 1.09 | $ | 3,387 | $ | 2.3 | ||||||||||||
Vested and expected to vest at March 27, 2011 |
531,942 | $ | 7.17 | 1.06 | $ | 3,234 | ||||||||||||||
(1) | The aggregate intrinsic value of RSUs represents the closing price per share of our common stock at the end of the periods presented, multiplied by the number of unvested RSUs or the number of vested and expected to vest RSUs, as applicable, at the end of each period. |
(2) | For RSUs, stock-based compensation expense was calculated based on our stock price on the date of grant, multiplied by the number of RSUs granted. The grant date fair value of RSUs, less estimated forfeitures, was recognized on a straight-line basis, over the vesting period. |
In July 2009, we granted performance-based RSUs covering 99,000 shares to certain executives, issuable upon meeting certain performance targets in fiscal year 2010 and vesting annually over a three year period beginning July 1, 2010. The annual vesting requires continued service through each annual vesting date. During fiscal year 2011 and fiscal year 2010, $216,000 and $368,000, respectively, of compensation expense was recorded to reflect the achievement of these performance targets.
In April 2010, we granted performance-based RSUs covering 56,000 shares to our CEO, issuable upon meeting certain performance targets in our fiscal year 2011 and vesting annually over a three year period beginning May 3, 2010. The annual vesting requires continued service through each annual vesting date. During fiscal year 2011, $239,000 of compensation expense was recorded for these awards.
94
EXAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
FISCAL YEARS ENDED MARCH 27, 2011, MARCH 28, 2010 AND MARCH 29, 2009
Stock-Based Compensation Expenses
The following table summarizes stock-based compensation expense related to stock options and RSUs for fiscal years 2011, 2010 and 2009 (in thousands):
March 27, 2011 |
March 28, 2010 |
March 29, 2009 |
||||||||||
Cost of sales |
$ | 489 | $ | 528 | $ | 595 | ||||||
Research and development |
3,241 | 2,324 | 1,614 | |||||||||
Selling, general and administrative |
3,651 | 3,113 | 2,725 | |||||||||
Total stock-based compensation expense |
$ | 7,381 | $ | 5,965 | $ | 4,934 | ||||||
The amount of stock-based compensation cost capitalized in inventory was not material at each of the fiscal year ends presented.
Unrecognized Stock-based Compensation Expense
The following table summarizes unrecognized stock-based compensation expense related to stock options and RSUs for the periods indicated below as follows:
March 27, 2011 | March 28, 2010 | March 29, 2009 | ||||||||||||||||||||||
Amount (in thousands) |
Weighted Average Expected Remaining Period (in years) |
Amount (in thousands) |
Weighted Average Expected Remaining Period (in years) |
Amount (in thousands) |
Weighted Average Expected Remaining Period (in years) |
|||||||||||||||||||
Options |
$ | 7,290 | 2.4 | $ | 8,139 | 2.9 | $ | 5,998 | 3.0 | |||||||||||||||
RSUs(1) |
2,336 | 1.8 | 4,168 | 1.0 | 2,004 | 1.1 | ||||||||||||||||||
Total Stock-based compensation expense |
$ | 9,626 | $ | 12,307 | $ | 8,002 | ||||||||||||||||||
(1) | For RSUs, stock-based compensation expense was calculated based on our stock price on the date of grant, multiplied by the number of RSUs granted. The grant date fair value of RSUs, less estimated forfeitures, is recognized on a straight-line basis over the vesting period. |
Option Exchange Program
On October 23, 2008, we commenced a tender offer (the Offer) and filed a Schedule TO with the SEC pursuant to which holders of options with exercise prices equal to or greater than $11.00 per share and an expiration date after March 31, 2009 could tender their options in exchange for RSUs awards. The exchange ratio of shares subject to such eligible options to shares subject to new awards issued was 4-to-1, 5-to-1 or 6-to-1, depending on the exercise price of the option being exchanged. New awards received in exchange for eligible options are subject to a two-year vesting schedule with 50% vesting at each anniversary of the grant date.
Pursuant to the Offer, 242 eligible participants tendered, and we accepted for exchange, options to purchase an aggregate of 1,650,231 shares of our common stock, representing approximately 94% of the 1,755,691 shares subject to options that were eligible to be exchanged in the Offer as of the commencement of the Offer on
95
EXAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
FISCAL YEARS ENDED MARCH 27, 2011, MARCH 28, 2010 AND MARCH 29, 2009
October 23, 2008. On November 24, 2008, upon the terms and subject to the conditions set forth in the Offer to Exchange Certain Outstanding Options for Restricted Stock Units, filed as an exhibit to the Schedule TO, we issued RSU awards covering an aggregate of 344,020 shares of our common stock in exchange for the options surrendered pursuant to the Offer.
The new awards were granted with a price of $6.51 per share, the closing price of our common stock on November 24, 2008 as reported on The NASDAQ Global Select Market. The fair value of the options exchanged was measured as the total of the unrecognized compensation cost of the original options tendered and the incremental compensation cost of the RSUs awarded on November 24, 2008, the date of exchange. The incremental compensation cost of $1.2 million, was measured as the excess of the fair value of the RSUs over the fair value of the options immediately before cancellation based on the share price and other pertinent factors at that date. The amount was amortized over the two years service period. During fiscal years 2011, 2010 and 2009, we recorded approximately $327,000, $530,000 and $208,000, respectively, of such incremental stock-based compensation expense.
NOTE 14. WARRANTS
In connection with the Sipex acquisition, we assumed warrants with a fair value of $1.5 million on the date of acquisition, which enable the holders, to purchase a total of approximately 280,000 shares of our common stock. The warrants were exercisable at any time for shares of our common stock at an initial exercise price of $9.63 per share, subject to adjustment upon certain events. The warrants expired unexercised on May 18, 2011.
NOTE 15. LEASE FINANCING OBLIGATION
In connection with the Sipex acquisition, we assumed a lease financing obligation related to the Hillview facility located in Milpitas, California (the Hillview Facility). The lease term expired March 31, 2011 and had average lease payments of approximately $1.4 million per year.
The fair value of the Hillview Facility was estimated at $13.4 million at the time of the acquisition and was included in the property, plant and equipment, net line on the consolidated balance sheet. In accordance with purchase accounting, we have accounted for this sale and leaseback transaction as a financing transaction which was included in the long-term lease financing obligations line on our consolidated balance sheet. The effective interest rate is 8.2%.
Depreciation for the Hillview Facility recorded over the straight-line method for the remaining useful life for the periods indicated below was as follows (in thousands):
Fiscal Years Ended | ||||||||||||
March 27, 2011 |
March 28, 2010 |
March 29, 2009 |
||||||||||
Depreciation expense |
$ | 323 | $ | 352 | $ | 352 |
The sublease income recorded in the interest income and other, net line in our consolidated statements of operations for the periods indicated below was as follows (in thousands):
Fiscal Years Ended | ||||||||||||
March 27, 2011 |
March 28, 2010 |
March 29, 2009 |
||||||||||
Sublease income |
$ | 1,427 | $ | 1,396 | $ | 1,396 |
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EXAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
FISCAL YEARS ENDED MARCH 27, 2011, MARCH 28, 2010 AND MARCH 29, 2009
We have also acquired engineering design tools (design tools) under capital leases. We acquired $5.2 million of design tools in December 2007 under a four-year license, $3.7 million of design tools in November 2008 under a three-year license, $1.1 million in July 2009 under a 3-year license, $1.3 million in December 2009 under a 28-month license, and $1.0 million in June 2010 under a 3-year license which were accounted for as capital leases and recorded in the property, plant and equipment, net line on the consolidated balance sheets. The related design tool obligations were included in the lease financing obligations line in our consolidated balance sheets.
Amortization of the design tools recorded using the straight-line method over the remaining useful life for the periods indicated below was as follows (in thousands):
Fiscal Years Ended | ||||||||||||
March 27, 2011 |
March 28, 2010 |
March 29, 2009 |
||||||||||
Amortization expense |
$ | 3,526 | $ | 2,541 | $ | 1,574 |
Future minimum lease payments for the lease financing obligations as of March 27, 2011 were as follows (in thousands):
Fiscal Years |
Hillview Facility(1) |
Design Tools |
Total | |||||||||
2012 |
$ | 12,168 | $ | 1,838 | $ | 14,006 | ||||||
2013 |
| 390 | 390 | |||||||||
Total minimum lease payments |
12,168 | 2,228 | 14,396 | |||||||||
Less: amount representing interest |
| (157 | ) | (157 | ) | |||||||
Less: amount representing maintenance |
| | | |||||||||
Present value of minimum lease payments |
12,168 | 2,071 | 14,239 | |||||||||
Less: current portion of lease financing obligation |
| (1,681 | ) | (1,681 | ) | |||||||
Long-term lease financing obligations |
$ | 12,168 | $ | 390 | $ | 12,558 | ||||||
(1) | At the end of the lease term, March 31, 2011, the estimated final lease obligation was approximately $12.2 million, which we settled in a noncash transaction by returning the Hillview Facility to the lessor. As a result, during the first quarter of fiscal year 2012, the property, plant and equipment balance and the long-term lease financing obligations balance on our consolidated balance sheet and will both decline by approximately $12.2 million. |
Interest expense for the Hillview Facility lease financing obligation and design tools for the periods indicated below was as follows (in thousands):
Fiscal Years Ended | ||||||||||||
March 27, 2011 |
March 28, 2010 |
March 29, 2009 |
||||||||||
Interest expense |
$ | 1,252 | $ | 1,285 | $ | 1,311 |
In the course of our business, we enter into arrangements accounted for as operating leases. Our current arrangements relate to engineering design software licenses and office space. As of March 27, 2011, our future obligations under these arrangements were $5.7 million and $1.5 million, respectively.
97
EXAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
FISCAL YEARS ENDED MARCH 27, 2011, MARCH 28, 2010 AND MARCH 29, 2009
In fiscal year 2011, the lessor for the Hillview Facility made a remediation claim for damages related to our lease. Based on such claim, we submitted a proposal to the lessor to settle the claim and recorded an accrual of $0.4 million in fiscal year 2011.
NOTE 16. COMMITMENTS AND CONTINGENCIES
In 1986, Micro Power Systems Inc. (MPSI), a subsidiary that we acquired in June 1994, identified low-level groundwater contamination at its principal manufacturing site. The area and extent of the contamination appear to have been defined. MPSI previously reached an agreement with a prior tenant to share in the cost of ongoing site investigations and the operation of remedial systems to remove subsurface chemicals. The frequency and number of wells monitored at the site was reduced with prior regulatory approval for a plume stability analysis as an initial step towards site closure. No significant rebound concentrations have been observed. The groundwater treatment system remains shut down. In July 2008, we evaluated the effectiveness of the plume stability and decided to initiate an alternative treatment program to pursue a no further action order for the site. The program was approved by the state and implementation started in October 2009. As of March 27, 2011 and March 28, 2010, the outstanding liabilities for remediation options and future monitoring were $113,000 and $137,000, respectively.
Generally, we warrant all custom products and application specific products, including cards and boards, against defects in materials and workmanship for a period of 12 months and occasionally we may provide an extended warranty of up to three years from the delivery date. We warrant all of our standard products against defects in materials and workmanship for a period of 90 days from the date of delivery. Reserve requirements are recorded in the period of sale and are based on an assessment of the products sold with warranty and historical warranty costs incurred. Our liability is generally limited to replacing, repairing or issuing credit, at our option, for the product if it has been paid for. The warranty does not cover damage which results from accident, misuse, abuse, improper line voltage, fire, flood, lightning or other damage resulting from modifications, repairs or alterations performed other than by us, or resulting from failure to comply with our written operating and maintenance instructions. Warranty expense has historically been immaterial for our products. The warranty liabilities related to our products as of March 27, 2011 and March 28, 2010 were immaterial.
In the ordinary course of business, we may provide for indemnification of varying scope and terms to customers, vendors, lessors, business partners, purchasers of assets or subsidiaries, and other parties with respect to certain matters, including, but not limited to, losses arising out of our breach of agreements or representations and warranties made by us, services to be provided by us, intellectual property infringement claims made by third parties or, with respect to the sale of assets or a subsidiary, matters related to our conduct of the business and tax matters prior to the sale. In addition, we have entered into indemnification agreements with our directors and certain of our executive officers that will require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or executive officers. We maintain director and officer liability insurance, which may cover certain liabilities arising from our obligation to indemnify our directors and officers, and former directors and officers of acquired companies, in certain circumstances. It is not possible to determine the aggregate maximum potential loss under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Such indemnification agreements might not be subject to maximum loss clauses. Historically, we have not incurred material costs as a result of obligations under these agreements and we have not accrued any liabilities related to such indemnification obligations in our consolidated financial statements.
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EXAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
FISCAL YEARS ENDED MARCH 27, 2011, MARCH 28, 2010 AND MARCH 29, 2009
NOTE 17. LEGAL PROCEEDINGS
From time to time, we are involved in various claims, legal actions and complaints arising in the normal course of business. We are not a named party to any currently ongoing lawsuit or formal proceeding that, in the opinion of our management, is likely to have a material adverse effect on our financial position, results of operations or cash flows.
NOTE 18. INCOME TAXES
The components of the provision for (benefit from) income taxes are as follows (in thousands) as of the dates indicated:
March 27, 2011 |
March 28, 2010 |
March 29, 2009 |
||||||||||
Current: |
||||||||||||
Federal |
$ | (37 | ) | $ | (181 | ) | $ | (8 | ) | |||
State |
(106 | ) | (240 | ) | (234 | ) | ||||||
Foreign |
388 | 250 | 192 | |||||||||
Total current |
$ | 245 | $ | (171 | ) | $ | (50 | ) | ||||
Deferred: |
||||||||||||
Federal |
$ | 9 | $ | (270 | ) | $ | (450 | ) | ||||
State |
1 | (22 | ) | (35 | ) | |||||||
Total deferred |
$ | 10 | $ | (292 | ) | $ | (485 | ) | ||||
Total provision for (benefit from) income taxes |
$ | 255 | $ | (463 | ) | $ | (535 | ) | ||||
Consolidated pre-tax income included foreign income of $1.0 million, $2.4 million and $0.2 million for fiscal years 2011, 2010 and 2009, respectively. Undistributed earnings of $7.0 million of our foreign subsidiaries are considered to be indefinitely reinvested and, accordingly, no provision for federal and state income taxes have been provided thereon. Upon distribution of those earnings in the form of a dividend or otherwise, we would be subject to both United States income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to various foreign countries.
Significant components of our net deferred taxes are as follows (in thousands) as of the dates indicated:
March 27, 2011 |
March 28, 2010 |
March 29, 2009 |
||||||||||
Deferred tax assets: |
||||||||||||
Reserves and expenses not currently deductible |
$ | 9,596 | $ | 8,119 | $ | 7,701 | ||||||
Net operating loss carryforwards |
110,763 | 101,691 | 84,528 | |||||||||
Tax credits |
25,464 | 20,641 | 15,960 | |||||||||
Losses on investments |
2,259 | 2,251 | 16,995 | |||||||||
Capitalized R&D expenses |
13,159 | 12,521 | 4,048 | |||||||||
Deferred margin |
5,693 | 5,570 | 3,846 | |||||||||
Depreciation |
3,756 | 2,259 | 197 | |||||||||
Total deferred tax assets |
170,690 | 153,052 | 133,275 | |||||||||
Deferred tax liabilities: |
||||||||||||
Non-goodwill intangibles |
(4,026 | ) | (9,941 | ) | (1,547 | ) | ||||||
Total deferred tax liabilities |
(4,026 | ) | (9,941 | ) | (1,547 | ) | ||||||
Valuation allowance |
(166,684 | ) | (143,122 | ) | (131,728 | ) | ||||||
Net deferred tax liabilities |
$ | (20 | ) | $ | (11 | ) | $ | | ||||
99
EXAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
FISCAL YEARS ENDED MARCH 27, 2011, MARCH 28, 2010 AND MARCH 29, 2009
Reconciliations of the income tax provision at the statutory rate to our provision for (benefit from) income tax are as follows (in thousands) as of the dates indicated:
March 27, 2011 |
March 28, 2010 |
March 29, 2009 |
||||||||||
Income tax provision at statutory rate |
$ | (12,395 | ) | $ | (9,830 | ) | $ | (25,750 | ) | |||
State income taxes, net of federal tax benefit |
(997 | ) | (763 | ) | (1,970 | ) | ||||||
Deferred tax assets not benefited |
14,599 | 9,910 | 12,867 | |||||||||
Tax credits |
(1,605 | ) | (1,499 | ) | (1,315 | ) | ||||||
Stock-based compensation |
751 | 570 | 498 | |||||||||
Goodwill impairment |
| | 15,491 | |||||||||
Acquisition cost |
| 2,348 | | |||||||||
Foreign rate differential |
(61 | ) | (730 | ) | 56 | |||||||
Prior year tax expense true-up |
(24 | ) | (150 | ) | (96 | ) | ||||||
Other, net |
(13 | ) | (319 | ) | (316 | ) | ||||||
Provision for (benefit from) income taxes |
$ | 255 | $ | (463 | ) | $ | (535 | ) | ||||
As of March 27, 2011, our federal and state net operating loss carryforwards for income tax purposes were approximately $285.0 million and $139.0 million, respectively. If not utilized, some of the federal net operating loss carryovers will begin expiring in fiscal year 2019, while the state net operating losses will begin to expire in 2012. As of March 27, 2011, our Canadian net operating loss carryforward for income tax purposes is approximately $3.0 million. If not utilized, some of the Canadian net operating loss carryovers will begin expiring in fiscal year 2012.
As of March 27, 2011, our federal and state tax credit carryforwards were $9.0 million and $11.0 million, respectively. Federal credits will begin to expire in fiscal year 2016. Canadian credits will begin to expire in fiscal year 2015.
Utilization of these federal and state net operating loss and tax credit carryforwards may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions.
We have evaluated our deferred tax assets and concluded that a valuation allowance is required for that portion of the total deferred tax assets that are not considered more likely than not to be realized in future periods. To the extent that the deferred tax assets with a valuation allowance become realizable in future periods, we will have the ability, subject to carryforward limitations, to benefit from these amounts. Approximately $13.0 million of these deferred tax assets pertain to certain net operating loss and credit carryforwards that resulted from the exercise of employee stock options. When recognized, the tax benefit of these carryforwards is accounted for as a credit to additional paid-in capital rather than a reduction of the income tax provision.
100
EXAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
FISCAL YEARS ENDED MARCH 27, 2011, MARCH 28, 2010 AND MARCH 29, 2009
Uncertain Income Tax Benefits
A reconciliation of the beginning and ending amount of the unrecognized tax benefits during the tax year ended March 27, 2011 is as follows (in thousands):
Amount | ||||
Unrecognized tax benefits as of March 30, 2008 |
$ | 9,410 | ||
Gross increase related to prior year tax positions |
| |||
Gross increase related to current year tax positions |
592 | |||
Lapses in statute of limitation |
(70 | ) | ||
Unrecognized tax benefits as of March 29, 2009 |
9,932 | |||
Gross increase related to prior year tax positions |
1,975 | |||
Gross increase related to current year tax positions |
4,050 | |||
Lapses in statute of limitation |
(94 | ) | ||
Unrecognized tax benefits as of March 28, 2010 |
15,863 | |||
Gross increase related to prior year tax positions |
179 | |||
Gross increase related to current year tax positions |
857 | |||
Lapses in statute of limitation |
(185 | ) | ||
Unrecognized tax benefits as of March 27, 2011 |
$ | 16,714 | ||
Of the total unrecognized gross tax benefit of $16.7 million, $3.7 million is presented within income taxes payable, non-current, and $13.0 million is presented as a reduction to deferred tax assets. We do not anticipate a significant increase or decrease to our unrecognized tax benefits within the next twelve months.
Estimated interest and penalties related to the underpayment of income taxes are classified as a component of the provision for income taxes in the consolidated statement of operations. Accrued interest and penalties were $0.3 million and $0.4 million as of March 27, 2011 and March 28, 2010, respectively.
Our only major tax jurisdictions are the United States federal and various states. The fiscal years 2001 through 2010 remain open and subject to examinations by the appropriate governmental agencies in the United States and certain of our state jurisdictions.
NOTE 19. SEGMENT AND GEOGRAPHIC INFORMATION
We operate in one reportable segment, which is comprised of one operating segment. We design, develop and market high- performance, analog and mixed-signal silicon solutions and software and subsystem solutions for a variety of markets including communications, datacom and storage, interface and power management. The nature of our products and production processes and the type of customers and distribution methods are consistent among all of our products.
Our net sales by product lines are summarized as follows (in thousands):
Fiscal Years Ended | ||||||||||||
March 27, 2011 |
March 28, 2010 |
March 29, 2009 |
||||||||||
Communications |
$ | 23,159 | $ | 24,094 | $ | 27,833 | ||||||
Datacom and storage |
16,876 | 25,259 | | |||||||||
Interface |
76,937 | 61,908 | 63,036 | |||||||||
Power Management |
29,033 | 23,617 | 24,249 | |||||||||
Total net sales |
$ | 146,005 | $ | 134,878 | $ | 115,118 | ||||||
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EXAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
FISCAL YEARS ENDED MARCH 27, 2011, MARCH 28, 2010 AND MARCH 29, 2009
* | Incremental revenues from Hifn, Galazar and Neterion have been included in our consolidated financial statements since April 4, 2009, June 18, 2009 and March 17, 2010, respectively. |
Our foreign operations are conducted primarily through our wholly-owned subsidiaries in Canada, China, France, Germany, Italy, Japan, Malaysia, Singapore, South Korea, Taiwan and the United Kingdom. Our principal markets include North America, Europe and the Asia Pacific region. Net sales by geographic areas represent sales to unaffiliated customers.
Our net sales by geographic areas are summarized as follows (in thousands):
Fiscal Years Ended | ||||||||||||
March 27, 2011 |
March 28, 2010 |
March 29, 2009 |
||||||||||
United States |
$ | 31,678 | $ | 34,291 | $ | 28,517 | ||||||
China |
49,738 | 47,192 | 27,384 | |||||||||
Singapore |
14,445 | 14,393 | 14,894 | |||||||||
Japan |
9,098 | 7,240 | 7,170 | |||||||||
Germany |
13,619 | 1,982 | 3,535 | |||||||||
Europe (excluding Germany) |
9,486 | 17,405 | 21,558 | |||||||||
Rest of world |
17,941 | 12,375 | 12,060 | |||||||||
Total net sales |
$ | 146,005 | $ | 134,878 | $ | 115,118 | ||||||
* | Incremental revenues from Hifn, Galazar and Neterion have been included in our consolidated financial statements since April 4, 2009, June 18, 2009 and March 17, 2010, respectively. |
Substantially all of our long-lived assets at March 27, 2011 and March 28, 2010 were located in the United States.
NOTE 20. ALLOWANCES FOR SALES RETURNS AND DOUBTFUL ACCOUNTS
We had the following activities for the allowance for sales returns and allowance and for doubtful accounts (in thousands):
Classification |
Balance at Beginning of Year |
Additions | Write-offs And Recoveries(1) |
Balance at End of Year |
||||||||||||
Allowance for sales returns: |
||||||||||||||||
Year ended March 27, 2011 |
$ | 1,250 | $ | 14,790 | $ | 14,795 | $ | 1,245 | ||||||||
Year ended March 28, 2010 |
1,213 | 12,011 | 11,974 | 1,250 | ||||||||||||
Year ended March 29, 2009 |
1,992 | 7,871 | 8,650 | 1,213 | ||||||||||||
Allowance for doubtful accounts: |
||||||||||||||||
Year ended March 27, 2011 |
186 | 145 | 53 | 278 | ||||||||||||
Year ended March 28, 2010 |
95 | 85 | (6 | ) | 186 | |||||||||||
Year ended March 29, 2009 |
143 | (47 | ) | 1 | 95 |
(1) | Write-off and recovery amounts within allowance for sales returns reflect credits issued to distributors for stock rotations and volume discounts. |
102
EXAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
FISCAL YEARS ENDED MARCH 27, 2011, MARCH 28, 2010 AND MARCH 29, 2009
NOTE 21. SUPPLEMENTARY QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table contains selected unaudited quarterly financial data for fiscal years 2011 and 2010. In the opinion of management, this unaudited information has been prepared on the same basis as the audited information and includes all adjustments, consisting only of normal and recurring adjustments necessary to state fairly the information set forth therein. Results for a given quarter are not necessarily indicative of results for any subsequent quarter (in thousands, except per share data. Net loss per share for the four quarters of each fiscal year may not sum to the total for the fiscal year, because of the different number of shares outstanding during each period).
Fiscal Year 2011 | Fiscal Year 2010 | |||||||||||||||||||||||||||||||
Classification |
March 27, 2011(1) |
December 26, 2010(2) |
September 26, 2010(3) |
June 27, 2010(4) |
March 28, 2010(5) |
December 27, 2009(6) |
September 27, 2009(7) |
June 28, 2009(8) |
||||||||||||||||||||||||
Consolidated Statement of Operations Data: |
||||||||||||||||||||||||||||||||
Net revenues |
$ | 33,771 | $ | 35,365 | $ | 37,233 | $ | 39,636 | $ | 38,497 | $ | 33,931 | $ | 31,588 | $ | 30,862 | ||||||||||||||||
Gross profit |
11,807 | 16,083 | 17,291 | 18,816 | 19,402 | 17,045 | 14,090 | 12,845 | ||||||||||||||||||||||||
Loss from operations |
(19,516 | ) | (6,286 | ) | (5,632 | ) | (8,584 | ) | (4,539 | ) | (5,317 | ) | (9,573 | ) | (14,561 | ) | ||||||||||||||||
Net loss |
(18,836 | ) | (4,959 | ) | (4,459 | ) | (7,414 | ) | (3,310 | ) | (3,762 | ) | (8,163 | ) | (12,875 | ) | ||||||||||||||||
Net loss per share: |
||||||||||||||||||||||||||||||||
Basic and Diluted |
$ | (0.42 | ) | $ | (0.11 | ) | $ | (0.10 | ) | $ | (0.17 | ) | $ | (0.08 | ) | $ | (0.09 | ) | $ | (0.19 | ) | $ | (0.30 | ) | ||||||||
Shares used in the computation of net loss per shares: |
||||||||||||||||||||||||||||||||
Basic and Diluted |
44,503 | 44,300 | 44,173 | 43,897 | 43,822 | 43,648 | 43,550 | 43,314 |
(1) | Includes $1.8 million amortization expenses related to purchased assets in connection with the Neterion, Galazar, Hifn and Sipex acquisitions; $7.5 million impairment charges to intangible assets related to the decision to exit the 10 GbE market; and $3.6 million of exit costs related to the decision to exit the 10 GbE market. |
(2) | Includes $1.9 million amortization expenses related to purchased assets in connection with the Neterion, Galazar, Hifn and Sipex acquisitions. |
(3) | Includes $2.9 million amortization expenses related to purchased assets in connection with the Neterion, Galazar, Hifn and Sipex acquisitions. |
(4) | Includes $2.9 million amortization expenses related to purchased assets in connection with the Neterion, Galazar, Hifn and Sipex acquisitions; and $0.3 million in acquisition related costs. |
(5) | Includes $2.3 million amortization expenses related to purchased assets in connection with the Neterion, Galazar, Hifn and Sipex acquisitions; $0.6 million in acquisition related costs; and $0.1 million fair value adjustment of inventories in connection with Galazar acquisition. |
(6) | Includes $1.9 million amortization expenses related to purchased assets in connection with the Galazar, Hifn and Sipex acquisitions; $0.4 million in acquisition related costs; and $0.1 million fair value adjustment of inventories in connection with Galazar acquisition. |
(7) | Includes $2.4 million amortization expenses related to purchased assets in connection with the Galazar, Hifn and Sipex acquisitions; $0.8 million in acquisition related costs; $0.4 million fair value adjustment of inventories in connection with Galazar acquisition; and $0.2 million impairment loss related to the investment in marketable and non-marketable securities. |
(8) | Includes $2.1 million amortization expenses related to purchased assets in connection with the Galazar, Hifn and Sipex acquisitions; $4.5 million in acquisition related costs; $1.8 million fair value adjustment of inventories in connection with the Hifn and Galazar acquisition; $0.1 million separation expense related to an executive officer; and $0.1 million impairment loss related to the investment in marketable and non-marketable securities. |
103
ITEM 9A. | CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures
Evaluation of Disclosure Controls and Procedures (Disclosure Controls)
Disclosure Controls, as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act), are controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods as specified in the SECs rules and forms. In addition, Disclosure Controls are designed to ensure the accumulation and communication of information required to be disclosed in reports filed or submitted under the Exchange Act to our management, including the Chief Executive Officer (our principal executive officer) (the CEO) and Chief Financial Officer (our principal financial officer) (the CFO), to allow timely decisions regarding required disclosure.
We evaluated the effectiveness of the design and operation of our Disclosure Controls, as defined by the rules and regulations of the SEC (the Evaluation), as of the end of the period covered by this Annual Report. This Evaluation was performed under the supervision and with the participation of management, including our CEO, as principal executive officer, and CFO, as principal financial officer.
Attached as Exhibits 31.1 and 31.2 of this Annual Report are the certifications of the CEO and the CFO, respectively, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (the Certifications). This section of the Annual Report provides information concerning the Evaluation referred to in the Certifications and should be read in conjunction with the Certifications.
Based on the Evaluation, our CEO and CFO have concluded that our Disclosure Controls are effective as of the end of fiscal year 2011.
Inherent Limitations on the Effectiveness of Disclosure Controls
Our management, including the CEO and CFO, does not expect that our Disclosure Controls will prevent all errors and all fraud. Disclosure Controls, no matter how well conceived, managed, utilized and monitored, can provide only reasonable assurance that the objectives of such controls are met. Therefore, because of the inherent limitation of Disclosure Controls, no evaluation of such controls can provide absolute assurance that all control issues and instances of fraud, if any, within us have been detected.
Managements Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting. Management conducted an assessment of our internal control over financial reporting as of March 27, 2011 based on the framework established by the Committee of Sponsoring Organizations of the Treadway Commission in Internal ControlIntegrated Framework . Based on this assessment, management concluded that, as of March 27, 2011, our internal control over financial reporting was effective.
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance, and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
The effectiveness of our internal control over financial reporting as of March 27, 2011 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report included in this Annual Report.
105
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the fourth quarter of fiscal year 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
106
PART IV
ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES |
(a) The following documents are filed as part of this Form 10-K:
(1) All Financial Statements. The financial statements of the Company are included herein as required in Part II, Item 8Financial Statements and Supplementary Data of this Annual Report. See Index to Financial Statements on page 51.
(2) Financial Statement Schedules. See Notes to Consolidated Financial Statements, Note 20Allowance for Sales Returns and Doubtful Accounts. Schedules not listed have been omitted because information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto.
(3) Exhibits. See Part IV, Item 15(b) below.
(b) The exhibits listed in the Exhibit Index, which follows the signature page to this Annual Report, are filed or incorporated by reference into this Annual Report.
108
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
EXAR CORPORATION | ||||
By: | /s/ PEDRO (PETE) P. RODRIGUEZ | |||
Pedro (Pete) P. Rodriguez | ||||
Chief Executive Officer and President (Principal Executive Officer) |
Date: July 13, 2011
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature |
Title |
Date | ||
/S/ PEDRO (PETE) P. RODRIGUEZ (Pedro (Pete) P. Rodriguez) |
Chief Executive Officer, President and Director (Principal Executive Officer) |
July 13, 2011 | ||
/S/ KEVIN BAUER (Kevin Bauer) |
Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |
July 13, 2011 | ||
* (Dr. Izak Bencuya) |
Director |
July 13, 2011 | ||
* (Pierre Guilbault) |
Director |
July 13, 2011 | ||
* (Brian Hilton) |
Director |
July 13, 2011 | ||
* (Richard L. Leza) |
Chairman of the Board |
July 13, 2011 | ||
* (Gary Meyers) |
Director |
July 13, 2011 | ||
(J. Oscar Rodriguez) |
Director |
|||
* By /S/ KEVIN BAUER (Kevin Bauer) Attorney-In-Fact |
Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |
July 13, 2011 |
EXHIBIT INDEX
Exhibit Number |
Incorporated by Reference | |||||||||||||||||
Exhibit |
Form | File No. |
Exhibit | Filing Date | ||||||||||||||
2.1 | Agreement and Plan of Merger by and among Exar Corporation, Sipex Corporation and Side Acquisition Corp., dated as of May 7, 2007 |
8-K | 0-14225 | 2.1 | 5/8/2007 | |||||||||||||
2.2 | Agreement and Plan of Merger, dated as of February 23, 2009, among Exar Corporation, Hybrid Acquisition Corp. and hi/fn, inc. |
8-K | 0-14225 | 2.1 | 2/27/2009 | |||||||||||||
3.1 | Restated Certificate of Incorporation of Exar Corporation |
8-K | 0-14225 | 3.3 | 9/17/2010 | |||||||||||||
3.2 | Bylaws of Exar Corporation |
8-K | 0-14225 | 3.1 | 9/17/2010 | |||||||||||||
10.1*+ | 1989 Employee Stock Participation Plan, as amended, and related Offering documents |
10-K | 0-14225 | 10.1 | 6/12/2006 | |||||||||||||
10.2*+ | 1996 Non-Employee Directors Stock Option Plan, as amended, and related forms of stock option grant and exercise |
10-K | 0-14225 | 10.6 | 6/12/2006 | |||||||||||||
10.3* | 1997 Equity Incentive Plan, as amended, and related forms of stock option grant and exercise |
10-K | 0-14225 | 10.7 | 6/14/2005 | |||||||||||||
10.4* | 2000 Equity Incentive Plan, as amended, and related forms of stock option grant and exercise |
10-K | 0-14225 | 10.9 | 6/14/2005 | |||||||||||||
10.5*++ | 2006 Equity Incentive Plan, as amended |
8-K | 0-14225 | 10.1 | 9/17/2010 | |||||||||||||
10.6* | Sipex Corporation 2006 Equity Incentive Plan |
S-8 | 333-145751 | 4.1 | 8/28/2007 | |||||||||||||
10.7* | Sipex Corporation Amended and Restated 2002 Nonstatutory Stock Option Plan |
S-8 | 333-145751 | 4.2 | 8/28/2007 | |||||||||||||
10.8* | Sipex Corporation 2000 Non-Qualified Stock Option Plan |
S-8 | 333-145751 | 4.3 | 8/28/2007 | |||||||||||||
10.9* | Sipex Corporation 1999 Stock Plan |
S-8 | 333-145751 | 4.4 | 8/28/2007 | |||||||||||||
10.10* | Sipex Corporation 1997 Stock Option Plan |
S-8 | 333-145751 | 4.5 | 8/28/2007 | |||||||||||||
10.11* | Fiscal Year 2010 Executive Incentive Program |
10-Q | 0-14225 | 10.4 | 8/7/2009 | |||||||||||||
10.12* | Fiscal Year 2011 Executive Incentive Program |
10-K | 0-14225 | 10.14 | 6/10/2010 | |||||||||||||
10.13* | Form of Indemnity Agreement between the Company and each of the companys directors and certain of the executive officers |
10-Q | 0-14225 | 10.12 | 11/13/2002 | |||||||||||||
10.14* | Separation Agreement between Exar Corporation and J. Scott Kamsler, dated as of June 23, 2009 |
8-K | 0-14225 | 10.1 | 6/29/2009 | |||||||||||||
10.15* | Second Amended and Restated Employment Agreement between the Company and Pedro (Pete) P. Rodriguez |
8-K | 0-14225 | 10.1 | 3/25/2010 | |||||||||||||
10.16* | Letter Agreement between Exar Corporation and Bentley Long |
10-Q | 0-14225 | 10.3 | 8/7/2009 | |||||||||||||
10.17* | VP Worldwide SalesFY10 Sales Incentive Plan |
10-Q | 0-14225 | 10.2 | 8/7/2009 | |||||||||||||
10.18* | Letter Agreement Regarding Change of Control for Thomas R. Melendrez |
10-K | 0-14225 | 10.11 | 6/27/2001 |
Exhibit Number |
Incorporated by Reference | |||||||||||||||||
Exhibit |
Form | File No. |
Exhibit | Filing Date | ||||||||||||||
10.19* | Executive Officers Group II Change of Control Severance Benefit Plan |
10-Q | 0-14225 | 10.1 | 2/6/2009 | |||||||||||||
10.20* | Letter Agreement Regarding Change of Control for Paul Pickering |
10-Q | 0-14225 | 10.1 | 8/5/2010 | |||||||||||||
10.21* | Letter Agreement Regarding Change of Control for George Apostol |
10-Q | 0-14225 | 10.2 | 8/5/2010 | |||||||||||||
10.22* | Letter Agreement Regarding Change of Control for Kevin Bauer |
8-K | 0-14225 | 10.2 | 9/17/2010 | |||||||||||||
10.23 | Amendment No. 3, entered October 29, 2007, to that certain Distributor Agreement, dated July 1, 1997, by and between Exar Corporation and Future Electronics Incorporated. |
10-Q | 0-14225 | 10.1 | 2/8/2008 | |||||||||||||
10.24 | Amendment No. 4, entered October 29, 2007, to that certain Domestic Distributor Agreement, dated December 1, 2001, by and between Exar Corporation and NuHorizons, Inc. |
10-Q | 0-14225 | 10.2 | 2/8/2008 | |||||||||||||
21.1 | Subsidiaries of the Company |
10-K | 0-14225 | 21.1 | 6/10/2011 | |||||||||||||
23.1 | Consent of Independent Registered Public Accounting Firm, PricewaterhouseCoopers LLP |
10-K | 0-14225 | 23.1 | 6/10/2011 | |||||||||||||
24.1 | Power of Attorney. Reference is made to the signature page in the Form 10-K. |
10-K | 0-14225 | 24.1 | 6/10/2011 | |||||||||||||
31.1** | Principal Executive Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|||||||||||||||||
31.2** | Principal Financial Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|||||||||||||||||
32.1*** | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|||||||||||||||||
32.2*** | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
* | Indicates management contracts or compensatory plans or arrangements filed pursuant to Item 601(b)(10) of Regulation S-K. |
** | Filed herewith. |
*** | Furnished herewith. |
+ | Related forms of Stock Option Grant and Exercise filed as part of an exhibit to Exars Annual Report on Form 10-K for fiscal year ended March 31, 2005, and incorporated herein by reference. |
++ | Related forms of Notice of Grant and Terms and Conditions of Stock Options filed as Exhibits 10.2, 10.3 and 10.6 to Exars Report on Form 8-K filed with the SEC on September 13, 2006. Related form of Stock Unit Award Agreement filed as Exhibit 10.2 to Exars Quarterly Report on Form 10-Q filed with the SEC on February 6, 2009. Related form of Performance Stock Unit Award Agreement filed as Exhibit 10.1 to Exars Quarterly Report on Form 10-Q filed with the SEC on November 5, 2009. Related form of Director Restricted Stock Unit Award Agreement filed as Exhibit 10.7 to Exars Quarterly Report on Form 10-Q filed with the SEC on November 4, 2010. All such forms are incorporated herein by reference. |
EXHIBIT 31.1
PRINCIPAL EXECUTIVE OFFICER CERTIFICATION
I, Pedro (Pete) P. Rodriguez, certify that:
1. | I have reviewed this Annual Report on Form 10-K/A of Exar Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: July 13, 2011
/S/ PEDRO (PETE) P. RODRIGUEZ |
Pedro (Pete) P. Rodriguez |
Chief Executive Officer, President and Director |
(Principal Executive Officer) |
EXHIBIT 31.2
PRINCIPAL FINANCIAL OFFICER CERTIFICATION
I, Kevin Bauer, certify that:
1. | I have reviewed this Annual Report on Form 10-K/A of Exar Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: July 13, 2011
/S/ KEVIN BAUER |
Kevin Bauer |
Senior Vice President and Chief Financial Officer |
(Principal Financial and Accounting Officer) |
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Pedro (Pete) P. Rodriguez, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge, the Annual Report of Exar Corporation on Form 10-K/A for the period ended March 27, 2011 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Annual Report on Form 10-K/A fairly presents in all material respects the financial condition and results of operations of Exar Corporation.
Date: July 13, 2011
/s/ PEDRO (PETE) P. RODRIGUEZ |
Pedro (Pete) P. Rodriguez |
Chief Executive Officer, President and Director |
(Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Kevin Bauer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge, the Annual Report of Exar Corporation on Form 10-K/A for the period ended March 27, 2011 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Annual Report on Form 10-K/A fairly presents in all material respects the financial condition and results of operations of Exar Corporation.
Date: July 13, 2011
/s/ KEVIN BAUER |
Kevin Bauer |
Senior Vice President and Chief Financial Officer |
(Principal Financial and Accounting Officer) |