Interest expense decreased to $70,000 in fiscal 2012 from $765,000 in fiscal 2011 primarily because fiscal 2011 included the interest accretion of $688,000 on the PTI contingent earn-out liability and the interest on short-term debt incurred to finance a portion of the PTI acquisition. Interest expense increased to $765,000 in fiscal 2011 from $30,000 in fiscal 2010 as a result of the PTI acquisition.
Our effective tax rate differs from the federal statutory rate primarily due to state income taxes, the effect of foreign income tax and foreign losses, the utilization of research and development tax credits and changes in the deferred tax asset valuation allowance.
The effective tax rate for fiscal 2012 increased from fiscal 2011 primarily due to an increase in the valuation allowance of $3.2 million. This resulted from the establishment of a $2.8 million deferred tax asset valuation allowance relating to California tax credits that are not more likely than not to be utilized in the future, with the balance from increases in net operating losses generated in non-US subsidiaries.
The effective tax rate for fiscal 2011 increased from fiscal 2010 primarily due to a higher unfavorable impact from foreign income and withholding taxes and reduced benefits from resolution of certain tax audits and expiration of statute of limitations. A reconciliation of our tax rates for fiscal years 2012, 2011 and 2010 is detailed in Note 19 to the Consolidated Financial Statements contained in this report on Form 10-K.
Equity in net income of unconsolidated affiliates includes our allocated portion of the net income of PTI, a British Virgin Islands corporation with facilities in Shanghai and Hong Kong, until we acquired the remaining interest on August 31, 2010. Prior to the acquisition of PTI, we accounted for our investment using the equity method of accounting. Our allocated portion of PTI’s results was income of $2.1 million in fiscal 2010, and we recorded $467,000 of income in fiscal 2011 prior to the acquisition.
For additional information concerning the PTI transaction, see Note 6 of Notes to Consolidated Financial Statements in this report.
Equity in net income of unconsolidated affiliates also includes the Company’s allocated portion of the net income of Jiyuan Crystal Photoelectric Frequency Technology Ltd. (“JCP”), an FCP manufacturing company located in Science Park of Jiyuan City, Henan Province, China. JCP is a key manufacturing partner of PSE-TW, and PSE-TW has acquired a 49% equity interest in JCP. For fiscal 2012, the Company’s allocated portion of JCP’s results was income of $134,000, as compared with $233,000 and $359,000 for fiscal 2011 and 2010, respectively.
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS
For the years ended June 30, 2012 and July 2, 2011, we had no net income attributable to noncontrolling interests. For the year ended July 3, 2010, net income attributable to noncontrolling interests in income of our consolidated subsidiary PSE-TW was $28,000, and we acquired the noncontrolling interest of PSE-TW during that year.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2012, our principal sources of liquidity included continuing operations as well as cash, cash equivalents, and short-term and long-term investments of approximately $127.8 million, as compared with $127.6 million at July 2, 2011 and $118.9 million at July 3, 2010. In fiscal 2011, we acquired all remaining outstanding shares of PTI capital stock not previously owned by us for approximately $30.5 million in cash, plus earn-out and bonus of $6 million that was paid in the first half of fiscal 2012. In fiscal 2010 we made no acquisitions of other companies other than purchase of noncontrolling interests in our consolidated subsidiaries.
The Company’s investment in debt securities includes government securities, corporate debt securities and mortgage backed and asset backed securities. Government securities include US treasury securities, US federal agency securities, foreign government and agency securities, and US state and municipal bond obligations. Many of the municipal bonds are insured; those that are not are nearly all AAA/Aaa rated. The corporate debt securities are all investment grade and nearly all are single A-rated or better. The asset-backed securities are AAA/Aaa rated and are backed by auto loans, student loans, credit card balances and residential or commercial mortgages. Most of our mortgage-backed securities are collateralized by prime residential mortgages issued by government agencies including the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and Federal Home Loan Banks. Those issued by commercial banks are AAA-rated. At June 30, 2012, unrealized gains on marketable securities, net of taxes were $194,000. When assessing marketable securities for other than temporary declines in value, we consider a number of factors. Our analyses of the severity and duration of price declines, portfolio manager reports, economic forecasts and the specific circumstances of issuers indicate that it is reasonable to expect marketable securities with unrealized losses at June 30, 2012 to recover in fair value up to our cost basis within a reasonable period of time. We have the ability and intent to hold investments with unrealized losses until maturity, when the obligors are required to redeem them at full face value or par, and we believe the obligors have the financial resources to redeem the debt securities. Accordingly, we do not consider our investments to be other than temporarily impaired at June 30, 2012.
As of June 30, 2012, we owned assets classified as cash and cash equivalents of $24.3 million as compared to $30.0 million at July 2, 2011 and $29.5 million at July 3, 2010. The maturities of our short-term investments are staggered throughout the year to ensure we meet our cash requirements. Because we are primarily a fabless semiconductor manufacturer, we have lower capital equipment requirements than other semiconductor manufacturers that own fabrication foundries. During the 2012 fiscal year, we purchased $4.3 million of property and equipment as compared to $11.7 million and $10.4 million in fiscal 2011 and 2010, respectively.
We generated approximately $3.7 million of interest and other income, net during the fiscal year ended June 30, 2012 compared to $15.1 million and $5.3 million in the fiscal years ended July 2, 2011 and July 3, 2010, respectively. 2011 included an $11.0 million gain on shares of PTI held prior to the acquisition. In the longer term, we may generate less interest and other income if our total invested balance decreases and the decrease is not offset by rising interest rates or realized gains on the sale of investment securities.
In fiscal 2012, our net cash provided by operating activities of $27.7 million was the result of $18.3 million in net favorable non-cash adjustments to a net loss of $2.1 million, and favorable changes in assets and liabilities of $11.5 million. The favorable adjustments to the net loss were primarily comprised of depreciation and amortization of $11.9 million, share-based compensation of $3.7 million, $1.8 million in deferred taxes, $856,000 in notes receivable writeoffs, share-based compensation tax benefit of $512,000 and $354,000 of property and equipment writeoffs, partially offset by $673,000 of realized gain on investments and $134,000 of non-cash equity in net income of our unconsolidated affiliates. The favorable changes in assets and liabilities primarily included a $6.3 million decrease in accounts receivable, a $5.0 million decrease in net inventory, a $676,000 decrease in other assets, a $2.7 million increase in accounts payable and a $453,000 increase in long term liabilities, partially offset by an $883,000 increase in prepaid expenses and other current assets and a $2.7 million decrease in accrued liabilities.
41
In fiscal 2011, our net cash provided by operating activities of $23.6 million was the result of net income of $13.5 million plus $6.4 million in net favorable non-cash adjustments to net income, and favorable changes in assets and liabilities of $3.7 million. The favorable adjustments to net income were primarily comprised of depreciation and amortization of $11.0 million, stock based compensation of $4.3 million, $4.0 million in deferred taxes and stock compensation tax benefit of $782,000, partially offset by $11.0 million gain on previously held shares of PTI, $1.9 million of realized gain on investments, and $700,000 of non-cash equity in net income of our unconsolidated affiliates. The favorable changes in assets and liabilities primarily included a $2.2 million decrease in accounts receivable, a $6.1 million decrease in net inventory, a $285,000 decrease in prepaids and other current assets, and a $1.9 million increase in long term liabilities, partially offset by a $4.8 million decrease in accounts payable and a $1.6 million decrease in accrued liabilities.
In fiscal 2010, our net cash provided by operating activities of $8.4 million was the result of net income of $10.8 million plus $7.9 million in net favorable non-cash adjustments to net income, less unfavorable changes in assets and liabilities of $10.3 million. The favorable adjustments to net income were primarily comprised of depreciation and amortization of $8.0 million, stock based compensation of $4.0 million, $344,000 in deferred taxes and stock compensation tax benefit of $291,000, partially offset by $2.3 million of realized gain on investments, and $2.4 million of non-cash equity in net income of our unconsolidated affiliates. The unfavorable changes in assets and liabilities primarily included a $2.1 million increase in accounts receivable, a $7.0 million increase in net inventory, a $2.2 million increase in prepaids and other current assets, and a $5.7 million decrease in accrued liabilities, partially offset by a $4.8 million increase in accounts payable and a $3.0 million increase in long term liabilities.
In fiscal 2012, we used $15.2 million of cash in our investing activities, which was primarily comprised of final payouts of $8.1 million to complete the PTI acquisition, purchases of property and equipment of $4.3 million, and net purchases of investments of $5.7 million, partially offset by a $2.9 million reduction in restricted cash balances.
In fiscal 2011, we used cash in our investing activities of $28.9 million, which was primarily the result of purchases of property and equipment of $11.7 million, the acquisition of the remaining interest in PTI for $17.5 million net of the cash acquired and a $2.9 million increase in restricted cash, partially offset by net maturities of investments of $3.3 million.
In fiscal 2010, we used cash in our investing activities of $8.7 million, which was primarily the result of purchases of property and equipment of $10.4 million and the acquisition of the noncontrolling interest in PSE-TW for $1.2 million, partially offset by a decrease in restricted cash of $3.2 million. Of the purchases of property and equipment, $7.1 million was incurred in the completion of our new FCP plant in Jinan, China.
In fiscal 2012, we used cash in financing activities of $17.6 million, which consisted of $11.6 million used to repurchase common stock and $6.9 million of net paydowns of short-term bank loans, partially offset by $918,000 of proceeds from employee stock option exercises and purchases under the Employee Stock Purchase Plan.
In fiscal 2011, our cash provided by financing activities of $4.2 million was the result of $8.0 million of proceeds from short-term bank loans and $1.5 million of proceeds from employee stock option exercises and purchases under the Employee Stock Purchase Plan, partially offset by $5.4 million used to repurchase common stock.
In fiscal 2010, we used cash in financing activities of $8.3 million to repurchase common stock for $8.7 million and $1.7 million to prepay mortgage financing at our former PTL subsidiary, partially offset by $2.0 million of proceeds from employee stock option exercises and purchases under the Employee Stock Purchase Plan.
We believe our existing cash balances, as well as cash expected to be generated from operating activities, will be sufficient to meet our anticipated cash needs for at least the next 12 months.
On April 29, 2008, the Board authorized the repurchase of $30 million worth of common stock. During the year ended July 3, 2010, the Company repurchased 907,545 shares for an aggregate cost of $8.7 million. During the year ended July 2, 2011, the Company repurchased 613,331 shares for an aggregate cost of $5.4 million. During the year ended June 30, 2012, the Company repurchased 1,482,572 shares for an aggregate cost of $11.6 million. As of June 30, 2012, approximately $701,000 remained under the 2008 authority. On April 26, 2012, the Board authorized the repurchase of an additional $25 million of common stock shares.
42
We may use a portion of our cash to acquire or invest in complementary businesses or products or to obtain the right to use complementary technologies. From time to time, in the ordinary course of business, we may evaluate potential acquisitions of such businesses, products or technologies.
Our long-term future capital requirements will depend on many factors, including our level of revenues, the timing and extent of spending to support our product development efforts, the expansion of sales and marketing activities, the timing of our introductions of new products, the costs to ensure access to adequate manufacturing capacity, and the continuing market acceptance of our products. We could be required, or could elect, to seek additional funding through public or private equity or debt financing and additional funds may not be available on terms acceptable to us or at all.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
The following table depicts our contractual obligations as of June 30, 2012:
| | | | Payments Due by Period
| |
|---|
(in thousands)
Contractual obligation
| | | | Total
| | Less than
1 Year
| | 1-3
Years
| | 3-5
Years
| | Thereafter
|
|---|
| Short-term debt | | | | $ | 1,364 | | | $ | 1,364 | | | $ | — | | | $ | — | | | $ | — | |
| Operating leases and operating expense commitments | | | | | 2,574 | | | | 1,546 | | | | 1,020 | | | | 8 | | | | — | |
| Capital equipment purchase commitments | | | | | 969 | | | | 969 | | | | — | | | | — | | | | — | |
| Yangzhou capital injection | | | | | 15,000 | | | | 7,000 | | | | 8,000 | | | | — | | | | — | |
| Total contractual cash obligations | | | | $ | 19,907 | | | $ | 10,879 | | | $ | 9,020 | | | $ | 8 | | | $ | — | |
The Company leases certain facilities under operating leases with termination dates on or before December 2013. Generally, these leases have multiple options to extend for a period of years upon termination of the original lease term or previously exercised option to extend.
As of June 30, 2012, we have no purchase obligations other than routine purchase orders and the capital equipment purchase commitments shown in the table. However, on July 6, 2012, we entered into an agreement to purchase a building to serve as our new corporate headquarters in Milpitas, California. The purchase, for $7.6 million, closed on August 9, 2012.
We completed the initial phase of our FCP facility in Jinan, PRC and the plant commenced operations during fiscal 2010. While further expansion of the plant is anticipated in the future, we have not yet begun planning for the next phase and do not anticipate significant outlays in the next twelve months.
On December 1, 2009, the Company entered into an R&D Center Investment Agreement (the “R&D Agreement”) with the Administrative Committee of the Yangzhou Economic and Technology Development Zone (the “Committee”) in China. Under the terms of the agreement, the Committee is to provide a funding, along with national and local tax incentives and other incentives. The funding would be paid in installments based on scheduled progress of the R&D Center’s development and our injection of paid-in capital. We made a $6 million capital injection in 2011 and applied for the initial agreed-upon subsidies of approximately $3.9 million. To date we have received only $773,000 which is recorded as a deferred credit under “Other long-term liabilities” on our consolidated balance sheets. We are currently negotiating with the Yangzhou government to terminate the R&D Agreement. If the termination is successful, the additional capital injections in the above table would not be made, although there may be additional terms or conditions involved in any settlement agreement.
OFF-BALANCE SHEET ARRANGEMENTS
As of June 30, 2012, the Company did not have any off-balance sheet arrangements, as defined in Item 303(a)(4) of SEC Regulation S-K.
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RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-05,“Comprehensive Income (Topic 220): Presentation of Comprehensive Income”, which requires comprehensive income to be reported in either a single statement or in two consecutive statements reporting net income and other comprehensive income, rather than in a footnote or as part of a statement of changes to shareholders equity. The amendment does not change what items are reported in other comprehensive income or the requirement to report reclassification of items from other comprehensive income to net income. This standard will be effective for our fiscal year beginning July 1, 2012 with retrospective application required. As this standard impacts presentation requirements only, the adoption of this guidance is not expected to have a material impact on the consolidated financial statements.
In September 2011, the FASB issued ASU No. 2011-08, “Intangibles-Goodwill and Other (Topic 350) — Testing Goodwill for Impairment”, which provides updated guidance on the periodic testing of goodwill for impairment. This guidance will allow companies to assess qualitative factors to determine if it is more-likely-than-not that goodwill might be impaired and whether it is necessary to perform the two-step goodwill impairment test required under current accounting standards. This new guidance is effective for our fiscal year beginning July 1, 2012, with early adoption permitted. We are currently evaluating this guidance, but it is not expected that the adoption will have a material effect on our consolidated financial statements.
ITEM 7A. QUANTITATIVE & QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK DISCLOSURE
At June 30, 2012, the Company’s investment portfolio consisted primarily of fixed income securities, excluding those classified as cash equivalents, with fair value of $103.6 million (see Note 1 of Notes to Financial Statements). These securities are subject to interest rate risk and will decline in value if market interest rates increase. We could realize a loss on these securities if we were forced to sell them in a period when interest rates are higher than current rates. We do not expect such a scenario to occur. For example, if market interest rates were to increase immediately and uniformly by 10% from levels as of June 30, 2012, such as from 2.00% to 2.20%, the decline in the fair value of the portfolio would be approximately $9.4 million. On the other hand, if interest rates were to decline the effect on our portfolio would be in the opposite direction.
When the general economy weakens significantly, as it did in 2008 and 2009, the credit profile, financial strength and growth prospects of certain issuers of interest-bearing securities held in our investment portfolios may deteriorate, and our interest-bearing securities may lose value either temporarily or other than temporarily. We may implement investment strategies of different types with varying duration and risk/return trade-offs that do not perform well. At June 30, 2012, we held a significant portion of our corporate cash in diversified portfolios of investment-grade marketable securities, mortgage- and asset-backed securities, and other securities that had net unrealized gains of $194,000 net of tax. Although we consider unrealized gains and losses on individual securities to be temporary, there is a risk that we may incur other-than-temporary impairment charges if credit and equity markets are unstable and adversely impact securities issuers.
The Company transacts business in various non-U.S. currencies, primarily the New Taiwan Dollar, the Hong Kong Dollar and the Chinese Renminbi. The Company is exposed to fluctuations in foreign currency exchange rates on accounts receivable and accounts payable from sales and purchases in these foreign currencies and the net monetary assets and liabilities of our foreign subsidiaries. A hypothetical 10% unfavorable change in the foreign currency exchange rate would reduce cash by approximately $1.1 million as those monetary assets are converted to cash.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
| | | | | | Page No.
|
|---|
1. | | | | INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| | | | |
| | | | | The following Consolidated Financial Statements are filed as part of this report:
| | | | |
| | | | | Report of Independent Registered Public Accounting Firm | | | 52 | |
| | | | | Consolidated Balance Sheets as of June 30, 2012 and July 2, 2011 | | | 53 | |
| | | | | Consolidated Statements of Operations for each of the three fiscal years in the period ended June 30, 2012 | | | 54 | |
| | | | | Consolidated Statements of Shareholders’ Equity and Comprehensive Income for each of the three fiscal years in the period ended June 30, 2012 | | | 55 | |
| | | | | Consolidated Statements of Cash Flows for each of the three fiscal years in the period ended June 30, 2012 | | | 56 | |
| | | | | Notes to Consolidated Financial Statements | | | 57 | |
2. | | | | INDEX TO FINANCIAL STATEMENT SCHEDULE
| | | | |
| | | | | The following financial statement schedule of Pericom Semiconductor Corporation for the years ended June 30, 2012, July 2, 2011 and July 3, 2010 is filed as part of this report and should be read in conjunction with the Consolidated Financial Statements of Pericom Semiconductor Corporation.
| | | | |
| | | | | Schedule II — Valuation and Qualifying Accounts for each of the three fiscal years in the period ended June 30, 2012 | | | Sii | |
Schedules other than those listed above have been omitted since they are either not required, not applicable or the information is otherwise included.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Based on their evaluation as of June 30, 2012, our Chief Executive Officer and Chief Financial Officer, have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e), under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) were effective to ensure that the information required to be disclosed by us in this Annual Report on Form 10-K was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and instructions for Form 10-K and that such disclosure controls and procedures were also effective to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the Exchange Act. 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.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has assessed the effectiveness of our internal control over financial reporting as of June 30, 2012. In making this assessment, our management used the criteria established inInternal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).Our management has concluded that, as of June 30, 2012, our internal control over financial reporting is effective based on these criteria.
Our independent registered public accounting firm, Burr Pilger Mayer, Inc., which audited the financial statements in this Annual Report on Form 10-K, independently assessed the effectiveness of the Company’s internal control over financial reporting. Burr Pilger Mayer, Inc. has issued an attestation report, which appears as part of this Annual Report on Form 10-K.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the year ended June 30, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None
46
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING
To the Board of Directors and Shareholders
of Pericom Semiconductor Corporation
We have audited the internal control over financial reporting of Pericom Semiconductor Corporation and its subsidiaries (the “Company”) as of June 30, 2012, based on criteria established inInternal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting, included in Item 9A. Our responsibility is to express an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.
We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s 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 company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) 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 (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s 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.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2012, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Pericom Semiconductor Corporation and its subsidiaries as of June 30, 2012 and July 2, 2011, and the related consolidated statements of operations, shareholders’ equity and comprehensive income, and cash flows for each of the three years in the period ended June 30, 2012, and the related financial statement schedule and our report dated August 31, 2012 expressed an unqualified opinion on those consolidated financial statements and the related financial statement schedule.
/s/ Burr Pilger Mayer, Inc.
San Jose, California
August 31, 2012
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item is incorporated by reference to the Company’s Definitive Proxy Statement related to the Annual Meeting of Shareholders to be held December 6, 2012, to be filed by the Company with the SEC (the “Proxy Statement”).
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The security ownership information required by this item is incorporated by reference to the Proxy Statement.
EQUITY COMPENSATION PLANS
The following table summarizes share and exercise price information about our equity compensation plans as of June 30, 2012.
Plan Category
| | | | Number of securities to
be issued upon exercise
of outstanding options
and RSUs
| | Weighted average
exercise price of
outstanding options,
warrants and rights
| | Number of securities
remaining available
for future issuance
under plans
|
|---|
Equity compensation plans approved by shareholders:
| | | | | | | | | | | | | | |
| Stock incentive plans | | | | | 2,949,414 | (1) | | $ | 10.34 | (2) | | | 2,065,971 | |
| Employee stock purchase plan | | | | | — | | | | | | | | 1,835,939 | |
Equity compensation plans not approved by shareholders:
| | | | | | | | | | | | | | |
| SaRonix Inducement options | | | | | 7,634 | | | $ | 10.00 | | | | — | |
| Total | | | | | 2,957,048 | | | $ | 10.34 | | | | 3,901,910 | |
| (1) | | Represents shares of the Company’s Common Stock issuable upon exercise of outstanding options under the following equity compensation plans: the 2004 Stock Incentive Plan, the 2001 Stock Incentive Plan and the 1995 Stock Option Plan, and 503,880 shares underlying outstanding restricted stock unit awards granted under the 2004 Stock Incentive Plan that may be delivered in the future upon satisfaction of vesting requirements. |
| (2) | | This calculation does not take into account shares underlying restricted stock unit awards. |
Material Features of Equity Compensation Plans Not Approved by Shareholders
In connection with Pericom’s October 1, 2003 acquisition of substantially all of the assets of SaRonix, LLC, Pericom granted options to purchase an aggregate of 383,600 shares of Pericom common stock to certain former employees of SaRonix as an inducement for them to join Pericom. Under the agreements pertaining to such options, twenty percent of the options vested on October 1, 2004 and 1/48 of the remaining shares vested monthly for the following four years so that the options were fully vested on October 1, 2008. The exercise price of the options is $10.00 per share and the options expire if unexercised on October 1, 2013. In the event of a change in control transaction, the options shall become fully vested and exercisable if they are not assumed or replaced as part of the transaction.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item is incorporated by reference to the Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is incorporated by reference to the Proxy Statement.
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PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
| (a) | | The following documents are filed as part of this report: |
| (1) | | Financial Statements and Financial Statement Schedule — See Index to Financial Statements and Financial Statement Schedule at Item 8 of this annual report on Form 10-K. |
| (2) | | Exhibits. The following exhibits are filed as part of, or incorporated by reference into, this Report: |
| Exhibit | | | | | | Description
|
|---|
| 2.1 | | | | | | Agreement and Plan of Merger, dated as of August 9, 2010, by and among Pericom Semiconductor Corporation, PTI Acquisition Subsidiary Inc., Pericom Technology Inc., and Yuk Kin Wong in his capacity as the representative of the Securityholders, filed as Exhibit 2.1 to the Company’s Form 8-K filed August 12, 2010, and incorporated herein by reference. |
| 3.1 | | | | | | Restated Articles of Incorporation of the Company, filed as Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2001, and incorporated herein by reference. |
| 3.2 | | | | | | Amended and Restated Bylaws of the Company (as amended by an amendment adopted on October 31, 2007), filed as Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended December 29, 2007, and incorporated herein by reference. |
| 3.3 | | | | | | Amended and Restated Certificate of Determination of the Series D Junior Participating Preferred Shares, filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed March 8, 2012, and incorporated herein by reference. |
| 4.1 | | | | | | Rights Agreement between Pericom Semiconductor Corporation and Computershare Trust Company, N.A., dated as of March 6, 2012, including Form of Right Certificate attached thereto as Exhibit B, filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed March 8, 2012, and incorporated herein by reference. |
| 10.1* | | | | | | Pericom’s 1995 Stock Option Plan, including Form of Agreement thereunder, filed as Exhibit 10.2 to the Company’s Registration Statement on Form S-1 filed September 10, 1997, and incorporated herein by reference. |
| 10.2* | | | | | | Form of Indemnification Agreement, filed as Exhibit 10.11 to the Company’s Registration Statement on Form S-1 filed September 10, 1997, and incorporated herein by reference. |
| 10.3* | | | | | | Pericom’s 2000 Employee Stock Purchase Plan, including Forms of Agreement thereunder, filed as Exhibit 10.13 to the Company’s Quarterly Report on Form 10-Q for the quarter ended December 30, 2000, and incorporated herein by reference. |
| 10.4* | | | | | | Form of Notice of Grant of Stock Option and Option Agreement for Inducement Options, filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 27, 2003, and incorporated herein by reference. |
| 10.5 | | | | | | Lease, dated October 27, 2003 by and between CarrAmerica Realty Corporation as Landlord and the Company as Tenant, as amended, filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 27, 2003, and incorporated herein by reference. |
| 10.6* | | | | | | Amended and Restated 2001 Stock Incentive Plan including Form of Agreement thereunder, filed as Exhibit 10.2 to the Company’s Form 8-K filed December 21, 2004, and incorporated herein by reference. |
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| Exhibit | | | | | | Description
|
|---|
| 10.7** | | | | | | English translation of Cooperation Agreement between Pericom Semiconductor Corporation and the Jinan Hi-Tech Industries Development Zone Commission, dated as of January 26, 2008, filed as Exhibit 10.1 to the Company’s Form 8-K/A filed May 5, 2008, and incorporated herein by reference. |
| 10.8* | | | | | | Forms of Restricted Stock Award Grant Notice and Restricted Stock Award Agreement under each of the Amended and Restated Pericom 2001 Stock Incentive Plan and the Amended and Restated Pericom 2004 Stock Incentive Plan, filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 29, 2008, and incorporated herein by reference. |
| 10.9* | | | | | | Amended and Restated Change of Control Agreement, filed as Exhibit 10.1 to the Company’s Form 8-K filed December 17, 2008, and incorporated herein by reference. |
| 10.10* | | | | | | Amended and Restated 2004 Stock Incentive Plan, attached as Appendix A to the Company’s Definitive Proxy Statement on Schedule 14A filed on October 23, 2008, and incorporated herein by reference. |
| 10.11* | | | | | | Pericom’s 2010 Employee Stock Purchase Plan, attached as Appendix A to the Company’s Definitive Proxy Statement on Schedule 14A filed October 23, 2009, and incorporated herein by reference. |
| 10.12** | | | | | | English translation of R&D Center Investment Agreement, dated as of December 1, 2009, between Yangzhou Economic and Technological Development Zone and Pericom Asia Limited, filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended December 26, 2009, and incorporated herein by reference. |
| 10.13 | | | | | | Purchase and Sale Agreement, dated July 6, 2012, between Pericom Semiconductor Corporation and Barber Lane Investors, LLC for the acquisition of the office building at 1545 Barber Lane, Milpitas, California. |
| 10.14 | | | | | | First Amendment to the Purchase and Sale Agreement between Pericom Semiconductor Corporation and Barber Lane Investors, LLC dated August 6, 2012. |
| 14.1 | | | | | | Pericom Semiconductor Corporation Code of Business Conduct and Ethics, filed as Exhibit 14.1 to the Company’s Form 10-K for the year ended June 26, 2004 and incorporated herein by reference. |
| 21.1 | | | | | | Subsidiaries of Pericom Semiconductor Corporation |
| 23.1 | | | | | | Consent of Burr Pilger Mayer, Inc. Independent Registered Public Accounting Firm |
| 24.1 | | | | | | Power of Attorney (see signature page) |
| 31.1 | | | | | | Certification of Alex C. Hui, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 31.2 | | | | | | Certification of Aaron Tachibana, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 32.1 | | | | | | Certification of Alex C. Hui, Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 32.2 | | | | | | Certification of Aaron Tachibana, Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 101.INS# | | | | | | XBRL Instance Document |
| 101.SCH# | | | | | | XBRL Taxonomy Extension Schema Document |
| 101.CAL# | | | | | | XBRL Taxonomy Extension Calculation Linkbase Document |
50
| Exhibit | | | | | | Description
|
|---|
| 101.DEF# | | | | | | XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB# | | | | | | XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE# | | | | | | XBRL Taxonomy Extension Presentation Linkbase Document |
| * | | Management contract or compensatory plan or arrangement. |
| ** | | Portions of this exhibit have been omitted pursuant to a confidential treatment request that was granted by the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. |
| # | | XBRL (Extensible Business Reporting Language) information is furnished and not filed herewith, is not a part of a registration statement or Prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections. |
| (b) | | Exhibits: See list of exhibits under (a)(2) above. |
| (c) | | Financial Statement Schedules: See list of schedules under (a)(1) above |
51
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Pericom Semiconductor Corporation
We have audited the accompanying consolidated balance sheets of Pericom Semiconductor Corporation and its subsidiaries (the “Company”) as of June 30, 2012 and July 2, 2011 and the related consolidated statements of operations, shareholders’ equity and comprehensive income, and cash flows for each of the three years in the period ended June 30, 2012. Our audits also included the financial statement schedule listed in the Index to this Annual Report on Form 10-K at Part IV Item 15(a)(1). These consolidated financial statements and the financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and the financial statement schedule based on our 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 audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Pericom Semiconductor Corporation and its subsidiaries as of June 30, 2012 and July 2, 2011 and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2012 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of June 30, 2012, based on the criteria established inInternal Control —Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated August 31, 2012 expressed an unqualified opinion thereon.
/s/ Burr Pilger Mayer, Inc.
San Jose, California
August 31, 2012
52
PERICOM SEMICONDUCTOR CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
| | | | June 30,
2012
| | July 2,
2011
|
|---|
ASSETS
| | | | | | | | | | |
Current assets:
| | | | | | | | | | |
| Cash and cash equivalents | | | | $ | 24,283 | | | $ | 30,023 | |
| Restricted cash | | | | | — | | | | 2,947 | |
| Short-term investments in marketable securities | | | | | 79,924 | | | | 76,266 | |
Accounts receivable:
| | | | | | | | | | |
| Trade (net of reserves and allowances of $2,566 and $1,947) | | | | | 24,010 | | | | 28,185 | |
| Other receivables | | | | | 3,674 | | | | 5,859 | |
| Inventories | | | | | 16,604 | | | | 21,942 | |
| Prepaid expenses and other current assets | | | | | 2,425 | | | | 1,929 | |
| Deferred income taxes | | | | | 1,549 | | | | 2,564 | |
| Total current assets | | | | | 152,469 | | | | 169,715 | |
| | | | | | | | | | | |
| Property, plant and equipment — net | | | | | 56,102 | | | | 60,859 | |
| Investments in unconsolidated affiliates | | | | | 2,474 | | | | 2,596 | |
| Deferred income taxes — non current | | | | | 2,447 | | | | 4,324 | |
| Long-term investments in marketable securities | | | | | 23,628 | | | | 21,282 | |
| Goodwill | | | | | 16,797 | | | | 16,669 | |
| Intangible assets (net of accumulated amortization of $6,629 and $3,868) | | | | | 12,831 | | | | 15,690 | |
| Other assets | | | | | 9,058 | | | | 9,881 | |
| Total assets | | | | $ | 275,806 | | | $ | 301,016 | |
| | | | | | | | | | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY
| | | | | | | | | | |
Current liabilities:
| | | | | | | | | | |
| Short-term debt | | | | $ | 1,364 | | | $ | 8,671 | |
| Accounts payable | | | | | 14,860 | | | | 12,221 | |
| Accrued liabilities | | | | | 8,608 | | | | 19,645 | |
| Total current liabilities | | | | | 24,832 | | | | 40,537 | |
| | | | | | | | | | | |
| Industrial development subsidy | | | | | 8,577 | | | | 9,075 | |
| Deferred tax liabilities | | | | | 6,191 | | | | 6,605 | |
| Other long-term liabilities | | | | | 2,571 | | | | 2,074 | |
| Total liabilities | | | | | 42,171 | | | | 58,291 | |
| | | | | | | | | | | |
Commitments and contingencies (Note 13)
| | | | | | | | | | |
Shareholders’ equity:
| | | | | | | | | | |
| Common stock and paid in capital — no par value, 60,000,000 shares authorized; shares issued and outstanding: at June 30, 2012, 23,565,000; at July 2, 2011, 24,716,000 | | | | | 123,362 | | | | 130,960 | |
| Retained earnings | | | | | 100,694 | | | | 102,762 | |
| Accumulated other comprehensive income, net of tax | | | | | 9,579 | | | | 9,003 | |
| Total shareholders’ equity | | | | | 233,635 | | | | 242,725 | |
| Total liabilities and shareholders’ equity | | | | $ | 275,806 | | | $ | 301,016 | |
See notes to consolidated financial statements.
53
PERICOM SEMICONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
| | | | Year Ended
| |
|---|
| | | | June 30,
2012
| | July 2,
2011
| | July 3,
2010
|
|---|
| Net revenues | | | | $ | 137,135 | | | $ | 166,343 | | | $ | 146,913 | |
| Cost of revenues | | | | | 88,484 | | | | 110,661 | | | | 96,146 | |
| Gross profit | | | | | 48,651 | | | | 55,682 | | | | 50,767 | |
Operating expenses:
| | | | | | | | | | | | | | |
| Research and development | | | | | 21,722 | | | | 20,230 | | | | 17,208 | |
| Selling, general and administrative | | | | | 29,648 | | | | 29,447 | | | | 26,478 | |
| Total operating expenses | | | | | 51,370 | | | | 49,677 | | | | 43,686 | |
| Income (loss) from operations | | | | | (2,719 | ) | | | 6,005 | | | | 7,081 | |
| Interest and other income, net | | | | | 3,684 | | | | 15,142 | | | | 5,252 | |
| Interest expense | | | | | (70 | ) | | | (765 | ) | | | (30 | ) |
| Income before income taxes | | | | | 895 | | | | 20,382 | | | | 12,303 | |
| Income tax expense | | | | | 3,097 | | | | 7,619 | | | | 3,911 | |
| Net income (loss) from consolidated companies | | | | | (2,202 | ) | | | 12,763 | | | | 8,392 | |
| Equity in net income of unconsolidated affiliates | | | | | 134 | | | | 700 | | | | 2,430 | |
| Net income (loss) | | | | $ | (2,068 | ) | | $ | 13,463 | | | $ | 10,822 | |
| Net income attributable to noncontrolling interests | | | | | — | | | | — | | | | (28 | ) |
| Net income (loss) attributable to Pericom shareholders | | | | $ | (2,068 | ) | | $ | 13,463 | | | $ | 10,794 | |
| Basic income (loss) per share to Pericom shareholders | | | | $ | (0.09 | ) | | $ | 0.54 | | | $ | 0.42 | |
| Diluted income (loss) per share to Pericom shareholders | | | | $ | (0.09 | ) | | $ | 0.53 | | | $ | 0.42 | |
| Shares used in computing basic earnings (loss) per share | | | | | 24,094 | | | | 24,923 | | | | 25,412 | |
| Shares used in computing diluted earnings (loss) per share | | | | | 24,094 | | | | 25,254 | | | | 25,717 | |
See notes to consolidated financial statements.
54
PERICOM SEMICONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME (LOSS)
(in thousands)
| | | | | | | | | | Accumulated | | | | |
|---|
| | | | | | | | | | Other | | | | |
|---|
| | | | Common Stock | | | | Comprehensive | | | | Total |
|---|
| | | |
| | Retained | | Income (Loss), | | Noncontrolling | | Shareholders’ |
|---|
| | | | Shares
| | Amount
| | Earnings
| | Net
| | Interest
| | Equity
|
|---|
| BALANCES, June 27, 2009 | | | | | 25,462 | | | $ | 133,162 | | | $ | 78,505 | | | $ | 797 | | | $ | 1,233 | | | $ | 213,697 | |
| Net income | | | | | — | | | | — | | | | 10,794 | | | | — | | | | 28 | | | | 10,822 | |
| Change in unrealized gain on investments, net | | | | | — | | | | — | | | | — | | | | 114 | | | | — | | | | 114 | |
| Currency translation adjustment | | | | | — | | | | — | | | | — | | | | 1,160 | | | | — | | | | 1,160 | |
| Total comprehensive income | | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 12,096 | |
| Acquisition of noncontrolling interest | | | | | — | | | | 37 | | | | — | | | | — | | | | (1,261 | ) | | | (1,224 | ) |
| Issuance of common stock under employee stock plans | | | | | 344 | | | | 1,978 | | | | — | | | | — | | | | — | | | | 1,978 | |
| Share-based compensation expense | | | | | — | | | | 4,049 | | | | — | | | | — | | | | — | | | | 4,049 | |
| Tax benefit resulting from stock option transactions | | | | | — | | | | (11 | ) | | | — | | | | — | | | | — | | | | (11 | ) |
Repurchase and retirement of
common stock | | | | | (908 | ) | | | (8,679 | ) | | | — | | | | — | | | | — | | | | (8,679 | ) |
| BALANCES, July 3, 2010 | | | | | 24,898 | | | | 130,536 | | | | 89,299 | | | | 2,071 | | | | — | | | | 221,906 | |
| Net income | | | | | — | | | | — | | | | 13,463 | | | | — | | | | — | | | | 13,463 | |
| Change in unrealized gain on investments, net | | | | | — | | | | — | | | | — | | | | (549 | ) | | | — | | | | (549 | ) |
| Currency translation adjustment | | | | | — | | | | — | | | | — | | | | 7,481 | | | | — | | | | 7,481 | |
| Total comprehensive income | | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 20,395 | |
| Issuance of common stock under employee stock plans | | | | | 431 | | | | 1,528 | | | | — | | | | — | | | | — | | | | 1,528 | |
| Share-based compensation expense | | | | | — | | | | 4,286 | | | | — | | | | — | | | | — | | | | 4,286 | |
| Tax expense resulting from stock option transactions | | | | | — | | | | 58 | | | | — | | | | — | | | | — | | | | 58 | |
Repurchase and retirement of
common stock | | | | | (613 | ) | | | (5,448 | ) | | | — | | | | — | | | | — | | | | (5,448 | ) |
| BALANCES, July 2, 2011 | | | | | 24,716 | | | | 130,960 | | | | 102,762 | | | | 9,003 | | | | — | | | | 242,725 | |
| Net loss | | | | | — | | | | — | | | | (2,068 | ) | | | — | | | | — | | | | (2,068 | ) |
| Change in unrealized gain on investments, net | | | | | — | | | | — | | | | — | | | | (59 | ) | | | — | | | | (59 | ) |
| Currency translation adjustment | | | | | — | | | | — | | | | — | | | | 635 | | | | — | | | | 635 | |
| Total comprehensive loss | | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (1,492 | ) |
| Issuance of common stock under employee stock plans | | | | | 332 | | | | 918 | | | | — | | | | — | | | | — | | | | 918 | |
| Share-based compensation expense | | | | | — | | | | 3,723 | | | | — | | | | — | | | | — | | | | 3,723 | |
| Tax benefit resulting from stock option transactions | | | | | — | | | | (612 | ) | | | — | | | | — | | | | — | | | | (612 | ) |
Repurchase and retirement of
common stock | | | | | (1,483 | ) | | | (11,627 | ) | | | — | | | | — | | | | — | | | | (11,627 | ) |
| BALANCES, June 30, 2012 | | | | | 23,565 | | | $ | 123,362 | | | $ | 100,694 | | | $ | 9,579 | | | $ | — | | | $ | 233,635 | |
See notes to consolidated financial statements.
55
PERICOM SEMICONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| | | | Year Ended
| |
|---|
| | | | June 30,
2012
| | July 2,
2011
| | July 3,
2010
|
|---|
CASH FLOWS FROM OPERATING ACTIVITIES:
| | | | | | | | | | | | | | |
| Net income (loss) | | | | $ | (2,068 | ) | | $ | 13,463 | | | $ | 10,822 | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
| | | | | | | | | | | | | | |
| Depreciation and amortization | | | | | 11,898 | | | | 11,000 | | | | 7,958 | |
| Stock based compensation | | | | | 3,736 | | | | 4,286 | | | | 4,049 | |
| Tax benefit resulting from stock option transactions | | | | | 512 | | | | 782 | | | | 291 | |
| Excess tax benefit resulting from stock option transactions | | | | �� | (4 | ) | | | (84 | ) | | | (97 | ) |
| Write-off of notes receivable | | | | | 856 | | | | — | | | | — | |
| Gain on sale of investments | | | | | (673 | ) | | | (1,922 | ) | | | (2,348 | ) |
| Write-off of property and equipment | | | | | 354 | | | | 75 | | | | 152 | |
| Gain on previously held shares in PTI | | | | | — | | | | (11,004 | ) | | | — | |
| Equity in net income of unconsolidated affiliates | | | | | (134 | ) | | | (700 | ) | | | (2,430 | ) |
| Deferred taxes | | | | | 1,753 | | | | 4,020 | | | | 344 | |
Changes in assets and liabilities net of effects of entities acquired:
| | | | | | | | | | | | | | |
| Accounts receivable | | | | | 6,289 | | | | 2,204 | | | | (2,108 | ) |
| Inventories | | | | | 5,008 | | | | 6,103 | | | | (7,014 | ) |
| Prepaid expenses and other current assets | | | | | (883 | ) | | | 285 | | | | (2,183 | ) |
| Other assets | | | | | 676 | | | | (261 | ) | | | (744 | ) |
| Accounts payable | | | | | 2,688 | | | | (4,841 | ) | | | 4,757 | |
| Accrued liabilities | | | | | (2,735 | ) | | | (1,610 | ) | | | (5,731 | ) |
| Other long-term liabilities | | | | | 453 | | | | 1,850 | | | | 2,719 | |
| Net cash provided by operating activities | | | | | 27,726 | | | | 23,646 | | | | 8,437 | |
CASH FLOWS FROM INVESTING ACTIVITIES:
| | | | | | | | | | | | | | |
| Purchases of property plant and equipment | | | | | (4,324 | ) | | | (11,715 | ) | | | (10,353 | ) |
| Acquisition of PTI, net of cash acquired | | | | | (8,077 | ) | | | (17,514 | ) | | | — | |
| Purchase of available-for-sale investments | | | | | (97,726 | ) | | | (220,822 | ) | | | (120,722 | ) |
| Maturities and sales of available-for-sale investments | | | | | 91,981 | | | | 224,111 | | | | 120,353 | |
| Cash paid for noncontrolling interest acquisition | | | | | — | | | | — | | | | (1,223 | ) |
| Change in restricted cash balance | | | | | 2,947 | | | | (2,947 | ) | | | 3,200 | |
| Net cash used in investing activities | | | | | (15,199 | ) | | | (28,887 | ) | | | (8,745 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES:
| | | | | | | | | | | | | | |
| Proceeds from common stock issuance under stock plans | | | | | 918 | | | | 1,528 | | | | 1,978 | |
| Excess tax benefit resulting from stock option transactions | | | | | 4 | | | | 84 | | | | 97 | |
| Paydowns on mortgage financing | | | | | — | | | | — | | | | (1,725 | ) |
| Proceeds from short-term debt | | | | | 10,744 | | | | 8,003 | | | | — | |
| Payments on short-term debt | | | | | (17,635 | ) | | | — | | | | — | |
| Repurchase of common stock | | | | | (11,627 | ) | | | (5,448 | ) | | | (8,679 | ) |
| Net cash provided by (used in) financing activities | | | | | (17,596 | ) | | | 4,167 | | | | (8,329 | ) |
| EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS | | | | | (671 | ) | | | 1,602 | | | | 811 | |
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | | | | | (5,740 | ) | | | 528 | | | | (7,826 | ) |
CASH AND CASH EQUIVALENTS:
| | | | | | | | | | | | | | |
| Beginning of year | | | | | 30,023 | | | | 29,495 | | | | 37,321 | |
| End of year | | | | $ | 24,283 | | | $ | 30,023 | | | $ | 29,495 | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
| | | | | | | | | | | | | | |
| Cash paid during the period for income taxes | | | | $ | 1,722 | | | $ | 4,361 | | | $ | 2,166 | |
| Cash paid during the period for interest | | | | $ | 75 | | | $ | 77 | | | $ | 30 | |
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
| | | | | | | | | | | | | | |
| Initial contingent earn-out liability | | | | $ | — | | | $ | 4,087 | | | $ | — | |
| Accrued acquisition-related liabilities | | | | $ | — | | | $ | 3,541 | | | $ | — | |
See notes to consolidated financial statements
56
PERICOM SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Pericom Semiconductor Corporation (the “Company” or “Pericom”) was incorporated in June 1990 in the state of California. The Company designs, manufactures and markets high performance digital, analog and mixed-signal integrated circuits (“ICs”) and frequency control products (“FCPs”) used for the transfer, routing, and timing of digital and analog signals within and between computer, networking, datacom and telecom systems.
USE OF ESTIMATES — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses during the reporting period. Actual results could differ from those estimates.
BASIS OF PRESENTATION — These consolidated financial statements include the accounts of Pericom Semiconductor Corporation and its wholly owned subsidiaries, Pericom Semiconductor (HK) Limited (“PSC-HK”), Pericom Asia Limited (“PAL”) and PSE Technology Corporation (“PSE-TW”). In addition PAL has three wholly-owned subsidiaries, PSE Technology (Shandong) Corporation (“PSE-SD”) and Pericom Technology Yangzhou Corporation (“PSC-YZ”) for the Jinan, China and Yangzhou, China operations, respectively, and Pericom Technology Inc. (“PTI”). PTI became a wholly-owned subsidiary in the first quarter of fiscal 2011 (See Note 6 of Notes to Consolidated Financial Statements in this Form 10-K for further details). PSE-TW was formerly known as the SaRonix-eCERA Corporation. All significant intercompany balances and transactions have been eliminated in consolidation.
On March 28, 2010, the Company completed the merger of our two wholly owned subsidiaries, PSE-TW and PTL, with PSE-TW as the surviving entity. As a result of the change in legal structure, we determined that we would be able to utilize certain deferred tax assets and our valuation allowance was reduced accordingly. In accordance with the guidance for a change in reporting entity, this change has been retrospectively applied to all prior periods presented. As substantially all of the deferred tax assets arose prior to the periods being presented, the impact of the reduction in valuation allowance was an increase to our deferred tax assets of approximately $256,000 for all periods presented as well as an increase to our opening retained earnings.
The Company has significant operations in the PRC, where certain political, economic and currency restrictions may apply. Insofar as can be reasonably determined, the effect of foreign exchange restrictions upon the consolidated financial position and results of the Company are not material.
FISCAL PERIOD — For purposes of reporting the financial results, the Company’s fiscal years end on the Saturday closest to the end of June. The year ended July 3, 2010 contains 53 weeks, whereas all other fiscal years presented herein include 52 weeks.
CASH EQUIVALENTS — The Company considers all highly liquid investments purchased with an original or remaining maturity of three months or less when purchased to be cash equivalents. The recorded carrying amounts of the Company’s cash and cash equivalents approximate their fair value.
SHORT-TERM AND LONG-TERM INVESTMENTS IN MARKETABLE SECURITIES — The Company’s policy is to invest in instruments with investment grade credit ratings. The Company classifies its short-term investments as “available-for-sale” securities and the Company bases the cost of securities sold using the specific identification method. The Company accounts for unrealized gains and losses on its available-for-sale securities as a separate component of shareholders’ equity in the consolidated balance sheets in the period in which the gain or loss occurs. The Company classifies its available-for-sale securities as current or noncurrent based on each security’s attributes. At June 30, 2012 and July 2, 2011, investments, and any difference between the fair market value and the underlying cost of such investments, consisted of the following:
57
PERICOM SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
Available-for-Sale Securities:
| | | | As of June 30, 2012
| |
|---|
(in thousands)
| | | | Amortized
Cost
| | Unrealized
Gains
| | Unrealized
Losses
| | Net
Unrealized
Gains
(Losses)
| | Fair
Value
|
|---|
Available-for-Sale Securities
| | | | | | | | | | | | | | | | | | | | | | |
| Time Deposits | | | | $ | 10,344 | | | $ | — | | | $ | — | | | $ | — | | | $ | 10,344 | |
| US Treasury securities | | | | | 3,639 | | | | — | | | | (5 | ) | | | (5 | ) | | | 3,634 | |
| National government and agency securities | | | | | 6,582 | | | | 167 | | | | — | | | | 167 | | | | 6,749 | |
| State and municipal bond obligations | | | | | 1,772 | | | | 1 | | | | (1 | ) | | | — | | | | 1,772 | |
| Corporate bonds and notes | | | | | 61,374 | | | | 461 | | | | (197 | ) | | | 264 | | | | 61,638 | |
| Asset backed securities | | | | | 10,148 | | | | 19 | | | | (86 | ) | | | (67 | ) | | | 10,081 | |
| Mortgage backed securities | | | | | 9,313 | | | | 98 | | | | (77 | ) | | | 21 | | | | 9,334 | |
| Total | | | | $ | 103,172 | | | $ | 746 | | | $ | (366 | ) | | $ | 380 | | | $ | 103,552 | |
| | | | As of July 2, 2011
| |
|---|
(in thousands)
| | | | Amortized
Cost
| | Unrealized
Gains
| | Unrealized
Losses
| | Net
Unrealized
Gains
(Losses)
| | Fair
Value
|
|---|
Available-for-Sale Securities
| | | | | | | | | | | | | | | | | | | | | | |
| Time Deposits | | | | $ | 10,740 | | | $ | — | | | $ | — | | | $ | — | | | $ | 10,740 | |
| US Treasury securities | | | | | 600 | | | | 2 | | | | — | | | | 2 | | | | 602 | |
| National government and agency securities | | | | | 9,065 | | | | 128 | | | | (7 | ) | | | 121 | | | | 9,186 | |
| State and municipal bond obligations | | | | | 1,250 | | | | 8 | | | | — | | | | 8 | | | | 1,258 | |
| Corporate bonds and notes | | | | | 53,346 | | | | 458 | | | | (105 | ) | | | 353 | | | | 53,699 | |
| Asset backed securities | | | | | 11,381 | | | | 32 | | | | (75 | ) | | | (43 | ) | | | 11,338 | |
| Mortgage backed securities | | | | | 10,767 | | | | 41 | | | | (83 | ) | | | (42 | ) | | | 10,725 | |
| Total | | | | $ | 97,149 | | | $ | 669 | | | $ | (270 | ) | | $ | 399 | | | $ | 97,548 | |
The following tables show the gross unrealized losses and fair values of the Company’s investments that have unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of June 30, 2012 and July 2, 2011:
| | | | Continuous Unrealized Losses at June 30, 2012
| |
|---|
| | | | Less Than 12 Months
| | 12 Months or Longer
| | Total
| |
|---|
(In thousands)
| | | | Fair
Value
| | Unrealized
Losses
| | Fair
Value
| | Unrealized
Losses
| | Fair
Value
| | Unrealized
Losses
|
|---|
| US Treasury securities | | | | $ | 3,434 | | | $ | 5 | | | $ | — | | | $ | — | | | $ | 3,434 | | | $ | 5 | |
| National government and agency securities | | | | | 327 | | | | — | | | | — | | | | — | | | | 327 | | | | — | |
| State and municipal bond obligations | | | | | 1,033 | | | | 1 | | | | — | | | | — | | | | 1,033 | | | | 1 | |
| Corporate bonds and notes | | | | | 12,117 | | | | 85 | | | | 3,782 | | | | 112 | | | | 15,899 | | | | 197 | |
| Asset backed securities | | | | | 1,784 | | | | 15 | | | | 1,595 | | | | 71 | | | | 3,379 | | | | 86 | |
| Mortgage backed securities | | | | | 659 | | | | — | | | | 403 | | | | 77 | | | | 1,062 | | | | 77 | |
| | | | | $ | 19,354 | | | $ | 106 | | | $ | 5,780 | | | $ | 260 | | | $ | 25,134 | | | $ | 366 | |
58
PERICOM SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
| | | | Continuous Unrealized Losses at July 2, 2011
| |
|---|
| | | | Less Than 12 Months
| | 12 Months or Longer
| | Total
| |
|---|
(In thousands)
| | | | Fair
Value
| | Unrealized
Losses
| | Fair
Value
| | Unrealized
Losses
| | Fair
Value
| | Unrealized
Losses
|
|---|
| US Treasury securities | | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| National government and agency securities | | | | | 2,254 | | | | 7 | | | | — | | | | — | | | | 2,254 | | | | 7 | |
| State and municipal bond obligations | | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Corporate bonds and notes | | | | | 12,765 | | | | 103 | | | | 251 | | | | 2 | | | | 13,016 | | | | 105 | |
| Asset backed securities | | | | | 4,867 | | | | 64 | | | | 149 | | | | 11 | | | | 5,016 | | | | 75 | |
| Mortgage backed securities | | | | | 3,407 | | | | 10 | | | | 336 | | | | 73 | | | | 3,743 | | | | 83 | |
| | | | | $ | 23,293 | | | $ | 184 | | | $ | 736 | | | $ | 86 | | | $ | 24,029 | | | $ | 270 | |
The unrealized losses are of a temporary nature due to the Company’s intent and ability to hold the investments until maturity or until the cost is recoverable. The unrealized losses are primarily due to fluctuations in market interest rates. The Company reports unrealized gains and losses on its “available-for-sale” securities in accumulated other comprehensive income, net of tax, in shareholders’ equity.
The Company records gains or losses realized on sales of available-for-sale securities in interest and other income on its consolidated income statement. The cost of securities sold is based on the specific identification of the security and its amortized cost. In fiscal 2012, 2011 and 2010 realized gains on available-for-sale securities were $673,000, $1.9 million and $2.3 million, respectively.
The following table lists the fair value of the Company’s short- and long-term investments by length of time to maturity as of June 30, 2012 and July 2, 2011:
(In thousands)
| | | | June 30,
2012
| | July 2,
2011
|
|---|
| One year or less | | | | $ | 21,254 | | | $ | 10,316 | |
| Between one and three years | | | | | 52,106 | | | | 37,983 | |
| Greater than three years | | | | | 22,084 | | | | 25,021 | |
| Multiple Dates | | | | | 8,108 | | | | 24,228 | |
| | | | | $ | 103,552 | | | $ | 97,548 | |
Securities with maturities over multiple dates are mortgage-backed securities (MBS) or asset-backed securities (ABS) featuring periodic principle paydowns through 2041.
FAIR VALUE OF FINANCIAL INSTRUMENTS — The Company has determined that the amounts reported for cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair value because of their short maturities and/or variable interest rates. Available-for-sale investments are reported at their fair value based on quoted market prices. A further discussion of the fair value of financial instruments is detailed in Note 18 to the Consolidated Financial Statements contained in this report on Form 10-K.
ALLOWANCE FOR DOUBTFUL ACCOUNTS — The Company computes its allowance for doubtful accounts using a combination of factors. In cases where the Company is aware of circumstances that may impair a specific customer’s ability to meet its financial obligations to the Company, the Company records a specific allowance against amounts due to the Company, reducing the net recognized receivable to the amount the Company reasonably believes it will collect. For all other customers, the Company recognizes allowances for doubtful accounts based on the length of time the receivables are past due, the current business environment and its historical experience.
INVENTORIES — For IC and certain FCP products, the Company records inventories at the lower of standard cost (which generally approximates actual cost on a first-in, first-out basis) or market value. The carrying value
59
PERICOM SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
of inventory is adjusted for excess and obsolete inventory based on inventory age, shipment history and the forecast of demand over a specific future period. The semiconductor markets that the Company serves are volatile and actual results may vary from forecast or other assumptions, potentially affecting the Company’s assessment of excess and obsolete inventory, resulting in material effects on gross margin.
The inventories of the remainder of the FCP products are recorded at the lower of weighted-average cost, which approximates actual cost, or market value. Weighted average cost is comprised of average manufacturing costs weighted by the volume produced in each production run. Market value is defined as the net realizable value for finished goods, and replacement cost for raw materials and work in process.
Raw material inventory is considered slow moving and is fully reserved if it has not moved in 365 days. For assembled devices, the inventory is disaggregated by part number. The quantities on hand in each part number category are compared to the quantity that was shipped in the previous twelve months, the quantity in backlog and to the quantity expected to ship in the next twelve months. A reserve is recorded to the extent the value of each quantity on hand is in excess of the lesser of the three comparisons. The Company also periodically reviews inventory for obsolescence beyond the established formulaic tests. The Company believes this method of evaluating inventory fairly represents market conditions.
The Company considers the reserved material to be available for sale. The reserved inventory is not revalued should market conditions change or if a market develops for the obsolete inventory. In the past, the Company has sold obsolete inventory that was previously fully reserved.
PROPERTY, PLANT AND EQUIPMENT — The Company states its property, plant and equipment at cost. Cost includes purchase cost, applicable taxes, freight, installation costs and interest incurred in the acquisition of any asset that requires a period of time to make it ready for use. We compute depreciation and amortization using the straight-line method over estimated useful lives of three to eight years except for buildings, which we depreciate using the straight-line method over estimated useful lives of twenty to forty years. We depreciate leasehold improvements over the shorter of the lease term or the improvement’s estimated useful life. In addition, we capitalize the cost of major replacements, improvements and betterments, while we expense normal maintenance and repair.
INVESTMENTS IN UNCONSOLIDATED AFFILIATES — The Company holds or has held ownership interests in various investees. Our ownership in these affiliates has varied from 20% to approximately 49%. We classify these investments as investments in unconsolidated affiliates in our consolidated balance sheets. The Company accounts for long-term investments in companies in which it has an ownership share larger than 20% and in which it has significant influence over the activities of the investee using the equity method. We recognize our proportionate share of each investee’s income or loss in the period in which the investee reports the income or loss. We eliminate all intercompany transactions in accounting for our equity method investments.
OTHER ASSETS — The Company’s other assets classification includes investments in privately held companies in which we have less than a 20% interest, land use rights and deposits. The Company reports its investments in privately held companies at the lower of cost or market. The Company’s management reviews the investment in these companies for losses that may be other than temporary on a quarterly basis. Should management determine that such an impairment exists, the Company will reduce the value of the Company’s investment in the period in which management discovers the impairment and charge the impairment to the consolidated statement of operations. The Company’s management performed such an evaluation as of June 30, 2012 and determined that no impairment existed. Two of the Company’s subsidiaries, PSE-SD and PTI, hold land use rights that were acquired from the local Chinese government which entitle the Company to use the land for 15 to 50 years. The cost of the land use rights is recorded as a component of other assets and is being depreciated over 15 to 50 years, the useful life of the rights.
60
PERICOM SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
LONG-LIVED ASSETS — The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When the sum of the undiscounted future net cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount, the Company will recognize an impairment loss as the amount of the difference between carrying value and fair value as determined by discounted cash flows.
GOODWILL AND OTHER INTANGIBLE ASSETS — Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the net tangible and intangible assets acquired and liabilities assumed. The Company evaluates goodwill and indefinite-lived intangible assets for impairment at least on an annual basis in the fourth quarter of the fiscal year or whenever events and changes in circumstances suggest that the carrying amount may not be recoverable from its estimated future cash flow. In accordance with the guidance on Accounting Standards Codification (″ASC″) 350, Intangibles-Goodwill and Other, a two-step test is required to identify potential goodwill impairment and measure the amount of the goodwill impairment loss to be recognized. In the first step, the fair value of each reporting unit is compared to its carrying value to determine if the goodwill is impaired. In general, the Company’s reporting units are one step below the segment level. The fair value of the reporting units is determined based on a weighting of income and market approaches. Under the income approach, the Company calculates the fair value of a reporting unit based on the present value of estimated future cash flows. Under the market approach, the Company estimates the fair value based on market multiples of revenue or earnings for comparable companies. Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, and future economic and market conditions and determination of appropriate market comparables. The Company bases these fair value estimates on reasonable assumptions but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates. In addition, the Company makes certain judgments and assumptions in allocating shared assets and liabilities to determine the carrying values for each reporting unit.
If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, then goodwill is not impaired and no further testing is required. If the carrying value of the net assets assigned to the reporting unit was to exceed its fair value, then the second step is performed in order to determine the implied fair value of the reporting unit’s goodwill, and an impairment loss is recorded for an amount equal to the difference between the implied fair value and the carrying value of the goodwill. The goodwill impairment analysis did not result in an impairment charge for the years presented.
BUSINESS COMBINATIONS — Effective July 4, 2010, the Company adopted ASC 805, Business Combinations (“ASC 805”). ASC 805 updated guidance related to business combinations. The updated guidance establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree. The updated standard also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The updated standard also provides guidance for recognizing changes in an acquirer’s existing income tax valuation allowances and tax uncertainty accruals that result from a business combination transaction as adjustments to income tax expense. The updated guidance had a material impact on the Company’s consolidated financial statements during the year ended July 2, 2011. In fiscal 2011, the Company completed the acquisition of PTI. Under the updated guidance, the Company expensed the transaction costs of approximately $0.6 million associated with the PTI acquisition, while under the prior accounting standards such costs would have been capitalized. In addition, the Company recognized the fair value of a contingent earn-out liability in connection with the PTI acquisition of $4.1 million, and subsequently recognized an expense of $0.7 million related to the change in the estimated fair value of contingent earn-out liability, while under the prior
61
PERICOM SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
accounting standards the earn-out would not have been recognized as part of the consideration transferred until the contingency was resolved. Further, the Company acquired in-process research and development of approximately $3.3 million in connection with the PTI acquisition which has been capitalized in accordance with the updated guidance, whereas under prior authoritative guidance the amount would have been expensed immediately. Therefore, the adoption of the updated guidance related to business combinations has had and likely will continue to have a material impact on our future consolidated financial statements.
INCOME TAXES — The Company accounts for income taxes following the Financial Accounting Standards Board’s statements and related interpretations, which require an asset and liability approach to recording deferred taxes. We record a valuation allowance to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. The Company’s income tax calculations are based on application of the respective U.S. federal, state or foreign tax laws. The Company’s tax filings, however, are subject to audit by the respective tax authorities. Accordingly, the Company recognizes tax liabilities based on its estimates of whether, and the extent to which, additional taxes will be due when such estimates are more-likely-than-not to be sustained. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. To the extent the final tax liabilities are different than the amounts originally accrued, the increases or decreases are recorded as income tax expense or benefit in the Consolidated Statements of Operations.
FOREIGN CURRENCY TRANSLATION — The functional currency of the Company’s foreign subsidiaries is the local currency. In consolidation, the Company translates assets and liabilities at exchange rates in effect at the balance sheet date. The Company translates revenue and expense accounts at average exchange rates during the period in which the transaction takes place. Net gains or (losses) from foreign currency translation of assets and liabilities of $635,000 and $7.5 million in fiscal 2012 and 2011, respectively, are included in the cumulative translation adjustment component of accumulated other comprehensive income, net of tax, a component of shareholders’ equity. Net gains or (losses) arising from transactions denominated in currencies other than the functional currency were $334,000, $(321,000) and $(197,000) in fiscal 2012, 2011 and 2010 respectively, and are included in interest and other income, net.
SHARE-BASED COMPENSATION — The Company recognizes employee share-based compensation through measurement at grant date based on the fair value of the award, and the fair value is recognized as an expense over the employee’s requisite service period. See Note 16 for further discussion of share-based compensation.
REVENUE RECOGNITION — The Company recognizes revenue from the sale of its products when:
| • | | Persuasive evidence of an arrangement exists; |
| �� | | Delivery has occurred; |
| • | | The sales price is fixed or determinable; and |
| • | | Collectability is reasonably assured. |
Generally, the Company meets these conditions upon shipment because, in most cases, title and risk of loss passes to the customer at that time. In addition, the Company estimates and records provisions for future returns and other charges against revenue at the time of shipment consistent with the terms of sale.
The Company sells products to large, domestic distributors at the price listed in its price book for that distributor. At the time of sale the Company records a sales reserve for ship from stock and debits (“SSD”s), stock rotations, return material authorizations (“RMA”s), authorized price protection programs, and any special programs approved by management. The Company offsets the sales reserve against revenues, producing the net revenue amount reported in the consolidated statements of operations.
The market price for the Company’s products can be significantly different from the book price at which the Company sold the product to the distributor. When the market price, as compared to the Company’s original book price, of a particular distributor’s sales opportunity to their own customer would result in low or negative margins
62
PERICOM SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
for our distributor, the Company negotiates a ship from stock and debit with the distributor. Management analyzes the Company’s SSD history to develop current SSD rates that form the basis of the SSD sales reserve recorded each period. The Company obtains the historical SSD rates from its internal records.
The Company’s distribution agreements provide for semi-annual stock rotation privileges of typically 10% of net sales for the previous six-month period. The contractual stock rotation applies only to shipments at the Company’s listed book price. Asian distributors typically buy the Company’s product at less than standard price and therefore are not entitled to the 10% stock rotation privilege. In order to provide for routine inventory refreshing, for the Company’s benefit as well as theirs, the Company grants Asian distributors stock rotation privileges between 1% and 10% even though the Company is not contractually obligated to do so. Each month the Company adjusts the sales reserve for the estimated stock rotation privilege anticipated to be utilized by the distributors.
From time to time, customers may request to return parts for various reasons including the customers’ belief that the parts are not performing to specification. Many such return requests are the result of customers incorrectly using the parts, not because the parts are defective. Management reviews these requests and, if approved, the Company prepares a RMA. The Company is only obligated to accept defective parts returns. To accommodate the Company’s customers, the Company may approve particular return requests, even though it is not obligated to do so. Each month the Company records a sales reserve for approved RMAs covering products that have not yet been returned. The Company does not maintain a general warranty reserve because, historically, valid warranty returns, which are the result of a part not meeting specifications or being non-functional, have been immaterial and the Company can frequently resell returned parts to other customers for use in other applications. The Company monitors and assesses RMA activity and overall materiality to assess whether a general warranty reserve has become appropriate.
The Company grants price protection solely at the discretion of Pericom management. The purpose of price protection is to reduce the distributor’s cost of inventory as market prices fall thus reducing SSD rates. Pericom sales management prepares price protection proposals for individual products located at individual distributors. Pericom general management reviews and approves or disapproves these proposals. If a particular price protection arrangement is approved, the Company estimates the dollar impact based on the sales price reduction per unit for the products approved and the number of units of those products in that distributor’s inventory. The Company records a sales reserve in that period for the estimated amount at the time revenue is recognized.
At the discretion of Pericom management, the Company may offer rebates on specific products sold to specific end customers. The purpose of the rebates is to allow for pricing adjustments for large programs without affecting the pricing the Company charges its distributor customers. The Company records the rebate at the time of shipment.
Pericom typically grants payment terms of between 30 and 60 days to its customers. The Company’s customers generally pay within those terms. The Company grants relatively few customers sales terms that include cash discounts. Distributors are invoiced for shipments at listed book price. When the distributors pay the Company’s invoices, they may claim debits for SSDs, stock rotations, cash discounts, RMAs and price protection when appropriate. Once claimed, the Company processes the requests against the prior authorizations and reduces the reserve previously established for that customer.
The revenue the Company records for sales to its distributors is net of estimated provisions for these programs. When determining this net revenue, the Company must make significant judgments and estimates. The Company bases its estimates on historical experience rates, inventory levels in the distribution channel, current trends and other related factors. However, because of the inherent nature of estimates, there is a risk that there could be significant differences between actual amounts and the Company’s estimates. The Company’s financial condition and operating results depend on its ability to make reliable estimates and Pericom believes that such estimates are reasonable.
63
PERICOM SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
PRODUCT WARRANTY — The Company offers a standard one-year product replacement warranty. In the past, the Company has not had to accrue for a general warranty reserve, but assesses the level and materiality of RMAs and determines whether it is appropriate to accrue for estimated returns of defective products at the time revenue is recognized. On occasion, management may determine to accept product returns beyond the standard one-year warranty period. In those instances, the Company accrues for the estimated cost at the time management decides to accept the return. Because of the Company’s standardized manufacturing processes and product testing procedures, returns of defective product are infrequent and the quantities have not been significant. Accordingly, historical warranty costs have not been material.
SHIPPING COSTS — We charge shipping costs to cost of revenues as incurred.
CONCENTRATION OF CREDIT RISK — The Company primarily sells its products to a relatively small number of companies and generally does not require its customers to provide collateral or other security to support accounts receivable. The Company maintains allowances for estimated bad debt losses. The Company also purchases substantially all of its wafers from three suppliers and purchases other manufacturing services from a relatively small number of suppliers.
The following table indicates the percentage of our net revenues and accounts receivable in excess of 10% with any single customer:
| | | | | | Percentage of
| |
|---|
Fiscal Year Ended:
| | | | | | Net
Revenues
| | Trade
Accounts
Receivable
|
|---|
| June 30, 2012 | | | | Customer A | | | 18 | % | | | 26 | % |
| | | | | Customer B | | | 14 | | | | 6 | |
| | | | | All others | | | 68 | | | | 68 | |
| | | | | | | | 100 | % | | | 100 | % |
| July 2, 2011 | | | | Customer A | | | 18 | % | | | 16 | % |
| | | | | Customer B | | | 15 | | | | 12 | |
| | | | | All others | | | 67 | | | | 72 | |
| | | | | | | | 100 | % | | | 100 | % |
| July 3, 2010 | | | | Customer A | | | 22 | % | | | 26 | % |
| | | | | Customer B | | | 14 | | | | 9 | |
| | | | | All others | | | 64 | | | | 65 | |
| | | | | | | | 100 | % | | | 100 | % |
The Company maintains cash, cash equivalents and short- and long-term investments with various high credit quality financial institutions. The Company has designed its investment policy to limit exposure to any one institution. The Company performs periodic evaluations of the relative credit standing of those financial institutions that manage its investments. The Company is exposed to credit risk in the event of default by the financial institutions or issuers of securities to the extent of the amounts reported in the consolidated balance sheets.
RECENTLY ISSUED ACCOUNTING STANDARDS — In June 2011, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2011-05,“Comprehensive Income (Topic 220): Presentation of Comprehensive Income”, which requires comprehensive income to be reported in either a single statement or in two consecutive statements reporting net income and other comprehensive income, rather than in a footnote or as part of a statement of changes to shareholders equity. The amendment does not change what items are reported in other comprehensive income or the requirement to report reclassification of items from other comprehensive income to net income. This standard will be effective for the Company’s fiscal year beginning July 1, 2012 with retrospective application
64
PERICOM SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
required. As this standard impacts presentation requirements only, the adoption of this guidance is not expected to have a material impact on the consolidated financial statements.
In September 2011, the FASB issued ASU No. 2011-08, “Intangibles-Goodwill and Other (Topic 350) — Testing Goodwill for Impairment”, which provides updated guidance on the periodic testing of goodwill for impairment. This guidance will allow companies to assess qualitative factors to determine if it is more-likely-than-not that goodwill might be impaired and whether it is necessary to perform the two-step goodwill impairment test required under current accounting standards. This new guidance is effective for the Company’s fiscal year beginning July 1, 2012, with early adoption permitted. The Company is currently evaluating this guidance, but it is not expected that the adoption will have a material effect on the consolidated financial statements.
EARNINGS (LOSS) PER SHARE — The Company bases its basic earnings (loss) per share upon the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.
Basic and diluted earnings (loss) per share for each of the three years in the period ended June 30, 2012 is as follows:
| | | | Fiscal Year Ended
| |
|---|
(In thousands, except for per share data)
| | | | June 30,
2012
| | July 2,
2011
| | July 3,
2010
|
|---|
| Net income (loss) attributable to Pericom shareholders | | | | $ | (2,068 | ) | | $ | 13,463 | | | $ | 10,794 | |
Computation of common shares outstanding — basic earnings (loss) per share:
| | | | | | | | | | | | | | |
| Weighted average shares of common stock | | | | | 24,094 | | | | 24,923 | | | | 25,412 | |
| Basic earnings (loss) per share attributable to Pericom shareholders | | | | $ | (0.09 | ) | | $ | 0.54 | | | $ | 0.42 | |
Computation of common shares outstanding — diluted earnings (loss) per share:
| | | | | | | | | | | | | | |
| Weighted average shares of common stock | | | | | 24,094 | | | | 24,923 | | | | 25,412 | |
| Dilutive shares using the treasury stock method | | | | | — | | | | 331 | | | | 305 | |
| Shares used in computing diluted earnings (loss) per share | | | | | 24,094 | | | | 25,254 | | | | 25,717 | |
| Diluted earnings (loss) per share attributable to Pericom shareholders | | | | $ | (0.09 | ) | | $ | 0.53 | | | $ | 0.42 | |
As the Company incurred a loss for the year ended June 30, 2012, diluted loss per share is the same as basic loss per share since the addition of any contingently issuable share would be anti-dilutive. Options to purchase 2.5 million shares of common stock, and restricted stock units of 504,000 shares were outstanding during the year ended June 30, 2012 and were excluded from the computation of diluted net earnings per share because such options and units were anti-dilutive. Options to purchase 2.4 million shares of common stock, and restricted stock units of 43,000 shares were outstanding during the year ended July 2, 2011 and were excluded from the computation of diluted net earnings per share because such options and units were anti-dilutive. Options to purchase 2.8 million shares of common stock, and restricted stock units of 76,000 shares were outstanding during the year ended July 3, 2010 and were excluded from the computation of diluted net earnings per share because such options and units were anti-dilutive.
65
PERICOM SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. OTHER RECEIVABLES
Other receivables consist of:
| | | | As of the year ended
| |
|---|
(in thousands)
| | | | June 30,
2012
| | July 2,
2011
|
|---|
| Interest receivable | | | | $ | 832 | | | $ | 597 | |
| VAT and other tax receivables | | | | | 1,928 | | | | 3,226 | |
| Government subsidy receivable | | | | | 823 | | | | 1,546 | |
| Other accounts receivable | | | | | 91 | | | | 490 | |
| | | | | $ | 3,674 | | | $ | 5,859 | |
| | | | As of the year ended
| |
|---|
(in thousands)
| | | | June 30,
2012
| | July 2,
2011
|
|---|
| Finished goods | | | | $ | 5,252 | | | $ | 5,905 | |
| Work-in-process | | | | | 3,981 | | | | 4,701 | |
| Raw materials | | | | | 7,371 | | | | 11,336 | |
| | | | | $ | 16,604 | | | $ | 21,942 | |
As of June 30, 2012, the Company had reserved for $3.8 million of inventory as compared to $4.2 million at July 2, 2011.
4. PROPERTY, PLANT AND EQUIPMENT — NET
| | | | As of the year ended
| |
|---|
(in thousands)
| | | | June 30,
2012
| | July 2,
2011
|
|---|
| Machinery and equipment | | | | $ | 53,649 | | | $ | 50,268 | |
| Buildings | | | | | 30,104 | | | | 23,200 | |
| Computer equipment and software | | | | | 15,303 | | | | 15,389 | |
| Land | | | | | 3,666 | | | | 3,805 | |
| Furniture and fixtures | | | | | 1,441 | | | | 1,361 | |
| Leasehold improvements | | | | | 1,277 | | | | 1,174 | |
| Vehicles | | | | | 153 | | | | 152 | |
| Total | | | | | 105,593 | | | | 95,349 | |
| Accumulated depreciation and amortization | | | | | (51,164 | ) | | | (44,662 | ) |
| Construction-in-progress | | | | | 1,673 | | | | 10,172 | |
| Property, plant and equipment — net | | | | $ | 56,102 | | | $ | 60,859 | |
Depreciation expense for the years ended June 30, 2012, July 2, 2011 and July 3, 2010 was $8.0 million, $7.7 million and $6.7 million, respectively.
| | | | As of the year ended
| |
|---|
(in thousands)
| | | | June 30,
2012
| | July 2,
2011
|
|---|
| Land use rights | | | | $ | 6,890 | | | $ | 6,938 | |
| Investments in privately held companies | | | | | 1,303 | | | | 1,354 | |
| Deposits | | | | | 263 | | | | 239 | |
| Other | | | | | 602 | | | | 1,350 | |
| Total | | | | $ | 9,058 | | | $ | 9,881 | |
66
PERICOM SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. OTHER ASSETS (Continued)
The Company purchased land use rights from the People’s Republic of China (PRC) in 2008 for the construction of its Jinan facility and its operation for a period of 50 years. In addition, the PTI acquisition in 2011 included land use rights for PTI’s properties in Shanghai.
The Company has investments in certain privately held companies which it accounts for under the cost method. The Company reviews these investments for impairment on a periodic basis. No impairment charges relating to investments in privately held companies were recorded during fiscal 2012, 2011 or 2010. For the year ended June 30, 2012, the Company wrote off $856,000 of promissory notes receivable due from two privately held technology companies which was recorded as a charge to general and administrative expense.
6. BUSINESS COMBINATION
Acquisition of PTI
On August 31, 2010, the Company completed the acquisition and obtained control of PTI for cash consideration of $30.2 million. An additional approximately $6 million in earn-out consideration and bonus payments were also paid by the Company in fiscal 2012 for achievement of gross profit milestones for fiscal year 2011.
Fair Value of Consideration Transferred (in thousands):
| Cash consideration | | | | $ | 30,236 | |
| Acquisition date fair value of contingent earn-out consideration | | | | | 4,087 | |
| Acquisition date fair value of previously held interest in PTI | | | | | 23,672 | |
| Total | | | | $ | 57,995 | |
Immediately prior to the acquisition, remeasurement of our interest in PTI led to a gain of $11.0 million, which amount was recorded in interest and other income, net in the fiscal 2011 consolidated statement of operations. This fair value measurement was based on the per share consideration paid in the transaction, including the fair value of the earn-out, applied to the number of shares held by the Company immediately prior to closing.
In accordance with ASC 805, a liability was recognized for the estimated acquisition date fair value of $4.1 million for the contingent consideration based on the probability of the achievement of PTI’s gross profit target. Actual achievement of PTI’s gross profit target exceeded 100% of the threshold, and the PTI stockholders earned the maximum consideration of $4.8 million. The payout of this amount was completed in the third quarter of fiscal year 2012.
Allocation of Consideration Transferred
The acquisition was accounted for as a business combination under ASC 805. The purchase price of $58.0 million was allocated to the net tangible and intangible assets acquired and liabilities assumed based on their fair values as of the date of the completion of the acquisition as follows (in thousands):
| Net tangible assets | | | | $ | 26,665 | |
Amortizable intangible assets:
| | | | | | |
| Existing and core technology | | | | | 7,165 | |
| Customer relationships | | | | | 5,368 | |
| Backlog | | | | | 365 | |
Indefinite-lived intangible asset:
| | | | | | |
| In-process research and development | | | | | 3,223 | |
| Goodwill | | | | | 15,209 | |
| Total | | | | $ | 57,995 | |
67
PERICOM SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. BUSINESS COMBINATION (Continued)
As of the date of acquisition, inventories are required to be measured at fair value. The fair value of inventory of $3.4 million was based on assumptions applied to the PTI acquired inventory balance. For finished goods and work-in-progress inventory, the Company assumed that estimated selling prices would yield gross margins consistent with actual margins earned by PTI during the second half of fiscal year 2010. The Company assumed that selling cost as a percentage of revenue would be consistent with actual rates experienced by PTI during the second half of fiscal year 2010.
The fair value of the acquired land and buildings in Shanghai, China was estimated based on the recent real estate transactions of comparable properties in the same geographic area. The acquired land and buildings are being depreciated over estimated useful lives of 15 to 48 years.
Existing and core technology consisted of products which have reached technological feasibility and relate to the PTI products. The value of the developed technology was determined by discounting estimated net future cash flows of these products. The Company is amortizing the existing and core technology on a straight-line basis over an estimated life of 6 years.
Customer relationships relate to the Company’s ability to sell existing and future versions of products to existing PTI customers. The fair value of the customer relationships was determined by discounting estimated net future cash flows from the customer contracts. The Company is amortizing customer relationships on a straight-line basis over an estimated life of 6 years.
The backlog fair value relates to the estimated selling cost to generate backlog at August 31, 2010. The fair value of backlog at closing was amortized over an estimated life of 3 months and is fully amortized.
In-process research and development (“IPRD”) consisted of the in-process projects to complete development of certain PTI products. The value assigned to IPRD was determined by considering the importance of products under development to the overall development plan, estimating costs to develop the purchased IPRD into commercially viable products, estimating the resulting net cash flows from the projects when completed and discounting the net cash flows to their present value. This methodology is referred to as the income approach, which discounts expected future cash flows to present value. The discount rate used in the present value calculations was derived from a weighted-average cost of capital analysis, adjusted to reflect additional risks related to the product’s development and success as well as the product’s stage of completion. Acquired IPRD assets were initially recognized at fair value and were classified as indefinite-lived assets until the successful completion or abandonment of the associated research and development efforts. Accordingly, during the development period after the acquisition date, the assets were not amortized as charges to earnings. Development of the PTI IPRD products was completed in the third quarter of fiscal year 2012. At this point the acquired IPRD projects were considered a finite-lived intangible asset and amortization commenced over an expected life of 6 years.
The deferred tax liability of $3.0 million associated with the estimated fair value adjustments of assets acquired and liabilities assumed was recorded using the estimated statutory tax rate in the jurisdictions where the fair value adjustments occurred.
Of the total estimated purchase price paid at the time of acquisition, approximately $15.5 million was allocated to goodwill. Subsequently, goodwill was reduced by approximately $335,000 as a result of working capital adjustments and indemnification claims. Goodwill represents the excess of the purchase price of an acquired business over the fair value of the underlying net tangible and intangible assets and is not deductible for tax purposes. Among the factors that contributed to a purchase price in excess of the fair value of the net tangible and intangible assets was the acquisition of an assembled workforce of experienced semiconductor engineers, synergies in products, technologies, skill sets, operations, customer base and organizational cultures that can be leveraged to enable the Company to build an enterprise greater than the sum of its parts. In accordance with ASC 350,Intangibles — Goodwill and Other, goodwill will not be amortized but instead will be tested for impairment at least annually and more frequently if certain indicators of impairment are present. In the event that management determines that
68
PERICOM SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. BUSINESS COMBINATION (Continued)
the value of goodwill has become impaired, the Company will record an expense for the amount impaired during the fiscal quarter in which the determination is made.
The amount of PTI net revenues included in the Company’s consolidated statement of operations for the fiscal year ended June 30, 2012 was $13.3 million, and from the PTI acquisition date of August 31, 2010 to July 2, 2011, was approximately $16.6 million.
Pro Forma Data for the PTI Acquisition
The following table presents the unaudited pro forma results of the Company as though the PTI acquisition described above occurred at the beginning of the fiscal year ended July 3, 2010. The data below includes the historical results of the Company and PTI on a standalone basis through the closing date of acquisition, with adjustments as noted in the supplemental information. The pro forma results presented do not purport to be indicative of the results that would have been achieved had the acquisition been made as of that date nor of the results which may occur in the future.
| | | | Year Ended
| | Year Ended
|
|---|
(unaudited)
| | | | July 2, | | July 3, |
|---|
(in thousands except per share)
| | | | 2011
| | 2010
|
|---|
| Revenue | | | | $ | 170,509 | | | $ | 163,643 | |
| Net income | | | | | 9,568 | | | | 17,091 | |
| Net income per share — basic | | | | | 0.38 | | | | 0.67 | |
| Net income per share — diluted | | | | | 0.38 | | | | 0.66 | |
| |
Supplemental Information on Pro Forma Adjustments
| | | | | | | | | | |
| |
Pro forma adjustment to revenue
| | | | | | | | | | |
| Eliminate intercompany sales | | | | $ | (383 | ) | | $ | (1,139 | ) |
| Total revenue adjustment | | | | $ | (383 | ) | | $ | (1,139 | ) |
| |
Pro forma adjustments to net income
| | | | | | | | | | |
| Depreciation and amortization | | | | $ | 511 | | | $ | (2,737 | ) |
| Earnout and compensation expense accruals | | | | | 1,614 | | | | (1,613 | ) |
| Eliminate the Company’s share of PTI income | | | | | (468 | ) | | | (2,071 | ) |
| Acquisition related costs | | | | | 761 | | | | (761 | ) |
| Gain on previously held interest in PTI | | | | | (7,263 | ) | | | 8,938 | |
| Other | | | | | (155 | ) | | | (313 | ) |
| Total net income adjustments | | | | $ | (5,000 | ) | | $ | 1,443 | |
7. INVESTMENTS IN UNCONSOLIDATED AFFILIATES
Our investment in unconsolidated affiliates is comprised of the following:
| | | | As of the year ended
| |
|---|
(in thousands)
| | | | June 30,
2012
| | July 2,
2011
|
|---|
| Jiyuan Crystal Photoelectric Frequency Technology Ltd. | | | | $ | 2,474 | | | $ | 2,596 | |
69
PERICOM SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. INVESTMENTS IN UNCONSOLIDATED AFFILIATES (Continued)
Prior to completing the PTI acquisition on August 31, 2010, the Company had a 42.04% ownership interest in PTI. Pericom accounted for its investment in PTI prior to the acquisition using the equity method due to the Company’s significant influence over its operations. PTI was incorporated in 1994, and in 1995 established a design center and sales office to pursue opportunities and participate in joint ventures in China. Prior to the acquisition, the Company purchased $383,000 and $1.1 million in goods and services from PTI during the years ended July 2, 2011 and July 3, 2010, respectively. PTI owed the Company $65,000 at July 3, 2010 for reimbursement of certain administrative expenses incurred by the Company on behalf of PTI and for advances made to PTI by the Company. Condensed financial information of PTI at July 3, 2010 is as follows:
| | | | (Unaudited)
As of and for
the year
ended
|
|---|
(in thousands)
| | | | July 3,
2010
|
|---|
| Total assets | | | | $ | 26,875 | |
| Total liabilities | | | | $ | 2,546 | |
| Total equity | | | | $ | 24,329 | |
| |
| Revenue | | | | $ | 17,869 | |
| Cost of revenues | | | | | 8,798 | |
| Gross profit | | | | | 9,071 | |
| |
| Operating expenses | | | | | 4,427 | |
| Income from operations | | | | | 4,644 | |
| Interest and other income | | | | | 440 | |
| Income tax expense | | | | | 230 | |
| Net income | | | | $ | 4,854 | |
The percentage at which the Company recognized its proportionate share of the income of PTI was equal to the percentage of ownership held in successive rounds of financing of PTI in which the Company participated.
PSE-TW has a 49% equity interest in Jiyuan Crystal Photoelectric Frequency Technology Ltd. (“JCP”), an FCP manufacturing company located in Science Park of Jiyuan City, Henan Province, China. JCP is a key manufacturing partner of PSE-TW.
The Company holds or has held ownership interests in various other privately held companies. The ownership in these affiliates varied from 20% to approximately 49%. For those companies in which the ownership interest is more than 20% and in which the Company has the ability to exercise significant influence on the affiliate’s operations, the investment is valued using the equity method of accounting. As of June 30, 2012, the amount of consolidated retained earnings of the Company represented by undistributed earnings of 50% or less entities accounted for by the equity method was approximately $3.6 million.
70
PERICOM SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. ACQUISITION OF NONCONTROLLING INTEREST IN SUBSIDIARIES
Acquisition of remaining minority interest in PSE-TW
Prior to fiscal 2010, Pericom owned approximately 97.3% of PSE-TW with the remaining interest owned by other parties. In fiscal 2010, the Company purchased the remaining 2.71% of the outstanding shares of PSE-TW for approximately $1.2 million. As Pericom retained its controlling interest in PSE-TW, this was treated as an equity transaction in accordance with the provisions of ASC 810,Consolidation.
9. GOODWILL AND INTANGIBLE ASSETS
The following table summarizes the activity related to the carrying value of our goodwill during the years ended June 30, 2012 and July 2, 2011:
| | | | As of
| |
|---|
(in thousands)
| | | | June 30,
2012
| | July 2,
2011
|
|---|
Goodwill
| | | | | | | | | | |
| Beginning balance | | | | $ | 16,669 | | | $ | 1,681 | |
| Acquisition of PTI, net | | | | | — | | | | 14,218 | |
| Other adjustments | | | | | (239 | ) | | | (96 | ) |
| Cumulative translation adjustments | | | | | 367 | | | | 866 | |
| Ending balance | | | | $ | 16,797 | | | $ | 16,669 | |
The Company’s acquired intangible assets associated with completed acquisitions for each of the following fiscal years are composed of:
| | | | As of the year ended
| |
|---|
| | | | June 30, 2012
| | July 2, 2011
| |
|---|
(in thousands)
| | | | Gross
| | Accumulated
Amortization
| | Net
| | Gross
| | Accumulated
Amortization
| | Net
|
|---|
| Customer relationships | | | | $ | 5,906 | | | $ | (1,888 | ) | | $ | 4,018 | | | $ | 5,777 | | | $ | (909 | ) | | $ | 4,868 | |
| eCERA trade name | | | | | 44 | | | | (43 | ) | | | 1 | | | | 45 | | | | (38 | ) | | | 7 | |
| Core developed technology | | | | | 13,110 | | | | (4,698 | ) | | | 8,412 | | | | 12,040 | | | | (2,648 | ) | | | 9,392 | |
| SaRonix supplier relationship | | | | | — | | | | — | | | | — | | | | 398 | | | | (273 | ) | | | 125 | |
| Total amortizable purchased intangible assets | | | | | 19,060 | | | | (6,629 | ) | | | 12,431 | | | | 18,260 | | | | (3,868 | ) | | | 14,392 | |
| IPRD | | | | | — | | | | — | | | | — | | | | 883 | | | | — | | | | 883 | |
| SaRonix trade name | | | | | 400 | | | | — | | | | 400 | | | | 415 | | | | — | | | | 415 | |
| Total purchased intangible assets | | | | $ | 19,460 | | | $ | (6,629 | ) | | $ | 12,831 | | | $ | 19,558 | | | $ | (3,868 | ) | | $ | 15,690 | |
Amortization expense related to finite-lived purchased intangible assets was approximately $3.1 million in fiscal 2012, $2.8 million in fiscal 2011 and $331,000 in fiscal 2010. Amortization of intangible assets in fiscal 2012 included accelerated amortization related to a supplier relationship of approximately $125,000 and subsequent write-off.
The Company performs an annual impairment review of its long-lived assets, including its intangible assets. Based on the results of its most recent annual impairment tests, the Company determined that no impairment of the intangible assets existed as of June 30, 2012 or July 2, 2011. However, future impairment tests could result in a charge to earnings.
71
PERICOM SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. GOODWILL AND INTANGIBLE ASSETS (Continued)
The finite-lived purchased intangible assets consist of supplier relationships, trade name, and core developed technology, which have remaining weighted average useful lives of approximately two years. We expect our future amortization expense over the next five years associated with these assets to be:
| | | | Fiscal Years Ending
| |
|---|
(in thousands)
| | | | 2013
| | 2014
| | 2015
| | 2016
| | 2017 and
beyond
| | Total
|
|---|
Expected Amortization
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Customer relationships | | | | $ | 965 | | | $ | 965 | | | $ | 965 | | | $ | 965 | | | $ | 158 | | | $ | 4,018 | |
| eCERA trade name | | | | | 1 | | | | — | | | | — | | | | — | | | | — | | | | 1 | |
| Core developed technology | | | | | 2,120 | | | | 1,945 | | | | 1,866 | | | | 1,866 | | | | 615 | | | | 8,412 | |
| | | | | $ | 3,086 | | | $ | 2,910 | | | $ | 2,831 | | | $ | 2,831 | | | $ | 773 | | | $ | 12,431 | |
10. ACCRUED LIABILITIES
Accrued liabilities consist of:
| | | | As of the year ended
| |
|---|
(in thousands)
| | | | June 30,
2012
| | July 2,
2011
|
|---|
| Accrued compensation | | | | $ | 5,886 | | | $ | 6,979 | |
| Acquisition-related liabilities | | | | | — | | | | 3,541 | |
| Contingent earn-out liability | | | | | — | | | | 4,774 | |
| Accrued construction liabilities | | | | | 845 | | | | 2,316 | |
| Income taxes payable | | | | | 2 | | | | 249 | |
| Sales commissions | | | | | 497 | | | | 545 | |
| Other accrued expenses | | | | | 1,378 | | | | 1,241 | |
| | | | | $ | 8,608 | | | $ | 19,645 | |
11. DEBT
As of June 30, 2012, the Company’s subsidiary PSE-TW has made short-term borrowings under its credit facilities totaling approximately $1.4 million. The loans are denominated in U.S. Dollars and Japanese Yen and carry variable rates of interest currently at 1.3% per annum. The loans have maturities ranging from 28 to 84 days.
12. RESTRICTED ASSETS
As of June 30, 2012, the Company had pledged and restricted assets of $4.3 million consisting of land and buildings PSE-TW has pledged for loan and credit facilities. The PSE-TW loan and credit facility is for equipment purchases or inventory financing and $1.4 million was outstanding under this facility as of June 30, 2012.
As of July 2, 2011, the Company had pledged and restricted assets of $7.4 million. These consist of $4.5 million in land and buildings PSE-TW has pledged for loan and credit facilities and $2.9 million of restricted cash at PAL. The PSE-TW loan and credit facility is for equipment purchases or inventory financing and $5.0 million was outstanding under this facility as of July 2, 2011. The PAL restricted cash was in an escrow account for contingent remaining liabilities related to the PTI acquisition.
72
PERICOM SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. COMMITMENTS AND CONTINGENCIES
The future minimum commitments at June 30, 2012 are as follows:
| | | | Fiscal Year
| |
|---|
(in thousands)
| | | | 2013
| | 2014
| | 2015
| | 2016 and
beyond
| | Total
|
|---|
| Short-term debt | | | | $ | 1,364 | | | $ | — | | | $ | — | | | $ | — | | | $ | 1,364 | |
| Operating lease payments | | | | | 1,546 | | | | 824 | | | | 196 | | | | 8 | | | | 2,574 | |
| Capital equipment purchase commitments | | | | | 969 | | | | — | | | | — | | | | — | | | | 969 | |
| Yangzhou capital injection | | | | | 7,000 | | | | 8,000 | | | | — | | | | — | | | | 15,000 | |
| Total | | | | $ | 10,879 | | | $ | 8,824 | | | $ | 196 | | | $ | 8 | | | $ | 19,907 | |
The operating lease commitments are primarily the lease on the Company’s corporate headquarters, which expires in 2013.
We have no purchase obligations other than routine purchase orders and the capital equipment purchase commitments shown in the table as of June 30, 2012. However, on July 6, 2012, we entered into an agreement to purchase a building to serve as our new corporate headquarters in Milpitas, California. The purchase, for $7.6 million, closed on August 9, 2012.
On December 1, 2009, the Company entered into an R&D Center Investment Agreement (the “R&D Agreement”) with the Administrative Committee of the Yangzhou Economic and Technology Development Zone (the “Committee”) in China. Under the terms of the agreement, the Committee is to provide a funding, along with national and local tax incentives and other incentives. The funding would be paid in installments based on scheduled progress of the R&D Center’s development and our injection of paid-in capital. The Company made a $6 million capital injection in 2011 and applied for the initial agreed-upon subsidies of approximately $3.9 million. To date the Company has received only $773,000 which is recorded as a deferred credit under “Other long-term liabilities” on the consolidated balance sheets. The Company is currently negotiating with the Yangzhou government to terminate the R&D Agreement. If the termination is successful, the additional capital injections in the above table would not be made, although there may be additional terms or conditions involved in any settlement agreement.
Rent expense during the fiscal years ended June 30, 2012, July 2, 2011 and July 3, 2010 was $1.9 million, $1.9 million and $1.7 million, respectively.
14. INDUSTRIAL DEVELOPMENT SUBSIDY
As of June 30, 2012, industrial development subsidies in the amount of $12.5 million have been earned and applied for by PSE-SD from the Jinan Hi-Tech Industries Development Zone Commission based on meeting certain pre-defined criteria. The subsidies may be used for the acquisition of assets or to cover business expenses. When a subsidy is used to acquire assets, the subsidy will be amortized over the useful life of the asset. When a subsidy is used for expenses incurred, the subsidy is regarded as earned upon the incurrence of the expenditure. The remaining balance of the subsidies at June 30, 2012 was $8.6 million, which amount is expected to be recognized over the next three to twenty years.
We recognized $1.3 million and $1.3 million of industrial development subsidy as a reduction of cost of goods sold and $180,000 and $239,000 of industrial development subsidy as a reduction of operating expenses in the consolidated statement of operations for the years ended June 30, 2012 and July 2, 2011, respectively.
73
PERICOM SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. EQUITY AND COMPREHENSIVE INCOME
Effective with the beginning of fiscal 2010, the Company adopted the FASB’s new guidance regarding the accounting for noncontrolling interests. The new rules require the recognition of a noncontrolling interest as equity in the consolidated financial statements and separate from the parent’s equity. The amount of net income attributable to the noncontrolling interest is shown on the face of the consolidated statements of operations.
The Company’s subsidiary PSE-TW had noncontrolling interests for the first four months of fiscal 2010. Parties other than the Company owned approximately 2.71% of the outstanding shares of PSE-TW, and these shares were acquired by the Company in November 2009 for approximately $1.2 million.
Comprehensive income (loss) consists of net income (loss), changes in net unrealized gains (losses) on available-for-sale investments and changes in cumulative currency translation adjustments at consolidated subsidiaries.
As of June 30, 2012, accumulated other comprehensive income consists of $194,000 of unrealized gains net of tax and $9.4 million of accumulated currency translation gains.
16. SHAREHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION
PREFERRED STOCK
The Company’s shareholders have authorized the Board of Directors to issue 5,000,000 shares of preferred stock from time to time in one or more series and to fix the rights, privileges and restrictions of each series. As of June 30, 2012, the Company has issued no shares of preferred stock.
STOCK OPTION PLANS
At June 30, 2012 the Company had four stock option plans and one employee stock purchase plan, including the 1995 Stock Option Plan, 2001 Stock Option Plan, SaRonix Acquisition Stock Option Plan, 2004 Stock Incentive Plan and the 2010 Employee Stock Purchase Plan (“ESPP”). The Company’s aggregate compensation cost due to option and restricted stock unit grants and the ESPP for the twelve months ended June 30, 2012 totaled $3.7 million, as compared with $4.3 million and $4.0 million for fiscal 2011 and 2010, respectively. The Company recognized $1.2 million, $1.4 million, and $1.2 million in income tax benefit in the consolidated statements of operations for fiscal 2012, 2011 and 2010, respectively, related to the Company’s share-based compensation arrangements. The net impact of share-based compensation for the fiscal years ended June 30, 2012, July 2, 2011 and July 3, 2010 was a reduction in net income of $2.5 million, $2.9 million and $2.9 million, respectively, or a reduction of $0.10, $0.11 and $0.11 per diluted share, respectively.
Under the Company’s 2004, 2001, and 1995 stock option plans and the SaRonix Acquisition Stock Option plan, the Company has reserved 5.4 million shares of common stock as of June 30, 2012 for issuance to employees, officers, directors, independent contractors and consultants of the Company in the form of incentive and nonqualified stock options and restricted stock units.
The Company may grant options at the fair value on grant date for incentive stock options and nonqualified stock options. Options vest over periods of generally 48 months as determined by the Board of Directors. Options granted under the Plans expire 10 years from the grant date.
The Company estimates the fair value of each employee option on the date of grant using the Black-Scholes option valuation model and expenses that value as compensation using a straight-line method over the option’s vesting period, which corresponds to the requisite employee service period. The Company estimates expected stock price volatility based on actual historical volatility for periods that the Company believes represent predictors of future volatility. The Company uses historical data to estimate option exercises, expected option holding periods and option forfeitures. The Company bases the risk-free interest rate on the U.S. Treasury note yield for periods equal to the expected term of the option.
74
PERICOM SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. SHAREHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION (Continued)
The following table lists the assumptions the Company used to value stock options:
| | | | Fiscal Year Ended
| |
|---|
| | | | June 30, 2012
| | July 2, 2011
| | July 3, 2010
|
|---|
| Expected life | | | | 5.5 years | | 5.5 years | | 5.4–5.5 years |
| Risk-free interest rate | | | | 2.46% | | 2.46% | | 2.45–2.60% |
| Volatility range | | | | 54% | | 53–54% | | 53%–54% |
| Dividend yield | | | | 0.00% | | 0.00% | | 0.00% |
The following table summarizes the Company’s stock option plans as of June 27, 2009 and changes during the three fiscal periods ended June 30, 2012:
| | | | Outstanding Options
| |
|---|
Options
| | | | Shares
| | Weighted
Average
Exercise Price
| | Aggregate
Intrinsic Value
|
|---|
| | | | (in thousands) | | | | (in thousands) |
|---|
| Options outstanding at June 27, 2009 | | | | | 3,755 | | | | 14.00 | | | $ | 427 | |
| Options granted (weighted average grant date fair value of $5.11) | | | | | 470 | | | | 10.24 | | | | | |
| Options exercised | | | | | (105 | ) | | | 8.72 | | | | | |
| Options forfeited or expired | | | | | (643 | ) | | | 23.71 | | | | | |
| Options outstanding at July 3, 2010 | | | | | 3,477 | | | $ | 11.85 | | | $ | 872 | |
| Options granted (weighted average grant date fair value of $4.51) | | | | | 183 | | | | 8.87 | | | | | |
| Options exercised | | | | | (67 | ) | | | 8.33 | | | | | |
| Options forfeited or expired | | | | | (619 | ) | | | 15.97 | | | | | |
| Options outstanding at July 2, 2011 | | | | | 2,974 | | | $ | 10.89 | | | $ | 645 | |
| Options granted (weighted average grant date fair value of $3.89) | | | | | 142 | | | | 7.65 | | | | | |
| Options exercised | | | | | (21 | ) | | | 7.77 | | | | | |
| Options forfeited or expired | | | | | (642 | ) | | | 12.37 | | | | | |
| Options outstanding at June 30, 2012 | | | | | 2,453 | | | $ | 10.34 | | | $ | 912 | |
At June 30, 2012, 2,066,000 shares were available for future grants under the option plans. The aggregate intrinsic value of options exercised during the year ended June 30, 2012 was $8,000. The status of options vested and expected to vest and options that are currently exercisable as of June 30, 2012 is as follows:
| | | | Options
Vested and
Expected
to Vest
| | Options
Currently
Exercisable
|
|---|
| Shares (millions) | | | | | 2.4 | | | | 2.1 | |
| Aggregate intrinsic value (thousand $) | | | | $ | 888 | | | $ | 683 | |
| Weighted average contractual term (years) | | | | | 5.1 | | | | 4.5 | |
| Weighted average exercise price | | | | $ | 10.36 | | | $ | 10.59 | |
The Company has unamortized share-based compensation expense related to options of $1.4 million, which will be amortized to expense over a weighted average period of 2.1 years.
75
PERICOM SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. SHAREHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION (Continued)
Additional information regarding options outstanding as of June 30, 2012 is as follows:
| | | | Options Outstanding
| | Options Exercisable
| |
|---|
Range of Exercise Prices
| | | | Number
Outstanding
as of June 30,
2012
| | Weighted
Average
Remaining
Contractual
Term (Years)
| | Weighted
Average
Exercise
Price
| | Number
Exercisable as
of June 30,
2012
| | Weighted
Average
Exercise
Price
|
|---|
| $ 4.89 $ 8.03 | | | | | 501,969 | | | | 5.48 | | | $ | 7.72 | | | | 364,151 | | | $ | 7.76 | |
| 8.10 8.70 | | | | | 497,840 | | | | 4.18 | | | | 8.48 | | | | 415,323 | | | | 8.46 | |
| 8.71 10.01 | | | | | 534,488 | | | | 5.87 | | | | 9.70 | | | | 406,579 | | | | 9.64 | |
| 10.15 12.16 | | | | | 494,359 | | | | 4.41 | | | | 10.91 | | | | 461,888 | | | | 10.88 | |
| 13.33 18.10 | | | | | 424,512 | | | | 5.65 | | | | 15.77 | | | | 417,256 | | | | 15.78 | |
| $ 4.89 $18.10 | | | | | 2,453,168 | | | | 5.12 | | | $ | 10.34 | | | | 2,065,197 | | | $ | 10.59 | |
Restricted Stock Units
Restricted stock units (“RSUs”) are converted into shares of the Company’s common stock upon vesting on a one-for-one basis. Typically, vesting of RSUs is subject to the employee’s continuing service to the Company. RSUs generally vest over a period of 4 years and are expensed ratably on a straight-line basis over their respective vesting period net of estimated forfeitures. The fair value of RSUs granted pursuant to the Company’s 2004 Stock Incentive Plan is the product of the number of shares granted and the grant date fair value of our common stock. The following table summarizes the RSUs as of June 27, 2009 and changes during the three fiscal periods ended June 30, 2012:
| | | | Shares
| | Weighted
Average Grant
Date Fair
Value
| | Weighted
Average
Remaining
Vesting Term
| | Aggregate
Intrinsic Value
|
|---|
| | | | (in thousands) | | | | (years) | | (in thousands) |
|---|
| RSUs outstanding at June 27, 2009 | | | | | 349 | | | $ | 10.18 | | | | 2.08 | | | $ | 2,980 | |
| Awarded | | | | | 303 | | | | 10.52 | | | | | | | | | |
| Released | | | | | (39 | ) | | | 12.76 | | | | | | | | | |
| Forfeited | | | | | (22 | ) | | | 10.41 | | | | | | | | | |
| RSUs outstanding at July 3, 2010 | | | | | 591 | | | $ | 10.18 | | | | 1.66 | | | $ | 5,403 | |
| Awarded | | | | | 249 | | | | 8.70 | | | | | | | | | |
| Released | | | | | (208 | ) | | | 9.77 | | | | | | | | | |
| Forfeited | | | | | (40 | ) | | | 9.92 | | | | | | | | | |
| RSUs outstanding at July 2, 2011 | | | | | 592 | | | $ | 9.73 | | | | 1.60 | | | $ | 5,253 | |
| Awarded | | | | | 156 | | | | 7.78 | | | | | | | | | |
| Released | | | | | (203 | ) | | | 9.91 | | | | | | | | | |
| Forfeited | | | | | (41 | ) | | | 9.73 | | | | | | | | | |
| RSUs outstanding at June 30, 2012 | | | | | 504 | | | $ | 9.06 | | | | 1.42 | | | $ | 4,535 | |
| RSUs vested and expected to vest after June 30, 2012 | | | | | 449 | | | $ | 9.11 | | | | 1.34 | | | $ | 4,043 | |
The Company has unamortized share-based compensation expense related to RSUs of $3.0 million, which will be amortized to expense over a weighted average period of 2.1 years.
76
PERICOM SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. SHAREHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION (Continued)
2010 EMPLOYEE STOCK PURCHASE PLAN
The Company’s 2010 Employee Stock Purchase Plan (the “Stock Purchase Plan”) allows eligible employees of the Company to purchase shares of Common Stock through payroll deductions. The Company reserved 2.0 million shares of the Company’s Common Stock for issuance under the Stock Purchase Plan, of which 1.8 million remain available at June 30, 2012. The Stock Purchase Plan permits eligible employees to purchase Common Stock at a discount through payroll deductions during six-month purchase periods. The six-month periods come to an end on or about May 1 and November 1 and the purchases are then made. Participants in the Stock Purchase Plan may purchase stock at 85% of the lower of the stock’s fair market value on the first day and last day of the purchase period. The maximum number of shares of Common Stock that any employee may purchase under the Stock Purchase Plan during any offering period is 1,000 shares, and an employee may not accrue more than $10,000 for share purchases in any offering period. During fiscal year 2012, 2011 and 2010, the Company issued 109,000, 157,000 and 200,000 shares of common stock under this plan and the predecessor 2000 Stock Purchase Plan at weighted average prices of $6.96, $6.23 and $5.33, respectively. The weighted average grant date fair value of the fiscal 2012, 2011 and 2010 awards were $2.22, $2.36 and $3.39 per share, respectively.
The Company estimates the fair value of stock purchase rights granted under the Company’s Stock Purchase Plan on the date of grant using the Black-Scholes option valuation model. ASC Topic 718, Stock Based Compensation, states that a “lookback” pricing provision with a share limit should be considered a combination of stock and a call option. The valuation results for these elements have been combined to value the specific features of the stock purchase rights. The Company bases volatility on the expected volatility of the Company’s stock during the accrual period. The expected term is determined by the time from enrollment until purchase. The Company uses historical data to determine expected forfeitures and the U.S. Treasury yield for the risk-free interest rate for the expected term.
The following table lists the values of the assumptions the Company used to value stock compensation in the Stock Purchase Plan:
| | | | Fiscal Year Ended
| |
|---|
| | | | June 30, 2012
| | July 2, 2011
| | July 3, 2010
|
|---|
| Expected life | | | | 6 months | | 3–6 months | | 4.5–13.5 months |
| Risk-free interest rate | | | | 0.10% | | 0.10–0.16% | | 0.17–0.63% |
| Volatility range | | | | 43%–64% | | 39%–58% | | 50%–70% |
| Dividend yield | | | | 0.00% | | 0.00% | | 0.00% |
The following table summarizes activity in the Company’s employee stock purchase plan during the fiscal year ended June 30, 2012:
| | | | Shares
| | Weighted
Average
Purchase
|
|---|
| Beginning Available | | | | | 1,944,707 | | | | | |
| Purchases | | | | | (108,768 | ) | | $ | 6.96 | |
| Ending Available | | | | | 1,835,939 | | | | | |
At June 30, 2012, the Company has $75,000 in unamortized share-based compensation related to its employee stock purchase plan. We estimate this expense will be amortized and recognized in the consolidated statements of operations over the next four months.
77
PERICOM SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. SHAREHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION (Continued)
REPORTING SHARE-BASED COMPENSATION
The following table shows total share-based compensation expense classified by consolidated statement of operations reporting caption generated from the plans mentioned above:
| | | | Fiscal Year Ended
| |
|---|
(in thousands)
| | | | June 30,
2012
| | July 2,
2011
| | July 3,
2010
|
|---|
| Cost of revenues | | | | $ | 211 | | | $ | 250 | | | $ | 286 | |
| Research and development | | | | | 1,434 | | | | 1,536 | | | | 1,506 | |
| Selling, general and administrative | | | | | 2,091 | | | | 2,500 | | | | 2,257 | |
| Pre-tax stock-based compensation expense | | | | | 3,736 | | | | 4,286 | | | | 4,049 | |
| Income tax effect | | | | | 1,229 | | | | 1,409 | | | | 1,159 | |
| Net stock-based compensation expense | | | | $ | 2,507 | | | $ | 2,877 | | | $ | 2,890 | |
The amount of share-based compensation expense in inventory at June 30, 2012, July 2, 2011 and July 3, 2010 is immaterial.
Share-based compensation expense categorized by the type of award from which it arose is as follows for fiscal years ended June 30, 2012, July 2, 2011 and July 3, 2010:
| | | | Fiscal Year Ended
| |
|---|
(in thousands)
| | | | June 30,
2012
| | July 2,
2011
| | July 3,
2010
|
|---|
| Stock option plans | | | | $ | 3,492 | | | $ | 3,972 | | | $ | 3,376 | |
| Less income tax effect | | | | | 1,229 | | | | 1,409 | | | | 1,159 | |
| Net stock option plan expense | | | | | 2,263 | | | | 2,563 | | | | 2,217 | |
| Employee stock purchase plan | | | | | 244 | | | | 314 | | | | 673 | |
| Less income tax effect | | | | | — | | | | — | | | | — | |
| Net employee stock purchase plan expense | | | | | 244 | | | | 314 | | | | 673 | |
| | | | | $ | 2,507 | | | $ | 2,877 | | | $ | 2,890 | |
STOCK REPURCHASE PLAN
On April 26, 2007, the Company’s Board of Directors authorized the repurchase of 2.0 million shares of our common stock, on April 29, 2008, the Board authorized the repurchase of an additional $30 million of common stock and on April 29, 2012, the Board authorized the repurchase of a further $25 million worth of common stock. The Company was authorized to repurchase the shares from time to time in the open market or private transactions, at the discretion of the Company’s management. During the year ended June 30, 2012, the Company repurchased 1,482,572 shares for an aggregate cost of $11.6 million. During the year ended July 2, 2011, the Company repurchased 613,331 shares for an aggregate cost of $5.4 million. During the year ended July 3, 2010, the Company repurchased 907,545 shares for an aggregate cost of $8.7 million.
Current cash balances and the proceeds from stock option exercises and purchases in the stock purchase plan have funded stock repurchases in the past, and the Company expects to fund future stock repurchases from these same sources.
78
PERICOM SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. SHAREHOLDER RIGHTS PLAN
On March 6, 2012, the Company adopted a shareholder rights plan and declared a dividend of one preferred share purchase right for each share of common stock held by shareholders of record as of that date. Each right entitles shareholders, after the rights become exercisable, to purchase one one-thousandth of a share of our Series D Junior Participating Preferred Stock.
The Company designed the rights plan to protect the long-term value of the Company for its shareholders during any future unsolicited acquisition attempt. The Company did not adopt the rights plan in response to any specific attempt to acquire the Company or its shares and the Company is not aware of any current efforts to do so. The rights will become exercisable only upon the occurrence of certain events specified in the plan, including the acquisition of 15% of the Company’s outstanding common stock by a person or group. Should a person or group acquire 15% or more of the outstanding common stock or announce an unsolicited tender offer, the consummation of which would result in a person or group acquiring 15% or more of the outstanding common stock, shareholders other than the acquiring person may exercise the rights, unless the Board of Directors has approved the transaction in advance. Each right entitles the holder, other than an acquiring person, to purchase shares of the Company’s common stock (or, in the event that there are insufficient authorized common stock shares, substitute consideration such as cash, property, or other securities of the Company, such as Preferred Stock) at a 50% discount to the then prevailing market price. Prior to the acquisition by a person or group of 15% or more of the outstanding common stock, the Company may redeem the rights for $0.001 per right at the option of the Board of Directors. The rights will expire on March 6, 2022. As of June 30, 2012, there were 23,565,000 rights outstanding.
18. FAIR VALUE MEASUREMENTS
The Company defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) 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. The fair value hierarchy is based on three levels of inputs that may be used to measure fair value, of which the first two are considered observable and the last is considered unobservable:
| • | | Level 1 — Quoted prices in active markets for identical assets or liabilities. |
| • | | Level 2 — Inputs 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 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
The following table represents our fair value hierarchy for financial assets (cash equivalents and investments) measured at fair value on a recurring basis. Level 1 available-for-sale investments are primarily comprised of investments in U.S. Treasury securities, valued using market prices in active markets. Most of the investments are classified as Level 2. Level 2 pricing is provided by third party sources of market information obtained through the Company’s investment advisors. The Company does not adjust for or apply any additional assumptions or estimates to the pricing information it receives from advisors. The Company’s investment advisors obtain pricing data from independent sources, such as Standard & Poor’s, Bloomberg and Interactive Data Corporation, and rely on comparable pricing of other securities because the Level 2 securities it holds are not actively traded and have fewer observable transactions. The Company considers this the most reliable information available for the valuation of the securities.
The Company’s Level 2 securities include time deposits, government securities, corporate debt securities and mortgage backed and asset backed securities. Government securities include US federal agency securities, foreign
79
PERICOM SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. FAIR VALUE MEASUREMENTS (Continued)
government and agency securities, and US state and municipal bond obligations. Many of the municipal bonds are insured; those that are not are nearly all AAA/Aaa rated. The corporate debt securities are all investment grade and most are single A-rated or better. The asset-backed securities are AAA/Aaa rated and are backed by auto loans, student loans, credit card balances and residential or commercial mortgages.
Assets measured at fair value are summarized as follows:
| | | | As of June 30, 2012
| |
|---|
(in thousands)
| | | | Fair Value
| | Level 1
| | Level 2
| | Level 3
|
|---|
Investments(1)
| | | | | | | | | | | | | | | | | | |
| Commercial paper | | | | $ | 3,500 | | | $ | — | | | $ | 3,500 | | | $ | — | |
| Time deposits | | | | | 11,815 | | | | — | | | | 11,815 | | | | — | |
| US Treasury securities | | | | | 3,634 | | | | 3,634 | | | | — | | | | — | |
| National government and agency securities | | | | | 6,749 | | | | — | | | | 6,749 | | | | — | |
| State and municipal bond obligations | | | | | 1,772 | | | | — | | | | 1,772 | | | | — | |
| Corporate bonds and notes | | | | | 61,638 | | | | — | | | | 61,638 | | | | — | |
| Asset backed securities | | | | | 10,081 | | | | — | | | | 10,081 | | | | — | |
| Mortgage backed securities | | | | | 9,334 | | | | — | | | | 9,334 | | | | — | |
| Total | | | | $ | 108,523 | | | $ | 3,634 | | | $ | 104,889 | | | $ | — | |
| | | | As of July 2, 2011
| |
|---|
(in thousands)
| | | | Fair Value
| | Level 1
| | Level 2
| | Level 3
|
|---|
Investments(1) | | | | | | | | | | | | | | | | | | |
| Time deposits | | | | $ | 10,740 | | | $ | — | | | $ | 10,740 | | | $ | — | |
| US Treasury securities | | | | | 602 | | | | 602 | | | | — | | | | — | |
| National government and agency securities | | | | | 9,186 | | | | — | | | | 9,186 | | | | — | |
| State and municipal bond obligations | | | | | 1,258 | | | | — | | | | 1,258 | | | | — | |
| Corporate bonds and notes | | | | | 53,699 | | | | — | | | | 53,699 | | | | — | |
| Asset backed securities | | | | | 11,338 | | | | — | | | | 11,338 | | | | — | |
| Mortgage backed securities | | | | | 10,725 | | | | — | | | | 10,725 | | | | — | |
| Total | | | | $ | 97,548 | | | $ | 602 | | | $ | 96,946 | | | $ | — | |
| (1) | | At June 30, 2012, the commercial paper and $1,471 of the time deposits are included in cash and cash equivalents; the balance of the investments at June 30, 2012 and July 2, 2011 are included in short-term and long-term investments in marketable securities on the consolidated balance sheet. |
The Company had no transfers in between Level 1 and Level 2 during the years ended June 30, 2012 and July 2, 2011.
When assessing marketable securities for other-than-temporary declines in value, a number of factors are considered. Analyses of the severity and duration of price declines, remaining years to maturity, portfolio manager reports, economic forecasts, and the specific circumstances of issuers indicate that it is reasonable to expect marketable securities with unrealized losses at June 30, 2012 to recover in fair value up to the Company’s cost bases within a reasonable period of time. The Company does not intend to sell investments with unrealized losses before maturity, when the obligors are required to redeem them at full face value or par. The Company believes the obligors have the financial resources to redeem the debt securities. Accordingly, the Company does not consider the investments to be other-than-temporarily impaired at June 30, 2012.
80
PERICOM SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. FAIR VALUE MEASUREMENTS (Continued)
The Company has determined that the amounts reported for cash and cash equivalents, accounts receivable, deposits, accounts payable, accrued liabilities and debt approximate fair value because of their short maturities and/or variable interest rates.
19. INCOME TAXES
Income tax expense consists of Federal, state and foreign current and deferred income taxes as follows:
| | | | Fiscal Year Ended
| |
|---|
(in thousands)
| | | | June 30,
2012
| | July 2,
2011
| | July 3,
2010
|
|---|
Income before income taxes
| | | | | | | | | | | | | | |
| U.S. | | | | $ | 341 | | | $ | 21,009 | | | $ | 10,024 | |
| Foreign | | | | | 554 | | | | (627 | ) | | | 2,279 | |
| | | | | | 895 | | | | 20,382 | | | | 12,303 | |
Federal:
| | | | | | | | | | | | | | |
| Current | | | | | 941 | | | | 3,155 | | | | 3,502 | |
| Deferred | | | | | (641 | ) | | | 4,064 | | | | (179 | ) |
| | | | | | 300 | | �� | | 7,219 | | | | 3,323 | |
State:
| | | | | | | | | | | | | | |
| Current | | | | | (522 | ) | | | (3 | ) | | | 7 | |
| Deferred | | | | | 2,768 | | | | 16 | | | | (315 | ) |
| | | | | | 2,246 | | | | 13 | | | | (308 | ) |
Foreign:
| | | | | | | | | | | | | | |
| Current | | | | | 551 | | | | 387 | | | | 855 | |
| Deferred | | | | | — | | | | — | | | | 41 | |
| | | | | | 551 | | | | 387 | | | | 896 | |
| Total current | | | | | 970 | | | | 3,539 | | | | 4,364 | |
| Total deferred | | | | | 2,127 | | | | 4,080 | | | | (453 | ) |
| Total income tax expense | | | | $ | 3,097 | | | $ | 7,619 | | | $ | 3,911 | |
The reconciliation between the Company’s effective tax rate and the U.S. statutory rate is as follows:
| | | | Fiscal Year Ended
| |
|---|
| | | | June 30,
2012
| | July 2,
2011
| | July 3,
2010
|
|---|
| Tax provision at federal statutory rate | | | | | 34.0 | % | | | 34.0 | % | | | 34.0 | % |
| State income taxes, net of federal benefit | | | | | (33.4 | ) | | | — | | | | (0.9 | ) |
| Foreign income and withholding taxes | | | | | 34.1 | | | | 3.8 | | | | 1.3 | |
| Benefits from resolution of certain tax audits and expiration of statute of limitations | | | | | (15.4 | ) | | | (0.6 | ) | | | (2.7 | ) |
| Share-based compensation | | | | | 20.5 | | | | 0.3 | | | | 1.6 | |
| Research and development tax credits | | | | | (2.2 | ) | | | 0.3 | | | | (0.4 | ) |
| Change in valuation allowance | | | | | 307.3 | | | | — | | | | (1.1 | ) |
| Other | | | | | 1.1 | | | | (0.4 | ) | | | — | |
| Income tax expense | | | | | 346.0 | % | | | 37.4 | % | | | 31.8 | % |
81
PERICOM SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19. INCOME TAXES (Continued)
The components of the net deferred tax assets were as follows (in thousands):
| | | | As of the year ended
| |
|---|
| | | | June 30,
2012
| | July 2,
2011
|
|---|
Deferred tax assets:
| | | | | | | | | | |
| Credit carryforwards | | | | $ | 3,183 | | | $ | 3,181 | |
| Accruals and reserves | | | | | 1,737 | | | | 1,867 | |
| Cumulative loss on investment | | | | | 339 | | | | 371 | |
| Depreciation and amortization | | | | | (1,480 | ) | | | (1,538 | ) |
| Net operating loss carryforward | | | | | 876 | | | | 642 | |
| Share-based compensation | | | | | 2,904 | | | | 2,989 | |
| Other | | | | | 742 | | | | 438 | |
| Total | | | | | 8,301 | | | | 7,950 | |
| Valuation allowance | | | | | (4,305 | ) | | | (1,062 | ) |
| Deferred tax assets | | | | $ | 3,996 | | | $ | 6,888 | |
| | | | | | | | | | | |
Deferred tax liabilities:
| | | | | | | | | | |
| Gain on previously held shares in unconsolidated affiliate | | | | $ | (3,873 | ) | | $ | (3,876 | ) |
| Acquired PTI intangibles and other | | | | | (2,318 | ) | | | (2,729 | ) |
| Deferred tax liabilities | | | | $ | (6,191 | ) | | $ | (6,605 | ) |
As of June 30, 2012, the Company has net operating loss carryforwards of approximately $1.1 million, $3.8 million, and $5.0 million for PSE-TW in Taiwan, PSE-SD in China, PTI in Hong Kong, which will begin to expire in 2015, 2014 and no expiration, respectively. In addition, the Company has research and development tax credit carryforwards of approximately $4.2 million to offset future state taxable income and no research and development tax credit carryforward to offset federal taxable income. The state research and development tax credit carryforwards do not have an expiration date and may be carried forward indefinitely. The Company has $31,000 of research and development tax credit carryforwards for PSE-TW in Taiwan, which begins to expire in 2012.
The Company provides a valuation allowance for deferred tax assets when it is more likely than not, based upon currently available evidence and other factors, that some portion or all of the deferred tax asset will not be realized. The change in valuation allowance for the year ended June 30, 2012 was an increase of $3.2 million, which resulted primarily from the establishment of a $2.8 million deferred tax asset valuation allowance relating to California tax credits that are not more likely than not to be utilized in the future. The change in valuation allowance for the year ended July 2, 2011 was an increase of $97,000, primarily from an increase in the net operating losses generated in non-US subsidiaries during the periods.
82
PERICOM SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19. INCOME TAXES (Continued)
Consolidated income before income taxes includes non-U.S. income (loss) of approximately $554,000, $(627,000) and $2.3 million for the fiscal years ended June 30, 2012, July 2, 2011 and July 3, 2010, respectively. Pericom has not provided U.S. income taxes on a cumulative total of approximately $17.3 million of undistributed earnings reported by certain foreign subsidiaries. The Company intends to reinvest these earnings indefinitely in its foreign subsidiaries. If these earnings were distributed to the United States in the form of dividends or otherwise, or if the shares of the relevant foreign subsidiaries were sold or otherwise transferred, the Company would be subject to additional U.S. income taxes (subject to an adjustment for foreign tax credits) and foreign withholding taxes.
The Company recorded $1.6 million for unrecognized tax benefits as of June 30, 2012. A reconciliation of the beginning and ending amount of unrecognized tax benefit for the three fiscal years from June 27, 2009 through June 30, 2012 is as follows:
| Balance as of June 27, 2009 | | | | $ | (756,000 | ) |
| Gross decreases — prior period tax positions | | | | | 3,000 | |
| Gross increases — prior period tax positions | | | | | (27,000 | ) |
| Gross increases — current period tax positions | | | | | (91,000 | ) |
| Reductions as a result of a lapse of statute of limitations | | | | | 326,000 | |
| Balance as of July 3, 2010 | | | | $ | (545,000 | ) |
| Gross increases — prior period tax positions | | | | | (152,000 | ) |
| Gross increases — current period tax positions | | | | | (188,000 | ) |
| Reductions as a result of a lapse of statute of limitations | | | | | 130,000 | |
| Balance as of July 2, 2011 | | | | $ | (755,000 | ) |
| Gross increases — prior period tax positions | | | | | (515,000 | ) |
| Gross increases — current period tax positions | | | | | (475,000 | ) |
| Reductions as a result of a lapse of statute of limitations | | | | | 138,000 | |
| Balance as of June 30, 2012 | | | | $ | (1,607,000 | ) |
$1.5 million of the balance at June 30, 2012 would affect the Company’s effective tax rate if recognized. The Company is subject to examination by federal, foreign, and various state jurisdictions for the years 2006 through 2012. The Company has been notified there will be an examination of the federal tax returns for fiscal 2010 and 2011.
As of June 30, 2012, the Company has accrued $256,000 for interest and penalties related to the unrecognized tax benefits. The balance of unrecognized tax benefits and the related interest and penalties is recorded as a noncurrent liability on our consolidated balance sheet.
Within the next 12 months, we do not anticipate a material decrease in the unrecognized tax benefit or any other significant changes to our tax reserves during that period.
20. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) tax-deferred savings plan under which eligible employees may elect to have a portion of their salary deferred and contributed to the plan. The Board of Directors determines the employer matching contributions at their discretion. There were no employer-matching contributions in fiscal 2012, 2011 or 2010.
83
PERICOM SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
21. INDUSTRY AND GEOGRAPHICAL SEGMENT INFORMATION
The Company has three operating segments which aggregate into one reportable segment, the interconnectivity device supply market. The Company designs, develops, manufactures and markets high performance integrated circuits and frequency control products. The Chief Executive Officer has been identified as the Chief Operating Decision Maker as defined by ASC No. 280,Disclosures about Segments Reporting (“ASC 280”).
For geographical reporting, the Company attributes net sales to the country where customers are located (the “bill to” location). The Company neither conducts business in nor sells to persons in Iran, Syria, Sudan, or North Korea, countries located in the referenced regions that are identified as state sponsors of terrorism by the U.S. Department of State, and are subject to U.S. economic sanctions and export controls. Long-lived assets consist of all non-monetary assets, excluding non-current deferred tax assets, goodwill and intangible assets. The Company attributes long-lived assets to the country where they are located. The following presents net sales for each of the three years in the period ended June 30, 2012; and the net book value of long-lived assets as of June 30, 2012, July 2, 2011 and July 3, 2010 by geographical segment:
| | | | Fiscal year ended
| |
|---|
(in thousands)
| | | | June 30,
2012
| | July 2,
2011
| | July 3,
2010
|
|---|
Net sales to countries:
| | | | | | | | | | | | | | |
| Taiwan | | | | $ | 63,301 | | | $ | 75,800 | | | $ | 74,905 | |
| China (including Hong Kong) | | | | | 48,178 | | | | 57,957 | | | | 40,120 | |
| United States | | | | | 7,242 | | | | 10,022 | | | | 11,981 | |
| Others (less than 10% each) | | | | | 18,414 | | | | 22,564 | | | | 19,907 | |
| Total net sales | | | | $ | 137,135 | | | $ | 166,343 | | | $ | 146,913 | |
(in thousands)
| | | | | | | | | | | | | | |
Long-lived assets:
| | | | | | | | | | | | | | |
| China (including Hong Kong) | | | | $ | 37,761 | | | $ | 40,112 | | | $ | 27,883 | |
| Taiwan | | | | | 15,005 | | | | 16,459 | | | | 17,519 | |
| United States | | | | | 2,304 | | | | 2,913 | | | | 3,751 | |
| Korea | | | | | 650 | | | | 898 | | | | 1,161 | |
| Others (less than 10% each) | | | | | 382 | | | | 477 | | | | 446 | |
| Total long-lived assets | | | | $ | 56,102 | | | $ | 60,859 | | | $ | 50,760 | |
84
PERICOM SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
22. QUARTERLY FINANCIAL DATA (Unaudited)
Following is a summary of quarterly operating results and share data for the years ended June 30, 2012 and July 2, 2011:
PERICOM SEMICONDUCTOR CORPORATION
QUARTERLY FINANCIAL DATA
(in thousands, except per share data)
(Unaudited)
| | | | For the Quarter Ended
| |
|---|
| | | | June 30,
2012
| | March 31,
2012
| | Dec 31,
2011
| | Oct 1,
2011
|
|---|
| Net revenues | | | | $ | 37,944 | | | $ | 33,378 | | | $ | 30,481 | | | $ | 35,332 | |
| Cost of revenues | | | | | 24,396 | | | | 21,789 | | | | 19,504 | | | | 22,795 | |
| Gross profit | | | | | 13,548 | | | | 11,589 | | | | 10,977 | | | | 12,537 | |
Operating expenses:
| | | | | | | | | | | | | | | | | | |
| Research and development | | | | | 5,460 | | | | 5,669 | | | | 5,277 | | | | 5,316 | |
| Selling, general and administrative | | | | | 8,135 | | | | 7,114 | | | | 7,060 | | | | 7,339 | |
| Total operating expenses | | | | | 13,595 | | | | 12,783 | | | | 12,337 | | | | 12,655 | |
| Income (loss) from operations | | | | | (47 | ) | | | (1,194 | ) | | | (1,360 | ) | | | (118 | ) |
| Interest and other income, net | | | | | 1,059 | | | | 847 | | | | 638 | | | | 1,070 | |
| Income (loss) before income tax expense | | | | | 1,012 | | | | (347 | ) | | | (722 | ) | | | 952 | |
| Income tax expense (benefit) | | | | | 2,974 | | | | (76 | ) | | | (335 | ) | | | 534 | |
| Net income (loss) from consolidated companies | | | | | (1,962 | ) | | | (271 | ) | | | (387 | ) | | | 418 | |
| Equity in net income of unconsolidated affiliates | | | | | 51 | | | | 4 | | | | 52 | | | | 27 | |
| Net income (loss) | | | | $ | (1,911 | ) | | $ | (267 | ) | | $ | (335 | ) | | $ | 445 | |
| Basic income (loss) per share | | | | $ | (0.08 | ) | | $ | (0.01 | ) | | $ | (0.01 | ) | | $ | 0.02 | |
| Diluted income (loss) per share | | | | $ | (0.08 | ) | | $ | (0.01 | ) | | $ | (0.01 | ) | | $ | 0.02 | |
| Shares used in computing basic income (loss) per share | | | | | 23,611 | | | | 24,030 | | | | 24,244 | | | | 24,491 | |
| Shares used in computing diluted income (loss) per share | | | | | 23,611 | | | | 24,030 | | | | 24,244 | | | | 24,583 | |
| | | | For the Quarter Ended
| |
|---|
| | | | July 2,
2011
| | Apr 2,
2011
| | Jan 1,
2011
| | Oct 2,
2010
|
|---|
| Net revenues | | | | $ | 43,342 | | | $ | 39,555 | | | $ | 40,671 | | | $ | 42,775 | |
| Cost of revenues | | | | | 28,173 | | | | 27,190 | | | | 27,058 | | | | 28,240 | |
| Gross profit | | | | | 15,169 | | | | 12,365 | | | | 13,613 | | | | 14,535 | |
Operating expenses:
| | | | | | | | | | | | | | | | | | |
| Research and development | | | | | 5,535 | | | | 5,238 | | | | 5,060 | | | | 4,397 | |
| Selling, general and administrative | | | | | 7,487 | | | | 7,231 | | | | 6,986 | | | | 7,742 | |
| Total operating expenses | | | | | 13,022 | | | | 12,469 | | | | 12,046 | | | | 12,139 | |
| Income (loss) from operations | | | | | 2,147 | | | | (104 | ) | | | 1,567 | | | | 2,396 | |
| Interest and other income, net | | | | | 695 | | | | 1,132 | | | | 614 | | | | 11,936 | |
| Income before income tax expense | | | | | 2,842 | | | | 1,028 | | | | 2,181 | | | | 14,332 | |
| Income tax expense | | | | | 1,281 | | | | 514 | | | | 446 | | | | 5,378 | |
85
PERICOM SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
22. QUARTERLY FINANCIAL DATA (Unaudited) (Continued)
| | | | For the Quarter Ended
| |
|---|
| | | | July 2,
2011
| | Apr 2,
2011
| | Jan 1,
2011
| | Oct 2,
2010
|
|---|
| Net income from consolidated companies | | | | | 1,561 | | | | 514 | | | | 1,735 | | | | 8,954 | |
| Equity in net income of unconsolidated affiliates | | | | | 48 | | | | 17 | | | | 77 | | | | 556 | |
| Net income | | | | $ | 1,609 | | | $ | 531 | | | $ | 1,812 | | | $ | 9,510 | |
| Basic income per share | | | | $ | 0.06 | | | $ | 0.02 | | | $ | 0.07 | | | $ | 0.38 | |
| Diluted income per share | | | | $ | 0.06 | | | $ | 0.02 | | | $ | 0.07 | | | $ | 0.38 | |
| Shares used in computing basic income per share | | | | | 24,917 | | | | 24,993 | | | | 24,894 | | | | 24,890 | |
| Shares used in computing diluted income per share | | | | | 25,140 | | | | 25,341 | | | | 25,270 | | | | 25,263 | |
23. SUBSEQUENT EVENT
On July 6, 2012, the Company entered into an agreement for the purchase of a building to serve as its new corporate headquarters located in Milpitas, California. Subsequent due diligence was completed and the purchase, for $7.6 million, closed on August 9, 2012.
86
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.
| | | | | PERICOM SEMICONDUCTOR CORPORATION |
| |
| | | | | By: | | /s/ ALEX C. HUI |
| | | | | | | Alex C. Hui
Chief Executive Officer, President and
Chairman of the Board of Directors |
| |
| | | | | Date: | | August 31, 2012 |
87
POWER OF ATTORNEY
KNOWN ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Alex C. Hui and Aaron Tachibana and each of them, his attorney-in-fact, each with the power of substitution, for him in any and all capacities, to sign any amendments to this Report on Form 10-K and file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, and hereby ratifying and confirming all that each of said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.
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/ ALEX C. HUI
Alex C. Hui
| | | | Chief Executive Officer, President and
Chairman of the Board of Directors
(Principal Executive Officer) | | August 31, 2012 |
| |
/s/ AARON TACHIBANA
Aaron Tachibana
| | | | Chief Financial Officer
(Principal Financial Officer and
AccountingOfficer) | | August 31, 2012 |
| |
/s/ JOHN CHI-HUNG HUI
John Chi-Hung Hui
| | | | Senior Vice President, R&D and Director | | August 31, 2012 |
| |
/s/ HAU L LEE
Hau L. Lee
| | | | Director | | August 31, 2012 |
| |
/s/ SIMON WONG
Simon Wong
| | | | Director | | August 31, 2012 |
| |
/s/ MICHAEL SOPHIE
Michael Sophie
| | | | Director | | August 31, 2012 |
| |
/s/ EDWARD YANG
Edward Yang
| | | | Director | | August 31, 2012 |
88
Schedule II
PERICOM SEMICONDUCTOR CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
| | | | Balance at
Beginning
of Period
| | Charged to
Revenues
| | Deductions
| | Balance at
End of
Period
|
|---|
Reserves for returns and pricing adjustments
| | | | | | | | | | | | | | | | | | |
| Fiscal year ended June 30, 2012 | | | | $ | 1,718 | | | $ | 5,982 | | | $ | (5,178 | ) | | $ | 2,522 | |
| Fiscal year ended July 2, 2011 | | | | | 2,366 | | | | 6,044 | | | | (6,692 | ) | | | 1,718 | |
| Fiscal year ended July 3, 2010 | | | | | 1,895 | | | | 5,416 | | | | (4,945 | ) | | | 2,366 | |
| | | | Balance at
Beginning
of Period
| | Charged to
Expense
| | Deductions/
Write-offs
| | Balance at
End of
Period
|
|---|
Allowance for doubtful accounts
| | | | | | | | | | | | | | | | | | |
| Fiscal year ended June 30, 2012 | | | | $ | 229 | | | $ | 92 | | | $ | (277 | ) | | $ | 44 | |
| Fiscal year ended July 2, 2011 | | | | | 299 | | | | 32 | | | | (102 | ) | | | 229 | |
| Fiscal year ended July 3, 2010 | | | | | 268 | | | | 64 | | | | (33 | ) | | | 299 | |
| | | | Balance at
Beginning
of Period
| | Charged to
Expense
| | Deductions/
Write-offs
| | Balance at
End of
Period
|
|---|
Deferred tax valuation allowance
| | | | | | | | | | | | | | | | | | |
| Fiscal year ended June 30, 2012 | | | | $ | 1,062 | | | $ | 3,243 | | | $ | — | | | $ | 4,305 | |
| Fiscal year ended July 2, 2011 | | | | | 965 | | | | 97 | | | | — | | | | 1,062 | |
| Fiscal year ended July 3, 2010 | | | | | 819 | | | | 146 | | | | — | | | | 965 | |
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