Organization and Summary of Significant Accounting Policies | 12 Months Ended |
Mar. 29, 2015 |
Accounting Policies [Abstract] | |
Organization and Summary of Significant Accounting Policies | 1 | Organization and Summary of Significant Accounting Policies | | | | | | | | | | | |
Business |
InvenSense, Inc. (the “Company”) was incorporated in California in June 2003 and reincorporated in Delaware in January 2004. The Company designs, develops, markets and sells sensor systems on a chip, including accelerometers, gyroscopes and microphones for the mobile, wearable, smart home, gaming, industrial, and automotive market segments. The Company delivers leading solutions based on its advanced motion and sound technology and is dedicated to bringing the best-in-class size, performance and cost solutions to market; targeting solutions such as: smartphones, tablets, wearables, console and portable video gaming devices, digital television and set-top box remote controls, fitness accessories, sports equipment, digital still cameras, automobiles, ultra-books, laptops, hearing aids, stabilization systems, tools, navigation devices, remote controlled toys and other household consumer and industrial devices. |
Basis of Consolidation |
The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles, or GAAP, and include our accounts and the accounts of our wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The functional currency of each of the Company’s subsidiaries is the U.S. dollar. Foreign currency gains or losses are recorded as other income (expense), net, in the consolidated statements of income. During the fiscal years ended March 29, 2015, March 30, 2014 and March 31, 2013, foreign currency losses were $198,000, $260,000 and $51,000, respectively. |
Fiscal Year |
The Company’s fiscal year is a 52 or 53 week period ending on the Sunday closest to March 31. The Company’s three most recent fiscal years ended on March 29, 2015 (“fiscal year 2015”), March 30, 2014 (“fiscal year 2014”) and March 31, 2013 (“fiscal year 2013”) were each comprised of 52 weeks. |
Use of Estimates |
The preparation of the Company’s Consolidated Financial Statements and related Notes in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and related Notes and the reported amounts of income and expenses during the reporting period. Significant estimates included in the Consolidated Financial Statements and related Notes include income taxes, inventory valuation, stock-based compensation, loss contingencies, warranty reserves, valuation of acquired assets, and valuation of convertible senior notes, including the related convertible notes hedges and warrants. These estimates are based upon information available as of the date of the consolidated financial statements, and actual results could differ from those estimates. |
Cash Equivalents |
The Company considers all highly liquid instruments acquired with a remaining maturity of three months or less when purchased to be cash equivalents. Cash and cash equivalents are stated at cost, which approximates their fair value. |
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Available-for-Sale Investments |
Securities with remaining maturities at the time of purchase of greater than three months are considered available for sale investments. If the securities have remaining maturities of less than twelve months from the balance sheet date they are classified as short-term investments in the Company’s consolidated balance sheets; if their maturities exceed twelve months beyond the balance sheet date, they are classified as long-term investments in the Company’s consolidated balance sheets. Available-for-sale securities are carried at fair value with temporary unrealized gains and losses, net of taxes, reported within “accumulated other comprehensive income (loss)” in the Company’s consolidated financial statements. |
Available-for-sale investments are considered to be impaired when a decline in fair value is judged to be other than temporary. The Company considers available quantitative and qualitative evidence in evaluating potential impairment of its investments on a quarterly basis. If the cost of an investment exceeds its fair value, management evaluates, among other factors, general market conditions, the duration and extent to which the fair value is less than cost, and the Company’s intent and ability to hold the investment. Once a decline in fair value is determined to be other than temporary, an impairment charge is recorded and a new cost basis in the investment is established. During fiscal 2015, fiscal 2014 and fiscal 2013, the Company did not identify any other than temporary impairments. |
Accounts Receivable |
Trade accounts receivable are recorded at the invoiced amount, net of allowances for doubtful accounts and sales returns and allowances. The allowance for doubtful accounts is based on the Company’s assessment of the collectability of customer accounts. The Company periodically reviews the need for an allowance by considering factors such as historical experience, credit quality, the age of the accounts receivable balances and current economic conditions that may affect a customer’s ability to pay. The Company recorded bad debt expense of $26,000 during the year ended March 29, 2015. No allowance for doubtful accounts was recorded during the years ended March 30, 2014 and March 31, 2013. The reserve for sales returns and allowances is based on specific criteria including agreements to provide rebates and other factors known at the time, as well as estimates of the amount of goods shipped that will be returned. To determine the adequacy of the reserve for sales returns and allowances, the Company analyzes historical experience of actual returns as well as current product return information. During fiscal 2015, fiscal 2014 and fiscal 2013, the Company incurred charges related to its reserve for sales returns and allowances of $357,000, $134,000 and $84,000, respectively. At March 2015 and March 2014, the balances for the reserve for sales returns and allowances were $57,000, and $91,000, respectively. |
Concentration of Credit Risk |
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of cash, cash equivalents, investments, advances to vendors, accounts receivable and the Note Hedge (see Note 5). The Company limits exposure to credit loss by placing cash, cash equivalents and investments with major financial institutions within the United States that management assesses to be of high credit quality. The Company periodically reviews the credit worthiness of its customers and generally does not require collateral or other security to support accounts receivable. The Company has not experienced any significant losses on accounts receivables or on deposits of cash and cash equivalents for fiscal 2015, fiscal 2014 or fiscal 2013. |
The majority of the Company’s products are shipped through its distributors or contract manufacturers, which are the legal counter-party to the sales. The Company does not refer to these intermediaries as our customers in this report. When the Company references customers, the Company is referring to the manufacturers of consumer electronics devices that are the end customer that these intermediaries sell the Company’s products to or that incorporate the Company’s products into finished products. These manufacturers of consumer electronics devices are categorized as our customers as they are responsible for selection of our sensors in their products. For accounting purposes, any disclosure about the composition of the Company’s accounts receivable refers to the intermediary, which is the legal counter-party in a particular contract, and any disclosure about the composition of the Company’s revenue (e.g., greater than 10% customers) refers to the end customers of both those intermediaries and the Company. Some of the Company’s intermediaries may serve as such for more than one or more of the Company’s customers. As a result, attempting to compare or correlate disclosures about our accounts receivable composition as of a particular date with the disclosures regarding revenues generated by our customers for the period ending on the same date can be difficult or misleading. |
A distributor and a customer accounted for 38% and 26% of accounts receivable, respectively, at March 29, 2015. At March 30, 2014, three customers accounted for 28%, 19% and 19% of total accounts receivable. No other customers accounted for more than 10% of total accounts receivable at March 2015 or March 2014. |
For fiscal 2015, a distributor and a customer accounted for 30% and 28% of total net revenue. For fiscal 2014 one customer accounted for 35% of total net revenue. For fiscal 2013 three customers accounted for 24%, 18% and 11% of total net revenue. No other customers accounted for more than 10% of total net revenue for fiscal 2015, fiscal 2014 or fiscal 2013. |
Inventories |
Inventories are stated at the lower of cost or market on a first-in, first-out basis. Inventories include finished good parts that may be specialized in nature and subject to obsolescence. The Company periodically reviews the quantities and carrying values of inventories to assess whether the inventories are recoverable. The costs associated with write-downs of inventory for excess quantity and technological obsolescence are charged to cost of revenue as incurred. Actual demand may materially differ from the Company’s projected demand, and this difference could have a material impact on the Company’s gross margin and inventory balances based on additional provisions for excess or obsolete inventory or a benefit from sales of inventory previously written down. Write-down amounts charged (credited) to cost of revenues for fiscal years 2015 and 2013 were $8.6 million and $(3.0) million, respectively. Write-down amounts charged to cost of revenues for fiscal year 2014 were insignificant. |
Property and Equipment, net |
Property and equipment, net are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the assets. The estimated useful lives are as follows: production equipment and furniture and fixtures—four to five years, lab equipment, computer equipment and software—three to five years, and leasehold improvements—over the shorter of the estimated useful life or the remaining lease term. |
Business Combinations |
The purchase price of an acquisition is allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition. To the extent the purchase price exceeds the fair value of the net identifiable tangible and intangible assets acquired and liabilities assumed, such excess is allocated to goodwill. The Company determines the estimated fair values after review and consideration of relevant information, including discounted cash flows, quoted market prices and estimates made by management. The Company adjusts the preliminary purchase price allocation, as necessary, during the measurement period of up to one year after the acquisition closing date as it obtains more information as to facts and circumstances existing at the acquisition date impacting asset valuations and liabilities assumed. Acquisition-related costs are recognized separately from the acquisition and are expensed as incurred. |
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Goodwill |
Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination. In accordance with Accounting Standards Codification (“ASC”) 350, the Company reviews goodwill for impairment at the reporting unit level on an annual basis or whenever events or changes in circumstances indicate the carrying value may not be recoverable. The Company has determined that it has a single reporting unit for purposes of performing its goodwill impairment test. The Company performed the first step of the two-step goodwill impairment test. As the Company uses the market approach to assess impairment, its common stock price is an important component of the fair value calculation. The Company performed its annual impairment test during the quarter ended December 28, 2014 and determined that the fair value of its reporting unit was substantially in excess of its carrying value, and thus its goodwill was not impaired. As of March 29, 2015, no events or changes in circumstances indicate the carrying value may not be recoverable. |
Intangible Assets |
Intangible assets consist of developed technology and customer relationships, and in-process research and development resulting from the Company’s acquisition of MEMS microphone business of Analog Devices, Inc. (“ADI”) in fiscal 2014 and Movea S.A and Trusted Positioning, Inc. in fiscal 2015 (see note 8) as well as patents acquired in fiscal 2015. Acquired intangible assets that are subject to amortization are developed technology and customer relationships and are recorded at cost, net of accumulated amortization. Intangible assets are amortized on a straight-line basis over their estimated useful lives. In-process research and development capitalized during business combination is amortized only after successful completion of project, over the expected useful life. |
Impairment of Long Lived Assets |
The Company regularly reviews the carrying amount of its long-lived assets, including property and equipment and intangible assets, as well as the useful lives, to determine whether indicators of impairment may exist which warrant adjustments to carrying values or estimated useful lives. An impairment loss would be recognized when the sum of the expected future undiscounted net cash flows is less than the carrying amount of the asset. Should impairment exist, the impairment loss would be measured based on the excess of the carrying amount of the asset over the asset’s fair value. |
Warranty |
The Company’s warranty agreements are contract and component specific and can be up to three years for selected components. The Company’s accrual for anticipated warranty costs has increased primarily due to an increase in unit sales volume and a commensurate increase in the volume of product returned under the warranty agreements. The accrual also includes management’s judgment regarding anticipated rates of warranty claims and associated repair costs. The following table summarizes the activity related to the product warranty liability during fiscal 2015, fiscal 2014 and fiscal 2013: |
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| | Fiscal Year | |
| | 2015 | | | 2014 | | | 2013 | |
| | (in thousands) | |
Beginning balance | | $ | 80 | | | $ | 123 | | | $ | 361 | |
Provision for warranty | | | 221 | | | | 59 | | | | 60 | |
Adjustments related to changes in estimate | | | 193 | | | | (71 | ) | | | (262 | ) |
Less: actual warranty costs | | | (153 | ) | | | (31 | ) | | | (36 | ) |
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Ending balance | | $ | 341 | | | $ | 80 | | | $ | 123 | |
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Revenue Recognition |
Revenue from the sale of the Company’s products is recognized when all of the following four criteria are met: (1) persuasive evidence of an arrangement exists; (2) the product has been delivered; (3) the price is fixed or determinable; and (4) collection is reasonably assured. Delivery takes place after the transfer of title which historically has occurred upon shipment of the product unless otherwise stated in the customer agreement. |
For direct customers (i.e., other than distributors), the Company recognizes revenue when title to the product is transferred to the customer, which occurs upon shipment or delivery, depending upon the terms of the customer order. |
The Company primarily enters into sales transactions with distributors in which the distributor is purchasing product for an identified end customer. For these transactions, the Company recognizes net revenue upon either shipment or delivery to the distributor, depending upon when title transfers under the terms of the order. Pursuant to the terms and conditions contained in the agreement with its distributors, all sales to distributors purchased for an identified end customer are non-refundable, do not have rights to return product purchases except under the Company’s standard warranty terms, and do not include any price concessions or price protection. |
Research and Development |
Research and development activities are expensed as incurred. |
Stock-Based Compensation |
The Company measures the cost of employee services received in exchange for equity incentive awards, including stock options, based on the grant date fair value of the award. The fair value is estimated using the Black-Scholes option pricing model. The Black-Scholes model requires us to estimate certain key assumptions including future stock price volatility, expected term of the options, risk free rates, and dividend yields. Certain of our stock-based awards contained a market-based condition for vesting; these awards were valued using a Monte Carlo simulation analysis to model and value multiple possible outcomes. The Company also estimates potential forfeiture of equity incentive awards granted and adjust compensation expense accordingly. The estimate of forfeitures is adjusted over the estimated term to the extent that the actual forfeiture rate or expected forfeiture rate is expected to differ from these estimates. The resulting cost is recognized over the period during which the employee is required to provide services in exchange for the award, which is usually the vesting period. The Company recognizes compensation expense over the vesting period using the straight-line method and classifies these amounts in the statements of income based on the department to which the related employee is assigned. See Note 6 “Stockholders’ Equity” for a description of our stock-based employee compensation plans and the assumptions the Company uses to calculate the fair value of stock-based employee compensation. |
Income Taxes |
The Company accounts for income taxes in accordance with ASC 740-10 “Income Taxes,” which requires the asset and liability approach and the recognition of taxes payable or receivable for the current year and deferred tax liabilities and assets for future tax consequences of events that have been recognized in the Company’s Consolidated Financial Statements and related Notes or tax returns. The measurement of current and deferred tax liabilities and assets are based on provisions of the enacted laws; the effects of future changes in tax laws or rates are not anticipated. Deferred tax assets are reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized. Valuation allowances are established when necessary to reduce deferred tax assets to the amount that is more likely than not to be realized. |
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ASC 740-10 also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740-10 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company’s policy is to recognize interest and penalties related to unrecognized tax benefits in income tax provision. |
Net Income (Loss) Per Share |
Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares outstanding during the period, which excludes dilutive unvested restricted stock. |
Diluted net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares outstanding, including unvested restricted stock, certain warrants to purchase common stock and potential dilutive shares from the dilutive effect of outstanding stock options using the treasury stock method. |
The following table presents the calculation of basic and diluted net income (loss) per share: |
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| | Fiscal Year | |
| | 2015 | | | 2014 | | | 2013 | |
| | (in thousands, except per share data) | |
Numerator: | | | | | | | | | | | | |
Basic and Diluted | | | | | | | | | | | | |
Net income (loss) | | $ | (1,080 | ) | | $ | 6,119 | | | $ | 51,705 | |
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Denominator: | | | | | | | | | | | | |
Basic shares: | | | | | | | | | | | | |
Weighted-average shares used in computing basic net income (loss) per share | | | 89,359 | | | | 86,520 | | | | 82,738 | |
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Diluted shares: | | | | | | | | | | | | |
Weighted-average shares used in computing basic net income (loss) per share | | | 89,359 | | | | 86,520 | | | | 82,738 | |
Effect of potentially dilutive securities: | | | | | | | | | | | | |
Stock options and unvested restricted stock | | | — | | | | 3,367 | | | | 4,445 | |
Common stock warrants | | | — | | | | 41 | | | | 176 | |
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Weighted-average shares used in computing diluted net income (loss) per share | | | 89,359 | | | | 89,928 | | | | 87,359 | |
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Net income (loss) per share | | | | | | | | | | | | |
Basic | | $ | (0.01 | ) | | $ | 0.07 | | | $ | 0.62 | |
Diluted | | $ | (0.01 | ) | | $ | 0.07 | | | $ | 0.59 | |
The following summarizes the potentially dilutive securities outstanding at the end of each period that were excluded from the computation of diluted net income per common share for the periods presented as their effect would have been antidilutive: |
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| | Fiscal Year | |
| | 2015 | | | 2014 | | | 2013 | |
| | (in thousands) | |
Employee stock options | | | 8,562 | | | | 1,992 | | | | 4,498 | |
Unvested restricted stock units | | | 3,699 | | | | 1,338 | | | | 110 | |
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Total antidilutive securities | | | 12,261 | | | | 3,330 | | | | 4,608 | |
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In November 2013, the Company issued $175.0 million aggregate principal amount of 1.75% Convertible Senior Notes due on November 1, 2018 (the “Notes”). On or after August 1, 2018 until the maturity date, the Notes may be converted at the option of the holders under certain circumstances. The conversion rate is initially 45.683 shares per $1,000 principal amount of the Notes (equivalent to an initial conversion price of approximately $21.89 per share of common stock), subject to certain adjustments (see Note 5). |
Comprehensive Income (Loss) |
Comprehensive income (loss) includes certain changes in equity that are excluded from net income. Specifically, unrealized gains and losses are included in accumulated other comprehensive income (loss). During fiscal 2015, fiscal 2014 and fiscal 2013, comprehensive income (loss) included a combination of the current period net income and unrealized gain (loss) on available for sale investments. |
Segment Information |
The Company operates in one operating segment by designing, developing, manufacturing and marketing sensor systems on a chip. The Chief Executive Officer has been identified as the Chief Operating Decision Maker as defined by Financial Accounting Standards Board’s ASC 280 “Segment Reporting”. Enterprise-wide information is provided in accordance with ASC 280. Geographical revenue information is based on the location of our customers’ head offices. Property and equipment information is based on the physical location of the assets at the end of each fiscal period. |
Property and equipment by country were as follows: |
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Country | | March 29, | | | March 30, | | | | | |
2015 | 2014 | | | | |
| | (in thousands) | | | | | |
Taiwan | | $ | 31,334 | | | $ | 16,902 | | | | | |
United States | | | 9,442 | | | | 7,605 | | | | | |
Other | | | 1,073 | | | | 732 | | | | | |
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| | $ | 41,849 | | | $ | 25,239 | | | | | |
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Net revenues from unaffiliated customers by country were as follows: |
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| | Fiscal Year | |
Region | | 2015 | | | 2014 | | | 2013 | |
| | (in thousands) | |
Korea | | $ | 130,807 | | | $ | 112,880 | | | $ | 69,874 | |
United States | | | 129,665 | | | | 24,681 | | | | 16,667 | |
China | | | 65,115 | | | | 43,796 | | | | 14,742 | |
Japan | | | 18,788 | | | | 45,493 | | | | 65,663 | |
Taiwan | | | 21,264 | | | | 18,737 | | | | 39,203 | |
Rest of world | | | 6,380 | | | | 6,946 | | | | 2,485 | |
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| | $ | 372,019 | | | $ | 252,533 | | | $ | 208,634 | |
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Recent Accounting Pronouncements |
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU No. 2014-09 provides guidance that companies will recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the payment to which a company expects to be entitled in exchange for those goods or services. The standard requires public entities to apply the amendments in ASU 2014-09 for annual reporting periods beginning after December 15, 2016, including interim reporting periods therein. On April 1, 2015, the FASB proposed for a one-year deferral of the effective date for this pronouncement. The Company then will be required to implement the new revenue recognition standard for the first quarter of fiscal year 2019. The Company is currently evaluating the impact on its consolidated financial statements. |
On April 7, 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs. ASU 2015-03 requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount. For public business entities, the standard is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted for financial statements that have not been previously issued. The Company then will be required to implement the new revenue recognition standard for the first quarter of fiscal year 2017. The Company is currently evaluating the impact on its consolidated financial statements. |