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. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto for the fiscal year ended March 29, 2015 included in the Company’s Annual Report on Form 10-K Certain Significant Business Risks and Uncertainties The Company participates in the high-technology industry and believes that adverse changes in any of the following areas could have a material effect on the Company’s future financial position, results of operations, or cash flows: reliance on a limited number of primary customers to support the Company’s revenue generating activities; advances and trends in new technologies and industry standards; market acceptance of the Company’s products; development of sales channels; strategic relationships, including key component suppliers; litigation or claims against the Company based on intellectual property, patent, product, regulatory, or other factors; and the Company’s ability to attract and retain employees necessary to support its growth. Basis of Consolidation The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”), and include the Company’s accounts and the accounts of its wholly-owned 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 most recent fiscal year (“Fiscal 2015”) ended on March 29, 2015 (“March 2015”). The third fiscal quarter in each of the two most recent fiscal years ended on December 27, 2015 (“three months ended December 27, 2015”) and December 28, 2014 (“three months ended December 28, 2014”), respectively, and each quarter period included 13 weeks. Fiscal year 2016 is a 53-week fiscal year ending April 3, 2016 (“Fiscal 2016”). The extra week is included in our fourth fiscal quarter ended April 3, 2016. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP and applicable rules and regulations of the SEC regarding interim financial reporting. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated balance sheet as of March 29, 2015, included herein was derived from the audited financial statements as of that date, but does not include all disclosures required by GAAP. The unaudited interim condensed consolidated financial statements, in the opinion of management, reflect all normal recurring adjustments necessary to present fairly the Company’s financial position, results of operations, comprehensive income (loss) and cash flows for the interim periods. The results of operations for the period ended December 27, 2015 is not necessarily indicative of the results to be expected for the fiscal year ending April 3, 2016 or for any future year or interim period. Use of Estimates The preparation of the Company’s Condensed Consolidated Financial Statements and notes thereto in conformity with 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 Condensed Consolidated Financial Statements and notes thereto and the reported amounts of income and expenses during the reporting period. Significant estimates included in the Consolidated Financial Statements and notes thereto include income taxes, inventory valuation, stock-based compensation, goodwill, loss contingencies, warranty reserves, valuation of acquired assets and contingent consideration, 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. 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 Standard Codification 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. 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 has determined that it has a single reporting unit for purposes of performing its goodwill impairment test. The Company performed its annual impairment test during the quarter ended December 27, 2015 and determined that its goodwill was not impaired. Concentration of Credit Risk The majority of the Company’s products are shipped through its distributors or contract manufacturers (collectively “intermediaries”), who are the legal counter-parties to our sales. When the Company references customers, sales and revenue in this report, the Company is referring to the manufacturers of consumer electronics devices who are the end customers for our products. However, any disclosure about the composition of the Company’s accounts receivable refers to the intermediaries. Some of the Company’s intermediaries may serve more than one 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 accounted for 69% of accounts receivable at December 27, 2015. A distributor and a customer accounted for 77% and 12% of accounts receivable, respectively, at December 28, 2014. For the three months ended December 27, 2015, one customer accounted for 47% of net revenue and another customer accounted for 13% of net revenue. For the nine months ended December 27, 2015, one customer accounted for 40% of net revenue and another customer accounted for 18% of net revenue. For the three months ended December 28, 2014, one customer accounted for 45% of net revenue and another customer accounted for 24% of net revenue. For the nine months ended December 28, 2014, one customer accounted for 29% of net revenue and another customer accounted for 28% of net revenue. Warranty The Company offers one year standard warranty on its products. In selective cases, the warranty period could be extended to multiple years. 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 product warranty liability during the nine months ended December 27, 2015 and December 28, 2014: Nine Months Ended December 27, December 28, (in thousands) Beginning balance $ 341 $ 80 Provision for warranty 551 60 Adjustments related to changes in estimate (96 ) 55 Less: Actual warranty cost incurred (195 ) (68 ) Ending balance $ 601 $ 127 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. In periods in which the Company has reported a net loss, the common stock equivalents are excluded from the calculation of diluted net loss per share of common stock as their effect is antidilutive under the treasury stock method. The following table presents the calculation of basic and diluted net income (loss) per share: Three Months Ended Nine Months Ended December 27, December 28, December 27, December 28, (in thousands, except per share data) Numerator: Basic and Diluted Net income (loss) $ 1,890 $ 10,221 $ 1,736 $ (1,479 ) Denominator: Basic shares: Weighted-average shares used in computing basic net income (loss) per share 91,957 89,779 91,536 89,026 Diluted shares: Weighted-average shares used in computing basic net income (loss) per share 91,957 89,779 91,536 89,026 Effect of potentially dilutive securities: Stock options and unvested restricted stock 965 2,557 1,421 — Weighted-average shares used in computing diluted net income (loss) per share 92,922 92,336 92,957 89,026 Net income (loss) per share Basic $ 0.02 $ 0.11 $ 0.02 $ (0.02 ) Diluted $ 0.02 $ 0.11 $ 0.02 $ (0.02 ) The following summarizes the potentially dilutive securities outstanding at the end of each period that were excluded from the computation of diluted net income (loss) per share for the periods presented as their effect would have been antidilutive: Three Months Ended Nine Months Ended December 27, December 28, December 27, December 28, (in thousands) Employee stock options 7,335 2,785 5,329 8,621 Unvested restricted stock units 2,935 738 2,463 3,637 Total antidilutive securities 10,270 3,523 7,792 12,258 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: Country December 27, March 29, (in thousands) United States $ 9,328 $ 9,442 Taiwan 26,774 31,334 Other 1,628 1,073 $ 37,730 $ 41,849 Net revenue from unaffiliated customers by country was as follows: Three Months Ended Nine Months Ended December 27, 2015 December 28, 2014 December 27, 2015 December 28, 2014 (in thousands) United States $ 61,672 $ 56,871 $ 148,388 $ 94,323 Korea 19,155 33,012 72,347 96,984 China 26,013 16,879 76,629 46,784 Japan 5,686 5,109 17,850 14,842 Taiwan 5,261 2,417 16,023 15,212 Rest of world 2,242 1,576 7,633 4,595 $ 120,029 $ 115,864 $ 338,870 $ 272,740 Recent Accounting Pronouncements On November 20, 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-17. The new guidance requires that all deferred tax assets and liabilities, along with any related valuation allowance for each tax-paying jurisdiction within each tax-paying component, be classified as noncurrent on the balance sheet. The new guidance will be effective for public business entities in fiscal years beginning after December 15, 2016, including interim periods within those years. Early adoption is permitted for all entities as of the beginning of an interim or annual reporting period. The Company does not expect this guidance to have significant impact on its consolidated financial statements. |