| 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 the Company’s accounts and the accounts of its
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
operations. During the fiscal years ended April 3, 2016,
March 29, 2015 and March 30, 2014, foreign currency
losses were $847,000, $198,000 and $260,000,
respectively.
Fiscal
year
The
Company’s fiscal year is a 52 or 53 week period ending on the
Sunday closest to March 31. Fiscal year 2016 was a 53-week
fiscal year ended April 3, 2016 (“Fiscal year
2016”). The extra week was included in our fourth fiscal
quarter ended April 3, 2016. The Company’s fiscal years
2015 and 2014 ended on March 29, 2015 (“fiscal year
2015”) and March 30, 2014 (“fiscal year
2014”) 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.
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 years 2016,
2015 and 2014, 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. No allowance for
doubtful accounts was recorded during the years ended April 3,
2016 and March 29, 2015. The Company recorded bad debt expense
of $26,000 during the year ended March 29, 2015. 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 years 2016, 2015 and 2014, the Company
incurred charges related to its reserve for sales returns and
allowances of $702,000, $357,000 and $134,000, respectively. At
April 3, 2016 and March 29, 2015, the balances for the
reserve for sales returns and allowances were $172,000, and
$57,000, 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 years 2016, 2015 or
2014.
The majority
of the Company’s products are shipped to distributors,
original design manufacturers and contract manufacturers
(collectively referred to as “intermediaries”), who are
the legal counter-parties to the Company’s 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 the Company’s accounts
receivable composition as of a particular date with the disclosures
regarding revenues generated by the Company’s customers for
the period ending on the same date can be difficult or
misleading.
One
distributor accounted for 48% of accounts receivable and another
distributor accounted for 11% of accounts receivable at
April 3, 2016. A distributor and a customer accounted for 38%
and 26% of accounts receivable, respectively, at March 29,
2015. No other customers accounted for more than 10% of total
accounts receivable at April 3, 2016 and March 29,
2015.
For fiscal
year 2016, Apple accounted for 40% of net revenue and Samsung
accounted for 16% of net revenue. For fiscal year 2015, Apple
accounted for 30% of net revenue and Samsung accounted for 28%
of net revenue. For fiscal year 2014 Samsung accounted for 35% of
total net revenue. No other customers accounted for more than 10%
of total net revenue for fiscal years 2016, 2015 or
2014.
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-downs in fiscal years 2016 and 2015 were $4.4 million
and $8.6 million, respectively. Write-downs in
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.
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 (“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. 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 monitors the
recoverability of goodwill recorded in connection with acquisitions
annually, or whenever events or changes in circumstances indicate
the carrying value may not be recoverable. There were no changes in
the carrying amount of goodwill since March 29, 2015. The
Company performs the annual goodwill impairment analysis as of the
first day of the third quarter of each fiscal year. As of
April 3, 2016, 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 acquisitions. 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
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 fiscal years
2016, 2015 and 2014:
Fiscal
Year
2016 2015 2014
(in thousands)
Beginning
balance $ 341 $ 80 $ 123
Provision for
warranty 568 221 59
Adjustments related to
changes in estimates (78 ) 193 (71 )
Less: Actual warranty
costs incurred (206 ) (153 ) (31 )
Ending balance $ 625 $ 341 $ 80
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 these distributors, all sales to these 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.
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 the Company to estimate certain key assumptions
including future stock price volatility, expected term of the
options, risk free rates, and dividend yields. Certain of the
Company’s 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 operations 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. The Company believes that
uncertainty exists regarding the realizability of certain deferred
income tax assets and, accordingly, has established a valuation
allowance for those deferred income tax assets to the extent the
realizability is not deemed to be more likely than not. Deferred
income tax assets and liabilities are measured using enacted tax
rates.
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. 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:
Fiscal
Year
2016 2015 2014
(in thousands, except per share data)
Numerator:
Basic and
diluted
Net income
(loss) $ (21,210 ) $ (1,080 ) $ 6,119
Denominator:
Basic shares:
Weighted-average shares
used in computing basic net income (loss) per share 91,787 89,359 86,520
Diluted
shares:
Weighted-average shares
used in computing basic net income (loss) per share 91,787 89,359 86,520
Effect of potentially
dilutive securities:
Stock options and
unvested restricted stock — — 3,367
Common stock
warrants — — 41
Weighted-average shares
used in computing diluted net income (loss) per share 91,787 89,359 89,928
Net income (loss) per
share
Basic $ (0.23 ) $ (0.01 ) $ 0.07
Diluted $ (0.23 ) $ (0.01 ) $ 0.07
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:
Fiscal
Year
2016 2015 2014
(in thousands)
Employee stock
options 9,209 8,562 1,992
Unvested restricted stock
units 4,310 3,699 1,338
Total antidilutive
securities 13,519 12,261 3,330
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 years 2016, 2015 and 2014, 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:
Country April 3, 2016 March 29, 2015
(in
thousands)
Taiwan $ 25,183 $ 31,334
United States 9,207 9,442
Other 1,881 1,073
$ 36,271 $ 41,849
Net revenue
from unaffiliated customers by location of our customers’
headquarters was as follows:
Fiscal
Year
Region 2016 2015 2014
(in
thousands)
United States $ 182,590 $ 129,665 $ 24,681
China 102,324 65,115 43,796
Korea 81,211 130,807 112,880
Japan 22,086 18,788 45,493
Taiwan 20,365 21,264 18,737
Rest of world 9,819 6,380 6,946
$ 418,395 $ 372,019 $ 252,533
Over 90% of
sales to U.S. headquartered companies are sold to their
distributors or contract manufacturers located overseas.
Recent
accounting pronouncements
On
March 30, 2016, the Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update
(ASU) 2016-09, Improvements to Employee Share-Based Payment
Accounting Compensation—Stock Compensation.
On
February 25, 2016, the FASB issued a new
standard , Leases Note 4—Commitments and
Contingencies.
On
January 5, 2016, the FASB published Accounting Standards
Update (“ASU”) 2016-01, Recognition and
Measurement of Financial Assets and Financial
Liabilities.
On
November 20, 2015, the FASB issued 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 is
currently evaluating the impact on its consolidated financial
statements.
On
September 25, 2015, the FASB issued ASU 2015-16, the new
guidance eliminates the requirement that an acquirer in a business
combination account for measurement-period adjustments
retrospectively. An acquirer will recognize a measurement-period
adjustment during the period in which it determines the amount of
the adjustment. The guidance is effective for public business
entities for fiscal years beginning after December 15, 2015,
and interim periods within those fiscal years. The Company does not
expect this guidance to have significant impact on its consolidated
financial statements.
On
August 18, 2015, the FASB issued ASU
No. 2015-15, the ASU states that the Securities and
Exchange Commission (“SEC”) staff would not object
to an entity deferring and presenting debt issuance costs as an
asset and subsequently amortizing deferred debt issuance costs
ratably over the term of the line-of-credit arrangement, regardless
of whether there are outstanding borrowings under that
line-of-credit arrangement. For public business entities, ASU
2015-15 is effective concurrent with adoption of ASU
No. 2015-03 which is effective for financial statements issued
for fiscal years beginning after December 15, 2015, and
interim periods within those fiscal years. The FASB issued ASU
2015-03, Simplifying the Presentation of Debt Issuance
Costs
On
July 22, 2015, the FASB issued ASU 2015-11, the FASB issued
final guidance that simplifies the subsequent measurement of
inventories by replacing today’s lower of cost or market test
with a lower of cost and net realizable value test. The guidance
applies only to inventories for which cost is determined by methods
other than last-in first-out and the retail inventory method.
Entities that use last-in, first-out or retail inventory method
will continue to use existing impairment models. The guidance is
effective for public business entities for fiscal years beginning
after December 15, 2016, and interim periods within those
fiscal years. The Company does not expect this guidance to have
significant impact on its consolidated financial
statements.
On
April 7, 2015, the FASB issued ASU
2015-03, Simplifying the Presentation of Debt Issuance
Costs Convertible Senior
Notes.
In May 2014,
the FASB issued Accounting Standards Update (“ASU”)
No. 2014-09, Revenue from Contracts with
Customers |
