Note 5 - Fair Value | 3 Months Ended |
Jun. 29, 2014 |
Fair Value Disclosures [Abstract] | ' |
Fair Value Disclosures [Text Block] | ' |
NOTE 5. | FAIR VALUE | | | | | | | | | | | | | | | | | | | | | | | |
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Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. GAAP describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value as follows: |
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Level 1 – Quoted prices in active markets for identical assets or liabilities. |
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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. |
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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. |
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Our cash and investment instruments are classified within Level 1 or Level 2 of the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. |
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The fair value of contingent consideration arising from the acquisitions of Altior Inc. (“Altior”) and Cadeka Microcircuits LLC (“Cadeka”) are classified within Level 3 of the fair value hierarchy since it is based on a probability-based approach that includes significant unobservable inputs. |
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There were no transfers between Level 1, Level 2, and Level 3 during the fiscal quarter ended June 29, 2014. |
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As of June 29, 2014, we sold all of our short term investments to fund the iML acquisition. The following table summarizes our other investments assets and liabilities as June 29, 2014 (in thousands): |
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| | 29-Jun-14 | | | | | | | | | |
| | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Common shares of CounterPath | | $ | — | | | $ | 99 | | | $ | — | | | $ | 99 | | | | | | | | | |
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Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
Acquisition-related contingent consideration – Altior | | $ | — | | | $ | — | | | $ | 3,022 | | | $ | 3,022 | | | | | | | | | |
Acquisition-related contingent consideration – Cadeka | | | — | | | | — | | | | 890 | | | | 890 | | | | | | | | | |
Total liabilities | | $ | — | | | $ | 99 | | | $ | 3,912 | | | $ | 4,011 | | | | | | | | | |
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As of March 30, 2014, our investment assets and liabilities, measured at fair value on a recurring basis, were as follows (in thousands): |
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| | 30-Mar-14 | | | | | | | | | |
| | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Money market funds | | $ | 4,636 | | | $ | — | | | $ | — | | | $ | 4,636 | | | | | | | | | |
U.S. government and agency securities | | | 9,378 | | | | 13,134 | | | | — | | | | 22,512 | | | | | | | | | |
State and local government securities | | | — | | | | 2,772 | | | | — | | | | 2,772 | | | | | | | | | |
Corporate bonds and securities | | | 5 | | | | 71,248 | | | | — | | | | 71,253 | | | | | | | | | |
Asset-backed securities | | | — | | | | 27,635 | | | | — | | | | 27,635 | | | | | | | | | |
Mortgage-backed securities | | | — | | | | 28,248 | | | | — | | | | 28,248 | | | | | | | | | |
Total investment assets | | $ | 14,019 | | | $ | 143,037 | | | $ | — | | | $ | 157,056 | | | | | | | | | |
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Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
Acquisition-related contingent consideration – Altior | | $ | — | | | $ | — | | | $ | 2,973 | | | $ | 2,973 | | | | | | | | | |
Acquisition-related contingent consideration – Cadeka | | | — | | | | — | | | | 1,370 | | | | 1,370 | | | | | | | | | |
Total liabilities | | $ | — | | | $ | — | | | $ | 4,343 | | | $ | 4,343 | | | | | | | | | |
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Our cash, cash equivalents and short-term marketable securities as of the dates indicated below were as follows (in thousands): |
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| | June 29, | | | March 30, | | | | | | | | | | | | | | | | | |
2014 | 2014 | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | | | | | | | | | | | | | | | | | | | | | | | |
Cash at financial institutions | | $ | 123,161 | | | $ | 9,978 | | | | | | | | | | | | | | | | | |
Restricted cash | | | 26,000 | | | | — | | | | | | | | | | | | | | | | | |
Cash equivalents | | | | | | | | | | | | | | | | | | | | | | | | |
Money market funds | | | — | | | | 4,636 | | | | | | | | | | | | | | | | | |
Total cash and cash equivalents | | $ | 149,161 | | | $ | 14,614 | | | | | | | | | | | | | | | | | |
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Available-for-sale securities | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. government and agency securities | | $ | — | | | $ | 22,512 | | | | | | | | | | | | | | | | | |
State and local government securities | | | — | | | | 2,772 | | | | | | | | | | | | | | | | | |
Corporate bonds and securities | | | — | | | | 71,253 | | | | | | | | | | | | | | | | | |
Asset-backed securities | | | — | | | | 27,635 | | | | | | | | | | | | | | | | | |
Mortgage-backed securities | | | — | | | | 28,248 | | | | | | | | | | | | | | | | | |
Total short-term marketable securities | | $ | — | | | $ | 152,420 | | | | | | | | | | | | | | | | | |
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Our marketable securities include U.S. government and agency securities, state and local government securities, corporate bonds and securities, asset-backed and mortgage-backed securities and certificate of deposit. We classify investments as available-for-sale at the time of purchase and re-evaluate such designation as of each balance sheet date. We amortize premiums and accrete discounts to interest income over the life of the investment. Our available-for-sale securities, which we intend to sell as necessary to meet our liquidity requirements, are classified as cash equivalents if the maturity date is 90 days or less from the date of purchase and as short-term marketable securities if the maturity date is greater than 90 days from the date of purchase. As of June 29, 2014, $26.0 million of short term certificate deposit was used as collateral against our CTBC bridge loan and classified as restricted cash. See Note 9-“Short-term Debt”. |
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All marketable securities are reported at fair value based on the estimated or quoted market prices as of each balance sheet date, with unrealized gains or losses, net of tax effect, recorded in the condensed consolidated statements of other comprehensive income except those unrealized losses that are deemed to be other than temporary which are reflected in the impairment charges on investments line item on the condensed consolidated statements of operations. |
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We received approximately 93,000 common shares of CounterPath Corporation (“CounterPath”) through the Skypoint dissolution, of which we estimated the fair value using the market value of common shares as determined by trading on the Nasdaq CM market. These securities have been classified to Level 2 as of June 29, 2014 and recorded in the other non-current assets line item on the condensed consolidated balance sheet. We believe the fair value inputs of CounterPath do not meet all of the criteria for Level 1 classification primarily due to the low trading volume of the stock. See Note 7–“Long-term Investments” for the discussion on Skypoint. |
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The fair value of contingent consideration was determined based on probability-based approach which includes projected revenues, percentage probability of occurrence and discount rate to present value payments. A significant increase (decrease) in the projected revenue, discount rate or probability of occurrence in isolation could result in a significantly higher (lower) fair value measurement. We calculate the fair value of the contingent consideration on a quarterly basis based on a collaborative effort of our operations and financial accounting groups based on additional information as it becomes available. Any change in the fair value adjustment is recorded in the earnings of that period. |
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Realized gains (losses) on the sale of marketable securities are determined by the specific identification method and are reflected in the interest income and other net, line item on the condensed consolidated statements of operations. |
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Our net realized gains (losses) on marketable securities for the periods indicated below were as follows (in thousands): |
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| | Three Months Ended | | | | | | | | | | | | | | | | | |
| | 29-Jun-14 | | | 30-Jun-13 | | | | | | | | | | | | | | | | | |
Gross realized gains | | $ | 264 | | | $ | 218 | | | | | | | | | | | | | | | | | |
Gross realized losses | | | (238 | ) | | | (277 | ) | | | | | | | | | | | | | | | | |
Net realized gain (losses) | | $ | 26 | | | $ | (59 | ) | | | | | | | | | | | | | | | | |
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The following table summarizes our investments in marketable securities as March 30, 2014 (in thousands): |
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| | 30-Mar-14 | | | | | | | | | |
| | Amortized Cost | | | Unrealized Gross | | | Unrealized Gross | | | Fair Value | | | | | | | | | |
Gains (1) | Losses (1) | | | | | | | | |
Money market funds | | $ | 4,636 | | | $ | — | | | $ | — | | | $ | 4,636 | | | | | | | | | |
U.S. government and agency securities | | | 22,550 | | | | 1 | | | | (39 | ) | | | 22,512 | | | | | | | | | |
State and local government securities | | | 2,762 | | | | 10 | | | | — | | | | 2,772 | | | | | | | | | |
Corporate bonds and securities | | | 71,309 | | | | 32 | | | | (88 | ) | | | 71,253 | | | | | | | | | |
Asset-backed securities | | | 27,661 | | | | 22 | | | | (48 | ) | | | 27,635 | | | | | | | | | |
Mortgage-backed securities | | | 28,362 | | | | 24 | | | | (138 | ) | | | 28,248 | | | | | | | | | |
Total investments | | $ | 157,280 | | | $ | 89 | | | $ | (313 | ) | | $ | 157,056 | | | | | | | | | |
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| -1 | Gross of tax impact of $828 | | | | | | | | | | | | | | | | | | | | | | |
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Our asset-backed securities are comprised primarily of premium tranches of vehicle loans and credit card receivables, while our mortgage-backed securities are primarily from Federal agencies. We do not own auction rate securities nor do we own securities that are classified as subprime. |
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Management determines the appropriate classification of cash equivalents or short-term marketable securities at the time of purchase and reevaluates such classification as of each balance sheet date. The investments are adjusted for amortization of premiums and accretion of discounts to maturity and such accretion/amortization, which is immaterial for the period presented, is included in the interest income and other, net line in the condensed statements of operations. Cash equivalents and short-term marketable securities are reported at fair value with the related unrealized gains and losses included in the accumulated other comprehensive losses line in the condensed consolidated balance sheets. |
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We periodically review our investments in unrealized loss positions for other-than-temporary impairments. This evaluation includes, but is not limited to, significant quantitative and qualitative assessments and estimates regarding credit ratings, collateralized support, the length of time and significance of a security’s loss position, our intent not to sell the security, and whether it is more likely than not that we will not have to sell the security before recovery of its cost basis. For the three months ended June 29, 2014, no investments were identified with other-than-temporary declines in value. |
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The amortized cost and estimated fair value of cash equivalents and marketable securities classified as available-for-sale by expected maturity as of March 30, 2014 (in thousands): |
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| | 30-Mar-14 | | | | | | | | | | | | | | | | | |
| | Amortized Cost | | | Fair Value | | | | | | | | | | | | | | | | | |
Less than 1 year | | $ | 49,539 | | | $ | 49,504 | | | | | | | | | | | | | | | | | |
Due in 1 to 5 years | | | 107,741 | | | | 107,552 | | | | | | | | | | | | | | | | | |
Total | | $ | 157,280 | | | $ | 157,056 | | | | | | | | | | | | | | | | | |
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The following table summarizes the gross unrealized losses and fair values of our investments in an unrealized loss position as of March 30, 2014, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position (in thousands): |
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| | 30-Mar-14 | |
| | Less than 12 months | | | 12 months or greater | | | Total | |
| | Fair Value | | | Gross Unrealized Losses | | | Fair Value | | | Gross Unrealized Losses | | | Fair Value | | | Gross Unrealized Losses | |
U.S. government and agency securities | | $ | 18,245 | | | $ | (39 | ) | | $ | — | | | $ | — | | | $ | 18,245 | | | $ | (39 | ) |
Corporate bonds and securities | | | 48,379 | | | | (87 | ) | | | 596 | | | | (1 | ) | | | 48,975 | | | | (88 | ) |
Asset-backed securities | | | 7,118 | | | | (12 | ) | | | 5,478 | | | | (36 | ) | | | 12,596 | | | | (48 | ) |
Mortgage-backed securities | | | 19,682 | | | | (120 | ) | | | 983 | | | | (18 | ) | | | 20,665 | | | | (138 | ) |
Total | | $ | 93,424 | | | $ | (258 | ) | | $ | 7,057 | | | $ | (55 | ) | | $ | 100,481 | | | $ | (313 | ) |
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The fair value of contingent consideration was determined based on a probability-based approach which includes projected revenues, percentage probability of occurrence and discount rate to present value payments. A significant increase (decrease) in the projected revenue, discount rate or probability of occurrence in isolation could result in a significantly higher (lower) fair value measurement. |
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The following table presents quantitative information about the inputs and valuation methodologies used for our fair value measurements classified in Level 3 of the fair value hierarchy as of June 29, 2014. |
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As of June 29, 2014 | | Fair Value | | Valuation Technique | | Significant | | Range | | | | | | | | | | | | | |
(in thousands) | Unobservable Input | | | | | | | | | | | | | |
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Acquisition-related contingent consideration – Altior | | $ | 3,022 | | Combination of income and market approach | | Revenue (in ‘000’s) | | $6,725 | - | $20,175 | | | | | | | | | | | | | |
| | | | | | | Probability of Achievement | | 1% | - | 66% | | | | | | | | | | | | | |
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Acquisition-related contingent consideration – Cadeka | | $ | 890 | | Combination of income and market approach | | Revenue (in ‘000’s) | | $8,400 | - | $18,000 | | | | | | | | | | | | | |
| | | | | | | Probability of Achievement | | 2% | - | 30% | | | | | | | | | | | | | |
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We calculate the fair value of the contingent consideration on a quarterly basis based on additional information as it becomes available. Any change in the fair value adjustment is recorded in the earnings of that period. |
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The change in the fair value of our Altior purchase consideration liability is as follows (in thousands): |
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| | Amount | | | | | | | | | | | | | | | | | | | | | |
As of March 30, 2014 | | $ | 2,973 | | | | | | | | | | | | | | | | | | | | | |
Adjustment to purchase consideration | | | 49 | | | | | | | | | | | | | | | | | | | | | |
As of June 29, 2014 | | $ | 3,022 | | | | | | | | | | | | | | | | | | | | | |
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The change in the fair value of our Cadeka purchase consideration liability is as follows (in thousands): |
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| | Amount | | | | | | | | | | | | | | | | | | | | | |
As of March 30, 2014 | | $ | 1,370 | | | | | | | | | | | | | | | | | | | | | |
Adjustment to purchase consideration | | | (480 | ) | | | | | | | | | | | | | | | | | | | | |
As of June 29, 2014 | | $ | 890 | | | | | | | | | | | | | | | | | | | | | |
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In the first quarter of fiscal 2015, the fair value of the contingent consideration for Altior acquisition increased by $49,000 due to the impact of change in present value of the amount payable due to passage of time. Contingent consideration for Cadeka acquisition decreased by $480,000 due to change in timing of achieving revenue targets and passage of time. |