UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission file number
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip code)
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol |
Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Number of shares of Common Stock outstanding at October 29, 2020:
SYNAPTICS INCORPORATED
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 26, 2020
TABLE OF CONTENTS
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Item 1. |
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Condensed Consolidated Balance Sheets—September 26, 2020 and June 27, 2020 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Item 1. |
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36 |
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Item 1A. |
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36 |
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Item 2. |
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Item 6. |
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37 |
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38 |
PART I—FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SYNAPTICS INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except par value and share amounts)
(unaudited)
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September |
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June |
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2020 |
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2020 |
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ASSETS |
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Current Assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Short-term investments |
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— |
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Accounts receivable, net of allowances of $ |
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Inventories |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment at cost, net of accumulated depreciation of $ September 2020 and June 2020, respectively |
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Goodwill |
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Acquired intangibles, net |
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Non-current other assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current Liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued compensation |
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Income taxes payable |
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Other accrued liabilities |
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Total current liabilities |
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Long-term debt |
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Convertible notes, net |
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Other long-term liabilities |
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Total liabilities |
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Stockholders' Equity: |
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Common stock: |
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$ issued, and and June 2020, respectively |
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Additional paid-in capital |
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Treasury stock: 2020 and June 2020, at cost |
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( |
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( |
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Retained earnings |
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Total stockholders' equity |
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$ |
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$ |
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See accompanying notes to condensed consolidated financial statements (unaudited).
3
SYNAPTICS INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
(in millions, except per share data)
(unaudited)
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Three Months Ended |
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September |
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2020 |
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2019 |
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Net revenue |
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$ |
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$ |
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Cost of revenue |
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Gross margin |
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Operating expenses: |
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Research and development |
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Selling, general, and administrative |
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Acquired intangibles amortization |
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Restructuring costs |
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Total operating expenses |
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Operating income |
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Interest and other expense, net |
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( |
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( |
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Income/(loss) before provision/(benefit) for income taxes and equity investment loss |
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( |
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Provision/(benefit) for income taxes |
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( |
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Equity investment loss |
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( |
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( |
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Net income/(loss) and Comprehensive income/(loss) |
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$ |
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$ |
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Net income/(loss) per share: |
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Basic |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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Shares used in computing net income/(loss) per share: |
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Basic |
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Diluted |
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See accompanying notes to condensed consolidated financial statements (unaudited).
4
SYNAPTICS INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in millions, except share amounts)
(unaudited)
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Common Stock |
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Paid-in |
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Treasury |
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Retained |
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Stockholders' |
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Shares |
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Amount |
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Capital |
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Stock |
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Earnings |
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Equity |
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Balance at June 2020 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Net loss |
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— |
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— |
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— |
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— |
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( |
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( |
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Issuance of common stock for share- based award compensation plans |
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— |
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— |
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— |
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Payroll taxes for deferred stock units |
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— |
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— |
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( |
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— |
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— |
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( |
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Share-based compensation attributable to acquisition |
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— |
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— |
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— |
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— |
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Share-based compensation |
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— |
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— |
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— |
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— |
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Balance at September 2020 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Common Stock |
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Paid-in |
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Treasury |
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Retained |
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Stockholders' |
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Shares |
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Amount |
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Capital |
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Stock |
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Earnings |
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Equity |
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Balance at June 2019, as reported |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Cumulative effect of changes in accounting principles |
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— |
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— |
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— |
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— |
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( |
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$ |
( |
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Balance at June 2019, as adjusted |
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( |
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Net income |
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— |
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— |
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— |
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— |
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Issuance of common stock for share- based award compensation plans |
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— |
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— |
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— |
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Payroll taxes for deferred stock units |
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— |
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— |
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( |
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— |
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— |
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( |
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Purchases of treasury stock |
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— |
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— |
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— |
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( |
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— |
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( |
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Share-based compensation |
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— |
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— |
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— |
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— |
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Balance at September 2019 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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See accompanying notes to condensed consolidated financial statements (unaudited).
5
SYNAPTICS INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
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Three Months Ended |
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September |
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2020 |
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2019 |
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Cash flows from operating activities |
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Net income/(loss) |
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$ |
( |
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$ |
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Adjustments to reconcile net income/(loss) to net cash provided by operating activities: |
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Share-based compensation costs |
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Depreciation and amortization |
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Acquired intangibles amortization |
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Deferred taxes |
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( |
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( |
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Amortization of convertible debt discount and issuance costs |
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Amortization of debt issuance costs |
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Amortization of cost of development services |
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— |
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Acquired in-process research and development |
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— |
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Equity investment loss |
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Foreign currency remeasurement loss |
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( |
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— |
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Changes in operating assets and liabilities, net of acquisitions: |
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Accounts receivable, net |
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( |
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( |
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Inventories |
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Prepaid expenses and other current assets |
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( |
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( |
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Other assets |
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( |
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( |
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Accounts payable |
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Accrued compensation |
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( |
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Income taxes payable |
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( |
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( |
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Other accrued liabilities |
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( |
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( |
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Net cash provided by operating activities |
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Cash flows from investing activities |
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Acquisition of businesses, net of cash and cash equivalents acquired |
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( |
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— |
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Purchase of in-process research and development |
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— |
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( |
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Proceeds from maturities of investments |
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— |
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Purchases of property and equipment |
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( |
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( |
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Net cash used in investing activities |
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( |
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( |
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Cash flows from financing activities |
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Purchases of treasury stock |
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— |
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( |
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Proceeds from issuance of shares |
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Payroll taxes for deferred stock and market stock units |
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( |
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( |
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Net cash provided by/(used in) financing activities |
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( |
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Effect of exchange rate changes on cash and cash equivalents |
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— |
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Net increase/(decrease) in cash and cash equivalents |
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( |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period |
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$ |
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$ |
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Supplemental disclosures of cash flow information |
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Cash paid for taxes |
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$ |
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$ |
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Non-cash investing and financing activities: |
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Purchases of property and equipment in current liabilities |
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$ |
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$ |
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See accompanying notes to condensed consolidated financial statements (unaudited)
6
SYNAPTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission, or the SEC, and U.S. generally accepted accounting principles, or U.S. GAAP. Certain information or footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to SEC rules and regulations. In our opinion, the financial statements include all adjustments, which are of a normal and recurring nature and necessary for the fair presentation of the results of the interim periods presented. The results of operations for the interim periods are not necessarily indicative of the operating results for the full fiscal year or any future period. These financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended June 27, 2020.
The consolidated financial statements include our financial statements and those of our wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated upon consolidation.
Our fiscal year is the 52- or 53-week period ending on the last Saturday in June. Our fiscal 2021 and 2020 are 52-week periods ending June 26, 2021 and June 27, 2020, respectively. The fiscal periods presented in this report are 13-week periods ended September 26, 2020, and September 28, 2019.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, allowance for doubtful accounts, cost of revenue, inventories, loss on purchase commitments, product warranty, accrued liabilities, share-based compensation costs, provision for income taxes, deferred income tax asset valuation allowances, uncertain tax positions, goodwill, intangible assets, investments and loss contingencies. We base our estimates on historical experience, applicable laws and regulations, and various other assumptions that we believe to be reasonable under the circumstances, including our expectations regarding the potential impacts on our business of the COVID-19 pandemic, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Cash Equivalents and Short-Term Investments
Cash equivalents consist of highly liquid investments with original maturities of three months or less. Our cash equivalents as of September 26, 2020 included bank deposits with a carrying value of $
Short-term investments comprise deposits held with banks with original maturities of greater than three months but less than one year when purchased. All of our short-term investments are classified as investments recorded at amortized cost, which approximates fair value.
Foreign Currency Transactions and Foreign Exchange Contracts
The U.S. dollar is our functional and reporting currency. We remeasure our monetary assets and liabilities not denominated in the functional currency into U.S. dollar equivalents at the rate of exchange in effect on the balance sheet date. We measure and record non-monetary balance sheet accounts at the historical rate in effect at the date of transaction. We remeasure foreign currency expenses at the weighted average exchange rate in the month that the transaction occurred. Our foreign currency transactions and remeasurement gains and losses are included in selling, general, and administrative expenses in the condensed consolidated statements of income and resulted in net losses of $
Leases
We determine if a contract is a lease or contains a lease at the inception of the contract and reassess that conclusion if the contract is modified. All leases are assessed for classification as an operating lease or a finance lease. Operating lease right-of-use, or
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ROU, assets are included in non-current other assets on our condensed consolidated balance sheet. Operating lease liabilities are separated into a current portion, included within accrued liabilities on our condensed consolidated balance sheet, and a non-current portion, included within other long-term liabilities on our condensed consolidated balance sheet. We do not have any finance lease ROU assets or liabilities. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. We do not obtain and control the right to use the identified asset until the lease commencement date.
Our lease liabilities are recognized at the applicable lease commencement date based on the present value of the lease payments required to be paid over the lease term. Because the interest rate implicit in the lease is not readily determinable, we generally use our incremental borrowing rate to discount the lease payments to present value. The estimated incremental borrowing rate is derived from information available at the lease commencement date. We factor in publicly available data for instruments with similar characteristics when calculating our incremental borrowing rates. Our ROU assets are also recognized at the applicable lease commencement date. The ROU asset equals the carrying amount of the related lease liability, adjusted for any lease payments made prior to lease commencement and lease incentives provided by the lessor. Variable lease payments are expensed as incurred and do not factor into the measurement of the applicable ROU asset or lease liability.
The term of our leases equals the non-cancellable period of the lease, including any rent-free periods provided by the lessor, and also include options to renew or extend the lease (including by not terminating the lease) that we are reasonably certain to exercise. We establish the term of each lease at lease commencement and reassess that term in subsequent periods when one of the triggering events outlined in Topic 842 occurs. Operating lease cost for lease payments is recognized on a straight-line basis over the lease term.
Our lease contracts often include lease and non-lease components. For our leases, we have elected the practical expedient offered by the standard to not separate lease from non-lease components and account for them as a single lease component.
We have elected, for all classes of underlying assets, not to recognize ROU assets and lease liabilities for leases with a term of twelve months or less. Lease cost for short-term leases is recognized on a straight-line basis over the lease term.
2. Revenue Recognition
We account for revenue using Accounting Standards Codification Topic 606, or ASC 606, Revenue from Contracts with Customers. Our revenue is primarily generated from the sale of application specific integrated circuit chips, or ASIC chips, either directly to a customer or to a distributor. Revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to receive in exchange for those goods or services. All of our revenue, except an inconsequential amount, is recognized at a point in time, either on shipment or delivery of the product, depending on customer terms and conditions. We generally warrant our products for a period of 12 months from the date of sale and estimate probable product warranty costs at the time we recognize revenue as the warranty is considered an assurance warranty and not a performance obligation. Non-product revenue is recognized over the same period of time such performance obligations are satisfied. We then select an appropriate method for measuring satisfaction of the performance obligations.
Revenue from sales to distributors is recognized upon shipment of the product to the distributors (sell-in basis). Master sales agreements are in place with certain customers, and these agreements typically contain terms and conditions with respect to payment, delivery, warranty and supply. In the absence of a master sales agreement, we consider a customer's purchase order or our standard terms and conditions to be the contract with the customer.
Our pricing terms are negotiated independently, on a stand-alone basis. In determining the transaction price, we evaluate whether the price is subject to refund or adjustment to determine the net consideration which we expect to receive for the sale of such products. In limited situations, we make sales to certain customers under arrangements where we grant stock rotation rights, price protection and price allowances; variable consideration associated with these rights is expected to be inconsequential. These adjustments and incentives are accounted for as variable consideration, classified as other current liabilities under the revenue standard, and are shown as customer obligations in Note 9 Other Accrued Liabilities and Other Long-Term Liabilities. We estimate the amount of variable consideration for such arrangements based on the expected value to be provided to customers, and we do not believe that there will be significant changes to our estimates of variable consideration. When incentives, stock rotation rights, price protection, volume discounts, or price allowances are applicable, they are estimated and recorded in the period the related revenue is recognized. Stock rotation reserves are based on historical return rates and recorded as a reduction to revenue with a corresponding reduction to cost of goods sold for the estimated cost of inventory that is expected to be returned and recorded as prepaid expenses and other current assets. In limited circumstances, we enter into volume-based tiered pricing arrangements and we estimate total unit volumes under such arrangements to determine the expected transaction price for the units expected to be transferred. Such arrangements are accounted for as contract liabilities within other accrued liabilities. Sales returns liabilities are recorded as refund liabilities within other accrued liabilities.
8
Our accounts receivable balance is from contracts with customers and represents our unconditional right to receive consideration from customers.
We invoice customers for each delivery upon shipment and recognize revenue in accordance with delivery terms. As of September 26, 2020, we did
We incur commission expense that is incremental to obtaining contracts with customers. Sales commissions (which are recorded as a selling, general and administrative expense in the condensed consolidated statements of income) are expensed when the product is shipped because such commissions are owed after shipment.
Revenue from contracts with customers disaggregated by geographic area based on customer location and groups of similar products is presented in Note 14 Segment, Customers, and Geographical Information.
3. Net Income Per Share
The computation of basic and diluted net income per share was as follows (in millions, except per share data):
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Three Months Ended |
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September |
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2020 |
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2019 |
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Numerator: |
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Net income/(loss) |
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$ |
( |
) |
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$ |
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Denominator: |
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Shares, basic |
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Effect of dilutive share-based awards |
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- |
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Shares, diluted |
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Net income/(loss) per share: |
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Basic |
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$ |
( |
) |
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$ |
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Diluted |
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$ |
( |
) |
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$ |
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Our basic net income per share amounts for each period presented have been computed using the weighted average number of shares of common stock outstanding over the period measured. Our diluted net income per share amounts for each period presented include the weighted average effect of potentially dilutive shares. We use the treasury stock method to determine the dilutive effect of our stock options, restricted stock units, or RSUs, market stock units, or MSUs, performance stock units, or PSUs, and our convertible notes.
Dilutive net income per share amounts do not include the potential weighted average effect of
9
4. Fair Value
Our carrying values of cash equivalents and short-term investments approximate their fair values due to the short period of time to maturity.
The fair values of our accounts receivable and accounts payable approximate their carrying values because of the short-term nature of those instruments. Intangible assets, property and equipment, and goodwill are measured at fair value on a non-recurring basis if impairment is indicated. The interest rate on our bank debt is variable, which is subject to change from time to time to reflect a market interest rate; accordingly, the carrying value of our bank debt approximates fair value.
The fair value of our $
5. Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or net realizable value and consisted of the following (in millions):
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September |
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June |
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2020 |
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2020 |
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Raw materials and work-in-progress |
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$ |
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$ |
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Finished goods |
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$ |
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$ |
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We record a write-down, if necessary, to reduce the carrying value of inventory to its net realizable value. The effect of these write-downs is to establish a new cost basis in the related inventory, which we do not subsequently write up. We also record a liability and charge to cost of revenue for estimated losses on inventory we are obligated to purchase from our contract manufacturers when such losses become probable from customer delays, order cancellations, or other factors.
6. |
Acquisitions |
DisplayLink
On
This acquisition has been accounted for using the purchase method of accounting in accordance with the business acquisition guidance. Under the purchase accounting method, the total estimated purchase consideration of the acquisition was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their relative fair values. The excess of the purchase consideration over the net tangible and identifiable intangible assets acquired and liabilities has been recorded as goodwill. Our estimate of the fair values of the acquired intangible assets at September 26, 2020, is preliminary and subject to change and is based on established and accepted valuation techniques performed with the assistance of our third-party valuation specialists. Additional information, which existed as of the acquisition date but is yet unknown to us, may become known to us during the remainder of the measurement period, which will not exceed 12 months from the DisplayLink Closing Date. Changes to amounts will be recorded as adjustments to the provisional amounts recognized as of the DisplayLink Closing Date and may result in a corresponding adjustment to goodwill in the period in which new information becomes available.
10
The adjusted purchase price paid for DisplayLink was $
The following table summarizes the preliminary amounts recorded for the estimated fair values of the assets acquired and liabilities assumed as of the DisplayLink Closing Date (in millions):
Cash and cash equivalents |
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$ |
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Short-term investments |
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Accounts receivable, net |
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Inventory |
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Prepaid expenses and other current assets |
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Property and equipment |
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Intangible assets |
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Right-of-use lease asset |
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Non-current other assets |
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Total identifiable assets acquired |
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Accounts payable |
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( |
) |
Other accrued liabilities |
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( |
) |
Short-term lease liabilities |
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( |
) |
Long-term lease liabilities |
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( |
) |
Other long-term liabilities |
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( |
) |
Total liabilities |
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( |
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Net identifiable assets acquired |
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Goodwill |
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Net assets acquired |
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$ |
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The following table summarizes the preliminary estimate of the intangible assets as of the DisplayLink Closing Date (in millions):
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Estimated Weighted Average Useful Lives in Years |
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Estimated Fair Value |
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Developed technology |
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$ |
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Customer contracts and related relationships |
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In process research and development |
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N/A |
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Trade names |
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Licensed technology |
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Estimated fair value of acquired intangibles |
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$ |
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We estimated the fair value of the identified intangible assets using a discounted cash flow model for each of the underlying identified intangible assets. These fair value measurements were based on significant inputs not observable in the market and thus represent a Level 3 measurement. Key assumptions include the level and timing of expected future cash flows, conditions and demands specific to each intangible asset over