CRUS

CIRRUS LOGIC, INC. - 10-K Summary (Fiscal Year Ended March 28, 2009)

Business Context and Reporting Period

Cirrus Logic, Inc. is a fabless semiconductor company developing high-precision analog and mixed-signal integrated circuits (ICs) for audio and energy markets. The company operates in two primary product categories: Audio Products (converters, DSPs, amplifiers) and Energy Products (power management, motor control). The reporting period covers the fiscal year ended March 28, 2009. The company is headquartered in Austin, Texas, with significant international sales operations, particularly in Asia.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Net sales decreased 4% to $174.6 million, driven by a $4.4 million drop in Energy products and a $2.8 million drop in Audio products. This reflects reduced consumer and business spending due to the global credit crisis.
• Return to Profitability: The company returned to profitability with $3.5 million in net income, compared to a $5.8 million loss in 2008. This was achieved through revenue from new products and strict expense management.
• Expense Reductions: Selling, General, and Administrative (SG&A) expenses decreased 15% ($8.3 million) due to lower professional fees (absence of stock option investigation costs) and reduced headcount. R&D expenses decreased $4.2 million due to lower mask and wafer costs.
• Stock Repurchases: The company completed a $150 million share repurchase program in early 2009, utilizing significant cash reserves. A new $20 million repurchase program was authorized in January 2009, with no purchases made as of the period end.
• Impairments: The company recorded a $2.1 million impairment of intangible assets (patents acquired from Tripath) and a $2.2 million provision for litigation expenses related to derivative lawsuits.

Guidance, Outlook, and Risks

Outlook: Management expects to maintain operating profitability in fiscal 2010, excluding unusual events, by focusing on design wins and market share growth in portable audio, smart phones, and energy markets (specifically motor control and power factor correction). The company anticipates continued challenges from the macro-economic environment.

Risks and Contingencies:

• Economic Conditions: The global financial crisis has caused a significant slowdown in orders, particularly in the third and fourth quarters of 2009. Future sales are difficult to forecast.
• Customer Concentration: The ten largest customers represented 36% of sales, with one end customer accounting for over 15% of total sales.
• Legal Proceedings: A revised settlement for derivative lawsuits regarding stock option grants was preliminarily approved by the court in March 2009. The settlement involves corporate governance changes and a $2.85 million payment by the company's D&O insurer to the company. An appeal regarding a trade secret lawsuit with Silvaco Data Systems is pending.
• Inventory and Supply Chain: As a fabless company, Cirrus relies on third-party foundries. Shifts in industry capacity or customer order cancellations could lead to excess inventory or shortages.

Investor Verification Checklist

• Cash Position: Verify the impact of the $150 million stock buyback on remaining liquidity ($31.5 million cash) against operating cash flow needs.
• Customer Concentration: Assess the risk associated with the single customer representing >15% of revenue and the top 10 representing 36%.
• Legal Settlement Finality: Monitor the final court approval of the derivative lawsuit settlement scheduled for May 28, 2009.
• Inventory Valuation: Review inventory levels ($19.9 million) and potential for future write-downs given the economic downturn and product life cycles.
• Valuation Allowance: Note the $2.7 million increase in the valuation allowance on U.S. deferred tax assets, indicating uncertainty regarding future taxable income.