IDTI-12.29.2013-10Q
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________
FORM 10-Q
______________________________
(Mark One)
/x/
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 29, 2013 OR
/ /
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                            to                             .
Commission File No. 0-12695
INTEGRATED DEVICE TECHNOLOGY, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE
(State or Other Jurisdiction of Incorporation or Organization)
94-2669985
(I.R.S. Employer Identification No.)
6024 SILVER CREEK VALLEY ROAD, SAN JOSE, CALIFORNIA
(Address of Principal Executive Offices)
95138
(Zip Code)
Registrant's Telephone Number, Including Area Code: (408) 284-8200

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.  Yes ý No o 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes ý No ¨ 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. 
 ý  Large accelerated filer                           ¨   Accelerated filer                            ¨  Non-accelerated filer               ¨ Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes o No ý 
The number of outstanding shares of the registrant's Common Stock, $.001 par value, as of January 31, 2014 was approximately 149,932,640.



Table of Contents

INTEGRATED DEVICE TECHNOLOGY, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS

PART I-FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 
PART II-OTHER INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
INTEGRATED DEVICE TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
 
(Unaudited in thousands)
December 29, 2013
 
March 31, 2013
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
104,628

 
$
130,837

Short-term investments
333,670

 
166,333

Accounts receivable, net of allowances of $2,122 and $2,787
65,774

 
62,083

Inventories
53,332

 
56,555

Income tax receivable
144

 
192

Prepayments and other current assets
15,253

 
24,505

Total current assets
572,801

 
440,505

Property, plant and equipment, net
71,716

 
74,988

Goodwill
135,644

 
144,924

Other intangible assets, net
33,173

 
48,602

Deferred non-current tax assets
776

 
671

Other assets
17,704

 
18,889

Total assets
$
831,814

 
$
728,579

Liabilities and stockholders' equity
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
22,822

 
$
23,244

Accrued compensation and related expenses
22,545

 
21,090

Deferred income on shipments to distributors
13,374

 
14,539

Deferred tax liabilities
1,150

 
1,000

Other accrued liabilities
10,646

 
14,652

Total current liabilities
70,537

 
74,525

Deferred tax liabilities
1,552

 
1,552

Long-term income tax payable
305

 
454

Other long-term liabilities
19,539

 
22,022

Total liabilities
91,933

 
98,553

Commitments and contingencies (Note 15)


 


Stockholders' equity:
 

 
 

Preferred stock: $.001 par value: 10,000 shares authorized; no shares issued

 

Common stock: $.001 par value: 350,000 shares authorized; 150,108 and 146,253 shares outstanding at December 29, 2013 and March 31, 2013, respectively
150

 
146

Additional paid-in capital
2,449,380

 
2,407,998

Treasury stock at cost: 92,467 shares at December 29, 2013 and 90,426 shares at March 31, 2013, respectively
(997,672
)
 
(977,296
)
Accumulated deficit
(713,973
)
 
(802,308
)
Accumulated other comprehensive income
1,996

 
1,486

Total stockholders' equity
739,881

 
630,026

Total liabilities and stockholders' equity
$
831,814

 
$
728,579


The accompanying notes are an integral part of these condensed consolidated financial statements.

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Table of Contents

INTEGRATED DEVICE TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
 
Three Months Ended
 
Nine Months Ended
 
(Unaudited in thousands, except per share data)
December 29,
2013
 
December 30,
2012
 
December 29,
2013
 
December 30,
2012
Revenues
$
124,628

 
$
114,277

 
$
366,139

 
$
376,673

Cost of revenues
49,689

 
51,203

 
154,317

 
166,472

Gross profit
74,939

 
63,074

 
211,822

 
210,201

Operating expenses:
 

 
 

 
 

 
 
Research and development
31,063

 
36,700

 
107,939

 
117,375

Selling, general and administrative
23,687

 
25,871

 
77,826

 
89,864

Total operating expenses
54,750

 
62,571

 
185,765

 
207,239

Operating income
20,189

 
503

 
26,057

 
2,962

Gain (loss) on divestitures, net
(3,415
)
 

 
78,934

 

Interest income (expense) and other, net
1,108

 
(344
)
 
1,921

 
1,450

Income before income taxes from continuing operations
17,882

 
159

 
106,912

 
4,412

Income tax provision (benefit)
543

 
265

 
661

 
(3,768
)
Net income (loss) from continuing operations
$
17,339

 
$
(106
)
 
$
106,251

 
$
8,180

 
 
 
 
 
 
 
 
Discontinued operations:
 
 
 
 
 
 
 
Gain from divestiture

 

 

 
886

Loss from discontinued operations before income taxes
(10,123
)
 
(5,115
)
 
(17,922
)
 
(18,658
)
Income tax provision (benefit)
268

 
(64
)
 
(6
)
 
(47
)
Net loss from discontinued operations
(10,391
)
 
(5,051
)
 
(17,916
)
 
(17,725
)
 
 
 
 
 
 
 
 
Net income (loss)
$
6,948

 
$
(5,157
)
 
$
88,335

 
$
(9,545
)
 
 
 
 
 
 
 
 
Basic net income per share - continuing operations
$
0.11

 
$

 
$
0.71

 
$
0.06

Basic net loss per share - discontinued operations
$
(0.06
)
 
$
(0.04
)
 
$
(0.12
)
 
$
(0.13
)
Basic net income (loss) per share
$
0.05

 
$
(0.04
)
 
$
0.59

 
$
(0.07
)
 
 
 
 
 
 
 
 
Diluted net income per share - continuing operations
$
0.11

 
$

 
$
0.70

 
$
0.06

Diluted net loss per share - discontinued operations
$
(0.07
)
 
$
(0.04
)
 
$
(0.12
)
 
$
(0.13
)
Diluted net income (loss) per share
$
0.04

 
$
(0.04
)
 
$
0.58

 
$
(0.07
)
 
 
 
 
 
 
 
 
Weighted average shares:
 

 
 

 
 

 
 
Basic
151,018

 
144,321

 
148,835

 
143,477

Diluted
155,035

 
144,321

 
152,560

 
144,760


The accompanying notes are an integral part of these condensed consolidated financial statements.

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INTEGRATED DEVICE TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

 
Three Months Ended
 
Nine Months Ended
 
(Unaudited in thousands)
December 29,
2013
 
December 30,
2012
 
December 29,
2013
 
December 30,
2012
 
 
 
 
 
 
 
 
Net income (loss)
$
6,948

 
$
(5,157
)
 
$
88,335

 
$
(9,545
)
Other comprehensive income, net of taxes:
 
 
 
 
 
 
 
Currency translation adjustments, net of tax
(134
)
 
112

 
407

 
837

Change in net unrealized gain on investments, net of tax
218

 
8

 
107

 
8

Actuarial loss on post-employment and post-retirement benefit plans, net of tax
(1
)
 

 
(4
)
 

Total other comprehensive income
$
83

 
$
120

 
$
510

 
$
845

Comprehensive income (loss)
$
7,031

 
$
(5,037
)
 
$
88,845

 
$
(8,700
)

The accompanying notes are an integral part of these condensed consolidated financial statements.


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INTEGRATED DEVICE TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Nine Months Ended
 
(Unaudited in thousands)
December 29,
2013
 
December 30,
2012
Cash flows provided by operating activities:
 
 
 
Net income (loss)
$
88,335

 
$
(9,545
)
Adjustments:
 

 
 

Depreciation
15,936

 
14,737

Amortization of intangible assets
12,794

 
15,144

Goodwill and long-lived asset impairment
4,797

 
584

Gain from divestitures, net
(78,934
)
 
(886
)
Stock-based compensation expense, net of amounts capitalized in inventory
10,846

 
9,306

Deferred tax benefit
(160
)
 
(4,302
)
Tax benefit from share-based payment arrangements

 
(45
)
Changes in assets and liabilities (net of amounts acquired):
 

 
 

Accounts receivable, net
(3,691
)
 
2,143

Inventories
(751
)
 
13,294

Prepayments and other assets
4,786

 
6,329

Accounts payable
(2,676
)
 
(4,569
)
Accrued compensation and related expenses
49

 
(4,363
)
Deferred income on shipments to distributors
(1,165
)
 
(662
)
Income taxes payable and receivable
(905
)
 
200

Other accrued liabilities and long-term liabilities
(996
)
 
(1,333
)
Net cash provided by operating activities
48,265

 
36,032

Cash flows used for investing activities:
 

 
 

Acquisitions, net of cash acquired

 
(68,341
)
Cash in escrow related to acquisitions
6,000

 
(7,816
)
Proceeds from divestitures
96,299

 
5,000

Purchases of property, plant and equipment
(14,489
)
 
(22,011
)
Purchases of short-term investments
(307,529
)
 
(139,915
)
Proceeds from sales of short-term investments
26,949

 
32,396

Proceeds from maturities of short-term investments
112,506

 
130,822

Net cash used for investing activities
(80,264
)
 
(69,865
)
Cash flows provided by financing activities:
 

 
 

Proceeds from issuance of common stock
30,889

 
10,829

Repurchase of common stock
(20,376
)


Payment of acquisition related contingent consideration
(5,130
)
 

Excess tax benefit from share-based payment arrangements

 
45

Net cash provided by financing activities
5,383

 
10,874

Effect of exchange rates on cash and cash equivalents 
407

 
837

Net decrease in cash and cash equivalents
(26,209
)
 
(22,122
)
Cash and cash equivalents at beginning of period
130,837

 
134,924

Cash and cash equivalents at end of period
$
104,628

 
$
112,802


The accompanying notes are an integral part of these condensed consolidated financial statements.

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INTEGRATED DEVICE TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
Nature of Business. Integrated Device Technology, Inc. (IDT or the Company) designs, develops, manufactures and markets a broad range of integrated circuits for the advanced communications, computing and consumer industries.
Basis of Presentation. The Company's fiscal year is the 52- or 53-week period ending on the Sunday closest to March 31st. In a 52-week year, each fiscal quarter consists of thirteen weeks. In a 53-week year, the additional week is usually added to the third quarter, making such quarter consist of fourteen weeks. The first, second and third quarters of fiscal 2014 and fiscal 2013 were thirteen week periods.
Principles of Consolidation. The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All inter-company accounts and transactions have been eliminated.
Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Significant Accounting Policies. For a description of significant accounting policies, see Note 1, Summary of Significant Accounting Policies to the consolidated financial statements included in the Company's annual report on Form 10-K for the fiscal year ended March 31, 2013. There have been no material changes to the Company's significant accounting policies since the filing of the annual report on Form 10-K.
In the opinion of management, these condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for the fair statement of the condensed consolidated financial statements, for the interim period.
Recent Accounting Pronouncements.
Accounting Pronouncements Recently Adopted
In July 2012, the Financial Accounting Standards Board (FASB) issued an amendment to its guidance regarding the testing of indefinite-lived intangible assets for impairment. This amended guidance allows an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with the guidance on the impairment of intangible assets other than goodwill. This amended guidance is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The adoption of this guidance had no impact on the Company’s financial statements.
In February 2013, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) to the guidance on Comprehensive Income, to improve the reporting of reclassifications out of accumulated other income. This guidance requires entities to provide information about the amounts reclassified out of accumulated other income by component. The authoritative guidance also requires an entity to present, either on the face of the statement where net income (loss) is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income only if the amount reclassified is required under U.S. GAAP to be reclassified to net income (loss) in its entirety in the same reporting period. For amounts not required to be reclassified under U.S. GAAP, entities are required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. The Company adopted this guidance in the first quarter of fiscal 2014 and the adoption did not have a significant impact on the Company's condensed consolidated financial statements. See Note 12 for more information.
Accounting Pronouncements Not Yet Effective for Fiscal 2014
In February 2013, the FASB issued guidance for the recognition, measurement, and disclosure of certain obligations resulting from joint and several liability arrangements for which the total amount is fixed. Such obligations may include debt arrangements, legal settlements, and other contractual arrangements. The guidance is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2013, which is the first quarter of fiscal 2015 for the Company, and should be applied retrospectively to all prior periods presented for those obligations within the scope which existed as of the beginning of the fiscal year of adoption. Early adoption is permitted. The Company is currently evaluating the new guidance.
In March 2013, the FASB issued guidance on the accounting for the cumulative translation adjustment upon derecognition of certain subsidiaries or groups of assets within a foreign entity or of an investment in a foreign entity. The guidance is effective prospectively for fiscal years and interim periods within those fiscal years beginning after December 15, 2013, which is the first quarter of fiscal 2015 for the Company. Early adoption is permitted. The Company is currently evaluating the new guidance.
In July 2013, FASB issued an ASU on Income Taxes, to improve the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. This guidance is expected to reduce diversity

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in practice by and is expected to better reflect the manner in which an entity would settle at the reporting date any additional income taxes that would result from the disallowance of a tax position when net operating loss carryforwards, similar tax losses, or tax credit carryforwards exists. This guidance is effective for interim and annual periods beginning after December 15, 2013, which is the first quarter of fiscal 2015 for the Company. The Company does not believe that the implementation of this authoritative guidance will have a material impact on its financial position or results of operations as it affects presentation of unrecognized tax benefits.
Note 2. Net Income (Loss) Per Share
Basic net income (loss) per share is computed using the weighted-average number of common shares outstanding during the period. Diluted net income per share is computed using the weighted-average number of common and dilutive potential common shares outstanding during the period. Potential common shares include employee stock options and restricted stock units. For purposes of computing diluted net income per share, weighted average potential common shares do not include potential common shares that are anti-dilutive under the treasury stock method.
The following table sets forth the computation of basic and diluted net income per share from continuing operations: 
 
Three Months Ended
 
Nine Months Ended
 
(in thousands, except per share amounts)
December 29,
2013
 
December 30,
2012
 
December 29,
2013
 
December 30,
2012
Numerator (basic and diluted):
 
 
 
 
 
 
 
Net income (loss) from continuing operations
$
17,339

 
$
(106
)
 
$
106,251

 
$
8,180

 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted average common shares outstanding, basic
151,018

 
144,321

 
148,835

 
143,477

Dilutive effect of employee stock options and restricted stock units
4,017

 

 
3,725

 
1,283

Weighted average common shares outstanding, diluted
155,035

 
144,321

 
152,560

 
144,760

 
 
 
 
 
 
 
 
Basic net income per share from continuing operations
$
0.11

 
$

 
$
0.71

 
$
0.06

Diluted net income per share from continuing operations
$
0.11

 
$

 
$
0.70

 
$
0.06

Potential dilutive common shares of 0.7 million and 10.1 million pertaining to employee stock options and restricted stock units were excluded from the calculation of diluted earnings per share for the three months ended December 29, 2013 and December 30, 2012, respectively, because the effect would have been anti-dilutive. Potential dilutive common shares of 3.8 million and 16.3 million pertaining to employee stock options and restricted stock units were excluded from the calculation of diluted earnings per share for the nine months ended December 29, 2013 and December 30, 2012, respectively, because the effect would have been anti-dilutive.
Note 3. Business Combinations
Termination of Proposed Acquisition of PLX Technology, Inc. (PLX)
On April 30, 2012, IDT and PLX had entered into an Agreement and Plan of Merger with PLX Technology, Inc. (PLX) for the acquisition of PLX by IDT (the Agreement). On December 19, 2012, the United States Federal Trade Commission (FTC) filed an administrative complaint challenging IDT’s proposed acquisition of PLX. In response to the FTC’s determination to challenge the proposed acquisition of PLX by IDT, effective December 19, 2012, IDT and PLX mutually agreed to terminate the Agreement. Also on December 19, 2012, IDT withdrew its related exchange offer (the Offer) to acquire all of the issued and outstanding shares of common stock, $0.001 par value, of PLX and instructed Computershare, the exchange agent for the Offer, to promptly return all previously tendered shares.
Acquisition of NXP B.V.'s Data Converter Business
On July 19, 2012, the Company completed an acquisition of certain assets related to technology and products developed for communications analog mixed-signal market applications from NXP B.V.

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The Company acquired the communications analog mixed-signal assets for an aggregate cash purchase price of approximately $31.2 million, less a $4.0 million credit from NXP B.V. for certain accrued liabilities assumed by the Company from NXP B.V. resulting in a net aggregate purchase price of $27.2 million.
The assets acquired and liabilities assumed were recognized in the following manner based on their fair values as at July 19, 2012:
(in thousands)
Fair Value
Inventories
$
252

Property, plant and equipment, net
1,125

Funded pension assets *
666

Accrued pension liabilities*
(666
)
Other long term liabilities
(435
)
Intangible assets (other than goodwill)
12,500

Goodwill
13,720

Total purchase price
$
27,162

* See Note 16 for information regarding pension plans adopted.
A summary of the allocation of intangible assets (other than goodwill) is as follows:
(in thousands)
Fair Value
Existing technologies
$
7,500

Customer relationships
2,700

In-process research and development
1,900

Non-compete agreements
300

Backlog
100

Total
$
12,500

The purchase price in excess of the fair value of the assets and liabilities assumed was recognized as goodwill.
Identifiable Tangible Assets and Liabilities:
Assets and liabilities were reviewed and adjusted, if required, to their estimated fair value.
Inventories – The value allocated to inventories reflects the estimated fair value of the acquired inventory based on the expected sales price of the inventory, less reasonable selling margin.
Funded pension assets and liabilities – The costs of pension benefits and related liabilities for the employees that were transferred to the Company as a result of the acquisition were determined based on actuarial calculations.
Intangible Assets:
Existing technologies consist of NXP's data converter products that have reached technological feasibility and in-process research and development (IPR&D) which consists of projects that have not reached technological feasibility. The Company valued the existing technologies and IPR&D utilizing a multi-period excess earnings method (Excess Earnings Method), which uses the discounted future earnings specifically attributed to these intangible assets, that is, in excess of returns for other assets that contributed to those earnings. The Company utilized discount factors of 26% for the existing technologies and a discount factor of 31% was utilized for IPR&D. The Company valued one year of contractual backlog also using the Excess Earnings Method and a discount rate of 19%. Customer relationship and non-competition agreement values have been estimated utilizing a with and without method (With and Without Method), which uses projected cash flows with and without the intangible asset in place. Cash flow differentials are then discounted to present value to arrive at an estimate of fair value for the asset. The Company utilized discount factors of 29% for estimating the value of these intangible assets.
The financial results of the NXP B.V. data converter business have been included in the Company’s Condensed Consolidated Statements of Operations from July 19, 2012, the closing date of the acquisition.

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Pro Forma Financial Information (unaudited):
The following unaudited pro forma financial information presents the combined results of operations of the Company and the NXP B.V. data converter business as if the acquisition had occurred as of the beginning of fiscal 2012. The unaudited pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of fiscal 2012. The unaudited pro forma financial information presented below for the nine months ended December 30, 2012 combines historical IDT and NXP B.V. data converter business results. The pro forma financial information includes the business combination effect of the amortization charges from acquired intangible assets, the amortization of fair market value inventory write-up and acquisition costs.
 
Nine Months Ended
(Unaudited in thousands, except per share data)
December 30, 2012
Revenues
$
379,110

Net income (loss)
$
(9,363
)
Basic net income (loss) per share - continuing operations
$
(0.07
)
Diluted net income (loss) per share - continuing operations
$
(0.07
)
Acquisition of Fox Enterprises, Inc.
On April 30, 2012, the Company completed the acquisition of Fox Enterprises, Inc. (Fox), a leading supplier of frequency control products including crystals and crystal oscillators, in an all-cash transaction for approximately $28.9 million, which included $25.7 million in cash paid at closing and $3.2 million which was recorded as a liability representing the fair value of contingent cash consideration of up to $4.0 million based upon the achievement of future financial milestones, which would be payable after 12 months from the acquisition date. During the three month period ended June 30, 2013, the Company settled the contingent consideration and paid Fox $3.3 million. The Company believes that the combination of Fox's product portfolio with the Company's CrystalFree™ oscillators makes the Company the industry's one-stop shop for frequency control products. In addition, the Company expects this acquisition will help accelerate the adoption of CrystalFree™ by enabling customers to purchase pMEMS and CMOS solid-state oscillators alongside traditional quartz-based components through the Company's established sales channels.
The Company allocated the purchase price to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The excess purchase price over those fair values was recorded as goodwill. The fair values assigned to tangible and intangible assets acquired were based on management estimates and assumptions.
The Company incurred approximately $0.2 million of acquisition-related costs in the first quarter of fiscal 2013, and these costs are included in selling, general and administrative expenses on the Condensed Consolidated Statements of Operations.
The aggregate purchase price was allocated as follows:
(in thousands)
Fair Value
Cash
$
1,080

Accounts receivable
4,053

Inventories
2,600

Prepaid expenses and other current assets
363

Property, plant and equipment, net
656

Other long-term assets
1,190

Accounts payable and accrued expenses
(3,765
)
Other long-term liabilities
(1,516
)
Long-term deferred tax liability
(4,549
)
Intangible assets (other than goodwill)
12,300

Goodwill
16,509

Total purchase price
$
28,921


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A summary of the allocation of intangible assets (other than goodwill) is as follows:
(in thousands)
Fair Value
Existing technologies
$
7,900

Customer relationships
2,000

Trade names and trademarks
1,500

In-process research and development
900

Total
$
12,300

Identifiable Tangible Assets and Liabilities
Assets and liabilities were reviewed and adjusted, if required, to their estimated fair value.
Inventories – The value allocated to inventories reflects the estimated fair value of the acquired inventory based on the expected sales price of the inventory, less reasonable selling margin.
Intangible Assets:
The Company valued the existing technologies utilizing a discounted cash flow (DCF) model, which uses forecasts of future revenues and expenses related to the intangible assets. The Company utilized a discount factor of 15% for the existing technologies and is amortizing the intangible assets over 5 years on a straight-line basis.
Customer relationship values have been estimated utilizing a DCF model, which uses forecasts of future revenues and expenses related to the intangible asset. The Company utilized discount factors of 15% - 20% for this intangible asset and is amortizing this intangible asset over 4 years on a straight-line basis.
Trade names and trademarks values have been estimated utilizing a DCF model, which uses forecasts of future revenues and expenses related to the intangible asset. The Company utilized a discount factor of 20% for this intangible asset and is amortizing this intangible asset over 3 years on a straight-line basis.
In-process research and development (IPR&D):
The Company utilized the DCF method to value the IPR&D, using a discount factor of 21% and will amortize this intangible asset once the projects are complete.
The financial results of Fox Enterprises have been included in the Company’s Condensed Consolidated Statements of Operations from April 30, 2012, the closing date of the acquisition. Pro forma earnings information has not been presented because the effect of the acquisition is not material to the Company’s historical financial statements.
Acquisition of Alvand Technologies, Inc.
On April 16, 2012, the Company completed the acquisition of Alvand Technologies Inc., a leading analog integrated circuits company specializing in data converters, for total purchase consideration of approximately $23.3 million, of which $20.5 million was paid in cash at closing and $2.8 million was recorded as a liability representing the fair value of contingent cash consideration of up to $4.0 million based upon the achievement of future product development milestones to be completed within 36 months following the acquisition date. Payments will be made on a proportionate basis upon the completion of each milestone. As of June 30, 2013, the fair value of the contingent consideration was re-measured based on a revised product development forecast for the business. As a result, the fair value of the contingent consideration increased to $3.4 million. $0.5 million of the change in the fair value of the contingent consideration was recorded in selling, general and administrative expenses in fiscal 2013 and $0.1 million in the first quarter of fiscal 2014. During the three months ended September 29, 2013, the Company paid Alvand Technologies $1.4 million. During the three months ended December 29, 2013, the Company paid Alvand Technologies $0.4 million, offset by an increased the fair value estimate by $0.2 million, which decreased the fair value of the remaining contingent consideration to $1.9 million.
The Company allocated the purchase price to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The excess purchase price over those fair values was recorded as goodwill. The fair values assigned to tangible and intangible assets acquired were based on management estimates and assumptions.
The Company incurred approximately $0.1 million of acquisition-related costs in the first quarter of fiscal 2013, which were included in selling, general and administrative expense on the Condensed Consolidated Statements of Operations.

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The aggregate purchase price was allocated as follows:
(in thousands)
Fair Value
Cash
$
147

Accounts receivable
211

Prepaid expenses
124

Property, plant and equipment, net
15

Accounts payable and other current liabilities
(707
)
Backlog
1,500

Non-competition agreements
2,300

Goodwill
19,712

Total purchase price
$
23,302

Amortizable Intangible Assets:
Backlog consists of existing contracts. The Company valued the one-year of contractual backlog by calculating the present value of the projected cash flows that are expected to be generated by the backlog utilizing a discount factor of 15%. The Company valued non-competition agreements estimating cash flows with and without non-competition agreements. The projected cash flows were discounted using a discount factor of 22%.
The financial results of Alvand Technologies have been included in the Company’s Condensed Consolidated Statements of Operations from April 16, 2012, the closing date of the acquisition. Pro forma earnings information has not been presented because the effect of the acquisition is not material to the Company’s historical financial statements.
Note 4. Discontinued Operations
High-Speed Converter (“HSC”) Business
In the third quarter of fiscal 2014, the Company initiated a plan to divest its HSC business. The Company believes that this divestiture will allow it to intensify focus on its analog-intensive mixed-signal, timing and synchronization, and interface and connectivity solutions. The Company intends to fully divest its HSC business within the next twelve months and has classified these assets as held for sale. As of December 29, 2013, the HSC business long-lived assets classified as held for sale was $9.5 million and consisted of $2.9 million in fixed assets and $6.6 million in intangible assets.
The HSC business was included in the Company’s Communications reportable segment. For financial statements purposes, the results of operations for the HSC business have been segregated from those of the continuing operations and are presented in the Company's condensed consolidated financial statements as discontinued operations.
The results of the HSC business discontinued operations for the three and nine months ended December 29, 2013 and December 30, 2012 were as follows (in thousands):
 
 
For the Three Months Ended,

For the Nine Months Ended,
 
 
December 29, 2013

December 30, 2012

December 29, 2013

December 30, 2012
Revenues
 
$
1,811


$
870


$
2,931


$
2,036

Cost of revenues
 
(1,398
)

(997
)

(2,379
)

(2,150
)
Goodwill and long-lived assets impairment
 
(4,797
)



(4,979
)


Operating expenses
 
(5,739
)

(4,988
)

(13,495
)

(13,413
)
Income tax provision (benefit)
 
268


(64
)

(6
)

(50
)
Net loss from discontinued operations
 
$
(10,391
)

$
(5,051
)

$
(17,916
)

$
(13,477
)

Video Business
On September 26, 2011, the Company completed the transfer of certain assets related to IDT’s Hollywood Quality Video (HQV) and Frame Rate Conversion (FRC) video processing product lines to Qualcomm pursuant to an Asset Purchase Agreement. The sale of these HQV and FRC video processing assets is intended to allow the Company to intensify focus on its analog-intensive mixed-signal, timing, and interface solutions. Upon the closing of the transaction, Qualcomm paid the Company $58.7 million in cash consideration, of which $6.0 million had been withheld in an escrow account for a period of two years and was paid to the

12

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Company during the second quarter of fiscal 2014. In the second quarter of fiscal 2012, the Company recorded a gain of $45.9 million related to this divestiture. The following table summarizes the components of the gain (in thousands):
Cash proceeds from sale (including amounts held in escrow)
$
58,744

Less cost basis of assets sold and direct costs related to the sale

Fixed asset transferred to Qualcomm
(434
)
Goodwill allocated
(8,568
)
Intangible assets
(1,818
)
License write-off
(525
)
Transaction and other costs
(1,460
)
Gain on divestiture
$
45,939

On August 1, 2012, the Company completed the transfer of the remaining assets of its video business to Synaptics for $5.0 million in cash pursuant to an Asset Purchase Agreement. In connection with the divestiture, 47 employees were transferred to Synaptics. In the second quarter of fiscal 2013, the Company recorded a gain of $0.9 million related to this divestiture. The following table summarizes the components of the gain (in thousands):
Cash proceeds from sale
$
5,000

Less book value of assets sold and direct costs related to the sale:


Fixed assets
(1,963
)
Goodwill
(700
)
Inventories
(1,288
)
Transaction and other costs
(163
)
Gain on divestiture
$
886

Prior to the second quarter of fiscal 2012, the video business was part of the Company’s Computing and Consumer reportable segment. For financial statement purposes, the results of operations for the video business are presented in the Company's condensed consolidated financial statements as discontinued operations.
The results from discontinued operations for the nine months ended December 30, 2012 are as follows (in thousands):
Revenues
$
2,429

Cost of revenues
(3,006
)
Operating expenses
(4,554
)
Gain on divestiture
886

Provision for Income tax
3

Net loss from discontinued operations
$
(4,248
)

Note 5. Other Divestitures (not accounted as discontinued operations)
Sale of Certain Assets of Audio Business
On December 18, 2013, Integrated Device Technology, Inc. and Integrated Device Technology (Malaysia) Sdn. Bhd., a wholly-owned subsidiary of IDT (collectively “IDT”), completed the sale of certain assets of its Audio business to Stravelis, Inc. for $0.2 million in cash and up to a maximum potential of $1.0 million additional consideration contingent upon future revenues. The fair value of the contingent consideration was estimated to be zero based on the estimated probability of attainment of future revenue targets. In additional, the Company recorded a $0.3 million liability for services to be provided at no charge by IDT for the first year following the acquisition date. The Company recorded a loss of $3.4 million on divestiture related to this transaction in the third quarter of fiscal 2014.

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Table of Contents

The following table summarizes the components of the loss on divestiture (in thousands):
 
Amount
Cash proceeds from sale
$
200

Maximum potential contingent consideration
1,000

Total consideration
$
1,200

 
 
Fair value adjustment to contingent consideration
$
(1,000
)
Accrued liability for post sale services
(300
)
Fixed assets
(135
)
Inventories
(2,750
)
Other assets
(304
)
Transaction and other costs
(126
)
Loss on divestiture
$
3,415

Prior to the divestiture, the Audio business operating results were included in the Company's Computing and Consumer reportable segment. The Audio business was part of a larger cash-flow generating product group and did not, on its own, represent a separate operation of the Company and, therefore, this sale did not qualify as discontinued operations.
Sale of Certain Assets of PCI Express ("PCIe") Enterprise Flash Controller Business
On July 12, 2013, Integrated Device Technology, Inc. and Integrated Device Technology (Malaysia) Sdn. Bhd., a wholly-owned subsidiary of IDT (collectively “IDT”), completed the sale of certain assets of its PCI Express ("PCIe") enterprise flash controller business to PMC-Sierra, Inc., a Delaware corporation (“PMC”), for $96.1 million in cash.
The Company recorded a gain of $82.3 million on divestiture related to this transaction in the second quarter of fiscal 2014.
The following table summarizes the components of the gain on divestiture (in thousands):
 
Amount
Cash proceeds from sale
$
96,099

Less book value of assets sold and direct costs related to the sale:
 
Fixed assets
(1,312
)
Inventories
(876
)
Goodwill allocation
(7,323
)
Transaction and other costs
(4,239
)
Gain on divestiture
$
82,349

Pursuant to the terms of the Asset Purchase Agreement (the "Purchase Agreement") by and among IDT and PMC, dated May 29, 2013, IDT sold (i) substantially all of the assets that were used by IDT and its subsidiaries in the business of designing, developing, manufacturing, testing, marketing, supporting, maintaining, distributing, provisioning and selling non-volatile memory (flash) controllers and (ii) all technology and intellectual property rights owned by IDT or any of its subsidiaries and used exclusively in, or developed exclusively for use in, (a) switching circuits having the primary function of flexible routing of data from/to multiple switch interface ports, where all switch interface ports conform to the PCIe protocol, or (b) circuits having the primary function of executing all of the capturing, re-timing, re-generating and re-transmitting PCIe signals to help extend the physical reach of the signals in a system (the “Disposition”).
In connection with the closing of the Disposition, a license agreement was entered into by IDT and a subsidiary of PMC simultaneously with the Purchase Agreement, whereby IDT will license certain intellectual property rights and technology to PMC, and PMC will license back to IDT certain of the intellectual property rights and technology acquired by PMC in the Disposition.
In connection with the closing of the Disposition, IDT and PMC also entered into (a) a transition services agreement and (b) a five year supply agreement, whereby IDT will supply wafers for certain products to PMC.
Additional details regarding the Disposition are provided in the related Current Reports on Form 8-K previously furnished by IDT on May 29, 2013 and July 15, 2013.
Prior to the divestiture, the operating results for IDTs PCIe flash controller business were included in the Company's Computing and Consumer reportable segment. The PCIe enterprise flash controller business was part of a larger cash-flow generating product

14

Table of Contents

group and did not, on its own, represent a separate operation of the Company and, therefore, this sale did not qualify as discontinued operations for reporting purposes.
Note 6. Fair Value Measurement
The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis as of December 29, 2013:
 
Fair Value at Reporting Date Using:
(in thousands)
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
 
Total
Cash Equivalents and Short-Term investments:
 
 
 
 
 
 
 
US government treasuries and agencies securities
$
120,594

 
$

 
$

 
$
120,594

Money market funds
65,587

 

 

 
65,587

Asset-backed securities

 
16,128

 

 
16,128

Corporate bonds

 
173,243

 

 
173,243

International government bonds

 
3,023

 

 
3,023

Bank deposits

 
17,205

 

 
17,205

Municipal bonds

 
8,174

 

 
8,174

Total assets measured at fair value
$
186,181

 
$
217,773

 
$

 
$
403,954

Liabilities:
 
 
 
 
 
 
 
Fair value of contingent consideration

 

 
1,880

 
1,880

Total liabilities measured at fair value
$

 
$

 
$
1,880

 
$
1,880


The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2013:
 
Fair Value at Reporting Date Using
 
 
 
(in thousands)
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
 
Total
Cash Equivalents and Short-Term investments:
 
 
 
 
 
 
 
US government treasuries and agencies securities
$
87,379

 
$

 
$

 
$
87,379

Money market funds
79,083

 

 

 
79,083

Asset-backed securities

 
9,855

 

 
9,855

Corporate bonds

 
58,716

 

 
58,716

International government bonds

 
3,066

 

 
3,066

Bank deposits

 
16,583

 

 
16,583

Municipal bonds

 
2,094

 

 
2,094

Total assets measured at fair value
$
166,462

 
$
90,314

 
$

 
$
256,776

Liabilities:
 
 
 
 
 
 
 
Fair value of contingent consideration

 

 
6,695

 
6,695

Total liabilities measured at fair value
$

 
$

 
$
6,695

 
$
6,695


U.S. government treasuries and U.S. government agency securities as of December 29, 2013 and March 31, 2013 do not include any U.S. government guaranteed bank issued paper. Corporate bonds include bank-issued securities that are guaranteed by the Federal Deposit Insurance Corporation (FDIC).

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Table of Contents

The securities in Level 1 are highly liquid and actively traded in exchange markets or over-the-counter markets. Level 2 fixed income securities are priced using quoted market prices for similar instruments, non-binding market prices that are corroborated by observable market data.
In connection with the acquisition of Fox Enterprises and Alvand Technologies (See "Note 3 - Business Combinations"), liabilities were recognized for the Company’s estimate of the fair value of contingent consideration on the acquisition dates based on probability-based forecasted revenues, gross profits and attainment of product development milestones. These fair value measurements are based on significant inputs not observed in the market and thus represent a Level 3 measurement, which reflect the Company’s own assumptions concerning future revenues, gross profit and product development milestones of the acquired businesses in measuring fair value. During the three months ended June 30, 2013, the Company settled the contingent consideration with Fox and paid $3.3 million to the former shareholders of Fox. During the three months ended September 29, 2013, the Company paid Alvand Technologies $1.4 million which decreased the fair value of the remaining contingent consideration to $2.0 million. During the three months ended December 29, 2013, the Company paid Alvand Technologies $0.4 million, offset by an increased fair value estimate of $0.2 million, decreasing the remaining fair value of the contingent consideration to $1.9 million.
The following table summarizes the change in the fair value of the contingent consideration measured using significant unobservable inputs (Level 3) for the nine months ended December 29, 2013:
(in thousands)
Estimated Fair Value
Balance as of March 31, 2013
$
6,695

Payments, net of fair value adjustments
(5,033
)
Balance as of December 29, 2013
$
1,880


All of the Company’s available-for-sale investments are subject to a periodic impairment review. Investments are considered to be impaired when a decline in fair value is judged to be other-than-temporary. The Company did not record any impairment charges related to its available-for-sale investments in the nine months ended December 29, 2013 and December 30, 2012.


Note 7. Investments
Available-for-Sale Securities
Available-for-sale investments at December 29, 2013 were as follows:
 
(in thousands)
Cost
 
Gross
Unrealized
 Gains
 
Gross
Unrealized
 Losses
 
Estimated Fair
 Value
U.S. government treasuries and agencies securities
$
120,575

 
$
85

 
$
(66
)
 
$
120,594

Money market funds
65,587

 

 

 
65,587

Asset-backed securities
16,129

 
6

 
(7
)
 
16,128

Corporate bonds
173,092

 
272

 
(121
)
 
173,243

International government bonds
3,037

 

 
(14
)
 
3,023

Bank deposits
17,205

 

 

 
17,205

Municipal bonds
8,217

 
9

 
(52
)
 
8,174

Total available-for-sale investments
403,842

 
372

 
(260
)
 
403,954

Less amounts classified as cash equivalents
(70,284
)
 

 

 
(70,284
)
Short-term investments
$
333,558

 
$
372

 
$
(260
)
 
$
333,670



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Table of Contents

Available-for-sale investments at March 31, 2013 were as follows:
 
(in thousands)
Cost
 
Gross
Unrealized
 Gains
 
Gross
Unrealized
 Losses
 
Estimated Fair
 Value
U.S. government treasuries and agencies securities
$
87,356

 
$
24

 
$
(1
)
 
$
87,379

Money market funds
79,083

 

 

 
79,083

Asset-backed securities
9,860

 
2

 
(7
)
 
9,855

Corporate bonds
58,733

 
33

 
(50
)
 
58,716

International government bonds
3,069

 
1

 
(4
)
 
3,066

Bank deposits
16,583

 

 

 
16,583

Municipal bonds
2,089

 
5

 

 
2,094

Total available-for-sale investments
256,773

 
65

 
(62
)
 
256,776

Less amounts classified as cash equivalents
(90,443
)
 

 

 
(90,443
)
Short-term investments
$
166,330

 
$
65

 
$
(62
)
 
$
166,333


The cost and estimated fair value of available-for-sale securities at December 29, 2013, by contractual maturity, were as follows:
(in thousands)
Amortized
Cost
 
Estimated Fair
Value
Due in 1 year or less
$
96,079

 
$
96,078

Due in 1-2 years
134,004

 
134,087

Due in 2-5 years
173,759

 
173,789

Total investments in available-for-sale securities
$
403,842

 
$
403,954


The following table shows the gross unrealized losses and fair value of the Company’s investments with unrealized losses as of December 29, 2013, aggregated by investment category and length of time that individual securities have been in a continuous loss position.
 
Less Than 12 Months
 
12 Months or Greater
 
Total
(in thousands)
Fair
Value
 
Unrealized
 Loss
 
Fair
 Value
 
Unrealized
 Loss
 
Fair
Value
 
Unrealized
 Loss
Corporate bonds
$
64,794

 
$
(121
)
 
$

 
$

 
$
64,794

 
$
(121
)
Asset-backed securities
9,806

 
(7
)
 

 

 
9,806

 
(7
)
U.S. government treasuries and agencies securities
32,500

 
(66
)
 

 

 
32,500

 
(66
)
Municipal bonds
5,017

 
(52
)
 

 

 
5,017

 
(52
)
International government bonds
3,023

 
(14
)
 

 

 
3,023

 
(14
)
Total
$
115,140

 
$
(260
)
 
$

 
$

 
$
115,140

 
$
(260
)


17

Table of Contents

The following table shows the gross unrealized losses and fair value of the Company’s investments with unrealized losses, as of March 31, 2013, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position.
 
Less Than 12 Months
 
12 Months or Greater
 
Total
 
(in thousands)
Fair
 Value
 
Unrealized
 Loss
 
Fair
 Value
 
Unrealized
 Loss
 
Fair
 Value
 
Unrealized
 Loss
Corporate bonds
$
32,009

 
$
(50
)
 
$

 
$

 
$
32,009

 
$
(50
)
Asset-backed securities
6,473

 
(7
)
 

 

 
6,473

 
(7
)
U.S. government treasuries and agencies securities
3,324

 
(1
)
 

 

 
3,324

 
(1
)
International government bonds
1,007

 
(4
)
 

 

 
1,007

 
(4
)
Total
$
42,813

 
$
(62
)
 
$

 
$

 
$
42,813

 
$
(62
)

Currently, a significant portion of the Company’s available-for-sale investments that it holds are high grade instruments.  As of December 29, 2013, the unrealized losses on the Company’s available-for-sale investments represented an insignificant amount in relation to its total available-for-sale portfolio. Substantially all of the Company’s unrealized losses on its available-for-sale marketable debt instruments are primarily driven by declines in interest rates or as a result of a decrease in the market liquidity for debt instruments.  Because the Company has the ability to hold these investments until a recovery of fair value, which may be maturity, the Company did not consider these investments to be other-than-temporarily impaired at December 29, 2013 and March 31, 2013.

Note 8. Stock-Based Employee Compensation
Equity Incentive Programs
The Company currently issues awards under three equity-based plans in order to provide additional incentive and retention to directors and employees who are considered to be essential to the long-range success of the Company. These plans are further described below.
2004 Equity Plan (2004 Plan)
Options granted by the Company under the 2004 Plan generally expire seven years from the date of grant and generally vest over a four-year period from the date of grant, with one-quarter of the shares of common stock vesting on the one-year anniversary of the grant date and the remaining shares vesting monthly for the 36 months thereafter. The exercise price of the options granted by the Company under the 2004 Plan shall not be less than 100% of the fair market value for a common share subject to such option on the date the option is granted. Full value awards made under the 2004 Plan shall become vested over a period of not less than three years (or, if vesting is performance-based, over a period of not less than one year) following the date such award is made; provided, however, that full value awards that result in the issuance of an aggregate of up to 5% of common stock available under the 2004 Plan may be granted to any one or more participants without respect to such minimum vesting provisions. As of December 29, 2013, there were 9.6 million shares available for future grant under the 2004 Plan.
Compensation Expense
The following table summarizes stock-based compensation expense by category appearing in the Company’s Condensed Consolidated Statement of Operations:
 
Three Months Ended
 
Nine Months Ended
(in thousands)
December 29,
2013

December 30,
2012
 
December 29,
2013
 
December 30,
2012
Cost of revenue
$
403

 
$
295

 
$
1,128

 
$
850

Research and development
1,544

 
1,385

 
4,241

 
3,968

Selling, general and administrative
1,252

 
940

 
4,969

 
3,537

Discontinued operations
169

 
154

 
507

 
951

Total stock-based compensation expense
$
3,368

 
$
2,774

 
$
10,845

 
$
9,306

The amount of stock-based compensation expense that was capitalized during the periods presented above was immaterial.

18

Table of Contents

Stock Options
The following is a summary of the Company's stock option activity and related weighted average exercise prices for each category:
 
Nine Months Ended December 29, 2013
(shares in thousands)
Shares
 
Price
Beginning stock options outstanding
12,817

 
$
7.12

Granted
1,596

 
7.98

Exercised (1)
(4,078
)
 
5.97

Canceled
(3,035
)
 
8.87

Ending stock options outstanding
7,300

 
$
7.22

Ending stock options exercisable
4,679

 
$
7.34

(1)
Upon exercise, the Company issues new shares of common stock.
As of December 29, 2013, the unrecognized compensation cost related to nonvested stock options, net of estimated forfeitures, was $2.3 million and will be recognized over a weighted-average period of 1.2 years.
As of December 29, 2013, stock options vested and expected to vest totaled approximately 6.8 million with a weighted-average exercise price of $7.23 and a weighted-average remaining contractual life of 3.4 years. The aggregate intrinsic value as of December 29, 2013 was approximately $20.8 million.
As of December 29, 2013, fully vested stock options totaled approximately 4.7 million with a weighted-average exercise price of $7.34 and a weighted-average remaining contractual life of 2.6 years. The aggregate intrinsic value as of December 29, 2013 was approximately $14.2 million.
Restricted Stock Units
Restricted stock units granted by the Company under the 2004 Plan generally vest over at least a three-year period from the grant date with one-third of restricted stock units vesting on each one-year anniversary. As of December 29, 2013, 2.9 million restricted stock unit awards were outstanding under the 2004 Plan.
The following table summarizes the Company's restricted stock unit activity for each category for the nine months ended December 29, 2013:
 
Nine Months Ended December 29, 2013
(shares in thousands)
Shares
 
Weighted-average grant date fair value per share
Beginning RSUs outstanding
2,591

 
$
6.26

Granted
1,975

 
7.91

Released
(866
)
 
6.16

Forfeited
(771
)
 
6.92

Ending RSUs outstanding
2,929

 
$
7.23

As of December 29, 2013, restricted stock units vested and expected to vest totaled approximately 2.4 million with a weighted-average remaining contract life of 1.4 years. The aggregate intrinsic value was approximately $24.0 million.
As of December 29, 2013, the unrecognized compensation cost related to restricted stock units granted under the Company’s equity incentive plans was approximately $9.3 million, net of estimated forfeitures, and is expected to be recognized over a weighted-average period of 1.6 years.
Performance-Based Stock Units
Under the 2004, the Company has granted performance-based stock units which vest and convert into shares of the Company's common stock based on the level of achievement of pre-established performance goals during a specified performance period. The performance period for the Company's performance-based stock units is generally 1 to 3 years. Management evaluates, on a quarterly basis, the likelihood of the Company meeting its performance metrics in determining stock-based compensation expense.

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Table of Contents

The following table summarizes the Company's performance stock unit activity for each category for the nine months ended December 29, 2013:
 
Nine Months Ended December 29, 2013
(shares in thousands)
Shares
 
Weighted-average grant date fair value per share
Beginning PSUs outstanding
744

 
$
7.50

Granted
491

 
8.46

Forfeited
(378
)
 
8.07

Ending PSUs outstanding
857

 
$
7.79

As of December 29, 2013, performance stock units vested and expected to vest totaled approximately 0.7 million with a weighted-average remaining contract life of 1.5 years. The aggregate intrinsic value was approximately $6.6 million.
As of December 29, 2013, the unrecognized compensation cost related to performance stock units granted under the Company’s equity incentive plans was approximately $3.0 million, net of estimated forfeitures, and is expected to be recognized over a weighted-average period of 1.5 years.
2009 Employee Stock Purchase Plan (2009 ESPP)
On June 18, 2009, the Board approved implementation of the 2009 Employee Stock Purchase Plan (2009 ESPP) and authorized the reservation and issuance of up to 9,000,000 shares of the Company's common stock, subject to stockholder approval. On September 17, 2009, the Company's stockholders approved the plan at the 2009 Annual Meeting of Stockholders. The 2009 ESPP is intended to be implemented in successive quarterly purchase periods commencing on the first day of each fiscal quarter of the Company. In order to maintain its qualified status under Section 423 of the Internal Revenue Code, the 2009 ESPP imposes certain restrictions, including the limitation that no employee is permitted to participate in the 2009 ESPP if the rights of such employee to purchase common stock of the Company under the 2009 ESPP and all similar purchase plans of the Company or its subsidiaries would accrue at a rate which exceeds $25,000 of the fair market value of such stock (determined at the time the right is granted) for each calendar year. On September 13, 2012, the Company's stockholders approved an additional 5,000,000 shares at the 2012 Annual meeting of Stockholders. On July 12, 2013, the Company filed an S-8 with the SEC to add the shares to the 2009 ESPP. The number of shares of common stock reserved for issuance thereunder increased from 9,000,000 shares to 14,000,000 shares.
Activity under the Company's ESPP for the nine months ended December 29, 2013 is summarized in the following table:
(in thousands, except per share amounts)
 
Number of shares issued
952

Average issuance price
$
6.86

Number of shares available at December 29, 2013
5,274


Note 9. Stockholders' Equity
Stock Repurchase Program. On October 22, 2013, the Company's Board increased the Company's share repurchase authorization to $150 million. In the nine months ended December 29, 2013, the Company repurchased 2.0 million shares for $20.4 million dollars. As of December 29, 2013, approximately $129.6 million was available for future purchases under the share repurchase program. In the year ended December 30, 2012, the Company did not repurchase any shares. Share repurchases were recorded as treasury stock and resulted in a reduction of stockholders’ equity.

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Note 10. Balance Sheet Detail
(in thousands)
December 29,
2013
 
March 31,
2013
Inventories, net
 
 
 
Raw materials
$
6,619

 
$
7,008

Work-in-process
21,723

 
24,123

Finished goods
24,990

 
25,424

Total inventories, net
$
53,332

 
$
56,555

 
 
 
 
Property, plant and equipment, net
 

 
 

Land
$
11,771

 
$
11,832

Machinery and equipment
290,839

 
296,174

Building and leasehold improvements
48,758

 
48,991

  Total property, plant and equipment, gross
351,368

 
356,997

Less: accumulated depreciation
(279,652
)
 
(282,009
)
Total property, plant and equipment, net (1)
$
71,716

 
$
74,988

Other accrued liabilities
 
 
 
Short-term portion of supplier obligations (2)
$
817

 
$
407

Other (3)
9,829

 
14,245

Total other accrued liabilities
$
10,646

 
$
14,652

Other long-term obligations
 
 
 
Deferred compensation related liabilities
$
14,514

 
$
14,615

Other
5,025

 
7,407

Total other long-term liabilities
$
19,539

 
$
22,022

(1) As of December 29, 2013, includes $2.9 million in net fixed assets held for sale associated with the divestiture of IDT’s HSC business. See Note 4 for additional information on this event. As of December 30, 2012, includes $1.3 million in fixed assets held for sale associated with the sale of certain assets of IDT's PCI Express enterprise flash controller business which was completed on July 12, 2013. See Note 5 for additional information on this event.
(2) Supplier obligations represent payments due under various software design tool and technology license agreements.
(3) Other current liabilities consist primarily of acquisition related accrued contingent liabilities, accrued royalties and outside commissions, accrued severance costs and other accrued unbilled expenses.
Note 11. Deferred Income on Shipments to Distributors
Included in the caption “Deferred income on shipments to distributors” on the Condensed Consolidated Balance Sheets are amounts related to shipments to certain distributors for which revenue is not recognized until our product has been sold by the distributor to an end customer. The components of deferred income on shipments to distributors as of December 29, 2013 and March 31, 2013 are as follows:
(in thousands)
December 29,
2013
 
March 31,
2013
Gross deferred revenue
$
16,334

 
$
17,581

Gross deferred costs
(2,960
)
 
(3,042
)
Deferred income on shipments to distributors
$
13,374

 
$
14,539

The gross deferred revenue represents the gross value of shipments to distributors at the list price billed to the distributor less any price protection credits provided to them in connection with reductions in list price while the products remain in their inventory.  The amount ultimately recognized as revenue will be lower than this amount as a result of ship from stock pricing credits which are

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issued in connection with the sell through of the Company's products to end customers. Historically, this amount represents on average approximately 28% of the list price billed to the customer.  The gross deferred costs represent the standard costs (which approximate actual costs) of products the Company sells to the distributors.  Although the Company monitors the levels and quality of inventory in the distribution channel, the Company's experience is that products returned from these distributors may be sold to a different distributor or in a different region of the world.  As such, inventory write-downs for products in the distribution channel have not been significant.

Note 12. Accumulated Other Comprehensive Income (Loss)
Changes in accumulated other comprehensive income (AOCI) by component, net of tax, for the nine months ended December 29, 2013 consisted of the following:
(in thousands)
Cumulative translation adjustments
 
Unrealized gain on available-for-sale investments
 
Pension adjustments
 
Total
Balance as of March 31, 2013
$
1,563

 
$

 
$
(77
)
 
$
1,486

Other comprehensive income (loss) before reclassifications
407

 
130

 

 
537

Amounts reclassified out of AOCI

 
(23
)
 
(4
)
 
(27
)
Net current-period other comprehensive income (loss)
407

 
107

 
(4
)
 
510

Balance as of December 29, 2013
$
1,970

 
$
107

 
$
(81
)
 
$
1,996


Comprehensive income components consisted of:
(in thousands)
Nine Months Ended December 29, 2013
 
Location
Unrealized holding gains (losses) on available-for-sale investments
$
(23
)
 
interest and other, net
Amortization of pension benefits prior service credits
(4
)
 
operating expense
Total amounts reclassified out of accumulated other comprehensive income (loss)
$
(27
)
 
 


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Note 13. Goodwill and Intangible Assets, Net
Goodwill activity for the nine months ended December 29, 2013 is as follows:
 
Reportable Segment
 
(in thousands)
Communications
 
Computing and Consumer
 
Total
Balance as of March 31, 2013
$
124,205

 
$
20,719

 
$
144,924

Impairment losses
(2,161
)
 

 
(2,161
)
Dispositions

 
(7,323
)
 
(7,323
)
Additions
204

 

 
204

Balance as of December 29, 2013
$
122,248

 
$
13,396

 
$
135,644

During the quarter ended December 29, 2013, the Company recorded a $2.2 million goodwill impairment loss associated with its HSC business which was classified as a discontinued operation during the quarter. The impairment loss was included in loss from discontinued operations.
During the quarter ended September 29, 2013, the Company allocated $7.3 million in goodwill to the sale of certain assets of IDT's PCI Express enterprise flash controller business which was completed on July 12, 2013. See Note 5 for additional information on this event.
Goodwill balances as of December 29, 2013 and March 31, 2013 are net of $922.6 million and $920.4 million, respectively, in accumulated impairment losses.

Intangible asset balances as of December 29, 2013 and March 31, 2013 are summarized as follows:
 
December 29, 2013
(in thousands)
Gross Assets
 
Impairment
 
Accumulated
Amortization
 
Net Assets (1)
Purchased intangible assets:
 
 
 
 
 
 
 
Existing technology
$
241,197

 
(1,915
)
 
$
(211,843
)
 
$
27,439

Trademarks
4,411

 

 
(2,705
)
 
1,706

Customer relationships
131,931

 
(395
)
 
(130,758
)
 
778

Backlog
1,600

 

 
(1,600
)
 

Non-compete agreements
2,600

 
(325
)
 
(1,458
)
 
817

Total amortizable purchased intangible assets
381,739

 
(2,635
)
 
(348,364
)
 
30,740

IPR&D *
2,433

 

 

 
2,433

Total purchased intangible assets
$
384,172

 
(2,635
)
 
$
(348,364
)
 
$
33,173


(1) Includes $6.6 million in HSC assets held for sale consisting of $4.8 million existing technology, $1.0 million customer relationships and $0.8 million non-compete agreements.


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March 31, 2013
(in thousands)
Gross Assets
 
Impairment
 
Accumulated
Amortization
 
Net Assets
Purchased intangible assets:
 
 
 
 
 
 
 
Existing technology
$
241,197

 

 
$
(203,129
)
 
$
38,068

Trademarks
4,411

 

 
(2,018
)
 
2,393

Customer relationships
131,931

 

 
(128,107
)
 
3,824

Backlog
1,600

 

 
(1,509
)
 
91

Non-compete agreements
2,600

 

 
(807
)
 
1,793

Total amortizable purchased intangible assets
381,739

 

 
(335,570
)
 
46,169

IPR&D *
2,433

 

 

 
2,433

Total purchased intangible assets
$
384,172

 

 
$
(335,570
)
 
$
48,602

* IPR&D is initially capitalized at fair value as an intangible asset with an indefinite life and assessed for impairment thereafter. When the IPR&D project is complete, it is reclassified as an amortizable purchased intangible asset and is amortized over its estimated useful life. If an IPR&D project is abandoned, the Company will record a charge for the carrying value of the related intangible asset to its Consolidated Statements of Operations in the period it is abandoned.
Amortization expense for the three months ended December 29, 2013 and December 30, 2012 was $4.2 million and $4.7 million, respectively. Amortization expense for the nine months ended December 29, 2013 and December 30, 2012 was $12.8 million and $15.1 million, respectively.
The intangible assets are being amortized over estimated useful lives of twelve months to seven years.
Based on the intangible assets recorded at December 29, 2013, and assuming no subsequent additions to or impairment of the underlying assets, the remaining estimated amortization expense is expected to be as follows (in thousands):
Fiscal Year
Amount
2014 (Remaining 3 months)
$
3,322

2015
9,657

2016
6,087

2017
4,712

2018 and thereafter
328

Total amortizable purchased intangible assets
24,106

IPR&D
2,433

Total purchased intangible assets
$
26,539


Note 14. Restructuring
The following table shows the provision of the restructuring charges and the liability remaining as of December 29, 2013:
(in thousands)
Total
Balance as of March 31, 2013
$
1,662

Provision
5,237

Cash payments
(6,110
)
Balance as of December 29, 2013
$
789

During the first quarter of fiscal 2014, the Company recorded restructuring charges of $0.4 million and reduced headcount by 15 employees. During the second quarter of fiscal 2014, the Company recorded additional restructuring charges of $4.5 million and further reduced headcount by 90 employees. During the second quarter of fiscal 2014, the Company paid $0.8 million related to these actions. During the third quarter of fiscal 2014, the Company accrued an additional $0.3 million in restructuring charges and paid $3.8 million related to the actions initiated in the previous quarters of fiscal 2014. As of December 29, 2013, the total

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accrued balance for employee severance costs related to these restructuring actions was $0.8 million. The Company expects to complete these restructuring actions by the first quarter of fiscal 2015.
During fiscal 2013, the Company recorded restructuring charges of $4.3 million for multiple reduction in workforce actions. The Company reduced its total headcount by approximately 132 employees with reductions affecting all functional areas and various locations. During fiscal 2013, the Company paid $3.2 million in severance costs associated with these actions. During the three months ended June 30, 2013, the Company paid out $1.1 million and completed these actions.
In connection with the Company's divestiture of its smart metering business, during fiscal 2013, the Company recorded $0.4 million in restructuring expenses for employee severance costs. During the three months ended June 30, 2013, the Company paid $0.4 million and completed this action.
Note 15. Commitments and Contingencies
Warranty
The Company maintains an accrual for obligations it incurs under its standard product warranty program and customer, part, or process specific matters. The Company’s standard warranty period is one year, however in certain instances the warranty period may be extended to as long as two years. Management estimates the fair value of the Company’s warranty liability based on actual past warranty claims experience, its policies regarding customer warranty returns and other estimates about the timing and disposition of product returned under the standard program. Customer, part, or process specific accruals are estimated using a specific identification method. Historical profit and loss impact related to warranty returns activity has been minimal. The total warranty accrual was $0.6 million and $0.2 million as of December 29, 2013 and March 31, 2013, respectively.
Litigation
In January 2012, Maxim I Properties, a general partnership that had purchased a certain parcel of real property (the Property) in 2003, filed a complaint in the Northern District of California naming approximately 30 defendants, including the Company, alleging various environmental violations of the federal Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) and Resource Conservation and Recovery Act (RCRA), the California Hazardous Substance Account Act (HSAA), and other common law claims (the Complaint). The Complaint alleges with regard to the Company that IDT “…generated, transported, and/or arranged for the transport and/or disposal of hazardous waste to the Property.” The Complaint further alleges that the Defendants are liable for the costs of investigation and remediation of the Property due to the release of hazardous substances, and that Defendants violated their duty to prevent the release of such hazardous substances. In March 2012, the Company was served with and filed an answer to the Complaint, denying the various allegations in the Complaint. In April 2012, the Company filed an amended answer to the Complaint, including a counterclaim against the plaintiff. On August 15, 2012, the plaintiff voluntarily dismissed its Complaint against the Company without prejudice. Moyer Products, Inc., another defendant, has counter-claimed against Maxim and cross-claimed against Defendants, including the Company, and thus the Company remains a defendant in this action. In September 2012, the California Department of Toxic Substances Control (DTSC) notified the Company that it identified the Company, along with more than 50 other entities, and included the Company as a respondent to DTSC's Enforcement Order, as “a generator of hazardous waste” that was sent to the Property. In April 2013, the Company, along with the other “respondent” parties, entered into a Corrective Action Consent Agreement (CACA) to conduct the Property investigation and corrective action selection. The CACA supersedes the Enforcement Order. In February 2013, the court stayed the Maxim/Moyer litigation pending the Property investigation under the CACA and DTSC's corrective action selection. The Company will continue to vigorously defend itself against the allegations in the Complaint and evaluate settlement options with Moyer upon completion of the Property investigation and corrective action selection. Because the case is at an early stage and no specific monetary demands have been made, it is not possible for us to estimate the potential loss or range of potential losses.
The Company is also party to various other legal proceedings and claims arising in the normal course of business. As of September 29, 2013, the Company has not recorded any accrual for contingent liabilities associated with its legal proceedings based on the belief that liabilities, while possible, are not probable. Further, probable losses or ranges of possible losses in these matters cannot be reasonably estimated at this time. Generally, litigation is subject to inherent uncertainties, and no assurance can be given that the Company will prevail in any particular lawsuit. Accordingly, pending lawsuits, as well as potential future litigation with other companies, could result in substantial costs and diversion of resources and could have a material adverse effect on the Company's financial condition, results of operations or cash flows.
Note 16. Employee Benefit Plans
401(k) Plan
The Company sponsors a 401(k) retirement matching plan for qualified domestic employees.  The Company recorded expenses of approximately $1.6 million and $1.9 million in matching contributions under the plan during the nine months ended December 29, 2013 and December 30, 2012, respectively.

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Deferred Compensation Plans
Effective November 1, 2000, the Company established an unfunded deferred compensation plan to provide benefits to executive officers and other key employees. Under the plan, participants can defer any portion of their salary and bonus compensation into the plan and may choose from a portfolio of funds from which earnings are measured. Participant balances are always 100% vested. As of December 29, 2013 and March 31, 2013, obligations under the plan totaled approximately $14.5 million and $14.6 million, respectively. Additionally, the Company has set aside assets in a separate trust that is invested in corporate owned life insurance intended to substantially fund the liability under the plan. As of December 29, 2013 and March 31, 2013, the deferred compensation plan assets were approximately $16.0 million and $17.0 million, respectively.
During the first quarter of fiscal 2013, the Company assumed a deferred compensation plan associated with the acquisition of Fox. Under this plan, participants in retirement are entitled to receive a fixed amount from the Company on a monthly basis. The Company has purchased life insurance policies with the intention of funding the liability under this plan. As of both December 29, 2013 and March 31, 2013, the deferred compensation plan assets under this plan were approximately $0.7 million. As of both December 29, 2013 and March 31, 2013, the deferred compensation plan liabilities under this plan were approximately $1.6 million.
International Employee Benefit Plans
The Company sponsors defined-benefit pension plans, defined-contribution plans, multi-employer plans and other post-employment benefit plans covering employees in certain of the Company's international locations. As of December 29, 2013, the net liability for all of these international benefit plans totaled $1.5 million.
Note 17. Income Taxes
During three months ended December 29, 2013, the Company recorded an income tax provision of $543 thousand and an income tax provision of $661 thousand in nine months ended December 29, 2013 from continuing operations. The Company recorded an income tax provision of $265 thousand and an income tax provision of $3.8 million in three and nine months ended December 30, 2012 respectively from continuing operations.
The income tax provision recorded in the nine months ended December 29, 2013 was primarily due to the tax on foreign earnings and federal and state tax on U.S. earnings, the reversal of uncertain tax positions resulting from statute lapse, and a discrete tax provision related to its fiscal 2013 income tax return filing. The income tax provision nine months ended December 30, 2012 primarily due to the recognition of a deferred tax asset offset by the recognition of a deferred tax liability due to the acquisition of Fox Enterprises. The increase in the deferred tax liability was a part of the purchase accounting step-up adjustment that was recorded against goodwill while the increase in the deferred tax asset was recorded as a tax benefit.
As of December 29, 2013, the Company was subject to examination in the U.S. federal tax jurisdiction for the fiscal years, 2010-2013. In May 2013, the Internal Revenue Service (IRS) commenced a tax audit for fiscal years beginning 2011 through 2012. Although the final outcome is uncertain, based on currently available information, the Company believes that the ultimate outcome will not have a material adverse effect on its financial position, cash flows or results of operations.
As of December 29, 2013, the Company was subject to examination in various state and foreign jurisdictions for tax years 2007 forward, none of which were individually material.

Note 18. Segment Information
The Chief Operating Decision Maker is the Company’s President and Chief Executive Officer.
Our reportable segments include the following:
Communications segment: includes clock and timing solutions, flow-control management devices including Serial RapidIO® switching solutions, multi-port products, telecommunications products, high-speed static random access memory, first in and first out, digital logic, radio frequency, and MEMS Oscillator solutions.
Computing and Consumer segment: includes clock generation and distribution products, high-performance server memory interfaces, PCI Express switching solutions, power management solutions, and signal integrity products.

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The tables below provide information about these segments:
 Revenues by segment
Three Months Ended

Nine Months Ended
(in thousands)
December 29,
2013

December 30,
2012

December 29,
2013

December 30,
2012
Communications
$
75,227

 
$
64,722

 
$
215,260

 
$
195,919

Computing and Consumer
49,401

 
49,555

 
150,879

 
180,754

Total revenues
$
124,628

 
$
114,277

 
$
366,139

 
$
376,673


 Income (loss) by segment from continuing operations
Three Months Ended
 
Nine Months Ended
 
(in thousands)
December 29,
2013
 
December 30,
2012
 
December 29,
2013

December 30,
2012
Communications
$
29,087

 
$
20,337

 
$
73,103

 
$
60,280

Computing and Consumer
(1,688
)
 
(9,842
)
 
(15,083
)
 
(17,875
)
Unallocated expenses:
 
 
 
 
 
 
 
Amortization of intangible assets
(3,322
)
 
(3,361
)
 
(9,965
)
 
(12,242
)
Inventory fair market value adjustment

 

 

 
(458
)
Gain (loss) from divestitures, net
(3,415
)
 

 
78,934

 

Assets impairment and recoveries
265

 
(527
)
 
(3,779
)
 
(409
)
Amortization of stock-based compensation
(3,169
)
 
(2,636
)
 
(10,309
)
 
(9,241
)
Severance, retention and facility closure costs
(406
)
 
(921
)
 
(6,100
)
 
(3,920
)
Acquisition-related costs and other
(21
)
 
(2,460
)
 
(729
)
 
(10,129
)
  Consulting expenses related to stockholder activities

 

 

 
(2,614
)
Deferred compensation plan expense (benefit)
70

 
(87
)
 
65

 
(431
)
Proceeds from life insurance policies

 

 

 
2,313

Interest income and other, net
481

 
(344
)
 
775

 
(862
)
Income from continuing operations, before income taxes
$
17,882

 
$
159

 
$
106,912

 
$
4,412


The Company does not allocate goodwill and intangible assets impairment charge, severance and retention costs, acquisition-related costs, stock-based compensation, interest income and other, and interest expense to its segments.  In addition, the Company does not allocate assets to its segments. The Company excludes these items consistent with the manner in which it internally evaluates its results of operations.

Revenues from unaffiliated customers by geographic area, based on the customers' shipment locations, were as follows:
 
Three Months Ended
 
Nine Months Ended
(in thousands)
December 29,
2013
 
December 30,
2012
 
December 29,
2013
 
December 30,
2012
Asia Pacific
$
82,428

 
$
71,657

 
$
233,138

 
$
243,430

Americas (1)
17,087

 
18,488

 
54,296

 
57,532

Japan
11,072

 
9,982

 
31,211

 
32,326

Europe
14,041

 
14,150

 
47,494

 
43,385

Total revenues
$
124,628

 
$
114,277

 
$
366,139

 
$
376,673


(1)
The revenues from the customers in the U.S. were $16.9 million and $17.6 million in the three months ended December 29, 2013 and December 30, 2012, respectively. The revenues from the customers in the U.S. were $50.2 million and $54.1 million in the nine months ended December 29, 2013 and December 30, 2012, respectively.

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The Company utilizes global and regional distributors around the world, who buy product directly from the Company on behalf of their customers. One distributor, Avnet represented approximately 13% of the Company’s revenues for the nine month period ended December 29, 2013. Two distributors, Maxtek and its affiliates and Uniquest represented approximately 14% and 11%, respectively, of the Company’s revenues for the nine month period ended December 30, 2012.
At December 29, 2013, four distributors represented approximately 15%, 11%, 11% and 10% of the Company’s gross accounts receivable. At March 31, 2013, three distributors represented approximately 15%, 13%