CRUS 10-Q Quarter ended June 27, 2015

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 27 , 201 5

☐ 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 0-17795

CIRRUS LOGIC, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (512) 851-4000

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 ☑ NO ☐

Ind icate 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 (§232.405 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 ☑ N O ☐

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 definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 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 ☐ NO ☑

The number of shares of the registrant's common stock, $0. 00 1 par value, outstanding as of J uly 17 , 201 5 w as 6 3 , 499 , 3 96 .

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CIRRUS LOGIC, INC.

FORM 10-Q QUARTERLY REPORT

QUARTERLY PERIOD ENDED JUNE 27, 2 01 5

TABLE OF CONTENTS

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Part I. FINANCIAL INFORMATION

ITEM 1 . FINANCIAL STATEMENTS

The ac company ing notes are an integral part of these consolidated condensed financial statements.

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The ac company ing notes are an integral part of these consolidated condensed financial statements.

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The ac company ing notes are an integral part of these consolidated condensed financial statements.

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The ac company ing notes are an integral part of these consolidated condensed financial statements .

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CIRRUS LOGIC, INC.

NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(unaudited)

1. Basis of Presentation

The consolidated condensed financial statements have been prepared by Cirrus Logic, Inc. (“Cirrus Logic,” “we,” “us,” “our,” or the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission ( the “Commission”).  The accompanying unaudited consolidated condensed financial statements do not include complete footnotes and financial presentations.  As a result, these financial statements should be read along with the audited consolidated financial statements and notes thereto for the year ended March 28 , 201 5 , included in our Annual Report on Form 10-K filed with the Commission on May 2 7 , 201 5 .  In our opinion, the financial statements reflect all material adjustments, including normal recurring adjustments, necessary for a fair presentation of the financial position, operating results and cash flows for those periods presented.  The preparation of financial statements in conformity with United States (“U.S.”) generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect reported assets, liabilities, revenues and expenses, as well as disclosure of contingent assets and liabilities.  Actual results could differ from those estimates and assumptions.  Moreover, the results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the entire year. Additionally, prior period amounts have been adjusted to conform to current year presentation.

2.     Recently Issued Accounting Pronouncements

In August 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (“ASU”) No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern .  The amendments in this ASU provide guidance in GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures.  The amendments are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter.  Early application is permitted.  The Company is currently evaluating the impact of this ASU and expects no material modifications to its financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (ASC Topic 606) .  The purpose of this ASU is to converge revenue recognition requirements per GAAP and International Financial Reporting Standards (IFRS).  The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  The amendments in this ASU are effective for interim and annual reporting periods beginning after December 15, 2016, with early adoption not permitted by the FASB; however, in April 2015 the FASB issued for public comment a proposal to delay the effective date of this ASU to annual reporting periods beginning after December 15, 2017.  The Company is currently evaluating the impact of this ASU on its consolidated financial position, results of operations and cash flows.

In April 2015, the FASB issued ASU No. 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs .  The amendments in this update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability.  ASU 2015-03 is to be applied retrospectively and represents a change in accounting principle.  This ASU is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years.  Earlier adoption is permitted for financial statements that have not been previously issued.  The Company is currently evaluating the effect that the adoption of this ASU will have on its financial statements.

In April 2015, the FASB issued ASU No. 2015-04, Compensation – Retirement Benefits (Topic 715): Practical Expedient for the Measure ment Date of an Employer’s Defined Benefit Obligation and Plan Assets. The ASU is part of the FASB’s “ Simplification Initiative ” to reduce complexity in accounting standards. The FASB decided to permit entities to measure defined benefit plan assets and obligations as

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of the month-end that is closest to their fiscal year-end.  An entity is required to disclose the accounting policy election and the date used to measure defined benefit plan assets and obligations in accordance with the amendments in this u pdate. The amendments in this u pdate are effective for public business entities for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years, with earlier application permitted. The Company is currently evaluating the likelihood of adoption and the impact this ASU would have on it s financial statements.

3 . Marketable Securities

The Company’s investments that have original maturities greater than 90 days have been classified as available-for-sale securities in accordance with U.S. GAAP.  Marketable securities are categorized on the consolidated condensed balance sheet as short- and long-term marketable securities, as appropriate .

The following table is a summary of available-for-sale securities at June 27 , 201 5 (in thousands):

The Company’s specifically identified gross unrealized losses of $ 225 thousand relates to 43 different securities with total amortized cost of approximately $ 157.6 million at June 27 , 201 5 .  Because the Company does not intend to sell the investments at a loss and the Company will not be required to sell the investments before recovery of its amortized cost basis, it did not consider the investment in these securities to be other-than -temporarily impaired at June 27 , 201 5 .  Further, the securities with gross unrealized losses had been in a continuous unrealized loss position for less than 12 months as of June 27 , 201 5 .

The following table is a summary of availabl e -for-sale securities at March 28 , 201 5 (in thousands):

The Company’s specifically identified gross unrealized losses of $ 8 3 thousand relates to 3 4 different securities with total amortized cost of approximately $ 154.3 million at March 2 8 , 201 5 .  Because the Company d id not intend to sell the investments at a loss and the Company did not expect to be required to sell the investments before recovery of its amortized cost basis, it did not consider the investment in these securities to be other-than- temporarily impaired at March 2 8 , 201 5 .  Further, the securities with gross unrealized losses had been in a continuous unrealized loss position for less than 12 months as of March 2 8 , 201 5 .

The cost and estimated fair value of available-for-sale securities by contractual maturities were as follows (in thousands) :

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4 . Fair Value of Financial Instruments

The Company has determined that the only assets and liabilities in the Company’s financial statements that are required to be measured at fair value on a recurring basis are the Company’s cash equivalents , investment portfolio , and pension plan assets / liabilities . The Company defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  The Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

The Company’s cash equivalents and investment portfolio assets consist of corporate debt securities, money market funds, U.S. Treasury securities, and commercial paper and are reflected on our consolidated condensed balance sheet s under the headings cash and cash equivalents, marketable securities, and long-term marketable securities. The Company determines the fair value of its investment portfolio assets by obtaining non-binding market prices from its third-party portfolio managers on the last day of the quarter, whose sources may use quoted prices in active markets for identical assets (Level 1 inputs) or inputs other than quoted prices that are observable either directly or indirectly (Level 2 inputs) in determining fair value.

The Company’s long-term revolving facility, described in Note 8 , bears interest at a base rate plus applicable margin or LIBOR plus applicable margin.  As of June 27, 201 5 , the fair value of the Company’s long-term revolving facility approximates carrying value based on estimated mar g in.

As of June 27 , 2015 and March 28, 2015 , the Company classified all of its investment portfolio and pension plan assets as Level 1 or Level 2 as s ets .  The Company has no Level 3 assets or liabilities .  There were no transfers between Level 1, Level 2, or Level 3 measurements for the three month period ending June 27 , 201 5 .

The following table summarizes the fair value of our financial instruments, exclusive of pension plan assets , at June 27 , 201 5 , (in thousands):

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The fair value of our financial assets at March 28 , 201 5 , was determined using the following inputs (in thousands):

5 . Accounts Receivable, net

The following are the components of accounts receivable, net (in thousands):

6 . Inventories

Inventories are comprised of the following (in thousands):

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The increase in i nventory balances at June 27, 2015, as compared to March 28, 2015, is primarily related to product ion ramp s ahead of customer demand.

7 . Acquisition

Cirrus Logic completed the acquisition of Wolfson Microelectronics plc (the “Acquisition”) , a public limited company incorporated in Scotland (“Wolfson”) in the second quarter of fiscal year 2015 . Upon completion of the acquisition, Wolfson was re-registered as a private limited company .

The Acquisition was accounted for as a business purchase pursuant to ASC Topic 805, Business Combinations, and the operations of Wolfson have been included in the Company’s consolidated financial statements since August 21, 2014, the date of acquisition. The following table presents the final allocation of the purchase price to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition as of June 27, 201 5 (in thousands):

The goodwill of $ 24 7.2 million arising from the Acquisition is attributable primarily to expected synergies and the product and customer base of Wolfson.  None of the goodwill is expected to be deductible for income tax purposes.

The components of the acquired intangible assets and related weighted average amortization periods are detailed below (in thousands):

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8 .     Revolving Credit Facilities

Cirrus Logic ’s credit agreement (the “Credit Agreement”) with Wells Fargo Bank, National Association, as Administrative Agent , and the Lenders party thereto provides for a $250 million senior secured revolving credit facility (the “Credit Facility”).  The Credit Facility replaced Cirrus Logic’s i nterim c redit f acility described below , and may be used for general corporate purposes.  The Credit Facility matures on August 29, 2017.

The Credit Facility is required to be guaranteed by all of Cirrus Logic’s material domestic subsidiaries (the “Subsidiary Guarantors”). The Credit Facility is secured by substantially all of the assets of Cirrus Logic and any Subsidiary Guarantors, except for certain excluded assets.  Borrowings under the Credit Facility may, at Cirrus Logic’s election, bear interest at either (a) a Base Rate plus the Applicable Margin (“Base Rate Loans”) or (b) a LIBOR Rate plus the Applicable Margin (“LIBOR Rate Loans”).  The Applicable Margin ranges from 0% to .25% per annum for Base Rate Loans and 1.50% to 2.00% per annum for LIBOR Rate Loans based on Cirrus Logic’s Leverage Ratio (discussed below). A Commitment Fee accrues at a rate per annum ranging from 0.25% to 0.35% (based on the Leverage Ratio) on the average daily unused portion of the Commitment of the Lenders.

The Credit Agreement contains customary affirmative covenants, including, among others, covenants regarding the payment of taxes and other obligations, maintenance of insurance, reporting requirements and compliance with applicable laws and regulations. Further, the Credit Agreement contains customary negative covenants limiting the ability of Cirrus Logic or any Subsidiary to, among other things, incur debt, grant liens, make investments, effect certain fundamental changes, make certain asset dispositions, and make certain restricted payments.  The Credit Facility also contains certain financial covenants providing that (a) the ratio of consolidated funded indebtedness to consolidated EBITDA for the prior four consecutive quarters must not be greater than 2.00 to 1.00 (the “Leverage Ratio”) and (b) the sum of cash and Cash Equivalents of Cirrus Logic and its Subsidiaries on a consolidated basis must not be less than $100 million. At June 2 7 , 201 5 , the Company was in compliance with all covenants under the Credit Agreement .

On June 23, 2015, Cirrus Logic and Wells Fargo Bank, National Association, as Administrative Agent, entered into a first amendment of the Credit Agreement (the “First Amendment”).  The First Amendment primarily provides additional flexibility to the Company for certain intercompany transactions.  In particular, the First Amendment  (i) amended the definition of “Permitted Acquisition” to increase the threshold whereby the Company must provide certain financial statements and certifications to the Administrative Agent; (ii) expanded the Company’s ability to make intercompany investments, in cluding unsecured intercompany i ndebtedness to fund a Permitted Acquisition; and (iii) provided the Company with the ability, under cert ain circumstances, to transfer c apital s tock in a n on- g u arantor s ubsidiary to another w holly -owned subsidiary that is not a credit p arty.

T he Company had borrowed $ 160.4 million under the Credit Facility as of June 27, 2015, which is included in long-term liabilities on the c onsolidated c ondensed b alance s heets. The borrowings were

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primarily used for re financing the $225 million interim credit facility described below, which was used for financing the Acquisition in the second quarter of fiscal year 2015 .

Cirrus Logic entered into a credit agreement (the “ Interim Credit Agreement”) with Wells Fargo Bank, National Association as administrative agent and lender, on April 29, 2014, in connection with the Acquisition.  The Interim Credit Agreement provided for a $225 million senior secured revolving credit facility (the “ Interim Facility”).  The Interim Facility was to be used for, among other things, payment of the o ffer c onsideration in connection with the Acquisition.  The Interim Facility was replaced with the Credit Facility described above , matur ing with no outstanding borrowings or accrued interest on the m aturity d ate.

9. Patent Agreement, net

On May 8, 2015, we entered into a patent purchase agreement for the sale of certain Company- owned patents relating to our LED lighting products .  As a result of this agreement, on June 22, 2015, the Company received cash consideration of $12.5 million from the purchaser. Under the agreement, the Company undertook to no longer be engaged in LED lighting and received a license under the sold patents for all other fields of use. The proceeds were recorded during fiscal year 2016 as a recovery of costs previously incurred and are reflected as a separate line item on the Consolidated Condensed Statements of Income in operating expenses under the caption “Patent agreement, net.”

10 . Income Taxes

Our provision for income taxes is based on estimated effective tax rates derived from an estimate of annual consolidated earnings before taxes, adjusted for nondeductible expenses, other permanent items and any applicable credits.

The following table presents the provision for income taxes and the effective tax rates (in thousands):

Our income tax expense for the first quarter of fiscal year 2016 was below the federal statutory rate primarily due to income in certain foreign jurisdictions taxed below the federal statutory rate . Our income tax expense for the first quarter of fiscal year 201 5 was slightly above the federal statutory rate primarily due to the effect of the permanent differences that are nondeductible for tax purposes.

We record unrecognized tax benefits for the estimated risk associated with tax positions taken on tax returns.  The unrecognized tax benefits balance was $ 3 .0 million as of June 27 , 2015. Due to the Wolfson acquisition and subsequent post-acquisition integration, it is reasonably possible that the total amount of unrecognized tax benefits could increase within the next 12 months.  An estimate of the range of increase is impracticable as of June 27, 2015.

We accrue interest and penalties related to unrecognized tax benefits as a component of the provision for income taxes.  As of June 27 , 2015 , the balance of accrued interest and penalties was zero . No interest or penalties were incurred during the first three months of fiscal year 201 6 or 201 5 .

The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax in multiple state and foreign jurisdictions.  Fiscal years 201 2 through 201 5 remain open to examination by the major taxing jurisdictions to which we are subject.

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1 1 . Pension Plan

The components of the Company’s net periodic pension expense for the three months ended June 27, 201 5 and June 28, 2014 are as follows (in thousands ):

Based on an actuarial study performed a s of March 2 8 , 201 5 , the pension plan is und er funded and a long-term liability is reflected in the Company’s consolidated condensed balance sheet under the caption “ Other long-term liabilities ” .

1 2 . Net Income Per Share

Basic net income per share is based on the weighted effect of common shares issued and outstanding and is calculated by dividing net income by the basic weighted average shares outstanding during the period.  Diluted net income per share is calculated by dividing net income by the weighted average number of common shares used in the basic net income per share calculation, plus the equivalent number of common shares that would be issued assuming exercise or conversion of all potentially dilutive common shares outstanding.  These potentially dilutive items consist primarily of outstanding stock options and restricted stock awards.

The following table details the calculation of basic and diluted earnings per share for the three months ended June 27 , 201 5 and June 28 , 201 4 (in thousands, except per share amounts):

The weighted outstanding shares excluded from our diluted calculation for the three months ended June 27 , 201 5 and June 28, 2014 were 275 thousand and 640 thousand, respectively, as the shares were anti-dilutive.

1 3 . Legal Matters

From time to time, we are involved in legal proceedings concerning matters arising in connection with the conduct of our business activities.  We regularly evaluate the status of legal proceedings in which we are involved in order to assess whether a loss is probable or there is a reasonable possibility that a loss or

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additional loss may have been incurred and determine if accruals are appropriate.  We further evaluate each legal proceeding to assess whether an estimate of possible loss or range of loss can be made.

Based on current knowledge, management does not believe that there are any pending matters that could potentially have a material adverse effect on our business, financial condition, results of operations or cash flows.  However, we are engaged in various legal actions in the normal course of business.  While there can be no assurances in light of the inherent uncertainties involved in any potential legal proceedings, some of which are beyond our control, an adverse outcome in any legal proceeding could be material to our results of operations or cash flows for any particular reporting period.

14 . Stockholders’ Equity

Common Stock

The Company issued a net 0.4 million and 0.2 million shares of common stock during the three month periods ending June 27, 2015 and June 28, 2014, respectively, in connection with stock issuances pursuant to the Company’s 2006 Stock Incentive Plan.

Accumulated Other Comprehensive Loss

T he Company updated the functional currencies of its smaller foreign entities (from the U.S. dollar to certain local currencies ).  As a result, the Company is presenting the foreign currency translation effect, which amounted to a $0.8 million loss for the quarter ended June 27, 2015, within other comprehensive income in the Consolidated Condensed Statements of Comprehensive Income. Additionally, in the current quarter, the Company amortized pension actuarial losses out of accumulated other comprehensive income / (loss) to selling, general and administrative expenses.  See Note 11 - Pension Plan above.

15. Segment Information

We determine our operating segments in accordance with FASB guidelines.  Our Chief Executive Officer (“CEO”) has been identified as the chief operating decision maker under these guidelines.

The Company operates and tracks its results in one reportable segment, but reports revenue performance in two product lines, which, beginning in the second quarter of fiscal year 2015, are Portable Audio and Non-Portable Audio and Other.  Our CEO receives and uses enterprise-wide financial information to assess financial performance and allocate resources, rather than detailed information at a product line level.  Additionally, our product lines have similar characteristics and customers.  They share operations support functions such as sales, public relations, supply chain management, various research and development and engineering support, in addition to the general and administrative functions of human resources, legal, finance and information technology.  Therefore, no complete, discrete financial information is maintained for these product lines.

Revenues from our product lines are as follows (in thousands):

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1 6 . Subsequent Event

On July 2 1 , 2015, the Company purchased a small, privately-held technology group that broadens our software capabilities for approximately $22 million.  The purchase will be funded with our existing cash resources.

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read along with the unaudited consolidated condensed financial statements and notes thereto included in Item 1 of this Quarterly Report on Form 10-Q, as well as the audited consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations for the fiscal year ended March 2 8 , 201 5 , contained in our fiscal year 201 5 Annual Report on Form 10-K filed with the Securities and Exchange Commiss ion (the “Commission”) on May 27 , 201 5 . We maintain a web site at investor.cirrus.com , which makes available free of charge our most recent annual report and all other filings we have made with the Commission .

This Management’s Discussion and Analysis of Financial Condition and Results of Operations and certain information incorporated herein by reference contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  These forward-looking statements are based on current expectations, estimates, forecasts and projections and the beliefs and assumptions of our management.  In some cases, forward-looking statements are identified by words such as “expect,” “anticipate,” “target,” “project,” “believe,” “goals,” “estimates,” “intend,” and variations of these types of words and similar expressions which are intended to identify these forward-looking statements.  In addition, any statements that refer to our plans, expectations, strategies or other characterizations of future events or circumstances are forward-looking statements.  Readers are cautioned that these forward-looking statements are predictions and are subject to risks, uncertainties and assumptions that are difficult to predict.  Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements.  We undertake no obligation to revise or update publicly any forward-looking statement for any reason.

For additional information regarding known material factors that could cause our actual results to differ from our projected results, please see “Item 1A – Risk Factors” in our 201 5 Annual Report on Form 10-K filed with the Commission on May 2 7 , 201 5 , and in Part II, Item 1A “ Risk Factors ” within this quarterly report on Form 10-Q.  Readers should carefully review these risk factors, as well as those identified in other documents filed by us with the Commission.

Overview

Cirrus Logic, Inc. (“Cirrus Logic,” “We,” “Us,” “Our,” or the “Company”) develops high-precision, analog and mixed-signal integrated circuits (“ICs”) for a broad range of innovative customers . Building on our diverse analog and mixed-signal product portfolio, Cirrus Logic delivers highly optim ized products for a variety of audio , industrial and energy -related applications .

Critical Accounting Policies

Our discussion and analysis of the Company’s financial condition and results of operations are based upon the unaudited consolidated condensed financial statements included in this report, which have been prepared in accordance with U. S. GAAP .  The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts.  We evaluate the estimates on an on-going basis.  We base these estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates under different assumptions and conditions.

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There were no material changes in the first three months of fiscal year 201 6 to the information provided under the heading “ Critical Accounting Policies ” included in our Annual Report on Form 10-K for t he fiscal year ended March 2 8 , 201 5.

Recently Issued Accounting Pronouncements

In August 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (“ASU”) No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern .  The amendments in this ASU provide guidance in GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures.  The amendments are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter.  Early application is permitted.  The Company is currently evaluating the impact of this ASU and expects no material modifications to its financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (ASC Topic 606) .  The purpose of this ASU is to converge revenue recognition requirements per GAAP and International Financial Reporting Standards (IFRS).  The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  The amendments in this ASU are effective for interim and annual reporting periods beginning after December 15, 2016, with early adoption not permitted by the FASB; however, in April 2015 the FASB issued for public comment a proposal to delay the effective date of this ASU to annual reporting periods beginning after December 15, 2017.  The Company is currently evaluating the impact of this ASU on its consolidated financial position, results of operations and cash flows.

In April 2015, the FASB issued ASU No. 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs .  The amendments in this update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability.  ASU 2015-03 is to be applied retrospectively and represents a change in accounting principle.  This ASU is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years.  Earlier adoption is permitted for financial statements that have not been previously issued.  The Company is currently evaluating the effect that the adoption of this ASU will have on its financial statements .

In April 2015, the FASB issued ASU No. 2015-04, Compensation – Retirement Benefits (Topic 715): Practical Expedient for the Measure ment Date of an Employer’s Defined Benefit Obligation and Plan Assets. The ASU is part of the FASB’s “ Simplification Initiative ” to reduce complexity in accounting standards.  The FASB decided to permit entities to measure defined benefit plan assets and obligations as of the month-end that is closest to their fiscal year-end.  An entity is required to disclose the accounting policy election and the date used to measure defined benefit plan assets and obligations in accordance with the amendments in this u pdate.  The amendments in this u pdate are effective for public business entities for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years, with earlier application permitted. The Company is currently evaluating the likelihood of adoption and the impact this ASU would have on its financial statements.

Results of Operations

The following table summarizes the results of our operations for the three months o f fiscal years 201 6 and 201 5 as a percentage of net sales.  All percentage amounts were calculated using the underlying data in thousands , unaudite d:

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Net Sales

Net sales for the first quarter of fiscal year 201 6 in crease d $ 130.0 million, or 85 percent, to $ 282.6 million from $ 152.6 million in the first quarter of fiscal year 201 5 . Net sales from our portable audio products increased $ 123.3 million, or 110 percent, primarily from increased shipments of our smart codecs and amplifiers .  Non-portable audio and other product sales increased $ 6.8 million, or 17 percent, during the first quarter of fiscal year 201 6 versus the comparable quarter of the prior fiscal year, primarily due to the additional revenue contribution from surround codes, ADC and DAC products .

Export sales, principally to Asia, including sales to U.S.-based customers with manufacturing plants overseas, were 9 5 percent and 9 3 percent of net sales during the first quarter of fiscal years 201 6 and 201 5 , respectively .  Our sales are denominated primarily in U.S. dollars. No foreign currency hedging contracts were entered into in the first quarter of fiscal year 2016 or 2015 , with the exception of the foreign currency hedge purchased in conjunction with the acquisition in fiscal year 2015 .

Since the components we produce are largely proprietary and generally not available from second sources, we consider our end customer to be the entity specifying the use of our component in their design. These end customers may then purchase our products directly from us, from an external sales representative or distributor, or through a third party manufacturer contracted to produce their designs.  For the third quarter of fiscal years 201 6 and 201 5 , our ten largest end customers represented approximately 88 percent and 85 percent of our net sales, respectively.

We had one end customer, Apple Inc. that purchased through multiple contract manufacturers and represented approximately 62 percent and 73 percent of the Company’s total net sales for the first quarter of fiscal years 201 6 and 201 5 , respectively . Samsung Electronics represented 18 percent of the Company’s total net sales for the first quarter of fiscal year 201 6 .

No other end customer or distributor represented more than 10 percent of net sales for the three months ending June 27, 2015 and June 2 8 , 201 4 .

For more information, please see Part II — Item 1A — “We depend on a limited number of customers and distributors for a substantial portion of our sales, and the loss of, or a significant reduction in orders from, or pricing on products sold to, any key customer or distributor could significantly reduce our sales or profitability . ”

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Gross Margin

Gross margin was 46.9 percent in the first quarter of fiscal year 201 6 , down from 49.4 percent in the first quarter of fiscal year 201 5 , as supply chain improvements were primarily offset by a higher mix of portable audio products in the current quarter . Margin was also slightly negatively impacted 0.2% due to reserves and scrap during the comparable prior period.

Research and Development Expense

Research and development expense for the first quarter of fiscal year 201 6 was $ 65.8 million, an increase of $ 26.0 million, or 66 percent, from $ 39.8 million in the first quarter of fiscal year 201 5 . The primary drivers were increase s in salary and employee-related expenses as a result of the Acquisition , increased amortization on acquisition-related intangibles, and increased product development expenses, including tape outs and CAD tools .

Selling, General and Administrative Expense

Selling, general and administrative (“SG&A”) expense for the first quarter of fiscal year 201 6 was $ 29.1 million, an increase of $ 9.4 million, or 48 percent, from $ 19.7 million in the first quarter of fiscal year 201 5 .  The increase s w ere due to higher salary and benefit costs, occupancy expenses and travel costs largely driven by the Acquisition .

Patent Agreement, net

On May 8, 2015 , we entered into a patent purchase agreement for the sale of certain Company - owned patents relating to our LED lighting products . As a result of this agreement, on June 22, 2015 , the Company received cash consideration of $ 12.5 million from the purchaser. Under the agreement, the Company undert ook to no longer be engaged in LED lighting and received a license under the sold patents for all other fields of use. The proceeds were recorded during fiscal year 201 6 as a recovery of costs previously incurred and are reflected as a separate line item on the C onsolidated Condensed Statements of Income in operating expenses under the caption “Patent agreement, net.”

Interest expense

The Company reported interest expense of $ 0.9 million and $ 0.7 million for the three months ended June 27, 201 5 , and June 28, 2014, respectively, as a result of our $250 million revolving credit facility described in Note 8 , as well as the amortization of the commitment fee on the interim credit facility in the first quarter of fiscal year 2015 .

Other income

For the three months ended June 27, 201 5 and June 28, 2014 , the Company reported $ 0.1 million and $ 0.5 million, respectively, in other income . The first quarter fiscal year 2015 amount primarily relate s to recognized gains on expired hedging contra cts .  T he first quarter fiscal year 2016 amount is immaterial.

Income Taxes

Our provision for income taxes is based on estimated effective tax rates derived from an estimate of annual consolidated earnings before taxes, adjusted for nondeductible expenses, other permanent items and any applicable credits.

The following table presents the provision for income taxes and the effective tax rates (in thousands):

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Our income tax expense for the first quarter of fiscal year 2016 was below the federal statutory rate primarily due to income in certain foreign jurisdictions taxed below the federal statutory rate .  Our income tax expense for the first quarter of fiscal year 2015 was slightly above the federal statutory rate primarily due to the effect of the permanent differences that are nondeductible for tax .

Liquidity and Capital Resources

We require cash to fund our operating expenses and working capital requirements, including outlays for research and development, capital expenditures, share repurchase, investments in marketable securities, and strategic acquisitions. Our principal sources of liquidity are cash on hand, cash generated from operatio ns, cash generated from the sale and maturity of marketable securities, and borrowings under our $250 million senior secured revolving credit facility.

Cash provided by operating activities is net income adjusted for certain non-cash items and changes in certain current assets and current liabilities.  Our operational cash flows are affected by the ability of our operations to generate cash, and our management of assets and liabilities, including both working capital and long-term assets and liabilities.  Net cash provided by operating activities was $ 43.2 million for the first quarter of fiscal year 201 6 as compared to $ 12.8 million for the c orresponding period of fiscal year 201 5 .  The primary source s of cash flow from operations during the current quarter of fiscal year 201 6 was related to the cash components of our net income, offset by a $ 2 8.7 million decrease in changes to working capital, primarily in inventories .  The primary source of cash flow from operations during the corresponding period of fiscal year 201 5 was the cash components of our net income.

Net cash provided by investing activities was $ 0.7 million during the first quarter of fiscal year 201 6 as compared to $ 223.2 million during the first quarter of fiscal year 201 5 .  The cash provided by investing activities in the current quarter i s primarily related to n et proceeds from the sale of marketable securities of $ 1 3. 4 million , partially offset by purchases of proper ty, equipment and software of $ 10.6 million and technology investments of $1.8 million . Net cash provided by investing activities f or the corresponding period in fiscal year 201 5 was primarily driven by p roceeds from the sale of marketable securities of $246.9 million in anticipation of financing the A cquisition , offset by an $11.1 million foreign currency hedge purchased in conjunction with the A cquisition , purchases of marketable securities of $9.3 million and the purchase of property, equipment and software of $3.3 million.

Net cash used in financing activities was $ 17.8 million during the first quarter of fiscal year 201 6 . The cash used during the first quarter of fiscal year 201 6 was primarily associated with $20.0 million in principal payments against the long-term revolver , discussed in Note 8 , partially offset by $ 2.7 million for the issuance of common stock, net of shares withheld for taxes for the quarter. The cash provided during the first quarter of fisc al year 201 5 was associated with the excess tax benefit related to employee stock option exercises of $3.1 million and $0.9 million for the issuance of common stock, net of shares withheld for taxes, partially offset by payments for debt issuance costs related to the Wolfson acquisition of $3.0 million .

We have not paid cash dividends on our common stock and currently intend to continue our policy of retaining any earnings for reinvestment in our business.  Although we cannot give assur ance that we will be able to generate cash in the future, we anticipate that our future cash earnings, existing cash, cash equivalents, investments and credit under our Credit Facility are sufficient to meet our capital requirements for at least the next 12 months , although we could be required, or could elect, to seek additional funding prior to that time .

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Revolving Credit Facilities

In the second quarter of fiscal year 2015, Cirrus Logic entered into a credit agreement (the “Credit Agreement”) with Wells Fargo Bank, National Association, as Administrative Agent, and the Lenders party thereto.  The Credit Agreement provides for a $250 million senior secured revolving credit facility (the “Credit Facility”).  The Credit Fa cility replaced Cirrus Logic’s I nterim C redit F acility, and may be used for general corporate purposes.  The Credit Facility matures on August 29, 2017.  The Credit Facility also contains certain financial covenants providing that (a) the ratio of consolidated funded indebtedness to consolidated EBITDA for the prior four consecutive quarters must not be greater than 2.00 to 1.00 (the “Leverage Ratio”) and (b) the sum of cash and Cash Equivalents of Cirrus Logic and its Subsidiaries on a consolidated basis must not be less than $100 million. At June 27, 201 5 , the Company was in compliance with all covenants under the Credit Facility.  A s of June 27, 201 5 , t he Company owes $ 160 .4 million under this facility.  See Note 8 for additional details regarding this facility.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risks associated with interest rates on our debt securities , currency movements on non-U.S. dollar denominated assets and liabilities , and the effect of market factors on the value of our marketable securities. We assess these risks on a regular basis and have established policies that are designed to protect against the adverse effects of these and other potential exposures. For a description of our market risks, see “

Part II – Item 7A – Quantitative and Qualitative Disclosures about Market Risk” in our fiscal year 201 5 Annual Report on Form 10-K filed with the Commission on May 2 7 , 201 5 .  There have been no significant changes to our exposure to market risks since we filed our fiscal year 201 5 Annual Report on Form 10-K.

I TEM 4.  CONTROLS AND PROCEDURES

Evaluation of disclosure control s and procedures

As required by Rule 13a-15(b) of the Exchange Act, we have evaluated, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this Form 10-Q. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Commission. Based upon the evaluation, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures were effective as of June 27, 2015 , at the reasonable assurance level.

Changes in control over financial reporting

There has been no change in the Company’s internal control over financial reporting during the quarter ended June 27, 2015, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.  The previously disclosed Acquisition was migrated to the corporate ERP and financial reporting application instance i n the current quarter .

PART II . OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

Information regarding legal proceedings to which the Company is a party is set forth in Note 13 – Legal Matters to our unaudited consolidated condensed financial statements and is incorporated herein by reference.

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ITEM 1A. RISK FACTORS

In evaluating all forward-looking statements, readers should specifically consider risk factors that may cause actual results to vary from those contained in the forward-looking statements.  Various risk factors associated with our business are included in our Annual Report on Form 10-K for the fiscal year ended March 2 8 , 20 1 5 , as filed with the Commission on May 2 7 , 201 5 , and available at www.sec.gov . Other than as set forth below, there have been no material changes to those risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended March 2 8 , 201 5 .

We depend on a limited number of customers and distributors for a substantial portion of our sales, and the loss of, or a significant reduction in orders from, or pricing on products sold to, any key customer or distributor could significantly reduce our sale s and our profitability .

While we generate sales from a broad base of customers worldwide, the loss of any of our key customers, or a significant reduction in sales or selling prices to any key customer , or reductions in selling prices made to retain key customer relationships, would significantly reduce our revenue, margins and earnings and adversely affect our business. For the first three months of fiscal years 201 6 and 201 5 , our ten largest end custom ers represented approximately 88 percent and 8 5 percent , respectively, of our net sales.  We had one end customer, Apple Inc. that purchased through multiple contract manufacturers and represented approximately 62 percent and 73 percent of the Company’s total net sales for the first thre e months of fiscal years 201 6 and 201 5 , respectively. Additionally, Samsung Electronics represented approximately 18 percent of the Company’s net sales for the first three months of fiscal year 2016.

We had no distributor s that represented more than 10 percent of our sales for the thre e month periods ending June 27 , 201 5 or June 28 , 201 4 . No other end customer or distributor represented more than 10 percent of net sales for the thre e month periods ending June 2 7 , 201 5 or June 28 , 201 4 .

We may not be able to maintain or increase sales to certain of our key customers for a variety of reasons, including the following:

In addition , our dependence on a limited number of key customers may make it easier for key customers to pressure us to reduce the prices of the products we sell to them.  We have experienced pricing pressure from certain key customers , and we expect that the average selling prices for certain of our products will decline, reducing our revenue, our margins, and our earnings.

Our key customer relationships often require us to develop new products that may involve significant technological challenges.  Our customers frequently place considerable pressure on us to meet their tight development schedules. In addition, we may from time to time enter into customer agreements providing for exclusivity periods during which we may only sell specified products or technologies to that customer. Accordingly, we may have to devote a substantial amount of resources to strategic relationships, which could detract from or delay our completion of other important development projects or the development of next generation products and technologies.

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I TEM 2.  U NREGISTERED SALES OF EQUITY SECURITIES AND USE OF P ROCEEDS

None.

I TEM 3 . DEFAULTS UPON SENIOR SECURITIES

None.

I TEM 4 . MINE SAFETY DISCLOSURES

Not applicable .

I TEM 5 . OTHER INFORMATION

None.

ITEM 6.  EXHIBITS

The following exhibits are filed as part of or incorporated by reference into this Report:

* Filed with this Form 10-Q.

The exhibits required to be filed pursuant to the requirements of Item 601 of Regulation S-K are set forth in the Exhibit Index list noted above and are incorporated herein by reference.

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SIGNATURE S

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

CIRRUS LOGIC, INC.

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