NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1—ORGANIZATION AND BASIS OF
PRESENTATION
Intersil Corporation (“Intersil,” which may also be referred to as “we,” “us” or “our”)
is a leading provider of innovative power management and precision analog solutions. Our products address some of the largest markets within the industrial & infrastructure and computing & consumer end-markets.
Basis of Presentation
We utilize a 52/53-week fiscal year, ending on the nearest Friday to December 31. Fiscal year 2016, 2015 and 2014 each contained a 52-week period. Quarterly
and
annual periods
may
vary from exact calendar quarters or years.
The consolidated financial statements include the accounts of Intersil and its subsidiaries. All intercompany accounts and transactions have been eliminated.
Reclassifications
Certain prior year amounts have been reclassified to conform to current year presentation.
Pending Merger with Renesas Electronics Corporation
On
September 12, 2016
, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Renesas Electronics Corporation, a Japanese corporation (“Renesas”). The Merger Agreement provides that, upon the terms and subject to the satisfaction or valid waiver of the conditions set forth in the Merger Agreement, a wholly owned subsidiary of Renesas will merge with and into Intersil (the “Merger”), with Intersil continuing as the surviving corporation and a direct wholly owned subsidiary of Renesas. At the effective time of the Merger, each outstanding share of Class A common stock, par value
$0.01
per share, of Intersil (“Class A common stock” or “common stock”), other than shares held by stockholders who have validly exercised their appraisal rights under Delaware law, and certain shares owned by Intersil, Renesas and their subsidiaries, will be automatically converted into the right to receive
$22.50
in cash, without interest and less any applicable withholding taxes, plus, if applicable, the amount of any dividend which has a record date prior to the closing date of the Merger
and a payment date after the closing date of the Merger
.
The consummation of the Merger is conditioned on the receipt of the approval of our stockholders, which we received on December 8, 2016, as well as the satisfaction of other customary closing conditions, including domestic and foreign regulatory approvals and performance in all material respects by each party of its obligations under the Merger Agreement. Consummation of the Merger is not subject to a financing condition. Closing of the Merger is expected in the first quarter of 2017.
The Merger Agreement contains certain termination rights for us and Renesas, including if a governmental body prohibits the Merger or if the Merger is not consummated before July 12, 2017. Upon termination of the Merger Agreement under specified circumstances, we or Renesas will be required to pay the other party a termination fee of
$96.5
million.
We recorded transaction-related costs of
$7.9
million, principally for outside financial advisory, legal, and related fees and expenses associated with the pending acquisition, in the year ended December 30, 2016. Additional transaction-related costs are expected to be incurred through the closing of the Merger.
NOTE 2—SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents—
Cash equivalents consist of highly liquid investments with original maturities of three months or less at the time of purchase. Investments with original maturities over three months are classified as short-term investments. We determine the appropriate classification of our cash and cash equivalents at the time of purchase.
Investments—
All of
our
investments, except
Non-marketable equity securities
, are classified as available-for-sale at the respective balance sheet dates. Investments classified as available-for-sale are recorded at fair value based upon quoted market prices, and any temporary difference between the cost and fair value of an investment is presented as a separate component of accumulated other comprehensive income (loss). The specific identification method is used to determine the gains and losses on investments. Interest earned on cash and investments, as well as realized gains and losses on sale of securities, are included in interest income in
our consolidated statements of income
.
Non-marketable equity securities are accounted for at historical cost or, if we have significant influence over the investee, using the equity method of accounting. These investments are evaluated for impairment quarterly. Such analysis requires significant judgment to identify events or circumstances that would likely have a significant, other than temporary, adverse effect on the carrying value of the investment.
Deferred Compensation Plan Assets—
We have made available a non-qualified
deferred compensation plan for certain eligible employees. Participants can direct the investment of their deferred compensation plan accounts from a portfolio of funds from which earnings are measured. Although participants direct the investment of these funds, they are classified as trading securities and are included in other non-current assets because they remain our assets until they are actually paid out to the participants. We maintain a portfolio of
$10.2
million in mutual fund investments and corporate-owned life insurance under the plan. Changes in the fair value of the asset are recorded as a gain (loss) on investments and changes in the fair value of the liability are recorded as a component of compensation expense. In general, the compensation expense (benefit) is substantially offset by the gains and losses on the investment. During 2016 and 2014, we recorded gains on deferred compensation investments of
$0.6
million and
$0.5
million, respectively and losses of
$0.3
million during 2015. We also recorded compensation expense of
$0.7
million each in 2016 and 2014 and compensation benefit in 2015 was immaterial.
Fair Value Measurements—
In order to determine the fair value of our assets and liabilities, we utilize three levels of inputs, focusing on the most observable inputs when available. Observable inputs are generally developed based on market data obtained from independent sources, whereas unobservable inputs reflect our assumptions about what market participants would use to value the asset or liability, based on the best information available in the circumstances. The three levels of inputs are as follows:
Level 1—
Quoted prices in active markets which are unadjusted and accessible as of the measurement date for identical, unrestricted assets or liabilities;
Level 2—
Quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly;
Level 3—
Prices or valuations that require inputs that are unobservable and significant to the overall fair value measurement.
If we use more than one level of input that significantly affects fair value, we include the fair value under the lowest input level used.
Trade Receivables, net—
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Accounts receivable are reduced by an allowance for doubtful accounts, which
reflects our best estimate of probable losses inherent in the accounts receivable balance. We determine the allowance based on the aging of our accounts receivable, historical experience, known troubled accounts, management judgment and other currently available evidence. When items are deemed uncollectible, we charge them against the allowance for collection losses. We provide for estimated collection losses in the current period, as a component of revenue. We utilize credit limits, ongoing evaluation and trade receivable monitoring procedures to reduce the risk of credit loss. Credit is extended based on an evaluation of our customer’s financial condition and collateral is generally not required. Accounts receivable are also recorded net of sales returns and distributor allowances. These amounts are recorded when it is both probable and estimable that discounts will be granted or products will be returned. Please see “Revenue Recognition” for further details.
Inventories—
Inventories are carried at the lower of standard cost (which approximates actual cost, determined by the first-in-first-out method) or market value. The carrying value of our inventories is reduced for any difference between cost and estimated market value of inventory that is determined to be obsolete or unmarketable, based upon assumptions about future demand and market conditions. Inventory adjustments establish a new cost basis and are considered permanent even if circumstances later suggest that increased carrying amounts are recoverable.
If demand is higher than expected, we may sell inventory that had previously been written down.
Property, Plant and Equipment
—Buildings, machinery and equipment are carried at cost, less accumulated depreciation and impairment charges, if any. We expense repairs and maintenance costs that do not extend an asset’s useful life or increase an asset’s capacity. Depreciation is computed using the straight-line method over the estimated useful life of the asset. The estimated useful lives of buildings, which include leasehold improvements, range between
10
and
30
years, or over the lease period, whichever is shorter. The estimated useful lives of machinery and equipment range between
three
and
eight
years. We lease certain facilities under operating leases and record the effective rental expense in the appropriate period on the straight-line method.
Accounting for Business Combinations
—
We use the acquisition method of accounting for business combinations and recognize assets acquired and liabilities assumed at their fair values on the date of the acquisition. While we use our best estimates and assumptions to value assets acquired and liabilities assumed, including contingent considerations, where applicable, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we may adjust the values of assets acquired and liabilities assumed with a corresponding offset to goodwill. Upon the conclusion of the measurement period, or final determination of the values of the assets acquired and liabilities assumed, any subsequent adjustments to values of such assets and liabilities are recognized in our consolidated statements of operations.
Asset Impairment—
We recognize impairment losses on long-lived assets when indications of impairment exist and our estimate of undiscounted cash flows generated by those assets is less than the assets’ carrying amounts. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. Fair value is estimated based on discounted future cash flows or market value, if available. Assets that qualify as held for sale are stated at the lower of the assets’ carrying amount or fair value and depreciation is no longer recognized.
Goodwill—
Goodwill is an indefinite-lived intangible asset that is not amortized, but instead is tested for impairment annually or more frequently if indications of impairment exist. We perform an annual assessment of goodwill in the fourth quarter of each year, or more frequently if indications of potential impairment exist. We consider various
qualitative factors, including macroeconomic and industry conditions, financial performance of the company and changes in the stock price of the company to determine whether it is necessary to perform a quantitative test for goodwill impairment. If we believe, as a result of our qualitative assessment, that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. Under the quantitative test,
goodwill is tested under a two-step method for impairment at a level of reporting referred to as a reporting unit. Step one of the quantitative analysis involves identifying potential impairment by comparing the fair value of each reporting unit with its carrying amount and, if applicable, step two involves estimation of the impairment loss, which is the amount of excess of carrying amount of goodwill over the implied fair value of the reporting unit goodwill.
In 2016 and 2014, based on a qualitative assessment, we concluded that a quantitative two-step assessment was not required to be performed. In 2015, we performed a quantitative two-step assessment and concluded that the carrying value of goodwill had not been impaired
as of the date of the assessment.
Purchased Intangibles
—
Purchased intangible assets with finite lives are carried at cost less accumulated amortization. Amortization is computed
on a straight-line basis over the asset’s estimated useful life. Purchased intangibles include intangible assets subject to amortization, which are our developed technologies, backlog, customer relationships and intellectual property. We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. We measure recoverability of long-lived assets by comparing the carrying amount of the asset group to the future undiscounted net cash flows expected to be generated by those assets. If such assets are considered to be impaired, we recognize an impairment charge for the amount by which the carrying amounts of the assets exceeds the fair value of the assets.
Income Taxes
—We follow the liability method of accounting for income taxes. Current income taxes payable and receivable and deferred income taxes resulting from temporary differences between the financial statements and the tax basis of assets and liabilities are separately classified on the consolidated balance sheets.
Uncertain tax positions and unrecognized tax benefits, or UTBs
—We record our tax expense based on various probabilities of sustaining certain tax positions, using a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. We record UTBs as a component of non-current income taxes payable, unless payment is expected within one year.
Applicable guidance requires us to record tax expense based on various estimates of probabilities of sustaining certain tax positions. As a result of this and other factors, our estimate of tax expense could change.
We classify accrued interest and penalties on income tax matters in the liabilities section of the balance sheet as non-current income taxes payable. When the interest and penalty portions of such uncertain tax positions are adjusted, it is classified as income tax
expense. All of the uncertain tax positions and UTBs as of December 30, 2016 would impact our effective tax rate should they be recognized.
In the ordinary course of business, the ultimate tax outcome of many transactions and calculations is uncertain, as the calculation of tax liabilities involves the application of complex tax laws in the U.S., Malaysia and other jurisdictions. We recognize liabilities for additional taxes that may be due on tax audit issues based on an estimate of the ultimate resolution of those issues. Although we believe the estimates are reasonable, the final outcome may be different than amounts we estimate. Such determinations could have a material impact on the income tax expense (benefit), effective tax rate and operating results in the period they occur. Significant changes in enacted tax law could materially impact our estimates.
Restructuring
— We record restructuring charges when severance obligations are probable and reasonably estimable and the vested right attributable to the employees’ service is already rendered. We recognize a liability for costs associated with exit or disposal activities including costs associated with leases, when a liability is incurred rather than when an exit or disposal plan is approved.
We continually evaluate the adequacy of the remaining liabilities under our restructuring initiatives. Although we believe that these estimates accurately reflect the costs of our restructuring plans, actual results may differ, thereby requiring us to record additional provisions or reverse a portion of such provisions.
Revenue Recognition
— We recognize revenue related to sales of our products, net of sales returns and allowances, provided that (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred and title and risk of loss have transferred, (iii) the price is fixed or determinable and (iv) collectability is reasonably assured. Delivery is considered to have occurred when title and risk of loss have transferred to the customer. We consider the price to be fixed or determinable when the price is not subject to refund or adjustments or when such adjustments can be estimated. We evaluate the creditworthiness of our customers to determine that appropriate credit limits are established prior to the acceptance of an order.
We initially invoice certain distributors at list price upon shipment and issue a credit for pricing adjustments (referred to as “ship and debit claims”), once product has been sold to the end customer and the distributor has met certain reporting requirements. We estimate and record a reserve for the ship and debit claims based on our assessment of contractual terms with the respective distributors, historical information and prevailing economic situation at the time recognition of revenue.
For certain distributors, we defer recognition until the distributors resell the products to their end customer (“sell-through distributor”). Revenue at published list price and cost of revenue to sell-through distributors are deferred until either the product is resold by the distributor or, in certain cases, return privileges terminate, at which time revenue and cost of revenue are recorded in the consolidated statement of income. The final price is also subject to ship and debit credits, reducing the final amount recorded in revenue at resale.
Revenue from sales of our products that are subject to inventory consignment agreements, including consignment arrangements with distributors, is recognized in accordance with the principles discussed above, but delivery occurs when the customer or distributor pulls product from consignment inventory that we store at designated locations.
The following table summarizes the deferred income balance, primarily consisting of sell-through distributors (in thousands):
|
|
|
|
|
|
|
December 30, 2016
|
|
January 1, 2016
|
Deferred revenue
|
$
|
18,834
|
|
$
|
17,626
|
Deferred cost of revenue
|
|
(3,763)
|
|
|
(3,144)
|
Deferred income
|
$
|
15,071
|
|
$
|
14,482
|
Warranty—
We provide for the estimated cost of product warranties at the time revenue is recognized. While we engage in extensive product quality programs and processes, including actively monitoring and evaluating the quality of our suppliers, the estimated warranty obligation is affected by ongoing product failure rates and material usage costs incurred in correcting a product failure. Actual product failure rates or material usage costs that differ from estimates result in revisions to the estimated warranty liability. We warrant for a limited period of time that our products will be free from defects in material workmanship and possess the electrical characteristics to which we have committed. We estimate warranty allowances based on historical warranty experience. Historically, warranty expenses were not material to our consolidated financial statements.
Research and Development
—Research and development costs consist of the cost of designing, developing and testing new or significantly enhanced products and are expensed as incurred.
Advertising Expense
—Advertising costs are expensed in the period incurred. Advertising expense was
$4.9
million,
$
4.5
million, and
$4.2
million in 2016, 2015, and 2014, respectively.
Equity-based Compensation
—Our equity-based compensation plans allow several forms of equity compensation including stock options, or Options, restricted and deferred stock awards, or Awards, and
employee stock purchase plans, or
ESPPs. The 2008 Equity Compensation Plan, or the 2008 Plan, includes several available forms of stock compensation of which only Options and Awards have been granted to date. Awards issued consist of deferred stock units and restricted stock units, which may differ in regard to the timing of the related prospective taxable event to the recipient.
Additionally, we have an ESPP Plan, whereby eligible employees can purchase shares of Intersil’s common stock
through payroll deductions at a price not less than
85%
of the market value of the stock on specified dates, with no look-back provision.
Our plans allow employees an option to have Awards withheld as a means of meeting minimum statutory tax withholding requirements. For the majority of Awards granted, the number of shares issued on the date the Awards vest is net of the minimum statutory withholding requirements that we pay in cash to the appropriate taxing authorities on behalf of our employees. In our consolidated financial statements, we treat shares withheld for tax purposes on behalf of our employees in connection with the vesting of Awards as common stock repurchases because they reduce the number of shares that would have been issued upon vesting. Withheld shares are cancelled immediately and are not considered outstanding.
Equity-based compensation cost is measured at the grant date, based on the fair value of the options and awards ultimately expected to vest, and is recognized as an expense, on a straight-line basis, over the requisite service period. We use a lattice method of valuation for estimating the grant date fair value of options and awards that include market-based vesting conditions. Calculating fair value requires us to estimate certain key assumptions in the valuation model, including expected stock price volatility, the risk-free interest rate in the market, the expected life of the award and the annualized dividend yield. Volatility is one of the most significant determinants of fair value. We estimate our volatility using the actual historical volatility of our stock price. In case of options and awards that include market-based vesting conditions, our estimate for volatility includes actual historical volatility of stock prices of certain peer companies. We estimate our expected risk-free interest rate by using the zero-coupon U.S. Treasury rate at the time of the grant related to the expected life of the grant. We estimate forfeitures based on historical information about turnover for each appropriate employee level. We estimate the annualized dividend yield by dividing the current annualized dividend by the closing stock price on the date of grant. Expected forfeitures are estimated and offset the compensation costs recorded in the financial statements.
Most options vest
25%
in the first year and quarterly thereafter for
three
or
four
years and generally have
seven
year contract lives. For Awards, the expected life for amortization of the grant date fair value is the vesting term, gener
ally
three
years in the case of deferred stock units and
four
years in the case of restricted stock units. We issue new shares of common stock upon the exercise of Options.
Loss Contingencies
—We estimate and accrue loss contingencies at the point that the losses become probable. For litigation, we include an estimate of legal costs for defense as part of the reserve for loss contingencies.
Retirement Benefits
—We sponsor a 401(k) savings and investment plan that allows eligible U.S. employees to participate in making pre-tax contributions to the 401(k) plan. We match the employee contributions on a dollar-for-dollar basis up to a certain predetermined percentage. Employees fully vest in the matching contributions after
five
years of service. We made matching contributions of
$4.8
million,
$4.8
million, and
$
4.5
million during 2016, 2015, and 2014, respectively.
We have voluntary defined contribution plans in various non-U.S. locations. Further, we maintain a limited number of defined benefit plans for certain non-U.S. locations. Total costs under these plans were
$1.3
million,
$0.9
million, and
$
0.8
million during 2016, 2015, and 2014, respectively. Accrued liabilities relating to these unfunded plans were
$
8.4
million and
$7.8
million as of December 30, 2016 and January 1, 2016, respectively.
Foreign Currency Translation—
For subsidiaries in which the functional currency is the local currency, gains and losses resulting from translation of foreign currency financial statements into U.S. dollars are recorded as a component of accumulated other comprehensive income, or OCI. Cumulative translation adjustments in accumulated OCI were $
(0.8)
million,
$0.3
million, and
$0.9
million as of December 30, 2016, January 1, 2016, and January 2, 2015, respectively.
Segment Information—
We report our results in
one
reportable segment. We design and develop innovative power management and precision analog integrated circuits, or ICs. Our chief executive officer is our chief operating decision maker.
Use of Estimates—
The financial statements have been prepared in conformity with accounting principles generally accepted in the U.S. and require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Recent Accounting Guidance Not Yet Adopted
In January 2016, the Financial Accounting Standards Board, or FASB, issued Accounting Standard update, or ASU, 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which provides guidance for the recognition, measurement, presentation, and disclosure of financial assets and liabilities. This ASU will be effective for us beginning in the first quarter of 2018. We are currently evaluating the impact of the adoption of this ASU on our financial statements.
In February 2016, FASB issued ASU 2016-02, Leases (Topic 842), which supersedes existing guidance on accounting for leases in “Leases (Topic 840)” and generally requires all leases to be recognized in the consolidated balance sheet. ASU 2016-02 is effective for annual and interim reporting periods beginning after December 15, 2018; early adoption is permitted. The provisions of ASU 2016-02 are to be applied using a modified retrospective approach. We are currently evaluating the impact of the adoption of this guidance on our consolidated financial statements.
In March 2016, FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. This ASU affects entities that issue equity-based payment awards to their employees. The ASU is designed to simplify several aspects of accounting for equity-based payment award transactions, which include income tax consequences, classification of awards as either equity or liabilities, classification on the statement of cash flows, and forfeiture rate calculations. ASU 2016-09 will become effective for us beginning in the first quarter of 2017; early adoption is permitted. We are currently evaluating the impact of the adoption of this guidance on our consolidated financial statements.
In April 2016, FASB issued an update to ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. The amendments in this update clarify the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. We are currently evaluating the impact of the adoption of this guidance on our consolidated financial statements.
In
October 2016, FASB issued ASU 2016-16, which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. This removes the exception to postpone recognition until the asset has been sold to an outside party. This ASU will be effective for us beginning in the first quarter of 2018, with early adoption permitted. It is required to be applied on a modified retrospective basis through a cumulative-effect adjustment to the balance sheet as of the beginning of the period of adoption. We are currently evaluating the impact of adoption of this guidance on our consolidated financial statement
s.
NOTE 3—BUSINESS COMBINATIONS
On
September 8, 2015
, we acquired Great Wal
l Semiconductor Corporation (“GWS”)
, a privately held manufacturer of metal oxide semiconductor field-effect transistors. We acquired GWS to broaden our product portfolio to better serve our customers who purchase certain commercial and radiation-hardened power management products.
The purchase consideration consisted of $
18.9
million in cash, of which $
2.8
million
was
held
by us
for a period of
16
months and
was
subject to
indemnification
claims. In addition, the acquisition agreement provide
d
for a cash earn-out payment of up to an additional $
4.0
million if either specified revenue
targets had been achieved or a disposition event had occurred on or before December 30, 2016. A disposition event would have included transfer of GWS or its assets
, or a transfer of a majority of the assets or acquisition of Intersil by a third party.
The conditions for the earn-out were not met and therefore no earn-out payment was required.
The purchase price was allocated to the identifiable assets and liabilities of GWS based on their estimated fair value at the acquisition date. We engaged an independent third party to assist with the determination of the fair value of certain identifiable intangible assets and the earn-out. In determining the fair value of the purchased intangible assets and earn-out, management made various estimates and assumptions from significant unobservable inputs (Level 3). The fair value of purchased identifiable intangible assets was determined using discounted cash flow models from projections prepared by management. The fair value of the earn-out was derived using a Monte Carlo simulation model that includes significant unobservable inputs.
The purchase price was preliminarily allocated as of the date of the acquisition as follows (in thousands):
|
|
|
Assets acquired
|
|
|
Current assets:
|
|
|
Cash
|
$
|
201
|
Accounts receivable
|
|
346
|
Prepaid expenses and other assets
|
|
319
|
Non-current assets:
|
|
|
Developed technology
|
|
13,232
|
Customer relationships
|
|
2,500
|
Goodwill
|
|
6,346
|
Total assets acquired
|
|
22,944
|
|
|
|
Liabilities acquired
|
|
|
Current liabilities:
|
|
|
Accounts payable
|
|
703
|
Accrued expenses
|
|
97
|
Deferred revenue
|
|
266
|
Non-current liabilities:
|
|
|
Deferred taxes
|
|
2,969
|
Total liabilities acquired
|
|
4,035
|
Net assets acquired
|
$
|
18,909
|
Developed Technology and Customer Relationships have estimated useful lives of
seven
and
three
years, respectively. The excess of the fair value of consideration paid over the fair value of the net assets and the identifiable intangible assets acquired and the liabilities assumed resulted in recognition of goodwill of $
6.3
million, including the value of workforce. The recognition of goodwill primarily related to expected future products and technologies. All of the goodwill recorded was assigned to our Industrial & Infrastructure reporting unit.
NOTE 4—AVAILABLE-FOR-SALE INVESTMENTS
The amortized cost and fair value of available-for-sale investments as of
December 30, 2016
a
re below. We did not have available-for-sale investments as of January 1, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 30, 2016
|
|
Amortized cost
|
|
Gross unrealized gains
|
|
Gross unrealized losses
|
|
Fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper and corporate bonds
|
$
|
7,697
|
|
$
|
—
|
|
$
|
—
|
|
$
|
7,697
|
Money market funds
|
|
77
|
|
|
—
|
|
|
—
|
|
|
77
|
Short-term Investments:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper and corporate bonds
|
|
69,937
|
|
|
13
|
|
|
(87)
|
|
|
69,863
|
U.S. government and agency
|
|
4,256
|
|
|
—
|
|
|
(18)
|
|
|
4,238
|
Municipal securities
|
|
1,412
|
|
|
—
|
|
|
(2)
|
|
|
1,410
|
Asset-backed and mortgage-backed securities
|
|
6,832
|
|
|
—
|
|
|
(10)
|
|
|
6,822
|
Total marketable securities
|
$
|
90,211
|
|
$
|
13
|
|
$
|
(117)
|
|
$
|
90,107
|
The contractual maturities of available-for-sale securities are presented in the following.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 30, 2016
|
|
|
|
|
|
|
|
Amortized cost
|
|
Fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Due in one year or less
|
|
|
|
|
|
|
$
|
53,966
|
|
$
|
53,960
|
Due in one to two years
|
|
|
|
|
|
|
|
31,932
|
|
|
31,834
|
Due in two to five years
|
|
|
|
|
|
|
|
4,313
|
|
|
4,313
|
Total
|
|
|
|
|
|
|
$
|
90,211
|
|
$
|
90,107
|
Investments with original maturities over three months are classified as short-term investments as these investments are available-for-sale in use for current operations.
There were
no
realized gain
s
or loss
es
from sales of available-for-sale investments or
unrealized
gain
s
or loss
es
that were reclassified to earnings during 2016.
NOTE 5—FAIR VALUE MEASUREMENTS
We determine fair value on the following assets using these input levels (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value as of December 30, 2016 using:
|
|
|
Total
|
|
Quoted prices in active markets for identical assets
(Level 1)
|
|
Significant other observable inputs
(Level 2)
|
Assets
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
Commercial paper
|
|
$
|
7,697
|
|
$
|
—
|
|
$
|
7,697
|
Money market funds
|
|
|
77
|
|
|
77
|
|
|
—
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
Commercial paper and corporate bonds
|
|
|
69,863
|
|
|
—
|
|
|
69,863
|
U.S. government and agency securities
|
|
|
4,238
|
|
|
—
|
|
|
4,238
|
Municipal securities
|
|
|
1,410
|
|
|
—
|
|
|
1,410
|
Asset-backed and mortgage-backed securities
|
|
|
6,822
|
|
|
—
|
|
|
6,822
|
Other non-current assets:
|
|
|
|
|
|
|
|
|
|
Deferred compensation investments
|
|
|
10,177
|
|
|
409
|
|
|
9,768
|
Total assets measured at fair value
|
|
$
|
100,284
|
|
$
|
486
|
|
$
|
99,798
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value as of January 1, 2016 using:
|
|
|
|
Total
|
|
Quoted prices in active markets for identical assets
(Level 1)
|
|
Significant other observable inputs
(Level 2)
|
Assets
|
|
|
|
|
|
|
|
|
|
Other non-current assets:
|
|
|
|
|
|
|
|
|
|
Deferred compensation investments
|
|
$
|
9,855
|
|
$
|
400
|
|
$
|
9,455
|
Total assets measured at fair value
|
|
$
|
9,855
|
|
$
|
400
|
|
$
|
9,455
|
We did
not
have any Level 3 assets as at the end of 2016 or 2015. There were
no
transfers into or out of Level
1
or
Level
2
financial assets and liabilities during
2016
or 2015.
For actively traded securities and bank time deposits, we generally rely upon the valuations provided by the third-party custodian of these assets.
NOTE
6
—INVENTORIES
Inventories are summarized below (in thousands):
|
|
|
|
|
|
|
As of
|
|
As of
|
|
December 30, 2016
|
|
January 1, 2016
|
Finished products
|
$
|
17,632
|
|
$
|
22,522
|
Work in process
|
|
44,024
|
|
|
38,238
|
Raw materials
|
|
3,552
|
|
|
4,574
|
Total inventories
|
$
|
65,208
|
|
$
|
65,334
|
As of
December 30
, 2016
, we were committed to purchase $
19.3
million of inventory from
our
suppliers.
NOTE 7—PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are summarized below (in thousands):
|
|
|
|
|
|
|
As of
|
|
As of
|
|
December 30, 2016
|
|
January 1, 2016
|
Land
|
$
|
1,708
|
|
$
|
1,708
|
Buildings and leasehold improvements
|
|
59,620
|
|
|
60,939
|
Machinery and equipment
|
|
229,213
|
|
|
267,832
|
Construction in progress
|
|
3,773
|
|
|
13,917
|
Total property, plant and equipment
|
|
294,314
|
|
|
344,396
|
Accumulated depreciation and leasehold amortization
|
|
(245,064)
|
|
|
(273,352)
|
Total property, plant and equipment, net
|
$
|
49,250
|
|
$
|
71,044
|
Depreciation expense was $12.7 million, $15.3 million, and $19.4 million for 2016, 2015, and 2014, respectively. Non-cash accruals for purchases of property, plant and equipment were immaterial for 2016, 2015, and 2014. As of December 30, 2016, we had open capital asset purchase commitments of
$
2.
7
million. The reduction in property, plant and equipment from 2015 to 2016 was driven by the impairment and related sale of assets related to our 200mm
wafer fabrication
line during 2016.
Please see Note 9 of the Notes to the Consolidated Financial Statements for further detail.
NOTE 8—GOODWILL AND PURCHASED INTANGIBLES
Goodwill
—There was no change in the goodwill balance during the year ended December 30, 2016.
The following table summarizes changes in net goodwill balances for our
one
reportable segment during the year ended January 1, 2016 (in thousands):
|
|
|
|
|
|
Gross goodwill balance as of January 2, 2015
|
$
|
1,720,100
|
Accumulated impairment charge as of January 2, 2015
|
|
(1,154,676)
|
Goodwill from GWS acquisition
|
|
6,346
|
Net goodwill balance as of January 1, 2016
|
$
|
571,770
|
Impairment charge
|
|
—
|
Net goodwill balance as of December 30, 2016
|
$
|
571,770
|
During the first quarter of 2015, we reorganized from
four
reporting units to
three
reporting units. As a result of this reorganization, we performed a fair value analysis immediately prior to the reallocation which did not indicate any impairment in the carrying value of goodwill. In addition, we reallocated our existing goodwill balances to the new reporting units utilizing a relative fair value allocation approach in accordance with FASB ASC Topic 350.
We perform an annual test
for impairment
of goodwill in the fourth quarter of each year. In 2016, 2015, and 2014, we recorded
no
impairment of goodwill based on our analysis. During year 2016 and 2014, we had performed a qualitative assessment. The fair value of the reporting units was significantly in excess of the carrying value as of October 3, 2015, the first day of our fourth quarter of 2015 and the date at which we performed our quantitative assessment.
If we experience significant declines in our stock price, market capitalization, future expected cash flows, significant adverse changes in the business climate or slower growth rates, we may need to perform additional impairment analysis of our goodwill in future periods prior to our annual test in the fourth quarter. We can provide no assurance that the significant assumptions used in our analysis will not change substantially and any additional analysis could result in additional impairment charges.
Purchased intangibles
—Substantially all of our purchased intangibles consist of multiple elements of developed technology which had estimated useful lives of
five
years at the time of purchase. Other purchased intangibles consist of other identifiable assets, primarily customer relationships, with estimated useful lives of
three
to
seven
years.
Purchased intangibles are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 30, 2016
|
|
Definite-lived: developed technologies
|
|
Definite-lived: other
|
|
Total purchased intangibles
|
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
$
|
63,032
|
|
$
|
14,600
|
|
$
|
77,632
|
Accumulated amortization
|
|
44,180
|
|
|
12,679
|
|
|
56,859
|
Purchased intangibles, net
|
$
|
18,852
|
|
$
|
1,921
|
|
$
|
20,773
|
|
|
|
|
|
|
|
|
|
|
As of January 1, 2016
|
|
Definite-lived: developed technologies
|
|
Definite-lived: other
|
|
Total purchased intangibles
|
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
$
|
63,032
|
|
$
|
46,700
|
|
$
|
109,732
|
Accumulated amortization
|
|
36,065
|
|
|
41,160
|
|
|
77,225
|
Purchased intangibles, net
|
$
|
26,967
|
|
$
|
5,540
|
|
$
|
32,507
|
We did
no
t record any impairment loss related to our purchased intangibles during 2016, 2015 or 2014. We write-off those intangible assets that have become fully amortized during the year. Expected amortization expense by year to the end of the current amortization schedule is as follow
s
(in thousands):
|
|
|
To be recognized in:
|
|
|
2017
|
$
|
9,480
|
2018
|
|
4,362
|
2019
|
|
1,890
|
2020
|
|
1,890
|
2021 and thereafter
|
|
3,151
|
Total expected amortization expense
|
$
|
20,773
|
NOTE
9—
RESTRUCTURING AND RELATED COSTS
On June 29, 2016, we began implementation of a plan to decommission our 200 millimeter wafer fabrication line in Palm Bay, Florida
,
or the 200mm Line. The investment in the 200mm Line was made approximately
four
years ago to address the need to extend the production life of certain products manufactured at a third party wafer foundry when the supply commitments from the supplier for these products were set to expire at the end of 2014. In July 2015, the supplier was acquired and the acquirer recently decided to continue long-term support for the manufacturing of these products. To avoid the future capital investment anticipated to be required for the 200mm Line, we determined it would be beneficial to our long-term cost structure to source the manufacturing for these products from this supplier and decommission our 200mm Line. Due to this shift in manufacturing to an outside provider, we recorded an impairment charge of $
9.9
million during the quarter ended July 1, 2016 on these long-lived assets related to the 200mm Line. The impairment charge was calculated as the excess of the assets’ carrying value over their fair value as determined by the market prices of these types of assets. Fair value was determined using quoted market prices or the anticipated cash flows discounted at a rate commensurate with the risk involved. We also recorded impairment charges of $
1
.0
million during the quarter ended July 1, 2016 for specific inventory items related to the 200mm Line which had no alternative use. During the quarter ended December 30, 2016, we
completed the sale of the long-lived assets related to the 200mm Line for $
8.5
million and recognized the related gain of $
1.1
million as an offset to the restructuring
and related costs of $9.9 million recorded during the quarter ended July 1, 2016, resulting in a net restructuring and related costs charge of
$8.
8
million for the year ended December 30, 2016.
In addition, we recorded $
2.5
million of severance and other employee benefit costs related to the decommissioning and other cost reduction actions during 2016. As of December 30, 2016, there was
$0.4
million of accrued liabilities rela
ted to these actions, which was
paid during the first quarter of 2017.
As part of an effort to streamline operations with changing market conditions and to create a more efficient organization, we had, in prior years, undertaken restructuring actions to reduce our workforce and consolidate facilities. Our restructuring costs consisted primarily of: (i) severance and termination benefit costs related to the reduction of our workforce; and (ii) lease termination costs and costs associated with permanently vacating certain facilities. The rebalancing plan we announced and implemented in July 2013 was completed in the first quarter
of
2016.
NOTE 10—INCOME TAXES
Income (loss) before income taxes is allocated between domestic and foreign jurisdictions as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
December 30,
2016
|
|
January 1,
2016
|
|
January 2,
2015
|
|
|
|
|
|
|
|
|
|
Domestic
|
$
|
35,099
|
|
$
|
32,729
|
|
$
|
51,959
|
Foreign
|
|
27,698
|
|
|
(47,501)
|
|
|
22,574
|
Income (loss) before income taxes
|
$
|
62,797
|
|
$
|
(14,772)
|
|
$
|
74,533
|
Income tax expense (benefit)
—The provision (benefit) for income taxes is summarized below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
December 30,
2016
|
|
January 1,
2016
|
|
January 2,
2015
|
Current taxes:
|
|
|
|
|
|
|
|
|
Federal
|
$
|
2,682
|
|
$
|
(18,221)
|
|
$
|
(14,366)
|
State
|
|
988
|
|
|
113
|
|
|
(865)
|
Foreign
|
|
1,684
|
|
|
2,422
|
|
|
(617)
|
|
|
5,354
|
|
|
(15,686)
|
|
|
(15,848)
|
Deferred taxes:
|
|
|
|
|
|
|
|
|
Federal
|
|
5,658
|
|
|
(6,391)
|
|
|
23,337
|
State
|
|
4,002
|
|
|
(24)
|
|
|
2,536
|
Foreign
|
|
(354)
|
|
|
143
|
|
|
9,696
|
|
|
9,306
|
|
|
(6,272)
|
|
|
35,569
|
Income tax expense (benefit)
|
$
|
14,660
|
|
$
|
(21,958)
|
|
$
|
19,721
|
As a result of the exercise of non-qualified Options, the disqualifying disposition of incentive Options, the release of Awards and the disqualifying disposition of shares acquired under the ESPP, we realized tax benefits of
$7
.1
million,
$3.2
million and
$2.4
million during 2016, 2015 and 2014, respectively.
We currently have a tax holiday in Malaysia resulting in a tax rate of
0%
. This tax holiday began on July 1, 2009, and terminates on
July 1, 2019
. The table below summarizes the effects of operating in Malaysia under our tax holiday based on the Malaysian statutory tax rate (in thousands, except per share data).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
December 30,
2016
|
|
January 1,
2016
|
|
January 2,
2015
|
|
|
|
|
|
|
|
|
|
Tax effects from earnings (losses) attributable to Malaysia
|
$
|
7,286
|
|
$
|
(11,628)
|
|
$
|
5,611
|
|
|
|
|
|
|
|
|
|
Effect on earnings (loss) per share:
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.05
|
|
$
|
(0.09)
|
|
$
|
0.04
|
Diluted
|
$
|
0.05
|
|
$
|
(0.09)
|
|
$
|
0.04
|
Deferred income taxes
—The components of net deferred income tax assets and liabilities are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30, 2016
|
|
January 1, 2016
|
Inventory
|
$
|
7,778
|
|
$
|
13,049
|
Property, plant and equipment
|
|
6,481
|
|
|
1,681
|
Accrued expenses
|
|
5,955
|
|
|
4,658
|
Equity-based compensation
|
|
3,389
|
|
|
6,480
|
Net operating loss carryforward
|
|
25,951
|
|
|
25,584
|
Deferred compensation
|
|
4,547
|
|
|
4,350
|
Deferred revenue
|
|
6,131
|
|
|
5,526
|
Tax credits
|
|
40,786
|
|
|
43,010
|
Capital loss carryforward
|
|
6,592
|
|
|
6,592
|
Other, net
|
|
411
|
|
|
406
|
Deferred tax assets
|
|
108,021
|
|
|
111,336
|
|
|
|
|
|
|
Intangibles
|
|
(4,030)
|
|
|
(4,642)
|
Deferred tax liabilities
|
|
(4,030)
|
|
|
(4,642)
|
Valuation allowance
|
|
(50,153)
|
|
|
(43,555)
|
Net deferred tax assets
|
$
|
53,838
|
|
$
|
63,139
|
The table below summarizes the activity in valuation allowances (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30, 2016
|
|
January 1, 2016
|
Beginning balance
|
$
|
43,555
|
|
$
|
34,733
|
Increases related to state attributes
|
|
4,674
|
|
|
5,745
|
Increases related to foreign net operating losses
|
|
1,924
|
|
|
3,113
|
Decreases related to capital losses
|
|
—
|
|
|
(36)
|
Ending balance
|
$
|
50,153
|
|
$
|
43,555
|
During 2016, we adjusted the valuation allowance for the deferred tax assets attributable to the net operating losses (“NOLs”) for a foreign subsidiary. As of December 30, 2016, the said foreign subsidiary had net deferred tax assets of
$12.2
million attributable to NOLs. Based upon an analysis of projected future taxable income, we have determined that we would not be able to generate income in the said foreign subsidiary to utilize the NOLs and as such determined that a full valuation allowance was required for the NOL.
We also increased the valuation allowance for state tax credits generated during the year that we believe are not likely to be utilized in the future due to a lack of projected taxable income in the state with the tax credits.
We completed an analysis of projected future taxable income and determined that all remaining deferred tax assets, including NOLs and tax-credit carryforwards, are more likely than not to be realized in the foreseeable future. Therefore, we have not provided any additional valuation allowances on deferred tax assets as of December 30, 2016.
We have gross federal NOLs of
$38.9
million from acquisitions that expire in tax years 2027 through 2028. The annual utilization of these NOLs is limited pursuant to Internal Revenue Code Section 382. We have gross federal R&D credit carryforwards of
$16.5
million that will expire in tax years 2032 through 2034.
Income Tax Rate Reconciliation
—A reconciliation of the statutory United States income tax to our effective income tax is as follows (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
December 30,
2016
|
|
|
January 1,
2016
|
|
|
January 2,
2015
|
|
Statutory U.S. income tax rate
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
Income tax provision reconciliation:
|
|
|
|
|
|
|
|
|
|
|
|
Tax at federal statutory income tax rate
|
$
|
21,979
|
|
|
$
|
(5,169)
|
|
|
$
|
26,087
|
|
State taxes
|
|
3,897
|
|
|
|
1,775
|
|
|
|
1,356
|
|
(Benefit) cost of earnings subject to tax rates other than U.S.
|
|
(8,950)
|
|
|
|
15,853
|
|
|
|
(7,918)
|
|
Equity-based compensation
|
|
(1,826)
|
|
|
|
349
|
|
|
|
748
|
|
Research credits
|
|
(2,876)
|
|
|
|
(5,741)
|
|
|
|
(4,608)
|
|
Change in unrecognized tax benefits
|
|
—
|
|
|
|
(28,002)
|
|
|
|
2,765
|
|
Subpart F—interest and stock gain
|
|
—
|
|
|
|
155
|
|
|
|
437
|
|
Manufacturing deduction
|
|
(830)
|
|
|
|
(529)
|
|
|
|
(675)
|
|
Amortization of deferred tax charge
|
|
(3,828)
|
|
|
|
(3,999)
|
|
|
|
(2,964)
|
|
Tax shortfalls on equity-based compensation
|
|
—
|
|
|
|
92
|
|
|
|
1,381
|
|
Export compliance settlement
|
|
—
|
|
|
|
—
|
|
|
|
1,400
|
|
Royalty income
|
|
4,970
|
|
|
|
4,717
|
|
|
|
5,215
|
|
Deferred tax true-ups
|
|
—
|
|
|
|
(1,205)
|
|
|
|
(2,299)
|
|
Other items
|
|
2,124
|
|
|
|
(254)
|
|
|
|
(1,204)
|
|
Total income tax provision (benefit)
|
$
|
14,660
|
|
|
$
|
(21,958)
|
|
|
$
|
19,721
|
|
Uncertain Tax Positions and Uncertain Tax Benefits (“UTBs”)
During 2016, 2015 and 2014, we recorded an increase (decrease) of
$0.1
million,
$(7.4)
million and
$0.4
million of potential interest and penalties on UTBs. We recognize potential accrued interest and penalties related to unrecognized tax benefits in income tax expense.
The table below summarizes activity in gross UTBs (in thousands):
|
|
|
|
|
|
|
|
|
|
December 30,
2016
|
|
January 1,
2016
|
|
January 2,
2015
|
Beginning balance
(includes
$124
thousand of interest and penalties as of January 1, 2016)
|
$
|
8,731
|
|
$
|
78,206
|
|
$
|
99,343
|
Increases related to current year tax positions
|
|
791
|
|
|
3,004
|
|
|
1,152
|
Increases related to prior year tax positions
|
|
—
|
|
|
—
|
|
|
2,515
|
Settlements with tax authorities
|
|
—
|
|
|
(548)
|
|
|
(24,804)
|
Increases related to acquisitions
|
|
—
|
|
|
1,464
|
|
|
—
|
Decreases related to lapse of statutes of limitations
|
|
—
|
|
|
(73,395)
|
|
|
—
|
Ending balance
(includes
$143
thousand of interest and penalties as of December 30, 2016)
|
$
|
9,522
|
|
$
|
8,731
|
|
$
|
78,206
|
During 2016,
no
settlements or cash payments were made for any prior year tax position. The increases related to current year tax positions do not have a material impact on the effective tax rate.
During 2015, we made cash payments for accrued interest on the 2010 – 2012 final settlement with the IRS in the amount of
$0.6
million, and paid
$0.6
million to the states related to the final settlement. The $73.4 million decrease in the UTB balance due to the lapse of the statute of limitations primarily relates to various transfer pricing issues in the United States in the 2010 tax year.
During 2014, we reached final settlement with the IRS in connection with the 2010 – 2012 examination periods. As a result of the settlement, we reduced the UTB balance by
$16.4
million. This reduction included a
$5.6
million cash payment to the IRS for additional tax, a
$4.2
million decrease in deferred tax assets related to federal R&D tax credits, and a
$6.6
million reduction to tax expense. Also during 2014, we reached final settlement with Swiss tax authorities in connection with the 2009 – 2012 examination periods. We decreased our UTBs in the amount of
$7.5
million. This reduction included a
$2.7
million cash payment consisting of
$2.4
million of additional tax and
$0.3
million of interest and a
$4.8
million decrease in deferred tax assets related to utilization of a net operating loss attribute. During 2014, we made cash payments of
$0.3
million to various states related to the 2008 – 2009 IRS settlement. During 2014, we made cash payments of
$0.6
million to various states related to the 2005-2007 IRS settlement.
We do not expect our UTBs to change significantly within the next 12 months.
We are subject to filing requirements in the United States Federal jurisdiction and in many state and foreign jurisdictions for numerous consolidated and separate entity income tax returns. We are no longer subject to examination in the U.S. for years prior to 2013.
Other Income Tax Information
Income taxes paid were
$3.5
million,
$8.0
million, and
$29.0
million 2016, 2015, and 2014, respectively. Interest and penalties paid were immaterial during 2016,
$0.6
million during 2015, and
$0.5
million during 2014.
We have not provided
for
U.S. income taxes on $
303.1
million of accumulated undistributed earnings of our international subsidiaries because of our demonstrated intention to permanently reinvest these earnings. Should these earnings be remitted to the U.S. we would be subject to additional U.S. taxes and foreign withholding taxes. Determining the unrecognized deferred tax liability related to investments in these international subsidiaries that are permanently reinvested is not practicable and not expected in the foreseeable future.
NOTE 11—LONG-TERM DEBT
On
July 19, 2016
, we entered into an amended and restated
five
-year, $
225.0
million revolving credit facility,
or
the
Amended Facility
,
that matures on
July 19, 2021
and is payable in full upon maturity. The Amended Facility replaced our
five
-year, $
325.0
million revolving credit facility
,
or
the “Facility, that would have matured on September 1, 2016. Under the Amended Facility, $
50.0
million is available for the issuance of standby letters of credit, $
30.0
million is available as swing line loans, and $
70.0
million is available for multicurrency borrowings. Amounts repaid under the Amended Facility may be re-borrowed.
The
Amended Facility
is secured by a first priority lien and security interest in (a) all of the equity interests and intercompany debt of our direct and indirect subsidiaries, except, in the case of foreign subsidiaries, to the extent that such pledge would be prohibited by applicable law or would result in adverse tax consequences, (b) all of our present and future tangible and intangible assets and our direct and indirect subsidiaries (other than immaterial subsidiaries and foreign subsidiaries) and (c) all proceeds and products of the property and assets described in clauses (a) and (b) above. Our obligations under the
Amended Facility
are guaranteed by our direct and indirect wholly-owned subsidiaries (other than immaterial subsidiaries and foreign subsidiaries).
At our option, loans under the
Amended Facility
will bear interest based on the Base Rate or Eurocurrency Rate, in each case plus the Applicable Rate (each term as defined in the
Facility
Agreement). The Base Rate will be, for any day, a fluctuating rate per annum equal to the highest of (a)
0.50%
per annum above the Federal Funds Rate (as defined in the
Amended Facility
), (b) Bank of America’s prime rate and (c) the Eurodollar Rate for a term of one month plus
1.00%
. Eurodollar borrowings may be for
one
,
two
,
three
or
six
months (or such period that is
12
months or less, requested by
us
and consented to by all the Lenders, as defined in the
Amended Facility
) and will be at an annual rate equal to the period-applicable Eurodollar Rate plus the Applicable Rate. The Applicable Rate for all revolving loans is based on a pricing grid ranging from
0.5%
to
1.25%
per annum for Base Rate loans and
1.5%
to
2.25%
for Eurocurrency Rate loans based on our Consolidated Leverage Ratio (as defined in the
Amended Facility
).
We did
not
have any outstanding borrowings against the Amended Facility as of December 30, 2016 or against the
Facility
as of January 1, 2016 and
were in compliance with all applicable covenants.
Letters of Credit:
We issue letters of credit in the ordinary course of business through major financial institutions as required by certain vendor contracts. We had outstanding letters of credit totaling $
1.1
million as of
December
30, 2016 and
$1.3
million as of January 1, 2016. The standby letters of credit are secured by pledged deposits.
NOTE 1
2
—COMMON STOCK AND DIVIDENDS
Common Stock
—
Our
stockholders approved an Amended and Restated Certificate of Incorporation in 2005 that restated authorized capital stock to consist of 600 million shares of Intersil Class A common stock, par value $0.01 per share, and two million shares of preferred stock, par value $0.01 per share. Holders of Class A common stock are entitled to one vote for each share held. The Board of Directors has broad discretionary authority to designate the terms of the preferred stock should it be issued.
As of
December
30
, 2016 and January
1
, 201
6
, no shares of preferred stock were outstanding.
The table below summarizes the Class A common stock activity (in thousands):
|
|
|
|
|
|
Beginning balance as of January 1, 2016
|
|
132,728
|
Shares issued under stock plans, net of shares withheld for taxes
|
|
5,005
|
Ending balance as of December 30, 2016
|
|
137,733
|
Dividends
—
We have paid a quarterly dividend since September 2003. In
January 201
7
, the Board of Directors declared a
quarterly
dividend of $
0.12
per share to stockholders of record as of
February 1
4
, 201
7
to be paid on or about
February 2
4
, 201
7
. Dividends in the future will be declared at the discretion of the Board of Directors upon consideration of business conditi
ons, liquidity and outlo
ok
.
However, pursuant to the terms of the
Merger Agreement, we are not permitted to declare or pay any dividends on or make any distribution with respect to our outstanding shares of capital stock (whether in cash, assets, shares or other securities of the Company or any of our subsidiaries), except for a quarterly cash dividend in an amount not to exceed $0.12 per share of our Class A common stock, consistent with past practice.
NOTE 13—EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
December 30, 2016
|
|
January 1,
2016
|
|
January 2,
2015
|
Numerator
:
|
|
|
|
|
|
|
|
|
Net income to common stockholders
|
$
|
48,137
|
|
$
|
7,186
|
|
$
|
54,812
|
Denominator:
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share—weighted average common shares
|
|
135,281
|
|
|
131,793
|
|
|
129,149
|
Effect of stock options and awards
|
|
2,583
|
|
|
1,480
|
|
|
3,508
|
Denominator for diluted earnings per share—adjusted weighted average common shares
|
|
137,864
|
|
|
133,273
|
|
|
132,657
|
Earnings per share:
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.36
|
|
$
|
0.05
|
|
$
|
0.42
|
Diluted
|
$
|
0.35
|
|
$
|
0.05
|
|
$
|
0.41
|
Anti-dilutive shares not included in the above calculations:
|
|
|
|
|
|
|
|
|
Awards
|
|
-
|
|
|
-
|
|
|
242
|
Options
|
|
-
|
|
|
1,194
|
|
|
1,128
|
NOTE 14—EQUITY-BASED COMPENSATION
Our equity compensation plans are summarized below (in thousands):
|
|
|
|
|
|
|
|
Equity Compensation Arrangement
|
|
Total Number of Shares in Arrangement
|
|
|
Shares Outstanding at December 30, 2016
|
|
Shares Available for Issuance at
December 30, 2016
|
1999 Plan
|
|
36,250
|
|
|
—
|
|
—
|
2008 Plan
|
|
46,352
|
|
|
5,610
|
|
9,730
|
2009 Option Exchange Plan
|
|
2,914
|
|
|
—
|
|
—
|
Inducement Plan
|
|
433
|
|
|
—
|
|
—
|
ESPP
|
|
9,033
|
|
|
—
|
|
2,056
|
|
|
94,982
|
|
|
5,610
|
|
11,786
|
Grant Date Fair Values and Underlying Assumptions; Contractual Terms
There were no Options granted in 2016. For Options granted in 2015 and 2014, we estimated the fair value of each Option as of the date of grant with the following assumptions:
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
|
January 1,
2016
|
|
January 2,
2015
|
Expected volatilities
|
|
32.1%
|
|
|
32.2%
|
Dividend yields
|
|
4.0%
|
|
|
3.6%
|
Risk-free interest rate
|
|
1.0%
|
|
|
0.8%
|
Expected lives, in years
|
|
2.6
|
|
|
2.6
|
Estimated weighted average fair value
|
$
|
1.88
|
|
$
|
2.18
|
The following table represents the weighted-average fair value compensation cost per share of Awards granted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
December 30, 2016
|
|
January 1,
2016
|
|
January 2,
2015
|
Awards
|
$
|
13.43
|
|
$
|
14.20
|
|
$
|
13.12
|
Information Regarding Options and Awards
—Information about Options and Awards as of December 30, 2016 and activity for Options and Awards for the three years then ended is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
Awards
|
|
Aggregate information
|
|
Shares
|
|
Weighted-average exercise price
|
|
Weighted-average remaining contract lives
|
|
|
Shares
|
|
Aggregate intrinsic value
|
|
Aggregate unrecognized compensation cost
|
|
(in thousands)
|
|
|
(per share)
|
|
(in years)
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
|
(in thousands)
|
Outstanding as of January 3, 2014
|
7,496
|
|
$
|
13.46
|
|
3.3
|
|
|
4,604
|
|
|
|
|
|
|
Granted (1)
|
70
|
|
$
|
13.45
|
|
|
|
|
2,109
|
|
|
|
|
|
|
Exercised/Released (2)
|
(1,205)
|
|
$
|
12.36
|
|
|
|
|
(1,153)
|
|
|
|
|
|
|
Canceled/Forfeited
|
(978)
|
|
$
|
19.28
|
|
|
|
|
(309)
|
|
|
|
|
|
|
Outstanding as of January 2, 2015
|
5,383
|
|
$
|
12.65
|
|
2.9
|
|
|
5,251
|
|
|
|
|
|
|
Granted (1)
|
40
|
|
$
|
12.01
|
|
|
|
|
2,321
|
|
|
|
|
|
|
Exercised/Released (2)
|
(908)
|
|
$
|
12.01
|
|
|
|
|
(1,527)
|
|
|
|
|
|
|
Canceled/Forfeited
|
(502)
|
|
$
|
18.02
|
|
|
|
|
(536)
|
|
|
|
|
|
|
Outstanding as of January 1, 2016
|
4,013
|
|
$
|
12.02
|
|
2.2
|
|
|
5,509
|
|
|
|
|
|
|
Granted (1)
|
—
|
|
$
|
—
|
|
|
|
|
2,250
|
|
|
|
|
|
|
Exercised/Released (2)
|
(2,883)
|
|
$
|
12.06
|
|
|
|
|
(2,560)
|
|
|
|
|
|
|
Canceled/Forfeited
|
(134)
|
|
$
|
16.10
|
|
|
|
|
(585)
|
|
|
|
|
|
|
Outstanding as of December 30, 2016
|
996
|
|
$
|
11.36
|
|
2.3
|
|
|
4,614
|
|
$
|
113,786
|
|
$
|
28,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable/vested (2)
|
945
|
|
$
|
11.29
|
|
2.1
|
|
|
120
|
|
$
|
13,083
|
|
|
|
Vested and expected to vest
|
996
|
|
$
|
11.36
|
|
2.3
|
|
|
3,924
|
|
$
|
98,399
|
|
|
|
|
(1)
|
|
Grants include
345,543
,
360,153
, and
433,564
MSU Awards issued in 2016, 2015, and 2014, respectively. In addition, grants for 2016 include
183,427
restricted stock awards and
17,039
shares of MSU Awards that were converted from the MSU Awards issued in 2014. See Market and Performance-based Grants below for more detail.
|
|
(2)
|
|
Awards exercised are those that are fully vested and have been delivered to the recipients as a taxable event due to elective deferral, available in the case of deferred stock units. Deferred stock units for which the deferral is elected timely are vested but still outstanding as Awards. Total un-issued shares related to deferred stock units as of December 30, 2016 were
approximately
120
,000
shares as shown in the Awards column as Exercisable/vested.
|
The unrecognized compensation cost is expected to be recognized over a period of
1.8
years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional Disclosures
|
Year Ended
|
|
December 30, 2016
|
|
January 1,
2016
|
|
January 2,
2015
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
Shares issued under the employee stock purchase plan
|
|
396
|
|
|
537
|
|
|
495
|
Aggregate intrinsic value of stock options exercised
|
$
|
15,246
|
|
$
|
2,243
|
|
$
|
2,445
|
The following table is a summary of the number and weighted-average grant date fair values regarding our unexercisable/unvested Options and Awards as of December 30, 2016 and activity during the year then ended (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
Options Unvested
|
|
Options-Weighted Average Grant Date Fair Values
|
|
Awards Unvested
|
|
Awards-Weighted Average Grant Date Fair Values
|
Unvested as of January 1, 2016
|
132
|
|
$
|
5.29
|
|
5,442
|
|
$
|
12.28
|
Granted
|
—
|
|
|
—
|
|
2,250
|
|
|
13.43
|
Vested
|
(81)
|
|
|
2.40
|
|
(2,613)
|
|
|
10.72
|
Forfeited
|
—
|
|
|
—
|
|
(585)
|
|
|
12.97
|
Unvested as of December 30, 2016
|
51
|
|
$
|
2.02
|
|
4,494
|
|
$
|
13.46
|
Financial Statement Effects and Presentation
—The following table shows total equity-based compensation expense for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
December 30, 2016
|
|
January 1,
2016
|
|
January 2,
2015
|
By statement of income line item
|
|
|
|
|
|
|
|
|
Cost of revenue
|
$
|
1,156
|
|
$
|
1,400
|
|
$
|
1,326
|
Research and development
|
|
12,533
|
|
|
10,167
|
|
|
8,468
|
Selling, general and administrative
|
|
13,113
|
|
|
11,591
|
|
|
8,894
|
Total
|
$
|
26,802
|
|
$
|
23,158
|
|
$
|
18,688
|
By stock type
|
|
|
|
|
|
|
|
|
Stock options
|
$
|
64
|
|
$
|
617
|
|
$
|
1,189
|
Restricted and deferred stock awards
|
|
25,784
|
|
|
21,464
|
|
|
16,493
|
Employee stock purchase plan
|
|
954
|
|
|
1,077
|
|
|
1,006
|
Total
|
$
|
26,802
|
|
$
|
23,158
|
|
$
|
18,688
|
Market and Performance-based Grants
— As of December 30, 2016, we had Awards outstanding that include the usual service conditions as well as market conditions related to total stockholder return. Under the terms of the agreements, participants may receive from
0
-
300%
of the original grant. Equity-based compensation cost is measured at the grant date, based on the fair value of the number of shares ultimately expected to vest, and is recognized as an expense, on a straight line basis, over the requisite service period.
On December 19, 2016,
our
Compensation Committee
or
the Committee of
our
Board of Directors of Intersil Corporation approved the following amendments to the outstanding restricted stock unit awards held by certain
of our
executive officers:
|
·
|
|
Acceleration of the vesting date of the portion of each outstanding restricted stock unit award that would otherwise become vested in 2017 based solely on each applicable officer’s continued service through the applicable vesting date in 2017 (each, a “2017 RSU”) to December 20, 2016. As a result of the amendment,
403,671
shares were vested on December 20, 2016. To maintain the retention incentive of these accelerated shares, the Committee further amended the awards so that these officers are prohibited from selling or otherwise disposing of the shares of Company common stock delivered in settlement of these accelerated 2017 RSUs until the earlier of (1) the original vesting date in 2017, and (2) the closing date of the pending
M
erger with Renesas, except as necessary to pay for the officer’s share of the applicable income and employment taxes due in connection with such acceleration.
|
|
·
|
|
Conversion of a portion of applicable officer’s performance-based restricted stock unit award for which the performance period (and service-based vesting period) ends on April 1, 2017 (the “2017 MSU
s
”) into a restricted stock award subject to the same performance and service vesting conditions. The 2017 MSU
was
split into
two
awards: (1) a performance-based restricted stock award (the “PSA”) covering
183,427
shares of unvested Company common stock, which number represents the number of shares anticipated to be earned under
the
2017 MSU
s
, assuming achievement at
183%
of target levels of performance, and (2) a performance-based restricted stock unit award (the “PSU”) covering
17,039
restricted stock units, which number represents the remaining number of restricted stock units subject to the 2017 MSU
s
. The PSA and PSU
are
subject to the same terms and conditions as the 2017 MSU
s
, including satisfaction of the performance-based and service-based vesting conditions.
|
We recorded
$1.4
million of equity-based compensation related to the acceleration of the 2017 RSUs. The modification and conversion of the 2017 MSU
s
into PSA
s
and PSU
s
did not result in any incremental equity-based compensation expense.
|
|
|
|
December 30, 2016
|
|
Awards
|
|
(in thousands)
|
Market-based units outstanding
|
|
1,061
|
Maximum shares that could be issued assuming the highest level of performance
|
|
2,127
|
Market-based shares expected to vest / vested
|
|
1,668
|
Amount to be recognized as compensation cost over the performance period
|
$
|
2,796
|
NOTE 15—COMMITMENTS AND CONTINGENCIES
TAOS Litigation
Texas Advanced Optoelectronic Solutions, Inc., or TAOS, named us as a defendant in a lawsuit filed on
November 25, 2008
in the United States District Court for the Eastern District of Texas. In this action, TAOS alleged
four
claims consisting of patent infringement, breach of contract, trade secret misappropriation, and tortious interference with a business relationship. On March 6, 2015, the jury found in favor of TAOS on each of the
four
claims. After certain post-trial motions were heard, the court entered a final judgment on June 9, 2016 against us in the amount of
$77.3
million plus court costs and a continuing royalty on certain products found to be infringing TAOS’ patent. On June 10, 2016, we filed a notice of appeal; TAOS filed a notice of cross-appeal. Our opening brief was filed in October 2016 and the matter continues to progress.
As a consequence of the jury’s verdict, during the quarter ended April 3, 2015, we recorded a provision of
$81.1
million related to this matter, including pre-judgment interest and estimated legal costs. As a result of the entry of the June 9, 2016 judgment, we increased our accrual for this matter by
$1.3
million in the quarter ended July 1, 2016. Given the unpredictable nature of this type of litigation and because the outcome remains subject to appeal, the ultimate impact of this lawsuit may be materially different from our estimate.
Environmental Matter
In correspondence dated September 28, 2015, counsel for Thomson Consumer Electronics Television Taiwan, Ltd., or TCETVT, notified us that it reserved its right to seek indemnification from us for any and all costs, fees, and expenses incurred as a result of a toxic tort class action lawsuit filed in Taiwan against TCETVT and others. The lawsuit pertains to alleged injuries resulting from groundwater contamination at a manufacturing facility in Taiwan currently owned by TCETVT, which was previously owned and operated by predecessors, including General Electric, or GE, and Harris Corporation, or Harris, of our Taiwan subsidiary, Intersil Ltd. In the September 28 correspondence, TCETVT also informed us that the Taipei District Court entered a judgment of
$18.5
million in the lawsuit against TCETVT, which judgment has been appealed. In addition, TCETVT informed us that they have incurred costs of
$11.2
million in defending against the lawsuit through September 1, 2015. We were also advised by TCETVT that additional claimants ma
y
be added to the lawsuit and TCETVT believes that if such additional claimants were successfully added, the resulting liability could be as high as
$200.0
million. In its September 28, 2015 letter, TCETVT informed us that it reserved its right to seek indemnification from us for any and all costs associated with the remediation of the contamination on that site and nearby areas. TCETVT claims they have incurred
$15.9
million in remediation-related costs through September 1, 2015.
By letter dated June 22, 2016 from counsel for GE and by letter dated July 14, 2016 from counsel for TCETVT, we were advised that in April 2016 the Taiwan Supreme Court denied the request to add additional claimants to the existing lawsuit and that, in response to the denial, the plaintiffs filed a new, but related lawsuit, claiming damages on behalf of
1,147
new claimants as well as adding additional sites at which the toxic torts were alleged to have occurred, such that the resulting liability could be as high as an additional
$225.0
million.
Under the terms of the 1999 Master Transaction Agreement between Harris and Intersil, whereby Harris transferred its semiconductor business assets to us, environmental liabilities (including those associated with Harris’ Taiwan semiconductor operations) were expressly retained by Harris. The Master Transaction Agreement also requires Harris to indemnify us for any and all costs relating to those retained environmental liabilities. We have denied liability to TCETVT for the costs associated with the lawsuit as well as the costs associated with the remediation of the contamination on the site. We have also submitted a claim notice to Harris seeking defense and indemnification from Harris under the Master Transaction Agreement for any and all claims made by TCETVT in connection with this matter. Harris has not yet agreed to indemnify us for the liability asserted by TCETVT.
Export Compliance Settlement
A portion of our activities are subject to export control regulations administered by the U.S. Department of State, or DOS, under the U.S. Arms Export Control Act, or AECA, and the International Traffic in Arms Regulations, or ITAR. In September 2010, in response to a request for information, we disclosed to the Directorate of Defense Trade Controls, or DTCC, information concerning export activities for the years of 2005 through 2010. ITAR gives the DOS authority to impose civil penalties and other administrative sanctions for violations, including debarment from engaging in the exporting of defense articles. In June 2013, the DTCC notified us of potential ITAR violations and that it was considering pursuing administrative proceedings against us. On June 16, 2014, we entered into a Consent Agreement with the DTCC for the purpose of resolving the potential ITAR violations. The Consent Agreement contained a
two
-year term and provided for: (i) payment of an aggregate civil penalty of
$10.0
million,
$4.0
million of which was suspended and eligible for an offset credit based on verified expenditures for certain past and future remedial compliance measures; (ii) the appointment of an Internal Special Compliance Official to oversee compliance with the Consent Agreement and U.S. export control regulations, in general; (iii) two external audits of our ITAR compliance program; and (iv) continued implementation of ongoing remedial compliance measures and additional remedial compliance measures related to automated systems and ITAR compliance policies, procedures, and training. In connection with the Consent Agreement, we estimated and recorded a
$6.0
million charge in the quarter ended October 4, 2013 and an additional
$4.0
million charge in the quarter ended April 4, 2014, when the amount of the penalty was determined. The
$6.0
million portion of the settlement, which was not subject to suspension, was paid in
two
installments of
$3.0
million each, in June 2014 and June 2015. On March 29, 2016, we notified the DTCC that we had met all of the requirements under the Consent Agreement, as required by Paragraph 30 of the Consent Agreement. On June 17, 2016, we notified the DTCC that the investments we had made in our export control compliance program, which included additional staffing, ongoing implementation of a new software system, employee training, and establishment of a regular compliance audit program and corrective action process, were eligible for credit against the entire amount of the suspended portion of the settlement amount. On June 20, 2016, the DTCC notified us that the expenses we incurred were eligible for and credited against the entire $4.0 million suspended payment. Finally, on June 21, 2016, the DTCC notified us that it had closed the Consent Agreement based, in part, on DTCC’s conclusion that we had fulfilled the terms of the Consent Agreement.
We are currently party to various claims and legal proceedings, including the ones discussed above. When we believe that a loss is probable and the amount of the loss can be reasonably estimated, we recognize the estimated amount of the loss. We include legal costs in the estimate of losses. As additional information becomes available, we reassess any potential liability related to these matters and, if necessary, revise the estimates.
We incur indemnification obligations for intellectual property infringement claims related to our products. We accrue for known indemnification issues and estimate unidentified issues based on historical activity
.
We do not believe, based on currently available facts and circumstances, that the ultimate outcome of these matters, individually and in the aggregate will have a material adverse effect on our financial position
or overall trends in results of our operations in excess of amounts already accrued. However, litigation is subject to inherent uncertainties and unfavorable rulings could occur, including an award of substantial monetary damages or issuance of an injunction prohibiting us from selling one or more products. From time-to-time, we may enter into confidential discussions regarding the potential settlement of such lawsuits. Any settlement of pending litigation could require us to incur substantial costs and other ongoing expenses, such as future royalty payments in the case of an intellectual property dispute. There can be no assurances that the actual amounts required to satisfy any liabilities arising from the matters described above will not have a material adverse effect on our results of operations, financial position or cash flows.
Leases and Commitments
Total rent expense amounted to
$7.7
m
illion
,
$7.8
million, and
$
7.7
million for 2016, 2015, and 2014, respectively. Future minimum lease commitments under non-cancelable operating leases primarily related to land and office buildings amounted to $23.1 million as of December 30, 2016.
The following table sets forth future minimum lease commitments and non-cancelable purchase commitments as of December 30, 2016 (in thousands):
|
|
|
|
|
|
|
Future minimum
lease
commitments
|
|
Non-cancelable purchase
commitments
|
2017
|
$
|
4,775
|
|
$
|
26,614
|
2018
|
|
4,325
|
|
|
4,445
|
2019
|
|
3,216
|
|
|
3,201
|
2020
|
|
3,256
|
|
|
98
|
2021
|
|
3,338
|
|
|
—
|
Thereafter
|
|
4,217
|
|
|
—
|
Total future minimum commitments
|
$
|
23,127
|
|
$
|
34,358
|
NOTE 16—
RISKS AND UNCERTAINTIES
Financial instruments -
Financial instruments that potentially subject us to significant concentrations of credit risk consist primarily of cash equivalents, investments, accounts receivable and derivatives. We continually monitor our positions with and the credit quality of the governmental and financial institutions that issue our cash equivalents and investments. By policy, we limit our exposure to long-term investments and mitigate the credit risk through diversification and adherence to a policy requiring the purchase of highly rated securities. In addition, we limit the amount of investment credit exposure with any one issuer. For foreign exchange contracts, we manage potential credit exposure primarily by restricting transactions with only high-credit quality counterparties.
We market our products for sale to customers, including distributors, primarily in Asia and the U.S. We extend credit based on an evaluation of the customer’s financial condition and we generally do not require collateral.
Concentration of Operational Risk
—The table below shows revenue by country where such value exceeded 10% in any one year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
December 30, 2016
|
|
January 1, 2016
|
|
January 2, 2015
|
Revenue by country
|
|
|
|
|
|
|
|
|
|
|
|
China
|
|
44.9
|
%
|
|
|
47.1
|
%
|
|
|
50.9
|
%
|
United States
|
|
17.2
|
%
|
|
|
17.4
|
%
|
|
|
18.1
|
%
|
In addition to those in the table above, our customers in each of
South Korea
,
Japan
,
Malaysia
,
Germany
,
Singapore
,
Taiwan
, and
Thailand
accounted for at least 1% of our total revenue in 2016.
One distributor represented
18.6%
,
20.7%
and
18.4%
of revenue during 2016, 2015 and 2014, respectively, and
21.9%
and
17.8%
of trade receivables as of December 30, 2016 and January 1, 2016, respectively.
We relied on external vendors for
88.5%
,
86.0%
and
86.9%
of our wafer supply as measured in units during 2016, 2015 and 2014, respectively. Additionally, we rely primarily on external vendors for test, assembly and packaging services. The test, assembly and packaging vendors we utilize are located mainly in Asia, where a significant volume of our final product sales are made.
Geographic Information
—The following table presents revenue and long-lived asset information based on geographic region. Revenue is based on the geographic location of the distributors, original equipment manufacturers or contract manufacturers who purchased our products, which may differ from the geographic location of the end customers. Long-lived assets include property, plant and equipment and are based on the physical location of the assets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
December 30, 2016
|
|
January 1, 2016
|
|
January 2, 2015
|
North America operations
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
96,097
|
|
|
$
|
91,932
|
|
|
$
|
101,268
|
|
Tangible long-lived assets
|
$
|
33,819
|
|
|
$
|
52,991
|
|
|
$
|
55,681
|
|
International operations
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
446,042
|
|
|
$
|
429,684
|
|
|
$
|
461,287
|
|
Tangible long-lived assets
|
$
|
15,431
|
|
|
$
|
18,053
|
|
|
$
|
16,591
|
|
Concentration of other risks
- The semiconductor industry is characterized by rapid technological change, competitive pricing pressures, and cyclical market patterns. Our results of operations are affected by a wide variety of factors, including general economic conditions; economic conditions specific to the semiconductor industry; demand for our products; the timely introduction of new products; implementation of new manufacturing technologies; manufacturing capacity; the availability and cost of materials and supplies; competition; the ability to safeguard patents and intellectual property in a rapidly evolving market; and reliance on assembly and manufacturing foundries, independent distributors and sales representatives. As a result, we may experience substantial period-to-period fluctuations in future operating results due to the factors mentioned above or other factors.
NOTE 17—QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of unaudited quarterly financial information for the periods indicated (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dec 30,
2016
|
|
Sep 30,
2016
|
|
Jul 1,
2016
|
|
Apr 1,
2016
|
|
Jan 1,
2016
|
|
Oct 2,
2015
|
|
Jul 3,
2015
|
|
Apr 3,
2015
|
Revenue
|
$
|
139,806
|
|
$
|
139,045
|
|
$
|
134,009
|
|
$
|
129,279
|
|
$
|
126,626
|
|
$
|
128,396
|
|
$
|
132,441
|
|
$
|
134,153
|
Gross profit
|
$
|
83,419
|
|
$
|
84,220
|
|
$
|
79,588
|
|
$
|
75,960
|
|
$
|
72,919
|
|
$
|
76,058
|
|
$
|
78,493
|
|
$
|
80,326
|
Net income (loss)
|
$
|
19,114
|
|
$
|
15,883
|
|
$
|
1,389
|
|
$
|
11,751
|
|
$
|
21,302
|
|
$
|
16,984
|
|
$
|
37,724
|
|
$
|
(68,824)
|
Income (loss) per share (basic):
|
$
|
0.14
|
|
$
|
0.12
|
|
$
|
0.01
|
|
$
|
0.09
|
|
$
|
0.16
|
|
$
|
0.13
|
|
$
|
0.29
|
|
$
|
(0.53)
|
Income (loss) per share (diluted):
|
$
|
0.14
|
|
$
|
0.11
|
|
$
|
0.01
|
|
$
|
0.09
|
|
$
|
0.16
|
|
$
|
0.13
|
|
$
|
0.28
|
|
$
|
(0.53)
|
—End of Consolidated Financial Statements—