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| UNITED STATES |
| SECURITIES AND EXCHANGE COMMISSION |
| Washington, D.C. 20549 |
FORM 10-K |
| (Mark One) |
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| [X] | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 201129, 2012 |
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| o | 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: 000-18032
LATTICE SEMICONDUCTOR CORPORATION
(Exact name of registrant as specified in its charter)
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| Delaware | 93-0835214 |
| (State of Incorporation) | (I.R.S. Employer Identification Number) |
| 5555 NE Moore Court | |
| Hillsboro, Oregon | 97124-6421 |
| (Address of principal executive offices) | (Zip Code) |
Registrant's telephone number, including area code: (503) 268-8000
Securities registered pursuant to Section 12(b) of the Act:
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| (Title of Class) | (Name of each exchange on which registered) |
| Common Stock, $.01 par value | NASDAQ Global Select Market |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes o No [X]
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 [X] No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§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 [X] No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
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 the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer o | | Accelerated filer [X] |
Non-accelerated filer o | | Smaller reporting company o |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No [X] |
| Aggregate market value of voting stock held by non-affiliates of the registrant as of June 29, 2012 | 289,406,565 |
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| Number of shares of common stock outstanding as of March 6, 2013 | 115,473,147 |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No [X] |
| Aggregate market value of voting stock held by non-affiliates of the registrant as of July 1, 2011 | $ | 614,681.648 |
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| Number of shares of common stock outstanding as of March 7, 2012 | 118,417.447 |
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DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this Report, to the extent not set forth herein, is incorporated herein by reference from the registrant's definitive proxy statement relating to the 20122013 Annual Meeting of Stockholders, which definitive proxy statement shall be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year to which this Report relates.
LATTICE SEMICONDUCTOR CORPORATION
FORM 10-K
ANNUAL REPORT
TABLE OF CONTENTS
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| ITEM OF FORM 10-K | | Page |
| PART I | | | | |
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| Item 1. | - | Business | | |
| Item 1A. | - | Risk Factors | | |
| Item 1B. | - | Unresolved Staff Comments | | |
| Item 2. | - | Properties | | |
| Item 3. | - | Legal Proceedings | | |
| Item 4. | - | Mine Safety Disclosures | | |
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| PART II | | | | |
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| Item 5. | - | Market for the Registrant's Common Equity, Related Stockholder Matters & Issuer Purchases of Equity Securities | | |
| Item 6. | - | Selected Financial Data | | |
| Item 7. | - | Management's Discussion and Analysis of Financial Condition and Results of Operations | | |
| Item 7A. | - | Quantitative and Qualitative Disclosures About Market Risk | | |
| Item 8. | - | Financial Statements and Supplementary Data | | |
| Item 9. | - | Changes in and Disagreements with Accountants On Accounting and Financial Disclosure | | |
| Item 9A. | - | Controls and Procedures | | |
| Item 9B. | - | Other Information | | |
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| PART III | | | | |
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| Item 10. | - | Directors, Executive Officers and Corporate Governance | | |
| Item 11. | - | Executive Compensation | | |
| Item 12. | - | Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters | | |
| Item 13. | - | Certain Relationships and Related Transactions, and Director Independence | | |
| Item 14. | - | Principal Accountant Fees and Services | | |
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| PART IV | | | | |
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| Item 15. | - | Exhibits, Financial Statement Schedules | | |
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| Signatures | | | | |
| Schedule II—Valuation and Qualifying Accounts | | |
Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Any statements about our expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. We use words or phrases such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” “may,” “will,” “should,” “continue,” “ongoing,” “future,” “potential” and similar words or phrases to identify forward-looking statements. Examples of forward-looking statements include, but are not limited to, statements about: programmable logic products being expected to simplify board management design and reduce development costs; customers using both PLD and FPGA architectures; our planplans to introduce new FPGA PLDfamilies in high-growth market niches where we believe that we have sustainable and associated software design tool products and to reduce the manufacturing cost of our products; the increase of seasonal trends in our product revenue; our existing facilities being suitable and adequate for our future needs;differentiated positions, the majority of our revenue being through our sell-through distributors; the completionimpact of our global tax structure and expectations regarding taxes and tax adjustments; our expectations that a significant portion of our revenue will continue to be dependent on the communications end market and the growth of our revenue from thisCommunications end market; the Asia Pacific market being the primary source of our revenue; our ability to continue to serve our customers after the termination of our relationship with Avnet; the benefits of our purchase of APAC IC and SiliconBlue; our plans to sell our auction rate securities; the costs and benefits and timing of completion of our restructuring plans; the impact of new accounting pronouncements; our expectations regarding customer preferences and product use; our future product development and marketing plans; our ability to maintain or develop successful foundry relationships to produce new products; our expectations regarding seasonal trends; our expectations regarding defenses to claims against our intellectual property; our making significant future investments in research and development and the increase of mask and engineering wafer costs; anddevelopment; our beliefs concerning the adequacy of our liquidity and facilities, and our ability to meet our operating and capital requirements and obligations.
Forward-looking statements involve estimates, assumptions, risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. The key factors that could cause our actual results to differ materially from the forward-looking statements include global economic conditions and uncertainty, the concentration and growth of our sales in the communications equipment end market, particularly as it relates to the concentration of our sales in the Asia Pacific region, market acceptance and demand for our new products, any disruption of our distribution channels, unexpected charges, delays or results relating to our restructuring plans, the effect of the downturn in the economy on capital markets and credit markets, the impact of competitive products and pricing, unanticipated taxation requirements, or positions of the IRS,U.S. Internal Revenue Service, unexpected impacts of recent accounting guidance and the other risks that are described herein and that are otherwise described from time to time in our filings with the Securities and Exchange Commission, including, but not limited to, the items discussed in “Risk Factors” in Item 1A of Part I of this Report. You should not unduly rely on forward-looking statements because our actual results could differ materially from those expressed in any forward-looking statements made by us. In addition, any forward-looking statement applies only as of the date on which it is made. We do not plan to, and undertake no obligation to, update any forward-looking statements to reflect events or circumstances that occur after the date on which such statements are made or to reflect the occurrence of unanticipated events.
PART I
Item 1. Business.
Lattice Semiconductor Corporation (“Lattice” or the “Company”) designs, develops and markets programmable logic products and related software. Programmable logic products are widely used semiconductor components that can be configured by end customers as specific logic circuits, enabling shorter design cycle times and reduced development costs. Our end customers are primarily original equipment manufacturers (“OEMs”) in the communications, computing,industrial and other, consumer industrial, military, automotive, and medicalcomputing end markets.
Lattice was incorporated in Oregon in 1983 and reincorporated in Delaware in 1985. Our headquarters facility is located at 5555 N.E. Moore Court, Hillsboro, Oregon 97124, our telephone number is (503) 268-8000 and our website can be accessed at www.latticesemi.com. Information contained or referenced on our website is not incorporated by reference into, and does not form a part of, this Annual Report on Form 10-K.
We report based on a 52 or 53-week fiscal year ending on the Saturday closest to December 31. Our fiscal 2012, 2011,, 2010,, 2009 and 20072009 were 52-week years and ended December 29, 2012, December 31, 2011,, January 1, 2011,, and January 2, 2010, and December 29, 2007, respectively. Our fiscal 2008 was a 53-week year and ended on January 3, 2009. Our fiscal 20122013 will be a 52-week year and will end on December 29, 2012.28, 2013. All references to quarterly or yearly financial results are references to the results for the relevant fiscal period.
Programmable Logic Market Background
Three principal types of digital integrated circuits are used in most electronic systems: microprocessors, memory and logic. Microprocessors are used for control and computing tasks, memory is used to store programming instructions and data, and logic is employed to manage the interchange and manipulation of digital signals within a system.
Logic circuits are found in a wide range of today's digital electronic equipment, including communications, computing, consumer, industrial, automotive, medical, and military systems. The logic market encompasses general purpose logic semiconductor products, which include programmable logic devices, and application-specific semiconductor products, which include application-specific integrated circuits (“ASICs”) (custom devices for a single user) and application-specific standard products (“ASSPs”) (standardized logic devices marketed to multiple users). According to research from IHS iSuppli1, the general purpose logic and application-specific semiconductor product categories combined accounted for approximately 37%38% of the estimated $313$303 billion worldwide semiconductor market in 2011.2012.
Manufacturers of electronic equipment are challenged to bring differentiated products to market quickly. These competitive pressures often preclude the use of custom-designed ASICs, which generally entail significant design risks, non-recurring expenses and time delays.longer development cycles. ASSPs, an alternative to custom designed ASICs, limit a manufacturer's flexibility to adequately customize an end system. Programmable logic addresses thisthese inherent dilemma.difficulties. Programmable logic is a standard semiconductor product, purchased by systems manufacturers in a “blank” state that can be custom-configured into a virtually unlimited number of specific logic functions by programming the device with electrical signals. Programmable logic gives system designers the ability to more quickly create custom logic functions to provideenable product differentiation without sacrificing rapid time to market.
According to IHS iSuppli2, the programmable logic market was approximately $4.9$4.5 billion in 2011.2012. Within this market, there are two main markets;markets: field programmable gate arrays (“FPGA”) and programmable logic devices (“PLD”), each representing a distinct silicon architectural approach to programmable logic. In 2011,2012, FPGA was a $4.3$4.0 billion market2 while PLD was a $0.6$0.5 billion market.2 Products based on the two alternative programmable logic architectures are generally best suited for different types of logic functions, although many logic functions can be implemented using either architecture. FPGAs are characterized by a narrow-input logic cell and use a distributed interconnect scheme. FPGAs may also contain dedicated blocks of fixed circuits such as memory, high-speed input/output interfaces or processors. PLDs are traditionally characterized by a regular building block structure of wide-input logic cells, called macrocells, and use a centralized logic interconnect scheme. Although FPGAs and PLDs are typically suited for use in distinct types of logic applications, we believe that a substantial portion of programmable logic customers utilize both FPGA and PLD products. In addition, mixed signal PLDs that combine digital and analog features are growing in popularity.
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1 | | IHS iSuppli, “Competitive Landscaping Tool (CLT) Q4 2011,2012,” Nov. 17, 2011 16, 2012 |
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2 | | IHS iSuppli, “Core Silicon Q4 20112012 Market Tracker & Component AMFT,” Jan. 30,Dec. 28, 2012 |
Lattice Products
Lattice actively participates in both the FPGA and PLD (which includes the growing mixed signal PLD) markets. We strive to meet our customers' needs by offering innovative and differentiated solutions that include not only silicon and packaged devices, but also design tools and intellectual property. A brief overview of our key products follows.
FPGA Products
During fiscal 20112012, 34% of our revenue was derived from FPGA products, compared to 33%34% in 20102011 and 33% in 20092010. In the future, we plan to introduce new FPGA families in high-growth market niches where we believe that we have sustainable and differentiated positions.
LatticeECP2M and LatticeECP3 Low-Power High-Value FPGAs
The LatticeECP FPGA family is designed for customers who need FPGAs with digital signal processing (“DSP”), a significant amount of memory, and high-speed serial communications channels ("SerDes"), but do not want to pay the price or power premiums of high endhigh-end FPGAs. The LatticeECP2M and LatticeECP3 families are able to serve this mid-rangelow density market due to careful circuit design choices aimed at achieving lower cost and various architectural enhancements to reduce power consumption.
Introduced in February 2009, the fourth generation LatticeECP3 FPGA family is particularly well suited for deployment in wireless infrastructure and wireline access equipment, as well as video and imaging applications. All four generations of the LatticeECP family are manufactured using our foundry partner Fujitsu Limited's (“Fujitsu”) advanced process technologies. In November 2011, we announced the next generation LatticeECP4 FPGA family that builds on the LatticeECP3 family by bringing premium features to mainstream customers while maintaining low power and low cost.
LatticeXP and LatticeXP2 Non-Volatile FPGAs
Unlike a traditional FPGAsFPGA that requirerequires an external device to load its application program, Lattice's two generations of the non-volatile LatticeXPLatticeXP2 FPGA family embedembeds a Flash memory block on-chip to store the program. This on-chip program memory offers customers several unique benefits. First, as a single chip solution it enables customers to reduce their board size. Second, without the comparatively long time delay caused by loading a program externally, a customer's equipment can start up much more quickly. We refer to this feature as "instant-on"."instant-on." While broadly used across many market segments, we believe that the single-chip, instant-on, and high-security provided by the LatticeXP and LatticeXP2 FPGA familiesfamily make themit particularly attractive for the security, surveillance, and display markets.
Both the LatticeXP andThe LatticeXP2 families arefamily is manufactured using embedded Flash processes co-developed with our foundry partner Fujitsu. The use of embedded Flash for the non-volatile memory enables the LatticeXP and Lattice XP2 familiesfamily to be re-programmable.
The key features of our selected FPGA families are described in the table below:
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| FPGA Family | | Year
Introduced | | Process
Technology (nm) | | Operating
Voltage | | Logic
(K LUTs) | | SERDES
Channels | | Max
RAM (Mb) | | I/O Pins
(#) |
LatticeECP3 TM | | 2009 | | 65 | | 1.2 | | 17-149 | | 4-16 | | 7.2 | | 116-586 |
LatticeXP2 TM | | 2007 | | 90 | | 1.2 | | 5-40 | | — | | 1.0 | | 86-540 |
PLD Products
During fiscal 20112012, 66% of our revenue was derived from PLD products, compared to 67%66% in fiscal 20102011 and 67% in fiscal 20092010. We currently offer the industry's broadest line of PLDs based on our numerous families of ispLSI®, ispMACH®,, GAL®, MachXO, MachXO2, and iCE products.
ispMACH4000 CPLDs
Lattice offers seven versions of the ispMACH4000 in-system programmable CPLD (complex programmable logic device) family. The most recent version, the ispMach4000ZE, is designed for high performance and features an architecture optimized to ensure low power consumption. The ispMach4000ZE devices are offered in ultra-small, space saving packages and are targeted toward handheld and portable equipment.
MachXO and MachXO2 PLD FamiliesFamily
The MachXO and MachXO2 familiesfamily of versatile non-volatile reconfigurable PLDs areis designed for applications traditionally implemented using CPLDscomplex programmable logic devices (“CPLD”) or low-capacity FPGAs. Widely adopted in a broad range of high value, cost sensitive applications that require general purpose I/O expansion, interface bridging and power-up management functions, MachXO and MachXO2 PLDs offer the benefits of increased system integration by providing embedded memory, built-in Phase-locked Loops, high performance Low-voltage Differential Signaling (“LVDS”) I/O, remote field upgrade and a low powerlow-power sleep mode.
In NovemberIntroduced in 2010, Lattice introduced itsour MachXO2 PLD family. Builtfamily is built on a low power 65-nm process featuring embedded Flash technology, thetechnology. The MachXO2 family delivers a 3X increase in logic density, a 10X increase in embedded memory and more than a 100X reduction in static power than the MachXO PLD family. In addition, several popular functions used in low-density PLD applications, such as User Flash Memory (UFM), I2C, SPI and timer/counter, have been hardened into the MachXO2 devices, providing designers a “Do-it-All-PLD” for high volume, value orientated applications.
Designed for a broad range of lowultra-low density applications, the MachXO and MachXO2 PLD families arefamily is used in a variety of end markets including consumer, communications, computing, industrial and medical.
The key features of our selected PLD families are described in the table below:
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| PLD Family | | Year
Introduced | | Process
Technology (nm) | | Operating
Voltage | | Logic
(Macrocells) | | I/O Pins
(#) |
| MachXO2 | | 2010 | | 65 | | 3.3/2.5/1.2 | | 128-3,432 | | 19-335 |
MachXO | | 2005 | | 130 | | 3.3/2.5/1.8/1.2 | | 128-1,140 | | 73-271 |
Lattice iCE40TM | | 2011 | | 40 | | 1.2 | | 320-8,096 | | 25-222 |
| ispMACH 4000ZE | | 2008 | | 180 | | 1.8 | | 32-256 | | 32-108 |
| ispMACH 4000Z | | 2003 | | 180 | | 1.8 | | 32-256 | | 32-128 |
Note: MachXO, MachXO2, and iCE40 implement logic using look-up tables. The figures shown are the macrocell equivalents.
Lattice iCE Ultra-Low Power PLD Devices
In December 2011, Lattice acquired SiliconBlue Technologies Ltd., (a Cayman Islands exempted company ("SiliconBlue")), a pioneer and leader in Custom Mobile DeviceTM solutions for the consumer handheld market. Lattice is now able to offer customers the mobile-targeted iCE40 and iCE65 products.
Utilizing a single chip, ultra-low power programmable logic fabric, the iCE40 and iCE65 families enablefamily enables mobile device designers to quickly add features to their mobile platform in areas such as connectivity, memory /and storage, bridging, sensor management, and video /and imaging. Lattice iCE products offer designers of handheld, battery-based consumer devices a programmable logic solution that delivers design flexibility and fast time-to-market benefits coupled with features that address their power, logic capacity, cost, and small form factor requirements.
Platform Manager,
The key features of our selected PLD families are described in the table below:
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| PLD Family | | Year
Introduced | | Process
Technology (nm) | | Operating
Voltage | | Logic
(Macrocells) | | I/O Pins
(#) |
| MACHXO2™ | | 2010 | | 65 | | 3.3/2.5/1.2 | | 128-3,432 | | 19-335 |
Lattice iCE40TM | | 2011 | | 40 | | 1.2 | | 320-8,096 | | 25-222 |
Note: MachXO2 and iCE40 implement logic using look-up tables. The figures shown are the macrocell equivalents.
Power Manager, ispClock and ispClockPlatform Manager Programmable Mixed Signal Devices
As customer equipment grows more complex, their power and clock management problems also become more complex. Our Power Manager and ispClockTM families feature a combination of programmable logic and programmable analog circuitry that allows system designers to reduce system cost and design time by quickly and easily integrating a wide variety of power or clock management functions within a single integrated circuit. These products can replace numerous discrete components, reducing cost and conserving board space, while providing customers with additional design flexibility and time-to-market benefits. The accuracy of our Power Manager products enables more reliable system performance for our customers.
The Platform Manager™ family is Lattice's third-generation mixed-signal device family. The programmable Platform Manager devices are expected to simplify board management design significantly by integrating programmable analog and logic to support many common functions, such as power management, digital housekeeping and glue logic. By integrating these support functions, Platform Manager devices can not only reduce the cost of these functions compared to traditional approaches, but also can improve system reliability and provide a high degree of design flexibility that minimizes the risk of circuit board re-spins.
Software Development Tools and Intellectual Property Cores
Our FPGAprogrammable logic products are supported by several design and PLDdevelopment suites, each one targeted at the specific needs of the user of that product. Our Ultra-Low Density (“ULD”) iCE products are supported by our iCEcube2 design and development suite. The remainder of our Ultra-Low Density and Low Density ("LD") products are supported by the Lattice Diamond™ design and development tool suite. Our mixed signal products are supported by PAC-Designer® software. SupportingThe macrocell-based CPLD products are supported by ispLEVER Classic.
iCEcube2 is a complete, easy to learn design flow that meets the needs of the ULD designer. It is supported on the Windows platform. Lattice Diamond™ is also a complete, thoroughly modern, easy to learn FPGA design suite and is supported on both Windows and Linux platforms, Diamond software allowsplatforms. Both iCEcube2 and Lattice Diamond™ allow our customersusers to easily enter their design along with the design goals, quickly analyze and verify the design for accuracy, and synthesize athen implement the design performin our programmable logic solution. The flow enables logic simulation, andstatic timing analysis, assign I/O pins, designate critical paths, debug, executepin assignment, synthesis and automatic timing-driventiming driven place and route, tasks, and download a logic and I/O configuration to our devices. Lattice will continue to support its ispLEVER tool suite for FPGA design while transitioning its FPGA customer base to the Diamond design environment.device programming.
In April 2011, Lattice announced Version 1.2 of its Lattice Diamond FPGA design software. Lattice Diamond software provides a complete set of powerful tools, efficient design flows, and modern user interface that enable designers to more quickly target low power, cost sensitive FPGA applications. In addition to features that improved ease of use and increased user productivity, version 1.2 included updated data and additional package options for the MachXO2 Family.
Lattice Diamond software Version 1.3 was announced in July 2011. It includes, in addition to features to improve ease of use and increase user productivity, clock jitter analysis, integration with PAC-Designer ®For all tool suite for support of the Platform Manager device family, and final data for the MachXO2-1200 device.
Lattice Diamond software Version 1.4 was announced in December 2011. It includes, in addition to features to improve ease of use and increase user productivity for design exploration, final data support for the entire MachXO2 family, and initial support for the newly announced LatticeECP4 device family. LatticeECP4 support is extended to select early access program customers.
suites, Synopsys' Synplify Pro advanced FPGA synthesis is included for all operating systems supported, and Aldec's Active-HDL Lattice Edition II simulator is included for Windows. In addition to the tool support for Lattice devices provided by the OEM versions of Synplify Pro and Active-HDL, Lattice devices are also supported by the full versions of Synopsys Synplify Pro and Aldec Active-HDL. Mentor Graphics ModelSim SE is also supported.
Lattice's IP core program (LatticeCORE™) assists our customers' design efforts by providing pre-tested, reusable functions that can be easily utilized,used, allowing our customers to focus on their unique system architectures. These IP cores eliminate the need to “re-invent the wheel” by providing many industry-standard functions, including PCI Express, DDR, Ethernet, CPRI, OBSAI, 7:1 LVDS, and embedded microprocessors.
Product Development
We place substantial emphasis on new product development and believe that continued investment in this area is required to maintain and improve our competitive position. Our product development activities emphasize new proprietary products, advanced packaging, enhancement of existing products and process technologies, and improvement of software development tools. Product development activities occur primarily in: Hillsboro, Oregon; San Jose, California; Downers Grove, Illinois; Shanghai, China; and Manila, Philippines.
Research and development expenses were $77.6 million in 2012, $71.9 million in 2011, and $60.3 million in 2010 and $56.1 million in 2009. We expect to continue to make significant future investments in research and development. During fiscal 2011, we consolidated our research and development activities and established an engineering development center in the Philippines as part of a 2011Philippines.
restructuring plan. See discussion under “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations” for more information on our 2011 restructuring plan.
Operations
We do not manufacture our own silicon products. We maintain strategic relationships with large semiconductor foundries to source our finished silicon wafers. This strategy allows us to focus our internal resources on product and market development, and eliminates the fixed cost of owning and operating semiconductor manufacturing facilities. We are also able to take advantage of the ongoing advanced process technology development efforts of semiconductor foundries.
The Company and Fujitsu Limited (“Fujitsu”) have entered into agreements pursuant to which Fujitsu manufactures most of our new products on its 130 nanometer, 90 nanometer and 65 nanometer CMOS process technologies, as well as on 130 nanometer, 90 nanometer and 65 nanometer technologies with embedded flash memory that we have jointly developed with Fujitsu. Fujitsu isTaiwan Semiconductor Manufacturing Company Ltd. (“TSMC”) manufactures our sole source supplier40 nanometer iCE products. In addition, United Microelectronics Corporation ("UMC") manufactures certain of wafers for our newest FPGA and PLD40 nanometer products.
In addition, all of our assembly operations and most of our test operations are performed by outside suppliers.
We rely on a third party vendor to provide cost-effective and efficient supply chain services. Among other activities, these outsourced services relate to direct sales logistics, including order fulfillment, inventory management and warehousing, and distributionshipment of inventory to third party distributors. During December 2009,2012 and 2011 we adopted a restructuring plan under which we established an operations center and transferred a portionsignificant portions of our supply chain support activities from our headquarters in Oregon to the newand our operations center in Singapore in 2010. During fiscal 2011, we adopted a restructuring plan under which we transferred most of our remaining supply chain support activities from our headquarters in Oregon to a new operations center in the Philippines.
We perform certain test operations and reliability and quality assurance processes internally. We have achieved and maintained ISO9001:2000 Quality Management Systems Certification and ISO16949:2002 Quality Systems Certification, and released a full line of PLD products qualified to the AEC-Q100 Reliability Standard.
Wafer Fabrication
We source silicon wafers from our foundry partners, Fujitsu Semiconductor Limited in Japan,and Seiko Epson Corporation in Japan, United Microelectronics Corporation in Taiwan and GLOBALFOUNDRIES in Singapore, pursuant to agreements with each company and their respective affiliates. In addition, as a result of our acquisition of SiliconBlue, we now have manufacturing capability with Taiwan Semiconductor Manufacturing Company Ltd. (TSMC)TSMC in Taiwan for products on its 65 nanometer and 40 nanometer CMOS LP process technologies. We negotiate wafer volumes, prices and other terms with our foundry partners and their respective affiliates on a periodic basis.
Assembly
After wafer fabrication and initial testing, we ship wafers to independent subcontractors for assembly. During assembly, wafers are separated into individual die and encapsulated in plastic packages. Presently, weWe have qualified assembly partners in:in Indonesia, Malaysia, Taiwan, the Philippines, Singapore and South Korea. We negotiate assembly prices, volumes and other terms with our assembly partners and their respective affiliates on a periodic basis.
We currently offer an extensive list of standard products in lead (Pb) free packaging. Our lead-free products meet the European Parliament Directive entitled “Restrictions"Restrictions on the use of Hazardous Substances" ("ROHS"). A select and growing subset of our ROHS compliant products are also offered with a "Halogen Free" material set.
Testing
We electrically test the die on each wafermost wafers prior to shipment for assembly. Following assembly, prior to customer shipment, each product undergoes final testing and quality assurance procedures. Wafer sort testing is performed by independent contractors in:in Malaysia, Japan, Indonesia and Singapore. Final testing is performed by independent contractors in:in Indonesia, Malaysia, the Philippines, Singapore, Taiwan and South Korea. We also perform certain test operations and reliability and quality assurance processes internally.
Marketing, Sales and Customers
We sell our products directly to end customers through a network of independent manufacturers' representatives and
indirectly through a network of independent sell-in and sell-through distributors. We also employ a direct sales management and field applications engineering organization to support our end customers and indirect sales resources. Our end customers are primarily original equipment manufacturers in the communications, computing, consumer, industrial, automotive, medical and military end markets.
We have agreements with 1921 manufacturers' representatives and two primary distributors; Arrow Electronics, Inc., including Nu Horizon Electronics Corp., (wholly owned subsidiary of Arrow Electronics, Inc.), and distributors of the Weikeng Group (Weikeng Industrial Co. Ltd. (Taiwan) and Weikeng International Co. Ltd. (Hong Kong)).in North America. We have also established foreign sales channels in over 50 foreign countries through a network of over 15 international sales representatives and distributors.representatives. The majority of our sales are made through distributors.
Orders from our sell-through distributors are initially recorded at published list prices; however, for a majority of our sales, the final price is set at the time of resale and is determined in accordance with a distributor price agreement. In addition, we allow returns from sell-through distributors of unsold products under certain conditions. For these reasons, we do not recognize revenue until products are resold by sell-through distributors to an end customer. At times, we protect our sell-through distributors against reductions in published list prices.
We provide global technical support to our end customers with engineering staff based at our headquarters, product development centers and selected field sales offices. We maintain numerous domestic and international field sales offices in major metropolitan areas.
The compositionResale of product through distributors accounted for 55% of our net revenue by geographical location ofin 2012 and we expect our direct and indirect customers was as follows (dollars in thousands):
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| | | | | | | | | | | | | | | | | |
| | Year Ended |
| | December 31, 2011 | | January 1, 2011 | | January 2, 2010 |
| | Total | | % | | Total | | % | | Total | | % |
| United States | $ | 44,847 |
| | 14 | | $ | 36,211 |
| | 12 | | $ | 28,296 |
| | 15 |
| | | | | | | | | | | | |
| China | 123,124 |
| | 39 | | 124,910 |
| | 42 | | 83,813 |
| | 43 |
| Europe | 66,319 |
| | 21 | | 54,332 |
| | 18 | | 33,389 |
| | 17 |
| Japan | 36,961 |
| | 11 | | 38,992 |
| | 13 | | 19,460 |
| | 10 |
| Taiwan | 8,346 |
| | 3 | | 8,839 |
| | 3 | | 6,313 |
| | 3 |
| Other Asia | 32,687 |
| | 10 | | 27,853 |
| | 10 | | 17,476 |
| | 9 |
| Other Americas | 6,082 |
| | 2 | | 6,631 |
| | 2 | | 5,673 |
| | 3 |
| Total foreign revenue | 273,519 |
| | 86 | | 261,557 |
| | 88 | | 166,124 |
| | 85 |
| Total revenue | $ | 318,366 |
| | 100 | | $ | 297,768 |
| | 100 | | $ | 194,420 |
| | 100 |
Both foreign and domestic sales are denominated in U.S. dollars, with the exception of salesdistributors to Japan, where sales to certain customers are denominated in yen.
Revenue from Distributors
Our largest customers are distributors and have historically made upgenerate a significant portion of our total revenue. Revenue attributablerevenue in the future. We depend on our distributors to resalessell our products to end customers, complete order fulfillment and maintain sufficient inventory of products byour products. Our distributors also provide technical support and other value-added services to our end customers. We have two primary sell-through distributors: Nu Horizon Electronics Corp., a wholly owned subsidiary of Arrow Electronics, Inc., which includes its wholly-owned subsidiary, Nu Horizons Electronics Corp., accounted for approximately 22%, 18% and 12% of revenue in fiscal years 2011, 2010 and 2009, respectively. Revenue attributable to resales of products by Avnet, Inc. accounted for approximately 17%, 17% and 13% of revenue in fiscal years 2011, 2010 and 2009, respectively. Revenue attributable to resales of products by the Weikeng Group, (Weikengprimarily through Weikeng Industrial Co. Ltd. (Taiwan) and, Weikeng International Co. Ltd. (Hong Kong)) accounted for approximately 14%, 14% and 9%Weikeng Technology Pte.
Historically the largest percentage of our revenue has been derived from customers participating in fiscal years 2011, 2010 and 2009, respectively. Sales ofthe communications equipment end market. In addition, the Company sells products to ASTI Holdings Ltd. accounted for approximately 0%, 0% and 16% of revenue in fiscal years 2011, 2010 and 2009, respectively.used by two large China-based telecommunication equipment providers. No other individual end customer accounted for more than 10% of total revenue in any of the fiscal years 20112012, 20102011 and 20092010.
On August 28, 2011, our global franchise agreement with Avnet terminated; however, we mutually agreed to terms for the transition8
Revenue from foreign sales as a resultpercentage of this change.total revenue were 88%, 86%. and 88% for fiscal 2012, 2011, and 2010, respectively. We continueassign revenue to serve ourgeographies based on customer ship-to address at the point where revenue is recognized. In the case of sell-in distributors and OEM customers, revenue is typically recognized, and geography is assigned, when products are shipped. In the case of sell-through distributors, revenue is recognized when resale to the end customer occurs and geography is assigned based on the end customer location on the resale reports provided by the distributor. Both foreign and domestic sales are denominated in U.S. dollars, with the exception of sales in Japan, where sales to certain customers with a network that includes a global distributor,are denominated in yen.
regional distributors, manufacturer's representatives, and our direct sales team.
During fiscal 2009, we embarked on a program to restructure our distribution channels, primarily in the Asia Pacific region, from a sell-in to a sell-through distribution model. As a result the majorityThe composition of our revenue by geography, based on ship-to location, is as follows (dollars in fiscal 2011 and 2010 was from resale of our products by sell-through distributors. In connection with this program, we terminated our distribution agreement between the Company and Promaster Technology Corporation on July 2, 2009, between the Company and Dragon Technology Distribution and FE Global Electronics effective for various territories on February 1 and February 6, 2010, respectively, and between the Company and other distributors effective on various dates. Dragon Technology Distribution and FE Global Electronics are wholly-owned subsidiaries of ASTI Holdings Ltd. Additionally, we converted in-place distributors in the Asia Pacific region and Europe from a sell-in to a sell-through model. As a result, we estimate that revenue was lower in the fourth quarter of fiscal 2009 by approximately $2.0 million compared to revenue had we not embarked on this program.thousands):
Revenue related to resale of our products by sell-through distributors makes up 61%, 56%, and 38% of total revenue for fiscal 2011, 2010 and 2009, respectively. |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended | | % Change in |
| | | December 29, 2012 | | December 31, 2011 | | January 1, 2011 | | 2012 | | 2011 |
| Asia | | $ | 189,811 |
| | 68 | % | | $ | 201,118 |
| | 63 | % | | $ | 200,594 |
| | 67 | % | | (6 | ) | | — |
| Europe | | 48,202 |
| | 17 |
| | 66,319 |
| | 21 |
| | 54,332 |
| | 18 |
| | (27 | ) | | 22 |
| Americas | | 41,243 |
| | 15 |
| | 50,929 |
| | 16 |
| | 42,842 |
| | 15 |
| | (19 | ) | | 19 |
| Total revenue | | $ | 279,256 |
| | 100 | % | | $ | 318,366 |
| | 100 | % | | $ | 297,768 |
| | 100 | % | | (12 | ) | | 7 |
Seasonality
In most years, we experience some seasonal trends in the sale of our products. Sales of our products are often higher during our fiscal quarters two and three, but lower during our fiscal quarters one and four. As the Company pursues new opportunities in the consumer end market, we expect there will be more seasonal trends in product revenue. However on balance, general economic conditions and the cyclical nature of the semiconductor industry have a greater impact on our business and financial results than seasonal trends.
Backlog
We accept purchase orders for deliveries covering periods from one day up to approximately one year from the date on which the order is placed. However, purchase orders, consistent with common industry practices, can generally be revised or canceled by many of our customers without penalty. Our backlog for sell-through distributors is valued at list price, which in most cases is substantially higher than the prices ultimately recognized as revenue. In addition, significant portions of our sales are ordered with relatively short lead times, often referred to as “turns business.” Considering these practices and our experience, we do not believe the total of customer purchase orders outstanding (backlog) provides meaningful information that can be consistently relied on to predict actual sales for future periods.
Competition
The semiconductor industry is intensely competitive and characterized by rapid rates of technological change, product obsolescence and price erosion. Our current and potential competitors include a broad range of semiconductor companies from emerging companies to large, established companies, many of which have greater financial, technical, manufacturing, marketing and sales resources than we do.
The principal competitive factors in the programmable logic market include silicon and software product features, price, technical support, sales, marketing and distribution strength. The availability of competitive intellectual property cores is also critical. In addition to product features such as density, performance, power consumption, re-programmability, and reliability, competition occurs on the basis of price and market acceptance of specific products and technology. We intend to continue to address these competitive factors by working to continually introduceintroducing product enhancements and new products and by reducing the manufacturing cost of our products.
We compete directly with Altera Corporation and Xilinx, Inc. in the low end of the FPGA market. We also indirectly compete with other semiconductor companies that provide logic solutions that are not user programmable, or that offer products based on alternative solutions such as ASIC, ASSP, microcontroller, analog and DSP technologies. Although to date we have not experienced direct competition from companies located outside the United States, such companies may become a more significant competitive factor in the future. Competition may also increase if other larger semiconductor companies seek to expand into our market. Any such increases in competition could have a material adverse effect on our operating results.
Intellectual Property
We seek to protect our products and technologies primarily through patents, trade secrecy measures, copyrights, mask work protection, trademark registrations, licensing restrictions, confidentiality agreements and other approaches designed to
protect proprietary information. There can be no assurance that others may not independently develop competitive technology not covered by our intellectual property rights or that measures we take to protect our technology will be effective.
Patents
We hold numerous domestic, European and Asian patents and have patent applications pending in the United States, Europe and Asia. Our current patents will expire at various times between 20112013 and 2030. There can be no assurance that pending patent applications or other applications that may be filed will result in issued patents, or that any issued patents will survive challenges to their validity. Although we believe that our patents have value, there can be no assurance that our patents, or any additional patents that may be issued in the future, will provide meaningful protection from competition. We believe that our success will depend primarily upon the technical expertise, experience, creativity and the sales and marketing abilities of our personnel.
Patent and other proprietary rights infringement claims are common in our industry. There can be no assurance that, with respect to any claim made against us, that we would be able to successfully defend against the claim or that we could obtain a license that would allow us to use the proprietary rights on terms or under conditions that would not harm our business.
Licenses and Agreements
We have acquired various licenses from third parties to certain technologies that are implemented in IP cores or embedded in our products. Those licenses support our continuing ability to make and sell these products to our customers. While our various licenses are important to our success, we believe our business as a whole is not materially dependent on any particular license, or group of licenses.
Advanced Micro Devices
In 1999, as part of our acquisition of Vantis Corporation, a wholly owned subsidiary of Advanced Micro Devices, Inc. (“AMD”), we entered into an agreement with AMD pursuant to which we have cross-licensed Vantis patents with AMD patents, having an effective filing date on or before June 15, 1999, related to programmable logic products. This cross-license was made on a worldwide, non-exclusive and royalty-free basis. Additionally, as part of our acquisition of Vantis, we acquired certain third-party license rights held by Vantis prior to the acquisition.
Agere Systems
In 2002, as part of our acquisition of the FPGA business of Agere Systems, Inc., we entered into an intellectual property agreement with Agere and Agere Systems Guardian Corporation. Pursuant to this agreement, these Agere companies assigned or licensed to us certain FPGA and Field Programmable System Chip patents, trademarks, software and other intellectual property rights and technology, and we licensed back rights in these same assets. These cross-licenses were made on a worldwide, non-exclusive and royalty-free basis.
Altera
In 2001, we entered into a comprehensive, royalty-free, non-exclusive patent cross-license agreement and a multi-year patent peace agreement with Altera.
SiliconBlue
UnderIn 2011, as part of the acquisition of SiliconBlue Technologies, we assumed a patent license agreement dated July 21, 2006, under which Kilopass Technology, Inc. granted to SiliconBlue and its successors a license to certain U.S. patents and related foreign patents. The license is an exclusive, fully paid, worldwide license but is limited to the use of the patented inventions in the field of stand-alone programmable logic devices.
Employees
At December 31, 201129, 2012, we had 852739 full-time employees. We believe that our future success will depend, in part, on our ability to continue to attract and retain highly skilled technical and management personnel. No employee is subject to a collective bargaining agreement. We have never experienced a work stoppage and consider our employee relations to be good.
Executive Officers of the RegistrantCompany
The following individuals currently serve as our executive officers:
|
| | | | | |
| Name | | Age |
| | Position |
| Darin G. Billerbeck | 5253 |
| | President, Chief Executive Officer and Director |
| Joe Bedewi | 5253 |
| | Corporate Vice President and Chief Financial Officer |
| Byron W. Milstead | 5556 |
| | Corporate Vice President, General Counsel and Secretary |
Sean Riley | 43 |
| | Corporate Vice President and General Manager, Infrastructure Business Unit |
Darin G. Billerbeck joined the Company as President and Chief Executive Officer on November 8, 2010. Prior to joining the Company, Mr. Billerbeck served as the Chief Executive Officer of Zilog, a microcontroller manufacturer, which was acquired by IXYS Corporation in February 2010. Prior to joining Zilog in January 2007, Mr. Billerbeck served 18 years in various executive and management positions at Intel Corporation, including as Vice President and General Manager of Intel's Flash Products Group from 1999 to 2007.
Joseph Bedewi joined the Company as Corporate Vice President and Chief Financial Officer on April 15, 2011. Mr. Bedewi served 17 years as Financial Controller for several groups, and held various other financial and operational management roles at Intel Corporation. His operations experience ranges from organizational development and optimization, strategic planning, business development and process improvement, to capacity and capital planning. After leaving Intel, Mr. Bedewi served as Chief Financial Officer at International DisplayWorks, Malibu Boats, LLC.,LLC, and Solar Power, Inc.
Byron W. Milstead joined the Company in May 2008 as Corporate Vice President and General Counsel. Prior to joining the Company, Mr. Milstead served as Senior Vice President and General Counsel of Credence Systems Corporation from December 2005 to May 2008. Mr. Milstead served as Vice President and General Counsel of Credence Systems Corporation from November 2000 until December 2005. Prior to joining Credence Systems Corporation, Mr. Milstead practiced law at the Salt Lake City office of Parsons Behle & Latimer and the Portland offices of both Bogle and Gates and Ater Wynne.
Sean Riley joined the Company in September 2008 and became Corporate Vice President and General Manager, Infrastructure Business Unit in December 2011. Prior to joining the Company, Mr. Riley was Vice President of Marketing for MathStar from April 2005 to May 2008, a programmable logic startup company. Mr. Riley joined MathStar from Intel Corporation, where he worked from June 1992 to April 2005 in various marketing, engineering and general management roles.
Available Information
We make available, free of charge through our Investor Relations section of our website at www.latticesemi.com, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and amendments to those reports and statements as soon as reasonably practicable after such materials are electronically filed with, or furnished to, the SEC. You may also obtain free copies of these materials by contacting our Investor Relations Department at 5555 N.E. Moore Court, Hillsboro, Oregon 97124-6421, telephone (503) 268-8000. Our SEC filings are also available at the SEC's website at www.sec.gov.
ItemITEM 1A. Risk Factorsfactors
The following risk factors and other information included in this Annual Report should be carefully considered before making an investment decision relating to our common stock. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. If any of the following risks occur, our business, financial condition, operating results and cash flows could be materially adversely affected.
Currently,We rely on independent foundries for the manufacture of all of our products and a manufacturing problem or insufficient foundry capacity could adversely affect our operations
We depend on independent foundries to supply silicon wafers for many of our products. These foundries include Fujitsu Semiconductor Limited ("Fujitsu") isin Japan, which supplies the majority of our sole source supplierwafers. We negotiate wafer volumes, prices and other terms with our foundry partners and their respective affiliates on a periodic basis typically resulting in short-term agreements which do not ensure long-term supply or allocation commitments. We rely on our foundry partners to produce
wafers with competitive performance attributes. Should the foundries that supply our wafers experience manufacturing problems, including unacceptable yields, delays in the realization of the requisite process technologies, or difficulties due to limitations of new and existing process technologies, our operating results could be adversely affected. Should the foundries not be able to manufacture sufficient quantities of our products or continue to manufacture a product for the full life of the product, our newest FPGAoperating results could be adversely affected. In addition, weak economic conditions may adversely impact the financial health and PLD products.viability of the foundries and cause them to limit or discontinue their business operations, resulting in their inability to meet their commitments to us and shortages of supply, which could adversely affect our financial condition and operating results.
AsA disruption of our foundry partners' operations as a semiconductor company, we operate inresult of a dynamic environment marked by rapid product obsolescence. The programmable logic market is characterized by rapid technologyfire, earthquake, act of terrorism, political or labor unrest, governmental uncertainty, war, disease or other natural disaster or catastrophic event, or any other reason, could disrupt our wafer supply and product evolution followed by a slow ramp process to
volume production. Our success depends oncould adversely affect our ability to develop and introduce new products that compete effectively on the basis of price and performance and which address the markets we serve. We work closely with foundries in our development of products meeting these market demands, and rely on the foundry to timely produce high quality products.operating results.
We have entered into agreements with Fujitsu pursuantIf we fail to which Fujitsu manufactures most ofmaintain our new products on its 130 nanometer, 90 nanometerfoundry relationships or are required to change foundries, we will incur significant costs and 65 nanometer technologies. Fujitsu is our sole source supplier of wafers for our newest FPGA and PLD products.manufacturing delays. The success of certain of our next generation products is dependent onupon our ability to successfully partner with Fujitsu or newand other foundry partners.partners, including Seiko Epson Corporation in Japan, United Microelectronics Corporation in Taiwan, GLOBALFOUNDRIES in Singapore, and Taiwan Semiconductor Manufacturing Company Ltd. (TSMC) in South Korea. If for any reason Fujitsu doesour foundry partners do not provide their facilities and support for our process technology development efforts, we may have difficulty timely andbe unable to effectively developingdevelop new products untilin a timely manner.
Establishing, maintaining and managing multiple foundry relationships require the investment of management resources as well as additional costs. If we can finddo not manage these relationships effectively, it could adversely affect our operating results. Should a replacement supplier. Similarly, if for any reason Fujitsu discontinues manufacturing our new products (e.g. stop production on certain process technologies)change in foundry relationship be required, we will have to switch to a new foundry. We may be unsuccessful in establishing new foundry relationships for our current or next generation products, or may incur substantial cost and or manufacturing delays until we form a new relationship,and ramp relationships and migrate products, each of which could adversely affect our operating results.
In order to secure new or additional wafer supply, we may from time to time consider various financial arrangements including equity investments, advance purchase payments, loans, or similar arrangements with independent wafer manufacturers in exchange for committed wafer capacity.capacity or other support. To the extent that we pursue any such additional financing arrangements, additional debt or equity financing may be required. There can be no assurance that such additional financing will be available when needed or, if available, will be on favorable terms. Any future equity financing will decrease existing stockholders’stockholders' equity percentage ownership and may, depending on the price at which the equity is sold, resultresulting in dilution.
Additionally, a disruption of Fujitsu's foundry operations as a result of a fire, earthquake, act of terrorism, political or labor unrest, governmental uncertainty, war, disease or other natural disaster or catastrophic event, or any other reason, could disrupt our wafer supply and could adversely affect our operating results.
Our future revenue is dependent on programmable logic solutions. Customer design-in activity, and thus, future revenue growth is dependent on market acceptance of our new silicon and software design tool products and the continued market acceptance of our current products. Future revenue is inherently uncertain and could impact our ability to manage production or our ability to forecast sales.
We face uncertainties relating to the potential impact of customer design-in activity because it is unknown whether any particular customer design-in will ultimately result in sales of significant volume. After a specific customer design-in is obtained, many factors can impact the timing and amount of sales that we ultimately realize. Changes in the competitive position of our technology, the customer's product competitiveness or product strategy, the financial position of the customer, and other factors can impact the timing and amount of sales ultimately realized from any specific customer design-in.
We are presently shipping our latest generation FPGA, PLD and Programmable Mixed Signal product families that are critical to our ability to grow our overall revenue. We also plan to continue upgrading our customer design tool products and increase our offerings of intellectual property cores. Our future revenue growth is dependent on customer design-in activity, market acceptance of our new silicon and software design tool products and the continued market acceptance of our current products. The success of these products is dependent on a variety of specific technical factors including:
successful product definition;
timely and efficient completion of product design;
timely and efficient implementation of wafer manufacturing and assembly processes;
product performance;
product cost;
the quality and reliability of the product; and
ease of use.
If, due to these or other factors, our new silicon and software products do not achieve market acceptance, or our current products do not maintain market acceptance, we may not be able to manage production levels or accurately forecast the future revenue and operating results may be adversely affected.
We depend on distributors, primarily those that use the sell-through distribution model, to generate a majority of our sales and complete order fulfillment. The failure of our distributors to sell our products and otherwise perform as expected could materially reduce our future sales.
We depend on our distribution partnersdistributors to sell our products to end customers, generate a majority of our sales, complete
order fulfillment and stockmaintain sufficient inventory of our products. Our distributors also help us provide technical support and other value-added services to our end customers. Our sales could be adversely affected if our distribution partners do not continue to effectively sell our products and provide related services.
We expect that the majorityResale of product through distributors accounted for 55% of our revenue in fiscal 2012, willwith two distributors accounting for 47% of our revenue in 2012. We expect our distributors to generate a significant portion of our revenue in the future. Any adverse change to our relationship with our distributors or a failure by one or more of our distributors to perform its obligations to us could have a material impact on our business. In addition, a significant reduction of effort by a distributor to sell our products or a material change in our relationship with one or more distributors may reduce our access to certain end customers and adversely affect our ability to sell our products.
The financial health of our distributors is important to our success. Economic conditions may adversely impact the financial health of one or more of our distributors. This could result in the inability of distributors to finance the purchase of our products or cause the distributors to delay payment of their obligation to us and increase our credit risk. If the financial health of our distributors impairs their performance and we are unable to secure alternate distributors, our financial condition and results of operations may be reported resale bynegatively impacted.
In addition, our sell-through distributors. Our primary sell-throughdistribution channels recently have experienced consolidation due to merger and acquisition activity. Consolidation may result in our distributors Arrow Electronics, Inc. including Nu Horizons Electronics Corp., (a wholly owned subsidiaryallocating fewer resources to the distribution and sale of Arrow Electronics, Inc. USA), Avnet, Inc. ("Avnet"), and Weikeng (International and Industrial) Co. LTD made up approximately 53%, 49% and 34% of total revenue for fiscal years 2011, 2010 and 2009, respectively. our products, which could adversely affect our financial results.
We depend on the timeliness and accuracy of these resale reports from our distributors; late or inaccurate resale reports could have a detrimental effect on our ability to properly recognize revenue and our ability to predict future sales.
In addition, our distribution channels recently have experienced consolidation due to merger and acquisition activity in that business sector. Consolidation may result in our distributors allocating fewer resources to the distribution and sale of our products, which could adversely affect our financial results.
On December 31, 2011 our global franchise agreement with Avnet terminated. Revenue from Avnet made up approximately 17% of our total revenue for both years ended December 31, 2011, and January 1, 2011. We intend to serve the Avnet end customers through a network that includes a global distributor, regional distributors, manufacturer's representatives, and our direct sales team. If our end customers experience disruption in the supply of our products, or if our distributors and representatives are unable to provide technical support and other value-added services at least at historical levels, we may lose future sales and our financial results could be adversely affected.
At times, our sales are concentrated in a small number of distributors, which are in various international locations and of various financial strengths. Financial difficulties, inability to access capital markets, or other reasons may affect our distributors' performance, which could materially harm our business and our operating results.
Our success depends on our ability to rapidly develop and introduce new products. Failure to do so would have a material adverse effect on our business and negatively impact our financial condition and results of operations.
The programmable logic market is characterized by rapid technology and product evolution on some of the most advanced technologies. Our success depends on our ability to develop and introduce new products which compete effectively on the basis of price and performance and which address the markets we serve. We continually design next generation products that enable us to offer our customers lower power, lower cost, and more innovative products to maintain our competitive position. These new products typically are more technologically complex than their predecessors, and thus have increased potential for delays in their introduction.
The success of new product introductions is dependent upon several factors, including timely completion and introduction of new product designs, achievement of acceptable prices for wafer, package, assemble and test costs, yields and market acceptance. Our development of new products and our customers’ decisions to design them into their systems can take as long as three years, depending upon the complexity of the device and the application. Accordingly, new product development requires a long-term forecast of market trends and customer needs, and the successful introduction of our products may be adversely affected by competing products or by technologies serving the markets addressed by our products. If we experience delays in the introduction of new products, our operating results could be adversely affected.
In addition, new product introductions frequently depend on our development and implementation of new process technologies, and our growth will depend in part upon the successful development and market acceptance of these process technologies. Our products require technically sophisticated sales and marketing personnel to market these products successfully to customers. We are developing new products with lower power consumption, with smaller feature sizes, the fabrication of which will be substantially more complex than our current products. If we are unable to design, develop, manufacture, market and sell new products successfully, our operating results will be harmed. Our new product development, process development or execution to design and bring to market products that offer lower power, lower cost with more innovation marketing and sales efforts may not be successful. Furthermore, our new products may not achieve market acceptance and price expectations for our new products may not be achieved which could significantly harm our business and may have an adverse effect on our financial condition or operating results.
We may be unable to assimilate and integrate the operations, personnel, technologies, products, and information systems of SiliconBlue Technologies Ltd., APAC IC Layout Consultants, Inc., or future acquisitions, which may harm our business, financial condition or operating results.
One element of our business strategy includes expansion through the acquisition of businesses, assets, products or
technologies that allow us to complement our existing product offerings, expand our market coverage, increase our skilled engineering workforce or enhance our technological capabilities.
On December 9, 2011, we acquired SiliconBlue Technologies Ltd., a Cayman Islands exempted company ("SiliconBlue") which put us in a unique position in the mobile consumer segment of the programmable logic market. The purchase price, totaling $63.2 million was paid in cash. In addition, the Company recorded Goodwill of $43.9 million in connection with the purchase of SiliconBlue.
The acquisition of SiliconBlue may result in revenue and gross margin fluctuations due to seasonality, increased operating expenses, inventory valuation volatility and a more competitive pricing environment.
On July 15, 2011, we completed the purchase of Rise Technology Development Limited ("Rise"), a Hong Kong company, and its subsidiary, APAC IC Layout Consultants, Inc. ("APAC IC"), a Manila, Philippines based company engaged in engineering layout and design services, for approximately $1.0 million, which includes all assets and liabilities of the entity. This acquisition of Rise and APAC IC is part of our effort to improve our research and development and operations activities, reduce costs and streamline our supply chain for improved predictability and flexibility. In addition, the Company recorded Goodwill of $0.9 million in connection with the purchase of Rise and APAC IC.
Acquisitions similar to SiliconBlue and APAC, or future acquisitions typically entail many risks and we may encounter difficulties in assimilating and integrating the operations, personnel, technologies, products and information systems of the acquired companies or businesses. We may experience delays in the timing and successful integration of an acquired company’s technologies and product development as a result of:
volume production;
unanticipated costs and expenditures;
changing relationships with customers;
suppliers and strategic partners; or,
contractual, intellectual property or employment issues.
In addition, key personnel of an acquired company may decide not to work for us. The acquisition of another company or its products and technologies may also require us to enter into a geographic or business market in which we have little or no prior experience. These challenges could disrupt our ongoing business, distract our management and employees, harm our reputation and increase our expenses. These challenges are magnified as the size of the acquisition increases.
Acquisitions typically require large one-time charges and can result in increased debt or contingent liabilities, adverse tax consequences, and the recording and later amortization of amounts related to certain purchased intangible assets, any of which items could negatively impact our results of operations. In addition, we have or may record goodwill in connection with an acquisition and incur goodwill impairment charges in the future. Any of these charges could cause the price of our common stock to decline.
Acquisitions or asset purchases made entirely or partially for cash may reduce our cash reserves. We may seek to obtain additional cash to fund an acquisition by selling equity or debt securities. Any issuance of equity or convertible debt securities may be dilutive to our existing stockholders.
We cannot assure you that we will be able to consummate any future acquisitions or that we will realize any anticipated benefits from any of our historic or future acquisitions. We may not be able to find suitable acquisition opportunities that are available at attractive valuations, if at all. Even if we do find suitable acquisition opportunities, we may not be able to consummate the acquisitions on commercially acceptable terms, and any decline in the price of our common stock may make it significantly more difficult and expensive to initiate or consummate additional acquisitions.
We are required under U.S. GAAP to test goodwill for possible impairment on an annual basis and at any other time that circumstances arise indicating the carrying value may not be recoverable. At December 31, 2011, we had $44.8 million of goodwill. We completed our annual test of goodwill impairment in the fourth quarter of 2011 and concluded that we did not have any impairment at that time. There is no assurance that future impairment tests will indicate that Goodwill will be deemed recoverable. The success of any acquisition, including Rise and APAC IC and SiliconBlue, requires the integration of products, technologies, personnel and administrative resources, and could result in departures of key personnel, loss of key customers, distributors or vendors, equity dilution or acquisition of unknown liabilities. Furthermore, our ability to predict seasonality, end customer demand, and our customers' end customer demand for SiliconBlue products is limited. As a result, an acquisition similar to SiliconBlue and APAC, or future acquisitions could disrupt our operations and may have an adverse effect on our
business, financial condition or operating results.
A continued downturn in the communications equipmentCommunications end market could cause a further reduction in demand for our products and limit our ability to maintain revenue levels and operating results.
Historically, the largest percentage of our revenue (approximately44% of fiscal 2011 revenue) has been derived from customers participating in the communications equipmentCommunications end market. In addition, during fiscal year 2009, the Company participated in the China 3G telecommunications network build-out by selling products used bysales to two large China-based telecommunication equipment providers which accounted for a combined 19%14% of our aggregate revenue.revenue in 2012. This is primarily due to strength in the wireless portion of the communicationsCommunications end market. For the 2011 fiscal year, the same two large telecommunication equipment providers accounted for a combined 12% of revenue. In the past, including in our most recent fiscal periods, a general weakening in demand for programmable logic products from customers in the communicationsCommunications end market has adversely affected our revenue. In addition, telecommunication equipment providers are building networksnetwork infrastructure for 4G networks in which we compete.compete for product sales. Any deterioration in the communicationCommunications end market our ability to compete in future telecommunications solutions (e.g. 4G networks) or our end customers' reduction in capital spending to support this end market could lead to a reduction in demand for our products which could adversely affect our revenue and results of operations.
The consumer end market is characterized by rapid product obsolescenceGeneral economic conditions and requires that we have the right products at the right time for our customers to fulfill demand for productsdeterioration in the consumer end market. If we are unable to forecastglobal business environment could have a material adverse effect on our business, operating results and financial condition.
Adverse economic conditions may negatively affect customer demand for our products and services and result in postponed or we don'tdecreased spending amid concerns over declining asset values, inflation, volatility in energy costs, geopolitical issues, the availability and cost of credit, rising unemployment, and the stability and solvency of financial institutions, financial markets, businesses and sovereign nations, among other concerns. Recent events have products to ship atshown that the right time, our financial conditionconditions of sovereign nations, particularly in Europe, are of continuing concern as the sovereign debt crisis remains unresolved. These weak global economic conditions resulted in reduced end customer demand and results may be adversely affected.
Our revenue from the consumer end market consists primarily of revenue from our products designed and used inhad a broad range of products including flat panel displays, DVD players and recorders, digital cameras and camcorders, gaming consoles, set-top boxes, and smart handheld devices is characterized by rapidly changing market requirements and products. Our success in this market will depend principallynegative impact on our ability to:
meetresults of operations during fiscal 2012. If weak economic conditions persist or worsen, our business could be harmed due to customers or potential customers reducing or delaying orders, the market windows for consumer products;
insolvency of key suppliers, which could result in production delays, the inability of customers to predict technologyobtain credit, and market trends;
to develop products on a timely basis;
avoid cancellationsthe insolvency of one or delay of products;
more customers. Any of the foregoing problemsthese effects could materially and adversely affect our business, financial condition, and results of operations.
Global economic conditions and uncertainty, as well as the highly cyclical nature of the semiconductor industry, could adversely affect our revenue, gross margin and expenses, collectability of accounts receivable, supplier relationships, and ability to access capital markets.
Our revenue and gross margin can fluctuate significantly due to downturns in the general economy or the semiconductor industry. These downturns are often severe and prolonged and can result in significant reductions in the demand for PLD and FPGA products in markets in which we compete. Global economic weakness or cyclical downturns have previously resulted from periods of economic recession, reduced access to credit markets, weakening or strengthening of the U.S. dollar relative to other currencies, weak end-user demand, excess industry capacity, political instability, government fiscal policy, sovereign debt, terrorist activity, military actions, or general reductions in inventory levels by customers, and may cause a decrease in revenue, gross margin, earnings or growth rates and problems withimpact our ability to effectively manage inventory levels and collect customer receivables. In addition, our relationships with our suppliers and our ability to access capital markets could be adversely affected. In addition, customer financial difficulties have previously resulted and could in the future result in, increases in bad debt write-offs and additions to reserves in our accounts receivable. Global economic and cyclical downturns also may lead toreceivables, require additional restructuring actions, and associated expenses.ultimately decrease our net revenues and profitability. Uncertainty about future economic conditions makes it difficult for us to forecast operating results and to make decisions about future investments. Any or all of these factors could adversely affect our financial condition and results of operations in the future.
BecauseThe semiconductor industry routinely experiences cyclical market patterns and a significant industry downturn could adversely affect our operating results.
Our revenue and gross margin can fluctuate significantly due to downturns in the semiconductor industry. These downturns can be severe and prolonged and can result in price erosion and weaker demand for our products. Weaker demand for our products resulting from general economic conditions affecting the end markets we serve or the semiconductor industry specifically and reduced spending by our customers can result, and in the past has resulted, in excess and obsolete inventories and corresponding inventory write-downs. The dynamics of the markets in which we operate make prediction of and timely reaction to such events difficult. Due to these and other factors, our past results are not reliable predictors of our internationalfuture results.
The Consumer end market is cyclical, and our failure to accurately predict the frequency, duration, timing and severity of these cycles could adversely affect our financial condition and results.
Revenue from the Consumer end market accounted for 15% of our revenue in fiscal 2012 and has increased as a percentage of our revenues over the past several years. Revenue from the Consumer end market consists primarily of revenue from our products designed and used in a broad range of products including smart handheld devices, flat panel displays, digital cameras and camcorders, gaming consoles, and set-top boxes. This market is characterized by rapidly changing requirements and products. Our success in this market will depend principally on our ability to:
meet the market windows for consumer products;
predict technology and market trends;
develop products on a timely basis; and
avoid cancellations or delay of products.
Our inability to accomplish any of the foregoing could materially and adversely affect our business, financial condition, and operations,results of operations. In addition, because of rapid changes in this market, which may affect demand for our products, the revenue derived from sales in this market may vary significantly over time adversely affecting our financial results.
Our success depends on our ability to develop and introduce new products and failure to do so could have a material adverse effect on our financial condition and results of operations.
The programmable logic market is characterized by rapid technology and product evolution on advanced technologies. Our competitive position and success depends on our ability to develop and introduce new products that compete effectively on the basis of price, density, functionality, power consumption and performance addressing the needs of the markets we serve. These new products typically are vulnerablemore technologically complex than their predecessors.
The success of new product introductions depends upon numerous factors, including:
timely completion and introduction of new product designs;
ability to generate new design opportunities and design wins;
availability of specialized field application engineering resources supporting demand creation and customer adoption of new products;
ability to utilize advanced manufacturing process technologies;
achieving acceptable yields;
ability to obtain adequate production capacity from our wafer foundries and assembly and test subcontractors;
ability to obtain advanced packaging;
availability of supporting software design tools;
utilization of predefined IP logic;
customer acceptance of advanced features in our new products; and
market acceptance of our customers' products.
Our product development efforts may not be successful, our new products may not achieve industry acceptance and we may not achieve the economic conditionsnecessary volume of production that would lead to acceptable cost reductions. Revenues relating to our mature products are expected to decline in the future, which is normal for our product life cycles. As a result, we may be increasingly dependent on revenues derived from design wins for our newer products as well as anticipated cost reductions in the manufacture of our current products. We rely on obtaining yield improvements and tax policiescorresponding cost reductions in the manufacture of various jurisdictionsexisting products and on introducing new products that incorporate advanced features and other price/performance factors that enable us to increase revenues while maintaining acceptable margins. To the extent such cost reductions and new product introductions do not occur in a timely manner, or that our products do not achieve market acceptance at prices with higher margins, our financial condition and results of operations could be materially adversely affected.
Foreign sales account for the majority of our revenue and we have significant international operations exposing us to various economic, regulatory, political, and business risks associated with conducting operations outside of the U.S. which could have a material adverse effect on our businessoperations, financial condition, and negatively impactresults of operations.
We derive the majority of our revenue from sales outside of the United States. Accordingly, if we experience a decline in foreign sales, our operating results could be adversely affected. Our foreign sales are subject to numerous risks, including:
changes in local economic conditions;
currency exchange rate volatility;
governmental stimulus packages, controls and trade restrictions;
export license requirements, foreign trade compliance matters, and restrictions on the use of technology;
political instability, war, terrorism or pandemic disease;
changes in tax rates, tariffs or freight rates;
reduced protection for intellectual property rights;
longer receivable collection periods;
natural or man-made disasters in the countries where we sell our products;
interruptions in transportation;
interruptions in the global communication infrastructure; and
labor regulations.
Any of these factors could adversely affect our financial condition and results of operations.operations in the future.
In addition to our U.S. operations, weWe have significant international operations, including foreign sales offices to support our international customers and distributors, ouran operational centerscenter in the Philippines, and Singapore,research and our research and
development sites in China, India and the Philippines. In connection with theSince our restructuring, we announced in 2011 our international operations grewhave grown as we relocated certain operational, design, and administrative
functions outside the U.S. AllUnited States. In addition, we purchase our wafers from foreign foundries, have our commercial products assembled, packaged and tested by subcontractors located outside the United States, and rely upon an international service provider for inventory management, order fulfillment, and direct sales logistics.
These and other integral business activities outside of these activitiesthe United States are subject to the risks and uncertainties associated with internationalconducting business operations,in foreign economic and regulatory environments including tax laws and regulations, trade barriers, economic sanctions, environmental regulations, import and export regulations, duties and tariffs and other trade restrictions, changes in trade policies, anti-corruption laws, domestic and foreign governmental regulations, potential vulnerability of and reduced protection for IP, longer receivable collection periods, and disruptions or delays in production or shipments, and instability or fluctuations in exchange rates, any of which could have a material adverse effect on our business, financial condition and/or operating results.
Moreover, our financial condition and results of operations could be affected in the event of political conflictsinstability, terrorist activity, U.S. or other military actions, or economic crises in countries where our main wafer providers,suppliers, end customers, and contract manufacturers, who provide assembly and test services worldwide,logistics providers are located.
Our legal organizational structure could result in unanticipated unfavorable tax or other consequences which could have an adverse effect on our financial condition and results of operations. In 2011 and 2012, we implemented a global tax structure to more effectively align our corporate structure business operations including responsibility for sales and purchasing activities. We created new and realigned existing legal entities, completed intercompany sales of rights to intellectual property, inventory and fixed assets across different tax jurisdictions, and implemented cost-sharing and intellectual property licensing and royalty agreements between our legal entities. We currently operate legal entities in countries where we conduct supply-chain management, design, and sales operations around the world. In some countries, we maintain multiple entities for tax or other purposes. Changes in tax laws, regulations, future jurisdictional profitability of the Company and its subsidiaries, and related regulatory interpretations in the countries in which we operate may impact the taxes we pay or tax provision we record, which could adversely affect our results of operations.
We are subject to taxation in Singapore, the United States and other countries. Future effective tax rates could be affected by changes in the composition of earnings in countries with differing tax rates, changes in the valuation of deferred tax assets and liabilities, or changes in tax laws. We compute our effective tax rate using actual jurisdictional profits and losses. Changes in the jurisdictional mix of profits and losses may cause fluctuations in the effective tax rate. Adverse changechanges in tax rates, our tax assets, and tax liabilities could negatively affect our results in the future.
We cannot give any assurance as to what taxes we pay or the ability to estimate our future effective tax rate because of, among other things, uncertainty regarding the tax policies of the jurisdictions where we operate. The U.S. government has proposed tax policy changes with respect to the circumstancestaxation of non-U.S. operations. As a result, our actual effective tax rate or conditionstaxes paid may vary materially from our expectations. Changes in tax laws, regulations and related interpretations in the countries in which we operate may have an adverse effect on our business, financial condition or operating results.
A number of factors, including our inventory strategy, can impact our gross margins.
A number of factors, including yield, wafer pricing, cost of packaging raw materials, product mix, market acceptance of our internationalnew products, competitive pricing dynamics, geographic and/or market segment pricing strategies can cause our gross margins to fluctuate. In addition, forecasting our gross margins is difficult because a significant portion of our business operationsis based on turns within the same quarter.
Our current inventory levels are higher than historical norms due to our decisions to reduce direct material cost and enable timely responsiveness to surges in demand. In the event demand does not materialize, we may be subject to incremental excess and obsolescence costs. In addition, future product cost reductions could impact our inventory valuation, which could adversely affect our operating results.
We are dependent on independent contractors for most of our assembly, test, and logistics services, and disruption of these services could negatively impact our financial condition and results of operations.
We are dependent on subcontractors to assemble, test and ship our products with acceptable quality and yield levels. Certain problems could delay shipments and have a material adverse effect on our business.ability to meet customer demands, including: prolonged inability to obtain wafers with competitive performance and cost attributes, adequate yields or timely delivery; disruption in assembly, test or shipping services; delays in stabilizing manufacturing processes and ramping up volume for new products; transitions to new service providers; or any other circumstances that would require us to seek alternative sources of supply. Economic conditions may adversely impact the financial health and viability of our subcontractors and result in their inability to meet their commitments to us. These factors could result in product shortages, quality assurance problems, reduced revenue and/or increased costs which could negatively impact our financial condition and results of operations.
In the past, we have experienced delays in obtaining assembled and tested products and in securing assembly and test capacity commitments from our suppliers. We currently anticipate that our assembly and test capacity commitments are adequate; however, these existing commitments may not be sufficient for us to satisfy customer demand in future periods. We negotiate assembly and test prices and capacity commitments from our contractors on a periodic basis. If any of our assembly or test contractors reduced their capacity commitment or increased their prices, and we cannot find alternative sources, our operating results could be adversely affected.
Increased costs of wafers and materials, or shortages in wafers and materials could adversely impact our gross margins and lead to reduced revenues.
If greater demand for wafers is not offset by increased foundry capacity, if market demand for wafers or production and assembly materials increases, or if a supplier of our wafers or assembly materials ceases or suspends operations or otherwise experiences a disruption to its operations, our supply of wafers and other materials could become constrained. Worldwide manufacturing capacity for silicon wafers is relatively limited and inelastic. Wafer shortages could result in wafer price increases or shortages in materials at production and test facilities, which could decrease our ability to meet customer product demands in a timely manner.
If any of our current or future foundry partners or assembly and test subcontractors significantly increases the costs of wafers or other materials or interrupts or reduces our supply, including for reasons outside of their control, or if any of our relationships with our partner suppliers is terminated, our operating results could be adversely affected.
Our future revenue is dependent on customer and market acceptance of our programmable logic solutions.
We operate in a dynamic environment marked by rapid product obsolescence. The programmable logic market is characterized by rapid technology and product evolution followed by a relatively longer ramp process to volume production. Our success depends on our ability to develop and introduce new products that compete effectively on the basis of price and performance and which address the markets we serve.
Customer design-in activity, and therefore future revenue growth is dependent on market acceptance of our new products and the continued market acceptance of our current products. We face uncertainties relating to the potential impact of customer design-in activity because we cannot easily predict whether any particular customer design-in will ultimately result in sales of significant volume. After we obtain a specific customer design-in, many factors can impact the timing and volume of sales which are ultimately realized. Changes in the competitive position of our technology, our customers' product competitiveness or product strategy, the financial condition of the customer, and other factors can impact the timing and volume of sales ultimately realized from any specific customer design-in. If our new products do not achieve market acceptance, or our current products do not maintain market acceptance, we may not be able to manage production levels or accurately forecast the future revenue and operating results may be adversely affected.
Product quality problems could lead to reduced revenue, gross margins and net income.
We generally warrant our products for varying lengths of time against non-conformance to our specifications and certain other defects. Because our products, including hardware, software and intellectual property cores, are highly complex and increasingly incorporate advanced technology, our quality assurance programs may not detect all defects, whether manufacturing defects in individual products or systematic defects that could affect numerous shipments. Inability to detect a defect could result in a diversion of our engineering resources from product development efforts, increased engineering expenses to remediate the defect and increased costs due to inventory impairment charges. On occasion we have also repaired
or replaced certain components or made software fixes or refunded the purchase price or license fee paid by our customers due to product or software defects. If there are significant product defects, the costs to remediate such defects, net of reimbursed amounts from our vendors, if any, or to resolve warranty claims may adversely affect our revenue, gross margins and net income.
The nature of our business makes our revenue and gross margin subject to fluctuation and difficult to predict which could have an adverse impact on our business.
In addition to the challenging market conditions we may face, we have limited visibility into the demand for our products, particularly new products, because demand for our products depends upon our products being designed into our end customers' products and those products achieving market acceptance. Due to the complexity of our customers' designs, the design to volume production process for our customers requires a substantial amount of time, frequently longer than a year. In addition, we are dependent upon "turns," orders received and turned for shipment in the same quarter. These factors make it difficult for us to forecast future sales and project quarterly revenues. The difficulty in forecasting future sales impairs our ability to project our inventory requirements, which could result, and in the past has resulted, in inventory write-downs or failure to timely meet customer product demands in a timely manner. The difficulty in forecasting revenues as well as the relative customer and product mix of those revenues impedes our ability to provide forward-looking revenue and gross margin guidance.
Reductions in the average selling prices of our products could have a negative impact on our gross margins.
The average selling prices of our products generally decline as the products mature or may decline as we compete for market share or customer acceptance in competitive markets. We seek to offset the decrease in selling prices through yield improvement, manufacturing cost reductions and increased unit sales. We also seek to continue to develop higher value products or product features that increase, or slow the decline of, the average selling price of our products. However, we cannot guarantee that our ongoing efforts will be successful or that they will keep pace with the decline in selling prices of our products, which could ultimately lead to a decline in revenues and have a negative effect on our gross margins.
If we are unable to adequately protect our intellectual property rights, our financial results and our ability to compete effectively may suffer.
Our success depends in part on our proprietary technology and we rely upon patent, copyright, trade secret, mask work and trademark laws to protect our intellectual property. We intend to continue to protect our proprietary technology, however, we may be unsuccessful in asserting our intellectual property rights or such rights may be invalidated, violated, circumvented or challenged. From time to time, third parties, including our competitors, have asserted against us patent, copyright and other intellectual property rights to technologies that are important to us. Third parties may attempt to misappropriate our intellectual property through electronic or other means or assert infringement claims against us in the future. Such assertions by third parties may result in costly litigation, indemnity claims or other legal actions, and we may not prevail in such matters or be able to license any valid and infringed patents from third parties on commercially reasonable terms. This could result in the loss of our ability to import and sell our products or require us to pay costly royalties to third parties in connection with sales of our products. Any infringement claim, indemnification claim, or impairment or loss of use of our intellectual property could materially adversely affect our financial condition and results of operations.
Litigation and unfavorable results of legal proceedings could adversely affect our financial condition and operating results.
From time to time we are subject to various legal proceedings and claims that arise out of the ordinary conduct of our business. Certain claims are not yet resolved, including those that are discussed under Item 3. "Legal Proceedings," included in Part I of this Form 10-K, and additional claims may arise in the future. Results of legal proceedings cannot be predicted with certainty. Regardless of merit, litigation may be both time-consuming and disruptive to our operations and cause significant expense and diversion of management attention and we may enter into material settlements to avoid these risks. Should we fail to prevail in certain matters, we may be faced with significant monetary damages or injunctive relief against us that could materially and adversely affect our financial condition and operating results and certain portions of our business.
If we are not able to successfully compete in the highly competitive semiconductor industry.industry, our financial results and future prospects will be adversely affected.
The semiconductor industry is intensely competitive and many of our direct and indirect competitors have substantially greater financial, technological, manufacturing, marketing and sales resources. The current level of competition in the
programmable logic market is high and may increase in the future. We currently compete directly with companies that have licensed our technology or have developed similar products, including Altera Corporation and Xilinx, Inc. We also compete indirectly with numerous semiconductor companies that offer products based on alternative solutions such as ASIC, ASSP, microcontroller, analog, and digital signal processing (DSP) technologies. These direct and indirect competitors are established, multinational semiconductor companies as well as emerging companies. If we are unable to compete successfully in this environment, our future results will be adversely affected.
Our revenue and gross margin are subject to fluctuations, including quarter over quarter, due to many factors, which make our future financial results difficult to predict.
Our operating results have fluctuated in the past and may continue to fluctuate, including quarter over quarter fluctuations. Consequently, our operating results may fail to meet the expectations of analysts and investors. Our revenue and gross margin may fluctuate due to product mix, seasonality, inventory fluctuations at our distributor end customers, market acceptance of new products, competitive pricing dynamics, geographical and market-segment pricing strategies, wafer, package and assembly prices and yields, overhead absorption, as well as provisions for warranty and excess and obsolete inventory.
We have limited ability to foresee changes or the pace of change in sales by product classification. In the past we have also experienced periods of decline in sales of our mainstream and mature products. If, in any period, sales of our mature and mainstream products decline and sales of new products do not increase at a rate that is sufficient to counteract this decline, then our total revenue would decline. In addition, as mature products typically generate a higher gross margin than mainstream or new products, a faster than normal decline in sales of mature products could adversely impact our gross margins.
We also have experienced, and may experience in the future, gross margin declines in certain products or end markets, reflecting the effect of competitive pricing pressures, inventory write-downs, charges associated with the cancellation of planned production lines, costs associated with our customers' unplanned demand to build inventory, and increases in component and manufacturing costs resulting from higher labor and material costs borne by our manufacturers and suppliers that, as a result of competitive pricing pressures or other factors, we are unable to pass on to our customers.
Further, our ability to predict seasonality, end customer demand, our customers' end customer demand, and resale of our products by our sell-through distributors is limited. Typically, a significant amount of our revenue comes from “turns orders,” which are orders placed and filled within the same period. By definition, turns orders are not captured in a backlog measurement at the beginning of a quarter. Accordingly, we cannot use backlog as a reliable measure for predicting revenue.
Foreign sales, primarily in the Asia Pacific region, account for the majority of our revenue and may decline in the future due to economic and governmental uncertainties.
We derive the majority of our revenue from sales outside of the United States. Accordingly, if we experience a decline in foreign sales, our operating results could be adversely affected. Our foreign sales are subject to numerous risks, including:
changes in local economic conditions;
exchange rate volatility;
governmental stimulus packages, controls and trade restrictions;
export license requirements and restrictions on the use of technology;
political instability, war, terrorism or pandemic disease;
changes in tax rates, tariffs or freight rates;
reduced protection for intellectual property rights in some countries;
longer receivable collection periods;
natural or man-made disasters in the countries where we sell our products;
interruptions in transportation;
different labor regulations; and
difficulties in staffing and managing foreign sales offices.
Product quality problems could lead to reduced revenue, gross margins and net income.
We generally warrant our products for varying lengths of time against non-conformance to our specifications and certain other defects. Because our products, including hardware, software and intellectual property cores, are highly complex and increasingly incorporate advanced technology, our quality assurance programs may not detect all defects, whether manufacturing defects in individual products or systematic defects that could affect numerous shipments. Inability to detect a defect could result in increased engineering expenses necessary to remediate the defect and also result in increased costs due to inventory impairment charges. On occasion we have also repaired or replaced certain components or made software fixes or refunded the purchase price or license fee paid by our customers due to product or software defects. If there are material increases in product defects, the costs to remediate such defects, net of reimbursed amounts from our vendors, if any, or to resolve warranty claims compared with our historical experience, may adversely affect our revenue, gross margins and net income.
We may experience a disruption of our business activities related to the successful execution of the 2011 restructuring plan.
During 2011, our Board of Directors adopted a restructuring plan (the “2011 restructuring plan”) to more efficiently implement our product development strategy and to better align our corporate strategy with the our sales resources to reduce development and operational costs and to streamline our supply chain for improved predictability and flexibility. Part of the 2011 restructuring plan includes extending silicon development capabilities and planning and logistics activities by locating personnel in Manila, Philippines. We expect this to initially increase certain supply chain and research and development costs until we complete the transition. During the third quarter of 2011, we incurred restructuring costs related to outsourcing certain non-core IT services. We may experience disruption in our business activities as we execute our 2011 restructuring plan, and our relationships with employees, customers and suppliers could be adversely affected by these disruptions. We expect to complete the 2011 restructuring plan by the first quarter of 2012. If we are unable to successfully complete our 2011 restructuring plan, our future results will be adversely affected.
If we are unable to adequately protect our intellectual property rights, our financial results and competitive position may suffer.
Our success depends in part on our proprietary technology. We intend to continue to protect our proprietary technology through patents, copyrights and trade secrets. Despite this intention, we may not be successful in achieving adequate protection. Claims allowed on any of our patents may not be sufficiently broad to protect our technology. Patents issued to us also may be challenged, invalidated or circumvented. Finally, our competitors may develop competing technologies. If any of these events occur, our competitive position could be adversely affected.
Companies in the semiconductor industry vigorously pursue and defend their intellectual property rights. We may be forced to pursue legal action to protect or enforce our intellectual property rights. If we become involved in protracted intellectual property disputes or litigation, we may be forced to use substantial financial and management resources, which could have an adverse effect on our operating results.
We face a number of patent infringement claims and may be subject to other intellectual property disputes, which could require us to spend a significant sum to defend and could cause losses.
Our industry is characterized by increasingly frequent claims regarding patents and other intellectual property rights of others. We have been, and from time to time expect to be, notified of claims that we are infringing upon the intellectual property rights of others. For instance, we are exposed to certain asserted and unasserted potential claims, including the pending patent litigation brought against us by Lizy K. John, and Intellectual Ventures I LLC and Intellectual Ventures II LLC as described in Item 3. Legal Proceedings, below. If any third party makes a valid claim against us, we could face significant liability and could be required to make material changes to our products and processes. In response to claims of infringement, we have incurred legal costs and committed management resources, and there can be no assurance that we would be successful
in our defense against the claims. Any such litigation could result in a substantial diversion of management and financial resources, including legal costs incurred to defend claims, which by itself could have a material adverse effect on our financial condition and operating results. We may seek licenses under patents that we are alleged to be infringing; however, we may not be able to obtain a license on favorable terms, or at all, which could have an adverse effect on our operating results.
If our foundry partners and assembly and test contractors experience quality or yield problems, we may face a shortage of products available for sale and our revenue or gross margin could be adversely affected.
We depend onupon a third party to provide inventory management, order fulfillment, and direct sales logistics and disruption of these services could adversely impact our foundry partners to deliver high quality silicon wafers with acceptable yields in a timely manner consistent with our safety stock inventory levelbusiness and production plan. In addition, we rely on assembly and test contractors to assemble and test our devices with acceptable quality and yield levels. As is common in our industry, we have experienced wafer and device yield problems, quality or delivery delays in the past.
The reliable manufactureresults of silicon wafers and the assembly and test of high performance programmable logic devices are complicated and technically demanding process requiring:
a high degree of technical skill;
state-of-the-art equipment;
the availability of certain basic materials and supplies, such as chemicals, gases, polysilicon, silicon wafers, ultra-pure metals, gold and copper;
our ability to successfully replace gold with copper for assembled devices beginning in the second half of 2012;
the absence of defects in production wafers and assembly and packaging manufacturing;
the elimination of minute impurities and errors in each step of the fabrication, assembly and test process; and
effective cooperation between the foundry partners, and assembly and test contractors and us.
As a result, our foundry partners and or assembly and test contractors may periodically experience difficulties in achieving acceptable quality and yield levels in manufacturing, assembling and testing our products. If we experience prolonged quality or yield problems in the future and we do not have adequate levels of safety stock inventory on-hand, our operating results could be adversely affected.
Our wafer supply, which is sourced entirely from the Asia Pacific region, could be interrupted or reduced or, could experience increased costs, which may result in a shortage of products available for sale or increased costs.operations.
We do not internally manufacture finished silicon wafersrely on a third party vendor to provide cost-effective and mostefficient supply chain services. Among other activities, these outsourced services relate to direct sales logistics, including order fulfillment, inventory management and warehousing, and distribution of inventory to third party distributors. If our products, including all of our newest products, are manufactured by a sole source. Currently, our silicon wafers are manufactured by Fujitsu in Japan, Seiko Epson Corporation in Japan, United Microelectronics Corporation in Taiwan, Taiwan Semiconductor Manufacturing Company Ltd. in Taiwan, and GLOBALFOUNDRIES in Singapore. If any of our current or future foundry partners significantly interrupts or reduces our waferthird party supply increases wafer costs, or if any of our relationships with ourchain partner suppliers is terminated, our operating results could be adversely affected.
At present, we believe that our supply commitments are adequate. However, these existing supply commitments may not be sufficientwere to discontinue services for us to satisfy customer demand in future periods. Additionally, notwithstanding our supply commitments, we may still have difficulty in obtaining wafer deliveries consistent with the supply commitments. We negotiate wafer prices and supply commitments from our suppliers on at least an annual basis. If any of our foundry partners were to reduceor its supply commitment or increase its wafer prices, and we cannot find alternative sources of wafer supply, our operating results could be adversely affected.
Many other factors that could disrupt our wafer supplyoperations are beyond our control. Since worldwide manufacturing capacity for silicon wafers is limited and inelastic, we could be harmed by significant industry-wide increases in overall wafer demand or interruptions in wafer supply, or periods of increased wafer prices. During periods of economic uncertainty, our foundry partners may reduce or restructure their operations which may also affect the availability and price of wafers, and adversely affect our operating results. Additionally, a future disruption of any of our foundry partners’ foundry operationsdisrupted as a result of a fire, earthquake, act of terrorism, political unrest, governmental uncertainty, war, disease or other natural disaster or catastrophic event, could disruptor any other reason, our wafer supplyability to fulfill direct sales orders and distribute inventory timely, cost effectively, or at all, would be hindered, which could adversely affect our operatingbusiness.
We rely on independent software and hardware developers and disruption of these services could negatively affect our operations and financial results.
OurWe rely on independent software and hardware developers for the design, development, supply and support of assembledintellectual property cores, design and testeddevelopment software, and certain elements of evaluation boards. As a result, failure or significant delay to complete software or deliver hardware in accordance with our plans and agreements could disrupt the release of or introduction of new or existing products, all fromwhich might be detrimental to the Asia Pacific region, could be interrupted, could experience increased costs or could be reduced, which may result in a shortage of products available for sale or increased costs.
We do not assemble our finished products or perform all testingcapability of our products. Our finished silicon wafers are assembled and tested by independent contractors located in Indonesia, Malaysia, the Philippines, Singapore and South Korea. Economic, financial, social and political conditions in Asia have historically been volatile. Financial difficulties, the effects of currency fluctuation, governmental actions or restrictions, prolonged work stoppages, political unrest, war, natural disaster, cost of convertingnew products to more copper content, cost of assembly materials such as gold and copper, disease or any other difficulties experienced by our suppliers may disrupt our supply and could adversely affect our operating results. In addition, certain provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act may soon require us to report on “conflict materials” used in our products and the due diligence plan we put in place to track whether such minerals originate from the Democratic Republic of Congo and adjoining countries. The implementationwin designs. Any of these requirementsdelays or inability to complete the design or development could affect the sourcing and availability of minerals used in certain of our products.
In the past, we have experienced delays in obtaining assembled and tested products and in securing assembly and test capacity commitments from our suppliers. At present, we anticipate that our assembly and test capacity commitments are adequate; however, these existing commitments may not be sufficient for us to satisfy customer demand in future periods. Additionally, notwithstanding our assembly and test capacity commitments, we may still have difficulty in obtaining deliveries of finished products consistent with the capacity commitments. We negotiate assembly and test prices and capacity commitments from our contractors on a periodic basis. If any of our assembly or test contractors were to reduce its capacity commitment or increase its prices, and we cannot find alternative sources, our operating results could be adversely affected.
Many other factors that could disrupt our supply of finished products are beyond our control. Because worldwide capacity for assembly and testing of semiconductor products is limited and inelastic, we could be harmed by significant industry-wide increases in overall demand or interruptions in supply. The assembly of complex packages requires a consistent supply of a variety of raw materials such as substrates, lead frames, gold, copper and mold compound. A significant industry-wide increase in demand, or interruptions in the supply of these materials to our assembly or test contractors, could adversely affect our operating results. Additionally, a future disruption of any of our assembly or test contractors’ operations as a result of a fire, earthquake, flooding, act of terrorism, political unrest, governmental uncertainty, war, disease or other natural disaster or catastrophic event could disrupt our supply of assembled and tested devices and could adversely affect our operating results.
In addition, our quarterly revenue levels may be affected to a significant extent by our ability to match inventory and current production mix with the product mix required to fulfill orders. The large number of individual parts we sell and the large number of customers for our products, combined with limitationsan adverse effect on our and our customers’ ability to forecast orders accurately and our relatively lengthy manufacturing cycles, may make it difficult to achieve a match of inventory on hand, production units, and shippable orders sufficient to realize quarterlybusiness, financial condition, or annual revenue projections.operating results.
We rely on information technology systems, to manage our business. Failureand failure of these systems to function properly or our failure to control unauthorized access to our systems may cause operating or reportingbusiness disruptions. The failure of these systems to function properly could result in business disruption.
We rely in part on various information technology ("IT") systems to manage our operations, including financial reporting, and we regularly make changes to improve them as necessary. Consequently, we periodically implement new, or upgrade or enhance existing, operational and IT systems, procedures and controls. Any delay in the implementation of, or disruption in the transition to, new or enhanced systems, procedures or controls, could harm our ability to record and report financial and management information on a timely and accurate basis. These systems are also subject to power and telecommunication outages or other general system failures. Failure of our IT systems or difficulties in managing them could result in excessive cost or business disruption. While we have not yet experienced any significant disruptionsWe may also be subject to unauthorized access to our business,IT systems through a security breach or attack. In the past third parties have attempted to penetrate and or infect our network and systems with malicious software in an effort to gain access to our network and systems. We seek to prevent, detect and investigate any security incidents and prevent their recurrence, but in some cases, we may encounter some unexpected aspects of the conversion, outsourcing, or new systems implementations that cause difficulty in the new reporting system which could adversely affect our business, results of operations and cash flows.
Our legal organizational structure is complex, which could result in unanticipated unfavorable tax or other consequences including our ability to maintain or forecast a competitive corporate tax rate, which could have an adverse effect on our financial condition and results of operations.
On December 31, 2011, we began to implement a global tax structure to more effectively align our corporate structure and transaction flows with our geographic business operations including responsibility for sales and purchasing activities. We have numerous sales offices in foreign locations, operational centers in the Philippines and Singapore, and research and development sites in China, India and the Philippines. Revenues from foreign regions account for over 80% of all revenue. In addition, the large majority of our suppliers are located in the Asia Pacific region. Based on these factors we have created new and realigned existing legal entities, intercompany sales of rights to intellectual property, inventory and fixed assets across different tax jurisdictions, and implemented cost-sharing and intellectual property licensing and royalty agreements between
our U.S. and low cost tax jurisdictions. We currently operate legal entities in countries where we conduct manufacturing, design, and sales operations around the world. In some countries, we maintain multiple entities for tax or other purposes. Changes in tax laws, regulations, and related interpretations in the countries in which we operate may impact the taxes we pay or tax provision we record, which could adversely affect our results of operations.
We cannot give any assurance as to what taxes we pay or the ability to estimate our future effective tax rate because of, among other things, uncertainty regarding the tax policies of the jurisdictions where we operate. As a result, our actual effective tax rate, or taxes paid may vary materially from our expectations. Changes in tax laws, regulations, and related interpretations in the countries in which we operate may have an adverse effect on our business, financial condition or operating results.
If our independent software and hardware developers and suppliers are unable or unwilling to meet our contractual requirements, we may face a delay in the introduction of new products, a shortage of new or existing products, or a lack of support for new or existing products.
We rely on independent software and hardware developers for the design, development, supply and support of intellectual property cores, design and development software, and certain elements of evaluation boards. As a result, failure or significant delay to complete software or hardware under contract to deliver could disrupt the release of or introduction of new or existing products, which might be detrimental to the capabilityunaware of our new products to win designs. Any of these delaysan incident or inability to complete the design or developmentits magnitude and effects. Our business could have an adverse effect on our business, financial condition, or operating results.
We depend upon a third party to provide inventory management, order fulfillment,be significantly harmed and direct sales logistics.
We rely on a third party vendor located in Singapore to provide cost-effective and efficient supply chain services. Among other activities, these outsourced services relate to direct sales logistics, including order fulfillment, inventory management and warehousing, and distribution of inventorywe could be subject to third party distributors. If our third party supply chain partner were to discontinue services for us or its operations are disrupted as a result of a fire, earthquake, act of terrorism, political unrest, governmental uncertainty, war, disease or other natural disaster or catastrophic event, our ability to fulfill direct sales orders and distribute inventory timely, cost effectively, or at all, would be hindered, which could adversely affect our business.
Uncertainties involving the ordering and shipment of our products could materially adversely affect us.
We typically sell our products pursuant to individual purchase orders. We generally do not have long-term supply arrangements with our customers or minimum purchase requirements except that orders generally must be for standard pack quantities. Generally, our customers may cancel orders more than 30 days prior to shipment without incurring significant fees. We base our inventory levels on customers' estimates of demand for their products, which may not accurately predict the quantity or type of our products that our customers will wantclaims in the future or ultimately end up purchasing. Our ability to forecast demand is even further complicated when we sell indirectly through distributors, as our forecasts for demand are then based on estimates provided by multiple parties. Moreover, consumer end-markets are characterized by short product lifecycles, which can lead to rapid obsolescence and price erosion. In addition, our customers may change their inventory practices on short notice for any reason. We may build inventories during periodsevent of anticipated growth, and the cancellation or deferral of product orders or overproduction due to failure of anticipated orders to materialize, could result in excess or obsolete inventory, which could result in write-downs of inventory and an adverse effect on gross margins. Factors that may result in excess or obsolete inventory, which could result in write-downs of the value of our inventory,such a reduction in the average selling price, and/or a reduction in our gross margin include:
a sudden and significant decrease in demand for our products;
a higher incidence of inventory obsolescence because of rapidly changing technology and customer requirements;
a failure to accurately estimate customer demand for our older products as our new products are introduced.
Because market conditions are uncertain, these and other factors could materially adversely affect our business.security breach.
We may have failed to adequately insure against certain risks, and, as a result, our financial condition and results may be adversely affected.
We carry insurance customary for companies in our industry, including, but not limited to, liability, property and casualty, worker's compensation and business interruption insurance. We also insure our employees for basic medical expenses. In
addition, we have insurance contracts that provide director and officer liability coverage for our directors and officers. Other than the specific areas mentioned above, we are self-insured with respect to most other risks and exposures, and the insurance we carry in many cases is subject to a significant policy deductible or other limitation before coverage applies. Based on management's assessment and judgment, we have determined that it is more cost effective to self-insure against certain risks than to incur the insurance premium costs. The risks and exposures for which we self-insure include, but are not limited to, natural disasters, product defects, political risk, theft, patent infringement and some employment practice matters. Should there be a catastrophic loss due to an uninsured event such as an earthquake or a loss due to adverse occurrences in any area in which we are self-insured, our financial condition or operating results could be adversely affected.
We may experience a disruption of our business activities related to the execution of our restructuring plans.
On October 12, 2012, the Board of Directors of the Company adopted a 2012 restructuring plan. In connection with this restructuring plan, the Company reduced and eliminated certain sites. The 2012 restructuring plan is expected to be substantially completed in the first quarter of 2013.
Our restructuring will result in fewer employees and relocation of some of our workforce, among other things. This could cause a disruption in our operations, inhibit our ability to attract and retain key personnel, and delay the introduction and customer acceptance of our new products. If this occurs, or we are unable to realize the benefits of this or future restructuring plans, our results may be adversely affected.
We compete with others to attract and retain key personnel, and any loss of, or inability to attract, such personnel would harm us.
We depend on the efforts and abilities of certain key members of management and other technical personnel. Our future success depends, in part, upon our ability to retain such personnel and attract and retain other highly qualified personnel, particularly product engineers. Competition for such personnel is intense and we may not be successful in hiring or retaining new or existing qualified personnel. From time to time we have effected restructuring which eliminate a number of positions. Even if such personnel are not directly affected by the restructuring effort, such terminations can have a negative impact on morale and our ability to attract and hire new qualified personnel in the future. If we lose existing qualified personnel or are unable to hire new qualified personnel, as needed, our business, financial condition and results of operations could be seriously harmed.
Acquisitions and strategic investments present risks, and we may not realize the goals that were contemplated at the time of a transaction.
We have recently acquired technology companies whose products complement our products, and in the past we have made a number of strategic investments in other technology companies whom we believe complement and improve our operational capabilities. We may make similar acquisitions and strategic investments in the future. Acquisitions and strategic investments present risks, including:
our ongoing business may be disrupted and our management's attention may be diverted by investment, acquisition, transition or integration activities;
an acquisition or strategic investment may not further our business strategy as we expected, and we may not integrate an acquired company or technology as successfully as we expected;
our operating results or financial condition may be adversely impacted by unexpected costs, claims or liabilities that we assume from an acquired company or technology or that are otherwise related to an acquisition;
we may have difficulty incorporating acquired technologies or products with our existing product lines;
we may have higher than anticipated costs in continuing support and development of acquired products, in general and administrative functions that support such products;
we may have difficulty integrating and retaining key personnel;
our liquidity and/or capital structure may be adversely impacted;
our strategic investments may not perform as expected; and
we may experience unexpected changes in how we are required to account for our acquisitions and strategic investments pursuant to U.S. GAAP.
The occurrence of any of these risks could have a material adverse effect on our business, results of operations, financial condition or cash flows, particularly in the case of a larger acquisition or several concurrent acquisitions or strategic investments.
We cannot guarantee that we will be able to consummate any future acquisitions or that we will realize any anticipated benefits from any of our past or future acquisitions. We may not be able to find suitable acquisition opportunities that are available at attractive valuations, if at all. A sustained decline in the price of our common stock may make it more difficult and expensive to initiate or consummate additional acquisitions on commercially acceptable terms.
As a result of past acquisitions, as of December 29, 2012, we had $44.8 million in goodwill on our balance sheet. We are required under U.S. GAAP to test goodwill for possible impairment on an annual basis and at any other time that circumstances arise indicating the carrying value may not be recoverable. We completed our annual test of goodwill impairment in the fourth quarter of 2012 and concluded that we did not have any impairment at that time. There is no
assurance that future impairment tests will indicate that goodwill will be deemed recoverable.
The conflict minerals provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act could result in additional costs and liabilities.
The Dodd-Frank Wall Street Reform and Consumer Protection Act requires the SEC to establish new disclosure and reporting requirements for those companies who use "conflict" minerals mined from the Democratic Republic of Congo and adjoiningcountries in their products, whether or not these products are manufactured by third parties. When these new requirements are implemented, they could affect the sourcing and availability of minerals used in the manufacture of our semiconductor products. There will also be costs associated with complying with the disclosure requirements, including for due diligence in regard to the sources of any conflict minerals used in our products, in addition to the cost of any required remediation and other changes to products, processes, or sources of supply as a consequence of such verification activities.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Our corporate headquarters consists of land and 189,000 square feet of buildings we own in Hillsboro, Oregon. A portion of undeveloped land near the corporate headquarters is currently owned by the Company and listed for sale. In Shanghai, China, we own an 18,869 square foot research and development facility and lease an additional 6,481 square foot research and development facility. We currently lease a 66,350 square foot research and development facility in San Jose, California through December 2013. We also currentlyIn January 2013, we entered into a lease of a 6,33498,874 square foot research and development facility in Illinois through August 2012,San Jose, California and an 18,114intend to commence operations at that facility during the second quarter of fiscal 2013. In Manila, Philippines, we lease a 17,114 square foot research and development facility in Pennsylvania through September 2014.December 2016, an 8,648 square foot facility through May 2017 and a 2,933 square foot facility through April 2017. In addition, we lease a 4,200 square foot facility in Singapore with a term through February 2013, primarily to support supply chain activities. We lease a 5,296 square foot research and development facility in Bangalore, India with a term through October 2012. In December 2011, we completed a lease agreement for a 17,114 square foot research and development facility in Manila, Philippines with a term lease through December 2016. As the result of our acquisition of SiliconBlue we assumed a lease for 11,863 square feet in Santa Clara, California, which terminates on March 31, 2012.September 2013. We also lease office facilities in multiple metropolitan locations for our domestic and international sales staff. We believe that our existing facilities are suitable and adequate for our current and foreseeable future needs.
Additionally, we leasedlease a 25,000793 square foot research and development facility in Austin, TexasIllinois through December 2011. In December 2005,August 2015, and an 18,114 square foot research and development facility in Pennsylvania through September 2014. As part of our 2012 restructuring plan, we ceased our research and development operations in this location,these locations (see discussion under "Item 7. Management's Discussion and have subleased the Austin facility through the endAnalysis of 2011.Financial Condition and Results of Operations").
Item 3. Legal Proceedings.
On June 11, 2007, a patent infringement lawsuit was filed by Lizy K. John (“John”) against Lattice Semiconductor Corporationthe Company in the U.S. District Court for the Eastern District of Texas, Marshall Division. In the complaint, John seeks an injunction, unspecified damages, and attorneys' fees and expenses. The Company filed a request for re-examination of the patent by the United States Patent and Trademark Office (“PTO”), which was granted by the PTO, and the re-examination has concluded.PTO. The litigation was stayed pending the results of the re-examination. TheAfter the re-examination concluded, the stay was lifted on January 1, 2012 but, and the court has not yet conductedlawsuit was transferred by consent of the parties to the Northern District of California. The Company also filed a scheduling conference or setrequest for a trial date.second re-examination of the patent, which was granted and is still pending. Discovery is on-going. Trial is scheduled for September 22, 2014. At this stage of the proceedings, we do not have an estimate of the likelihood or the amount of any potential exposure to us. The Company believes it possesses defenses to these claims and intends to vigorously defend this litigation.
On December 8, 2010, Intellectual Ventures I LLC and Intellectual Ventures II LLC (“Intellectual Ventures”) filed a patent infringement lawsuit against the Company, Altera Corporation and Microsemi Corporation in the U.S. District Court for the District of Delaware, seeking unspecified damages. AtThe complaint alleged, inter alia, that certain programmable logic devices manufactured by the Company infringe certain United States patents assigned to Intellectual Ventures. In February 2013, the Company entered into a License Agreement with Intellectual Ventures granting the Company a license to a portfolio of patents held by Intellectual Ventures, including those forming the basis for the patent infringement lawsuit, for the field programmable gate array device field of use. As a result of this stageLicense Agreement, the Company and Intellectual Ventures have settled this matter and Intellectual Ventures has agreed to dismiss the action against us. The resolution of the proceedings, we dothis matter did not have an estimatea material adverse effect on our financial position, results of the likelihoodoperation or the amount of any potential exposure to us. The Company believes it possess defenses to these claims and intends to vigorously defend this litigation.cash flows.
We are also exposed to certain other asserted and unasserted potential claims. There can be no assurance that, with respect to potential claims made against us, we could resolve such claims under terms and conditions that would not have a material adverse effect on our business, our liquidity or our financial results. Periodically, we review the status of each significant matter and assess its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and a range of possible losses can be estimated, we then accrue a liability for the estimated loss based on the provisions of Financial Accounting Standards Board Accounting Standards Codification 450, “Contingencies” (“ASC 450”). Legal proceedings are subject to uncertainties, and the outcomes are difficult to predict. Because of such uncertainties, accruals are based only on the best information available at the time. As additional information becomes available, we reassess the potential liability related to pending claims and litigation and may revise estimates. Presently, no accrual has been estimated under ASC 450 for potential losses that may or may not arise from the current lawsuits in which we are involved.
Item 4. Mine Safety Disclosures.Disclosures
Not applicable.
PART IIII.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters & Issuer Purchases of Equity Securities.
Market Information
As of January 1, 2011, ourOur common stock is traded on the NASDAQ Global Select Market under the symbol “LSCC”. For 2010 our stock traded on the NASDAQ Global Market.“LSCC.” The following table sets forth the low and high intraday sale prices for our common stock for the last two fiscal years, as reported by NASDAQ.
| | | | Low | | High | Low | | High |
| 2012: | | | | |
| First Quarter | | $ | 5.92 |
| | $ | 7.12 |
|
| Second Quarter | | 3.49 |
| | 6.60 |
|
| Third Quarter | | 3.17 |
| | 4.53 |
|
| Fourth Quarter | | 3.46 |
| | 4.38 |
|
| 2011: | | | | | | |
| First Quarter | $ | 5.51 |
| | $ | 7.38 |
| $ | 5.51 |
| | $ | 7.38 |
|
| Second Quarter | 5.76 |
| | 7.19 |
| 5.76 |
| | 7.19 |
|
| Third Quarter | 4.70 |
| | 6.79 |
| 4.70 |
| | 6.79 |
|
| Fourth Quarter | 4.84 |
| | 7.18 |
| 4.84 |
| | 7.18 |
|
| 2010: | | | | |
| First Quarter | $ | 2.41 |
| | $ | 3.80 |
| |
| Second Quarter | 3.69 |
| | 5.97 |
| |
| Third Quarter | 4.11 |
| | 6.02 |
| |
| Fourth Quarter | 4.24 |
| | 6.17 |
| |
Holders
As of March 7, 2012,6, 2013, we had approximately 378334 stockholders of record.
Dividends
The payment of dividends on our common stock is within the discretion of our Board of Directors. We intend to retain earnings to finance the growth of our business. We have never paid cash dividends.
Recent Sales of Unregistered Securities (most recent quarter only)
None.
Issuer Purchases of Equity Securities (most recent quarter only)
| | | Period | Total Number of Shares Purchased | | Average Price paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Program | | Maximum Dollar Value of Shares That May Yet Be Purchased Under the Program | Total Number of Shares Purchased | | Average Price paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Program | | Maximum Dollar Value of Shares That May Yet Be Purchased Under the Program |
| October 2, 2011 through October 28, 2011 | 288,300 |
| | $ | 5.71 |
| | 288,300 |
| | $ | — |
| |
| September 30, 2012 through October 27, 2012 | | 438,000 |
| | $ | 3.68 |
| | 438,000 |
| | $ | 6,018,604 |
|
| October 28, 2012 through November 24, 2012 | | 366,000 |
| | $ | 3.89 |
| | 366,000 |
| | $ | 4,587,973 |
|
| November 25, 2012 through December 29, 2012 | | 537,300 |
| | $ | 3.96 |
| | 537,300 |
| | $ | 2,452,221 |
|
| | 1,341,300 |
| | $ | 3.85 |
| | 1,341,300 |
| | |
On February 24, 2012, the Company's Board of Directors approved a stock repurchase program pursuant to which up to $20.0 million of outstanding common stock may be repurchased from time to time. The duration of the repurchase program is twelve months. In connection withDuring the fourth quarter of fiscal 2012, approximately 1.3 million shares were repurchased for $5.2 million. During fiscal 2012, approximately 4.1 million shares were repurchased at $17.5 million. At December 29, 2012, we have approximately $2.5 million remaining under the approved program. All shares repurchased under this stock repurchase program the Company entered into a 10b5-1 plan.were retired by December 29, 2012. All repurchases have been and will be open market transactions and funded from available working capital. The program ended by its terms in February 2013.
On October 21, 2010, the Company's Board of Directors approved a stock repurchase program pursuant to which up to $20.0 million of outstanding common stock could have been repurchased. The duration of the repurchase program was twelve months from adoption. In connection with this stock repurchase program, the Company entered into a 10b5-1 plan. During fiscal 2011, approximately 2.4 million shares were repurchased for $14.2 million. During fiscal 2010, approximately 0.4
million shares were repurchased for $2.0 million. All shares repurchased under this program were retired by December 31, 2011. All repurchases were open market transactions and were funded from available working capital. The program ended by its terms in October 2011.
On December 13, 2008, our Board of Directors approved a stock repurchase program pursuant to which up to $20.0 million of outstanding common stock could have been repurchased. In connection with the stock repurchase program, we entered into a 10b5-1 plan. The duration of the repurchase program was twelve months from adoption, and expired on December 13, 2009. During fiscal 2009, approximately 263,000 shares were repurchased for $0.3 million, all of which were open market transactions and were funded from available working capital. All shares repurchased under this program were retired in 2010.
Comparison of Total Cumulative Stockholder Return
The following graph shows the five-year comparison of cumulative stockholder return on our common stock, the Standard and Poor's (“S&P”) 500 Index and the Philadelphia Semiconductor Index (“PHLX”) from December 20062007 through December 20112012. Cumulative stockholder return assumes $100 invested at the beginning of the period in our common stock, the S&P and PHLX. Historical stock price performance is not necessarily indicative of future stock price performance.
Lattice Cumulative Stockholder Return
Item 6. Selected Financial Data.
| | | | Year Ended | Year Ended |
| | December 31,
2011 | | January 1,
2011 | | January 2,
2010 | | January 3,
2009 | | December 29,
2007 | December 29,
2012 | | December 31,
2011 | | January 1,
2011 | | January 2,
2010 | | January 3,
2009 |
| | (in thousands, except per share data) | (in thousands, except per share data) |
| STATEMENT OF OPERATIONS DATA: | | | | | | | | | | | | | | | | | | |
| Revenue | $ | 318,366 |
| | $ | 297,768 |
| | $ | 194,420 |
| | $ | 222,262 |
| | $ | 228,709 |
| $ | 279,256 |
| | $ | 318,366 |
| | $ | 297,768 |
| | $ | 194,420 |
| | $ | 222,262 |
|
| Costs and expenses: | | | | | | | | | | | | | | | | | | |
| Cost of products sold | 129,769 |
| | 117,943 |
| | 90,077 |
| | 102,831 |
| | 103,157 |
| 128,499 |
| | 129,769 |
| | 117,943 |
| | 90,077 |
| | 102,831 |
|
| Research and development | 71,855 |
| | 60,326 |
| | 56,133 |
| | 68,610 |
| | 82,977 |
| 77,610 |
| | 71,855 |
| | 60,326 |
| | 56,133 |
| | 68,610 |
|
| Selling, general and administrative | 68,838 |
| | 64,359 |
| | 52,545 |
| | 58,680 |
| | 58,485 |
| 72,317 |
| | 68,838 |
| | 64,359 |
| | 52,545 |
| | 58,680 |
|
| Impairment loss on goodwill (1) | — |
| | — |
| | — |
| | — |
| | 223,556 |
| |
| Acquisition related and Amortization of intangible assets | 536 |
| | — |
| | 228 |
| | 5,587 |
| | 9,832 |
| 4,178 |
| | 536 |
| | — |
| | 228 |
| | 5,587 |
|
| Restructuring charges | 6,079 |
| | 11 |
| | 3,689 |
| | 6,789 |
| | 2,372 |
| 6,018 |
| | 6,079 |
| | 11 |
| | 3,689 |
| | 6,789 |
|
| | 277,077 |
| | 242,639 |
| | 202,672 |
| | 242,497 |
| | 480,379 |
| 288,622 |
| | 277,077 |
| | 242,639 |
| | 202,672 |
| | 242,497 |
|
| | | | | |
| | | | | |
| Income (loss) from operations | 41,289 |
| | 55,129 |
| | (8,252 | ) | | (20,235 | ) | | (251,670 | ) | |
| (Loss) income from operations | | (9,366 | ) | | 41,289 |
| | 55,129 |
| | (8,252 | ) | | (20,235 | ) |
| Other income (expense), net | 1,434 |
| | 2,474 |
| | 1,812 |
| | (17,791 | ) | | 12,540 |
| 505 |
| | 1,434 |
| | 2,474 |
| | 1,812 |
| | (17,791 | ) |
| Income (loss) before income taxes | 42,723 |
| | 57,603 |
| | (6,440 | ) | | (38,026 | ) | | (239,130 | ) | |
| Benefit (provision) for income taxes (2) | 35,509 |
| | (531 | ) | | (517 | ) | | (180 | ) | | (686 | ) | |
| Net income (loss) | $ | 78,232 |
| | $ | 57,072 |
| | $ | (6,957 | ) | | $ | (38,206 | ) | | $ | (239,816 | ) | |
| Basic net income (loss) per share | $ | 0.66 |
| | $ | 0.49 |
| | $ | (0.06 | ) | | $ | (0.33 | ) | | $ | (2.09 | ) | |
| Diluted net income (loss) per share | $ | 0.65 |
| | $ | 0.48 |
| | $ | (0.06 | ) | | $ | (0.33 | ) | | $ | (2.09 | ) | |
| (Loss) income before income taxes | | (8,861 | ) | | 42,723 |
| | 57,603 |
| | (6,440 | ) | | (38,026 | ) |
| (Provision) benefit for income taxes | | (20,745 | ) | | 35,509 |
| | (531 | ) | | (517 | ) | | (180 | ) |
| Net (loss) income | | $ | (29,606 | ) | | $ | 78,232 |
| | $ | 57,072 |
| | $ | (6,957 | ) | | $ | (38,206 | ) |
| Basic net (loss) income per share | | $ | (0.25 | ) | | $ | 0.66 |
| | $ | 0.49 |
| | $ | (0.06 | ) | | $ | (0.33 | ) |
| Diluted net (loss) income per share | | $ | (0.25 | ) | | $ | 0.65 |
| | $ | 0.48 |
| | $ | (0.06 | ) | | $ | (0.33 | ) |
| Shares used in per share calculations: | | | | | | | | | | | | | | | | | | |
| Basic | 117,875 |
| | 116,726 |
| | 115,384 |
| | 115,291 |
| | 114,915 |
| 117,194 |
| | 117,875 |
| | 116,726 |
| | 115,384 |
| | 115,291 |
|
| Diluted | 121,139 |
| | 120,143 |
| | 115,384 |
| | 115,291 |
| | 114,915 |
| 117,194 |
| | 121,139 |
| | 120,143 |
| | 115,384 |
| | 115,291 |
|
| | | | | | | | | | | | | | | | | | | |
| | At | At |
| | December 31,
2011 | | January 1,
2011 | | January 2,
2010 | | January 3,
2009 | | December 29,
2007 | December 29,
2012 | | December 31,
2011 | | January 1,
2011 | | January 2,
2010 | | January 3,
2009 |
| | (in thousands) | (in thousands) |
| BALANCE SHEET DATA: | | | | | | | | | | | | | | | | | | |
| Cash, cash equivalents and Short-term marketable securities | $ | 210,134 |
| | $ | 238,220 |
| | $ | 164,540 |
| | $ | 65,909 |
| | $ | 85,063 |
| $ | 183,401 |
| | $ | 210,134 |
| | $ | 238,220 |
| | $ | 164,540 |
| | $ | 65,909 |
|
| Total assets | $ | 467,924 |
| | $ | 377,687 |
| | $ | 296,557 |
| | $ | 291,936 |
| | $ | 376,285 |
| $ | 428,759 |
| | $ | 467,924 |
| | $ | 377,687 |
| | $ | 296,557 |
| | $ | 291,936 |
|
| Convertible notes | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 40,000 |
| |
| Total liabilities | | $ | 71,209 |
| | $ | 74,363 |
| | $ | 58,965 |
| | $ | 43,197 |
| | $ | 36,997 |
|
| Stockholders' equity | $ | 393,561 |
| | $ | 318,722 |
| | $ | 253,360 |
| | $ | 254,939 |
| | $ | 286,232 |
| $ | 357,550 |
| | $ | 393,561 |
| | $ | 318,722 |
| | $ | 253,360 |
| | $ | 254,939 |
|
_______________
(1) At December 29, 2007, the estimated fair value of the Company was below book value. Therefore, the Company performed an impairment test on goodwill in accordance with ASC 350. We calculated the impairment loss based on an allocation of the fair value of the Company's equity to the fair value of the Company's assets and liabilities in a manner similar to a purchase price allocation in a business combination. Fair value was based on two primary valuation methodologies: the income approach, which used the discounted cash flow method, and the market approach, which used the market capitalization method. In the allocation, goodwill was determined to have no implied fair value, and, as a result, goodwill related to the acquisition of Vantis Corporation on June 15, 1999, the acquisition of Integrated Intellectual Properties, Inc. on March 16, 2001, and the acquisition of the FPGA business of Agere Systems, Inc. on January 18, 2002 totaling $223.6 million was written off and recorded as an Impairment loss on goodwill. As a result, we no longer have goodwill related to these acquisitions recorded on our Consolidated Balance Sheets.
(2) On December 31, 2011, we began to implement a global tax structure to more effectively align the Company's
corporate structure and transaction flows with the Company's geographic business operations including responsibility for sales and purchasing activities. We have numerous sales offices in foreign locations, operational centers in the Philippines and Singapore, and research and development sites in China, India and the Philippines. Revenues from non-Domestic regions account for over 80% of all revenue. In addition, the large majority of our suppliers are located in the Asia Pacific region. Based on these factors we have created new and realigned existing legal entities, intercompany sales of rights to intellectual property, inventory and fixed assets across different tax jurisdictions, and implemented cost-sharing and intellectual property licensing and royalty agreements between our U.S. and low cost tax jurisdictions. These actions created a gain for tax purposes, for which we recorded a $76.8 million tax provision in the fourth quarter of fiscal 2011. This provision was fully offset by the release of valuation allowance on deferred tax assets of $76.8 million recorded as a tax benefit during the fourth quarter of fiscal 2011. We expect that the global tax structure will be completed during the first quarter of 2012 upon the intercompany sale of inventory and fixed assets, and we expect to record approximately $9.7 million in additional income tax provision during the first quarter of fiscal 2012.
During the fourth quarter of 2011, we also concluded that it was more likely than not that we would be able to realize the benefit of a portion of our remaining deferred tax assets. We based this conclusion on improved operating results over the past two years and our expectations about generating taxable income in the foreseeable future including the implementation of a global tax structure discussed above. Based on our assessment regarding the potential to realize deferred tax assets, we reversed additional valuation allowance, which when offset by the provision recorded related to our new global tax structure, resulted in an income tax benefit of $35.2 million. We exercised significant judgment and considered estimates about our ability to generate revenues, gross profits, operating income and taxable income in future periods under our new tax structure in reaching this decision.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
| |
| ITEM 7. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Overview
Lattice Semiconductor Corporation (“Lattice”Lattice,” the “Company,” "we," "us," or the “Company”"our") designs, develops and markets high performance programmable logic products and related software. Programmable logic products are widely used semiconductor components that can be configured by end customers as specific logic circuits, enabling shorter design cycle times and reduced development costs. Our end customers are primarily original equipment manufacturers (“OEMs”) in the communications, computing,industrial and other, consumer industrial, military, automotive, and medicalcomputing end markets. Within the programmable logic market there are two groups of products - programmable logic devices (“PLD”) and field programmable gate arrays (“FPGA”) - each representing a distinct silicon architectural approach. Products based on the two alternative programmable logic architectures are generally optimal for different types of logic functions, although many logic functions can be implemented using either architecture. We believe that a substantial portion of programmable logic customers utilize both PLD and FPGA architectures.
Critical Accounting Policies and Estimates
Critical accounting policies are those that are both most important to the portrayal of a company's financial condition and results and require management's most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. A description of our critical accounting policies follows.
Use of Estimates. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and classification of assets, such as marketable securities, accounts receivable, inventory, auction rate securities, goodwill (including the assessment of reporting unit), intangible assets, long-lived assets, current and deferred income taxes, and liabilities, such as accrued liabilities (including restructuring charges and bonus arrangements), income taxes and deferred income and allowances on sales to sell-through distributors, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the fiscal periods presented.statements. Actual results could differ from those estimates.
Revenue Recognition and Deferred Income. Revenue from sales to customers is recognized upon shipment, or in the case of sales by our sell-through distributors, at the time of reported resale, provided that persuasive evidence of an arrangement exists, the price is fixed or determinable, title has transferred, collection of resulting receivables is reasonably assured, there are no customer remaining acceptance requirements and no remaining significant obligations. We sell our products directly to end customers or through a network of independent manufacturers' representatives and indirectly through a network of independent sell-in and sell-through distributors. Distributors provide us periodic data regarding the product, price, quantity, and end customer when products are resold, as well as the quantities of our products they still have in stock. We must use estimates
Revenue from sales to original equipment manufacturers (“OEMs”) or sell-in distributors is recognized upon shipment. Revenue from sales by our sell-through distributors is recognized at the time of reported resale. Under both types of revenue recognition, persuasive evidence of an arrangement exists, the price is fixed or determinable, title has transferred, collection of resulting receivables is reasonably assured, there are no remaining customer acceptance requirements and apply judgment to reconcileno remaining significant performance obligations.
Orders from our sell-through distributors' reported inventories to their activities. Any error in our judgment could lead to inaccurate reportingdistributors are initially recorded at published list prices; however, for a majority of our Revenue, Costsales, the final selling price is determined at the time of resale and in accordance with a distributor price agreement. In certain circumstances, we allow sell-through distributors to return unsold products. At times, we protect our sell-through distributors against reductions in published list prices. For these reasons, we do not recognize revenue until products sold,are resold by sell-through distributors to an end customer.
For sell-through distributors, at the time of shipment to distributors, we (a) record Accounts receivable, net at published list price since there is a legally enforceable obligation from the distributor to pay us currently for product delivered, (b) relieve inventory for the carrying value of goods shipped since legal title has passed to the distributor, and (c) record deferred revenue and deferred cost of sales in Deferred income and allowances on sales to sell-through distributors and Net income (loss).
Atin the timeliability section of shipment to a sell-through distributor we invoice at published list price.our consolidated balance sheets. The final price is set at the time of resale and is determined in accordance with a distributor price agreement. Invoices are recorded in Accounts receivable, net with a corresponding credit to Deferred income and allowances on sales to sell-though distributors and inventory is credited from Inventories with a corresponding charge to Deferred income and allowances on sales to sell-through distributors. At the time of shipment to a sell-through distributor amounts are invoiced at published list price. The final price is set at the time of resale and is determined in accordance with a distributor price agreement. Amounts invoiced are recorded in Accounts receivable, net and inventory is transferred from Inventories to Deferred income and allowances on sales to sell-through distributors. Revenue and cost of products sold 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 products sold are reflected in Net (loss) income (loss).
The componentsWe must use estimates and apply judgment to reconcile sell-through distributors' reported inventories to their activities. Errors in our estimates or judgments could result in inaccurate reporting of our Revenue, Cost of products sold, Deferred income and allowances on sales to sell-through distributors, are presented in the following table (in thousands):
|
| | | | | | | |
| December 31,
2011 | | January 1,
2011 |
| Inventory valued at published list price and held by sell-through distributors with right of return | $ | 40,147 |
| | $ | 50,085 |
|
| Allowance for distributor advances | (23,300 | ) | | (26,830 | ) |
| Deferred cost of sales related to inventory held by sell-through distributors | (6,086 | ) | | (7,563 | ) |
| Total Deferred income and allowances on sales to sell-through distributors | $ | 10,761 |
| | $ | 15,692 |
|
During fiscal 2009, the Company embarked on a program to restructure our distribution channels primarily in the Asia Pacific region, from a sell-in to a sell-through distribution model. As a result, the majority of our revenue in fiscal 2011 and 2010 was from resale of our products by sell-through distributors. Resale of product by sell-through distributors as a percentage of our total revenue was 61%, 56% and 38% in fiscal 2011, 2010 and 2009, respectively.Net (loss) income.
Revenue from software licensing was not material for the periods presented.
Fair Value of Financial Instruments. We invest in various financial instruments including corporate and government bonds, notes, commercial paper and auction rate securities. We value these instruments at their fair value and monitor our portfolio for impairment on a periodic basis. In the event that the carrying value of an investment exceeds its fair value and the decline in value is determined to be other-than-temporary, we record an impairment charge and establish a new carrying value. We assess other-than-temporary impairment of marketable securities in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) ASC 820, “Fair Value Measurements and Disclosures".Disclosures.” The framework under the provisions of ASC 820 establishes three levels of inputs that may be used to measure fair value. Each level of input has different levels of subjectivity and difficulty involved in determining fair value.
Level 1 instruments generally represent quoted prices for identical assets or liabilities in active markets. Therefore, determining fair value for Level 1 instruments generally does not require significant management judgment, and the estimation is not difficult.
Level 2 instruments include inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices for identical instruments in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 instruments include unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. TheOur auction rate securities are classified as Level 3 instruments. Management uses a combination of the market and income approach to derive the fair value of auction rate securities, which include third party valuation results, investment broker provided market information and available information on the credit quality of the underlying collateral. As a result, the determination of fair value for Level 3 instruments requires the mostsignificant management judgment and subjectivity. Our Level 3 instruments are classified as Long-term marketable securities on our Condensed Consolidated Balance Sheets and are entirely made up of auction rate securities that consist of student loan asset-backed notes. Such loans are insured by the federal government or guaranteed by the Federal Family Educational Loan Program ("FFELP"). Fair value measurement may be sensitive to various unobservable inputs such as the ability of students to repay their loans, or change in the provision of government guarantees policy toward guaranteeing loan repayment. If students are unable to pay back their loans or the government changes its policy, our investments may be further impaired.
Inventory. Inventories are recorded at the lower of actual cost (approximated by standard cost) determined on a first-in-first-out basis or market. We establish provisions for inventory if it is obsolete or we hold quantities which are in excess of projected customer demand, and thedemand. The creation of such provisions results in a write-down of inventory to net realizable value and a charge to cost of sales.
ImpairmentAsset Impairments.Long-lived assets, including amortizable intangible assets, are carried on our financial statements based on their cost less accumulated depreciation or amortization. We monitor the carrying value of Long-Lived Assets and Intangible Assets. We review our long-lived assets primarily propertyfor potential impairment and equipment and amortizable intangible assets, in accordance with ASC 360, “Property, Plant and Equipment", which requires us to reviewtest the impairmentrecoverability of long-livedsuch assets whenever events or changes in circumstances indicate that thetheir carrying amount of an assetamounts may not be recoverable. Impairment is determinedThese events or changes in circumstances, including management decisions pertaining to such assets, are referred to as impairment indicators. If an impairment indicator occurs, we perform a test of recoverability by comparing the estimatedcarrying value of the asset group to its undiscounted expected future cash flows. If the carrying values are in excess of undiscounted expected future cash flows, we measure any impairment by comparing the fair value of the asset group to its carrying value. Fair value is generally determined by considering (i) internally developed discounted projected cash flow analysis of the carrying amount. A lossasset group; (ii) actual third-party valuations; and/or (iii) information available regarding the current market for similar asset groups. If the fair value of the asset group is recorded ifdetermined to be less than the carrying amount of the asset exceedsgroup, an impairment in the estimated undiscountedamount of the difference is recorded in the period that the impairment indicator occurs and is included in our Consolidated Statement of Operations and Comprehensive (Loss) Income. Estimating future cash flowflows requires significant judgment and projections may vary from the cash flows eventually realized, which could impact our ability to accurately assess whether an asset has been impaired. No impairment charges were recorded for the difference between carrying value and fair value.fiscal year ended 2012.
Valuation of Goodwill. Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. We review goodwill for impairment annually during the fourth quarter and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. TheWhen evaluating whether goodwill impairment test is impaired, the Company makes a two-step test. Underqualitative assessment to determine if it is more likely than not that its fair value is less than its carrying amount. If the first step,qualitative assessment determines that it is more likely than not that its fair value is less than its carrying amount, the fair value of the reporting unit is compared with its carrying value (including goodwill). If the fair value of the reporting unit is less than its carrying value, an indication of goodwill impairment exists for the reporting unit and the entityCompany must perform step two ofmeasure the impairment test (measurement). Under step two, anloss. The impairment loss, if any, is recognized for any excess of the carrying amount of the reporting unit's goodwill over the implied fair value of that the
goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation and the residual fair value after this allocation is the implied fair value of the reporting unit goodwill. Fair value of the reporting unit is determined using a
discounted cash flow analysis. If the fair value of the reporting unit exceeds its carrying value, step two does not need to be performed.no further impairment analysis is needed. For purposes of testing goodwill for impairment, we operatethe Company operates as a single reporting unit. No goodwill impairment charges relating to goodwill waswere recorded for the fiscal year ended 2011.2012.
Restructuring Charges. Expenses associated with exit or disposal activities are recognized when incurred under ASC 420, “Exit or Disposal Cost Obligations,Obligations.” for everything but severance. BecauseHowever, because we have a history of paying severance benefits, the cost of severance benefits associated with a restructuring charge is recorded when such costs are probable and the amount can be reasonably estimated in accordance with ASC 712, “Compensation - Nonretirement Postemployment Benefits.” ForWhen leased facilities that are vacated, an amount equal to the total future lease obligations from the date of vacating the premises through the expiration of the lease, net of any futureestimated sublease income, is recorded as a part of restructuring charges.
Accounting for Income Taxes. Our provision for income tax is comprised of our current tax liability and changechanges in deferred tax assets and liabilities. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements using enacted tax rates and laws that will be in effect when the difference is expected to reverse. Valuation allowances are provided to reduce deferred tax assets to an amount that in management’s judgment is more likely than notmore-likely-than-not to be recoverable against future taxable income. At December 29, 2012, U.S. income taxes and foreign withholding taxes were not provided for on a cumulative total of approximately $1.6$2.0 million of the undistributed earnings of our Chinese subsidiary. We intend to reinvest these earnings indefinitely in our Chinese subsidiary.indefinitely. If these earnings were distributed to the U.S. in the form of dividends or otherwise, we would be subject to additional U.S. income taxes and foreign withholding taxes.
Our income tax calculations are based on application of the respective U.S. federal, state or foreign tax law. The Company’s tax filings, however, are subject to audit by the relevant tax authorities. Accordingly, we recognize tax liabilities based upon itsour estimate of whether, and the extent to which, additional taxes will be due when such estimates are more-likely-than-not to be sustained. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. To the extent the final tax liabilities are different than the amounts originally accrued, the increases or decreases are recorded as income tax expense or benefit in the consolidated statementsConsolidated Statements of operations.Operations and Comprehensive (Loss) Income.
In assessing the realizability of deferred tax assets, we evaluate both positive and negative evidence that may exist and considersconsider whether it is more likely than notmore-likely-than-not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.
Any adjustment to the net deferred tax asset valuation allowance is recorded in the consolidated statementConsolidated Statements of operations forOperations and Comprehensive (Loss) Income in the period that the adjustment is determined to be required.
Stock-Based Compensation. We use the Black-Scholes option pricing model to estimate the fair value of substantially all share-based awards consistent with the provisions of ASC 718.718, “Compensation - Stock Compensation.” Option pricing models, including the Black-Scholes model, also require the use of input assumptions, including expected volatility, expected term, expected dividend rate, and expected risk-free rate of return. The assumptions for expected volatility and expected term are the two assumptions thatmost significantly affect the grant date fair value.
Restricted stock unit grants are part of the Company's equity compensation practices for employees who receive equity grants. The restricted stock units granted to employees generally vest quarterly over a four-year period beginning on the grant date.
Results of operations
Key elements of our Consolidated Statements of Operations and Comprehensive (Loss) Income were as follows (dollars in thousands):
| | | | Year Ended | Year Ended |
| | December 31, 2011 | | January 1, 2011 | | January 2, 2010 | December 29, 2012 | | December 31, 2011 | | January 1, 2011 |
| Revenue | $ | 318,366 |
| | 100.0 | % | | $ | 297,768 |
| | 100.0 | % | | $ | 194,420 |
| | 100.0 | % | $ | 279,256 |
| | 100.0 | % | | $ | 318,366 |
| | 100.0 | % | | $ | 297,768 |
| | 100.0 | % |
| | | | | | | | | | | | | |
| Gross margin | 188,597 |
| | 59.2 |
| | 179,825 |
| | 60.4 |
| | 104,343 |
| | 53.7 |
| 150,757 |
| | 54.0 |
| | 188,597 |
| | 59.2 |
| | 179,825 |
| | 60.4 |
|
| Research and development | 71,855 |
| | 22.5 |
| | 60,326 |
| | 20.3 |
| | 56,133 |
| | 28.9 |
| 77,610 |
| | 27.8 |
| | 71,855 |
| | 22.6 |
| | 60,326 |
| | 20.3 |
|
| Selling, general and administrative | 68,838 |
| | 21.6 |
| | 64,359 |
| | 21.6 |
| | 52,545 |
| | 27.0 |
| 72,317 |
| | 25.9 |
| | 68,838 |
| | 21.6 |
| | 64,359 |
| | 21.6 |
|
| Acquisition related charges | 536 |
| | 0.2 |
| | — |
| | — |
| | 228 |
| | 0.1 |
| 4,178 |
| | 1.5 |
| | 536 |
| | 0.2 |
| | — |
| | — |
|
| Restructuring charges | 6,079 |
| | 1.9 |
| | 11 |
| | — |
| | 3,689 |
| | 1.9 |
| 6,018 |
| | 2.2 |
| | 6,079 |
| | 1.9 |
| | 11 |
| | — |
|
| Income (loss) from operations | $ | 41,289 |
| | 13.0 | % | | $ | 55,129 |
| | 18.5 | % | | $ | (8,252 | ) | | (4.2 | )% | |
| (Loss) income from operations | | $ | (9,366 | ) | | (3.4 | )% | | $ | 41,289 |
| | 13.0 | % | | $ | 55,129 |
| | 18.5 | % |
Revenue
|
| | | | | | | | | | | | | | | | | |
| | | Year Ended | | % Change in |
| | | December 29,
2012 | | December 31,
2011 | | January 1,
2011 | | 2012 | | 2011 |
| Revenue | | $ | 279,256 |
| | $ | 318,366 |
| | $ | 297,768 |
| | (12 | ) | | 7 |
Revenue declined $39 million or 12% in fiscal 2011 increased to $318.4 million as2012 compared to $297.8 million in fiscal 2010, primarily2011 principally due to an increasemacroeconomic weakness affecting the Communications and Computing end markets and declines in revenue from New products. Revenue in fiscal 2010 increased to $297.8 million as compared to $194.4 million in fiscal 2009 primarily due to an increase in revenue from New, Mainstream and Mature products.
A significant portionour military business which is a component of our revenue is dependent on the health of the communicationsIndustrial and other end market, which accounted for approximately 44%, 49% and 56% ofmarket. These declines were partially offset by strength in our total revenue in fiscal 2011, 2010 and 2009, respectively. Forecasting future revenue by end market is particularly challenging as revenue growth is dependent on overall economic conditions for our industry and market acceptance of our new products.
On December 16, 2011, the Company completed the purchase of SiliconBlue Technologies Ltd., (a Cayman Islands exempted company (“SiliconBlue”)) a developer of a single chip, ultra-low power Field Programmable Gate Array solution for handheld devices. The acquisition of SiliconBlue is part of the Company's effort to expand its presenceNew products, principally in the consumer end market with low-power programmable logic devices for the smartphone market. SiliconBlue was consolidated into our financial statements beginning on December 16, 2011. The revenue of SiliconBlue recorded in our consolidated statement of operations from the acquisition date through December 31, 2011 was $0.7 million, and was included in our PLD product line, Mature revenue and Consumer end market summary tables below.led by incremental revenue generated by our iCE 40 product line.
Revenue by Product Line
There was a 10% increase for fiscal 2011 compared to fiscal 2010 in FPGA units sold primarily driven by an increase in demand for our New products, partially offset by a decrease in average selling price. PLD revenue increased $21 million or 7% in fiscal 2011 compared to fiscal 2010 due primarily to strength in our New products, principally in the Consumer end market and a 10% increase in units sold primarily related to Newrelatively high volume of late product life-cycle buys on Mainstream and Mature products partially offset by a decrease in average selling price.the Industrial and other end market.
PLD and FPGA revenue increased in fiscal 2010, when compared to fiscal 2009 due to an increase in units sold for both product lines, primarily related to revenue from our New products.Revenue by Product Line
The composition of our revenue by product line for fiscal years 20112012, 20102011 and 20092010 was as follows (dollars in thousands):
| | | | Year Ended | | Year Ended | | % Change in |
| | December 31, 2011 | | January 1, 2011 | | January 2, 2010 | | December 29, 2012 | | December 31, 2011 | | January 1, 2011 | | 2012 | | 2011 |
| PLD | | | $ | 184,044 |
| | 66 | % | | $ | 211,036 |
| | 66 | % | | $ | 200,679 |
| | 67 | % | | (13 | ) | | 5 |
| FPGA | $ | 107,330 |
| | 34 | % | | $ | 97,089 |
| | 33 | % | | $ | 64,564 |
| | 33 | % | | 95,212 |
| | 34 |
| | 107,330 |
| | 34 |
| | 97,089 |
| | 33 |
| | (11 | ) | | 11 |
| PLD | 211,036 |
| | 66 | % | | 200,679 |
| | 67 | % | | 129,856 |
| | 67 | % | |
| Total revenue | $ | 318,366 |
| | 100 | % | | $ | 297,768 |
| | 100 | % | | $ | 194,420 |
| | 100 | % | | $ | 279,256 |
| | 100 | % | | $ | 318,366 |
| | 100 | % | | $ | 297,768 |
| | 100 | % | | (12 | ) | | 7 |
PLD and FPGA revenue for fiscal 2012 declined approximately 13% and 11%, respectively, when compared to fiscal 2011. For PLD products, strong growth in New product volume driven by product acceptance in the Consumer end market, offset more than 40% of the revenue decline experienced by certain Mainstream and Mature products primarily resulting from a decline in the accelerated sales of certain late life-cycle products, declines in our military business and macroeconomic weakness reducing infrastructure investments in the Communications end market. For FPGA products, the strong growth in New product volume, driven by customers migrating from our Mainstream and Mature products, offset more than one-half of the volume declines experienced by certain of our older Mainstream and Mature products, which were affected by both declines in our military business and the migration to New products.
PLD and FPGA revenue for fiscal 2011 increased approximately 5% and 11%, respectively, when compared to fiscal 2010. In fiscal 2011, PLD product volume increased due largely to late product life-cycle buys on several low density Mature products. In addition, PLD product volume also increased for certain New products in both the Consumer and Communications end markets. FPGA products in fiscal 2011 experienced significant volume increases due largely to Communications end market customers migrating to newer technology and late product life-cycle buys on Mature products, principally in our military business, which is part of our Industrial and other end market.
Revenue by End Market
The global communicationsfollowing end market accounted for approximately 44%, 49%data is derived from data that is provided to us by our distributors and 56%end customers. With a diverse base of ourcustomers who in some cases manufacture end products spanning multiple end markets, the assignment of revenue for fiscal years 2011, 2010 and 2009, respectively. Our revenue for thisto a specific end market is largely dependent on five large telecommunications equipment providers; however, none exceeded 10%requires the use of revenue in fiscal 2011 or 2010,estimates and one accounted for approximately 11% of our revenue in fiscal 2009, resultingjudgment. Therefore, actual results may differ from sell-through resale by one of our distributors. Althoughthose reported.
revenue from the communications end market declined 4% in fiscal 2011 when compared to fiscal 2010, we expect that a significant portion of our revenue will continue to be dependent on the health of the communications end market, which experienced a downtrend in the second half of fiscal 2011. Revenue from the Industrial and other end market increased 29% for fiscal 2011 as compared to fiscal 2010 and 103% in fiscal 2010 when compared to fiscal 2009. Revenue from the Computing end market decreased 1% in fiscal 2011 when compared to fiscal 2010, but increased 59% in fiscal 2010 when compared to fiscal 2009. Revenue from the Consumer end market increased 13% for fiscal 2011 as compared to fiscal 2010 and 53% for fiscal 2010 as compared to fiscal 2009.
The composition of our revenue by end market for fiscal years 20112012, 20102011 and 20092010 was as follows (dollars in thousands):
| | | | | Year Ended | | Year Ended | | % Change in |
| | | December 31, 2011 | | January 1, 2011 | | January 2, 2010 | | December 29, 2012 | | December 31, 2011 | | January 1, 2011 | | 2012 | | 2011 |
| Communications | | $ | 141,283 |
| | 44 | % | | $ | 146,607 |
| | 49 | % | | $ | 108,780 |
| | 56 | % | | $ | 127,713 |
| | 46 | % | | $ | 141,283 |
| | 44 | % | | $ | 146,607 |
| | 49 | % | | (10 | ) | | (4 | ) |
| Industrial and other | | 97,519 |
| | 31 | % | | 75,667 |
| | 25 | % | | 37,248 |
| | 19 | % | | 76,491 |
| | 27 |
| | $ | 97,519 |
| | 31 |
| | 75,667 |
| | 25 |
| | (22 | ) | | 29 |
|
| Consumer | | | 41,490 |
| | 15 |
| | 36,858 |
| | 12 |
| | 32,525 |
| | 11 |
| | 13 |
| | 13 |
|
| Computing | | 42,706 |
| | 13 | % | | 42,969 |
| | 15 | % | | 27,086 |
| | 14 | % | | 33,562 |
| | 12 |
| | 42,706 |
| | 13 |
| | 42,969 |
| | 15 |
| | (21 | ) | | (1 | ) |
| Consumer | | 36,858 |
| | 12 | % | | 32,525 |
| | 11 | % | | 21,306 |
| | 11 | % | |
| Total revenue | | $ | 318,366 |
| | 100 | % | | $ | 297,768 |
| | 100 | % | | $ | 194,420 |
| | 100 | % | | $ | 279,256 |
| | 100 | % | | $ | 318,366 |
| | 100 | % | | $ | 297,768 |
| | 100 | % | | (12 | ) | | 7 |
|
The Communications market continues to represent our largest end market. Our revenue in this market is largely dependent on a small number of large telecommunications equipment providers; however no individual end customer exceeded 10% of total revenue in 2012, 2011, or 2010. For fiscal 2012, the Communications market revenue declined 10% when compared to fiscal 2011 and declined 4% when comparing fiscal 2011 to fiscal 2010. These declines were driven primarily by macroeconomic weakness which impacted infrastructure investments in the Communications market in the second half of fiscal 2011 and throughout fiscal 2012.
For fiscal 2012, the Industrial and other market experienced a revenue decline of 22% when compared to fiscal 2011. This decline was primarily due to volume declines in our military business. For fiscal 2011, revenue increased 29% when compared to fiscal 2010. This increase is driven by a relatively high volume of late product life-cycle buys on certain of our Mainstream and Mature products.
Consumer market revenue increased 13% in both fiscal 2012 and fiscal 2011 when compared to the respective previous years. Consumer market revenue increased in fiscal 2012 due in large part to our iCE 40 product, which bolstered our Consumer market product offerings. For 2011, the Consumer market revenue increases were driven primarily by volume increase resulting from continued proliferation of more consumer products and a concentrated focus by the Company to penetrate this market.
For fiscal 2012, revenue for the Computing end market declined 21% when compared to fiscal 2011. Similar to the Communications market, this decline due to reduced volume driven primarily by macroeconomic factors. For fiscal 2011, Computing revenue declined 1% when compared to fiscal 2010.
Revenue by Product Classification
Revenue for New products increased 20% for fiscal 2011 as compared to fiscal 2010, and 91% for fiscal 2010 as compared to fiscal 2009, primarily as a result of increased unit sales. Revenue from Mainstream products decreased 8% for fiscal 2011 but increased 33% for fiscal 2010 primarily related to a decrease and increase in unit sales, respectively. Mature product revenue increased 6% in fiscal 2011 and increased 35% for fiscal 2010 primarily related to an increase in unit sales.
The composition of our revenue by product classification for fiscal years 20112012, 20102011 and 20092010 was as follows (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended |
| | December 31, 2011 | | January 1, 2011 | | January 2, 2010 |
| New* | $ | 151,472 |
| | 48 | % | | $ | 126,648 |
| | 43 | % | | $ | 66,294 |
| | 34 | % |
| Mainstream* | 90,155 |
| | 28 | % | | 98,413 |
| | 33 | % | | 74,218 |
| | 38 | % |
| Mature* | 76,739 |
| | 24 | % | | 72,707 |
| | 24 | % | | 53,908 |
| | 28 | % |
| Total revenue | $ | 318,366 |
| | 100 | % | | $ | 297,768 |
| | 100 | % | | $ | 194,420 |
| | 100 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended | | % Change in |
| | | December 29, 2012 | | December 31, 2011 | | January 1, 2011 | | 2012 | | 2011 |
| New * | | $ | 62,304 |
| | 22 | % | | $ | 34,668 |
| | 11 | % | | $ | 18,785 |
| | 6 | % | | 80 |
| | 85 |
|
| Mainstream * | | 154,733 |
| | 56 |
| | 187,560 |
| | 59 |
| | 188,732 |
| | 64 |
| | (18 | ) | | (1 | ) |
| Mature * | | 62,219 |
| | 22 |
| | 96,138 |
| | 30 |
| | 90,253 |
| | 30 |
| | (35 | ) | | 7 |
|
| Total revenue | | $ | 279,256 |
| | 100 | % | | $ | 318,366 |
| | 100 | % | | $ | 297,770 |
| | 100 | % | | (12 | ) | | 7 |
|
Revenue for New products increased80% in fiscal 2012 when compared to fiscal 2011. Revenue for New products increased 85% in fiscal 2011 when compared to fiscal 2010. In both years, New product revenue increased primarily due to strong volume ramping of certain New products, principally to customers in the Consumer and Communications end markets. These revenue increases were driven by strong acceptance of certain New Consumer product offerings and a general migration of customers to New products from our Mainstream and Mature products.
Revenue for Mainstream products decreased 18% in fiscal 2012 when compared to fiscal 2011. Mainstream product revenue declined due primarily to macroeconomic factors affecting the Communications and Computing end markets as well as reduced volume as customers migrated to newer technology. Revenue for Mainstream products decreased1% in fiscal 2011 when compared to fiscal 2010.
Mature product revenue decreased35% in fiscal 2012 when compared to fiscal 2011. Mature product revenue decreased primarily due to macroeconomic factors, reduced volume as accelerated sales of certain late life-cycle products ended and customers migrated to newer technology. Revenue for Mature products increased 7% in fiscal 2011 when compared to fiscal 2010. This increase is driven by a relatively high volume of late product life-cycle buys on certain of our Mature products.
|
|
| * Product Classifications: |
|
| |
___________ |
* Product classification |
|
| New: | LatticeECP3, LatticeXP2, LatticeECP2/M, MachXO,MachXO2, Power Manager II, ispClockA/D/S, ispMACH 4000ZE,and iCE40 |
| Mainstream: | ispXPLD, ispGDX2,ispMACH 4000ZE, ispMACH 4000/Z, ispXPGA, LatticeSC, LatticeECP2/M, LatticeECP, LatticeXP2, LatticeXP, MachXO, ispClock Power Manager I,A/D/S, Software and IP |
| Mature: | ispXPLD, ispXPGA, FPSC, ORCA 2, ORCA 3, ORCA 4, ispPAC, ispLSIisplsi 8000V, ispMACH 5000B, ispMACH 2LV, ispMACH 5LV, ispLSI 2000V, ispLSI 5000V, ispMACH 5000VG, all 5-volt CPLDs, ispGDX2, GDX/V, ispMACH 4/LV, iCE65, ispClock, Power Manager I, all SPLDs |
* Product categories are modified as appropriate relative to our portfolio of products and the generation within each major product family. New products consist of our latest generation of products, while Mainstream and Mature are older or based on unique late stage customer-based production needs. Generally, product categories are adjusted every two to three years, at which time prior periods are reclassified to conform to the new categorization.
In the first fiscal 2010quarter of 2012 we reclassified our New, Mainstream and Mature product categories to better reflect our current product portfolio. No changes were made in fiscal 2011.
Revenue by Geography
The composition of our revenue by geographical location of our direct and indirect customers was as follows (dollars in thousands):
|
| | | | | | | | | | | | | | | | | |
| | Year Ended |
| | December 31, 2011 | | January 1, 2011 | | January 2, 2010 |
| | Total | | % | | Total | | % | | Total | | % |
| United States | $ | 44,847 |
| | 14 | | $ | 36,211 |
| | 12 | | $ | 28,296 |
| | 15 |
| | | | | | | | | | | | |
| China | 123,124 |
| | 39 | | 124,910 |
| | 42 | | 83,813 |
| | 43 |
| Europe | 66,319 |
| | 21 | | 54,332 |
| | 18 | | 33,389 |
| | 17 |
| Japan | 36,961 |
| | 11 | | 38,992 |
| | 13 | | 19,460 |
| | 10 |
| Taiwan | 8,346 |
| | 3 | | 8,839 |
| | 3 | | 6,313 |
| | 3 |
| Other Asia | 32,687 |
| | 10 | | 27,853 |
| | 10 | | 17,476 |
| | 9 |
| Other Americas | 6,082 |
| | 2 | | 6,631 |
| | 2 | | 5,673 |
| | 3 |
| Total foreign revenue | 273,519 |
| | 86 | | 261,557 |
| | 88 | | 166,124 |
| | 85 |
| Total revenue | $ | 318,366 |
| | 100 | | $ | 297,768 |
| | 100 | | $ | 194,420 |
| | 100 |
We assign revenue to geographies based on customer ship-to address at the point where revenue is recognized. In the case of sell-in distributors and OEM customers, revenue is typically recognized, and geography is assigned, when products are shipped to our distributor or customer.shipped. In the case of sell-through distributors, revenue is recognized when resale to the end customer occurs and geography is assigned based on the end customer location on the resale reports provided by the distributor. Both foreign and domestic sales are denominated in U.S. dollars, with the exception of sales in Japan, where sales to certain customers are denominated in yen.
The composition of our revenue by geography, based on ship-to location, is as follows (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended | | % Change in |
| | | December 29, 2012 | | December 31, 2011 | | January 1, 2011 | | 2012 | | 2011 |
| Asia | | $ | 189,811 |
| | 68 | % | | $ | 201,118 |
| | 63 | % | | $ | 200,594 |
| | 67 | % | | (6 | ) | | — |
| Europe | | 48,202 |
| | 17 |
| | 66,319 |
| | 21 |
| | 54,332 |
| | 18 |
| | (27 | ) | | 22 |
| Americas | | 41,243 |
| | 15 |
| | 50,929 |
| | 16 |
| | 42,842 |
| | 15 |
| | (19 | ) | | 19 |
| Total revenue | | $ | 279,256 |
| | 100 | % | | $ | 318,366 |
| | 100 | % | | $ | 297,768 |
| | 100 | % | | (12 | ) | | 7 |
Revenue from foreign sales as a percentage of total revenue wasdeclines in Europe and Americas in fiscal 86%2012 for, compared to fiscal 2011, 88% forare due largely to macroeconomic weakness in those regions. In addition, revenue declined in Asia in fiscal 20102012 and 85% for, compared fiscal 20092011. due to relative weakness in the Communications end market. We believe the foreign market to the Asia Pacific region will remain the primary source of our revenue due to relatively more favorable business conditions in Asia and a continuing trend towards the outsourcing of manufacturing by North American and European customers to the Asia Pacific region.
Revenue from foreign sales as a percentage of total revenue were 88%, 86%. and 88% for fiscal 2012, 2011, and 2010, respectively.
Revenue by Distributors
Our largest customers are distributors and sales through distributors have historically made up a significant portion of our total revenue. Revenue attributable to resales of products by Arrow Electronics, Inc., which includes its wholly-owned subsidiary, Nu Horizons Electronics Corp., accounted for approximately 22%, 18% and 12% of revenue in fiscal years our primary sell-through distributors are as follows:
|
| | | | | | | | |
| | % of Total Revenue |
| | 2012 | | 2011 | | 2010 |
| Nu Horizons Electronics Corp. (including its parent company, Arrow Electronics) | 33 | % | | 22 | % | | 18 | % |
| Weikeng Group | 14 |
| | 14 |
| | 14 |
|
| Avnet, Inc. | — |
| | 17 |
| | 17 |
|
| All others | 8 |
| | 8 |
| | 7 |
|
| All sell-through distributors | 55 | % | | 61 | % | | 56 | % |
2011, 2010 and 2009, respectively. Revenue attributable to resales of products by Avnet, Inc. ("Avnet"), accounted for approximately 17%, 17% and 13% of revenue in fiscal years 2011, 2010 and 2009, respectively. Revenue attributable to resales of products by the Weikeng Group (Weikeng Industrial Co. Ltd. (Taiwan) and Weikeng International Co. Ltd. (Hong Kong)) accounted for approximately 14%, 14% and 9% of revenue in fiscal years 2011, 2010 and 2009, respectively. Sales of products to ASTI Holdings Ltd. accounted for approximately 0%, 0% and 16% of revenue in fiscal years 2011, 2010 and 2009, respectively. No other individual end customer accounted for more than 10% of total revenue in any of the fiscal years 20112012, 20102011 and 20092010.
On August 28,In fiscal 2011, our global franchise agreement with Avnet terminated,terminated; however, we had mutually agreed to terms for the transition of inventory through December 31, 2011. We do not expect a significant disruptionRevenue from Avnet made up approximately 20% of our total revenue for the first nine months of fiscal 2011. Because we and our remaining global and regional distributors worked directly with our end customers in order to transition the fulfillment of customer orders to replacement distributors, the impact on our ability to service customersbusiness as a result of this change.change was negligible. We continue to serve our end customers with a network that includes a global distributor, regional distributors, manufacturer's representatives, and our direct sales team.
Gross Margin
During
The composition of our gross margin, including as a percentage of revenue, for fiscal 2009, we embarked onyears 2012, 2011 and 2010 was as follows (dollars in thousands):
|
| | | | | | | | | | | | |
| | | Year Ended |
| | | December 29, 2012 | | December 31, 2011 | | January 1, 2011 |
| Gross margin | | $ | 150,757 |
| | $ | 188,597 |
| | $ | 179,825 |
|
| Percentage of revenue | | 54.0 | % | | 59.2 | % | | 60.4 | % |
In fiscal 2012, gross margin declined 5.2 percentage points as compared to fiscal 2011. This decline was due primarily to an increase in the percentage of revenue attributable to New products sold into the Consumer and Communications end markets. New products typically yield a programlower gross margin than our Mainstream and Mature products. A net increase to restructure our distribution channels,reserves for excess and obsolete inventory slightly reduced fiscal 2012 gross margin. Degradation in gross margin due to product and customer mix was partially offset by product cost reductions realized primarily in the Asia Pacific region, from a sell-in to a sell-through distribution model. As a resultsecond half of the majority of our revenue inyear.
In fiscal 2011, and 2010 was from resale of our products by sell-through distributors. In connection with this program, we terminated our distribution agreement between the Company and Promaster Technology Corporation on July 2, 2009, between the Company and Dragon Technology Distribution and FE Global Electronics effective for various territories on February 1 and February 6, 2010, respectively, and between the Company and other distributors effective on various dates. Dragon Technology Distribution and FE Global Electronics are wholly-owned subsidiaries of ASTI Holdings Ltd. Additionally, we converted in-place distributors in the Asia Pacific region and Europe from a sell-in to a sell-through model. As a result, we estimate that revenue was lower in the fourth quarter of fiscal 2009 by approximately $2.0 million compared to revenue had we not embarked on this program.
Revenue related to resale of our products by sell-through distributors makes up 61%, 56%, and 38% of total revenue for fiscal 2011, 2010 and 2009, respectively.
Gross Margin and Operating Expenses
Our gross margin declined 1.2 percentage was 59.2% for fiscal 2011, 60.4% for fiscal 2010 and 53.7% for fiscal 2009. The decrease in gross margin percentage during fiscal 2011points as compared to fiscal 20102010. This decline was primarily attributed to an increase in New product revenue which typically carries a lower gross margin than our Mainstream and Mature products. The increase in gross margin percentage during fiscal 2010 compared to fiscal 2009 was primarily attributed to the significantly higher production volumeSales of fully reserved inventory in fiscal 2010 when compared2011 contributed a slight benefit to fixed overhead costs charged to Cost of products sold. Additionally, due to the broad based nature of our revenue increase, revenue from our Mature and Mainstream products, which typically carry a higher gross margin than our New product categories, increased during fiscal 2010. We also realized a benefit related to some sales of older, fully reserved products in fiscal 2010.margin.
Operating Expenses
Research and development expense was
The composition of our research and development expenses, including as a percentage of revenue, for fiscal years $71.9 million2012 for fiscal, 2011 compared to $60.3 million for fiscal 2010 and $56.1 million for fiscal 2009. 2010 was as follows (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | |
| | | Year Ended | | % Change in |
| | | December 29, 2012 | | December 31, 2011 | | January 1, 2011 | | 2012 | | 2011 |
| Research and development | | $ | 77,610 |
| | $ | 71,855 |
| | $ | 60,326 |
| | 8.0 | % | | 19.1 | % |
| Percentage of revenue | | 27.8 | % | | 22.6 | % | | 20.3 | % | | | | |
Research and development expenses consist primarily of personnel,include costs for compensation and benefits, development masks, engineering wafers, third-party design automation software, test equipment and tooling depreciation and qualification expenses. The increase in fiscal 2011 comparedamortization, licenses, and outside engineering services. These expenditures are for the design of new products, intellectual property cores, processes, quality control, packaging, and software to fiscal 2010 was related to personnel, masks, engineering wafers, third-party design automation software, test equipment and tooling depreciation and qualification expense. The increase in fiscal 2010 compared to fiscal 2009 was related to personnel related costs, primarily accrued bonus costs recorded in connection with the 2010 Cash Incentive Compensation Plan, as well as an increase in outside service costs for engineering development. support new products.
We believe that a continued commitment to research and development is essential to maintain product leadership and provide innovative new product offerings, and therefore we expect to continue to make significant future investments in research and development. As we continue
The increase in fiscal 2012, compared to movefiscal 2011, was primarily due to more advanced process technologies, ourincreased compensation and benefits due to additional headcount, project-based outside engineering services, and depreciation and amortization. Approximately 40% of these increases were offset by reductions in mask costs and engineering wafer costs are becoming more expensive and will therefore increasingly represent a greater proportion of total research and development expenses.variable compensation.
The increase in fiscal 2011 compared to fiscal 2010 was primarily related to increases in compensation and benefits, additional mask costs and project-based outside engineering services.
Selling, general, and administrative expense
The composition of our selling, general and administrative expenses, including as a percentage of revenue, for fiscal years 2012, 2011 and 2010 was as follows (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | |
| | | Year Ended | | % Change in |
| | | December 29, 2012 | | December 31, 2011 | | January 1, 2011 | | 2012 | | 2011 |
| Selling, general and administrative | | $ | 72,317 |
| | $ | 68,838 |
| | $ | 64,359 |
| | 5.1 | % | | 7.0 | % |
| Percentage of revenue | | 25.9 | % | | 21.6 | % | | 21.6 | % | | | | |
Selling, general, and administrative expenses include costs for compensation and benefits related to selling, general, and administrative employees, commissions, depreciation, professional services, travel and other expenses.
$68.8 millionThe increase in fiscal 2012 compared to fiscal 2011, $64.4 million was primarily due to increased severance, stock compensation expense, and legal and professional services. These increases were partially offset by lower commissions as a result of reduced revenue. Fiscal 2012 also had increased costs due to additional headcount associated with the December, 2011 acquisition of SiliconBlue which were entirely offset by reductions in fiscal 2010 and $52.5 million in fiscal 2009. variable compensation.
The increase in fiscal 2011 compared to fiscal 2010 was the result of an increase in labor related costs, sales commission costs,compensation and benefits, legal costs,services and outsideprofessional service costs for marketing and financial consulting. The increase in fiscal 2010 compared to fiscal 2009 was primarily a result of an increase in sales commission costs, marketing related costs and accrued bonus costs recorded in connection with the 2010 Cash Incentive Compensation Plan.
Acquisition related charges, were $0.5including amortization of intangible assets
The composition of our acquisition related charges, including as a percentage of revenue, for fiscal years 2012, 2011 and 2010 was as follows (dollars in thousands):
|
| | | | | | | | | | | | | | | | |
| | | Year Ended | | % Change in |
| | | December 29, 2012 | | December 31, 2011 | | January 1, 2011 | | 2012 | | 2011 |
| Acquisition related charges, including amortization of intangible assets | | $ | 4,178 |
| | $ | 536 |
| | $ | — |
| | 679 | | — |
| Percentage of revenue | | 1.5 | % | | 0.2 | % | | — | % | | | | |
Acquisition related charges include severance and professional fees directly related to acquisitions, as well as the amortization of the stepped up value of inventory and amortization of identifiable intangible assets with finite useful lives associated with our December, 2011 acquisition of SiliconBlue.
The fiscal 2012 charges include $2.9 million in fiscal 2011, none in fiscal 2010amortization of intangibles assets. Fiscal 2012 also included amortization of the stepped up value of inventory, professional fees, and $0.2 million in fiscal 2009. severance costs.
The charges in fiscal 2011 include $0.4 million in professional service and legal fees, and $0.1 million amortization of intangible assets related to our December 16, 2011 acquisitionassets.
Restructuring charges related to amortization of intangible assets will be approximately $3.2 million for fiscal 2012, and $0.4 million in professional service type charges. Fiscal 2009 Acquisition related charges relate to our 2002 acquisition of the FPGA business of Agere Systems, Inc. and of Cerdelinx Technologies, Inc.
The Company implementedcomposition of our restructuring plans during thecharges, including as a percentage of revenue, for fiscal years 2005, 2007, 2008, 20092012, 2011 and 2011. Included2010 was as follows (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | |
| | | Year Ended | | | | % Change in |
| | | December 29, 2012 | | December 31, 2011 | | January 1, 2011 | | 2012 | | 2011 |
| Restructuring charges | | $ | 6,018 |
| | $ | 6,079 |
| | $ | 11 |
| | (1.0 | )% | | — | % |
| Percentage of revenue | | 2.2 | % | | 1.9 | % | | — | % | | | | |
On October 12, 2012, our Consolidated StatementsBoard of OperationsDirectors adopted a 2012 restructuring plan. In connection with this restructuring plan, we reduced our headcount by approximately 110 employees and reportedeliminated certain sites, including our sites in Pennsylvania and Illinois.
For fiscal 2012, restructuring charges primarily relate to severance and lease termination costs associated with the aforementioned 2012 restructuring plan. We expect to incur additional restructuring charges of $0.5 million in the first quarter of fiscal 2013, and the 2012 restructuring plan is expected to be substantially completed in that quarter.
We also implemented a restructuring plan during fiscal 2011 and the resultant restructuring charges approximated $7 million primarily related to severance, offset by approximately $1 million benefit due primarily to the re-occupancy of a previously restructured leased facility.
Other income, net
The composition of our Other income, net, including as Restructuring chargesa percentage of revenue, for fiscal years 2012, 2011 and 2010 was as follows (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | |
| | | Year Ended | | | | % Change in |
| | | December 29, 2012 | | December 31, 2011 | | January 1, 2011 | | 2012 | | 2011 |
| Other income, net | | $ | 505 |
| | $ | 1,434 |
| | $ | 2,474 |
| | (64.8 | )% | | (42.0 | )% |
| Percentage of revenue | | 0.2 | % | | 0.5 | % | | 0.8 | % | | | | |
The decrease in Other income, net, in fiscal 2012, as compared to fiscal 2011, 2010 resulted primarily from lower investment income and 2009 are charges of $6.1 million, less than $0.1 million and $3.7 million, respectively, primarily resulting from severance and related costs and costs to vacate leased properties under these restructuring plans.higher foreign exchange losses in fiscal 2012.
Other income, net
The following table summarizes the activity in Other income, net (in thousands):
|
| | | | | | | | | | | |
| | Year Ended |
| | December 31,
2011 | | January 1,
2011 | | January 2,
2010 |
| Interest income | $ | 1,142 |
| | $ | 998 |
| | $ | 1,227 |
|
| Gain related to sale or fair value adjustment, net of impairment charges on auction rate securities | 589 |
| | 668 |
| | 374 |
|
| Gain on sale of real estate | — |
| | 720 |
| | — |
|
| (Loss) gain on deferred compensation plan assets and other, net | (297 | ) | | 88 |
| | 211 |
|
| Total | $ | 1,434 |
| | $ | 2,474 |
| | $ | 1,812 |
|
The increase in interestfiscal 2011 relates to an increase in investment income in fiscal 2011 compared to fiscal 2010 relatesdue to higher invested balances in fiscal 2011 when compared to fiscal 2010. The decrease in interest income in fiscal 2010 compared to fiscal 2009 relates to lower interest rates on invested balances.
Benefit (provision) for incomeIncome taxes
Benefit forThe composition of our income taxes resulted from a portion of our deferred tax valuation allowance reversedfor fiscal years 2012, 2011 and the recognition of previously unrecognized uncertain tax positions, partially offset by a provision recorded related to our new global tax structure and foreign taxes.2010 was as follows (dollars in thousands):
|
| | | | | | | | | | | | |
| | | Year Ended | | |
| | | December 29, 2012 | | December 31, 2011 | | January 1, 2011 |
| (Provision) benefit for income taxes | | $ | (20,745 | ) | | $ | 35,509 |
| | $ | (531 | ) |
On December 31, 2011, we began to implement a global tax structure to more effectively align the Company's corporate structure and transaction flows with the Company's geographic business operations including responsibility for sales and purchasingmanufacturing activities. We have numerous sales offices in foreign locations, operational centers in the Philippines and Singapore, and research and development sites in China, India and the Philippines. Revenues from non-Domestic regions account for over 80%As part of all revenue. In addition, the large majority of our suppliers are located in the Asia Pacific region. Based on these factorsthis tax restructuring, we have created new and realigned existing legal entities, completed intercompany sales of rights to intellectual property, inventory and fixed assets across different tax jurisdictions, and implemented cost-sharing and intellectual property licensing and royalty agreements between our U.S. and low cost tax jurisdictions. These actions createdforeign entities. The intercompany sales of rights to intellectual property resulted in a gain for tax purposes, for which we recorded a $76.8 million tax provision in the fourth quarter of fiscal 2011. This provision2011 which was fully offset by the release of valuation allowance on deferred tax assetsassets.
Also during the fourth quarter of fiscal 2011. We expect that the global tax structure will be completed during the first quarter of 2012 upon the intercompany sale of inventory and fixed assets, and we expect to record approximately $9.7 million in additional income tax provision during the first quarter of fiscal 2012, which will result in an increase to the effective tax rate.
During the fourth quarter of 2011, we also concluded that it was more likely than notmore-likely-than-not that we would be able to realize the benefit of a portion of our remaining deferred tax assets.assets, resulting in a tax benefit of $35.2 million. We based this conclusion on improved operating results over the past two years and our expectations about generating taxable income in the foreseeable future including the implementation of a global tax structure discussed above. Based on our assessment regarding the potential to realize deferred tax assets, we reversed additional valuation allowance, which when offset by the provision recorded related to our new global tax structure, resulted in an income tax benefit of $35.2 million. We exercised significant judgment and considered estimates about our ability to generate revenues,revenue, gross profits, operating income and taxable income in future periods under our new tax structure in reaching this decision.
The global tax structure was completed during the first quarter of 2012 upon the intercompany sale of inventory and fixed assets. During 2012, we incurred $20.7 million in tax expense related to on-going operations and the completion of the tax structure implementation including the sell-through of the inventory portion of this intercompany sale.
We are not currently paying federal income taxes and do not expect to pay such taxes until the benefits of our tax net operating lossesloss and creditscredit carryforwards are fully utilized. We expect to pay a nominal amount of state income tax. We accrue interest and penalties related to uncertain tax positions in the Provisionprovision for income taxes.
We are paying foreign income taxes, which are primarily related to the cost of operating offshore research and development, marketing and marketingsales subsidiaries.
The inherent uncertainties related to the geographical distribution and relative levelslevel of profitsprofitability among various high and low tax jurisdictions make it difficult to quantifyestimate the impact of the global tax structure on our future effective tax rate.
Liquidity and Capital Resources
Financial Condition (SourcesThe following sections discuss the effect of changes in our balance sheet, as well as the effects of our contractual obligations, other commitments, and Uses of Cash)the stock repurchase program on our liquidity and capital resources.
We classify our investments as short-term based on their nature and availability for use in current operations. The overall quality of our portfolio is strong, with our cash equivalents and short-term investments consisting primarily of high quality, investment-grade securities. Our sourcesstrong cash, cash equivalent and usesshort-term investment position allows us to use our cash resources for acquisitions, working capital needs, and repurchases of cash from operating, financing and investing activities were as follows (in thousands):
|
| | | | | | | | | | | |
| | Year Ended |
| | December 31,
2011 | | January 1,
2011 | | January 2,
2010 |
| Net cash provided by operating activities | $ | 62,176 |
| | $ | 82,102 |
| | $ | 101,389 |
|
| Net cash (used in) provided by investing activities | (86,232 | ) | | (67,185 | ) | | 1,944 |
|
| Net cash (used in) provided by financing activities | (8,905 | ) | | 3,398 |
| | (932 | ) |
| Net (decrease) increase in cash and cash equivalents | $ | (32,961 | ) | | $ | 18,315 |
| | $ | 102,401 |
|
Fiscal 2011 compared to 2010
Operating Activities
NetWe have historically financed our operating and capital resource requirements through cash flows from operations. Cash provided by operating activities was $62.2 millionwill fluctuate from period to period due to fluctuations in fiscal 2011, compared to Net cash provided by operating activitiesresults, the timing and collection of $82.1 million in fiscal 2010. The decrease in comparable periods is primarily the result of a decrease in Net income before income taxes from $57.6 million to $42.7 millionaccounts receivable, and the use of foundry advances of $11.5 million in fiscal 2010 and no such transactions in fiscal 2011. In addition,required inventory levels, among other significant items of operating activities include:things.
•Net cash was provided by a reduction in Accounts receivable, netWe believe that our financial resources will be sufficient to meet our working capital needs through the next 12 months. As of $4.6 million in fiscal 2011 but was used in operations asDecember 29, 2012, we have no long-term debt and do not have significant long-term commitments for capital expenditures. In the result of an increase of $7.6 million in fiscal 2010. Billings in the fourth quarter of fiscal 2011 were relatively low when comparedfuture, we may consider acquisition opportunities to billings in the fourth quarter of fiscal 2010.
•Net cash was provided by a reduction in Inventory of $2.6 million in fiscal 2011 but was used in operations as the result of an increase of $11.4 million in fiscal 2010. The increase in inventory in fiscal 2010 was driven by demand forextend our product or technology portfolios and to support quarterly sequential revenue increases through the second quarter of fiscal 2011, at which time revenue then declined on a quarterly sequential basis.
•Net cash was usedexpand our product offerings. In connection with funding capital expenditures, completing acquisitions, securing additional wafer supply, or increasing our working capital, we may seek to obtain debt or equity financing, or advance purchase payments or similar arrangements with wafer manufacturers. We may also need to obtain debt or equity financing if we experience downturns or cyclical fluctuations in operations as a result of a decrease in Deferred income and allowances on sales to sell-through distributors of $4.9 million in fiscal 2011 but was provided by operations as the result of an increase of $5.5 million in fiscal 2010. This decrease in fiscal 2011 is primarily related to the termination of our distribution agreement with Avnet.
•Net cash was used in operation as a result of a decrease in Accounts payable and accrued expenses (includes restructuring) and Accrued payroll obligations of $3.3 million in fiscal 2011 but was provided by operations as the result of an increase of $13.3 million in fiscal 2010.
•Net cash was provided by operations as a result of an increase in Other liabilities of $13.1 million in fiscal 2011 but was used in operations as the result of a decrease of $0.7 million in fiscal 2010. The increase in fiscal 2011 is primarily related to an increase in unrecognized tax benefits.
Investing Activities
Net cash used in investing activities was $86.2 million in fiscal 2011 compared to Net cash used in investing activities of $67.2 million in fiscal 2010. The increase in net cash used for comparable periods is primarily the result of $63.2 million used in the acquisition of SiliconBlue on December 16, 2011. Net cash was used in investing activities for net purchases greaterbusiness that are more severe or longer than proceeds from sales of marketable securities of $1.9 million in fiscal 2011 compared to net cash used in investing activities as the result of net purchases greater than proceeds from sales of marketable securities of $51.4 million in fiscal 2010. Capital expenditures decreased from $13.9 million in fiscal 2010 to $13.0 million in fiscal 2011.
Financing Activities
Net cash used in financing activities was $8.9 million for fiscal 2011 compared to Net cash provided by financing activities in fiscal 2010 of $3.4 million primarily due to an increase in cash used to buy Treasury stock of $14.4 million in fiscal 2011 from $2.0 million in fiscal 2010.
Fiscal 2010 compared to 2009
Operating Activities
Net cash provided by operating activities was $82.1 million in fiscal 2010, compared to Net cash provided by operating activities of $101.4 million in fiscal 2009, primarily as a result of the receipt of a $60.0 million repayment in fiscal 2009, of the Company's advance payment made to Fujitsu Limited (“Fujitsu”) in fiscal 2007, while no receipt occurred in fiscal 2010, and a decrease in usage of Fujitsu advance credits from $20.1 million in fiscal 2009 to $11.5 million in usage in fiscal 2010. Offsetting these amounts was an increase in cash flow from Net income (loss) due to Net income of $57.1 million in fiscal 2010 compared to a Net loss of $7.0 million in fiscal 2009. In addition other significant items of operating activities include:
•Net cash used in operations as the result of increased inventory of $11.4 million in fiscal 2010 compared to cash provided by operations as the result of a decrease in Inventory of $6.8 million in fiscal 2009.
•Net cash provided by operations due to an increase in Accrued payroll obligations of $6.5 million in fiscal 2010 compared to a decrease of $1.6 million in fiscal 2009.
Investing Activities
Net cash used in investing activities was $67.2 million in fiscal 2010 compared to Net cash provided by investing activities of $1.9 million in fiscal 2009 as purchases of marketable securities exceeded sales of marketable securities and Short-term marketable securities increased by $55.4 million as reflected on the Consolidated Balance Sheet when fiscal 2010 is compared to fiscal 2009. Capital expenditures increased from $7.0 million in fiscal 2009 to $13.9 million in fiscal 2010.
Financing Activities
Net cash provided by financing activities was $3.4 million for fiscal 2010 compared to Net cash used by financing activities in fiscal 2009 of $0.9 million primarily due to the issuance of common stock of $6.2 million in fiscal 2010 compared to $0.4 million in fiscal 2009, offset by the increase in purchase of treasury stock of $2.0 million in fiscal 2010 compared to $0.3 million in fiscal 2009.anticipated.
Liquidity
Cash and cash equivalents, Short-term and Long-term investments(dollars in thousands):
|
| | | | | | | | | | | |
| | December 29, 2012 | | December 31, 2011 | | $ change |
| Cash and cash equivalents | $ | 118,536 |
| | $ | 141,423 |
| | $ | (22,887 | ) |
| Short-term marketable securities | 64,865 |
| | 68,711 |
| | (3,846 | ) |
| Long-term marketable securities | 4,717 |
| | 6,946 |
| | (2,229 | ) |
| Total Cash and cash equivalents, short-term and long-term marketable securities | $ | 188,118 |
| | $ | 217,080 |
| | $ | (28,962 | ) |
As of December 31, 2011,29, 2012, we had total Cash and cash equivalents of $118.5 million, of which approximately $42.1 million was held by our principal sourceforeign subsidiaries. We manage our global cash requirements considering (i) available funds among the subsidiaries through which we conduct business, (ii) the geographic location of our liquidity was $210.1 millionneeds, and (iii) the cost to access international cash balances. The repatriation of non-U.S. earnings may have adverse tax consequences as we may be required to pay and record income tax expense on those funds to the extent they were previously considered permanently reinvested. As of December 29, 2012, we could access all cash held by our foreign subsidiaries without incurring material additional expense.
The decrease in Cash and cash equivalents, and Short-term marketable securities, which was approximately $28.1short-term investments of $26.7 million less than the balance of $238.2 million at January 1, 2011. Working capital decreased as compared to $248.6 million at December 31, 2011,, from $271.0 was primarily the result of cash used for repurchases of common stock of $17.5 million at January 1, 2011. The primary reason for decline in both measures above is attributed to our $63.2 million and capital expenditures of $13.6 million. These uses of cash purchase of SiliconBlue and our $14.4 million purchase of treasury stock under our stock repurchase program,were partially offset by cash provided by operating activities.
We believe that our existing liquid resourcesoperations of $4.5 million and cash expectedproceeds from the issuance of common stock pursuant to be generated from future operations will be adequate to meet our operating and capital requirements and obligations for at least the next twelve months. We have no long-term debt.employee stock compensation plans of $4.4 million.
At December 31, 2011 and January 1, 2011, the Company held29, 2012, Long-term investments consisted of auction rate securities with a par value of $8.35.7 million and $11.6 million, respectively. The Company intendsan estimated fair value of $4.7 million. Due to continued multiple failed auctions and the resultant illiquidity of these investments, we have classified our investment in auction rate securities as long-term. We intend to sell itsthe auction rate securities as markets for these securities resume or reasonable offers become available. At December 31, 2011, due to continued multiple failed auctions andDuring 2012, we redeemed auction rate securities at a determination of illiquidity, the $8.3 million par value of auction rate securities held by the Company had$2.6 million and an estimated fair value of $6.9 million and are classified as Long-term marketable securities. These auction rate securities are exposed to risks associated with student loan asset-backed notes. Such loans are insured by the federal government or guaranteed by the Federal Family Educational Loan Program. If we were to liquidate our position in these securities, the amount realized could be materially different than the estimated fair value amounts at which we are carrying these securities and there could be a materially detrimental effect on our financial results.$2.3 million.
In accordance with ASC 320, “Investments - Debt and Equity Securities,” the Company recorded an unrealized loss ofAccounts receivable, net(dollars in thousands):
|
| | | | | | | | | | | |
| | December 29, 2012 | | December 31, 2011 | | Change |
| Accounts receivable, net | $ | 46,947 |
| | $ | 36,993 |
| | $ | 9,954 |
|
| Days sales outstanding | 64 |
| | 47 |
| | 17 |
|
$0.1Accounts receivable, net increased $10 million during the year ended or 27% as of December 29, 2012 compared to December 31, 2011 due primarily to timing of shipments and collections in the last week of each year. As a result of this increase in accounts receivable, coupled with a decline in revenue, days sales outstanding at December 29, 2011 was 64 days, an increase of 17 days from December 31, 2011.
Inventories on certain Short-term marketable securities, which has been recorded(dollars in Accumulated other comprehensive income. Future fluctuations in fair value relatedthousands):
|
| | | | | | | | | | | |
| | December 29, 2012 | | December 31, 2011 | | Change |
| Inventories | $ | 44,194 |
| | $ | 37,278 |
| | $ | 6,916 |
|
| Months of inventory on hand | 4.4 |
| | 3.2 |
| | 1.2 |
|
Inventory increased $7 million or 19% as of December 29, 2012 compared to these instruments that the Company deems to be temporary, including any recoveries of previous write-downs, would be recorded to Accumulated other comprehensive income. For the year ended December 31, 2011, approximately $0.4 million in unrealized losses related due primarily to the increase in fair value of auction rate securities were recorded in Accumulated other comprehensive income. If the Company were to determinea strategic inventory build in the future that any further declinefourth quarter 2012. The intent of our strategic inventory build is to both reduce direct material cost and enable timely responsiveness to surges in fair value is other-than-temporary, we would record an impairment charge, which could havedemand. As a materially detrimental impactresult, our months of inventory on our operating results. If we werehand increased from 3.2 months in 2011 to liquidate our position4.4 months in these securities, it is likely that the amount of any future realized gain or loss would be different from the unrealized gain or loss reported in Accumulated other comprehensive income.2012
On February 24,Share Repurchase Program
During 2012, we repurchased approximately 4.1 million shares for $17.5 million under the Company'sshare repurchase program approved by the Board of Directors in February 2012. This program approved the repurchase of up to $20 million in outstanding stock over a 12 month period. As of December 29, 2012 approximately $2.5 million remain available under the 2012 stock repurchase program. All shares repurchased under this program pursuant to which up to $20.0 million of outstanding common stock may be repurchased from time to time. The duration of the repurchase program is twelve months.were retired by December 29, 2012. All repurchases under this program have been and will be open market transactions and funded from available working capital.
On October 21, 2010, the Company's Board of Directors approved a stock repurchase program pursuant to which up to $20.0 million of outstanding common stock could have been repurchased. The duration of the repurchase program was twelve months from adoption. In connection with this stock repurchase program, the Company entered into a 10b5-1 plan. During fiscal 2011, approximately 2.4 million shares were repurchased for $14.4 million. During fiscal 2010, approximately 0.4 million shares were repurchased for $2.0 million. All shares repurchased under this program were retired by December 31, 2011. All repurchases were open market transactions and were funded from available working capital. The program ended by its terms in October 2011.
On December 13, 2008, the Company's Board of Directors approved a stock repurchase program pursuant to which up to $20.0 million of outstanding common stock could have been repurchased. In connection with the stock repurchase program, we entered into a 10b5-1 plan. The duration of the repurchase program was twelve months, and expired on December 13, 2009. During fiscal 2009, approximately 263,000 shares were repurchased for $0.3 million, all of which were open market transactions and were funded from available working capital. All shares repurchased under this program were retired in 2010.Credit Arrangements
On August 11, 2004, the Company entered into an agreement with a bank under the termsAs of whichDecember 29, 2012, we could borrow up to $6.0 million in Japanese yen in a revolving line ofhad no long-term debt, no significant long-term purchase commitments for capital expenditures, and no existing used or unused credit arrangement. In the first fiscal quarter of 2008, we amended the agreement to reduce the line of credit to $4.0 million. Outstanding borrowings were collateralized by a market rate investment account. Interest on outstanding borrowings were based on the Japanese LIBOR Fixed Rate. Outstanding borrowings at January 3, 2009 were $0.8 million and were reported in Accounts payable and accrued expenses on the Consolidated Balance Sheets. This arrangement was terminated by the Company during the first quarter of fiscal 2009. arrangements.
We may in the future seek new or additional sources36
Table of funding. In addition, in order to secure additional wafer supply, we may from time to time consider various financial arrangements including equity investments, advance purchase payments, loans, or similar arrangements with independent wafer manufacturers in exchange for committed wafer capacity. To the extent that we pursue any such additional financing arrangements, additional debt or equity financing may be required. There can be no assurance that such additional financing will be available when needed or, if available, will be on favorable terms. Any future equity financing will decrease existing stockholders' equity percentage ownership and may, depending on the price at which the equity is sold, result in dilution.Contents Contractual Obligations
The following table summarizes our significant contractual cash obligations at December 31, 201129, 2012 (in thousands):
| | | Fiscal year | | Operating
leases(1) | | Purchase order
obligations(2) | | Operating
leases(1) | | Purchase order
obligations(2) |
| 2012 | | $ | 3,652 |
| | $ | 67,188 |
| |
| 2013 | | 3,060 |
| | — |
| | $ | 4,099 |
| | $ | 48,025 |
|
| 2014 | | 635 |
| | — |
| | 1,374 |
| | — |
|
| 2015 | | 98 |
| | — |
| | 702 |
| | — |
|
| 2016 | | 32 |
| | — |
| | 517 |
| | — |
|
| 2017 | | | 97 |
| | — |
|
| Thereafter | | — |
| | — |
| | 40 |
| | — |
|
| | | $ | 7,477 |
| | $ | 67,188 |
| | $ | 6,829 |
| | $ | 48,025 |
|
|
| |
| _________ |
| (1) | Certain of our facilities and equipment are leased under operating leases, which expire at various times through 2016.2017. |
| (2) | This column excludes amounts already recorded on our Consolidated Balance Sheet as current or long-term liabilities at December 31, 2011.29, 2012. |
We also have other liabilities of $21.6$21.7 million relating to uncertain tax positions. However, as we are unable to reliably estimate the timing of future payments related to uncertain tax positions, we have excluded this amount from the table above.
Our significant operating leases are for our facilities in San Jose, California,California; Bethlehem, Pennsylvania,Pennsylvania; Shanghai, China andChina; Downers Grove, Illinois.Illinois; and Manila, Philippines. Our lease in San Jose expires in December 2013 with annual rental costs estimated to be $2.0 million. In January 2013 we entered into a 159 month lease of new facilities in San Jose, California with annual rental costs estimated at $2.1 million with 3% annual increases. We anticipate that we will commence operations at that facility during the second quarter of fiscal 2013. Our lease in Bethlehem expires in September 2014, with annual rental costs estimated to be $0.5 million with 3% annual increases. Our lease in Shanghai expires in May 20122013, with remaining rental costs estimated to be $0.1 million. Our lease in Downers Grove expires in August 2012November 2015, with annual rental costs estimated to be $0.1 million. Our leases in Manila expire in December 2016, April 2017 and May 2017, with total annual rental costs estimated to be $0.4 million with 5% annual increases. Leasehold improvements are amortized over the shorter of the non-cancelable lease term or the estimated useful life of the assets. We have discontinued operations at our Bethlehem, Pennsylvania and Downers Grove, Illinois facilities.
New Accounting Pronouncements
In June 2011,February 2013, the FinancialFASB issued Accounting Standards BoardUpdate No. 2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income,” (“FASB”ASU 2013-02”) issued changes. ASU 2013-02 finalizes the requirements of ASU 2011-05 that ASU 2011-12 deferred, clarifying how to report the presentationeffect of significant reclassifications out of accumulated other comprehensive income. These changes give an entityASU 2013-02 is to be applied prospectively. ASU 2013-02 does not change the option to present the total of comprehensive income, the components ofcurrent requirements for reporting net income and the components ofor other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements; the option to present components of other comprehensive income as part of the statement of changes in stockholders' equity was eliminated. The items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income were not changed. Additionally, no changes were made to the calculation and presentation of earnings per share. These changes becomefinancial statements. ASU 2013-02 is effective for theus on December 30, 2012. The Company on January 1, 2012. We will adopt this standard in the first quarter of fiscal 2012.
In May 2011, the FASB issued amended guidance on fair value measurement and related disclosures. The new guidance clarified the concepts applicable for fair value measurement of non-financial assets and requires the disclosure of quantitative information about the unobservable inputs used in a fair value measurement. This guidance will be effective for reporting periods beginning after December 15, 2011, and will be applied prospectively. We are in the process of evaluating the financial and disclosure impact of this guidance. We dodoes not anticipate a material impact on our Consolidated Financial Statements as a result ofthat the adoption of this amended guidance.
In September 2011,ASU will materially change the FASB issued amended guidance on testing goodwill for impairment. The new guidance provides an entity the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair valuepresentation of a reporting unit is less than its carrying amount. If an entity determines that this is the case, it is required to perform the currently prescribed two-step goodwill impairment test to identify potential goodwill impairment and measure the amount of goodwill impairment loss to be recognized for that reporting unit (if any). If an entity determines that the fair value of a reporting unit is more than its carrying amount, the two-step goodwill impairment test is not required. This guidance will be effective for reporting periods beginning after December 15, 2011. We are in the process of evaluating theconsolidated financial and disclosure impact of this guidance. We do not anticipate a material impact on our Consolidated Financial Statements as a result of the adoption of this amended guidance.statements.
Off-Balance Sheet Arrangements
As of December 31, 201129, 2012, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Credit Market Risks
At December 31, 201129, 2012 and January 1,December 31, 2011, we held auction rate securities with a facepar value of $8.35.7 million and $11.68.3 million, respectively. AtDecember 29, 2012 and December 31, 2011, the auction rate securities held by us had an estimated fair value of $4.7 million and $6.9 million. At January 1, 2011, the auction rate securities had an estimated fair value of $10.2 million.respectively. Our investments in auction rate securities are subject to interest rate and market risk. A hypothetical 10% movement in interest rates would not have a material impact on the fair value of the portfolio. If the market for our investment portfolio declines, our consolidated operating results
may be negatively impacted.
Foreign Currency Exchange Rate Risk
We have international subsidiary and branch operations. In addition, a portion of our silicon wafer and other purchases are denominated in Japanese yen and we bill our Japanese customers in yen. We mitigate the resulting foreign currency exchange rate exposure by entering into foreign currency forward exchange contracts for Japanese yen. Although such hedges mitigate our foreign currency exchange rate exposure from an economic perspective they were not designated as "effective" hedges for accounting purposes and are adjusted to fair value through earnings. We do not hold or issue derivative financial instruments for trading or speculative purposes.
As a result of the use of derivative financial instruments, Latticethe Company is exposed to the risk that counter-parties to derivative contracts will fail to meet their contractual obligations. To mitigate the counter-party credit risk, Latticethe Company enters into contracts with carefully selected major financial institutions based upon their credit ratings and other factors.
On December 31, 2011,29, 2012, the Company had twoa forward contractscontract to deliver a total of 140 million150,000,000 Japanese yen by on January 26, 2012.22, 2013. The contracts werecontract settled byon that date.
Item 8. Financial Statements and Supplementary Data.
Index to Consolidated Financial Statements and Consolidated Financial Statement Schedule
|
| | |
| | | Page |
| Consolidated Financial Statements: | | |
| | | |
Consolidated Balance Sheets, at December 31, 201129, 2012 and January 1,December 31, 2011 | | |
| | | |
Consolidated Statements of Operations and Comprehensive (Loss) Income, for the Years ended December 29, 2012, December 31, 2011 and January 1, 2011 and January 2, 2010 | | |
| | | |
Consolidated Statements of Changes in Stockholders' Equity and Comprehensive Income (Loss), for the Years ended December 29, 2012, December 31, 2011 and January 1, 2011 and January 2, 2010 | | |
| | | |
Consolidated Statements of Cash Flows, for the Years ended December 29, 2012, December 31, 2011 and January 1, 2011 and January 2, 2010 | | |
| | | |
| Notes to Consolidated Financial Statements | | |
| | | |
| Report of Independent Registered Public Accounting Firm | | |
| | | |
| Consolidated Financial Statement Schedule: | | |
| | | |
| Schedule II—Valuation and Qualifying Accounts | | |
LATTICE SEMICONDUCTOR CORPORATION
CONSOLIDATED BALANCE SHEETS
(inIn thousands, except share and par value amounts)data)
| | | | December 31,
2011 | | January 1,
2011 | December 29,
2012 | | December 31,
2011 |
| ASSETS | | | | | | |
| Current assets: | | | | | | |
| Cash and cash equivalents | $ | 141,423 |
| | $ | 174,384 |
| $ | 118,536 |
| | $ | 141,423 |
|
| Short-term marketable securities | 68,711 |
| | 63,836 |
| 64,865 |
| | 68,711 |
|
| Accounts receivable, net | 36,993 |
| | 41,188 |
| 46,947 |
| | 36,993 |
|
| Inventories | 37,278 |
| | 37,333 |
| 44,194 |
| | 37,278 |
|
| Prepaid expenses and other current assets | 16,200 |
| | 8,648 |
| 12,806 |
| | 16,200 |
|
| Total current assets | 300,605 |
| | 325,389 |
| 287,348 |
| | 300,605 |
|
| Property and equipment, less accumulated depreciation | 40,430 |
| | 39,322 |
| 40,384 |
| | 40,430 |
|
| Long-term marketable securities | 6,946 |
| | 10,232 |
| 4,717 |
| | 6,946 |
|
| Other long-term assets | 11,628 |
| | 2,744 |
| 6,854 |
| | 11,628 |
|
| Intangible assets, net of amortization | 18,377 |
| | — |
| 15,430 |
| | 18,377 |
|
| Goodwill | 44,808 |
| | — |
| 44,808 |
| | 44,808 |
|
| Deferred income taxes | 45,130 |
| | — |
| 29,218 |
| | 45,130 |
|
| Total assets | $ | 467,924 |
| | $ | 377,687 |
| $ | 428,759 |
| | $ | 467,924 |
|
| LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | |
| Current liabilities: | | | | | | |
| Accounts payable and accrued expenses | $ | 31,842 |
| | $ | 26,994 |
| $ | 36,391 |
| | $ | 31,842 |
|
| Accrued payroll obligations | 9,373 |
| | 11,654 |
| 6,149 |
| | 9,373 |
|
| Deferred income and allowances on sales to sell-through distributors | 10,761 |
| | 15,692 |
| 10,553 |
| | 10,761 |
|
| Total current liabilities | 51,976 |
| | 54,340 |
| 53,093 |
| | 51,976 |
|
| Other long-term liabilities | 22,387 |
| | 4,625 |
| |
| Long-term liabilities | | 18,116 |
| | 22,387 |
|
| Total liabilities | 74,363 |
| | 58,965 |
| 71,209 |
| | 74,363 |
|
| Commitments and contingencies (See “Note 15—Commitments and Contingencies”) |
| |
| |
| Commitments and contingencies (See "Note 15-Commitments and Contingencies") | |
| |
|
| Stockholders' equity: | | | | | | |
| Preferred stock, $.01 par value, 10,000,000 shares authorized, none issued and outstanding | — |
| | — |
| — |
| | — |
|
Common stock, $.01 par value, 300,000,000 shares authorized, 117,675,000 and 117,971,000 shares issued and outstanding, excluding 371,000 shares of treasury stock at January 1, 2011 | 1,177 |
| | 1,179 |
| |
| Common stock, $.01 par value, 300,000,000 shares authorized, 115,500,000 and 117,675,000 shares issued and outstanding | | 1,155 |
| | 1,177 |
|
| Paid-in capital | 627,637 |
| | 630,184 |
| 621,170 |
| | 627,637 |
|
| Accumulated other comprehensive (loss) income | (345 | ) | | 499 |
| |
| Accumulated other comprehensive loss | | (261 | ) | | (345 | ) |
| Accumulated deficit | (234,908 | ) | | (313,140 | ) | (264,514 | ) | | (234,908 | ) |
| Total stockholders' equity | 393,561 |
| | 318,722 |
| 357,550 |
| | 393,561 |
|
| Total liabilities and stockholders' equity | $ | 467,924 |
| | $ | 377,687 |
| $ | 428,759 |
| | $ | 467,924 |
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
LATTICE SEMICONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
(In thousands, except per share data)
|
| | | | | | | | | | | | |
| | | Year Ended |
| | | December 29,
2012 | | December 31,
2011 | | January 1,
2011 |
| Revenue | | $ | 279,256 |
| | $ | 318,366 |
| | $ | 297,768 |
|
| Costs and expenses: | | | | | | |
| Cost of products sold | | 128,499 |
| | 129,769 |
| | 117,943 |
|
| Research and development | | 77,610 |
| | 71,855 |
| | 60,326 |
|
| Selling, general and administrative | | 72,317 |
| | 68,838 |
| | 64,359 |
|
| Acquisition related charges, including amortization of intangible assets | | 4,178 |
| | 536 |
| | — |
|
| Restructuring charges | | 6,018 |
| | 6,079 |
| | 11 |
|
| | | 288,622 |
| | 277,077 |
| | 242,639 |
|
| (Loss) income from operations | | (9,366 | ) | | 41,289 |
| | 55,129 |
|
| Other income, net | | 505 |
| | 1,434 |
| | 2,474 |
|
| (Loss) income before income taxes | | (8,861 | ) | | 42,723 |
| | 57,603 |
|
| (Provision) benefit for income taxes | | (20,745 | ) | | 35,509 |
| | (531 | ) |
| Net (loss) income | | $ | (29,606 | ) | | $ | 78,232 |
| | $ | 57,072 |
|
| | | | | | | |
| Net (loss) income per share | | | | | | |
| Basic | | $ | (0.25 | ) | | $ | 0.66 |
| | $ | 0.49 |
|
| Diluted | | $ | (0.25 | ) | | $ | 0.65 |
| | $ | 0.48 |
|
| | | | | | | |
| Shares used in per share calculations: | | | | | | |
| Basic | | 117,194 |
| | 117,875 |
| | 116,726 |
|
| Diluted | | 117,194 |
| | 121,139 |
| | 120,143 |
|
| | | | | | | |
| Comprehensive (loss) income | | | | | | |
| Net (loss) income | | $ | (29,606 | ) | | $ | 78,232 |
| | $ | 57,072 |
|
| Other comprehensive income: | | | | | | |
| Unrealized (loss) gain related to marketable securities, net | | (57 | ) | | (526 | ) | | 581 |
|
| Recognized gain on redemption of marketable securities, previously unrealized | | (78 | ) | | (133 | ) | | — |
|
| Tax effect of change in fair market value of auction rate securities | | — |
| | — |
| | (304 | ) |
| Translation adjustment | | 219 |
| | (185 | ) | | 64 |
|
| Comprehensive (loss) income | | $ | (29,522 | ) | | $ | 77,388 |
| | $ | 57,413 |
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
LATTICE SEMICONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
|
| | | | | | | | | | | |
| | Year Ended |
| | December 31,
2011 | | January 1,
2011 | | January 2,
2010 |
| Revenue | $ | 318,366 |
| | $ | 297,768 |
| | $ | 194,420 |
|
| Costs and expenses: | | | | | |
| Cost of products sold | 129,769 |
| | 117,943 |
| | 90,077 |
|
| Research and development | 71,855 |
| | 60,326 |
| | 56,133 |
|
| Selling, general and administrative | 68,838 |
| | 64,359 |
| | 52,545 |
|
| Acquisition related charges | 536 |
| | — |
| | 228 |
|
| Restructuring charges | 6,079 |
| | 11 |
| | 3,689 |
|
| | 277,077 |
| | 242,639 |
| | 202,672 |
|
| Income (loss) from operations | 41,289 |
| | 55,129 |
| | (8,252 | ) |
| Other income, net | 1,434 |
| | 2,474 |
| | 1,812 |
|
| Income (loss) before income taxes | 42,723 |
| | 57,603 |
| | (6,440 | ) |
| Benefit (provision) for income taxes | 35,509 |
| | (531 | ) | | (517 | ) |
| Net income (loss) | $ | 78,232 |
| | $ | 57,072 |
| | $ | (6,957 | ) |
| | | | | | |
| Basic net income (loss) per share | $ | 0.66 |
| | $ | 0.49 |
| | $ | (0.06 | ) |
| Diluted net income (loss) per share | $ | 0.65 |
| | $ | 0.48 |
| | $ | (0.06 | ) |
| Shares used in per share calculations: | | | | | |
| Basic | 117,875 |
| | 116,726 |
| | 115,384 |
|
| Diluted | 121,139 |
| | 120,143 |
| | 115,384 |
|
Contents
LATTICE SEMICONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND
COMPREHENSIVE INCOME (LOSS)
(inIn thousands, except par value)
| | | | Common Stock ($.01 par value) | | | | | | | | Accumulated
other comprehensive (loss) income | | | Common Stock ($.01 par value) | | | | | | | | Accumulated | | |
| | Shares | | Amount | | Paid-in
Capital | | Treasury stock | | Accumulated
deficit | | Total | Shares | | Amount | | Paid-in capital | | Treasury stock | | Accumu- lated deficit | | other comprehensive loss | | Total |
| Balances, January 3, 2009 | 115,469 |
| | $ | 1,155 |
| | $ | 617,572 |
| | $ | — |
| | $ | (363,255 | ) | | $ | (533 | ) | | $ | 254,939 |
| |
| Net loss for 2009 | — |
| | — |
| | — |
| | — |
| | (6,957 | ) | | — |
| | (6,957 | ) | |
| Unrealized gain, net, related to marketable securities | — |
| | — |
| | — |
| | — |
| | — |
| | 1,031 |
| | 1,031 |
| |
| Recognized gain on redemption of marketable securities, previously unrealized | — |
| | — |
| | — |
| | — |
| | — |
| | (284 | ) | | (284 | ) | |
| Translation adjustments | — |
| | — |
| | — |
| | — |
| | — |
| | (56 | ) | | (56 | ) | |
| Comprehensive loss | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (6,266 | ) | |
| Common stock issued in connection with exercise of stock options, ESPP and net vested RSUs | 386 |
| | 4 |
| | 198 |
| | — |
| | — |
| | — |
| | 202 |
| |
| Stock repurchase | (263 | ) | | (3 | ) | | — |
| | (326 | ) | | — |
| | — |
| | (329 | ) | |
| Retirement of treasury stock | — |
| | — |
| | (326 | ) | | 326 |
| | — |
| | — |
| | — |
| |
| Stock-based compensation expense related to stock options, ESPP and RSUs | — |
| | — |
| | 4,576 |
| | — |
| | — |
| | — |
| | 4,576 |
| |
| Distribution of stock held by deferred stock compensation plan | — |
| | — |
| | 238 |
| | — |
| | — |
| | — |
| | 238 |
| |
| Balances, January 2, 2010 | 115,592 |
| | 1,156 |
| | 622,258 |
| | — |
| | (370,212 | ) | | 158 |
| | 253,360 |
| 115,592 |
| | $ | 1,156 |
| | $ | 622,258 |
| | $ | — |
| | $ | (370,212 | ) | | $ | 158 |
| | $ | 253,360 |
|
| Net income for 2010 | — |
| | — |
| | — |
| | — |
| | 57,072 |
| | — |
| | 57,072 |
| — |
| | — |
| | — |
| | — |
| | 57,072 |
| | — |
| | 57,072 |
|
| Unrealized gain, net, related to marketable securities | — |
| | — |
| | — |
| | — |
| | — |
| | 581 |
| | 581 |
| |
| Unrealized gain related to marketable securities, net | | — |
| | — |
| | — |
| | — |
| | — |
| | 581 |
| | 581 |
|
| Tax effect of change in fair market value of auction rate securities | — |
| | — |
| | — |
| | — |
| | — |
| | (304 | ) | | (304 | ) | — |
| | — |
| | — |
| | — |
| | — |
| | (304 | ) | | (304 | ) |
| Translation adjustments | — |
| | — |
| | — |
| | — |
| | — |
| | 64 |
| | 64 |
| — |
| | — |
| | — |
| | — |
| | — |
| | 64 |
| | 64 |
|
| Comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 57,413 |
| |
| Common stock issued in connection with exercise of stock options, ESPP and net vested RSUs | 2,750 |
| | 27 |
| | 5,341 |
| | — |
| | — |
| | — |
| | 5,368 |
| |
| Common stock issued in connection with the exercise of stock options, ESPP and vested RSUs (net of taxes) | | 2,750 |
| | 27 |
| | 5,341 |
| | — |
| | — |
| | — |
| | 5,368 |
|
| Stock repurchase | (371 | ) | | (4 | ) | | — |
| | (1,966 | ) | | — |
| | — |
| | (1,970 | ) | (371 | ) | | (4 | ) | | — |
| | (1,966 | ) | | — |
| | — |
| | (1,970 | ) |
| Retirement of treasury stock | — |
| | — |
| | (1,966 | ) | | 1,966 |
| | — |
| | — |
| | — |
| — |
| | — |
| | (1,966 | ) | | 1,966 |
| | — |
| | — |
| | — |
|
| Stock-based compensation expense related to stock options, ESPP and RSUs | — |
| | — |
| | 4,551 |
| | — |
| | — |
| | — |
| | 4,551 |
| — |
| | — |
| | 4,551 |
| | — |
| | — |
| | — |
| | 4,551 |
|
| Balances, January 1, 2011 | 117,971 |
| | 1,179 |
| | 630,184 |
| | — |
| | (313,140 | ) | | 499 |
| | 318,722 |
| 117,971 |
| | 1,179 |
| | 630,184 |
| | — |
| | (313,140 | ) | | 499 |
| | 318,722 |
|
| Net income for 2011 | — |
| | — |
| | — |
| | — |
| | 78,232 |
| | — |
| | 78,232 |
| — |
| | — |
| | — |
| | — |
| | 78,232 |
| | — |
| | 78,232 |
|
| Fair value charge related to marketable securities | — |
| | — |
| | — |
| | — |
| | — |
| | (526 | ) | | (526 | ) | |
| Unrealized loss related to marketable securities, net | | — |
| | — |
| | — |
| | — |
| | — |
| | (526 | ) | | (526 | ) |
| Recognized gain on redemption of marketable securities, previously unrealized | — |
| | — |
| | — |
| | — |
| | — |
| | (133 | ) | | (133 | ) | — |
| | — |
| | — |
| | — |
| | — |
| | (133 | ) | | (133 | ) |
| Translation adjustments | — |
| | — |
| | — |
| | — |
| | — |
| | (185 | ) | | (185 | ) | — |
| | — |
| | — |
| | — |
| | — |
| | (185 | ) | | (185 | ) |
| Comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 77,388 |
| |
| Common stock issued in connection with exercise of stock options, ESPP and net vested RSUs | 2,145 |
| | 23 |
| | 5,508 |
| | — |
| | — |
| | — |
| | 5,531 |
| |
| Common stock issued in connection with the exercise of stock options, ESPP and vested RSUs (net of taxes) | | 2,145 |
| | 23 |
| | 5,508 |
| | — |
| | — |
| | — |
| | 5,531 |
|
| Stock repurchase | (2,441 | ) | | (25 | ) | | — |
| | (14,411 | ) | | — |
| | — |
| | (14,436 | ) | (2,441 | ) | | (25 | ) | | — |
| | (14,411 | ) | | — |
| | — |
| | (14,436 | ) |
| Retirement of treasury stock | — |
| | — |
| | (14,411 | ) | | 14,411 |
| | — |
| | — |
| | — |
| — |
| | — |
| | (14,411 | ) | | 14,411 |
| | — |
| | — |
| | — |
|
| Stock-based compensation expense related to stock options, ESPP and RSUs | — |
| | — |
| | 6,356 |
| | — |
| | — |
| | — |
| | 6,356 |
| — |
| | — |
| | 6,356 |
| | — |
| | — |
| | — |
| | 6,356 |
|
| Balances, December 31, 2011 | 117,675 |
| | $ | 1,177 |
| | $ | 627,637 |
| | $ | — |
| | $ | (234,908 | ) | | $ | (345 | ) | | $ | 393,561 |
| 117,675 |
| | 1,177 |
| | 627,637 |
| | — |
| | (234,908 | ) | | (345 | ) | | 393,561 |
|
| Net loss for 2012 | | — |
| | — |
| | — |
| | — |
| | (29,606 | ) | | — |
| | (29,606 | ) |
| Unrealized loss related to marketable securities, net | | — |
| | — |
| | — |
| | — |
| | — |
| | (57 | ) | | (57 | ) |
| Recognized gain on redemption of marketable securities, previously unrealized | | — |
| | — |
| | ��� |
| | — |
| | — |
| | (78 | ) | | (78 | ) |
| Translation adjustments | | — |
| | — |
| | — |
| | — |
| | — |
| | 219 |
| | 219 |
|
| Common stock issued in connection with the exercise of stock options, ESPP and vested RSUs (net of taxes) | | 1,896 |
| | 19 |
| | 3,531 |
| | — |
| | — |
| | — |
| | 3,550 |
|
| Stock repurchase | | — |
| | — |
| | — |
| | (17,549 | ) | | — |
| | — |
| | (17,549 | ) |
| Retirement of treasury stock | | (4,071 | ) | | (41 | ) | | (17,508 | ) | | 17,549 |
| | — |
| | — |
| | — |
|
| Stock-based compensation expense related to stock options, ESPP and RSUs | | — |
| | — |
| | 7,510 |
| | — |
| | — |
| | — |
| | 7,510 |
|
| Balances, December 29, 2012 | | 115,500 |
| | $ | 1,155 |
| | $ | 621,170 |
| | $ | — |
| | $ | (264,514 | ) | | $ | (261 | ) | | $ | 357,550 |
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
LATTICE SEMICONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(inIn thousands)
| | | | Year Ended | Year Ended |
| | December 31,
2011 | | January 1,
2011 | | January 2,
2010 | December 29,
2012 | | December 31,
2011 | | January 1,
2011 |
| Cash flows from operating activities: | | | | | | | | | | |
| Net income (loss) | $ | 78,232 |
| | $ | 57,072 |
| | $ | (6,957 | ) | |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | |
| Net (loss) income | | $ | (29,606 | ) | | $ | 78,232 |
| | $ | 57,072 |
|
| Adjustments to reconcile net (loss) income to net cash provided by operating activities: | | | | | | |
| Depreciation and amortization | 16,666 |
| | 14,492 |
| | 14,210 |
| 22,149 |
| | 16,666 |
| | 14,492 |
|
| Deferred income tax (benefit) provision | (49,376 | ) | | (479 | ) | | 11 |
| |
| Impairment of Long-term marketable securities and Other current assets | — |
| | — |
| | 2,600 |
| |
| Gain on sale of equity securities | (303 | ) | | (668 | ) | | (2,958 | ) | |
| Change in deferred income tax provision (benefit) | | 19,224 |
| | (49,376 | ) | | (479 | ) |
| Gain on sale or maturity of marketable securities, net | | (393 | ) | | (303 | ) | | (668 | ) |
| Gain on sale of real estate | — |
| | (720 | ) | | — |
| — |
| | — |
| | (720 | ) |
| Stock-based compensation | 6,356 |
| | 4,551 |
| | 4,576 |
| 7,510 |
| | 6,356 |
| | 4,551 |
|
| Changes in assets and liabilities, net of acquisitions: | | | | | | |
| Changes in assets and liabilities: net of acquisitions | | | | | | |
| Accounts receivable, net | 4,553 |
| | (7,637 | ) | | (7,147 | ) | (9,954 | ) | | 4,553 |
| | (7,637 | ) |
| Other receivable | — |
| | — |
| | 60,000 |
| |
| Inventories | 2,618 |
| | (11,408 | ) | | 6,778 |
| (6,916 | ) | | 2,618 |
| | (11,408 | ) |
| Prepaid expenses and other current assets | (1,367 | ) | | (3,613 | ) | | 676 |
| |
| Prepaid expenses and other assets | | 387 |
| | (1,367 | ) | | (3,613 | ) |
| Foundry advances (includes advance credits) | — |
| | 11,475 |
| | 20,082 |
| — |
| | — |
| | 11,475 |
|
| Accounts payable and accrued expenses (includes restructuring) | (1,059 | ) | | 6,747 |
| | 6,312 |
| 5,306 |
| | (1,059 | ) | | 6,747 |
|
| Accrued payroll obligations | (2,281 | ) | | 6,536 |
| | (1,575 | ) | (3,224 | ) | | (2,281 | ) | | 6,536 |
|
| Deferred income and allowances on sales to sell-through distributors | (4,931 | ) | | 5,532 |
| | 4,419 |
| (208 | ) | | (4,931 | ) | | 5,532 |
|
| Other liabilities | 13,068 |
| | 222 |
| | 362 |
| 220 |
| | 13,068 |
| | 222 |
|
| Net cash provided by operating activities | 62,176 |
| | 82,102 | | 101,389 |
| 4,495 |
| | 62,176 |
| | 82,102 |
|
| Cash flows from investing activities: | | | | | | | | | | |
| Proceeds from sales or maturities of marketable securities | 81,313 |
| | 54,252 |
| | 19,932 |
| 56,408 |
| | 81,313 |
| | 54,252 |
|
| Purchase of marketable securities | (83,259 | ) | | (105,661 | ) | | (8,511 | ) | (50,076 | ) | | (83,259 | ) | | (105,661 | ) |
| Proceeds from sale of land | — |
| | 871 |
| | — |
| — |
| | — |
| | 871 |
|
| Acquisitions net of cash acquired | (45,645 | ) | | — |
| | — |
| — |
| | (45,645 | ) | | — |
|
| Payment for purchase of intangible assets | (18,500 | ) | | — |
| | — |
| — |
| | (18,500 | ) | | — |
|
| Capital expenditures | (13,001 | ) | | (13,856 | ) | | (7,030 | ) | (13,593 | ) | | (13,001 | ) | | (13,856 | ) |
| Acquisition of software licenses | (7,140 | ) | | (2,791 | ) | | (2,447 | ) | |
| Net cash (used in ) provided by investing activities | (86,232 | ) | | (67,185 | ) | | 1,944 |
| |
| Other investing activities, primarily time-based software licenses | | (6,122 | ) | | (7,140 | ) | | (2,791 | ) |
| Net cash used in investing activities | | (13,383 | ) | | (86,232 | ) | | (67,185 | ) |
| Cash flows from financing activities: | | | | | | | | | | |
| Payment on yen line of credit | — |
| | — |
| | (805 | ) | |
| Net share settlement upon issuance of RSUs | (642 | ) | | (808 | ) | | (211 | ) | (832 | ) | | (642 | ) | | (808 | ) |
| Treasury stock | (14,436 | ) | | (1,970 | ) | | (329 | ) | |
| Purchase of treasury stock | | (17,549 | ) | | (14,436 | ) | | (1,970 | ) |
| Net proceeds from issuance of common stock | 6,173 |
| | 6,176 |
| | 413 |
| 4,382 |
| | 6,173 |
| | 6,176 |
|
| Net cash (used in) provided by financing activities | (8,905 | ) | | 3,398 |
| | (932 | ) | (13,999 | ) | | (8,905 | ) | | 3,398 |
|
| Net (decrease) increase in cash and cash equivalents | (32,961 | ) | | 18,315 |
| | 102,401 |
| (22,887 | ) | | (32,961 | ) | | 18,315 |
|
| Beginning cash and cash equivalents | 174,384 |
| | 156,069 |
| | 53,668 |
| 141,423 |
| | 174,384 |
| | 156,069 |
|
| Ending cash and cash equivalents | $ | 141,423 |
| | $ | 174,384 |
| | $ | 156,069 |
| $ | 118,536 |
| | $ | 141,423 |
| | $ | 174,384 |
|
| Supplemental disclosures of non-cash investing and financing activities: | | | | | | | | | | |
| Unrealized (loss) gain on assets measured at fair value, net, included in Accumulated other comprehensive (loss) income | $ | (526 | ) | | $ | 581 |
| | $ | 1,031 |
| |
| Unrealized (loss) gain related to marketable securities, net, included in Accumulated other comprehensive loss | | $ | (57 | ) | | $ | (526 | ) | | $ | 581 |
|
| Distribution of deferred compensation from trust assets | $ | 341 |
| | $ | 288 |
| | $ | 655 |
| $ | 263 |
| | $ | 341 |
| | $ | 288 |
|
| Tax effect of change in fair market value of auction rate securities | $ | — |
| | $ | (304 | ) | | $ | — |
| $ | — |
| | $ | — |
| | $ | (304 | ) |
Refer to Note 3 - Business Combinationscombinations and Goodwill for other non-cash impacts associated with the acquisition of SiliconBlue.
The accompanying notes are an integral part of these Consolidated Financial Statements.
LATTICE SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1)—Nature of Operations and Significant Accounting Policies:
Nature of Operations
Lattice Semiconductor Corporation (“Lattice” or the “Company”) designs, develops and markets programmable logic products and related software. Programmable logic products are widely used semiconductor components that can be configured by end customers as specific logic circuits, enabling shorter design cycle times and reduced development costs. Our end customers are primarily original equipment manufacturers (“OEMs”) in the communications, computing,industrial and other, consumer industrial, military, automotive, and medicalcomputing end markets.
We do not manufacture our own silicon wafers. We maintain strategic relationships with large semiconductor foundries to source our finished silicon wafers in Asia. In addition, all of our assembly operations and most of our test operations are performed by outside suppliers in Asia. We perform certain test operations and reliability and quality assurance processes internally.
We place substantial emphasis on new product development and believe that continued investment in this area is required to maintain and improve our competitive position. Our product development activities emphasize new proprietary products, advanced packaging, enhancement of existing products and process technologies, and improvement of software development tools. Product development activities occur primarily in: Hillsboro, Oregon; San Jose, California; Downers Grove, Illinois; Shanghai, China; and Manila, Philippines.
Fiscal Reporting Period
We report based on a 52 or 53-week53-week fiscal year ending on the Saturday closest to December 31.31. Our fiscal 20112012, 20102011 and 20092010 were 52-week years endingended on December 29, 2012, December 31, 2011, and January 1, 2011 and January 2, 2010, respectively. Our fiscal 20122013 will be a 52-week year and will end on December 29, 201228, 2013. All references to quarterly or yearly financial results are references to the results for the relevant fiscal period.
Principles of Consolidation
The accompanying Condensed Consolidated Financial Statements include the accounts of Lattice and its subsidiaries, all of which are wholly owned, after the elimination of all intercompany balances and transactions. Certain balances in prior fiscal years have been reclassified to conform to the presentation adopted in the current year.
Cash Equivalents and Marketable Securities
We consider all investments that are readily convertible into cash and have original maturities of three months or less, to be cash equivalents. Cash equivalents consist primarily of highly liquid investments in time deposits or money market accounts and are carried at cost. We account for marketable securities as available for sale with unrealized gains or losses recorded to Accumulated other comprehensive income (loss),loss, unless losses are considered other-than-temporary, in which case, losses are charged to the Consolidated Statements of Operations.Operations and Comprehensive (Loss) Income .
Fair Value of Financial Instruments
We invest in various financial instruments including corporate and government bonds, notes, commercial paper and auction rate securities and foundry investments.securities. The Company values these instruments at their fair value and monitors their portfolio for impairment on a periodic basis. In the event that the carrying value of an investment exceeds its fair value and the decline in value is determined to be other than temporary, the Company records an impairment charge and establishes a new carrying value. We assess other-than-temporary impairment of marketable securities in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) ASC 820, “Fair Value Measurements and Disclosures".Disclosures.” The framework under the provisions of ASC 820 establishes three levels of inputs that may be used to measure fair value. Each level of input has different levels of subjectivity and difficulty involved in determining fair value.
Level 1 instruments are characterized generally by quoted prices for identical assets or liabilities in active markets. Therefore, determining fair value for Level 1 instruments generally does not require significant management judgment, and the
estimation is not difficult.
Level 2 instruments include inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices for identical instruments in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 instruments include unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. TheOur auction rate securities are classified as Level 3 instruments. Management uses a combination of the market and income approach to derive the fair value of auction rate securities, which include third party valuation results, investment broker provided market information and available information on the credit quality of the underlying collateral. As a result, the determination of fair value for Level 3 instruments requires the mostsignificant management judgment and subjectivity.
Derivative Financial Instruments
At December 31, 2011, January 1, 2011 and January 2, 2010, we had open foreign exchange contracts of 140,000,000 JPY, zero, and zero, respectively. The contracts outstanding at December 31, 2011 were settled Our Level 3 instruments are classified as Long-term marketable securities on January 26, 2012. Although such hedges mitigate our foreign currency exchange rate exposure from an economic perspective they were not designated as "effective" hedges for accounting purposesCondensed Consolidated Balance Sheet and are adjustedentirely made up of auction rate securities that consist of student loan asset-backed notes. Such loans are insured by the federal government or guaranteed by the Federal Family Educational Loan Program ("FFELP"). Fair value measurement may be sensitive to fair value through earnings. We do not holdvarious unobservable inputs such as the ability of students to repay their loans, or issue derivative financial instruments for tradingchange in the provision of government guarantees policy toward guaranteeing loan repayment. If students are unable to pay back their loans or speculative purposes.the government changes its policy, our investments may be further impaired.
Foreign Exchange and Translation of Foreign Currencies
A portion of our silicon wafer and other purchases are denominated in Japanese yen and we bill certain Japanese customers in yen. Gains or losses from foreign exchange rate fluctuations on balances denominated in foreign currencies are reflected in Other income, (expense), net. Realized and unrealized gains or losses on foreign currency transactions were not significant for the years presented. We translate accounts denominated in foreign currencies in accordance with ASC 830, “Foreign Currency Matters” using the current rate method, under which asset and liability accounts are translated at the current rate, while stockholders' equity accounts are translated at the appropriate historical rates, and revenue and expense accounts are translated at average monthly exchange rates. Translation adjustments related to the consolidation of foreign subsidiary financial statements are reflected in Accumulated other comprehensive income (loss)loss in Stockholders' equity.
Derivative Financial Instruments
At December 29, 2012 and December 31, 2011, we had open foreign exchange contracts of 150,000,000 JPY and 140,000,000 JPY, respectively. The contracts outstanding at December 29, 2012 and December 31, 2011 were settled in January 2013 and January 2012, respectively. Although such hedges mitigate our foreign currency exchange rate exposure from an economic perspective they were not designated as "effective" hedges for accounting purposes and are adjusted to fair value through earnings, with an impact of less than $0.1 million for the periods reported. We do not hold or issue derivative financial instruments for trading or speculative purposes.
Concentration Risk
Potential exposure to concentration risk consists primarily of cash and cash equivalents, marketable securities, and trade receivables and supply of wafers for our new products. We place our investments primarily through three financial institutions and mitigate the concentration of credit risk by placing percentage limits onlimiting the maximum portion of the investment portfolio which may be invested in any one investment instrument. The Company's investment policy defines approved credit ratings for investment securities. Purchased securities must meet or exceed the ratings; however, due to liquidity issues in global credit and capital markets, some of our auction rate securities have fallen below our required credit ratings during the past year. Investments on-hand consisted primarily of money market instruments, “AA” or better corporate notes and bonds, “AA” or better rated U. S. municipal notes, and U.S. government agency obligations. See Note 4 for a discussion of the liquidity attributes of our marketable securities.
Concentration of credit risk with respect to trade receivables are mitigated by a geographically diverse customer base and our credit and collection process. Accounts receivable are recorded at the invoice amount, do not bear interest, and are shown net of allowances for doubtful accounts of $0.91.1 million and $0.9 million at December 31, 201129, 2012 and January 1,December 31, 2011, respectively. We perform credit evaluations for essentially all customers and secure transactions with letters of credit or advance payments where appropriate. We regularly review our allowance for doubtful accounts and the aging of our accounts receivable. Write-offs for uncollected trade receivables have not been significant to date.
We rely on Fujitsu Limited ("Fujitsu")a limited number of foundries for most of our wafer purchases for new products.including: Fujitsu Limited, Seiko Epson Corporation Taiwan Semiconductor Manufacturing, Ltd, United Microelectronics Corporation, and GLOBALFOUNDRIES.
Revenue Recognition and Deferred Income
Revenue from sales to customers is recognized upon shipment, or in the case of sales by our sell-through distributors, at the time of reported resale, provided that persuasive evidence of an arrangement exists, the price is fixed or determinable, title has transferred, collection of resulting receivables is reasonably assured, there are no customer remaining acceptance requirements and no remaining significant obligations. We sell our products directly to end customers or through a network of independent manufacturers' representatives and indirectly through a network of independent sell-in and sell-through distributors. Distributors provide us periodic data regarding the product, price, quantity, and end customer when products are resold, as well as the quantities of our products they still have in stock. We must use estimates
Revenue from sales to original equipment manufacturers (OEMs) or sell-in distributors is recognized upon shipment. Revenue from sales by our sell-through distributors is recognized at the time of reported resale. Under both types of revenue recognition, persuasive evidence of an arrangement exists, the price is fixed or determinable, title has transferred, collection of resulting receivables is reasonably assured, there are no remaining customer acceptance requirements and apply judgment to reconcileno remaining significant performance obligations.
Orders from our sell-through distributors' reported inventories to their activities. Any error in our judgment could lead to inaccurate reportingdistributors are initially recorded at published list prices; however, for a majority of our Revenue, Costsales, the final selling price is determined at the time of resale and in accordance with a distributor price agreement. In certain circumstances, we allow sell-through distributors to return unsold products. At times, we protect our sell-through distributors against reductions in published list prices. For these reasons, we do not recognize revenue until products sold,are resold by sell-through distributors to an end customer.
For sell-through distributors, at the time of shipment to distributors, we (a) record Accounts receivable, net at published list price since there is a legally enforceable obligation from the distributor to pay us currently for product delivered, (b) relieve inventory for the carrying value of goods shipped since legal title has passed to the distributor, and (c) record deferred revenue and deferred cost of sales in Deferred income and allowances on sales to sell-through distributors and Net income (loss).
Atin the timeliability section of shipment to a sell-through distributor we invoice at published list price.our consolidated balance sheets. The final price is set at the time of resale and is determined in accordance with a distributor price agreement. Invoices are recorded in Accounts receivable, net with a corresponding credit to Deferred income and allowances on sales to sell-though distributors and inventory is credited from Inventories with a corresponding charge to Deferred income and allowances on sales to sell-through distributors. Revenue and cost of products sold 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 products sold are reflected in Net (loss) income (loss).
The components of Deferred income and allowances on sales to sell-through distributors are presented in the following table (in thousands):
| |
| December 31,
2011 |
| January 1,
2011 | | December 29,
2012 | | December 31,
2011 |
| Inventory valued at published list price and held by sell-through distributors with right of return | $ | 40,147 |
|
| $ | 50,085 |
| | $ | 38,623 |
| | $ | 40,147 |
|
| Allowance for distributor advances | (23,300 | ) |
| (26,830 | ) | | (22,450 | ) | | (23,300 | ) |
| Deferred cost of sales related to inventory held by sell-through distributors | (6,086 | ) |
| (7,563 | ) | | (5,620 | ) | | (6,086 | ) |
| Total Deferred income and allowances on sales to sell-through distributors | $ | 10,761 |
|
| $ | 15,692 |
| | $ | 10,553 |
| | $ | 10,761 |
|
During fiscal 2009, the Company embarked on a program to restructure our distribution channels primarily in the Asia Pacific region, from a sell-in to a sell-through distribution model. As a result,We expect the majority of our revenue in fiscal 2010 was2013 will be from reported resale from our sell-through distributors. ResaleFor the fiscal years 2012, 2011 and 2010, resale of product by sell-through distributors as a percentage of our total revenue was 61%55%, 56%61% and 38% in fiscal 2011, 2010 and 200956%, respectively.
On August 28,In 2011 our global franchise agreement with Avnet terminated, however, we had mutually agreed to terms for the transition of inventory through December 31, 2011. We do not expect a significant disruptionRevenue from Avnet made up approximately 20% of our total revenue for the first nine months of fiscal 2011. Because we and our remaining global and regional distributors worked directly with our end customers in order to transition the fulfillment of customer orders to replacement distributors, the impact on our ability to service customersbusiness as a result of this change.change has been negligible. We continue to serve our end customers with a network that includes a global distributor, regional distributors, manufacturer's representatives, and our direct sales team.
We must use estimates and apply judgment to reconcile sell-through distributors' reported inventories to their activities. Errors in our estimates or judgments could result in inaccurate reporting of our Revenue, Cost of products sold, Deferred income and allowances on sales to sell-through distributors, and Net (loss) income.
Revenue from software licensing was not material for the periods presented.
Inventories
Inventories are recorded at the lower of actual cost (approximated by standard cost) determined on a first-in-first-out basis or market. We establish provisions for inventory if it is in excess of projected customer demand, and the creation of such provisions results in a write-down of inventory to net realizable value and a charge to cost of sales.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization are computed using the straight-line method for financial reporting purposes over the estimated useful lives of the related assets, generally three to five years for equipment and software, one to three years for tooling and thirty years for buildings. Upon disposal of property and equipment, the accounts are relieved of the costs and related accumulated depreciation and amortization, and resulting gains or losses are reflected in operations. Repair and maintenance costs are expensed as incurred.
Impairment of Long-Lived AssetsAsset Impairments
Long-lived assets, including amortizable intangible assets, are carried on our financial statements based on their cost less accumulated depreciation or amortization. We reviewmonitor the carrying value of our long-lived assets primarily propertyfor potential impairment and equipment and purchased intangible assets subject to amortization, in accordance with ASC 360, “Property, Plant and Equipment", which requires us to reviewtest the impairmentrecoverability of long-livedsuch assets whenever events or changes in circumstances indicate that thetheir carrying amount of an assetamounts may not be recoverable. Impairment is determinedThese events or changes in circumstances, including management decisions pertaining to such assets, are referred to as impairment indicators. If an impairment indicator occurs, we perform a test of recoverability by comparing the estimatedcarrying value of the asset group to its undiscounted expected future cash flows. If the carrying values are in excess of undiscounted expected future cash flows, we measure any impairment by comparing the fair value of the asset group to its carrying value. Fair value is generally determined by considering (i) internally developed discounted projected cash flow analysis of the carrying amount. A lossasset group; (ii) actual third-party valuations; and/or (iii) information available regarding the current market for similar asset groups. If the fair value of the asset group is recorded ifdetermined to be less than the carrying amount of the asset exceedsgroup, an impairment in the estimated undiscountedamount of the difference is recorded in the period that the impairment indicator occurs and is included in our Consolidated Statement of Operations and Comprehensive (Loss) Income. Estimating future cash flowflows requires significant judgment and projections may vary from the cash flows eventually realized, which could impact our ability to accurately assess whether an asset has been impaired. No impairment charges were recorded for the difference between carrying value and fair value.fiscal year ended 2012.
Valuation of Goodwill
Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business
combination that are not individually identified and separately recognized. The Company reviews goodwill for impairment annually during the fourth quarter and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. TheWhen evaluating whether goodwill impairment test is impaired, the Company makes a two-step test. Underqualitative assessment to determine if it is more likely than not that its fair value is less than its carrying amount. If the first step,qualitative assessment determines that it is more likely than not that its fair value is less than its carrying amount, the fair value of the reporting unit is compared with its carrying value (including goodwill). If the fair value of the reporting unit is less than its carrying value, an indication of goodwill impairment exists for the reporting unit and the entityCompany must perform step two ofmeasure the impairment test (measurement). Under step two, anloss. The impairment loss, if any, is recognized for any excess of the carrying amount of the reporting unit's goodwill over the implied fair value of thatthe goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation and the residual fair value after this allocation is the implied fair value of the reporting unit goodwill. Fair value of the reporting unit is determined using a discounted cash flow analysis. If the fair value of the reporting unit exceeds its carrying value, step two does not need to be performed.no further impairment analysis is needed. For purposes of testing goodwill for impairment, the Company operates as a single reporting unit. No goodwill impairment charges relating to goodwill waswere recorded for the fiscal year ended 2011.2012.
Leases
We lease office space and classify our leases as either operating or capital lease arrangements in accordance with the criteria of ASC 840, “Leases”.“Leases.” Certain of our office space operating leases contain provisions under which monthly rent escalates over time and certain leases may also contain provisions for reimbursement of a specified amount of leasehold improvements. When lease agreements contain escalating rent clauses, we recognize expense on a straight-line basis over the term of the lease. When lease agreements provide allowances for leasehold improvements, we capitalize the leasehold improvement assets and amortize them on a straight-line basis over the lesser of the lease term or the estimated useful life of the asset, and reduce rent expense on a straight-line basis over the term of the lease by the amount of the asset capitalized.
Restructuring Charges
Expenses associated with exit or disposal activities are recognized when incurred under ASC 420, “Exit or Disposal Cost Obligations”,Obligations,” for everything but severance. Because the Company has a history of paying severance benefits, the cost of severance benefits associated with a restructuring charge is recorded when such costs are probable and the amount can be reasonably estimated in accordance with ASC 712, “Compensation - Nonretirement Postemployment Benefits”.Benefits.” For leased facilities that were ceased to be used, an amount equal to the total future lease obligations from the date of vacating the premises through the expiration of the lease, net of any future sublease income, was recorded as a part of restructuring charges.
Research and Development
Research and development costs are expensed as incurred.
Accounting for Income Taxes
The Company’s provision for income tax is comprised of its current tax liability and change in deferred tax assets and liabilities. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax basesbasis of assets and liabilities and their reported amounts in the financial statements using enacted tax rates and laws that will be in effect when the difference is expected to reverse. Valuation allowances are provided to reduce deferred tax assets to an amount that in management’s judgment is more likely than notmore-likely-than-not to be recoverable against future taxable income. At December 29, 2012, U.S. income taxes and foreign withholding taxes were not provided for on a cumulative total of approximately $1.6$2.0 million of the undistributed earnings of our Chinese subsidiary. Wesubsidiary as we intend to reinvest these earnings indefinitely in our Chinese subsidiary.indefinitely. If these earnings were distributed to the U.S. in the form of dividends or otherwise, we would be subject to additional U.S. income taxes and foreign withholding taxes.
The Company’s income tax calculations are based on application of the respective U.S. federal, state or foreign tax law. The Company’s tax filings, however, are subject to audit by the relevant tax authorities. Accordingly, the Company recognizes tax liabilities based upon its estimate of whether, and the extent to which, additional taxes will be due when such estimates are more-likely-than-not to be sustained. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. To the extent the final tax liabilities are different than the amounts originally accrued, the increases or decreases are recorded as income tax expense or benefit in the consolidated statementsConsolidated Statements of operations.Operations and Comprehensive (Loss) Income.
In assessing the realizability of deferred tax assets, the Company evaluates both positive and negative evidence that may exist and considersconsider whether it is more likely than notmore-likely-than-not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.
Any adjustment to the net deferred tax asset valuation allowance is recorded in the consolidated statementConsolidated Statements of operationsOperations and Comprehensive (Loss) Income for the period that the adjustment is determined to be required.
Stock-Based Compensation
The Company records stock-based compensation expense related to employee and director stock options, restricted stock units (“RSUs”), and the Employee Stock Purchase Plan (“ESPP”) in accordance with ASC 718, “Compensation - Stock Compensation”.Compensation.” In addition, the Company records compensation expense over the offering period in connection with shares issuable under the ESPP.
Net (Loss) Income (Loss) Per Share
We compute basic (loss) income (loss) per share by dividing netNet (loss) income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. To determine diluted share count, we apply the treasury stock method to determine the dilutive effect of outstanding stock option shares, restricted stock units (RSUs"),RSUs and ESPP shares. Our application of the treasury stock method includes as assumed proceeds, the average unamortized stock-based compensation expense for the period and the impact of the pro forma deferred tax benefit or cost associated with stock-based compensation expense.
A reconciliation of basic and diluted Net (loss) income (loss) per share is presented below (in thousands, except per share data):
|
| | | | | | | | | | | |
| | Year Ended |
| | December 31,
2011 | | January 1,
2011 | | January 2,
2010 |
| Basic and diluted Net income (loss) | $ | 78,232 |
| | $ | 57,072 |
| | $ | (6,957 | ) |
| Shares used in basic Net income (loss) per share | 117,875 |
| | 116,726 |
| | 115,384 |
|
| Dilutive effect of stock options, RSUs and ESPP shares | 3,264 |
| | 3,417 |
| | — |
|
| Shares used in diluted Net income (loss) per share | 121,139 |
| | 120,143 |
| | 115,384 |
|
| Basic Net income (loss) per share | $ | 0.66 |
| | $ | 0.49 |
| | $ | (0.06 | ) |
| Diluted Net income (loss) per share | $ | 0.65 |
| | $ | 0.48 |
| | $ | (0.06 | ) |
|
| | | | | | | | | | | |
| | Year Ended |
| | December 29,
2012 | | December 31,
2011 | | January 1,
2011 |
| Basic and diluted Net (loss) income | $ | (29,606 | ) | | $ | 78,232 |
| | $ | 57,072 |
|
| Shares used in basic Net (loss) income per share | 117,194 |
| | 117,875 |
| | 116,726 |
|
| Dilutive effect of stock options, RSUs and ESPP shares | — |
| | 3,264 |
| | 3,417 |
|
| Shares used in diluted Net (loss) income per share | 117,194 |
| | 121,139 |
| | 120,143 |
|
| Basic Net (loss) income per share | $ | (0.25 | ) | | $ | 0.66 |
| | $ | 0.49 |
|
| Diluted Net (loss) income per share | $ | (0.25 | ) | | $ | 0.65 |
| | $ | 0.48 |
|
The computation of diluted earningsNet (loss) income per share for fiscal yearyears 2012, 2011, 2010 and 20092010, excludes the effects of stock options, RSUs and ESPP shares aggregating 10.6 million, 3.9 million and 3.0 million and 13.1 million shares, respectively, because the effect wasas they are antidilutive. Stock options, RSUs and ESPP shares and warrants are considered antidilutive when the aggregate of exercise price, unrecognized stock-based compensation expense and excess tax benefitsbenefit are greater than the average market price for our common stock during the period.
Comprehensive Income (Loss)
For fiscal 2011, comprehensive income consists primarily of Net income of $78.2 million andperiod or when the Company is in a net fair value charge arising from marketable securities of $0.6 million. For fiscal 2010, comprehensive income consists primarily of Net income of $57.1 millionloss position. Stock options and a net unrealized gain arising from marketable securities of $0.6 million. For fiscal 2009, comprehensive loss consists primarily of net loss of $7.0 million partially offset by a $1.0 million unrealized gain arising from marketable securities.RSUs that are antidilutive at December 29, 2012 could become dilutive in the future.
Supplemental Cash Flow
Income taxes paid approximated $1.5$1.0 million $0.6, $1.5 million and $0.3$0.6 million in fiscal years 20112012, 20102011 and 20092010, respectively. Interest paid was insignificant for all periods presented.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and classification of assets, such as marketable securities, accounts receivable, inventory, auction rate securities, goodwill (including- including the assessment of reporting unit),unit, intangible assets, current and deferred income taxes, and liabilities, such as accrued liabilities (including- including restructuring charges and bonus arrangements), income taxes andarrangements, deferred income and allowances on sales to sell-through distributors, disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts of revenuesrevenue and expenses during the fiscal periods presented. Actual results could differ from those estimates.
(2)—New Accounting Pronouncements:
In June 2011,February 2013, the FinancialFASB issued Accounting Standards BoardUpdate No. 2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income,” (“FASB”ASU 2013-02”) issued changes. ASU 2013-02 finalizes the requirements of ASU 2011-05 that ASU 2011-12 deferred, clarifying how to report the presentationeffect of significant reclassifications out of accumulated other comprehensive income. These changes give an entityASU 2013-02 is to be applied prospectively. ASU 2013-02 does not change the option to present the total of comprehensive income, the components ofcurrent requirements for reporting net income and the components ofor other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements; the option to present components of other comprehensive income as part of the statement of changes in stockholders' equity was eliminated. The items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income were not changed. Additionally, no changes were made to the calculation and presentation of earnings per share. These changes becomefinancial statements. ASU 2013-02 is effective for theus on December 30, 2012. The Company on January 1, 2012. We will adopt this standard in the first quarter of fiscal 2012.
In May 2011, the FASB issued amended guidance on fair value measurement and related disclosures. The new guidance clarified the concepts applicable for fair value measurement of non-financial assets and requires the disclosure of quantitative information about the unobservable inputs used in a fair value measurement. This guidance will be effective for reporting periods beginning after December 15, 2011, and will be applied prospectively. We are in the process of evaluating the financial and disclosure impact of this guidance. We dodoes not anticipate a material impact on our Consolidated Financial Statements as a result ofthat the adoption of this amended guidance.
In September 2011,ASU will materially change the FASB issued amended guidance on testing goodwill for impairment. The new guidance provides an entity the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair valuepresentation of a reporting unit is less than its carrying amount. If an entity determines that this is the case, it is required to perform the currently prescribed two-step goodwill impairment test to identify potential goodwill impairment and measure the amount of goodwill impairment loss to be recognized for that reporting unit (if any). If an entity determines that the fair value of a reporting unit is more than its carrying amount, the two-step goodwill impairment test is not required. This guidance will be effective for reporting periods beginning after December 15, 2011. We are in the process of evaluating theconsolidated financial and disclosure impact of this guidance. We do not anticipate a material impact on our Consolidated Financial Statements as a result of the adoption of this amended guidance.statements.
(3)—Business Combinations and Goodwill:
On July 15, 2011 the Company acquired substantially all of the assets of Rise Technology Development Limited ("Rise"), a Hong Kong company, and its subsidiary, APAC IC Layout Consultants, Inc. (“APAC IC”), a Manila, Philippines based company engaged in engineering layout and design services for $1.0 million. The acquisition of Rise and APAC IC, which was for cash, is part of the Company's effort to improve its research and development and operations activities, reduce costs and streamline its supply chain for improved predictability and flexibility. The Company allocated the purchase price of the acquisition in accordance with the guidance of ASC 820, “Business Combinations”, which resulted in recording the majority of the purchase price, or $0.9 million, to Goodwill. The Company has not disclosed the purchase price allocation or pro forma information as the acquisition was immaterial to the Consolidated Financial Statements.
OnIn December 9, 2011, we acquired SiliconBlue Technologies Ltd., a Cayman Islands exempted company ("SiliconBlue") which put us, for $63.2 million in a unique position in the mobile consumer segment of the programmable logic market. The purchase price, totaling $63.2 million was paid in cash.
The Company allocated the purchase price of the acquisition in accordance with the guidance of ASC 820, “Business Combinations”. Of the total purchase price, $43.9$43.9 million was allocated to goodwill, which represents$18.5 million was allocated to intangible assets, and the excess of the purchase price of an acquired business over the fair value of the underlyingremaining to net tangible and intangible assets. The goodwill balance is primarily attributed to assembled workforce, expected synergies and expanded opportunities when integrating SilconBlue's technology with our current product offering. SiliconBlue will expand our product offering in the mobile consumer and handheld market. These are among the factors that contributed to a purchase price for SiliconBlue that resulted in the recognition of goodwill.assets acquired. The goodwill and identifiable intangible assets are not deductible for tax purposes. SiliconBlue was consolidated into our financial statements beginning in December, 2011.
The estimated fair value of the assets and liabilities assumed at the acquisition date, as set forth below, reflects various preliminary fair value estimates and analyses, including work performed by a third-party valuation specialist. Certain tax attributes and the allocation of purchase price are pending final valuation and are expected to be finalized within a year of the date of acquisition.
The following table presents the estimated fair values of the assets acquired and liabilities assumed, including those items that are still preliminary, for the acquisition of SiliconBlue (in thousands):
|
| | | | | |
| | Useful lives (in years) | | Estimated Fair Values |
| Net tangible assets acquired | | | $ | 837 |
|
| Acquired intangible assets: | | | |
| Developed technology | 7 | | 10,700 |
|
| Customer relationships | 5.5 | | 7,800 |
|
| Goodwill | | | 43,911 |
|
| Total purchase price allocation | | | $ | 63,248 |
|
Inventories were recorded at their estimated fair value ("step-up"), which represented an amount equivalent to estimated selling prices less fulfillment costs and a normative selling profit. The step-up of $0.3$0.3 million will be was charged to Acquisition related costs in the following six months ended June 30, 2012, approximating the estimated inventory turn-over for this particular product.
In July 2011, the Company acquired substantially all of the assets of Rise Technology Development Limited ("Rise"), for $1.0 million in cash. Of the purchase price, $0.9 million was allocated to Goodwill and the remaining to net tangible assets acquired.
SiliconBlue was consolidated into our financial statements beginning on December 16, 2011. The aggregate net revenues and net losses of SiliconBlue recorded in our consolidated statement of operations from the acquisition date through December 31, 2011 was $0.7 million and $0.5 million, respectively. The unaudited pro-forma financial information in the table below summarizes the combined results of our operations and those of SiliconBlue for the periods shown as though the acquisition had occurred as of the beginning of fiscal year 2010. The pro-forma financial information for the periods presented includes the business combination accounting effects of the acquisition, including amortization charges from acquired intangible assets. The pro-forma financial information as presented below is unaudited, for informational purposes only, is subject to a number of estimates, assumptions and other uncertainties, and may not be indicative of the results of operations that would have been achieved if the acquisition had taken place at January 1, 2010 (in thousands, except per share) :
|
| | | | | | | |
| | Year Ended (unaudited) |
| | December 31, 2011 | | January 1, 2011 |
| Revenues | $ | 325,950 |
| | $ | 302,367 |
|
| Income from operations | 22,697 |
| | 34,831 |
|
| Net income | 59,203 |
| | 36,338 |
|
| Basic net income per share | $ | 0.50 |
| | $ | 0.31 |
|
| Diluted net income per share | $ | 0.49 |
| | $ | 0.30 |
|
No impairment charges relating to goodwill and intangible assets were recorded for the fiscal year ended 2011.years 2012 or 2011.
(4)—Marketable Securities:
The following table summarizes the contractual maturities of our marketable securities (in(at fair value and in thousands):
| |
|
| | | December 31,
2011 | | January 1,
2011 | December 29,
2012 | | December 31,
2011 |
| Short-term marketable securities: | | | | | | |
| Maturities of less than five years | $ | 68,711 |
| | $ | 63,836 |
| $ | 64,865 |
| | $ | 68,711 |
|
| | | | | |
| Long-term marketable securities: | | | | | | |
| Maturities of more than ten years | 6,946 |
| | 10,232 |
| 4,717 |
| | 6,946 |
|
| | $ | 75,657 |
| | $ | 74,068 |
| |
| Total marketable securities | | $ | 69,582 |
| | $ | 75,657 |
|
The following table summarizes the composition of our marketable securities (in(at fair value and in thousands):
|
| | | | | | | |
| | December 31,
2011 | | January 1,
2011 |
| Short-term marketable securities: | | | |
| Corporate and government bonds, notes and commercial paper | $ | 68,711 |
| | $ | 63,836 |
|
| | | | |
| Long-term marketable securities: | | | |
| Auction Rate Securities (by type of underlying asset): | | | |
| Federally insured or FFELP guaranteed student loans | 6,946 |
| | 10,232 |
|
| | $ | 75,657 |
| | $ | 74,068 |
|
|
| | | | | | | |
| | December 29,
2012 | | December 31,
2011 |
| Short-term marketable securities: | | | |
| Corporate and government bonds and notes and commercial paper | $ | 64,865 |
| | $ | 68,711 |
|
| | | | |
| Long-term marketable securities: | | | |
| Federally-insured or FFELP guaranteed student loans | 4,717 |
| | 6,946 |
|
| Total marketable securities | $ | 69,582 |
| | $ | 75,657 |
|
The following table summarizes the composition of our auction rate securities (in thousands):
| | | | | December 31, 2011 | | January 1, 2011 | December 29, 2012 | | December 31, 2011 |
| | | Par Value | | Fair Value | | S&P
Credit
rating | | Par Value | | Fair Value | | S&P
Credit
rating | Par Value | | Fair Value | | S&P Credit rating | | Par Value | | Fair Value | | S&P Credit rating |
| Long-term marketable securities: | | | | | | | | | | | | | | | | | | | | |
| Federally-insured or FFELP guaranteed student loans | | $ | 8,300 |
| | $ | 6,946 |
| | AAA | | $ | 11,600 |
| | $ | 10,232 |
| | AAA | $ | 5,700 |
| | $ | 4,717 |
| | AA+ | | $ | 8,300 |
| | $ | 6,946 |
| | AAA |
On May 22, 2012, a student loan auction rate security with a par value of $2.6 million and an estimated fair value of $2.3 million was redeemed by the issuer for $2.6 million. As a result, the Company reported a gain of $0.4 million and relieved $0.1 million of previously unrecognized gain in Accumulated other comprehensive loss. On March 29, 2011, the Company sold student loan auction rate securities, with a par value of $3.3$3.3 million and an estimated fair value of $2.8$2.8 million, for $3.3$3.3 million, reported a gain of $0.6$0.6 million and relieved $0.1$0.1 million of previously unrecognized gain in Accumulated other comprehensive income,loss, in the first quarter of fiscal 2011.2011. On December 9, 2010, the Company sold auction market preferred shares issued by AMBAC Assurance Corporation with a par value of $8.3$8.3 million and a fair value of $0.2$0.2 million for $0.5$0.5 million and reported a gain of $0.3$0.3 million in the fourth quarter of fiscal 2010. On July 29, 2010, the Company sold student loan auction rate securities, with a par value of $3.8$3.8 million and fair value of $2.9$2.9 million for $3.3$3.3 million and reported a gain of $0.4$0.4 million in the third quarter of fiscal 2010. At December 31, 201129, 2012, due to continued multiple failed auctions and a determination of illiquidity, the $8.3 million par value of auction rate securities held by the Company had an estimated fair value of $6.9 million and are classified as Long-term marketable securities. These auction rate securities are exposed to risks associated with student loan asset-backed notes. Such loans are insured by the federal government or guaranteed by the Federal Family Educational Loan Program ("FFELP"). The Company intends to sell its auction rate securities as markets for these securities resume or reasonable offers become available.
(5)—Fair Value of Financial Instruments (in thousands):
| | | | Fair value measurements as of December 31, 2011 | | Fair value measurements as of January 1, 2011 | Fair value measurements as of December 29, 2012 | | Fair value measurements as of December 31, 2011 |
| | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 |
| Short-term marketable securities | $ | 68,711 |
| | $ | 68,711 |
| | $ | — |
| | $ | — |
| | $ | 63,836 |
| | $ | 63,836 |
| | $ | — |
| | $ | — |
| $ | 64,865 |
| | $ | 64,865 |
| | $ | — |
| | $ | — |
| | $ | 68,711 |
| | $ | 68,711 |
| | $ | — |
| | $ | — |
|
| Long-term marketable securities | 6,946 |
| | — |
| | — |
| | 6,946 |
| | 10,232 |
| | — |
| | — |
| | 10,232 |
| 4,717 |
| | — |
| | — |
| | 4,717 |
| | 6,946 |
| | — |
| | — |
| | 6,946 |
|
| Foreign currency forward exchange contracts | 18 |
| | — |
| | 18 |
| | — |
| | — |
| | — |
| | — |
| | — |
| (5 | ) | | — |
| | (5 | ) | | — |
| | 18 |
| | — |
| | 18 |
| | — |
|
| | $ | 75,675 |
| | $ | 68,711 |
| | $ | 18 |
| | $ | 6,946 |
| | $ | 74,068 |
| | $ | 63,836 |
| | $ | — |
| | $ | 10,232 |
| |
| Total fair value of financial instruments | | $ | 69,577 |
| | $ | 64,865 |
| | $ | (5 | ) | | $ | 4,717 |
| | $ | 75,675 |
| | $ | 68,711 |
| | $ | 18 |
| | $ | 6,946 |
|
We invest in various financial instruments including corporate and government bonds and notes, commercial paper and auction rate securities. In addition, we enter into foreign currency forward exchange contracts to mitigate our foreign currency exchange rate exposure. The Company carries these instruments at their fair value in accordance with ASC 820. The framework under the provisions of ASC 820 establishes three levels of inputs that may be used to measure fair value. Each level of input has different levels of subjectivity and difficulty involved in determining fair value.
Level 1 instruments generally represent quoted prices for identical assets or liabilities in active markets. Therefore, determining fair value for Level 1 instruments generally does not require significant management judgment, and the estimation is not difficult. Our Level 1 instruments consist of federal agency, municipal or corporate notes and bonds, and commercial paper that are traded in active markets and are classified as Short-term marketable securities on our Condensed Consolidated Balance Sheet.
Level 2 instruments include inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices for identical instruments in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 instruments include unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Our auction rate securities are classified as Level 3 instruments. Management uses a combination of the market and income approach to derive the fair value of auction rate securities, which include third party valuation results, investment broker provided market information and available information on the credit quality of the underlying collateral. As a result, the determination of fair value for Level 3 instruments requires significant management judgment and subjectivity. Our Level 3 instruments are classified as Long-term marketable securities on our Condensed Consolidated Balance Sheet.Sheet and are entirely made up of auction rate securities that consist of student loan asset-backed notes. Such loans are insured by the federal government or guaranteed by the Federal Family Educational Loan Program ("FFELP"). Fair value measurement may be sensitive to various unobservable inputs such as the ability of students to repay their loans, or change in the provision of government guarantees policy toward guaranteeing loan repayment. If students are unable to pay back their loans or the government changes its policy, our investments may be further impaired.
There were no transfers between Levels 1 and 2 during fiscal 2012, 2011 and 2010. There were no transfers into or out of Level 3 during fiscal 2012, 2011 and 2010.
During the fiscal years endedDecember 29, 2012 and December 31, 2011, the following changes occurred in ourLevel 3 assetsinstruments (in thousands):
| | | | Year Ended | Year Ended |
| | December 31, 2011 | | January 1, 2011 | December 29,
2012 | | December 31,
2011 |
| Beginning fair value of Long-term marketable securities | $ | 10,232 |
| | $ | 12,939 |
| $ | 6,946 |
| | $ | 10,232 |
|
| Fair value of securities sold or redeemed | (2,843 | ) | | (4,147 | ) | (2,285 | ) | | (2,843 | ) |
| Temporary or other-than-temporary fluctuations in fair value | (443 | ) | | 1,440 |
| |
| Temporary fluctuations in fair value | | 56 |
| | (443 | ) |
| Ending fair value of Long-term marketable securities | $ | 6,946 |
| | $ | 10,232 |
| $ | 4,717 |
| | $ | 6,946 |
|
In accordance with ASC 320, “Investments - Debt“Investments-Debt and Equity Securities,” the Company recorded an unrealized loss of $0.1$0.1 million during the fiscal year ended December 29, 2012 and an unrealized loss of $0.1 million during the year ended December 31, 2011, on certain Short-term marketable securities (Level 1 instruments), which has been recorded in Accumulated other
comprehensive income.loss. Future fluctuations in fair value related to these instruments that the Company deems to be temporary, including any recoveries of previous write-downs, would be recorded to Accumulated other comprehensive income. Forloss. In addition, during the years endedDecember 29, 2012 and December 31, 2011, approximatelythe Company realized a gain of $0.4 million in unrealized losses were recorded in Accumulated other comprehensive income.and $0.6 million, respectively, related to the sale of a portion of its Long-term marketable securities portfolio. If the Company were to determine in the future that any further decline in fair value is other-than-temporary, we would record an impairment charge, which could have a materially detrimental impact on our operating results. If we were to liquidate our position in these securities, it is likely that the amount of any future realized gain or loss would be different from the unrealized gain or loss reported in Accumulated other comprehensive loss or the previously reported other-than-temporary impairment charge.
(6) Inventories (in thousands):
comprehensive income. |
| | | | | | | |
| | December 29,
2012 | | December 31,
2011 |
| Work in progress | $ | 27,915 |
| | $ | 24,260 |
|
| Finished goods | 16,279 |
| | 13,018 |
|
| Total inventories | $ | 44,194 |
| | $ | 37,278 |
|
(6)—Inventories (in thousands):
|
| | | | | | | |
| | December 31,
2011 | | January 1,
2011 |
| Work in progress | $ | 24,260 |
| | $ | 25,516 |
|
| Finished goods | 13,018 |
| | 11,817 |
|
| | $ | 37,278 |
| | $ | 37,333 |
|
(7)—Property and Equipment (in thousands):
| | | | December 31,
2011 | | January 1,
2011 | December 29,
2012 | | December 31,
2011 |
| Land | $ | 1,456 |
| | $ | 1,456 |
| $ | 1,456 |
| | $ | 1,456 |
|
| Buildings | 27,809 |
| | 27,672 |
| 27,827 |
| | 27,809 |
|
| Computer and test equipment | 160,506 |
| | 151,940 |
| 154,809 |
| | 160,506 |
|
| Office furniture and equipment | 9,363 |
| | 9,149 |
| 8,755 |
| | 9,363 |
|
| Leasehold and building improvements | 13,484 |
| | 13,842 |
| 16,460 |
| | 13,484 |
|
| | 212,618 |
| | 204,059 |
| 209,307 |
| | 212,618 |
|
| Accumulated depreciation and amortization | (172,188 | ) | | (164,737 | ) | (168,923 | ) | | (172,188 | ) |
| | $ | 40,430 |
| | $ | 39,322 |
| $ | 40,384 |
| | $ | 40,430 |
|
Depreciation expense was $12.2$13.6 million $10.9, $12.2 million and $10.8$10.9 million for fiscal years 20112012, 20102011, and 20092010, respectively.
(8)—Intangible Assets and Acquisition Related Charges:
In connection with our acquisition of SiliconBlue in December 2011, we recorded identifiable intangible assets related to developed technology and customer relationships and developed technology based on guidance for determining fair value under the provisions of ASC 820. We did not have any identifiable intangible assets recorded as of January 1, 2011. The following table summarizes the details of the Company’s total purchased intangible assets (in thousands):
| | | | | Weighted Average Amortization Period (in years) | | Gross | | Accumulated Amortization | | Intangible assets, net of amortization December 31, 2011 | | Weighted Average Amortization Period (in years) | | Gross | | Accumulated Amortization | | Intangible assets, net of amortization December 29, 2012 |
| Developed technology | | 7.0 | | $ | 10,700 |
| | $ | (64 | ) | | $ | 10,636 |
| | 7 | | $ | 10,700 |
| | $ | (1,592 | ) | | $ | 9,108 |
|
| Customer relationships | | 5.5 | | 7,800 |
| | (59 | ) | | 7,741 |
| | 5.5 | | 7,800 |
| | (1,478 | ) | | 6,322 |
|
| Total | | 6.3 | | $ | 18,500 |
| | $ | (123 | ) | | $ | 18,377 |
| | 6.3 | | $ | 18,500 |
| | $ | (3,070 | ) | | $ | 15,430 |
|
Amortization expense associated with these intangible assets is reported as Acquisition related charges, includes cash outlays forincluding amortization of intangible assets in the Consolidated Statements of Operations and Comprehensive (Loss) Income and amounted to $2.9 million, $0.1 million, and $0 in 2012, 2011, and 2010, respectively. We expect amortization expense related to these intangible assets to approximate $2.9 million in 2013, 2014, 2015 and 2016. We expect amortization expense related to these intangible assets to approximate $2.2 million in 2017 and $1.5 million in 2018.
Acquisition related charges, including amortization of intangible assets in the Consolidated Statements of Operations and Comprehensive (Loss) Income also include severance and professional fees related to the acquisition, as well as the amortization of the stepped up value of inventory collectively amounting to $1.2 million, $0.4 million, and amortization of identifiable intangible assets with finite useful lives. Acquisition related charges$0 in connection with the acquisition of SiliconBlue from the date of acquisition to December 31,2012, 2011, were as follows (in thousands):
|
| | | |
| | Fiscal year 2011 |
| Professional fees | $ | 397 |
|
| Amortization of developed technology | 64 |
|
| Amortization of customer relationships | 59 |
|
| Adjustment to $0.3 million step-up in inventory fair value at date of acquisition | 16 |
|
| Total | $ | 536 |
|
Estimated acquisition related charges in connection with the acquisition of SiliconBlue for future years are as follows (in thousands):
|
| | | | |
| Fiscal year | | Estimated Acquisition related charges |
| 2012 | | $ | 3,196 |
|
| 2013 | | 2,947 |
|
| 2014 | | 2,947 |
|
| 2015 | | 2,947 |
|
| 2016 | | 2,947 |
|
| 2017 | | 2,179 |
|
| 2018 | | 1,463 |
|
| Total | | $ | 18,626 |
|
(9)—Lease Obligations:
Certain of our facilities are leased under operating leases, which expire at various times through 2016.2017. Rental expense under the operating leases was $3.3$3.7 million $2.7, $3.3 million and $3.0$2.7 million for fiscal years 20112012, 20102011 and 20092010, respectively. Future minimum lease commitments at December 31, 201129, 2012 are as follows (in thousands):
| | | Fiscal year | Amount | | Amount |
| 2012 | $ | 3,652 |
| |
| 2013 | 3,060 |
| | $ | 4,099 |
|
| 2014 | 635 |
| | 1,374 |
|
| 2015 | 98 |
| | 702 |
|
| 2016 | 32 |
| | 517 |
|
| 2017 | | | 97 |
|
| Thereafter | — |
| | 40 |
|
| | $ | 7,477 |
| | $ | 6,829 |
|
(10)—Income Taxes:
The domestic and foreign components of income (loss) before Benefit (provision) for income taxes consist of the following (in thousands):
|
| | | | | | | | | | | | |
| | | Year Ended |
| | | December 31, | | January 1, | | January 2, |
| | | 2011 | | 2011 | | 2010 |
| Domestic | | $ | 42,619 |
| | $ | 56,782 |
| | $ | (8,588 | ) |
| Foreign | | 104 |
| | 821 |
| | 2,148 |
|
| Income (loss) before income taxes | | $ | 42,723 |
| | $ | 57,603 |
| | $ | (6,440 | ) |
|
| | | | | | | | | | | | |
| | | Year Ended |
| | | December 29, 2012 | | December 31, 2011 | | January 1, 2011 |
| Domestic | | $ | 51,859 |
| | $ | 42,619 |
| | $ | 56,782 |
|
| Foreign | | (60,720 | ) | | 104 |
| | 821 |
|
| (Loss) income before income taxes | | $ | (8,861 | ) | | $ | 42,723 |
| | $ | 57,603 |
|
The components of the income tax Benefit (provisions)(provision) benefit are as follows (in thousands):
| | | | Year Ended | | Year Ended |
| | December 31,
2011 | | January 1,
2011 | | January 2,
2010 | | December 29,
2012 | | December 31,
2011 | | January 1,
2011 |
| Current: | | | | | | | | | | | |
| Federal | $ | (13,463 | ) | | $ | (83 | ) | | $ | (74 | ) | | $ | 344 |
| | $ | (13,463 | ) | | $ | (83 | ) |
| State | 137 |
| | (47 | ) | | (55 | ) | | (36 | ) | | 137 |
| | (47 | ) |
| Foreign | (541 | ) | | (880 | ) | | (377 | ) | | (1,498 | ) | | (541 | ) | | (880 | ) |
| | (13,867 | ) | | (1,010 | ) | | (506 | ) | | (1,190 | ) | | (13,867 | ) | | (1,010 | ) |
| Deferred: | | | | | | | | | | | |
| Federal | 45,423 |
| | 296 |
| | — |
| | (18,000 | ) | | 45,423 |
| | 296 |
|
| State | 3,894 |
| | 8 |
| | — |
| | (1,487 | ) | | 3,894 |
| | 8 |
|
| Foreign | 59 |
| | 175 |
| | (11 | ) | | (68 | ) | | 59 |
| | 175 |
|
| | 49,376 |
| | 479 |
| | (11 | ) | | (19,555 | ) | | 49,376 |
| | 479 |
|
| Benefit (provision) for income taxes | $ | 35,509 |
| | $ | (531 | ) | | $ | (517 | ) | |
| (Provision) benefit for income taxes | | | $ | (20,745 | ) | | $ | 35,509 |
| | $ | (531 | ) |
The Benefit (provision) benefit for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to pretax income as a result of the following differences:
| | | | Year Ended | | Year Ended |
| | December 31, 2011 | | January 1, 2011 | | January 2, 2010 | | December 29, 2012 | | December 31, 2011 | | January 1, 2011 |
| | % | | % | | % | | % | | % | | % |
| Statutory federal rate | 35 | | 35 | | 35 | | 35 | | 35 | | 35 |
| Adjustments for tax effects of: | | |
| State taxes, net | 3 | | — | | 11 | | (7) | | 3 | | — |
| Intellectual property sale | 144 | | — | | — | | — | | 144 | | — |
| Research and development credits | (3) | | (2) | | 14 | | (1) | | (3) | | (2) |
| Foreign taxes | 2 | | — | | 7 | |
| Foreign rate differential | | | (252) | | 2 | | — |
| Foreign dividends | 1 | | — | | (13) | | 3 | | 1 | | — |
| Valuation allowance | (289) | | (37) | | 1 | | (19) | | (289) | | (37) |
| Change in uncertain tax benefit accrual | 31 | | — | | (6) | | 3 | | 31 | | — |
| Stock-based compensation | — | | — | | (32) | |
| Tax rate change | (7) | | 5 | | (22) | | — | | (7) | | 5 |
| Other | — | | — | | (3) | | 4 | | — | | — |
| Effective income tax rate | (83) | | 1 | | (8) | | (234) | | (83) | | 1 |
ASC 740, “Income Taxes”, provides for the recognition of deferred tax assets if realization of these assets is more
likely than not.more-likely-than-not. We evaluate both positive and negative evidence to determine if some or all of our deferred tax assets should be recognized on a quarterly basis.
On December 31, 2011, we began to implement a global tax structure to more effectively align the Company's corporate structure and transaction flows with the Company's geographic business operations including responsibility for sales and purchasingmanufacturing activities. We have numerous sales offices in foreign locations, operational centers in the Philippines and Singapore, and research and development sites in China, India and the Philippines. Revenues from non-Domestic regions account for over 80%As part of all revenue. In addition, the large majority of our suppliers are located in the Asia Pacific region. Based on these factorsthis tax restructuring, we have created new and realigned existing legal entities, completed intercompany sales of rights to intellectual property, inventory and fixed assets across different tax jurisdictions, and implemented cost-sharing and intellectual property licensing and royalty agreements between our U.S. and low cost tax jurisdictions. These actions createdforeign entities. The intercompany sales of rights to intellectual property resulted in a gain for tax purposes, for which we recorded a $76.8$76.8 million tax provision in the fourth quarter of fiscal 2011. This provision2011 which was fully offset by the release of valuation allowance on deferred tax assets of $76.8 million recorded as a tax benefit during the fourth quarter of fiscal 2011. We expect that theassets.
The global tax structure will bewas completed during the first quarter of 2012 upon the intercompany sale of inventory and fixed assets,assets. During 2012, this inventory has been sold to end customers in the ordinary course of business resulting in income before taxes in the U.S. and we expecta loss before taxes in foreign jurisdictions. Taxes have been applied to record approximately $9.7 millionthe gain on sale based on U.S. statutory tax rates, offset by deferred tax assets. This resulted in additionalan increase to the effective tax rate and a net income tax provision of $13.7 millionduring the first quarter of fiscal 2012.
DuringAlso during the fourth quarter of 2011, we also concluded that it was more likely than notmore-likely-than-not that we would be able to realize the benefit of a portion of our remaining deferred tax assets.assets, resulting in a tax benefit of $35.2 million and a net deferred tax asset of $49.7 million. We based this conclusion on improved operating results over the past two years and our expectations about generating taxable income in the foreseeable future including the implementation of a global tax structure discussed above. Based on our assessment regarding the potential to realize deferred tax assets, we reversed additional valuation allowance, which when offset by the provision recorded related to our new global tax structure, resulted in an income tax benefit of $35.2 million. We exercised significant judgment and considered estimates about our ability to generate revenues,revenue, gross profits, operating income and taxable income in future periods under our new tax structure in reaching this decision. As of December 29, 2012 we have approximately $30.1 million of deferred tax assets. We will continue to evaluate both positive and negative evidence in future periods to determine if additional deferred tax assets should be recognized. We do not have a valuation allowance in any foreign jurisdictions as it has been concluded it is more-likely-than-not that we will realize the net deferred tax assets in future periods. The net increase in the total valuation allowance affecting the effective tax rate for the year ended December 29, 2012 was approximately $1.7 million.
The components of our net deferred tax assets are as follows (in thousands):
| | | | December 31,
2011 | | January 1,
2011 | | December 29,
2012 | | December 31,
2011 |
| Deferred tax assets: | | | | | | | |
| Accrued expenses and reserves | $ | 4,011 |
| | $ | 3,843 |
| | $ | 1,791 |
| | $ | 4,011 |
|
| Inventory | 4,036 |
| | 4,396 |
| | — |
| | 4,036 |
|
| Deferred revenue | 13,047 |
| | 15,326 |
| | — |
| | 13,047 |
|
| Stock-based and deferred compensation | 3,716 |
| | 2,731 |
| | 4,164 |
| | 3,716 |
|
| Intangible assets | 9,277 |
| | 71,891 |
| | 8,187 |
| | 9,277 |
|
| Fixed assets | 124 |
| | 1,266 |
| | — |
| | 124 |
|
| Net operating loss carry forwards | 125,013 |
| | 137,387 |
| | 127,400 |
| | 125,013 |
|
| Tax credit carry forwards | 31,768 |
| | 29,095 |
| | 32,446 |
| | 31,768 |
|
| Capital loss carry forwards | 6,916 |
| | 6,106 |
| | 6,926 |
| | 6,916 |
|
| Unrealized loss on securities | 925 |
| | 1,042 |
| | 758 |
| | 925 |
|
| Other | 81 |
| | — |
| | 120 |
| | 81 |
|
| | 198,914 |
| | 273,083 |
| | 181,792 |
| | 198,914 |
|
| Less: valuation allowance | (147,499 | ) | | (271,208 | ) | | (149,209 | ) | | (147,499 | ) |
| Net deferred tax assets | 51,415 |
| | 1,875 |
| | 32,583 |
| | 51,415 |
|
| Deferred tax liabilities: | | | | | | | |
| Fixed Assets | | | 1,897 |
| | — |
|
| Prepaid expenses | 768 |
| | 732 |
| | — |
| | 768 |
|
| Other | 977 |
| | 849 |
| | 608 |
| | 977 |
|
| Total deferred tax liabilities | 1,745 |
| | 1,581 |
| | 2,505 |
| | 1,745 |
|
| Net deferred tax assets | $ | 49,670 |
| | $ | 294 |
| | $ | 30,078 |
| | $ | 49,670 |
|
Of the total Net deferred tax assets, $4.5$0.9 million and $4.5 million is considered current and included in Prepaid expenses and other current assets on the consolidated balance sheetConsolidated Balance Sheet as of December 29, 2012 and December 31, 2011.2011, respectively.
At December 31, 201129, 2012, we have federal net operating loss carry forwards (pre-tax)carryforwards (pretax) of approximately $290.6$296.9 million that expire at various dates between 2023 and 2029.2032. We have state net operating loss carryforwards (pre-tax)(pretax) of approximately $171.6$173.4 million that expire at various dates from 20122013 through 2029.2032. We also have federal and state credit carryforwards of $14.1$14.1 million $21.4 and $24.8 million of which$22.1 million do not expire. The remainderremaining credits expire at various dates from 20122013 through 2031.2031.
Future utilization of federal and state net operating losses and tax credit carry forwards may be limited if cumulative changes to ownership exceed 50% within any three-year period, which has not occurred through fiscal 2011.three-year period. However, if there is a significant change in ownership the future utilization may be limited and an allowance willthe deferred tax asset would be recorded for that amount.reduced to the amount available.
At December 29, 2012, U.S. income taxes and foreign withholding taxes were not provided for on a cumulative total of approximately $1.6$2.0 million of the undistributed earnings of our Chinese subsidiary. We intend to reinvest these earnings indefinitely in our Chinese subsidiary.indefinitely. If these earnings were distributed to the U.S. in the form of dividends or otherwise, we would be subject to additional U.S. income taxes and foreign withholding taxes.
At December 31, 201129, 2012, our unrecognized tax benefits associated with uncertain tax positions were $21.6$21.7 million, of which $20.4$20.5 million, if recognized, would affect the effective tax rate.rate, subject to valuation allowance. As of December 31, 201129, 2012, interest and penalties associated with unrecognized tax benefits were $0.4 million.$0.4 million.
The following table summarizes the changes to unrecognized tax benefits for fiscal years 20112012, 20102011 and 20092010 (in thousands):
| | | Unrecognized tax benefit | Amount | | Amount |
| Balance at January 3, 2009 | $ | 6,238 |
| |
| Additions based on tax positions related to the current year | 473 |
| |
| Additions based on tax positions of prior years | 341 |
| |
| Reduction for tax positions of prior years | — |
| |
| Settlements | — |
| |
| Reduction as a result of lapse of applicable statute of limitations | (83 | ) | |
| Balance at January 2, 2010 | 6,969 |
| | $ | 6,969 |
|
| Additions based on tax positions related to the current year | 786 |
| | 786 |
|
| Additions based on tax positions of prior years | 60 |
| | 60 |
|
| Reduction for tax positions of prior years | — |
| | — |
|
| Settlements | — |
| | — |
|
| Reduction as a result of lapse of applicable statute of limitations | (74 | ) | | (74 | ) |
| Balance at January 1, 2011 | 7,741 |
| | 7,741 |
|
| Additions based on tax positions related to the current year | 15,005 |
| | 15,005 |
|
| Additions based on tax positions of prior years | — |
| | — |
|
| Additions for acquisition of SiliconBlue | 298 |
| | 298 |
|
| Reduction for tax positions of prior years | (106 | ) | | (106 | ) |
| Settlements | (1,248 | ) | | (1,248 | ) |
| Reduction as a result of lapse of applicable statute of limitations | (138 | ) | | (138 | ) |
| Balance at December 31, 2011 | $ | 21,552 |
| | 21,552 |
|
| Additions based on tax positions related to the current year | | | 384 |
|
| Additions based on tax positions of prior years | | | 192 |
|
| Reduction for tax positions of prior years | | | (26 | ) |
| Settlements | | | (30 | ) |
| Reduction as a result of lapse of applicable statute of limitations | | | (392 | ) |
| Balance at December 29, 2012 | | | $ | 21,680 |
|
At December 31, 2011,29, 2012, it is reasonably possible that $0.4$0.4 million of unrecognized tax benefits and $0.1$0.2 million of associated interest and penalties could significantly change during the next twelve months. The $0.5$0.4 million potential change would represent a decrease in unrecognized tax benefits, comprised of items related to certain domestic tax credits and uncertain income tax positions related to foreign tax filings for years that will no longer be subject to examination under expiring statutes of limitations.
The Internal Revenue Service has examined our income tax returns for 2001 and 2002, and issued proposed adjustments of $1.4$1.4 million, plus interest. These adjustments relate to the treatment of acquisition costs and a tax accounting method change for prepaid expenses. We reached an agreement regarding the acquisition costs during the three months ended
March 29, 2008. We made a payment of $0.3$0.3 million related to this settlement agreement. On May 23, 2008, we filed a petition with the Tax Court seeking a redetermination of the prepaid expense adjustment. On May 9, 2011 the United States Tax Court ruled that the IRS did not err in denying our request to change our accounting method with respect to prepaid expenses and held that we were not allowed a deduction for prepaid expenses on our 2002 tax return. During the quarter ended October 1, 2011, we decided not to pursue further litigation with regard to the prepaid expense adjustment and paid the adjustments to the IRS. As a result, we paid $1.0$1.0 million in October 2011 related to disallowed prepaid expense deductions and the corresponding carry back of those deductions to the 1999 and 2000 tax returns through a net operating loss carry back. The amount paid was fully reserved. A benefit of approximately $0.9$0.9 million was recognized in the three months ended October 1, 2011 for the reversal of uncertain tax positions and related interest for the years effectively settled.
We are not currently under examination in any state or localtax jurisdictions. We are currently under examination in Taiwan. To date, there are no proposed adjustments that are expected to have a material adverse effect on our results of operations.
We are subject to federal and state income tax as well as income tax in the various foreign jurisdictions in which we operate. Additionally, the tax years that remain subject to examination are 20082009 for federal income taxes, 20072008 for state income taxes, and 20052006 for foreign income taxes, including years ending thereafter. However, to the extent allowed by law, the tax authorities may have the right to examine prior periods where net operating losses or tax credits were generated and carried forward, and make adjustments up to the amount of the net operating losses or credit carry forwardcarryforward amount.
The American Taxpayer Relief Act of 2012, which reinstated the United States federal research and development tax credit retroactively from January 1, 2012 through December 31, 2013, was not enacted into law until the first quarter of 2013. Therefore, the expected tax benefit, if any, resulting from reinstatement for 2012 will not be reflected in the Company's annual effective tax rate until 2013.
(11)—Restructuring Charges: Restructuring:
During 2011,In October, 2012, the Company's Board of Directors adopted athe "2012 restructuring plan to more efficiently implement the Company's product development strategy and to better align the Company's corporate strategy with the Company's sales resources (the “2011 restructuring plan”).plan." In connection with the 2011this restructuring plan, the Company will reduce and refocusreduced its headcount atby approximately 110 employees and eliminated certain ofsites, including its research and development facilities, includingsites in Pennsylvania and Shanghai, China, and streamline its supply chain activities at its headquarters for reduced operational costs, improved predictability and flexibility. Part ofIllinois. In connection with this action, the 2011Company recorded restructuring plan includes extending silicon development capabilities and planning and logistics activities by locating personnel in Manila, Philippines. The 2011 restructuring plan was substantially complete at the end of fiscal 2011. A totalcharges of approximately $7.1$5.4 million was incurred in fiscal 2011 and $0.8 million is expected to be incurred in the first quarter of fiscal 2012.
During fiscal 2009, we initiated a restructuring plan ("2009 restructuring plan") to lower operating expenses primarily by reducing headcount, reducing occupancy in certain leased facilities and to transfer inventory management, order fulfillment, and direct sales logistics from our headquarters in Oregon to a third party contractor in Singapore. In addition, the Company established an operations center in Singapore to transfer some of its supply chain activities from the Company’s headquarters in Oregon. As part of the 2011 restructuring plan, we updated our estimate of the remaining severance and lease loss reserve for the 2009 restructuring plan. This resulted in a credit to Restructuring charges in the first quarter of fiscal 2011 of $0.8 million, primarily for re-occupying certain leased facilities.
During the third quarter of fiscal 2008, we initiated a restructuring plan (“2008 restructuring plan”) to better align operating expenses with near-term revenue expectations, primarily by reducing headcount. The 2008 restructuring plan was substantially complete by the end of fiscal 2008. During the third quarter of fiscal 2007, we approved and initiated a restructuring plan to lower operating expenses primarily by reducing headcount. This plan encompassed a reduction in work force, a voluntary separation program for certain employees and the closure of certain leased facilities. During the fourth quarter of fiscal 2005, we initiated and completed a2012. In addition, during 2012, the Company incurred approximately $0.7 million related to the 2011 restructuring plan (“2005 restructuring plan”) to reduce operating expenses. The 2005 restructuring plan encompassed three major components - a streamliningwhich was completed during the second quarter of research and development sites, a voluntary separation program for certain employees and an organizational consolidation within the Company's largest design center.2012.
AtIn 2011, the Company adopted the "2011 restructuring plan" to more efficiently implement its product development cycle and streamline supply chain activities. During 2011, the company incurred approximately December 31, 2011$6.9 million, the Consolidated Balance Sheet included $1.6 million primarily related to severance and related expenses accrued undercosts. In addition, the provisionscompany re-occupied leased space which had previously been restructured, resulting in a benefit of the 2011 restructuring plan.$0.8 million.
The following table displays the activity related to all of the restructuring plans described above (in thousands):
|
| | | | | | | | | | | | | | | | | | | | |
| | Balance at
January 1,
2011 | | Charged to
expense in
fiscal 2011 | | Paid or
settled | | Adjustments
to reserve credited to expense in fiscal 2011 | | Balance at
December 31,
2011 | |
| 2011 Restructuring Plan: | | | | | | | | | | |
| Severance and related costs | $ | — |
| | $ | 6,503 |
| | $ | (4,678 | ) | | $ | (269 | ) | | $ | 1,556 |
| |
| Other | — |
| | 830 |
| | (830 | ) | | — |
| | — |
| |
| Subtotal | — |
| | 7,333 |
| | (5,508 | ) | | (269 | ) | | 1,556 |
| |
| | | | | | | | | | | |
| Pre-2011 Restructuring Plans: | | | | | | | | | | |
| Severance and related costs | 175 |
| | — |
| | — |
| | (175 | ) | | — |
| |
| Lease loss reserve and other | 1,027 |
| | 11 |
| | (191 | ) | | (821 | ) | | 26 |
| |
| Total restructuring plans | $ | 1,202 |
| | $ | 7,344 |
| | $ | (5,699 | ) | | $ | (1,265 | ) | | $ | 1,582 |
| |
Total restructuring charges in fiscal years 2011, 2010 and 2009 were as follows (in thousands):
|
| | | | | | | | | | | |
| | Year Ended |
| | December 31,
2011 | | January 1,
2011 | | January 2,
2010 |
| Severance and related costs | $ | 6,059 |
| | $ | (97 | ) | | $ | 2,334 |
|
| Lease loss reserve | 20 |
| | 108 |
| | 1,358 |
|
| Other | — |
| | — |
| | (3 | ) |
| | $ | 6,079 |
| | $ | 11 |
| | $ | 3,689 |
|
|
| | | | | | | | | | | | | | | |
| | Severance and related | | Lease termination | | Other | | Total |
| Balance at January 2, 2010 | $ | 715 |
| | $ | 1,508 |
| | $ | 13 |
| | $ | 2,236 |
|
| Restructuring charges | 198 |
| | 51 |
| | — |
| | 249 |
|
| Non-cash adjustments | (295 | ) | | 57 |
| | — |
| | (238 | ) |
| Cash payments | (443 | ) | | (602 | ) | | — |
| | (1,045 | ) |
| Balance at January 1, 2011 | 175 |
| | 1,014 |
| | 13 |
| | 1,202 |
|
| Restructuring charges | 6,503 |
| | 11 |
| | 830 |
| | 7,344 |
|
| Non-cash adjustments | (269 | ) | | — |
| | — |
| | (269 | ) |
| Cash payments | (4,678 | ) | | (178 | ) | | (843 | ) | | (5,699 | ) |
| Adjustments to prior restructuring costs | (175 | ) | | (821 | ) | | — |
| | (996 | ) |
| Balance at December 31, 2011 | 1,556 |
| | 26 |
| | — |
| | 1,582 |
|
| Restructuring charges | 4,277 |
| | 1,083 |
| | 776 |
| | 6,136 |
|
| Cash payments | (3,356 | ) | | (302 | ) | | (518 | ) | | (4,176 | ) |
| Adjustments to prior restructuring costs | (104 | ) | | (14 | ) | | — |
| | (118 | ) |
| Balance at December 29, 2012 | $ | 2,373 |
| | $ | 793 |
| | $ | 258 |
| | $ | 3,424 |
|
We cannot be certain as to the actual amount of any remaining restructuring charges or the timing of their recognition for financial reporting purposes.
(12)—Common Stock Repurchase Program:
On February 24, 2012, the Company's Board of Directors approved a stock repurchase program pursuant to which up to $20.020.0 million of outstanding common stock may be repurchased from time to time. The duration of the repurchase program is twelve months. In connection withmonths. During fiscal 2012, approximately 4.1 million shares were repurchased at $17.5 million. At December 29, 2012, we have approximately $2.5 million remaining under the approved program. All shares repurchased under this stock repurchase program the Company entered into a 10b5-1 plan.were retired by December 29, 2012. All repurchases have and will be open market transactions and funded from available working capital.
On October 21, 2010, the Company's Board of Directors approved a stock repurchase program pursuant to which up to $20.0$20.0 million of outstanding common stock could have been repurchased. The duration of the repurchase program was twelve months from adoption. In connection with this stock repurchase program, the Company entered into a 10b5-1 plan. During fiscal 2011, approximately 2.4 million shares were repurchased for $14.4 million.$14.4 million. During fiscal 2010, approximately 0.4 million shares were repurchased for $2.0 million.$2.0 million. All shares repurchased under this program were retired by December 31,
2011. All repurchases were open market transactions and were funded from available working capital. The program ended by its terms in October 2011.
On December 13, 2008, our Board of Directors approved a stock repurchase program pursuant to which up to $20.0 million of outstanding common stock could have been repurchased. In connection with the stock repurchase program, we entered into a 10b5-1 plan. The duration of the repurchase program was twelve months, and expired on December 13, 2009. During fiscal 2009, approximately 263,000 shares were repurchased for $0.3 million, all of which were open market transactions and were funded from available working capital. All shares repurchased under this program were retired in 2010.
(13)—Stockholders' Equity:
Employee and Director Stock Options, Restricted Stock and ESPP
The Company's employee stock option plans include principal plans adopted in 1996 and 2001 (“principal option plans”), as well as various stock option plans assumed through acquisitions under which stock options are outstanding.. We have authorized an aggregate of 9,000,000 and 17,200,000 shares of common stock for issuance to officers and employees under the
2001 plan and 1996 plan, respectively. The principal option plans provide for grants of options to employees to purchase common stock at the fair market value of such shares on the grant date. The options generally vest quarterly over a four-yearfour-year period beginning on the grant date. The 2001 plan expired by its terms in May 2011 and new grants to employees may no longer may be made under the plan. Options granted under the principal option plans are generally non-qualified stock options but the principal option plans permit some options granted to qualify as “incentive stock options” under the U.S. Internal Revenue Code. The contractual term of options granted prior to January 31, 2006 was generally ten years, while the contractual term of options granted subsequent to January 31, 2006 is generally seven years.years.
Restricted stock unit (“RSUs”) grants are part of the Company's equity compensation practices for employees who receive equity grants. The RSUs granted to employees generally vest quarterly over a four-yearfour-year period beginning on the grant date.
In May 2011, the shareholders of the Company approved the 2011 Non-Employee Director Equity Incentive Plan. The Plan provides that non-employee members of our Board of Directors receive non-qualified option grants and restricted stock units in set amounts and at set times, at option prices equal to the fair market value on the date of grant. An aggregate of 750,000 shares of common stock have been authorized for issuance under the plan. Vesting periods for options and RSUs granted to Directors is over three years and one year respectively. The contractual term of all non-employee director options is ten years.years.
In May 2012, the Company's stockholders approved the 2012 Employee Stock Purchase Plan ("2012 ESPP"). The Plan authorizes the issuance of 3 million shares of common stock to eligible employees to purchase shares of common stock through payroll deduction. Payroll deductions are not to exceed 10% of an employee's compensation. The purchase price of the shares is the lower of 85% of the fair market of the stock at the beginning of each six-month offering period or 85% of the fair market value at the end of such period. Employees are required to hold purchased shares for six months. We have treated the 2012 ESPP as a compensatory plan, and recorded compensation expense related to the 2012 ESPP of less than $0.1 million for fiscal 2012.
The Company's ESPP, which was amended and approved most recently by our stockholders in May 2007 ("2007 ESPP"), permits eligible employees to purchase shares of common stock through payroll deductions, not to exceed 10% of an employee's compensation. The purchase price of the shares is the lower of 85% of the fair market value of the stock at the beginning of each six-month offering period or 85% of the fair market value at the end of such period, but in no event less than the book value per share at the mid-point of each offering period. An aggregate of 5,500,000 shares of common stock have been authorized for issuance under the plan. We have treated the 2007 ESPP as a compensatory plan, and recorded compensation expense related to the 2007 ESPP of $0.5$0.1 million, $0.5 million and $0.4$0.4 million for fiscal2012, 2011 and fiscal 2010, respectively. The 2007 ESPP was replaced with the 2012 ESPP in May 2012.
Stock-Based Compensation
Total stock-based compensation expense was included in theour Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income was as follows (in thousands):
| | | | | | | | | | | Year Ended |
| | Year Ended | | December 29,
2012 | | December 31,
2011 | | January 1,
2011 |
| Line item: | December 31,
2011 | | January 1,
2011 | | January 2,
2010 | | | | | | |
| Cost of products sold | $ | 461 |
| | $ | 312 |
| | $ | 353 |
| | $ | 525 |
| | $ | 461 |
| | $ | 312 |
|
| Research and development | 2,697 |
| | 1,851 |
| | 1,572 |
| | 3,009 |
| | 2,697 |
| | 1,851 |
|
| Selling, general and administrative | 3,095 |
| | 2,388 |
| | 2,651 |
| | 3,976 |
| | 3,095 |
| | 2,388 |
|
| Restructuring charges | 103 |
| | — |
| | — |
| | — |
| | 103 |
| | — |
|
| | $ | 6,356 |
| | $ | 4,551 |
| | $ | 4,576 |
| |
| Total stock-based compensation | | | $ | 7,510 |
| | $ | 6,356 |
| | $ | 4,551 |
|
ASC 718, “Compensation-Stock Compensation (“ASC 718”),” requires that we recognize compensation expense for only the portion of employee and director options and ESPP rights that are expected to vest.
The fair value of each option award is estimated on the date of grant using the Black-Scholes valuation model and the assumptions noted in the following table. Beginning January 1, 2006, in connection with the adoption of ASC 718, the Company examined the historical pattern of option exercises in an effort to determine if there were any discernible activity patterns based on certain employee populations. From this analysis, the Company identified two employee populations. Prior to January 3, 2009, the Company used the simplified method as prescribed by the SEC's Staff Accounting Bulletin No. 107. The Company now believes that it has sufficient internal historical data to refine the expected term assumption. As such, the expected term computation is based on historical vested option exercises and includes an estimate of the expected term for options that were fully vested and outstanding at January 3, 2009 for each of the two populations identified. The expected volatility of both stock options and ESPP shares is based on the daily historical volatility of our stock price, measured over the expected term of the option or the ESPP purchase period. The risk-free interest rate is based on the implied yield on a U.S. Treasury zero-coupon issue with a remaining term closest to the expected term of the option. The dividend yield reflects that we have not paid any cash dividends since inception and do not intend to pay any cash dividends in the foreseeable future.
| | | | Year Ended | Year Ended |
| | December 31,
2011 | | January 1,
2011 | | January 2,
2010 | December 29,
2012 | | December 31,
2011 | | January 1,
2011 |
| Employee and Director Stock Options | | |
| Expected volatility (%) | 57.4 to 61.9 | | 55.1 to 61.6 | | 51.5 to 54.8 | 58.1 to 59.5 | | 57.4 to 61.9 | | 55.1 to 61.6 |
| Risk-free interest rate (%) | .003 to .02 | | .78 to 2.47 | | 1.65 to 2.66 | .006 to .01 | | .003 to .02 | | .78 to 2.47 |
| Expected term (in years) | 4.05 to 4.37 | | 4.06 to 4.43 | | 4.00 to 4.51 | 4.09 to 4.47 | | 4.05 to 4.37 | | 4.06 to 4.43 |
| Dividend yield | 0% | | 0 % | | 0 % | —% | | —% | | —% |
| Employee Stock Purchase Plan | . | | |
| Weighted average expected volatility (%) | 48.1 | | 52.3 | | 71.0 | 50.0 | | 48.1 | | 52.3 |
| Weighted average risk-free interest rate (%) | 0.14 | | 0.2 | | 0.3 | 0.12 | | 0.14 | | 0.20 |
| Expected term (in years) | 0.50 | | 0.50 | | 0.50 | 0.50 | | 0.50 | | 0.50 |
| Dividend yield | 0% | | 0 % | | 0 % | —% | | —% | | —% |
At December 31, 201129, 2012, there was $9.2$10.1 million of total unrecognized compensation cost related to unvested employee and director stock options, which is expected to be recognized over a weighted average period of 4.9 years.4.5 years. Our current practice is to issue new shares to satisfy option exercises. Compensation expense for all stock-based compensation awards is recognized using the straight-line method.
The following table summarizes our stock option activity and related information for the year ended December 31, 201129, 2012 (shares and aggregate intrinsic value in thousands):
| | | | Shares | | Weighted
average
exercise price | | Weighted average
remaining
contractual term
(years) | | Aggregate
Intrinsic Value | Shares | | Weighted
average
exercise price | | Weighted average
remaining
contractual term
(years) | | Aggregate
Intrinsic Value |
| Balance, January 1, 2011 | 9,871 |
| | $ | 3.38 |
| | | | | |
| Balance, December 31, 2011 | | 9,287 |
| | $ | 4.22 |
| | | | |
| Granted | 2,804 |
| | 6.28 |
| | | | | 3,237 |
| | 5.96 |
| | | | |
| Exercised | (1,842 | ) | | 3.00 |
| | | | | (1,342 | ) | | 2.56 |
| | | | |
| Forfeited or expired | (1,546 | ) | | 4.03 |
| | | | | (1,643 | ) | | 5.95 |
| | | | |
| Balance, December 31, 2011 | 9,287 |
| | $ | 4.22 |
| | | | | |
| Vested and expected to vest at December 31, 2011 | 9,287 |
| | $ | 4.22 |
| | 4.91 |
| | $ | 17,537 |
| |
| Exercisable, December 31, 2011 | 4,421 |
| | $ | 3.97 |
| | 3.94 |
| | $ | 9,520 |
| |
| Balance, December 29, 2012 | | 9,539 |
| | $ | 4.74 |
| | | | |
| Vested and expected to vest at December 29, 2012 | | 9,539 |
| | $ | 4.74 |
| | 4.53 |
| | $ | 4,462 |
|
| Exercisable, December 29, 2012 | | 5,013 |
| | $ | 4.20 |
| | 3.46 |
| | $ | 3,517 |
|
The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between the Company's closing stock price on the last trading day of the fiscal year and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on that day. This amount changes based on the fair market value of the Company's stock. Total intrinsic value of options exercised for fiscal 20112012, 20102011 and 20092010, and was 3.4 million, $6.6 million was $6.6and $5.3 million $5.3 million and less than $0.1 million,, respectively. The total fair value of options and RSUs vested and expensed in fiscal 2012, 2011, and 2010 and was 2009$7.4 million, $6.0 million was $6.0and $4.2 million $4.2 million and $4.3 million,, respectively.
The resultant grant date weighted-average fair values calculated using the Black-Scholes option pricing model and the noted assumptions for stock options granted were $2.92, $2.31$2.74, $2.92 and $1.05$2.31 for fiscal years 20112012, 20102011 and 20092010, respectively. The weighted average fair values calculated using the Black-Scholes option pricing model for the ESPP were $1.80, $1.07$1.35, $1.80 and $.66$1.07 for fiscal years 20112012, 20102011 and 20092010, respectively.
The following table summarizes our RSU activity for the year ended December 31, 201129, 2012 (shares in thousands):
| | | | Shares | | Weighted
average grant
date fair value | Shares | | Weighted
average grant
date fair value |
| Balance at January 1, 2011 | 423 |
| | $ | 2.42 |
| |
| Balance at December 31, 2011 | | 1,077 |
| | $ | 6.12 |
|
| Granted | 1,100 |
| | 6.53 |
| 643 |
| | 5.99 |
|
| Vested | (283 | ) | | 2.71 |
| (514 | ) | | 5.93 |
|
| Forfeited | (163 | ) | | 5.22 |
| (127 | ) | | 5.95 |
|
| Balance at December 31, 2011 | 1,077 |
| | $ | 6.12 |
| |
| Balance at December 29, 2012 | | 1,079 |
| | $ | 6.15 |
|
At December 31, 201129, 2012, there was $5.1$5.4 million of total unrecognized compensation cost related to unvested RSUs. Our current practice is to issue new shares when RSUs vest. Compensation expense for RSUs is recognized using the straight-line method over the related vesting period.
At December 31, 201129, 2012, a total of 9.76.9 million shares of our common stock were available for future grants under our stock option plans. Shares subject to stock option grants that expire or are canceled without delivery of such shares generally become available for re-issuance under these plans. At December 31, 201129, 2012, a total of 0.053.0 million shares of our common stock were available for future purchases under our ESPP.
(14)—Employee Benefit Plans:
Qualified Investment Plan
In 1990, we adopted a 401(k) plan, which provides participants with an opportunity to accumulate funds for retirement. The plan does not allow investments in the Company's common stock. The plan allows for the Company to make discretionary matching contributions in cash. The Company matched contributions for a total of $0.8$0.8 million in fiscal 2012, $0.8 million in fiscal 2011, $0.2 and $0.2 million in fiscal 2010 and made no matching contributions in fiscal 2009.
Executive Deferred Compensation Plan
We initiated an Executive Deferred Compensation Plan effective August 1997. Under the provisions of this plan, as approved by the Board of Directors, certain senior executives may annually defer up to 75% of their salary and up to 100% of their incentive compensation. The return on deferred funds is based upon the performance of designated mutual funds. There is no guaranteed return or matching contribution. We paid out $0.3$0.3 million $0.3, $0.3 million and $0.7$0.3 million of the deferred compensation balance in fiscal 20112012, 20102011 and 20092010, respectively. Balances at December 31, 201129, 2012 and January 1,December 31, 2011 of $0.4$0.1 million and $0.7$0.4 million, respectively, are reflected in Other long-term liabilities in our accompanying Consolidated Balance Sheets and the related assets are included in Foundry advances and otherOther long-term assets in our accompanying Consolidated Balance Sheets. The deferred compensation amounts are unsecured obligations, but we have made corresponding contributions to a trust fund owned by the Company for the benefit of deferred compensation plan participants. The trust fund invests in mutual funds in the manner directed by participants pursuant to provisions of the plan. The mutual funds are accounted for as trading securities and are marked to market.
Executive Variable Compensation Plan
In December 2007, the Compensation Committee of the Board of Directors approved the 2008 Executive Variable
Compensation Plan. The Company's Chief Executive Officer and other members of senior management as nominated by the Chief Executive Officer and approved by the Compensation Committee are eligible to participate in the Executive Variable Compensation Plan. The payout for each participant is based both on Company performance, as measured by achievement of revenue and operating income performance goals approved by the Board prior to the commencement of the plan year, and individual performance. There was no expense under this plan during fiscal years 20112012, 20102011 or 20092010.
2009 Bonus Plan
On December 2, 2008, upon the recommendation of the Compensation Committee, the Board of Directors of the Company approved the 2009 Bonus Plan which provides for the payment of two cash bonuses during the year to non-executive employees upon the achievement of specific performance criteria for the 2009 fiscal year and the payment of a single cash bonus to certain of the Company's officers, including executive officers, upon the achievement of specific performance criteria for the 2009 fiscal year. The plan essentially replaced the prior profit sharing plan that terminated in fiscal 2008. There was no expense recorded under this plan during fiscal 2009.
2010 Cash Incentive Compensation Plan
On December 1, 2009, upon the recommendation of the Compensation Committee, the Board of Directors of the Company approved the 2010 Cash Incentive Compensation Plan (“2010 Plan”). The Chief Executive Officer, other executive officers, and other members of senior management, including vice presidents and director-level employees, together with all other employees of the Company, were eligible to participate in the 2010 Plan. Under the 2010 Plan, individual cash incentive payments for the Chief Executive Officer and other executive officers were based both on Company performance, as measured by achievement of GAAP operating income, and individual performance, as measured by the achievement of personal management objectives. Under the 2010 Plan, cash incentive payments were funded by the Company’s achievement of GAAP operating income, with funding of the plan to be determined as a specified percentage of GAAP operating income (before incentive plan accruals) within specified ranges established by the Compensation Committee. The Compensation Committee determined the individual performance of the Chief Executive Officer based on the achievement of personal management objectives that were established by the committee during the first fiscal quarter of 2010, and the Chief Executive Officer determined the individual performance of the other participants based on the achievement of personal management objectives established by the Chief Executive Officer and reviewed by the committee during the first fiscal quarter of 2010.
The 2010 Plan required that the Company be profitable on a GAAP operating income basis before payments are made under the 2010 Plan. Under the 2010 Plan, the aggregate target cash incentive awards for all executive management participants, including the Chief Executive Officer, other executive officers, and other members of senior management, including vice presidents and director-level employees, totaled approximately $1.7$1.7 million, and the aggregate maximum cash award for all management participants totaled approximately $3.0 million.$3.0 million. The maximum amount of cash that could be paid out under the 2010 Plan was $6.5 million.$6.5 million. During fiscal 2010, the Company recorded a charge of $5.4$5.4 million under the 2010 Plan, which is recorded on the Consolidated Balance Sheet in Accrued payroll obligations. Cash incentive awards were paid in February 2011.
2011 Cash Incentive Plan
On February 1, 2011, upon the recommendation of the Compensation Committee, the Board of Directors of the Company approved the FY2011 Cash Incentive Plan (the “2011 Plan”). The Chief Executive Officer, other executive officers, and other members of senior management, including vice presidents and director-level employees, together with all other employees of the Company not on the Company's sales incentive plan, were eligible to participate in the 2011 Plan. Under the 2011 Plan, individual cash incentive payments for the Chief Executive Officer and other executive officers would be based both on Company performance, as measured by achievement of operating income (before incentive plan accruals) and revenue goals within specified ranges established by the Compensation Committee, and individual performance, as measured by the achievement of personal management objectives, with each of these components representing one-third of the potential cash incentive award. On February 6, 2012, the Compensation Committee approved $2.6$2.6 million under the provisions of the 2011 Plan, which was paid in February of 2012.
2012 Incentive Plan
On February 7, 2012, upon the recommendation of the Compensation Committee, the Board of Directors of the Company approved the FY2012 Incentive Plan (the “2012 Plan”). The chief executive officer and other executive officers are eligible to participate in the 2012 Plan. Under the 2012 Plan, individual cash incentive payments and restricted stock unit grants
for the chief executive officer and other executive officers will be based both on Company financial performance, as measured by achievement of operating income (before incentive plan accruals) and revenue goals within specified ranges established by the Compensation Committee, and Company performance, as measured by the achievement of personal management objectives. The Compensation Committee will determine the performance of the chief executive officer, the chief financial officer and other participants based on the achievement of the management objectives established by the committee during the first fiscal quarter of 2012. There was no expense recorded under this plan during fiscal 2012.
(15)—Commitments and Contingencies: Legal Matters:
On June 11, 2007, a patent infringement lawsuit was filed by Lizy K. John (“John”) against Lattice Semiconductor Corporationthe Company in the U.S. District Court for the Eastern District of Texas, Marshall Division. In the complaint, John seeks an injunction, unspecified damages, and attorneys' fees and expenses. The Company filed a request for re-examination of the patent by the United States Patent and Trademark Office (“PTO”), which was granted by the PTO, and the re-examination has concluded.PTO. The litigation was stayed pending the results of the re-examination. After the re-examination concluded, the stay was lifted on January 1, 2012, and the lawsuit was transferred by consent of the parties to the Northern District of California. The Company also filed a request for a second re-examination of the patent, which was granted and is still pending. Discovery is open and proceeding. Trial is scheduled for September 22, 2014. At this stage of the proceedings, we do not have an estimate of the likelihood or the amount of any potential exposure to us. The Company believes it possesses defenses to these claims and intends to vigorously defend this litigation.
On December 8, 2010, Intellectual Ventures I LLC and Intellectual Ventures II LLC (“Intellectual Ventures”) filed a patent infringement lawsuit against the Company, Altera Corporation and Microsemi Corporation in the U.S. District Court for the District of Delaware, seeking unspecified damages. AtThe complaint alleged, inter alia, that certain programmable logic devices manufactured by the Company infringe certain United States patents assigned to Intellectual Ventures. In February 2013, the Company entered into a License Agreement with Intellectual Ventures granting the Company a license to a portfolio of patents held by Intellectual Ventures, including those forming the basis for the patent infringement lawsuit, for the field programmable gate array device field of use. As a result of this stageLicense Agreement, the Company and Intellectual Ventures have settled this matter and Intellectual Ventures has agreed to dismissthe action against us. The resolution of the proceedings, we dothis matter did not have an estimatea material adverse effect on our financial position, results of the likelihoodoperation or the amount of any potential exposure to us. The Company believes it possesses defenses to these claims and intends to vigorously defend this litigation.cash flows.
We are also exposed to certain other asserted and unasserted potential claims. There can be no assurance that, with respect to potential claims made against us, we could resolve such claims under terms and conditions that would not have a material adverse effect on our business, our liquidity or our financial results. Periodically, we review the status of each significant matter and assess its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and a range of possible losses can be estimated, we then accrue a liability for the estimated loss based on the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 450, “Contingencies" (“ASC 450”). Legal proceedings are subject to uncertainties, and the outcomes are difficult to predict. Because of such uncertainties, accruals are based only on the best information available at the time. As additional information becomes available, we reassess the potential liability related to pending claims and litigation and may revise estimates. Presently, no accrual has been estimated under ASC 450 for potential losses that may or may not arise from the current lawsuits in which we are involved.
(16)—Segment and Geographic Information:
We operate in one industry segment comprising the design, development, manufacture and marketing of high performance programmable logic products.devices. Our revenue by major geographic area based on ship-to location was as follows (dollars in thousands):
| | | | Year Ended | | Year Ended |
| | December 31,
2011 | | January 1,
2011 | | January 2,
2010 | | December 29, 2012 | | December 31, 2011 | | January 1, 2011 |
| | Total | | % | | Total | | % | | Total | | % | |
| United States | $ | 44,847 |
| | 14 | | $ | 36,211 |
| | 12 | | $ | 28,296 |
| | 15 | |
| United States: | | | $ | 34,172 |
| | 12 | % | | $ | 44,847 |
| | 14 | % | | 36,211 |
| | 12 | % |
| | | | | | | | | | | | | | | | | | | |
| China | 123,124 |
| | 39 | | 124,910 |
| | 42 | | 83,813 |
| | 43 | | 113,585 |
| | 41 |
| | 123,124 |
| | 39 |
| | 124,910 |
| | 42 |
|
| Europe | 66,319 |
| | 21 | | 54,332 |
| | 18 | | 33,389 |
| | 17 | | 48,202 |
| | 17 |
| | 66,319 |
| | 21 |
| | 54,332 |
| | 18 |
|
| Japan | 36,961 |
| | 11 | | 38,992 |
| | 13 | | 19,460 |
| | 10 | | 35,696 |
| | 13 |
| | 36,961 |
| | 11 |
| | 38,992 |
| | 13 |
|
| Taiwan | 8,346 |
| | 3 | | 8,839 |
| | 3 | | 6,313 |
| | 3 | | 8,276 |
| | 3 |
| | 8,346 |
| | 3 |
| | 8,839 |
| | 3 |
|
| Other Asia | 32,687 |
| | 10 | | 27,853 |
| | 10 | | 17,476 |
| | 9 | | 32,254 |
| | 11 |
| | 32,687 |
| | 10 |
| | 27,853 |
| | 10 |
|
| Other Americas | 6,082 |
| | 2 | | 6,631 |
| | 2 | | 5,673 |
| | 3 | | 7,071 |
| | 3 |
| | 6,082 |
| | 2 |
| | 6,631 |
| | 2 |
|
| Total foreign revenue | 273,519 |
| | 86 | | 261,557 |
| | 88 | | 166,124 |
| | 85 | | 245,084 |
| | 88 |
| | 273,519 |
| | 86 |
| | 261,557 |
| | 88 |
|
| Total revenue | $ | 318,366 |
| | 100 | | $ | 297,768 |
| | 100 | | $ | 194,420 |
| | 100 | | $ | 279,256 |
| | 100 | % | | $ | 318,366 |
| | 100 | % | | $ | 297,768 |
| | 100 | % |
We assign revenue to geographies based on the customer ship-to address at the point where revenue is recognized. In the case of sell-in distributors and OEM customers, revenue is typically recognized, and geography is assigned, when products are shipped to our distributor or customer. In the case of sell-through distributors, revenue is recognized when resale occurs and geography is assigned based on the customer location on the resale reports provided by the distributor.
Revenue fromby Distributors
Our largest customers are distributors and sales through distributors have historically made up a significant portion of our total revenue. Revenue attributable to resales of products by Arrow Electronics, Inc., which includes its wholly-owned subsidiary, Nu Horizons Electronics Corp., accountedour primary distributors are as follows:
|
| | | | | | | | |
| | % of Total Revenue |
| | 2012 | | 2011 | | 2010 |
| Nu Horizons Electronics Corp. (including Arrow Electronics) | 33 | % | | 22 | % | | 18 | % |
| Weikeng Group | 14 |
| | 14 |
| | 14 |
|
| Avnet, Inc. | — |
| | 17 |
| | 17 |
|
| All others | 8 |
| | 8 |
| | 7 |
|
| All sell-through distributors | 55 | % | | 61 | % | | 56 | % |
Orders from our sell-through distributors are initially recorded at published list prices; however, for approximately 22%, 18%a majority of our sales, the final selling price is determined at the time of resale and 12% ofin accordance with a distributor price agreement. In certain circumstances, we allow sell-through distributors to return unsold products. At times, we protect our sell-through distributors against reductions in published list prices. For these reasons, we do not recognize revenue in fiscal years 2011, 2010 and 2009, respectively. Revenue attributableuntil products are resold by sell-through distributors to resales of products by Avnet, Inc. accounted for approximately 17%, 17% and 13% of revenue in fiscal years 2011, 2010 and 2009, respectively. Revenue attributable to resales of products by the Weikeng Group (Weikeng Industrial Co. Ltd. (Taiwan) and Weikeng International Co. Ltd. (Hong Kong)) accounted for approximately 14%, 14% and 9% of revenue in fiscal years 2011, 2010 and 2009, respectively. Sales of products to ASTI Holdings Ltd. accounted for approximately 0%, 0% and 16% of revenue in fiscal years 2011, 2010 and 2009, respectively. No other individual customer accounted for more than 10% of total revenue in any of the fiscal years 2011, 2010 and 2009.an end customer.
On August 28,In 2011 our global franchise agreement with Avnet terminated, however, we had mutually agreed to terms for the transition of inventory through December 31, 2011. We do not expect a significant disruptionRevenue from Avnet made up approximately 20% of our total revenue for the first nine months of fiscal 2011. Because we and our remaining global and regional distributors worked directly with our end customers in order to transition the fulfillment of customer orders to replacement distributors, the impact on our ability to service customersbusiness as a result of this change.change has been negligible. We continue to serve our end customers with a network that includes a global distributor, regional distributors, manufacturer's representatives, and our direct sales team.
During fiscal 2009, the Company embarked on a program to restructure its distribution channels, primarily in the Asia Pacific region, from a sell-in to a sell-through distribution model. As a result, the majority of our revenue in fiscal 2010 was related to resale of our products by sell-through distributors. In connection with this program, Lattice terminated our distribution agreement between Lattice and Promaster Technology Corporation on July 2, 2009, between Lattice and Dragon Technology Distribution and FE Global Electronics effective for various territories on February 1 and February 6, 2010, respectively, and between Lattice and other distributors effective on various dates. Dragon Technology Distribution and FE Global Electronics are wholly-owned subsidiaries of ASTI Holdings Ltd.
(17)—Quarterly Financial Data (Unaudited):
A summary of the Company's consolidated quarterly results of operations is as follows (in thousands, except per share data):
| | | | | 2011 | | 2010 | | 2012 | | 2011 |
| | | Q4 | | Q3 | | Q2 | | Q1 | | Q4 | | Q3 | | Q2 | | Q1 | | Q4 | | Q3 | | Q2 | | Q1 | | Q4 | | Q3 | | Q2 | | Q1 |
| Revenue | | $ | 70,170 |
| | $ | 81,720 |
| | $ | 83,861 |
| | $ | 82,615 |
| | $ | 73,080 |
| | $ | 77,137 |
| | $ | 77,119 |
| | $ | 70,432 |
| | $ | 65,875 |
| | $ | 70,889 |
| | $ | 70,792 |
| | $ | 71,700 |
| | $ | 70,170 |
| | $ | 81,720 |
| | $ | 83,861 |
| | $ | 82,615 |
|
| Gross margin | | $ | 40,463 |
| | $ | 47,854 |
| | $ | 50,671 |
| | $ | 49,609 |
| | $ | 45,841 |
| | $ | 45,586 |
| | $ | 47,230 |
| | $ | 41,168 |
| | $ | 35,673 |
| | $ | 38,548 |
| | $ | 37,051 |
| | $ | 39,485 |
| | $ | 40,463 |
| | $ | 47,854 |
| | $ | 50,671 |
| | $ | 49,609 |
|
| Restructuring charges (adjustment) | | $ | 1,097 |
| | $ | 1,760 |
| | $ | 1,387 |
| | $ | 1,835 |
| | $ | (30 | ) | | $ | 79 |
| | $ | (120 | ) | | $ | 82 |
| | $ | 5,375 |
| | $ | — |
| | $ | 87 |
| | $ | 556 |
| | $ | 1,097 |
| | $ | 1,760 |
| | $ | 1,387 |
| | $ | 1,835 |
|
| Net income | | $ | 40,945 |
| | $ | 13,337 |
| | $ | 13,031 |
| | $ | 10,919 |
| | $ | 13,879 |
| | $ | 15,368 |
| | $ | 16,736 |
| | $ | 11,089 |
| |
| Basic net income per share | | $ | 0.35 |
| | $ | 0.11 |
| | $ | 0.11 |
| | $ | 0.09 |
| | $ | 0.12 |
| | $ | 0.13 |
| | $ | 0.14 |
| | $ | 0.10 |
| |
| Diluted net income per share | | $ | 0.34 |
| | $ | 0.11 |
| | $ | 0.11 |
| | $ | 0.09 |
| | $ | 0.11 |
| | $ | 0.13 |
| | $ | 0.14 |
| | $ | 0.10 |
| |
| Net (loss) income | | | $ | (7,175 | ) | | $ | (2,175 | ) | | $ | (12,542 | ) | | $ | (7,714 | ) | | $ | 40,945 |
| | $ | 13,337 |
| | $ | 13,031 |
| | $ | 10,919 |
|
| Basic net (loss) income per share | | | $ | (0.06 | ) | | $ | (0.02 | ) | | $ | (0.11 | ) | | $ | (0.07 | ) | | $ | 0.35 |
| | $ | 0.11 |
| | $ | 0.11 |
| | $ | 0.09 |
|
| Diluted net (loss) income per share | | | $ | (0.06 | ) | | $ | (0.02 | ) | | $ | (0.11 | ) | | $ | (0.07 | ) | | $ | 0.34 |
| | $ | 0.11 |
| | $ | 0.11 |
| | $ | 0.09 |
|
(18)—Subsequent Events:Event:
On February 7, 2012, uponJanuary 25, 2013, we entered into a lease of a 98,874 square foot research and development facility in San Jose, California and intend to commence operations at that facility during the recommendationsecond quarter of fiscal 2013. The term of the Compensation Committee, the Boardlease is 159 months with total annual rental costs of Directors of the Company approved the FY2012 Incentive Plan (the “2012 Plan”). The chief executive officer and other executive officers are eligible to participate in the 2012 Plan. Under the 2012 Plan, individual cash incentive payments and restricted stock unit grants for the chief executive officer and other executive officers will be based both on Company financial performance, as measured by achievement of operating income (before incentive plan accruals) and revenue goals within specified ranges established by the Compensation Committee, and Company performance, as measured by the achievement of management objectives. The Compensation Committee will determine the performance of the chief executive officer, the chief financial officer and other participants based on the achievement of management objectives established by the committee during the first fiscal quarter of 2012.$2.1 million with approximately 3% annual increases.
On February 24, 2012,27, 2013, the Company's Board of Directors approved a stock repurchase program pursuant to which up to $20.0$20.0 million of outstanding common stock may be repurchased from time to time. The duration of the repurchase program is twelve months. All repurchases will be open market transactions and funded from available working capital.
On December 8, 2010, Intellectual Ventures I LLC and Intellectual Ventures II LLC (“Intellectual Ventures”) filed a patent infringement lawsuit against the Company, Altera Corporation and Microsemi Corporation in the U.S. District Court for the District of Delaware, seeking unspecified damages. The complaint alleged, inter alia, that certain programmable logic devices manufactured by the Company infringe certain United States patents assigned to Intellectual Ventures. In February 2013, the Company entered into a License Agreement with Intellectual Ventures granting the Company a license to a portfolio of patents held by Intellectual Ventures, including those forming the basis for the patent infringement lawsuit, for the field programmable gate array device field of use. As a result of this License Agreement, the Company and Intellectual Ventures have settled this matter and Intellectual Ventures has agreed to dismiss the action against us. The resolution of this matter did not have a material adverse effect on our financial position, results of operation or cash flows.
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Lattice Semiconductor Corporation:
We have audited the accompanying consolidated balance sheets of Lattice Semiconductor Corporation and subsidiaries as of December 31, 201129, 2012 and January 1,December 31, 2011, and the related consolidated statements of operations and comprehensive (loss) income, changes in stockholders' equity, and comprehensive income (loss), and cash flows for each of the years in the three-yearthree‑year period ended December 31, 2011.29, 2012. In connection with our audits of the consolidated financial statements, we also have audited the consolidated financial statement Schedule II. These consolidated financial statements and consolidated financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and consolidated financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Lattice Semiconductor Corporation and subsidiaries as of December 31, 201129, 2012 and January 1,December 31, 2011, and the results of their operations and their cash flows for each of the years in the three-yearthree‑year period ended December 31, 2011,29, 2012, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related consolidated financial statement Schedule II, when considered in relation to the basic consolidated financial statements taken as a whole, presentspresent fairly, in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Lattice Semiconductor Corporation's internal control over financial reporting as of December 31, 2011,29, 2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 12, 20128, 2013 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.
/s/ KPMG LLP
Portland, Oregon
March 8, 2013
Portland, Oregon
March 12, 2012
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Lattice Semiconductor Corporation:
We have audited Lattice Semiconductor Corporation's internal control over financial reporting as of December 31, 2011,29, 2012, based on criteria established inInternal Control - Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Lattice Semiconductor Corporation's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting.Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Lattice Semiconductor Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011,29, 2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
The Company acquired APAC IC on July 15, 2011 and SiliconBlue Technologies Ltd. on December 16, 2011 (the Acquisitions). Management excluded the Acquisitions from its assessment of the effectiveness of the Company's internal control over financial reporting as of December 31, 2011. The Acquisitions represent 1.1% of the Company's total assets and less than 1% of the Company's total revenues as reported in the consolidated financial statements for the year ended December 31, 2011. Our audit of internal control over financial reporting of Lattice Semiconductor Corporation also excluded an evaluation of the internal control over financial reporting of SiliconBlue Technologies Ltd.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Lattice Semiconductor Corporation and subsidiaries as of December 31, 201129, 2012 and January 1December 31, 2011, and the related consolidated statements of operations and comprehensive (loss) income, changes in stockholders' equity, and comprehensive income (loss), and cash flows for each of the years in the three-year period ended December 31, 2011,29, 2012, and our report dated March 12, 20128, 2013 expressed an unqualified opinion on those consolidated financial statements.
/s/ KPMG LLP
Portland, Oregon
March 12, 20128, 2013
Item 9. Changes in and Disagreements with Accountants On Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this annual report.
Management's Report on Internal Control Over Financial Reporting
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) or 15d-15(f) under the Securities Exchange Act of 1934. The Company's internal control over financial reporting is a process designed to provide reasonable assurance regarding reliability of financial reporting and the preparation and fair presentation of published financial statements for external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the company's internal control over financial reporting as of December 31, 201129, 2012. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework. Based on this assessment, management concluded that, as of December 31, 201129, 2012, the Company's internal control over financial reporting was effective.
The Company acquired APAC IC on July 15, 2011, and SiliconBlue on December 16, 2011 (the Acquisitions). Management excluded the Acquisitions from its assessment of the effectiveness of the Company's internal controls over financial reporting as of December 31, 2011. The Acquisitions represent 1.1% of the Company's total assets and less than 1% of the Company's total revenues as reported in the consolidated financial statements for the year ended December 31, 2011.
KPMG LLP, an independent registered public accounting firm, has audited the Company's financial statements in this report on Form 10-K and issued its report on the effectiveness of the Company's internal control over financial reporting as of December 31, 201129, 2012.
Changes in Internal Control over Financial Reporting
There were no changes in our internal controls over financial reporting (as defined in Rules 13a - 15(f) and 15(d) - 15(f) under the Exchanges Act) that occurred during the fourth quarter of fiscal 20112012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. In 2010 and most of 2011 we implemented a new ERP system including new modules related to our general ledger, accounts payable and elements of our cost accounting systems. Legacy operating and financial information was migrated to the new ERP system, which resulted in the modification of certain controls, procedures and processes. We follow a system implementation life cycle process that requires significant pre-implementation planning, design and testing. We plan to continue to replace our legacy systems with the new ERP system functionality over the next several years.
Item 9B. Other Information.
None.
PART III
Certain information required by Part III is incorporated by reference from our definitive proxy statement (the “Proxy Statement”) for the 2012 Annual Meeting of Stockholders, pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended, which we will file not later than 120 days after the end of the fiscal year covered by this report. With the exception of the information expressly incorporated by reference from the Proxy Statement, the Proxy Statement is not to be deemed filed as a part of this report.
Item 10. Directors, Executive Officers and Corporate Governance.
Information regarding our directors that is required by this item is incorporated by reference from the information contained under the captions “Proposal 1: Election of Directors” and “Corporate Governance and Other Matters--Board Meetings and Committees” in the Proxy Statement. Information regarding our executive officers that is required by this item is set forth in Part I of this report under the caption “Executive Officers of the Registrant.”
Information regarding Section 16(a) reporting compliance that is required by this item is incorporated by reference from the information contained under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement.
We have adopted a code of ethics that applies to all of our employees, including our principal executive officer, principal financial officer, principal accounting officer, and persons performing similar functions. The Standards of Ethics and Conduct is posted on our website at www.latticesemi.com and is an exhibit to this Annual Report on Form 10-K.www.latticesemi.com. Amendments to the code of ethics or any grant of a waiver from a provision of the code of ethics requiring disclosure under applicable SEC rules, if any, will be disclosed on our website at www.latticesemi.com.
Information about our “Director Code of Ethics” and written committee charters for our Audit Committee, Compensation Committee, and Nominating and Governance Committee are available free of charge on the Company's website at www.latticesemi.com and isare available in print to any shareholder upon request.
There have been no material changes to the procedures by which security holders may recommend nominees to our Board of Directors since the filing of our Annual Report on Form 10-K for the year ended December 31, 2011.2011. The procedures by which security holders may recommend nominees to our Board of Directors were described in detail in the information concerning our Nominating and Governance Committee under the caption “Board Meetings and Committees” in our Proxy Statement filed March 15, 2012.April 12, 2012.
Information regarding our Audit Committee that is required by this Item is incorporated by reference from the information concerning our Audit Committee contained under the caption “Corporate Governance and Other Matters--Board Meetings and Committees” in the Proxy Statement.
Item 11. Executive Compensation.
The information contained under the captions “Executive Compensation,” “Compensation Committee Interlocks and Insider Participation,” and “Compensation Committee Report” in the Proxy Statement is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information contained under the caption “Security Ownership of Certain Beneficial Owners and Management” in the Proxy Statement is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information contained under the captions entitled “Certain Relationships and Related Transactions” and “Corporate Governance and Other Matters--Director Independence” in the Proxy Statement is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services.
The information contained under the caption entitled “Audit and Related Fees” in the Proxy Statement is incorporated herein by reference.
PART IV
Item 15. Exhibits, Financial Statement Schedules.
(a)(a) List of Documents Filed as Part of this Report
(1)(1) All financial statements.
The following financial statements are filed as part of this report under Item 8.
|
| | | |
| | Consolidated Financial Statements: | | |
| | Consolidated Balance Sheets, at December 29, 2012 and December 31, 2011 | | |
| Consolidated Statements of Operations and Comprehensive (Loss) Income, for the Years ended December 29, 2012, December 31, 2011, and January 1, 2011 | | |
| Consolidated Statements of Operations, for the Years ended December 31, 2011, January 1, 2011 and January 2, 2010 | | |
| | Consolidated Statements of Changes in Stockholders' Equity, and Comprehensive Income (Loss), for the Years ended December 29, 2012, December 31, 2011 and January 1, 2011 and January 2, 2010 | | |
| | Consolidated Statements of Cash Flows, for the Years ended December 29, 2012, December 31, 2011 and January 1, 2011 and January 2, 2010 | | |
| | Notes to Consolidated Financial Statements | | |
| | | | |
| | (2) Financial Statement Schedules. | | |
| | Schedule II—Valuation and Qualifying Accounts | | |
All other schedules have been omitted because the required information is included in the Consolidated Financial Statements or the notes thereto, or is not applicable or required.
(3) Exhibits.
|
| | |
| Exhibit Number | | Description |
| | | |
| 3.1 | | The Company’s Restated Certificate of Incorporation filed, as amended on June 4, 2009 (Incorporated by reference to Exhibit 3.1 filed with the Company's Current Report on Form 8-K filed June 4, 2009). |
| | |
| 3.2 | | The Company’s Bylaws, as amended and restated as of June 4, 2009 (Incorporated by reference to Exhibit 3.2 filed with the Company’s Current Report on Form 8-K filed June 4, 2009). |
| | |
| 10.24* | | Lattice Semiconductor Corporation 1996 Stock Incentive Plan, as amended, and Related Form of Option Agreement. |
| | |
| 10.33* | | 2001 Outside Directors' Stock Option Plan, as amended and restated. |
| | |
| 10.34* | | 2001 Stock Plan, as amended, and related Form of Option Agreement. |
| | |
| 10.35 | | Intellectual Property Agreement by and between Agere Systems Inc. and Agere Systems Guardian Corporation and Lattice Semiconductor Corporation as Buyer, dated January 18, 2002 (Incorporated by reference to Exhibit 10.35 filed with the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2001). |
| | |
| 10.37* | | Lattice Semiconductor Corporation Executive Deferred Compensation Plan, as amended and restated effective as of August 11, 1997 (Incorporated by reference to Exhibit 99.3 filed with the Company’s Registration Statement on Form S-3, as amended, dated October 17, 2002). |
| | |
| 10.38* | | Amendment No. 1 to the Lattice Semiconductor Corporation Executive Deferred Compensation Plan, as amended, dated November 19, 1999 (Incorporated by reference to Exhibit 99.4 filed with the Company’s Registration Statement on Form S-3, as amended, dated October 17, 2002). |
| | |
| 10.39 | | Registration Rights Agreement, dated as of June 20, 2003, between the Company and the initial purchaser named therein (Incorporated by reference to Exhibit 4.3 filed with the Company’s Registration Statement on Form S-3 on August 13, 2003). |
|
| | |
| Exhibit Number | | Description |
2.1 | | |
| 10.41* | | Form of Indemnification Agreement executed by each director and executive officer of the Company and certain other officers and employees of the Company and its subsidiaries (Incorporated by reference to Exhibit 10.41 filed with the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2004). |
| | |
| 10.51* | | Form of Amendment to Stock Option Agreements for 1996 Stock Incentive Plan, as amended, and 2001 Stock Plan, as amended (Incorporated by reference to Exhibit 99.3 filed with the Company’s Current Report on Form 8-K filed on December 12, 2005). |
| | |
| 10.56* | | Form of Notice of Grant of Restricted Stock Units to Executive Officer (Incorporated by reference to Exhibit 99.1 filed with the Company’s Current Report on Form 8-K filed on February 8, 2007). |
| | |
| 10.63* | | 2009 Bonus Plan of Lattice Semiconductor Corporation (Incorporated by reference to Exhibit 10.63 filed with the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009). |
| | |
| 10.66* | | Employment Agreement between Lattice Semiconductor Corporation and Byron Milstead effective as of December 30, 2008 (Incorporated by reference to Exhibit 10.66 filed with the Company's Annual Report on Form 10-K filed for the fiscal year ended January 3, 2009). |
| | |
| 10.67* | | Employment Agreement between Lattice Semiconductor Corporation and Sean Riley dated September 22, 2008 (Incorporated by reference to Exhibit 10.67 filed with the Company's Current Report on Form 10-Q filed on May 8, 2009). |
| | |
| 10.69* | | Lattice Semiconductor Corporation 2010 Cash Incentive Compensation Plan (Incorporated by reference to Exhibit 10.69 filed with the Company's Annual Report on Form 10-K filed for the fiscal year ended January 2, 2010). |
| | |
| 10.70* | | Employment Agreement between Lattice Semiconductor Corporation and Darin G. Billerbeck dated as of November 8, 2010 (Incorporated by reference to Exhibit 10.70 filed with the Company's Quarterly Report on Form 10-Q for the quarter ended October 2, 2010). |
| | |
| 10.71* | | Employment Agreement between Lattice Semiconductor Corporation and Joe Bedewi dated as of April 11, 2011. (Incorporated by reference to Exhibit 10.71 filed with the Company's Quarterly Report on Form 10-Q for the quarter ended April 2, 2011). |
| | |
| 10.72* | | Lattice Semiconductor Corporation 2012 Employee Stock Purchase Plan (incorporated by reference to Annex 1 to the Company's Definitive Proxy Statement on Schedule 14A for the 2012 Annual Meeting of Stockholders filed on April 12, 2012). |
| | |
| 10.73 | | Agreement and Plan of Merger, dated as of December 9, 2011, by and among Lattice Corp., Lattice Semiconductor, Ltd., a Bermuda exempted company and a wholly owned subsidiary of Lattice Corp., Aff Inv Acquisition Corporation, a Cayman Islands exempted company and a wholly owned subsidiary of Lattice Ltd., SiliconBlue Technologies Ltd., a Cayman Islands exempted company, and Fortis Advisors LLC, as the representative for SiliconBlue's security holders (Incorporated by reference to Exhibit 2.1 filed with the Company's Current Report on Form 8-K filed on December 19, 2011).
|
| | | |
3.1 | | The Company's Restated Certificate of Incorporation filed February 24, 2004 (Incorporated by reference to Exhibit 3.1 filed with the Company's Annual Report on Form 10-K for the year ended January 3, 2004). |
| | |
3.2 | | The Company's Bylaws, as amended and restated as of January 31, 2006 (Incorporated by reference to Exhibit 99.1 filed with the Company's Current Report on Form 8-K filed February 3, 2006). |
| | |
4.4 | | Indenture, dated as of June 20, 2003, between the Company and U.S. Bank National Association (Incorporated by reference to Exhibit 4.1 filed with the Company's Registration Statement on Form S-3 on August 13, 2003). |
| | |
4.5 | | Form of Note for the Company's Zero Coupon Convertible Subordinated Notes (Incorporated by reference to Exhibit 4.2 filed with the Company's Registration Statement on Form S-3 on August 13, 2003). |
| | |
10.23 | | Advance Production Payment Agreement dated March 17, 1997 among Lattice Semiconductor Corporation and Seiko Epson Corporation and S MOS Systems, Inc. (Incorporated by reference to Exhibit 10.23 filed with the Company's Annual Report on Form 10-K for the fiscal year ended January 1, 2005)(1). |
| | |
10.24*10.74* | | Lattice Semiconductor Corporation 1996 Stock2011 Non-Employee Director Equity Incentive Plan as amended, and Related Form of Option Agreement (Incorporated by reference to Exhibits (d)(1) and (d)(2)Appendix A to the Company's Schedule TO filed on February 13, 2003). |
|
| | |
Exhibit Number
| | Description |
10.33* | | 2001 Outside Directors' Stock Option Plan, as amended and restated effective May 1, 2007 (Incorporated by reference to the Appendix A filed with the Company's 2007 Definitive Proxy Statement on Schedule 14A for the 2011 Annual Meeting of Stockholders filed on April 5, 2007). |
| | |
10.34* | | 2001 Stock Plan, as amended, and related Form of Option Agreement (Incorporated by reference to Exhibits (d)(3) and (d)(4) to the Company's Schedule TO filed on February 13, 2003). |
| | |
10.35 | | Intellectual Property Agreement by and between Agere Systems Inc. and Agere Systems Guardian Corporation and Lattice Semiconductor Corporation as Buyer, dated January 18, 2002 (Incorporated by reference to Exhibit 10.35 filed with the Company's Annual Report on Form 10-K for the year ended December 29, 2001). |
| | |
10.37* | | Lattice Semiconductor Corporation Executive Deferred Compensation Plan, as amended and restated effective as of August 11, 1997 (Incorporated by reference to Exhibit 99.3 filed with the Company's Registration Statement on Form S-3, as amended, dated October 17, 2002). |
| | |
10.38* | | Amendment No. 1, to the Lattice Semiconductor Corporation Executive Deferred Compensation Plan, as amended, dated November 19, 1999 (Incorporated by reference to Exhibit 99.4 filed with the Company's Registration Statement on Form S-3, as amended, dated October 17, 2002). |
| | |
10.39 | | Registration Rights Agreement, dated as of June 20, 2003, between the Company and the initial purchaser named therein (Incorporated by reference to Exhibit 4.3 filed with the Company's Registration Statement on Form S-3 on August 13, 2003). |
| | |
10.41* | | Form of Indemnification Agreement executed by each director and executive officer of the Company and certain other officers and employees of the Company and its subsidiaries (Incorporated by reference to Exhibit 10.41 filed with the Company's Annual Report on Form 10-K for the year ended January 3, 2004). |
| | |
10.42 | | Amendment dated March 25, 2004 to Advance Production Payment Agreement dated March 17, 1997, as amended, among Lattice Semiconductor Corporation and Seiko Epson Corporation and S MOS Systems, Inc. (Incorporated by reference to Exhibit 10.42 filed with the Company's Quarterly Report on Form 10-Q for the quarter ended April 3, 2004)(1). |
| | |
10.43 | | Advance Payment and Purchase Agreement dated September 10, 2004 between Lattice Semiconductor Corporation and Fujitsu Limited (Incorporated by reference to Exhibit 10.1 filed with the Company's Quarterly Report on Form 10-Q for the quarter ended October 2, 2004)(1). |
| | |
10.44* | | Employment Agreement between Lattice Semiconductor Corporation and Stephen A. Skaggs dated August 9, 2005 (Incorporated by reference to Exhibit 99.1 filed with the Company's Current Report on Form 8-K filed on August 12, 2005). |
| | |
10.45* | | Compensation Arrangement between Lattice Semiconductor Corporation and Patrick S. Jones, Chairman of the Board of Directors (Incorporated by reference to Exhibit 99.2 filed with the Company's Current Report on Form 8-K filed on August 12, 2005). |
| | |
10.46* | | Employment Agreement between Lattice Semiconductor Corporation and Jan Johannessen dated November 1, 2005 (Incorporated by reference to Exhibit 10.1 filed with the Company's Quarterly Report on Form 10-Q filed on November 4, 2005). |
| | |
10.47* | | Employment Agreement between Lattice Semiconductor Corporation and Martin R. Baker dated November 1, 2005 (Incorporated by reference to Exhibit 10.2 filed with the Company's Quarterly Report on Form 10-Q filed on November 4, 2005). |
| | |
10.48* | | Employment Agreement between Lattice Semiconductor Corporation and Stephen M. Donovan dated November 1, 2005 (Incorporated by reference to Exhibit 10.3 filed with the Company's Quarterly Report on Form 10-Q filed on November 4, 2005). |
| | |
10.50* | | Compensation Arrangement between Lattice Semiconductor Corporation and Chairpersons for Committees of the Board of Directors (Incorporated by reference to Exhibit 99.1 filed with the Company's Current Report on Form 8-K filed on December 12, 2005). |
| | |
10.51* | | Form of Amendment to Stock Option Agreements for 1996 Stock Incentive Plan, as amended, and 2001 Stock Plan, as amended (Incorporated by reference to Exhibit 99.3 filed with the Company's Current Report on Form 8-K filed on December 12, 2005). |
| | |
10.52* | | 2006 Executive Bonus Plan (Incorporated by reference to Exhibit 99.4 filed with the Company's Current Report on Form 8-K filed on December 12, 2005)2011). |
|
| | |
| Exhibit Number | | Description |
10.53 | | Addendum dated March 22, 2006 to the Advance Payment and Purchase Agreement dated September 10, 2004 between Lattice Semiconductor Corporation and Fujitsu Limited (Incorporated by reference to Exhibit 10.53 filed with the Company's Quarterly Report on Form 10-Q filed on November 7, 2006). |
| | |
10.54 | | Addendum No. 2 dated effective October 1, 2006 to the Advance Payment and Purchase Agreement dated September 10, 2004 between Lattice Semiconductor Corporation and Fujitsu Limited (Incorporated by reference to Exhibit 10.54 filed with the Company's Quarterly Report on Form 10-Q filed on November 7, 2006)(1). |
| | |
10.55* | | 2007 Executive Variable Compensation Plan, as amended (Incorporated by reference to Exhibit 99.1 filed with the Company's Current Report on Form 8-K filed on December 7, 2006, as amended as described in the Company's Current Report on Form 8-K filed on February 8, 2007). |
| | |
10.56* | | Form of Notice of Grant of Restricted Stock Units to Executive Officer (Incorporated by reference to Exhibit 99.1 filed with the Company's Current Report on Form 8-K filed on February 8, 2007). |
| | |
10.57* | | 2008 Executive Variable Compensation Plan, as amended (Incorporated by reference to Exhibit 99.1 filed with the Company's Current Report on Form 8-K filed on December 7, 2007). |
| | |
10.58* | | Letter Agreement between Lattice Semiconductor Corporation and Stephen A. Skaggs dated January 31, 2008 (Incorporated by reference to Exhibit 10.58 filed with the Company's Annual Report on Form 10-K filed on March 13, 2008). |
| | |
10.59* | | Employment Agreement between Lattice Semiconductor Corporation and Bruno Guilmart dated May 14, 2008 (Incorporated by reference to Exhibit 99.1 filed with the Company's Current Report on Form 8-K filed on June 16, 2008). |
| | |
10.60* | | Employment Agreement between Lattice Semiconductor Corporation and Byron Milstead dated May 14, 2008 (Incorporated by reference to Exhibit 10.60 filed with the Company's Current Report on Form 10-Q filed on August 8, 2008). |
| | |
10.61* | | Form of Inducement Stock Option Agreement (Incorporated by reference to Exhibit 10.61 filed with the Company's Current Report on Form 10-Q filed on November 5, 2008). |
| | |
10.62* | | Employment Agreement between Lattice Semiconductor Corporation and Michael G. Potter dated February 4, 2009 (Incorporated by reference to Exhibit 99.2 filed with the Company's Current Report on Form 8-K filed on February 4, 2009). |
| | |
10.63* | | 2009 Bonus Plan of Lattice Semiconductor Corporation (Incorporated by reference to Exhibit 10.63 filed with the Company's Annual Report on Form 10-K filed on March 13, 2009). |
| | |
10.64 | | Addendum #4 dated effective December 18, 2009 to the Advanced Payment and Purchase Agreement dated September 10, 2004 between Lattice Semiconductor Corporation and Fujitsu Limited (Incorporated by reference to Exhibit 10.64 filed with the Company's Annual Report on Form 10-K filed on March 13, 2009). |
| | |
10.65 | | Letter Agreement effective December 18, 2008 re Repayment of Advance Payment between Lattice Semiconductor Corporation and Fujitsu Microelectronics Limited and Fujitsu Microelectronics America, Inc. (Incorporated by reference to Exhibit 10.65 filed with the Company's Annual Report on Form 10-K filed on March 13, 2009). |
| | |
10.66* | | Employment Agreement between Lattice Semiconductor Corporation and Byron Milstead effective as of December 30, 2008. (Incorporated by reference to Exhibit 10.66 filed with the Company's Annual Report on Form 10-K filed on March 13, 2009). |
| | |
10.67* | | Employment Agreement between Lattice Semiconductor Corporation and Sean Riley dated September 22, 2008 (Incorporated by reference to Exhibit 10.67 filed with the Company's Current Report on Form 10-Q filed on April 4, 2009). |
| | |
10.68* | | Employment Agreement between Lattice Semiconductor Corporation and Christopher M. Fanning amended and restated as of December 15, 2008 (Incorporated by reference to Exhibit 10.68 filed with the Company's Current Report on Form 10-Q filed on April 4, 2009). |
| | |
10.69* | | Lattice Semiconductor Corporation 2010 Cash Incentive Compensation Plan (Incorporated by reference to Exhibit 10.69 filed with the Company's Annual Report on Form 10-K filed on March 10, 2010). |
|
| | |
Exhibit Number
| | Description |
10.70* | | Employment Agreement between Lattice Semiconductor Corporation and Darin G. Billerbeck dated as of November 8, 2010 (Incorporated by reference to Exhibit 10.70 filed with the Company's Current Report on Form 10-Q filed on November 5, 2010). |
| | |
10.71* | | Employment Agreement between Lattice Semiconductor Corporation and Joe Bedewi dated as of April 11, 2011 (Incorporated by reference to Exhibit 10.71 filed with the Company's Current Report on Form 10-Q filed on May 5, 2011). |
| | |
14.1 | | Standards of Ethics and Conduct (Incorporated by reference to Exhibit 14.1 filed with the Company's Annual Report on Form 10-K for the year ended January 3, 2004). |
| | | |
| 21.1 | | Subsidiaries of the Registrant. |
| | | |
| 23.1 | | Consent of Independent Registered Public Accounting Firm. |
| | | |
| 31.1 | | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended. |
| | | |
| 31.2 | | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended. |
| | | |
| 32.1 | | Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | | |
| 32.2 | | Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | | |
| 101.INS | | XBRL Instance Document |
| | | |
| 101.SCH | | XBRL Taxonomy Extension Schema Document |
| | | |
| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document |
| | | |
| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document |
| | | |
| 101.LAB | | XBRL Taxonomy Extension Labels Linkbase Document |
| | | |
| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document |
|
| |
| ________________ |
| (1) | Pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, confidential treatment has been granted to portions of this exhibit, which portions have been deleted and filed separately with the Securities and Exchange Commission. |
| | |
| * | Management contract or compensatory plan or arrangement required to be filed as an Exhibit to this Annual Report on Form 10-K pursuant to Item 15(b) thereof. |
| | |
| | (b) See (a)(3) above. |
| | |
| | (c) See (a)(1) and (2) above. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
|
| | |
| | LATTICE SEMICONDUCTOR CORPORATION |
| | | (Registrant) |
| | By: | /s/ JOE BEDEWI |
| | | Joe Bedewi Corporate Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Financial and Accounting Officer) |
Date: March 12, 20128, 2013
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Darin G. Billerbeck and Joe Bedewi, or either of them, his or her attorneys-in-fact, each with the power of substitution, for such person in any and all capacities, to sign any amendments to this report and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that either of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities indicated and on the dates indicated:
|
| | | |
| Signature | | Title | Date |
| | | | |
/s/ DARIN G. BILLERBECK | | President, Chief Executive Officer and Director (Principal Executive Officer) | March 12, 20128, 2013 |
| Darin G. Billerbeck | | |
| | | | |
/s/ JOE BEDEWI | | Corporate Vice President and Chief
Financial Officer (Principal Financial and
Accounting Officer) | March 12, 20128, 2013 |
| Joe Bedewi | | |
| | | | |
/s/ ROBIN ABRAMS | | Director | March 12, 20128, 2013 |
| Robin Abrams | | |
| | | | |
/s/ JOHN BOURGOIN | | Director | March 12, 20128, 2013 |
| John Bourgoin | | |
| | | |
/s/ DAVID E. CORESON
| | Director | March 12, 2012 |
David E. Coreson | | |
| | | | |
/s/ PATRICK S. JONES | | Director | March 12, 20128, 2013 |
| Patrick S. Jones | | |
| | | | |
/s/ BALAJI KRISHNAMURTHY | | Director | March 12, 20128, 2013 |
| Balaji Krishnamurthy | | |
| | | | |
/s/ W. RICHARD MARZ | | Director | March 12, 20128, 2013 |
| W. Richard Marz | | |
| | | | |
/s/ GERHARD H. PARKER | | Director | March 12, 20128, 2013 |
| Gerhard H. Parker | | |
| | | | |
/s/ HANS SCHWARZ
| | Director | March 12, 2012 |
| Hans Schwarz | | |
Schedule II
LATTICE SEMICONDUCTOR CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
| | | Column A | Column B | | Column C | | Column D | | Column E | | Column F | Column B | | Column C | | Column D | | Column E | | Column F |
| Classification | Balance at
beginning of
period | | Charged (Credit) to
costs and
expenses | | Charged to
other accounts | | Write-offs
net of
recoveries | | Balance at end
of period | Balance at
beginning of
period | | Charged (Credit) to
costs and
expenses | | Charged to
other accounts | | Write-offs
net of
recoveries | | Balance at end
of period |
| Fiscal year ended December 29, 2012: | | | | | | | | | | |
| Allowance for deferred taxes | | $ | 147,499 |
| | $ | 1,652 |
| | $ | 58 |
| | $ | — |
| | $ | 149,209 |
|
| Allowance for doubtful accounts | | 939 |
| | 286 |
| | — |
| | (103 | ) | | 1,122 |
|
| Allowance for warranty expense | | — |
| | — |
| | — |
| | — |
| | — |
|
| | | $ | 148,438 |
| | $ | 1,938 |
| | $ | 58 |
| | $ | (103 | ) | | $ | 150,331 |
|
| Fiscal year ended December 31, 2011: | | | | | | | | | | | | | | | | | | |
| Allowance for deferred taxes | $ | 271,208 |
| | $ | (123,709 | ) | (a) | $ | (2 | ) | | $ | — |
| | $ | 147,497 |
| $ | 271,208 |
| | $ | (123,709 | ) | | $ | — |
| | $ | — |
| | $ | 147,499 |
|
| Allowance for doubtful accounts | 866 |
| | 73 |
| | — |
| | — |
| | 939 |
| 866 |
| | 73 |
| | — |
| | — |
| | 939 |
|
| Allowance for warranty expense | 99 |
| | — |
| | — |
| | (99 | ) | | — |
| 99 |
| | — |
| | — |
| | (99 | ) | | — |
|
| | $ | 272,173 |
| | $ | (123,636 | ) | | $ | (2 | ) | | $ | (99 | ) | | $ | 148,436 |
| $ | 272,173 |
| | $ | (123,636 | ) | | $ | — |
| | $ | (99 | ) | | $ | 148,438 |
|
| Fiscal year ended January 1, 2011: | | | | | | | | | | | | | | | | | | |
| Allowance for deferred taxes | $ | 292,683 |
| | $ | — |
| | $ | (476 | ) | | $ | (20,999 | ) | | $ | 271,208 |
| $ | 292,683 |
| | $ | — |
| | $ | (476 | ) | | $ | (20,999 | ) | | $ | 271,208 |
|
| Allowance for doubtful accounts | 963 |
| | — |
| | — |
| | (97 | ) | | 866 |
| 963 |
| | — |
| | — |
| | (97 | ) | | 866 |
|
| Allowance for warranty expense | 153 |
| | — |
| | — |
| | (54 | ) | | 99 |
| 153 |
| | — |
| | — |
| | (54 | ) | | 99 |
|
| | $ | 293,799 |
| | $ | — |
| | $ | (476 | ) | | $ | (21,150 | ) | | $ | 272,173 |
| $ | 293,799 |
| | $ | — |
| | $ | (476 | ) | | $ | (21,150 | ) | | $ | 272,173 |
|
| Fiscal year ended January 2, 2010: | | | | | | | | | | |
| Allowance for deferred taxes | $ | 292,752 |
| | $ | — |
| | $ | 25 |
| | $ | (94 | ) | | $ | 292,683 |
| |
| Allowance for doubtful accounts | 1,173 |
| | 62 |
| | — |
| | (272 | ) | | 963 |
| |
| Allowance for warranty expense | 625 |
| | 56 |
| | — |
| | (528 | ) | | 153 |
| |
| | $ | 294,550 |
| | $ | 118 |
| | $ | 25 |
| | $ | (894 | ) | | $ | 293,799 |
| |
