The chart entitled Quarterly
Data contained in Item 6 of Part II hereof is hereby incorporated by reference into the Item 8 of Part II of this Form 10-K.
Schedules not listed above have been omitted because they are not applicable or are not required, or the
information required to be set forth therein is included in the financial statements or the notes thereto.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of business.
PMC-Sierra, Inc. is a semiconductor innovator transforming networks that connect, move
and store digital content. Building on a track record of technology leadership, the Company is driving innovation across storage, optical and mobile networks. PMCs highly integrated solutions increase performance and enable next generation
services to accelerate the network transformation.
Basis of presentation.
The accompanying consolidated financial statements
have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (SEC) and United States Generally Accepted Accounting Principles (GAAP). The Companys 2012 fiscal year
consisted of 52 weeks, and fiscal years 2011, and 2010 consisted of 53 and 52 weeks, respectively. The 2012 fiscal year ended on the last Saturday in December, and the 2011 and 2010 fiscal years ended on the last Sunday in December. The
Companys reporting currency is the U.S. dollar. The accompanying consolidated financial statements include the accounts of PMC-Sierra, Inc. and any of its subsidiaries. As at December 29, 2012 and December 31, 2011, all subsidiaries
included in these consolidated financial statements were wholly owned by PMC. All inter-company accounts and transactions have been eliminated.
Estimates.
The preparation of financial statements and related disclosures in conformity with GAAP requires management to make
estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Estimates are used for, but not limited to, stock-based compensation, purchase accounting assumptions including those used to calculate
the fair value of intangible assets and goodwill, the valuation of investments, accounting for doubtful accounts, inventory reserves, depreciation and amortization, asset impairments, revenue recognition, sales returns, warranty costs, income taxes
including uncertain tax positions, restructuring costs, assumptions used to measure the fair value of the debt component of the Companys senior convertible notes, accounting for employee benefit plans, and contingencies (See
Note 11.
Commitments and Contingencies
). Actual results could differ materially from these estimates.
Cash and cash equivalents, short-term
investments and long-term investment securities.
Cash equivalents are defined as highly liquid interest-earning instruments with maturities at the date of purchase of three months or less. Short-term investments are investments with
original maturities greater than three months, but less than one year. Investments with maturities beyond one year are classified as long-term investment securities.
Management classifies investments as available-for-sale or held-to-maturity at the time of purchase and re-evaluates such designation as of
each balance sheet date. Investments classified as held-to-maturity securities are stated at amortized cost with corresponding premiums or discounts amortized against interest income over the life of the investment. Marketable equity and debt
securities not classified as held-to-maturity are classified as available-for-sale and reported at fair value. The cost of securities sold is based on the specific identification method. Unrealized gains and losses on these investments, net of any
related tax effect are included in equity as a separate component of stockholders equity. For debt securities, if an impairment is considered other than temporary, the entire difference between the amortized cost and the fair value is
recognized in earnings in the period this determination is made.
Allowance for Doubtful Accounts.
The allowance for doubtful
accounts is based on the Companys assessment of the collectability of customer accounts. The Company regularly reviews the allowance by considering factors such as historical experience, credit quality, age of the accounts receivable balances,
and economic conditions that may affect a customers ability to pay. In cases where we are aware of circumstances that may impair a specific customers ability to meet its financial obligations subsequent to the original sale, the Company
will record an allowance against amounts due, and thereby reduce the net recognized receivable to the amount that is expected to be ultimately collected.
Inventories.
Inventories are stated at the lower of cost (first-in, first-out) or market (estimated net realizable value). Cost is
computed using standard cost, which approximates actual average cost. The Company provides inventory allowances on obsolete inventories and inventories in excess of twelve-month demand for each specific part.
The Company provides inventory write-downs based on excess and obsolete inventories determined primarily by future demand forecasts. The
write-down is measured as the difference between the cost of the inventory and market based upon assumptions about future demand and charged to the provision for inventory, which is a component of cost of sales. At the point of the loss recognition,
a new, lower cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis.
Property and equipment, net.
Property and equipment is stated at cost, net of write-downs for impairment, and accumulated
depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, ranging from two to five years. Leasehold improvements are capitalized and amortized over the shorter of their estimated useful
lives or the lease term.
49
Goodwill and Intangible assets.
Goodwill is tested for impairment on an annual basis in
the fourth fiscal quarter, and when specific circumstances dictate, between annual tests. When impaired, the carrying value of goodwill is written down to fair value. The goodwill impairment test involves a two-step process. The first step,
identifying a potential impairment, compares the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying value of the reporting unit exceeds its fair value, the second step would need to be conducted; otherwise,
no further steps are necessary as no potential impairment exists. The second step, measuring the impairment loss, compares the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. Any excess of the reporting
unit goodwill carrying value over the respective implied fair value is recognized as an impairment loss. Purchased intangible assets with finite lives are carried at cost, less accumulated amortization. Amortization is computed over the estimated
useful lives of the respective assets, ranging from less than 1 year to ten years. Purchased intangible assets with indefinite lives are assessed for potential impairment annually or when events or circumstances indicate that their carrying amounts
might be impaired. Developed technology assets are carried at cost, less accumulated amortization, of which amortization is computed over the estimated useful lives of 3 years.
Impairment of long-lived assets.
Long-lived assets that are held and used by the Company are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability of long-lived assets is based on an estimate of the undiscounted future cash flows resulting from the use of
the asset and its eventual disposition. Measurement of an impairment loss for long-lived assets that management expects to hold and use is based on the difference between the fair value of the asset and its carrying value. Long-lived assets to be
disposed of are reported at the lower of carrying amount or fair value less costs to sell.
See
Note 18. Impairment of Goodwill and
Long-Lived Assets
for discussion of the 2012 asset impairment relating to goodwill and purchased intangible assets.
During 2012, the
Company recognized other asset impairments totaling $1.8 million related to certain design tools, property and equipment, and intellectual property that were no longer expected to be utilized. During 2011, the Company recognized an asset impairment
of $3.6 million related to certain purchased intellectual property that was no longer expected to be leveraged due to adjustments in research and development project initiatives. During 2010, the Company recognized an asset impairment of $4.9
million based on a determination made in the period that certain intangible assets were made redundant by assets acquired with our purchase of the Channel Storage business from Adaptec. Accordingly, the carrying values were written down to zero.
These impairment charges were included in the Consolidated Statements of Operations in Research and development expense in the respective periods.
Foreign currency translation.
For all foreign operations, the U.S. dollar is used as the functional currency. Monetary assets and
liabilities in foreign currencies are translated into U.S. dollars using the exchange rate as of the balance sheet date. Revenues and expenses are translated at average rates of exchange during the year. Gains and losses from foreign currency
transactions are reported separately as Foreign exchange gain (loss) under Other income (expense) on the Consolidated Statements of Operations.
Derivatives and Hedging Activities.
Fluctuating foreign exchange rates may significantly impact PMCs net (loss) income and
cash flows. The Company periodically hedges forecasted foreign currency transactions related to certain operating expenses. All derivatives are recorded in the balance sheet at fair value. For a derivative designated as a fair value hedge, changes
in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in net (loss) income. For a derivative designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative
are recorded in other comprehensive income and are recognized in net (loss) income when the hedged item affects net (loss) income. Ineffective portions of changes in the fair value of cash flow hedges are recognized in net income (loss). If the
derivative used in an economic hedging relationship is not designated in an accounting hedging relationship or if it becomes ineffective, changes in the fair value of the derivative are recognized in net (loss) income. During the years ended
December 29, 2012, December 31, 2011 and December 26, 2010, all hedges were designated as cash flow hedges.
Fair
value of financial instruments.
The estimated fair value of financial instruments has been determined by the Company using available market information and appropriate valuation methodologies as prescribed under GAAP, for example the
Company used the income approach to value certain investment securities. See
Note 7. Investment Securities
. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the
estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange.
The
use of different market assumptions and/or estimation methodologies could have a significant effect on the estimated fair value amounts. The fair value of the Companys cash equivalents, short-term investments, long-term investment securities,
derivative instruments, debt component of its senior convertible notes, and employee post-retirement healthcare benefits are estimated using available market information and appropriate valuation. The fair value of investments in public companies is
determined using quoted market prices for those securities. The fair value of investments in private entities is not readily determinable due to the illiquid market for these investments. The fair value of the deposits for wafer fabrication capacity
is not readily determinable because the timing of the related future cash flows is not determinable and there is no market for the sale of these deposits. See
Note 4. Fair Value Measurements.
The Company considers various actuarial
assumptions, in determining the value of its employee post-retirement healthcare benefits, including the discount rate, current year health care trend and ultimate trend rates. The Company bases the salary increase assumptions on historical
experience and future expectations.
50
The carrying values of cash, accounts receivable and accounts payable approximate fair value
because of their short term to maturities.
In October 2012, the Company retired the remaining 2.25% senior convertible notes at their
face value of $68.3 million. The senior convertible notes were not listed on any exchange or included in any automated quotation system but were registered for resale under the Securities Act of 1933.
As of and for the year ended December 29, 2012, the use of derivative financial instruments was not material to the results of operations
or the Companys financial position (see
Derivatives and Hedging Activities
in this Note).
Concentrations of
risk.
The Company maintains its cash, cash equivalents, short-term investments, and long-term investment securities in investment grade financial instruments with high-quality financial institutions, thereby reducing credit risk
concentrations.
At December 29, 2012, there was one distributor that accounted for 12% of accounts receivables, and two other
customers that accounted for 17% and 10% of accounts receivables, respectively. At December 31, 2011, there was one distributor that accounted for 21% of accounts receivables, and two other customers that each accounted for 16% and 11% of
accounts receivables, respectively. The Company believes that this concentration and the concentration of credit risk resulting from trade receivables owing from high-technology industry customers is substantially mitigated by the Companys
credit evaluation process, relatively short collection periods and the geographical dispersion of the Companys sales. The Company does not require collateral security for outstanding amounts.
The Company relies on a limited number of suppliers for wafer fabrication capacity. In 2012 and 2011, there were three outside wafer foundries
that supplied more than 95% of our semiconductor wafer requirements.
Revenue recognition.
The Company recognizes product
revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collectibility is reasonably assured. PMC generates revenues from sales made both directly to customers and through
distributors.
The Company recognizes revenues on goods shipped directly to customers at the time of shipping, as that is when title
passes and all revenue recognition criteria specified above are met.
The Company defers revenues and costs relating to sales to
distributors if it grants more than limited rights of return or price credits, such that the level of returns and credits issuable at the time the goods are shipped cannot be reasonably estimated. In these cases, revenue is recognized upon the
distributor remitting product resale quantity, price and customer shipment information, as well as confirming period end inventory on hand. The deferred income on shipments to distributors that will ultimately be recognized in the Companys
consolidated statement of operations will be different than the amount shown on the consolidated balance sheet, due to actual price adjustments issued to the distributors when the product is sold to their customers. The Company does not believe that
there is any significant exposure related to deferred income based on historical experience and business terms in place.
In cases where
agreements with distributors grant only limited rights of return or price credits such that the level of returns or credits issuable at the time the goods are shipped can be reasonably estimated, the Company recognizes revenue at the time of
shipment to the distributor.
The Company also maintains inventory or hubbing arrangements with certain of our customers. Pursuant to
these arrangements, we deliver products to a customer or a designated third-party warehouse based upon the customers projected needs, but do not recognize revenue unless and until the customer reports that it has removed our product from the
warehouse and taken title and risk of loss.
In all cases, sales are recorded, net of estimated returns.
Cost of revenues.
Cost of revenues is comprised of the cost of our semiconductor devices, which consists of the cost of
purchasing finished silicon wafers manufactured by independent foundries, costs associated with our purchase of assembly, test and quality assurance services, packaging materials for semiconductor products, and in some cases, finished semiconductor
devices that are purchased as turnkey products. Also included in cost of revenues is the amortization of purchased technology, royalties paid to vendors for use of their technology, manufacturing overhead, including costs of personnel and
equipment associated with manufacturing support, fulfillment costs such as production-related freight and warehousing costs, product warranty costs, provisions for excess and obsolete inventories, and stock-based compensation expense for personnel
engaged in manufacturing support.
51
Research and development expenses.
The Company expenses research and development
(R&D) costs as incurred. R&D costs include payroll and related costs, materials, services and design tools used in product development, depreciation, and other overhead costs including facilities and computer equipment costs.
Intellectual property (IP) purchased from third parties is capitalized and amortized over the expected useful life of the IP. For the years ended December 29, 2012, December 31, 2011, and December 26, 2010, research
and development expenses were $220.9 million, $227.1 million, and $187.5 million, respectively.
Product warranties.
The
Company provides a limited warranty on most of its standard products and accrues for the expected cost at the time of shipment. The Company estimates its warranty costs based on historical failure rates and related repair or replacement costs.
Other Indemnifications.
From time to time, on a limited basis, the Company indemnifies customers, as well as suppliers,
contractors, lessors, and others with whom it has contracts, against combinations of loss, expense, or liability arising from various triggering events related to the sale and use of Company products, the use of their goods and services, the use of
facilities, the state of assets that the Company sells and other matters covered by such contracts, normally up to a specified maximum amount. The Company evaluates estimated losses for such indemnifications under GAAP. The Company has no history of
indemnification claims for such obligations and has not accrued any liabilities related to such indemnifications in the consolidated financial statements.
Stock-based compensation.
The Company measures the cost of services received in exchange for an award of equity instruments based
on the grant-date fair value of the award. The cost of such award will be recognized over the period during which services are provided in exchange for the award, generally the vesting period.
All share-based payments to employees are recognized in the financial statements based upon their respective grant-date fair values.
During 2012, the Company recognized $26.3 million in stock-based compensation expense or $0.12 per share. No domestic tax benefits were
attributed to the tax timing differences arising from stock-based compensation expense because a full valuation allowance was maintained for all domestic deferred tax assets.
See Note 5. Stock-Based Compensation.
Income taxes.
Income taxes are reported under GAAP and, accordingly, deferred income taxes are recognized using the asset and
liability method, whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax
bases, and operating loss and tax credit carry forwards. Valuation allowances are provided if, after considering available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
The income tax positions must meet a more-likely-than-not recognition threshold to be recognized. Income tax positions that previously failed
to meet the more-likely-than-not threshold are recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not threshold are derecognized
in the first subsequent financial reporting period in which that threshold is no longer met. The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits within the consolidated statements of operations as
provision for income taxes.
The impact of an uncertain income tax position on the income tax return must be recognized at the largest
amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained.
See Note 15. Income Taxes.
Business Combinations.
The Company allocates the fair value of the purchase consideration of its acquisitions to the tangible assets,
liabilities, and intangible assets acquired, including in-process research and development (IPR&D), based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these
identifiable assets and liabilities is recorded as goodwill. IPR&D is initially capitalized at fair value as an intangible asset with an indefinite life and assessed for impairment thereafter. When a project underlying reported IPR&D is
completed, the corresponding amount of IPR&D is reclassified as an amortizable purchased intangible asset and is amortized over the assets estimated useful life. Acquisition-related expenses and restructuring costs are recognized
separately from the business combination and are expensed as incurred.
Net income per common share.
Basic net income per
share is computed using the weighted average number of common shares outstanding during the period. The PMC-Sierra Ltd. Special Shares have been included in the calculation of basic net income per share. Diluted net income per share is computed
using the weighted average number of common and dilutive common equivalent shares outstanding during the period. Dilutive common equivalent shares consist of stock options, shares issuable under our Employee Stock Purchase Plan and common shares
issuable on conversion of the Companys senior convertible notes.
52
Segment reporting.
The Company has one reportable segmentsemiconductor
solutions for communications network infrastructure, comprised of the following operating segments: Communications Products, Enterprise Storage Products, Microprocessor Products, and Broadband Wireless Products
(see Note 16. Segment Information).
Recent Accounting Pronouncements
The
Company changed the presentation of other comprehensive income due to the adoption of Financial Accounting Standards Board (FASB), Accounting Standards Codification (ASC) Topic 220,
Presentation of Comprehensive
Income
, and the Company adopted FASB, ASC Topic 350,
Testing Goodwill for Impairment,
which provides a qualitative assessment option for the goodwill impairment test. The Company did not elect to do the qualitative assessment, therefore
the adoption of this standard did not change the way the Company conducts its goodwill impairment tests. The adoption of these accounting standards did not have a material impact on the consolidated financial statements.
NOTE 2. BUSINESS COMBINATIONS
Acquisition of Wintegra, Inc.
On November 18, 2010, PMC completed its previously announced acquisition of Wintegra, Inc. (Wintegra) a privately held
Delaware corporation, pursuant to an amendment to the Agreement and Plan of Merger dated as of October 21, 2010 (the Merger Agreement). The Companys acquisition, pursuant to the Merger Agreement, was effected by merging a
wholly owned subsidiary of the Company into Wintegra, with Wintegra continuing on as the surviving corporation and as a direct wholly-owned subsidiary of PMC.
PMC purchased Wintegra to accelerate the Companys product offering in IP/Ethernet packet-based mobile backhaul equipment and because the
acquisition fit strategically with the Companys overall efforts to accelerate the transition of existing communications equipment to converged, packet-centric solutions. Prior to November 18, 2010, the Company owned 2.6% of the
outstanding shares of Wintegra, as a cost investment, with a carrying value of $2 million. The fair value immediately prior to the acquisition date was $6.5 million. Upon acquiring the remaining equity interests of Wintegra, the Company recorded a
gain on the step-acquisition on this pre-existing investment of $4.5 million which was included in Other (Expense) Income, net in the Consolidated Statement of Operations.
The fair value of the purchase price consideration as of the acquisition date was, as follows:
|
|
|
|
|
(in thousands)
|
|
|
|
Cash
|
|
$
|
218,064
|
|
Contingent consideration
|
|
|
28,194
|
|
Fair value of replacement equity awards attributable to pre-combination service
|
|
|
1,083
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
247,341
|
|
|
|
|
|
|
Certain key employees entered into Holdback Escrow Agreements, whereby a portion of cash consideration
otherwise payable per the Merger Agreement was retained and would be distributed under certain conditions, including continued employment over a two-year period. This post-combination expense has been included in the Consolidated Balance Sheet as
current prepaid expenses and was amortized straight-line over the two-year period, which ended during the fourth quarter of 2012. Amortization for the year ended December 29, 2012 was $1.2 million.
Former Wintegra equity holders could have been entitled to receive an additional earn-out payment, which ranged from $nil to $60 million,
calculated on the basis of Wintegras calendar year 2011 revenue above an agreed threshold as described in the Merger Agreement. The fair value of the earn-out reflected in the purchase price as contingent consideration was determined using a
income approach, using probability weighted discounted net present values with a discount rate of 4.75%. At acquisition, the Company recorded a liability for contingent purchased consideration of $28.2 million relating to this earn-out. During the
three months ended October 2, 2011, the Company determined that Wintegras 2011 revenues would be below earn-out levels and the former Wintegra equity holders would not be eligible to receive this additional earn-out payment. Accordingly,
the Company recognized a $29.4 million Revaluation of liability on contingent consideration in the Consolidated Statement of Operations. Since the earn-out requirements were not met, the Company had no obligations in connection with the contingent
earn-out consideration and had no liability recorded for this as of December 31, 2011.
Replacement stock options issued in
connection with the acquisition were valued at $6.5 million. The fair values of stock options exchanged were determined using a Black-Scholes-Merton valuation model with the following assumptions: weighted average expected life of 5.06 years,
weighted average risk-free interest rate of 1.5%, and a weighted average expected volatility of 54%. The fair values of unvested Wintegra stock options will be recorded as operating expenses on a straight-line basis over the remaining vesting
periods, while the fair values of vested stock options are included in the purchase price. $1.1 million of this amount was attributed to pre-combination services and accordingly is recorded as purchase consideration, and $5.4 million will be
recorded as post-combination compensation expense on a straight-line basis over the remaining vesting period.
53
On acquisition, the Company recorded a fair value adjustment related to the inventory acquired in
the amount of $9.8 million, which was fully expensed through Cost of revenues by the end of the first quarter of 2011. The Company incurred $3.7 million in acquisition-related costs during 2010 and are included in selling, general and administrative
expense. In addition, during 2011, the Company incurred $0.3 million in interest expense related to the short-term loan that the Company obtained to facilitate this acquisition, which is included in Other Income, net, in the Consolidated Statement
of Operations.
The total purchase price has been allocated to the fair value of assets and liabilities acquired, and the excess of
purchase price over the aggregate fair values was recorded as goodwill. The Company has made correction in the measurement of liabilities and goodwill previously recognized on acquisition. See Note 19. Error Corrections.
The allocation of the purchase price was as follows:
|
|
|
|
|
Current assets (including cash acquired of $17.3 million)
|
|
$
|
41,463
|
|
Other long-term assets
|
|
|
1,638
|
|
Intangible assets
|
|
|
104,000
|
|
Goodwill
|
|
|
121,032
|
|
|
|
|
|
|
Total assets
|
|
$
|
268,133
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
13,442
|
|
Long-term liabilities
|
|
|
7,350
|
|
|
|
|
|
|
Total liabilities
|
|
|
20,792
|
|
|
|
|
|
|
Total purchase consideration
|
|
$
|
247,341
|
|
|
|
|
|
|
Intangible assets acquired, and their respective estimated average remaining useful lives over which they are
amortized on a straight-line basis, are:
|
|
|
|
|
|
|
(in thousands)
|
|
Estimated
fair value
|
|
|
Estimated
average remaining
useful life
|
Existing technology
|
|
$
|
66,300
|
|
|
4 years
|
Core technology
|
|
|
12,900
|
|
|
5 years
|
Customer relationships
|
|
|
16,500
|
|
|
5 years
|
In-process research and development
|
|
|
6,000
|
|
|
4-5 years
|
Trademarks
|
|
|
2,300
|
|
|
8 years
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
104,000
|
|
|
|
|
|
|
|
|
|
|
Goodwill
The Companys primary reasons for the Wintegra acquisition were to accelerate the Companys product offering in IP/Ethernet
packet-based mobile backhaul equipment and to capitalize on the strategic fit between Wintegras business and the Companys overall efforts to accelerate the transition of existing communications equipment to converged, packet-centric
solutions. The acquisition also enhanced the Companys engineering team through the addition of Wintegras research and development resources. These factors were the basis for the recognition of goodwill. The goodwill is not deductible for
tax purposes. See
Note 18. Impairment of Goodwill and Long-Lived Assets.
Purchased Intangible Assets
Existing and core technology represent completed technology that has passed technological feasibility and/or is currently offered for sale to
customers. The Company used the income method to value existing and core technology by determining cash flow projections related to the identified projects. The assumptions included information on revenues from existing products and future expected
trends for each technology, with an estimated useful life of four to five years. Management applied a discount rate of 16% to value the existing and core technology assets, which took into consideration market rates of return on debt and equity
capital and the risk associated with achieving forecasted revenues related to these assets.
Customer relationships represent the fair
value of future projected revenue that will be derived from the sale of products to existing customers of the acquired company. The Company used the same method to determine the fair value of this intangible asset as core technology assets and
utilized a discount rate of 24%.
54
Trademarks represent the value of the revenues associated with the WinPath registered trademark,
which the Company will continue to use on products for which it has established revenue streams. The Company used the same method to determine the fair value of trademarks and utilized a discount rate of 18%.
See
Note 18. Impairment of Goodwill and Long-Lived Assets.
In-Process Research and Development
The
fair value of acquired in-process research and development was determined using the income approach. Under this approach, the expected future cash flows from each project under development are estimated and discounted to their net present values
using a risk-adjusted rate of return. Significant factors considered in the calculation of the rate of return are the weighted average cost of capital, the return on assets, as well as risks inherent in the development process, including the
likelihood of achieving technological success and market acceptance. Future cash flows for each project were estimated based on forecasted revenue and costs, taking into account the expected product life cycles, market penetration and growth rates.
These projects progressed as expected, and are now completed.
Acquisition of Channel Storage Business
On June 8, 2010, the Company completed the acquisition of the Channel Storage Business from Adaptec, Inc. (Adaptec) pursuant
to the terms of the Asset Purchase Agreement dated May 8, 2010 and Amendment to Asset Purchase Agreement dated June 8, 2010 between PMC and Adaptec (together the Purchase Agreement). Under the terms of the Purchase Agreement,
PMC purchased the Channel Storage business for $34.3 million in cash. The Channel Storage business includes Adaptecs redundant array of independent disks storage product line, a well-established global value added reseller customer base, board
logistics capabilities, and leading SSD cache performance solutions.
The total purchase price has been allocated to the fair values of
assets acquired and liabilities assumed as follows:
|
|
|
|
|
(in thousands)
|
|
|
|
Financial assets
|
|
$
|
8,855
|
|
Inventory and other
|
|
|
6,214
|
|
Property and equipment
|
|
|
892
|
|
Intangible assets (see below)
|
|
|
21,300
|
|
Goodwill
|
|
|
1,828
|
|
Financial liabilities
|
|
|
(4,839
|
)
|
|
|
|
|
|
Net assets acquired
|
|
$
|
34,250
|
|
|
|
|
|
|
Intangible assets acquired, and their respective estimated remaining useful lives over which each they are
amortized on a straight-line basis, are:
|
|
|
|
|
|
|
(in thousands)
|
|
Estimated
fair value
|
|
|
Estimated
average remaining
useful life
|
Technology and patents
|
|
$
|
10,100
|
|
|
3 to 9 years
|
Customer/Distributor relationships
|
|
|
7,500
|
|
|
2 to 6 years
|
Trademarks and other
|
|
|
3,700
|
|
|
6 years
|
|
|
|
|
|
|
|
Total intangible assets acquired
|
|
$
|
21,300
|
|
|
|
|
|
|
|
|
|
|
During 2010, the Company incurred $0.2 million and $3.2 million in acquisition-related costs which were
expensed and recognized as cost of revenues and selling, general and administrative, respectively.
55
NOTE 3. DERIVATIVE INSTRUMENTS
The Company generates revenues in U.S. dollars but incurs a portion of its operating expenses in various foreign currencies,
primarily the Canadian dollar. To minimize the short-term impact of foreign currency fluctuations on the Companys operating expenses, the Company uses forward currency contracts.
Forward currency contracts that are used to hedge exposures to variability in forecasted foreign currency cash flows are designated as cash
flow hedges. The maturities of these instruments are less than twelve months. For these derivatives, the gain or loss from the effective portion of the hedge is initially reported as a component of other comprehensive income in stockholders
equity and subsequently reclassified to earnings in the same period in which the hedged transaction affects earnings. As the hedge transactions are incurred, the effective portion of the hedge is recognized into operating income. The gain or loss
from the ineffective portion of the hedge is recognized as income or expense immediately.
At December 29, 2012, the Company had 73
currency forward contracts outstanding that qualified and were designated as cash flow hedges. At December 31, 2011, there were 185 such currency forward contracts outstanding. The U.S. dollar notional amount of these contracts was $22.5
million and $73.1 million at December 29, 2012 and December 31, 2011, respectively, and the contracts had a fair value of $0.4 million gain and a fair value of $1.8 million loss in December 29, 2012 and December 31, 2011,
respectively. No portion of the hedging instruments gain or loss was excluded from the assessment of effectiveness. The ineffective portions of hedges had no significant impact on earnings, nor are they expected to over the next twelve months.
NOTE 4. FAIR VALUE MEASUREMENTS
ASC Topic 820 specifies a hierarchy of valuation techniques which requires an entity to maximize the use of observable
inputs that may be used to measure fair value:
Level 1Quoted prices in active markets are available for identical assets and
liabilities. The Companys Level 1 assets include cash equivalents, short-term investments, and long-term investment securities, which are generally acquired or sold at par value and are actively traded.
Level 2Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; or other inputs that are
observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. The Companys Level 2 liabilities include forward currency contracts whose value is determined using a pricing model with
inputs that are observable in the market or corroborated with observable market data. Level 2 observable inputs were used in estimating interest rates used to determine the fair value (on a non-recurring basis) of the debt component the
Companys senior convertible notes. See
Note 1. Summary of Significant Accounting Policies and Note 10. Senior Convertible Notes
.
Level 3Pricing inputs include significant inputs that are generally not observable in the marketplace. These inputs may be used with
internally developed methodologies that result in managements best estimate of fair value. At each balance sheet date, the Company performs an analysis of all applicable instruments and would include in Level 3 all of those whose fair value is
based on significant unobservable inputs. Level 3 inputs are used on a recurring basis to measure the fair value of the liability for contingent consideration. See
Note 11. Commitments and Contingencies
. Level 3 inputs are used on a
non-recurring basis to measure the fair value of non-financial assets, including intangible assets, and property and equipment. See
Note 1. Summary of Significant Accounting policies
.
The Companys valuation techniques used to measure the fair value of money market funds were derived from quoted prices in active markets
for identical assets. The valuation techniques used to measure the fair value of all other financial instruments were valued based on quoted market prices or model driven valuations using significant inputs derived from or corroborated by observable
market data.
56
Assets/Liabilities Measured and Recorded at Fair Value on a Recurring Basis
Financial assets measured on a recurring basis as of December 29, 2012 and December 31, 2011, are summarized below:
|
|
|
|
|
|
|
|
|
|
|
Fair value,
December 29, 2012
|
|
(in thousands)
|
|
Level 1
|
|
|
Level 2
|
|
Assets:
|
|
|
|
|
|
|
|
|
Corporate bonds and notes
(1)
|
|
$
|
63,565
|
|
|
$
|
|
|
Money market funds
(1)
|
|
|
50,528
|
|
|
|
|
|
United States (US) treasury and government agency notes
(1)
|
|
|
33,854
|
|
|
|
|
|
Foreign government and agency notes
(1)
|
|
|
4,044
|
|
|
|
|
|
US state and municipal securities
(1)
|
|
|
1,746
|
|
|
|
|
|
Forward currency contracts
(2)
|
|
|
|
|
|
|
392
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
153,737
|
|
|
$
|
392
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Included in cash and cash equivalents, short-term investments, and long-term investment securities (see Note 7. Investment Securities).
|
(2)
|
Included in Prepaid expenses and other current assets.
|
|
|
|
|
|
|
|
Fair value,
December 31, 2011
|
|
(in thousands)
|
|
Level 1
|
|
Assets:
|
|
|
|
|
Corporate bonds and notes
(1)
|
|
$
|
254,522
|
|
Money market funds
(1)
|
|
|
54,588
|
|
US treasury and government agency notes
(1)
|
|
|
62,350
|
|
Foreign government and agency notes
(1)
|
|
|
12,389
|
|
US state and municipal securities
(1)
|
|
|
1,749
|
|
|
|
|
|
|
Total assets
|
|
$
|
385,598
|
|
|
|
|
|
|
Financial liabilities measured on a recurring basis are summarized below:
|
|
|
|
|
|
|
Fair value,
|
|
|
|
December 29, 2012
|
|
(in thousands)
|
|
Level 2
|
|
Current liabilities:
|
|
|
|
|
Forward currency contracts
(1)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value,
|
|
|
|
December 31, 2011
|
|
(in thousands)
|
|
Level 2
|
|
Current liabilities:
|
|
|
|
|
Forward currency contracts
(1)
|
|
$
|
1,780
|
|
|
|
|
|
|
(1)
|
Included in Accrued liabilities.
|
57
The tables below present reconciliations for all assets and liabilities measured and recorded at
fair value on a recurring basis using significant unobservable inputs (Level 3) for 2011. There were no level 3 asset or liabilities measured and recorded during 2012.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measured and
Recorded Using Significant Unobservable Inputs
(Level 3)
|
|
(In thousands)
|
|
Money
Market Funds
|
|
|
Liability for
contingent
consideration
|
|
|
Total Gains
(losses)
|
|
Balance as of December 27, 2010
|
|
$
|
22,444
|
|
|
$
|
28,194
|
|
|
|
|
|
Partial distribution from the Reserve Funds
|
|
|
(22,444
|
)
|
|
|
|
|
|
$
|
|
|
Accretion of liability for contingent consideration
|
|
|
|
|
|
|
1,182
|
|
|
|
(1,182
|
)
|
Fair value adjustment of liability for contingent consideration (See Note 11. Commitments and Contingencies)
|
|
|
|
|
|
|
(29,376
|
)
|
|
$
|
29,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2011
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accretion of liability for contingent consideration of $1.2 million was included Interest expense, net,
and the fair value adjustment of liability for contingent consideration of $29.4 million, within Other (expense) income in the Consolidated Statement of Operations.
Assets/Liabilities Measured and Recorded at Fair Value on a Non-Recurring Basis
Our non-financial assets, such as prepaid expenses and other current assets, property and equipment, and intangible assets are recorded at fair
value only if an impairment charge is recognized. The following table presents the non-financial assets that were remeasured and recorded at fair value on a non-recurring basis during 2011 and 2012 on those assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses for
|
|
|
|
Net Carrying Value
|
|
|
Fair Value Measured and Recorded Using
|
|
|
Year Ended
|
|
(In thousands)
|
|
As of December 29, 2012
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
December 29, 2012
|
|
Prepaid expenses and other current assets
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(979
|
)
|
Property and equipment, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(520
|
)
|
Intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(260
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total losses for assets held as of December 29, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,759
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total losses for recorded non-recurring measurement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1,759
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses for
|
|
|
|
Net Carrying Value
|
|
|
Fair Value Measured and Recorded Using
|
|
|
Year Ended
|
|
(In thousands)
|
|
As of December 31, 2011
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
December 31, 2011
|
|
Intangible assets
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(3,589
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total losses for assets held as of December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(3,589
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total losses for recorded non-recurring measurement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(3,589
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The losses recorded during 2012 and 2011, were mainly included in Research and Development expenses in the
Consolidated Statements of Operations. See Note 1. Summary of Significant Accounting Policies for details on the asset impairments.
The
following liabilities have been measured at fair value on a non-recurring basis, as follows:
|
|
|
|
|
|
|
Fair value,
|
|
|
|
December 29, 2012
|
|
(in thousands)
|
|
Level 2
|
|
Current liabilities:
|
|
|
|
|
2.25% senior convertible notes due October 15, 2025, net (see
Note 10. Senior Convertible Notes
)
|
|
$
|
|
|
|
|
|
|
|
58
|
|
|
|
|
|
|
Fair value,
|
|
|
|
December 31, 2011
|
|
(in thousands)
|
|
Level 2
|
|
Current liabilities:
|
|
|
|
|
2.25% senior convertible notes due October 15, 2025, net (see
Note 10. Senior Convertible Notes
)
|
|
$
|
65,122
|
|
|
|
|
|
|
NOTE 5. STOCK-BASED COMPENSATION
At December 29, 2012, the Company has two stock-based compensation programs, which are described below. The
Companys stock-based awards under these plans are classified as equity. The Company did not capitalize any stock-based compensation cost and recorded compensation expense as follows:
Stock-based compensation expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 29,
|
|
|
December 31,
|
|
|
December 26,
|
|
(in thousands)
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Cost of revenues
|
|
$
|
875
|
|
|
$
|
945
|
|
|
$
|
827
|
|
Research and development
|
|
|
11,583
|
|
|
|
11,648
|
|
|
|
8,968
|
|
Selling, general and administrative
|
|
|
13,857
|
|
|
|
14,462
|
|
|
|
12,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
26,315
|
|
|
$
|
27,055
|
|
|
$
|
21,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company received cash of $16 million, $16.8 million and $18.6 million from the exercise of stock-based
awards during 2012, 2011 and 2010, respectively. The total intrinsic value of stock awards exercised during 2012 was $12.9 million.
As of
December 29, 2012, there was $13.5 million of total unrecognized compensation cost related to unvested stock options granted under the Companys stock option plans, which is expected to be recognized over a period of 2.3 years. As of
December 29, 2012, there was $20.4 million of total unrecognized compensation cost related to unvested Restricted Stock Units (RSUs) awarded under the Companys stock option plans, which is expected to be recognized over a
period of 2.7 years.
The Companys estimates of expected volatilities are based on a weighted historical and market-based implied
volatility. The Company uses historical data to estimate option exercises and employee terminations within the valuation model. Separate groups of employees that have similar historical exercise behavior are considered separately for valuation
purposes. The expected term of options granted is derived from the output of the stock option valuation model and represents the period of time that granted options are expected to be outstanding. The risk-free rate for periods within the
contractual life of the stock option is based on the U.S. Treasury yield curve in effect at the time of the grant.
The fair values of the
Companys stock option and Employee Stock Purchase Plan, awards were estimated using the following weighted average assumptions:
Stock Options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 29,
|
|
|
December 31,
|
|
|
December 26,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Expected life (years)
|
|
|
5.4
|
|
|
|
4.5
|
|
|
|
4.4
|
|
Expected volatility
|
|
|
42
|
%
|
|
|
43
|
%
|
|
|
53
|
%
|
Risk-free interest rate
|
|
|
0.8
|
%
|
|
|
1.9
|
%
|
|
|
2.1
|
%
|
Employee Share Purchase Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 29,
|
|
|
December 31,
|
|
|
December 26,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Expected life (years)
|
|
|
0.5
|
|
|
|
0.5
|
|
|
|
0.6
|
|
Expected volatility
|
|
|
42
|
%
|
|
|
44
|
%
|
|
|
44
|
%
|
Risk-free interest rate
|
|
|
0.2
|
%
|
|
|
0.1
|
%
|
|
|
0.2
|
%
|
59
Stock Option Plans
The Company issues its common stock under the provisions of the 2008 Equity Plan (the 2008 Plan). Stock option awards are granted
with an exercise price equal to the closing market price of the Companys common stock at the grant date. The options generally expire within 10 years and vest over four years.
The 2008 Plan was approved by stockholders at the 2008 Annual Meeting. The 2008 Plan became effective on January 1, 2009 (the
Effective Date). It is a successor to the 1994 Incentive Stock Plan (the 1994 Plan) and the 2001 Stock Option Plan (the 2001 Plan). Up to 30,000,000 shares of our common stock have been initially reserved for
issuance under the 2008 Plan. At the 2012 Annual Meeting, stockholders approved an increase in shares reserved for issuance under the 2008 plan by 9,500,000 shares which shares were registered on May 14, 2012 on Form S-8 bringing the total
number of authorized and registered shares available under the 2008 Plan to 39,500,000. To the extent that a share that is subject to an award that counts as 1.6 shares against the 2008 Plans share reserve is added back into the 2008 Plan upon
expiration or termination of the award or repurchase or forfeiture of the shares, the number of shares of common stock available for issuance under the 2008 Plan will be credited with 1.6 shares. The implementation of the 2008 Plan did not affect
any options or restricted stock units outstanding under the 1994 Plan or the 2001 Plan on the Effective Date. To the extent that any of those options or restricted stock units subsequently terminate unexercised or prior to issuance of shares
thereunder, the number of shares of common stock subject to those terminated awards will be added to the share reserve available for issuance under the 2008 Plan, up to an additional 15,000,000 shares. No additional shares may be issued under the
1994 Plan or the 2001 Plan. In 2006, the Company assumed the stock option plans and all outstanding stock options of Passave, Inc. as part of the merger consideration in that business combination. In 2010, the Company assumed the stock option plans
and all outstanding stock options of Wintegra as part of that business combination.
Activity under the option plans during the year ended
December 29, 2012 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
options
|
|
|
Weighted average
exercise price per
share
|
|
|
Weighted average
remaining
contractual term
(years)
|
|
|
Aggregate intrinsic
value at
December 29, 2012
|
|
Outstanding, December 31, 2011
|
|
|
29,130,398
|
|
|
$
|
7.97
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,543,573
|
|
|
$
|
5.79
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(974,052
|
)
|
|
$
|
4.68
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(1,698,872
|
)
|
|
$
|
8.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 29, 2012
|
|
|
28,001,047
|
|
|
$
|
7.93
|
|
|
|
5.25
|
|
|
$
|
2,189,509
|
|
Exercisable, December 29, 2012
|
|
|
21,807,256
|
|
|
$
|
8.18
|
|
|
|
4.45
|
|
|
$
|
1,878,729
|
|
No adjustment has been recorded for fully vested options that expired during the year ended December 29,
2012. A reversal of $2.6 million was recorded for pre-vesting forfeitures.
The following table summarizes information on options
outstanding and exercisable at December 29, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Remaining
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
Options
|
|
|
Contractual
|
|
|
Price per
|
|
|
Options
|
|
|
Price per
|
|
Range of Exercise Prices
|
|
Outstanding
|
|
|
Life (years)
|
|
|
Share
|
|
|
Exercisable
|
|
|
Share
|
|
$0.05 $5.71
|
|
|
5,803,119
|
|
|
|
6.48
|
|
|
$
|
4.86
|
|
|
|
4,155,079
|
|
|
$
|
4.69
|
|
$5.72 $7.18
|
|
|
4,078,881
|
|
|
|
3.60
|
|
|
|
6.28
|
|
|
|
3,625,625
|
|
|
|
6.25
|
|
$7.22 $7.85
|
|
|
5,944,431
|
|
|
|
7.00
|
|
|
|
7.36
|
|
|
|
3,376,839
|
|
|
|
7.42
|
|
$7.87 $9.06
|
|
|
7,784,349
|
|
|
|
5.45
|
|
|
|
8.45
|
|
|
|
6,271,701
|
|
|
|
8.37
|
|
$9.07 $21.50
|
|
|
4,390,267
|
|
|
|
2.43
|
|
|
|
13.39
|
|
|
|
4,378,012
|
|
|
|
13.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.05 $21.50
|
|
|
28,001,047
|
|
|
|
5.25
|
|
|
$
|
7.93
|
|
|
|
21,807,256
|
|
|
$
|
8.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average estimated fair values of each employee stock option granted during 2012, 2011, and 2010,
were $2.16, $2.55, and $3.67, respectively.
60
Restricted Stock Units
On February 1, 2007, the Company amended its stock award plans to allow for the issuance of RSUs to employees and directors. The first
grant of RSUs occurred on May 25, 2007. The grants vest over varying terms, to a maximum of four years from the date of grant.
A
summary of RSU activity during the year ended December 29, 2012 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
Stock Units
|
|
|
Weighted Average
Remaining Contractual
Term
|
|
|
Aggregate intrinsic value
at December 29, 2012
|
|
Unvested shares at December 31, 2011
|
|
|
3,679,683
|
|
|
|
|
|
|
|
|
|
Awarded
|
|
|
3,192,400
|
|
|
|
|
|
|
|
|
|
Released
|
|
|
(1,213,664
|
)
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(300,218
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested shares at December 29, 2012
|
|
|
5,358,201
|
|
|
|
1.61
|
|
|
$
|
27,433,989
|
|
Restricted Stock Units vested and expected to vest December 29, 2012
|
|
|
4,469,266
|
|
|
|
1.55
|
|
|
$
|
22,882,643
|
|
The weighted-average estimated fair values of each RSU awarded during 2012, 2011, and 2010, were $5.95, $7.09,
and $7.94, respectively.
Employee Stock Purchase Plan
In 1991, the Company adopted an Employee Stock Purchase Plan (the 1991 Plan). The 1991 Plan allows eligible participants to
purchase shares of the Companys common stock through payroll deductions at a purchase price of 85% of the lower of the fair market value of the Companys stock on the close of the first trading day or last trading day of the six-month
purchase period. Under the 1991 Plan, the number of shares authorized to be available for issuance under the plan are increased automatically on January 1 of each year until the expiration of the plan. The increase will be limited to the lesser
of (i) 1% of the outstanding shares on January 1 of each year, (ii) 2,000,000 shares (after adjusting for stock dividends), or (iii) an amount to be determined by the Board of Directors. The 2011 Employee Stock Purchase Plan
(2011 Plan) was approved by stockholders at the 2010 Annual Meeting. The 2011 Plan became effective on February 11, 2011 and replaced the 1991 Plan. 12,000,000 shares of our common stock have been reserved for issuance under the
2011 Plan.
During 2012, 2,374,523 shares were issued under the 2011 Plan at a weighted-average price of $4.90 per share. As of
December 29, 2012, 8,453,523 shares were available for future issuance under the 2011 Plan (201110,827,657 available for issuance).
The weighted-average estimated fair values of Employee Stock Purchase Plan awards during years 2012, 2011, and 2010, were $1.69, $1.88, and
$2.34, respectively.
NOTE 6. SUPPLEMENTAL FINANCIAL INFORMATION
a.
|
Cash and cash equivalents and Short-term investments
|
At December 29, 2012 and
December 31, 2011, cash and cash equivalents included $0.4 million and $0.2 million, respectively deposited with banks as collateral for leased facilities, and $0.8 million and $1.3 million deposited with banks as collateral for hedging
transactions, respectively.
At December 29, 2012, short-term investments included $1 million, deposited with banks as collateral for
leased facilities. There was no such arrangement at December 31, 2011.
61
Inventories (net of reserves of $7.8 million and $8.3 million at December 29,
2012 and December 31, 2011, respectively) were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 29,
|
|
|
December 31,
|
|
(in thousands)
|
|
2012
|
|
|
2011
|
|
Work-in-progress
|
|
$
|
9,867
|
|
|
$
|
20,367
|
|
Finished goods
|
|
|
13,681
|
|
|
|
19,544
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
23,548
|
|
|
$
|
39,911
|
|
|
|
|
|
|
|
|
|
|
The Company decreased inventory reserves by $0.5 million, $1.9 million and $0.8 million in 2012, 2011 and
2010, respectively for inventory that was scrapped during the year.
c.
|
Property and equipment
|
The components of property and equipment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
December 29, 2012 (in thousands)
|
|
Gross
|
|
|
Amortization
|
|
|
Net
|
|
Software
|
|
$
|
35,248
|
|
|
$
|
(23,187
|
)
|
|
$
|
12,061
|
|
Machinery and equipment
|
|
|
124,479
|
|
|
|
(102,912
|
)
|
|
|
21,567
|
|
Leasehold improvements
|
|
|
18,322
|
|
|
|
(9,247
|
)
|
|
|
9,075
|
|
Furniture and fixtures
|
|
|
5,327
|
|
|
|
(4,884
|
)
|
|
|
443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
183,376
|
|
|
$
|
(140,230
|
)
|
|
$
|
43,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
December 31, 2011 (in thousands)
|
|
Gross
|
|
|
Amortization
|
|
|
Net
|
|
Software
|
|
$
|
53,678
|
|
|
$
|
(50,508
|
)
|
|
$
|
3,170
|
|
Machinery and equipment
|
|
|
133,554
|
|
|
|
(115,078
|
)
|
|
|
18,476
|
|
Leasehold improvements
|
|
|
13,772
|
|
|
|
(10,435
|
)
|
|
|
3,337
|
|
Furniture and fixtures
|
|
|
8,981
|
|
|
|
(8,600
|
)
|
|
|
381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
209,985
|
|
|
$
|
(184,621
|
)
|
|
$
|
25,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of acquired intangible assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Estimated
|
December 29, 2012 (in thousands)
|
|
Gross
|
|
|
Amortization
|
|
|
Net
|
|
|
life
|
Core technology
|
|
$
|
151,861
|
|
|
$
|
(120,954
|
)
|
|
$
|
30,907
|
|
|
5 - 9 years
|
Customer relationships
|
|
|
94,906
|
|
|
|
(68,086
|
)
|
|
|
26,820
|
|
|
2 - 10 years
|
Existing technology
|
|
|
115,200
|
|
|
|
(81,300
|
)
|
|
|
33,900
|
|
|
3 - 7 years
|
Trademarks
|
|
|
9,200
|
|
|
|
(2,020
|
)
|
|
|
7,180
|
|
|
6 years - indefinite
|
Developed technology assets
|
|
|
63,951
|
|
|
|
(49,743
|
)
|
|
|
14,208
|
|
|
3 years
|
Backlog
|
|
|
400
|
|
|
|
(400
|
)
|
|
|
0
|
|
|
< 1 year
|
In-process research and development
|
|
|
16,746
|
|
|
|
(1,093
|
)
|
|
|
15,653
|
|
|
4-5 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
452,264
|
|
|
$
|
(323,596
|
)
|
|
$
|
128,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Estimated
|
December 31, 2011 (in thousands)
|
|
Gross
|
|
|
Amortization
|
|
|
Net
|
|
|
life
|
Core technology
|
|
$
|
151,861
|
|
|
$
|
(102,874
|
)
|
|
$
|
48,987
|
|
|
5 - 8 years
|
Customer relationships
|
|
|
90,600
|
|
|
|
(53,221
|
)
|
|
|
37,379
|
|
|
4 - 10 years
|
Existing technology
|
|
|
115,200
|
|
|
|
(63,815
|
)
|
|
|
51,385
|
|
|
3 - 5 years
|
Trademarks
|
|
|
9,200
|
|
|
|
(1,182
|
)
|
|
|
8,018
|
|
|
8 years - Indefinite
|
Developed technology assets
|
|
|
52,484
|
|
|
|
(45,741
|
)
|
|
|
6,743
|
|
|
3 years
|
Backlog
|
|
|
400
|
|
|
|
(400
|
)
|
|
|
0
|
|
|
< 1 year
|
In-process research and development
|
|
|
6,000
|
|
|
|
(30
|
)
|
|
|
5,970
|
|
|
Indefinite
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
425,745
|
|
|
$
|
(267,263
|
)
|
|
$
|
158,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62
Estimated future amortization expense for intangible assets (in thousands) is as follows:
|
|
|
|
|
2013
|
|
$
|
48,300
|
|
2014
|
|
|
37,379
|
|
2015
|
|
|
24,010
|
|
2016
|
|
|
7,881
|
|
2017
|
|
|
3,952
|
|
Thereafter
|
|
|
3,546
|
|
|
|
|
|
|
|
|
$
|
125,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
(in thousands)
|
|
Goodwill at December 26, 2010 (As RestatedSee Note 19)
|
|
$
|
522,267
|
|
Goodwill recorded in connection with acquisitions
|
|
|
(2,813
|
)
|
|
|
|
|
|
Goodwill at December 31, 2011 (As RestatedSee Note 19)
|
|
|
519,454
|
|
Goodwill recorded in connection with acquisitions
|
|
|
593
|
|
Impairment loss (As RestatedSee Note 19)
|
|
|
(267,628
|
)
|
|
|
|
|
|
Goodwill at December 29, 2012
|
|
$
|
252,419
|
|
|
|
|
|
|
The goodwill balance at December 29, 2012 of $252.4 million mainly relates to the Enterprise Storage
Products operating segment, which had fair values that substantially exceeded its carrying value when the Company conducted its step 1 goodwill impairment test in 2012. See
Note 18. Impairment of Goodwill and Long-Lived Assets
for details on
the impairment loss of $267.6 million recorded in 2012.
During 2011, the Company recorded a $2.8 million adjustment to the preliminary
fair value allocation relating to the acquisition of Wintegra, Inc. to allocate the portion of cash consideration to post-combination expense related to the Holdback Escrow arrangement, see
Note 2. Business Combinations
.
Prior to 2011, the Company did not have any impairment write-downs of goodwill.
The components of accrued liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 29,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
Accrued compensation and benefits
|
|
$
|
34,791
|
|
|
$
|
27,386
|
|
Other accrued liabilities
|
|
|
37,491
|
|
|
|
38,753
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
72,282
|
|
|
$
|
66,139
|
|
|
|
|
|
|
|
|
|
|
63
The following table summarizes the activity related to the product warranty
liability during fiscal 2012, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 26,
|
|
|
December 31,
|
|
|
December 26,
|
|
(in thousands)
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Balance, beginning of the year
|
|
$
|
5,415
|
|
|
$
|
5,457
|
|
|
$
|
6,097
|
|
Accrual for new warranties issued
|
|
|
2,530
|
|
|
|
1,863
|
|
|
|
1,698
|
|
Reduction for payments and product replacements
|
|
|
(328
|
)
|
|
|
(290
|
)
|
|
|
(1,244
|
)
|
Adjustments related to changes in estimate of warranty accrual
|
|
|
(1,636
|
)
|
|
|
(1,615
|
)
|
|
|
(1,094
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of the year
|
|
$
|
5,981
|
|
|
$
|
5,415
|
|
|
$
|
5,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
h.
|
Restructuring and Other Costs
|
The activity related to excess facility accruals under the
Companys restructuring plans during 2011 and 2010 were as follows:
Excess facility costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2001
|
|
|
Total
|
|
Balance at December 27, 2009
|
|
$
|
526
|
|
|
$
|
94
|
|
|
$
|
2,344
|
|
|
$
|
1,030
|
|
|
$
|
3,994
|
|
Reversals and adjustments
|
|
|
(14
|
)
|
|
|
(19
|
)
|
|
|
(2
|
)
|
|
|
6
|
|
|
|
(29
|
)
|
New charges
|
|
|
10
|
|
|
|
(14
|
)
|
|
|
252
|
|
|
|
184
|
|
|
|
432
|
|
Cash payments
|
|
|
(291
|
)
|
|
|
(61
|
)
|
|
|
(1,451
|
)
|
|
|
(990
|
)
|
|
|
(2,793
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 26, 2010
|
|
|
231
|
|
|
|
|
|
|
|
1,143
|
|
|
|
230
|
|
|
|
1,604
|
|
Cash payments
|
|
|
(231
|
)
|
|
|
|
|
|
|
(1,143
|
)
|
|
|
(230
|
)
|
|
|
(1,604
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2011
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There was no restructuring related severance cost in 2012, 2011, or 2010.
2007
In the first quarter of 2007, the Company
initiated a cost-reduction plan that involved staff reductions of 175 employees at various sites and the closure of design centers in Saskatoon, Saskatchewan and Winnipeg, Manitoba. The Company also vacated excess office space at its Santa Clara
facility. PMC continued to lower costs in the fourth quarter of 2007 by reducing headcount by 18 employees primarily at the Burnaby facility.
The Company has completed this plan and incurred $10.6 million in termination and relocation costs, $3.0 million for excess facilities and
contract termination costs, and $2.5 million in asset impairment charges. The Company has made payments of $12.8 million in connection with this plan. At December 31, 2011, the Company paid all the remaining excess facilities commitments under
this plan.
2006
In 2006, the Company
closed its Ottawa development site and reduced operations at its Portland development site to reduce operating expenses resulting in the elimination of approximately 45 positions and a reduction in office space occupied. The charges relating to
these actions were $3.0 million in one-time termination benefit and relocation costs, $2.3 million for excess facilities, and $0.3 million for other related costs.
Changes in the accrual summarized in the table above have been as expected and immaterial.
64
2005
In 2005, the Company initiated various restructuring activities aimed at streamlining production and reducing operating expenses. During the
year, we terminated 113 employees across all business functions, and reduced facilities occupied. As a result, we recorded charges of $9.3 million for termination benefits, $5.3 million for excess facilities and $0.9 million for the write-down of
equipment and software assets whose value was impaired as a result of these plans.
The increase in the accruals in the years presented
above was due to not realizing the originally expected amounts of sublease income. At December 31, 2011, the Company paid all the remaining excess facilities commitments under this Plan.
2001
In 2001, the Company implemented
restructuring plans aimed at focusing development efforts on key projects and reducing operating costs in response to the severe and prolonged economic downturn in the semiconductor industry. These plans included the termination of 564 employees,
the consolidation of excess facilities and curtailment of certain research and development activities.
The Company initially recorded
restructuring charges totaling $195.2 million, $16.2 million related to asset write-downs. The majority of the restructuring charge related to lease commitments on its office space in Santa Clara, CA, which was the Companys headquarters until
January, 2011. At December 31, 2011, the Company paid all the remaining excess facilities commitments under this Plan.
The accruals
relating to these restructuring plans are recognized as Accrued liabilities in the Consolidated Balance Sheets.
The components of interest expense, net are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 29,
|
|
|
December 31,
|
|
|
December 26,
|
|
(in thousands)
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Interest income
|
|
$
|
2,865
|
|
|
$
|
4,228
|
|
|
$
|
3,538
|
|
Interest expense on debt
|
|
|
(4,451
|
)
|
|
|
(6,495
|
)
|
|
|
(4,786
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1,586
|
)
|
|
$
|
(2,267
|
)
|
|
$
|
(1,248
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2012, the Company invested $3 million in an early-stage private technology company. This investment is
included in Investments and other assets in the Consolidated Balance Sheet and is accounted for at cost.
As of December 29, 2012,
the Company did not estimate the fair value of this investment as there were no identified events or changes in circumstance that may have had a significant adverse effect on the fair value of this investee. As this investee is a private business,
it was not practicable to estimate its fair value at December 29, 2012.
65
NOTE 7. INVESTMENT SECURITIES
At December 29, 2012, the Company had investments in securities of $153.7 million (December 31, 2011-$385.6 million)
comprised of money market funds, United States Treasury and Government Agency notes, Federal Deposit Insurance Corporation insured corporate notes, United States State and Municipal Securities, foreign government and agency notes, and corporate
bonds and notes.
The Companys available for sale investments, by investment type, as classified on the consolidated balance sheets
consist of the following as at December 29, 2012 and December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 29, 2012
|
|
(in thousands)
|
|
Amortized Cost
|
|
|
Gross
Unrealized
Gains*
|
|
|
Gross
Unrealized
Losses*
|
|
|
Fair Value
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
50,528
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
50,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash equivalents
|
|
|
50,528
|
|
|
|
|
|
|
|
|
|
|
|
50,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds and notes
|
|
|
9,163
|
|
|
|
522
|
|
|
|
|
|
|
|
9,685
|
|
US states and municipal securities
|
|
|
1,720
|
|
|
|
26
|
|
|
|
|
|
|
|
1,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments
|
|
|
10,883
|
|
|
|
548
|
|
|
|
|
|
|
|
11,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds and notes
|
|
|
53,567
|
|
|
|
329
|
|
|
|
(16
|
)
|
|
|
53,880
|
|
US treasury and government agency notes
|
|
|
33,830
|
|
|
|
25
|
|
|
|
(1
|
)
|
|
|
33,854
|
|
Foreign government and agency notes
|
|
|
4,018
|
|
|
|
26
|
|
|
|
|
|
|
|
4,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term investment securities
|
|
|
91,415
|
|
|
|
380
|
|
|
|
(17
|
)
|
|
|
91,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
152,826
|
|
|
$
|
928
|
|
|
$
|
(17
|
)
|
|
$
|
153,737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Gross unrealized gains include accrued interest on investments of $0.9 million. The remainder of the gross unrealized gains and losses are included the Consolidated Balance Sheet as Accumulated other comprehensive
income (loss).
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
(in thousands)
|
|
Amortized Cost
|
|
|
Gross
Unrealized
Gains*
|
|
|
Gross
Unrealized
Losses*
|
|
|
Fair Value
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
54,588
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
54,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash equivalents
|
|
|
54,588
|
|
|
|
|
|
|
|
|
|
|
|
54,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds and notes
|
|
|
85,127
|
|
|
|
2,449
|
|
|
|
(34
|
)
|
|
|
87,542
|
|
US treasury and government agency notes
|
|
|
10,009
|
|
|
|
203
|
|
|
|
|
|
|
|
10,212
|
|
Foreign government and agency notes
|
|
|
6,540
|
|
|
|
97
|
|
|
|
|
|
|
|
6,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments
|
|
|
101,676
|
|
|
|
2,749
|
|
|
|
(34
|
)
|
|
|
104,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds and notes
|
|
|
166,741
|
|
|
|
688
|
|
|
|
(449
|
)
|
|
|
166,980
|
|
US treasury and government agency notes
|
|
|
52,054
|
|
|
|
123
|
|
|
|
(39
|
)
|
|
|
52,138
|
|
Foreign government and agency notes
|
|
|
5,713
|
|
|
|
39
|
|
|
|
|
|
|
|
5,752
|
|
US states and municipal securities
|
|
|
1,720
|
|
|
|
29
|
|
|
|
|
|
|
|
1,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term investment securities
|
|
|
226,228
|
|
|
|
879
|
|
|
|
(488
|
)
|
|
|
226,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
382,492
|
|
|
$
|
3,628
|
|
|
$
|
(522
|
)
|
|
$
|
385,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Gross unrealized gains include accrued interest on investments of $2.4 million. The remainder of the gross unrealized gains and losses are included in the Consolidated Balance Sheet as Accumulated other comprehensive
income (loss).
|
In relation to the unrealized losses summarized in the tables above, as of December 29, 2012 and
December 31, 2011, the fair value of certain of the Companys available-for-sale securities was less than their cost basis. Management reviewed various factors in determining whether to recognize an impairment charge related to these
unrealized losses, including the current financial and credit market environment, the financial condition and near-term prospects of the issuer of the investment security, the magnitude of the unrealized loss compared to the cost of the investment,
length of time the investment has been in a loss position and the Companys intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery of market value. As of December 29, 2012, the
Company determined that the unrealized losses are temporary in nature and recorded them as a component of Accumulated other comprehensive income (loss).
The investments in the Reserve Funds, classified as cash and cash equivalents on the Consolidated Balance Sheet, were recorded at a fair value
of $nil at December 31, 2011 and relate to shares of the Reserve International Liquidity Fund, Ltd. (the International Fund) and the Reserve Primary Fund (the Primary Fund, together the Reserve Funds). The
Reserve Funds were AAA-rated money market funds which announced redemption delays and suspended trading in September 2008, during the severe disruption in financial markets. The Company assessed the fair value of its money market funds, including by
consideration of Level 2 and Level 3 inputs (see
Note 4. Fair Value Measurements
) for the Reserve Funds and their underlying securities. Based on this assessment, the Company recorded an impairment of the Reserve Funds of $11.8 million during
the third quarter of 2008, incorporating the Reserve Funds valuation at zero for debt securities of Lehman Brothers held, and a net asset value of $0.97 per share as communicated by the Primary Fund. In 2008, the Company reclassified its
investment in shares of the Reserve Funds from Level 1 to Level 3 of the fair value hierarchy due to the inherent subjectivity and significant judgment related to the fair value of the shares of the Reserve Funds and their underlying securities.
Accordingly, the Company changed the valuation method from a market approach to an income approach. In addition, in 2008, due to the status of the Reserve Funds, the Company reclassified a portion of these shares from cash and cash equivalents to
short-term investments and long-term investment securities, based on the maturity dates of the underlying securities in the Reserve Funds.
As at December 26, 2010, all of the underlying Lehman Brothers investments held in the Reserve Funds had matured or were sold, and
remaining securities were held only in overnight notes.
During 2010, the Primary Fund entered into liquidation proceedings which were
supervised by the U.S. Securities and Exchange Commission, and the Company received partial distributions of its holdings. During the fourth quarter of 2010, the U.S. District Court for the Southern District of New York entered into final judgment
accepting a proposed settlement agreement with respect to the
67
International Fund. Shortly after the Companys 2010 year end, that judgment became final. As a result, the Company recognized a recovery of impairment on investments of $3.8 million in the
2010 consolidated statement of operations, based on the partial distributions received from these settlements. The courts set aside certain amounts of cash held by the Reserve Funds for legal and administrative costs, and if the cash is not all
consumed, the Company could potentially receive a further distribution.
In 2011, we received $22.6 million from the International Fund
and its liquidation was completed. The Primary Fund continues to be in the process of liquidation. The Company continued to hold shares of the Reserve Primary Fund with an original cost of $0.6 million. Based on information available in 2012, the
Company determined that it would be unlikely to receive any further distributions from the Fund and wrote off the remaining shares of the Primary Fund against existing provisions.
NOTE 8. LINES OF CREDIT
At December 29, 2012, the Company does not maintain any lines of credit.
At December 31, 2011, the Company had cancelled its revolving line of credit with a bank related to a terminated lease. At December 26, 2010, the
Company had available a revolving line of credit with a bank under which the Company was able to borrow up to $0.7 million with interest at the banks alternate base rate (annual rate of 3.75%) as long as the Company maintained eligible
investments with the bank in an amount equal to its drawings.
NOTE 9. SHORT-TERM LOAN
On November 18, 2010, the Company, PMC-Sierra US Inc., a Delaware wholly owned subsidiary of the Company (the
Borrower), and Bank of America, N.A., as the Lender, entered into a Credit Agreement (the Credit Agreement). The Credit Agreement provides the Borrower with a term loan of $220 million (the Credit Facility), which
was borrowed on November 18, 2010. The Credit Facility was used to finance, in part, the acquisition of Wintegra by the Company. During 2010, the Company repaid principal of $40 million. As a result, the balance as at December 26, 2010 was
$181.0 million, including accrued interest.
The interest rate set forth in the Credit Agreement for the loan made under the Credit
Facility was the base rate (the higher of the prime rate announced by the Lender or the federal funds effective rate plus 0.50%), plus 1.50%.
The loan
had a maturity date of January 17, 2011 but was fully repaid as of January 10, 2011.
NOTE 10. SENIOR CONVERTIBLE NOTES
2.25% Senior Convertible Notes
On October 26, 2005, the Company issued $225 million aggregate principal amount of 2.25% senior convertible notes due 2025 (the
Notes).
The Notes rank equal in right of payment with the Companys other unsecured senior indebtedness and mature on
October 15, 2025 unless earlier redeemed by the Company at its option, or converted or put to the Company at the option of the holders. Interest is payable semi-annually in arrears on April 15 and October 15 of each year, commencing
on April 15, 2006. The Company may redeem all or a portion of the Notes at par on and after October 20, 2012. The holders may require that the Company to repurchase all or a portion of the Notes on October 15 of each of 2012, 2015 and
2020.
Holders may convert the Notes into the right to receive the conversion value (i) when the Companys stock price exceeds
120% of the approximately $8.80 per share initial conversion price for a specified period, (ii) in certain change in control transactions, and (iii) when the trading price of the Notes does not exceed a minimum price level. For each $1,000
principal amount of Notes, the conversion value represents the amount equal to 113.6687 shares multiplied by the per share price of the Companys common stock at the time of conversion. If the conversion value exceeds $1,000 per $1,000 in
principal of Notes, the Company will pay $1,000 in cash and may pay the amount exceeding $1,000 in cash, stock or a combination of cash and stock, at the Companys election.
The Company entered into a Registration Rights Agreement with the holders of the Notes, under which the Company is required to keep the shelf
registration statement effective until the earlier of (i) the sale pursuant to the shelf registration statement of all of the Notes and/or shares of common stock issuable upon conversion of the Notes, and (ii) the expiration of the holding
period applicable to such securities held by non-affiliates under Rule 144 under the Securities Act, or any successor provision, subject to certain permitted exceptions.
The Company was required to pay liquidated damages, subject to some limitations, to the holders of the Notes if the Company fails to comply
with its obligations to register the Notes and the common stock issuable upon conversion of the Notes or the registration statement does not become effective within the specified time periods. In no event will liquidated damages accrue after the
second anniversary of the date of issuance of the Notes or at a rate exceeding 0.50% of the issue price of the Notes. The Company had no other liabilities or monetary damages with respect to any registration default. If the holder has converted some
or all of its Notes into common stock, the holder will not be entitled to receive any liquidated damages with respect to such common stock or the principal amount of the Notes converted.
68
As of December 31, 2011, the carrying amount of the equity component was $35.2 million
(December 26, 2010- $35.2 million), and the carrying amount of the debt component was $65.1 million (December 26, 2010$61.6 million), which represents the principal amount of $68.3 million (December 26, 2010$68.3 million) net of the
unamortized discount of $3.2 million (December 26, 2010$6.7 million). The balance of deferred debt issue costs as at December 31, 2011 is $0.2 million (December 26, 2010$0.4 million). Since the holders may require the Company to
repurchase the Notes on October 15, 2012, the Company reclassified the debt to short-term liabilities in the fourth quarter of 2011.
In October
2012, the Company retired the remaining 2.25% senior convertible notes at their face value of $68.3 million, resulting in no impact to the Consolidated Statements of Operations.
NOTE 11. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company
leases its facilities under operating lease agreements, which expire at various dates through March 1, 2025.
Rent expense including
operating costs for 2012, 2011 and 2010 was $10.5 million, $12.9 million, and $11.9 million, respectively. Excluded from rent expense for 2012, 2011 and 2010 was additional rent and operating costs of $0.2 million, $0.9 million and $2.7
million, respectively, related to excess facilities, which were previously accrued.
Minimum future rental payments under operating leases
are as follows:
|
|
|
|
|
(in thousands)
|
|
$
|
|
2013
|
|
|
9,574
|
|
2014
|
|
|
8,693
|
|
2015
|
|
|
7,056
|
|
2016
|
|
|
5,945
|
|
2017
|
|
|
4,104
|
|
Thereafter
|
|
|
9,550
|
|
|
|
|
|
|
Total minimum future rental payments under operating leases
|
|
$
|
44,922
|
|
|
|
|
|
|
Supply Agreements
The Company has existing supply agreements with UMC and TSMC. The terms include but are not limited to, supply terms without minimum unit
volume requirements for PMC, indemnification and warranty provisions, quality assurances and termination conditions.
Contingencies
In the normal course of business, the Company receives and makes inquiries with regard to possible patent infringements. Where deemed
advisable, the Company may seek or extend licenses or negotiate settlements. The Company estimates the outcomes of such negotiations based on the facts and circumstances at any point in time. Management does not believe that such licenses or
settlements will, individually or in the aggregate, have a material effect on the Companys financial position, results of operations or cash flows.
Contingent consideration
The terms of our November 2010 acquisition of Wintegra, provide for potential additional earn-out based purchase consideration ranging from nil
to $60 million, calculated on the basis of Wintegras 2011 revenue as described in the Agreement and Plan of Merger dated as of October 21, 2010. At acquisition, the Company recorded a liability for contingent purchase consideration of
$28.2 million as part of the acquisition of Wintegra, which reflected the estimated fair value of the potential earn-out payment, calculated by applying the income approach. During the three months ended October 2, 2011, the Company determined
that Wintegras 2011 revenues would be below earn-out levels, and the former Wintegra equity holders would not be eligible to receive this additional earn-out payment. Accordingly, the Company recognized a $29.4 million Revaluation of liability
on contingent consideration on the Consolidated Statement of Operations. Since the earn-out requirements were not met, the Company had no obligations in connection with the contingent earn-out consideration and had no liabilities recorded as of
December 31, 2011.
69
NOTE 12. SPECIAL SHARES
At December 29, 2012 and December 31, 2011, the Company maintained a reserve of 1,019,000 and 1,029,000 shares,
respectively, of PMC common stock to be issued to holders of PMC-Sierra, Ltd. (LTD) special shares.
The special shares of
LTD, the Companys principal Canadian subsidiary, are redeemable or exchangeable for PMC common stock. Special shares do not vote on matters presented to the Companys stockholders, but in all other respects represent the economic and
functional equivalent of PMC common stock for which they can be redeemed or exchanged at the option of the holders. The special shares have class voting rights with respect to transactions that affect the rights of the special shares as a class and
for certain extraordinary corporate transactions involving LTD. If LTD files for bankruptcy, is liquidated or dissolved, the special shares receive as a preference the number of shares of PMC common stock issuable on conversion plus a
nominal amount per share plus unpaid dividends, or at the holders option convert into LTD ordinary shares, which are the functional equivalent of voting common stock. If the Company files for bankruptcy, is liquidated,
or dissolved, special shares of LTD receive the cash equivalent of the value of PMC common stock into which the special shares could be converted, plus unpaid dividends, or at the holders option convert into LTD
ordinary shares. If the Company materially breaches its obligations to special shareholders of LTD (primarily to permit conversion of special shares into PMC common stock), the special shareholders may
convert their shares into LTD ordinary shares.
These special shares of LTD are classified outside of stockholders equity until such
shares are exchanged for PMC common stock. Upon exchange, amounts will be transferred from the LTD special shares account to the Companys common stock and additional paid-in capital on the consolidated balance sheet.
NOTE 13. STOCKHOLDERS EQUITY
Authorized Capital Stock of PMC
At December 29, 2012 and December 31, 2011, the Company had an authorized capital of 905,000,000 shares, 900,000,000 of which are
designated Common Stock, $0.001 par value, and 5,000,000 of which are designated Preferred Stock, $0.001 par value.
Stockholders Rights Plan
The Company
adopted a stockholders rights plan in 2001, pursuant to which the Company declared a dividend of one share purchase right for each outstanding share of common stock. If certain events occur, including if an investor tenders for or acquires
more than 15% of the Companys outstanding common stock, stockholders (other than the acquirer) may exercise their rights and receive $650 worth of our common stock in exchange for $325 per right, or the Company may, at the Companys
option, issue one share of common stock in exchange for each right, or the Company may redeem the rights for $0.001 per right. This stockholders rights plan expired, pursuant to its terms, on May 25, 2011.
Stock Repurchase Program
On May 2, 2012,
the Company entered into an Accelerated Stock Buyback agreement (ASB agreement) with Goldman, Sachs & Co. (Goldman) to repurchase an aggregate of $160 million of PMC common stock. The Company acquired these common
shares as part of its $275 million stock repurchase program announced on March 13, 2012. The aggregate number of shares ultimately purchased was determined based on the weighted-average share price of our common shares over a specified period
of time. The contract was settled on October 5, 2012. The total shares repurchased and cancelled under this ASB agreement was 26,829,309 common shares at a price of $5.96. The repurchased shares were retired immediately upon delivery.
Accordingly, the repurchased shares were recorded as a reduction of common stock, additional paid-in capital and accumulated deficit.
On
November 10, 2011, the Board of Directors of the Company authorized a share repurchase plan for fiscal year 2012. Under this authorization, the Company may repurchase common stock to offset dilution from employee equity grants and stock
purchases, at an aggregate cost not exceeding $40 million. As of December 29, 2012, the Company completed its 2012 repurchase program and repurchased 6,902,625 shares for approximately $40 million in cash. The repurchased shares were
retired immediately. Accordingly, the repurchased shares were recorded as a reduction of common stock, additional paid-in capital and accumulated deficit.
On May 5, 2011, the Board of Directors of the Company authorized a share repurchase plan for fiscal year 2011. Under this authorization,
the Company may repurchase common stock to offset dilution from employee equity grants and stock purchases, at an aggregate cost not exceeding $40 million. As of December 31, 2011, the Company completed its 2011 repurchase program and
repurchased 6,083,263 shares for approximately $40 million in cash. The repurchased shares were retired immediately. Accordingly, the repurchased shares were recorded as a reduction of common stock, additional paid-in capital and accumulated
deficit.
70
NOTE 14. EMPLOYEE BENEFIT PLANS
Post-Retirement Health Care Benefits
Our unfunded post-retirement benefit plan, which was assumed in connection with the acquisition of the Storage Semiconductor Business provides
retiree medical benefits to eligible United States employees who meet certain age and service requirements upon retirement from the Company. These benefits are provided from the date of retirement until the employee qualifies for Medicare coverage.
The amount of the retiree medical benefit obligation assumed by the Company was $1.1 million at the time of the acquisition.
At
December 29, 2012 and December 31, 2011, the accumulated post-retirement benefit obligation was $1.3 million, with no unrecognized gain/loss or unrecognized prior service cost in both periods. The net period benefit expense was $1.4
million during 2011. The net period benefit expense in 2010 was $0.1 million. No distributions were made from the plan during the period. The Company includes accrued benefit costs for its post-retirement program in Accrued liabilities on the
Companys Consolidated Balance Sheet.
The health care accumulated post-retirement benefit obligations were determined at
December 29, 2012 using a discount rate of 3.3% and a current year health care trend of 8.7% decreasing to an ultimate trend rate of 4.7% in 2027. The health care accumulated post-retirement benefit obligations were determined at
December 31, 2011 using a discount rate of 4% and a current year health care trend of 9% decreasing to an ultimate trend rate of 4.7% in 2027.
Employee Retirement Savings Plans
The Company
sponsors a 401(k) retirement plan for its employees in the United States and similar plans for its employees in Canada and other countries. Employees can contribute a percentage of their annual compensation to the plans, limited to maximum annual
amounts set by local taxation authorities. The Company contributed $3.9 million $3.8 million and $3.1 million, and, to the plans in fiscal years 2012, 2011 and 2010, respectively.
Israeli Severance Plans
The Companys has
two types of severance agreements with employees in Israel, which are under Israeli labour laws. Under the first agreement, the Companys liability for severance pay is calculated pursuant to Israeli severance pay law. Severance is based on the
most recent salary of the employee multiplied by the number of years of employment. The severance pay liability of the Company to these employees reflects the undiscounted amount of the liability. The liability is partly covered by insurance
policies and by regular deposits to severance pay funds. The Company records changes in the severance liability in the Consolidated Statements of Operations, net of gains and losses related to amounts in the severance pay funds.
Under the second type of severance agreement, the Companys agreements with employees in Israel which are under Section 14 of the
Severance Pay Law, 1963. Under this agreement, the Company satisfies its full obligation by contributing one month of the employees salary for each year of service into a fund managed by a third party. Neither the obligation, nor the amounts
deposited on behalf of the employee for such obligation are recorded on the Consolidated Balance Sheet, as the Company is legally released from the obligation to the employees once the amounts have been deposited.
Severance expenses for 2012, 2011 and 2010, were $1.8 million, $2.0 million, and $1.2 million, respectively. The amount of the liability, net
of the amounts funded under the first type of agreement noted above are included within Accrued liabilities on the Consolidated Balance Sheet in the amounts of $0.3 million, and $0.5 million, for the years ended December 29, 2012 and
December 31, 2011, respectively. As at December 29, 2012, the amount of the net liability is comprised of $4.2 million for statutory severance pay liability, less $3.9 million in amounts funded. As at December 31, 2011, the amount of
the net liability is comprised of $5.0 million for statutory severance pay liability, less $4.5 million of cumulative funding by the Company.
71
NOTE 15. INCOME TAXES
For financial reporting purposes, income before income taxes includes the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 29, 2012
|
|
|
December 31, 2011
|
|
|
December 26, 2010
|
|
|
|
Previously
|
|
|
As restated
|
|
|
Previously
|
|
|
As restated
|
|
|
Previously
|
|
|
As restated
|
|
(in thousands)
|
|
reported
|
|
|
(See Note 19)
|
|
|
reported
|
|
|
(See Note 19)
|
|
|
reported
|
|
|
(See Note 19)
|
|
Domestic
|
|
$
|
(303,209
|
)
|
|
$
|
(301,764
|
)
|
|
$
|
29,637
|
|
|
$
|
29,637
|
|
|
$
|
33,001
|
|
|
$
|
33,001
|
|
Foreign
|
|
|
19,737
|
|
|
|
19,737
|
|
|
|
51,246
|
|
|
|
51,246
|
|
|
|
80,323
|
|
|
|
80,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(283,472
|
)
|
|
$
|
(282,027
|
)
|
|
$
|
80,883
|
|
|
$
|
80,883
|
|
|
$
|
113,324
|
|
|
$
|
113,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The provision for income taxes consists of the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 29, 2012
|
|
|
December 31, 2011
|
|
|
December 26, 2010
|
|
|
|
Previously
|
|
|
As restated
|
|
|
Previously
|
|
|
As restated
|
|
|
Previously
|
|
|
As restated
|
|
(in thousands)
|
|
reported
|
|
|
(See Note 19)
|
|
|
reported
|
|
|
(See Note 19)
|
|
|
reported
|
|
|
(See Note 19)
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
49,449
|
|
|
|
43,883
|
|
|
$
|
629
|
|
|
$
|
10,081
|
|
|
$
|
13,036
|
|
|
$
|
26,160
|
|
Foreign
|
|
|
11,743
|
|
|
|
11,743
|
|
|
|
13,390
|
|
|
|
13,390
|
|
|
|
28,615
|
|
|
|
28,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61,192
|
|
|
|
55,626
|
|
|
|
14,019
|
|
|
|
23,471
|
|
|
|
41,651
|
|
|
|
54,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
6,023
|
|
|
|
6,023
|
|
|
|
4,114
|
|
|
|
4,114
|
|
|
|
5,822
|
|
|
|
5,822
|
|
Foreign
|
|
|
(14,467
|
)
|
|
|
(15,658
|
)
|
|
|
(17,413
|
)
|
|
|
(17,688
|
)
|
|
|
(23,533
|
)
|
|
|
(23,533
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,444
|
)
|
|
|
(9,635
|
)
|
|
|
(13,299
|
)
|
|
|
(13,574
|
)
|
|
|
(17,711
|
)
|
|
|
(17,711
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for (recovery of) income taxes
|
|
$
|
52,748
|
|
|
|
45,991
|
|
|
$
|
720
|
|
|
$
|
9,897
|
|
|
$
|
23,940
|
|
|
$
|
37,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72
Reconciliation between the Companys effective tax rate and the U.S. Federal statutory rate
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 29, 2012
|
|
|
December 31, 2011
|
|
|
December 26, 2010
|
|
(in thousands)
|
|
Previously
reported
|
|
|
As restated
(See Note 19)
|
|
|
Previously
reported
|
|
|
As restated
(See Note 19)
|
|
|
Previously
reported
|
|
|
As restated
(See Note 19)
|
|
Loss (income) before provision for (recovery of) income taxes
|
|
$
|
(283,472
|
)
|
|
$
|
(282,027
|
)
|
|
$
|
80,883
|
|
|
$
|
80,883
|
|
|
$
|
113,324
|
|
|
$
|
113,324
|
|
Federal statutory tax rate
|
|
|
35
|
%
|
|
|
35
|
%
|
|
|
35
|
%
|
|
|
35
|
%
|
|
|
35
|
%
|
|
|
35
|
%
|
Income taxes at U.S. Federal statutory rate
|
|
|
(99,215
|
)
|
|
|
(98,709
|
)
|
|
|
28,309
|
|
|
|
28,309
|
|
|
|
39,663
|
|
|
|
39,663
|
|
Tax on intercompany transactions
|
|
|
92,408
|
|
|
|
104,757
|
|
|
|
26,561
|
|
|
|
33,914
|
|
|
|
8,625
|
|
|
|
24,213
|
|
Change in liability for unrecognized tax benefit
|
|
|
5,842
|
|
|
|
7,691
|
|
|
|
6,119
|
|
|
|
5,083
|
|
|
|
10,184
|
|
|
|
6,350
|
|
Non-deductible intangible asset amortization and impairment of goodwill and purchased intangible assets
|
|
|
107,676
|
|
|
|
107,170
|
|
|
|
3,819
|
|
|
|
3,819
|
|
|
|
8,205
|
|
|
|
8,205
|
|
Non-deductible stock-based compensation
|
|
|
5,370
|
|
|
|
5,370
|
|
|
|
5,234
|
|
|
|
5,234
|
|
|
|
3,969
|
|
|
|
3,969
|
|
Non-deductible items and other
|
|
|
6,701
|
|
|
|
6,701
|
|
|
|
(6,521
|
)
|
|
|
(6,521
|
)
|
|
|
(394
|
)
|
|
|
(394
|
)
|
Utilization of stock option related loss carry-forwards recorded in equity
|
|
|
27,624
|
|
|
|
15,672
|
|
|
|
3,223
|
|
|
|
2,055
|
|
|
|
13,407
|
|
|
|
13,632
|
|
State taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,947
|
|
|
|
|
|
|
|
1,146
|
|
Adjustment of prior year taxes and tax credits
|
|
|
(1,811
|
)
|
|
|
(9,624
|
)
|
|
|
(27,236
|
)
|
|
|
(25,879
|
)
|
|
|
(5,095
|
)
|
|
|
(5,095
|
)
|
Investment tax credits, net
|
|
|
(19,194
|
)
|
|
|
(19,194
|
)
|
|
|
(18,455
|
)
|
|
|
(18,455
|
)
|
|
|
(14,416
|
)
|
|
|
(14,416
|
)
|
Foreign and other rate differential
|
|
|
(33,533
|
)
|
|
|
(33,533
|
)
|
|
|
(25,301
|
)
|
|
|
(25,301
|
)
|
|
|
(31,114
|
)
|
|
|
(31,114
|
)
|
Change in valuation allowance
|
|
|
(39,120
|
)
|
|
|
(40,310
|
)
|
|
|
4,968
|
|
|
|
4,692
|
|
|
|
(9,094
|
)
|
|
|
(9,095
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for (recovery of) income taxes
|
|
$
|
52,748
|
|
|
$
|
45,991
|
|
|
$
|
720
|
|
|
$
|
9,897
|
|
|
$
|
23,940
|
|
|
$
|
37,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On a consolidated basis, the Company recorded a provision for income taxes of $46 million, a provision for
income taxes of $9.9 million and a provision for income taxes of $37.1 million for 2012, 2011, and 2010, respectively. The effective tax rates were negative 16% for 2012 and positive 11% and 33% for 2011 and 2010, respectively.
The difference between our effective tax rates and the 35% US federal statutory rate in each of 2012, 2011, and 2010, resulted primarily from
foreign earnings eligible for tax rates lower than the federal statutory rate due to economic incentives subject to certain criteria granted by foreign jurisdictions and extending to approximately 2020, investment tax credits earned, changes in
valuation allowance, and adjustments for prior years taxes and tax credits, partially offset by non-deductible intangible asset amortization and impairment of goodwill and purchased intangible assets, the effect of inter-company transactions,
utilization of stock option related loss carryforwards recorded in equity, changes in accruals related to the unrecognized tax benefit liabilities, and permanent differences arising from stock-based compensation and other items.
The 2012 income tax provision of $46 million consisted primarily of a reduction in tax expense of $98.7 million of income taxes at the federal
statutory rate, a reduction in tax expense of $9.6 million relating to adjustment of prior years taxes and tax credits, a reduction in tax expense of $19.2 million relating to investment tax credits, a benefit of $33.5 million due to foreign
and other rate differential, a reduction in tax expense of $33.6 million relating to change in valuation allowance and other non-deductible permanent differences, $104.8 million of tax expense arising from an inter-company dividend made in
preparation for funding the Companys share repurchase programs (including $20 million withholding taxes) and other intercompany transactions, $25 million tax expense on an inter-company sale of certain assets, $107.2 million relating to
non-deductible intangible asset amortization, $7.7 million relating to change in liability for unrecognized tax benefits, $5.4 million relating to non-deductible stock-based compensation and $15.7 million relating to utilization of stock option
related loss carry-forwards recorded in equity. See Note 19. Error Corrections.
73
The 2011 income tax provision of $9.9 million consisted of tax at expense of $28.3 million at the
US statutory rate offset by a foreign rate differential decrease in tax expense of $25.3 million, $18.5 million decrease in tax expense relating to net investment tax credits, recovery for $25.9 million related to adjustments to prior period
estimates and a foreign subsidiarys tax audit settlement, $2.1 million tax expense from stock option related loss carryforwards recognized in equity, $5.1 million tax expense relating to unrecognized tax benefits (including associated
interest), $3.8 million increase in deferred tax expense arising from amortization of acquisition-related intangibles, $33.9 million tax expense on an inter-company sale of certain assets, $5.2 million tax expense on non-deductible stock-based
compensation and $1.1 million of other tax expense related items.
The 2010 income tax provision of $37.1 million consisted of tax at
expense of $39.7 million at the US statutory rate offset by a foreign rate differential decrease in tax expense of $31.1 million, $14.4 million decrease in tax expense relating to net investment tax credits, recovery for $5.1 million related to
adjustments to prior period estimates, a reduction in tax expense of $9.1 million relating to change in valuation allowance, $13.6 million tax expense from stock option related loss carryforwards recognized in equity, $6.4 million tax expense
relating to unrecognized tax benefits (including associated interest), $8.2 million increase in deferred tax expense arising from amortization of acquisition-related intangibles, $24.2 million tax expense on an inter-company sale of certain assets,
$4 million tax expense on non-deductible stock-based compensation and $0.8 million of other tax expense related items.
The consolidated
financial statements for the 2012, 2011 and 2010 include the tax effects associated with the sale of certain assets between our wholly-owned subsidiaries. GAAP requires the tax expense associated with gains on such inter-company transactions to be
recognized over the estimated life of the related assets. Accordingly prepaid tax expenses were recorded in the years ended December 29, 2012, December 31, 2011 and December 26, 2010. The balance in long-term prepaid expenses as
at December 29, 2012 and December 31, 2011, to be recognized in future years was $19.2 million and $34.3 million, respectively.
The provisions related to the tax accounting for stock-based compensation prohibit the recognition of a deferred tax asset for an excess
benefit that has not yet been realized. As a result, the Company will only recognize an excess benefit from stock-based compensation in additional paid-in-capital if an incremental tax benefit is realized after all other tax attributes currently
available have been utilized. In addition, the Company continued to elect to account for the indirect benefits of stock-based compensation such as the research and development tax credit through the consolidated statement of operations.
Significant components of the Companys deferred tax assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 29, 2012
|
|
|
December 31, 2011
|
|
(in thousands)
|
|
Previously
reported
|
|
|
As restated
(See Note 19)
|
|
|
Previously
reported
|
|
|
As restated
(See Note 19)
|
|
Deferred taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
102,152
|
|
|
|
5,604
|
|
|
$
|
104,522
|
|
|
$
|
755
|
|
Capital loss
|
|
|
1,102
|
|
|
|
1,167
|
|
|
|
1,670
|
|
|
|
1,740
|
|
Credit carryforwards
|
|
|
60,772
|
|
|
|
55,504
|
|
|
|
69,038
|
|
|
|
34,659
|
|
Reserves and accrued expenses
|
|
|
21,637
|
|
|
|
10,036
|
|
|
|
27,221
|
|
|
|
18,497
|
|
Intangible assets
|
|
|
2,736
|
|
|
|
(1
|
)
|
|
|
2,740
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(506
|
)
|
|
|
29,091
|
|
|
|
1,150
|
|
|
|
25,799
|
|
Restructuring and other charges
|
|
|
|
|
|
|
|
|
|
|
1,680
|
|
|
|
1,680
|
|
State tax loss carryforwards
|
|
|
9,193
|
|
|
|
12,863
|
|
|
|
9,513
|
|
|
|
13,208
|
|
Deferred income
|
|
|
1,210
|
|
|
|
1,282
|
|
|
|
4,101
|
|
|
|
4,347
|
|
Other
|
|
|
|
|
|
|
(469
|
)
|
|
|
|
|
|
|
658
|
|
Unrealized loss on investment
|
|
|
(169
|
)
|
|
|
(167
|
)
|
|
|
29
|
|
|
|
29
|
|
Stock-based compensation
|
|
|
|
|
|
|
12,251
|
|
|
|
|
|
|
|
11,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
198,127
|
|
|
|
127,161
|
|
|
|
221,664
|
|
|
|
112,831
|
|
Valuation allowance
|
|
|
(146,658
|
)
|
|
|
(65,310
|
)
|
|
|
(185,776
|
)
|
|
|
(67,341
|
)
|
Federal impact of state deferreds
|
|
|
|
|
|
|
(4,989
|
)
|
|
|
|
|
|
|
(5,746
|
)
|
Acquired intangible assets and goodwill
|
|
|
(46,338
|
)
|
|
|
(48,818
|
)
|
|
|
(43,039
|
)
|
|
|
(45,175
|
)
|
Depreciation
|
|
|
(9,542
|
)
|
|
|
(9,542
|
)
|
|
|
(4,269
|
)
|
|
|
(4,269
|
)
|
Capitalized technology & other
|
|
|
726
|
|
|
|
726
|
|
|
|
(474
|
)
|
|
|
(474
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net deferred tax liability
|
|
$
|
(3,685
|
)
|
|
|
(772
|
)
|
|
$
|
(11,894
|
)
|
|
$
|
(10,174
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the table reflecting significant components of the Companys deferred tax assets and liabilities, the
Company had previously presented the total available amounts of its tax attributes, including the amounts relating to excess tax benefits. The disclosures above have been adjusted to exclude the amounts relating to excess tax benefits from the
amounts of net operating loss carryforwards, state tax loss carryforwards and credit carryforwards.
74
At December 29, 2012, the Company has statutory tax losses as follows: gross $179 million of
federal domestic and foreign tax loss carryforwards, which expire through 2027; and gross $212 million of U.S. state tax loss carry-forwards, which expire through 2029, of which $3.6 million, $31 million, 49.5 million, $37.4 million, and $41.3
million expire in fiscal years 2013, 2014, 2015, 2016 and 2017, respectively, and the remainder expire in the years following. The utilization of a portion of these loss carry-forwards may be subject to annual limitations under federal and state
income tax legislation. Substantially all of the Companys loss carry-forwards relate to the Companys domestic operations for which no tax benefit has been recorded. The tax benefits relating to approximately $120 million of the federal
net operating loss carryforwards and $111 million of the state net operating loss carryforwards will be credited to additional paid-in-capital when recognized.
At December 29, 2012, the Company has statutory tax credits as follows: $4.5 million of federal domestic alternative minimum tax credits
which do not expire; $15.5 million of U.S. state research and development credits which do not expire; $37 million of foreign tax credits which expire through 2022; and $64.3 million of federal and foreign research and development credits, of which
$0.7 million expires in 2013 and the remainder expires in years beyond 2017. The tax benefits relating to approximately $47.9 million of the federal credits will be credited to additional paid-in-capital when recognized.
The Company intends to indefinitely reinvest undistributed earnings of foreign subsidiaries. Accordingly, the Company has not recorded a
deferred tax liability on these earnings. If such undistributed earnings were repatriated, the Company would not incur U.S. federal and state taxes due to available carry-forward losses and credits, however, approximately $84 million would be
recorded as a deferred tax liability with a corresponding amount of deferred tax assets also recognized.
A reconciliation of the
beginning and ending balances of the total amounts of gross unrecognized tax benefits is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 29, 2012
|
|
|
December 31, 2011
|
|
|
December 26, 2010
|
|
(in thousands)
|
|
Previously
reported
|
|
|
As restated
(See Note 19)
|
|
|
Previously
reported
|
|
|
As restated
(See Note 19)
|
|
|
Previously
reported
|
|
|
As restated
(See Note 19)
|
|
Gross unrecognized benefit at beginning of the year
|
|
$
|
73.5
|
|
|
|
103.6
|
|
|
$
|
68.6
|
|
|
$
|
97.6
|
|
|
$
|
49.1
|
|
|
$
|
84.5
|
|
Increase in tax positions for prior years
|
|
|
|
|
|
|
(21.3
|
)
|
|
|
|
|
|
|
|
|
|
|
1.5
|
|
|
|
1.5
|
|
Increase in tax positions for current year
|
|
|
2.8
|
|
|
|
4.8
|
|
|
|
6.7
|
|
|
|
7.8
|
|
|
|
16.0
|
|
|
|
9.6
|
|
Lapse in statute of limitations
|
|
|
(1.1
|
)
|
|
|
(1.1
|
)
|
|
|
(1.2
|
)
|
|
|
(1.2
|
)
|
|
|
|
|
|
|
|
|
Effect on foreign currency gain (loss) on translation
|
|
|
1.5
|
|
|
|
1.5
|
|
|
|
(0.6
|
)
|
|
|
(0.6
|
)
|
|
|
2.0
|
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance before interest accrual
|
|
$
|
76.7
|
|
|
|
87.5
|
|
|
$
|
73.5
|
|
|
$
|
103.6
|
|
|
$
|
68.6
|
|
|
$
|
97.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total amount of gross unrecognized tax benefits that, if recognized, would affect the effective tax rate
was $87.5 million at December 29, 2012 (2011$103.6 million, 2010$97.6 million). The Company accrues interest and penalties related to unrecognized tax benefits in its provision for income taxes. During 2012, the Company had accrued
interest and penalties related to unrecognized tax benefits of $3.9 million (2011$3 million, 2010$2.8 million).
The Company and its
subsidiaries file income tax returns in the U.S. and in various states, local and foreign jurisdictions. The 2007 through 2012 tax years generally remain subject to examination by federal and most state tax authorities. In significant foreign
jurisdictions, the 2007 through 2012 tax years generally remain subject to examination by their respective tax authorities. The Company does not reasonably estimate that the unrecognized tax benefit will change significantly within the next 12
months.
75
NOTE 16. SEGMENT INFORMATION
The Company derives its net revenues from the following operating segments: Communication Products, Enterprise Storage
Products, Microprocessor Products, and Broadband Wireless Products.
During 2012, the Fiber-to-the-Home Products, and the Wireless
Infrastructure and Networking Products were combined with the Communications Products operating segment. In addition, Channel Storage Products was combined with the Enterprise Storage Products operating segment.
All operating segments noted above have been aggregated into one reportable segment because they have similar long-term economic
characteristics, products, production processes, types or classes of customers and methods used to distribute their products. Accordingly, the Company has one reportable segmentsemiconductor solutions for communications network infrastructure.
Enterprise-wide information is provided below. Geographic revenue information is based on the location of the customer invoiced.
Long-lived assets include property and equipment, goodwill and other intangible assets and other long-term assets. Geographic information about long-lived assets is based on the physical location of the assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
(in thousands)
|
|
December 29,
2012
|
|
|
December 31,
2011
|
|
|
December 26,
2010
|
|
Net revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
China
|
|
$
|
206,372
|
|
|
$
|
236,186
|
|
|
$
|
217,148
|
|
Asia, other
|
|
|
74,689
|
|
|
|
74,832
|
|
|
|
84,230
|
|
Japan
|
|
|
70,120
|
|
|
|
85,999
|
|
|
|
95,427
|
|
United States
|
|
|
73,069
|
|
|
|
114,224
|
|
|
|
96,207
|
|
Taiwan
|
|
|
62,957
|
|
|
|
83,274
|
|
|
|
90,303
|
|
Europe and Middle East
|
|
|
40,466
|
|
|
|
51,115
|
|
|
|
45,482
|
|
Other foreign
|
|
|
3,324
|
|
|
|
8,674
|
|
|
|
6,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
530,997
|
|
|
$
|
654,304
|
|
|
$
|
635,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
December 29,
2012
|
|
|
December 31,
2011
|
|
|
December 26,
2010
|
|
Long-lived assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
|
|
$
|
12,944
|
|
|
$
|
12,685
|
|
|
$
|
12,608
|
|
United States
|
|
|
36,612
|
|
|
|
7,450
|
|
|
|
7,014
|
|
Israel
|
|
|
9,776
|
|
|
|
3,885
|
|
|
|
5,422
|
|
Other
|
|
|
4,432
|
|
|
|
3,775
|
|
|
|
2,656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
63,764
|
|
|
$
|
27,795
|
|
|
$
|
27,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2012 and 2011, the Company had two end customers whose purchases represented 10% or more of net
revenues. In 2010, the Company had one end customer whose purchases represented 10% or more of net revenues. In 2012, those two end customers had purchases that represented 20% and 12% of net revenues, respectively. In 2011, those two end customers
had purchases that represented 20% and 10% of net revenues, respectively. In 2010, the Company had one end customer whose purchases represented 20% of net revenues.
76
NOTE 17. NET (LOSS) INCOME PER SHARE
The following table sets forth the computation of basic and diluted net (loss) income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
(in thousands, except per share amounts)
|
|
December 29,
2012
(As Restated)
|
|
|
December 31,
2011
(As Restated)
|
|
|
December 26,
2010
(As Restated)
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income:
|
|
$
|
(328,018
|
)
|
|
$
|
70,986
|
|
|
$
|
76,260
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding
(1)
|
|
|
216,593
|
|
|
|
233,210
|
|
|
|
231,427
|
|
Dilutive effect of employee stock options and awards
|
|
|
|
|
|
|
1,974
|
|
|
|
3,360
|
|
Diluted weighted average common shares outstanding
(1)
|
|
|
216,593
|
|
|
|
235,184
|
|
|
|
234,787
|
|
Basic net (loss) income per share
|
|
$
|
(1.51
|
)
|
|
$
|
0.3
|
|
|
$
|
0.33
|
|
Diluted net (loss) income per share
|
|
$
|
(1.51
|
)
|
|
$
|
0.3
|
|
|
$
|
0.32
|
|
(1)
|
PMC-Sierra,Ltd. Special Shares are included in the calculation of basic weighted average common shares outstanding.
|
In 2012, the Company had approximately 1.5 million stock-based awards that were not included in diluted net loss per share because they
would be antidilutive.
NOTE 18. IMPAIRMENT OF GOODWILL AND LONG-LIVED ASSETS
In 2010 and 2011 the Company performed the first step (step one) of its annual quantitative goodwill impairment
assessment (the test) for each of its reporting units and determined no impairment was indicated as the estimated fair value of each of the reporting units substantially exceeded its respective carrying value.
In the third quarter of 2012, the Company experienced weaker quarterly results and lower future projections than previously expected in its
Fiber-to-the-Home (FTTH) and Wintegra reporting units. This was driven by slower adoption rates of FTTH technology in markets outside of Asia and prolonged weak carrier spending which negatively impacted Wintegra. These circumstances
triggered the Company to perform step one of the impairment test in the third quarter of 2012 and we determined that the estimated fair value of the reporting units was lower than their respective carrying values.
We estimated the fair values of these reporting units using a discounted cash flow model, or income approach. The discounted cash flows for
each reporting unit were based on discrete financial forecasts developed by management for planning purposes.
Cash flows beyond the
discrete forecasts were estimated using a terminal value calculation, which incorporated historical and forecasted financial trends for each identified reporting unit and considered terminal growth rates for other publicly traded companies. Future
cash flows were discounted to present value by incorporating appropriate present value techniques.
Specifically, the income approach
valuations included the following assumptions, which were similar to those used in 2011:
|
|
|
|
|
2012
|
Discount rate
|
|
15%
|
Terminal growth rate
|
|
up to 6%
|
Tax rate
|
|
0-12%
|
Risk free rate
|
|
3%
|
Beta
|
|
1.28
|
Under step one, the Company estimated that the carrying value of these reporting units exceeded the respective
fair values. Thus the Company conducted step two of the test by estimating the fair value of the net assets acquired in these acquisitions, and measuring the estimated fair value of each reporting unit against the carrying value of its net assets.
The implied goodwill was then compared to the carrying value of goodwill, resulting in a write-down of $146.3 million for FTTH and $121.3 million for Wintegra.
77
Also, at the end of the third quarter of 2012, we calculated the fair values of acquired intangible assets using
the income approach and determined and recorded impairment charges of $7 million related to purchased intangible assets arising from the acquisition of Wintegra. The main factor contributing to this impairment charge was the reduction of forecasted
cash flows as described above.
NOTE 19. ERROR CORRECTIONS
The historical consolidated financial statements for fiscal 2012, 2011, and 2010 have been restated to correct the
misapplication of accounting principles related to income tax benefits associated with stock option deductions in excess of the expense recognized in the financial statements. In prior periods impacted by this matter, the Company understated the
income tax benefits of its loss carry-forwards that are required to be included in equity, rather than in income tax expense (benefit). These income tax benefits were generated primarily in the 1999 and 2000 years and were utilized to reduce the
previously recorded income tax expense throughout the years from 2006 and into the first two quarters of 2013. From 2006 and forward, the Company should have recorded the income tax benefit of utilizing these stock option related loss
carry-forwards as an increase to Additional Paid-in Capital, rather than as a reduction of income tax expense. There was no change to the total amount of income tax loss carry-forwards or any other income tax assets available or utilized for tax
purposes, nor to the actual amount of income tax payable to the taxing authorities as a result of this matter, in any period. In connection with restating our historical financial statements, the Company also made certain other corrections for the
timing of recognition of amounts related to amended tax return filings and certain tax credits, and recognition of a foreign subsidiarys deferred tax assets, not previously recognized. The foreign subsidiary was acquired in 2010 and the
deferred tax assets should have been recognized as part of the acquisition accounting, and therefore resulted in a corresponding adjustment to goodwill.
The tables below illustrate the effects on the Consolidated Balance Sheets and Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
December 29, 2012
|
|
|
December 31, 2011
|
|
(in thousands)
|
|
As Restated
|
|
|
As
Previously
Reported
in 10-Q*
|
|
|
As
Previously
Reported
in 10-K**
|
|
|
As Restated
|
|
|
As
Previously
Reported
in 10-Q*
|
|
|
As
Previously
Reported
in 10-K**
|
|
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid tax expenses
|
|
$
|
19,152
|
|
|
$
|
11,851
|
|
|
$
|
25,077
|
|
|
$
|
34,318
|
|
|
$
|
18,293
|
|
|
$
|
27,898
|
|
Goodwill
|
|
|
252,419
|
|
|
|
252,419
|
|
|
|
252,419
|
|
|
|
519,454
|
|
|
|
520,899
|
|
|
|
520,899
|
|
Non-current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax and other long-term tax liabilities
|
|
$
|
41,936
|
|
|
$
|
44,849
|
|
|
$
|
44,849
|
|
|
$
|
38,943
|
|
|
$
|
40,663
|
|
|
$
|
40,663
|
|
Liability for unrecognized tax benefitsnon-current
|
|
$
|
34,957
|
|
|
$
|
29,236
|
|
|
$
|
38,915
|
|
|
$
|
33,020
|
|
|
$
|
26,929
|
|
|
$
|
38,460
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock and additional paid in capital
|
|
$
|
1,553,137
|
|
|
$
|
1,527,710
|
|
|
$
|
1,527,084
|
|
|
$
|
1,623,236
|
|
|
$
|
1,587,587
|
|
|
$
|
1,577,792
|
|
Accumulated deficit
|
|
$
|
(917,825
|
)
|
|
$
|
(896,891
|
)
|
|
$
|
(892,718
|
)
|
|
$
|
(515,623
|
)
|
|
$
|
(490,183
|
)
|
|
$
|
(482,314
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
December 29, 2012
|
|
|
December 31, 2011
|
|
|
December 26, 2010
|
|
(in thousands, except for per share
amounts)
|
|
As Restated
|
|
|
As
Previously
Reported
in 10-Q*
|
|
|
As
Previously
Reported
in 10-K**
|
|
|
As Restated
|
|
|
As
Previously
Reported
in 10-Q*
|
|
|
As
Previously
Reported
in 10-K**
|
|
|
As Restated
|
|
|
As
Previously
Reported
in 10-Q*
|
|
|
As
Previously
Reported
in 10-K**
|
|
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of goodwill and purchased intangible assets
|
|
$
|
274,637
|
|
|
$
|
276,082
|
|
|
$
|
276,082
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Provision for income taxes
|
|
$
|
(45,991
|
)
|
|
$
|
(49,052
|
)
|
|
$
|
(52,748
|
)
|
|
$
|
(9,897
|
)
|
|
$
|
183
|
|
|
$
|
(720
|
)
|
|
$
|
(37,064
|
)
|
|
$
|
(33,507
|
)
|
|
$
|
(23,940
|
)
|
Net (loss) income
|
|
$
|
(328,018
|
)
|
|
$
|
(332,524
|
)
|
|
$
|
(336,220
|
)
|
|
$
|
70,986
|
|
|
$
|
81,066
|
|
|
$
|
80,163
|
|
|
$
|
76,260
|
|
|
$
|
79,817
|
|
|
$
|
89,384
|
|
Net (loss) income per common sharebasic
|
|
$
|
(1.51
|
)
|
|
$
|
(1.54
|
)
|
|
$
|
(1.55
|
)
|
|
$
|
0.3
|
|
|
$
|
0.35
|
|
|
$
|
0.34
|
|
|
$
|
0.33
|
|
|
$
|
0.34
|
|
|
$
|
0.39
|
|
Net (loss) income per common sharediluted
|
|
$
|
(1.51
|
)
|
|
$
|
(1.54
|
)
|
|
$
|
(1.55
|
)
|
|
$
|
0.3
|
|
|
$
|
0.34
|
|
|
$
|
0.34
|
|
|
$
|
0.32
|
|
|
$
|
0.34
|
|
|
$
|
0.38
|
|
*
|
As previously reported in our March 30, 2013 Form 10-Q
|
**
|
As previously reported in our December 29, 2012 Form 10-K
|
78