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TableofContents
CriticalAccountingPolicies
Themethods,estimatesandjudgmentsweuseinapplyingourmostcriticalaccountingpolicieshaveasignificantimpactontheresultswereportinour
consolidatedfinancialstatements.TheSEChasdefinedthemostcriticalaccountingpoliciesastheonesthataremostimportanttotheportrayalofourfinancial
conditionandoperatingresults,andrequireustomakeourmostdifficultandsubjectivejudgments,oftenasaresultoftheneedtomakeestimatesofmattersthat
arehighlyuncertainatthetimeofestimation.Basedonthisdefinition,ourmostcriticalpoliciesinclude:establishmentofsalesprogramaccruals,establishmentof
warrantyaccruals,accountingforincometaxes,andtheaccountingforgoodwillandotherlong-livedassets.Below,wediscussthesepoliciesfurther,aswellasthe
estimatesandjudgmentsinvolved.Wealsohaveotheraccountingpoliciesandaccountingestimatesrelatingtouncollectiblecustomeraccounts,valuationof
inventory,valuationofshare-basedpaymentsandrestructuring.Webelievethattheseotheraccountingpoliciesandaccountingestimateseitherdonotgenerally
requireustomakeestimatesandjudgmentsthatareasdifficultorassubjective,oritislesslikelythattheywouldhaveamaterialimpactonourreportedresultsof
operationsforagivenperiod.
EstablishmentofSalesProgramAccruals.WeestablishcertaindistributorandOEMsalesprogramsaimedatincreasingcustomerdemand.ForOEMsales,
rebatesaretypicallybasedonanOEMcustomer'svolumeofpurchasesorotheragreeduponrebateprograms.Forthedistributionchannel,theseprogramstypically
involverebatesrelatedtoadistributor'slevelofsales,ordersize,advertisingorpointofsaleactivityandpriceprotectionadjustments.Weprovideforthese
obligationsatthetimethatrevenueisrecordedbasedonestimatedrequirements.Weestimatethesecontra-revenuerebatesandadjustmentsbasedonvarious
factors,includingpricereductionsduringtheperiodreported,estimatedfuturepriceerosion,customerorders,distributorsell-throughandinventorylevels,
programparticipation,customerclaimsubmittalsandsalesreturns.Ourestimatesreflectcontractualarrangementsbutalsoourjudgmentrelatingtovariablessuch
ascustomerclaimratesandattainmentofprogramgoals,andinventoryandsell-throughlevelsreportedbyourdistributioncustomers.Currently,ourdistributors'
inventoriesarewithinthehistoricalrange.
Whilewebelievewehavesufficientexperienceandknowledgeofthemarketandcustomerbuyingpatternstoreasonablyestimatesuchrebatesand
adjustments,actualmarketconditionsorcustomerbehaviorcoulddifferfromourexpectations.Asaresult,actualpaymentsundertheseprograms,whichmay
spreadoverseveralmonthsaftertherelatedsale,mayvaryfromtheamountaccrued.Accordingly,revenuesandmarginsintheperiodinwhichtheadjustment
occursmaybeaffected.
Significantactualvariationsinanyofthefactorsuponwhichwebaseourcontra-revenueestimatescouldhaveamaterialeffectonouroperatingresults.In
fiscalyear2016,salesprogramswereapproximately13%ofgrossrevenue.Forfiscalyears2015and2014,totalsalesprogramsrangedfrom8%to10%ofgross
revenues.Adjustmentstorevenuesduetounderoroveraccrualsforsalesprogramsrelatedtorevenuesreportedinpriorquarterlyperiodswereapproximately0.1%
ofgrossrevenueinfiscalyear2016andaveraged0.3%ofquarterlygrossrevenueforfiscalyear2015through2014.Anyfutureshiftsintheindustrysupply-
demandbalanceaswellasotherfactorsmayresultinamorecompetitivepricingenvironmentandmaycausesalesprogramsasapercentageofgrossrevenueto
increasefromthecurrentorhistoricallevels.Ifsuchrebatesandincentivestrendupwards,revenuesandmarginsmaybereduced.
EstablishmentofWarrantyAccruals.Weestimateprobableproductwarrantycostsatthetimerevenueisrecognized.Wegenerallywarrantourproductsfor
aperiodof1to5years.Ourwarrantyprovisionconsidersestimatedproductfailureratesandtrends(includingthetimingofproductreturnsduringthewarranty
periods),andestimatedrepairorreplacementcostsrelatedtoproductqualityissues,ifany.Wealsoexercisejudgmentinestimatingourabilitytosellcertain
repairedproducts.Shouldactualexperienceinanyfutureperioddiffersignificantlyfromourestimates,ourfutureresultsofoperationscouldbemateriallyaffected.
Ourjudgmentissubjecttoagreaterdegreeofsubjectivitywithrespectto
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