| Segment Information and Revenue Reporting | NOTE 7 – Segment Information and Revenue Reporting Segment Reporting. For financial reporting purposes, we operate in a single segment, standard semiconductor products, through our various manufacturing and distribution facilities. We aggregate our products because the products are similar and have similar economic characteristics, use similar production processes and share the same customer type. Our primary operations include operations in Asia, North America and Europe. During the three months ended March 31, 2018, one customer accounted for 10.3% or $28.4 million of our revenue. This customer did not account for 10% or greater of our revenue for the three months ended March 31, 2017 or 10% or greater of our outstanding accounts receivable at March 31, 2018. The tables below set forth net sales based on the location of the subsidiary producing the net sale.
Three Months Ended
March 31, 2018
Asia
North America
Europe
Consolidated
Total sales
$
244,530
$
26,836
$
49,998
$
321,364
Intercompany elimination
(31,827
)
(1,145
)
(13,880
)
(46,852
)
Net sales
$
212,703
$
25,691
$
36,118
$
274,512
Three Months Ended
March 31, 2017
Asia
North America
Europe
Consolidated
Total sales
$
218,343
$
42,879
$
41,018
$
302,240
Intercompany elimination
(33,339
)
(17,540
)
(15,058
)
(65,937
)
Net sales
$
185,004
$
25,339
$
25,960
$
236,303
Changes in Accounting Policies. Effective January 1, 2018, we adopted a comprehensive new revenue recognition standard. The details of the significant changes to our accounting policies resulting from the adoption of the new standard are set out below. We adopted the standard using a modified retrospective method. There was no change in our revenue reported for the three months ended March 31, 2017. The adoption of this standard did not have a material impact on our condensed consolidated financial position, reported revenue, results of operations or cash flows as of and for the three months ended March 31, 2018. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account under ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Generally speaking, our performance obligations represent a promise to transfer various semiconductor products, and have the same pattern of revenue recognition. Our performance obligations are satisfied at either a point in time, or over time as work progresses. The vast majority of our revenue from products and services is accounted for at a point in time. Substantially all of our revenue in direct and Distributor sales is recognized at a point in time. Further, the payment terms on our sales are based on negotiations with our customers. Customers can order different types of semiconductors in a single contract (purchase order), and each line on a purchase order represents a separate performance obligation. Depending on the terms of an arrangement, we may also be responsible for shipping and handling activities. In accordance with ASC 606-10-25-18B, we have elected to account for shipping and handling as activities to fulfill our promise to transfer the good(s). As such, shipping and handling activities do not represent a separate performance obligation, and are accrued as a fulfillment cost. Further, although we offer warranties on our products, our warranties are considered to be assurance-type in nature and do not cover anything beyond ensuring that the product is functioning as intended. Based on the guidance in ASC 606, assurance-type warranties do not represent separate performance obligations; therefore, the primary performance obligation in the majority of our contracts is the delivery of a specific good through the purchase order submitted by our customer. We record allowances/reserves for a number of items. The following items are the largest dollar items for which we record allowances/reserves with ship and debit making up the vast majority: (i) ship and debit, which arise when we issue credit to certain distributors upon their shipments to their end customers; (ii) stock rotation, which are contractual obligations that permit certain distributors, up to four times a year, to return a portion of their inventory based on historical shipments to them in exchange for an equal and offsetting order; and (iii) price protection, which arise when market conditions cause average selling prices to decrease and we issue credit to certain distributors on their inventory. Ship and debit reserves are recorded as a reduction to net sales with a corresponding reduction to accounts receivable. Stock rotation reserves are recorded as a reduction to net sales. Price protection reserves are recorded as a reduction to net sales with a corresponding increase in accrued liabilities. We also assess our customer’s ability and intention to pay, which is based on a variety of factors including our customer’s historical payment experience, their financial condition and the condition of the global economy and financial markets. Payment terms and conditions typically vary depending on negotiations with the customer. Disaggregation of Revenue. We disaggregate revenue from contracts with customers into direct sales and distribution sales (“Distributors”) and by geographic area. Direct sales customers consist of those customers using our product in their manufacturing process, and Distributors are those customers who resell our products to third parties. We sell our products to customers in multiple areas of the world including Asia, Europe, and North America. Across these regions, we sell products to end users in a variety of markets such as consumer electronics, computing, communications, industrial and automotive. Further, most of our contracts are fixed-price arrangements, and are short term in nature, ranging from days to several months. The tables below set forth the amount of net sales by type, direct sales or Distributor and the location of the customer based on the location to where the products were shipped for the three months ended March 31, 2018 and 2017:
Net Sales for the Three Months Ended March 31,
Direct Sales
Distributor
2018
2017
2018
2017
China
$
49,325
$
53,334
$
98,866
$
76,192
U.S.
3,685
4,057
21,100
17,142
Korea
4,077
4,332
8,885
13,227
Germany
3,105
2,736
21,605
14,687
Singapore
288
114
15,830
10,728
Taiwan
856
2,813
19,193
13,334
All others (1)
15,320
14,729
12,377
8,878
Total
$
76,656
$
82,115
$
197,856
$
154,188
Percent of Net Sales by Type for the Three Months Ended March 31,
Direct Sales
Distributor
2018
2017
2018
2017
China
64
%
65
%
50
%
49
%
U.S.
5
%
5
%
11
%
11
%
Korea
5
%
5
%
4
%
9
%
Germany
4
%
3
%
11
%
10
%
Singapore
-
-
8
%
7
%
Taiwan
1
%
3
%
10
%
9
%
All others (1)
21
%
19
%
6
%
5
%
Total
100
%
100
%
100
%
100
%
Total Net Sales for the Three Months Ended March 31,
Dollar
Percent of Net Sales
2018
2017
2018
2017
China
$
148,191
$
129,526
54
%
55
%
U.S.
24,785
21,199
9
%
9
%
Korea
12,962
17,559
5
%
7
%
Germany
24,710
17,423
9
%
7
%
Singapore
16,118
10,842
6
%
5
%
Taiwan
20,049
16,147
7
%
7
%
All others (1)
27,697
23,607
10
%
10
%
Total
$
274,512
$
236,303
100
%
100
%
(1)
Represents countries with less than 3% of the total net sales each. Contract Balances. The timing of revenue recognition, billings, and cash collections can result in billed accounts receivable, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities) on the condensed consolidated balance sheets. However, billing generally occurs at or near the same time as revenue recognition, resulting in limited activity related to contract assets and liabilities. Contract asset and liability balances for the periods ended March 31, 2018, and December 31, 2017 were immaterial to our condensed consolidated financial statements. Other Practical Expedients Elected. The Company decided to make use of the following practical expedients available under ASC 606:
•
Sales tax excluded from the transaction price - The FASB decided to provide in ASU 2016-12 a practical expedient that permits entities to exclude from the transaction price all sales taxes that are assessed by a governmental authority and that are “imposed on and concurrent with a specific revenue-producing transaction and collected by the entity from a customer (for example, sales, use, value added, and some excise taxes);
•
Incremental contract costs - Expense the incremental costs of obtaining a contract when if occurred the amortization period of the asset
•
Portfolio approach - This guidance specifies the accounting for an individual contract with a customer. However, as a practical expedient, an entity may apply this guidance to a portfolio of contracts (or performance obligations) with similar characteristics if the entity reasonably expects that the effects on the financial statements of applying this guidance to the portfolio would not differ materially from applying this guidance to the individual contracts (or performance obligations) within that portfolio. |
