Summary Of Significant Accounting Policies (Policy) | 12 Months Ended |
Dec. 27, 2014 |
Summary Of Significant Accounting Policies [Abstract] | |
Description Of Business | Description of business. PMC-Sierra, Inc. (“PMC” or “the Company”) is a semiconductor and software solution innovator transforming networks that connect, move, and store Big Data. Building on a track record of technology leadership, the Company is driving innovation across storage, optical and mobile networks. PMC’s highly integrated solutions increase performance and enable next generation services to accelerate the network transformation. |
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Basis Of Presentation | 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 Company’s 2014, 2013 and 2012 fiscal years ended on the last Saturday of the calendar year and each consisted of 52 weeks. The Company’s reporting currency is the U.S. dollar and presented in thousands unless otherwise stated. The accompanying consolidated financial statements include the accounts of PMC-Sierra, Inc. and all of its subsidiaries. As at December 27, 2014 and December 28, 2013, all subsidiaries included in these consolidated financial statements were wholly owned by PMC. All inter-company accounts and transactions have been eliminated in consolidation. |
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Estimates | 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 acquisition consideration, the valuation of investments, allowance 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 Company’s senior convertible notes, accounting for employee benefit plans, and contingencies (See Note 10. Commitments and Contingencies). Actual results could differ materially from these estimates. |
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Cash and cash equivalents, short-term investments and long-term investment securities | 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 other comprehensive income and 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. |
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Allowance For Doubtful Accounts | Allowance for Doubtful Accounts. The allowance for doubtful accounts is based on the Company’s 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 customer’s ability to pay. In cases where we are aware of circumstances that may impair a specific customer’s 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. |
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Inventories | Inventories. Inventories are stated at the lower of cost (first-in, first out) or market (estimated net realizable value) and consist of work-in-progress and finished goods. Inventory costs are determined using standard cost, which approximates actual costs under the weighted average cost method. 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. |
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Property And Equipment, Net | 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. |
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Goodwill and Intangible assets | Goodwill and Intangible assets. Goodwill and indefinite-life intangible assets are 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. To evaluate the recoverability of goodwill, the Company first assesses qualitative factors to determine whether the existence of events or circumstances exist, such as an adverse change in business climate or a decline in the overall industry that would indicate that it would more likely than not reduce the fair value of a reporting unit below its carrying amount, including goodwill. If the Company determines that it is not more likely than not that the fair value of any of its reporting units is less than its carrying amount, no further assessment is performed. If the Company determines that it is more likely than not that the fair value of any of its reporting units is less than its carrying amount, a quantitative assessment will be performed which 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 recognized over the estimated useful lives of 3 years. |
Significant management judgment is required in the forecasts of future operating results and discount rates used in the discounted cash flow method of valuation. It is possible, however, that the plans may change and estimates used may prove to be inaccurate. If our actual results, or the plans and estimates used in future impairment analyses, are lower than the original estimates used to assess the recoverability of these assets, we could incur additional impairment charges. |
Changes in the estimated fair values of intangible assets in the future could result in significant impairment charges or changes to our expected amortization. |
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Impairment Of Long-Lived Assets | 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 17. Impairment of Goodwill and Long-Lived Assets for discussion of the 2012 asset impairment relating to goodwill and purchased intangible assets. |
During 2014, 2013 and 2012, the Company recognized other long-lived asset impairments totaling $0.8 million, $3.0 million and $1.8 million, respectively, related to certain design tools, property and equipment, and intellectual property that were no longer expected to be utilized. These impairment charges were included in the Consolidated Statements of Operations in Research and development expense, net in the respective periods. |
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Foreign Currency Remeasurement | Foreign currency remeasurement. For all foreign operations, the U.S. dollar is the functional currency. Monetary assets and liabilities in foreign currencies are remeasured into U.S. dollars using the exchange rate as of the balance sheet date. Revenues and expenses are remeasured at average rates of exchange during the year. Remeasurement gains/losses are recorded in income (loss) from operations. 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. |
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Derivatives And Hedging Activities | Derivatives and Hedging Activities. Fluctuating foreign exchange rates may significantly impact PMC’s net income (loss) and cash flows. The Company periodically hedges forecasted foreign currency transactions related to certain operating expenses. All derivatives are recorded in the consolidated 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 income (loss). 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 (loss) and are recognized in net income (loss) when the hedged item affects net income (loss). 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 income (loss). During the years ended December 27, 2014, December 28, 2013 and December 29, 2012, all hedges were designated as cash flow hedges. |
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Fair Value Of Financial Instruments | 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. 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 Company’s 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. 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. |
The carrying values of cash, accounts receivable, accounts payable and credit facility approximate fair value because of their short term nature. |
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 27, 2014, the use of derivative financial instruments was not material to the Company’s results of operations or financial position (see Note 3. Derivative Instruments). |
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Concentrations Of Risk | 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 27, 2014, the Company had one distributor that accounted for 15% of accounts receivables, and two other customers that accounted for 11% and 10% of accounts receivables, respectively. At December 28, 2013, the Company had one distributor that accounted for 10% of accounts receivables, and two other customers that each accounted for 19% and 8% 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 Company’s credit evaluation process, relatively short collection periods and the geographical dispersion of the Company’s 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 2014 and 2013, there were three outside wafer foundries that supplied approximately 98% of the Company’s semiconductor wafer requirements. |
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Revenue Recognition | 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 the gross amount of 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 Company’s 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. |
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Cost Of Revenues | 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. |
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Research And Development Expenses | Research and development expenses, net. The Company expenses research and development (“R&D”) costs as incurred, net of non-recurring engineering income of $7.2 million (2013 - $1.9 million, 2012 - $3.9 million). 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 27, 2014, December 28, 2013, and December 29, 2012, research and development expenses were $198.9 million, $211.0 million, and $220.9 million, respectively. |
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Product Warranties | 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 (see Note 6. Supplemental Financial Information). |
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Other Indemnifications | 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. |
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Stock-based compensation | 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. |
Calculating the fair value of stock-based compensation awards requires the input of highly subjective assumptions, including the expected life of the awards and expected volatility of our stock price. Expected volatility is a statistical measure of the amount by which a stock price is expected to fluctuate during a period. Our estimates of expected volatilities are based on a weighted historical and market-based implied volatility. In order to determine the expected life of the awards, we use historical data to estimate option exercises and employee terminations; separate groups of employees that have similar historical exercise behavior, such as directors or executives, are considered separately for valuation purposes. The expected forfeiture rate applied in calculating stock-based compensation cost is estimated using historical data and is updated annually. |
The assumptions used in calculating the fair value of stock-based awards involve estimates that require management judgment. If factors change and we use different assumptions, our stock-based compensation expense could change significantly in the future. In addition, if our actual forfeiture rate is different from our estimate, our stock-based compensation expense could change significantly in the future. |
During 2014, the Company recognized $23.2 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). |
Restricted Stock Units (“RSUs”). RSUs are stock awards that are granted to employees entitling the holder to shares of the Company’s common stock as the award vests. RSUs are measured at fair value based on the number of shares granted and the quoted price of our common stock at the date of grant. We amortize the fair value of RSUs over the vesting term of generally four years on a straight-line basis. Performance-based RSUs vest upon achievement of certain company-based performance conditions and a requisite service period. We then assess whether it is probable that the performance targets would be achieved. If assessed as probable, compensation expense is recorded for these awards over the estimated performance period. At each reporting period, we reassess the probability of achieving the performance targets and the performance period required to meet those targets. The estimation of whether the performance targets will be achieved and/or the performance period required to achieve the targets requires judgment, and to the extent actual results or updated estimates differ from our current estimates, the cumulative effect on the current and prior periods of those changes is recorded in the period estimates are revised. The ultimate number of shares issued and the related compensation expense recognized is based on a comparison of the final performance metrics to the specific targets. |
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Income Taxes | Income taxes. Income taxes are reported under GAAP and, accordingly, deferred income taxes are recognized using the 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 against the carrying amount of deferred tax assets 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 14. Income Taxes). |
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Business Combinations | 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 asset’s estimated useful life. Acquisition-related expenses and restructuring costs are recognized separately from the business combination and are expensed as incurred (see Note 2. Business Combinations). |
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Net (Loss) Income Per Common Share | Net income (loss) per common share. Basic net income (loss) 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 (loss) 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 Company’s senior convertible notes (see Note 16. Net Income (Loss) Per Share). |
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Segment Reporting | |
Segment reporting. The Company has one reportable segment—semiconductor solutions for communications network infrastructure, comprised of the following operating segments: Communications Products, Enterprise Storage Products, Microprocessor Products, and Broadband Wireless Products. The aggregation of operating segments into one reportable segment requires management to evaluate, among other criteria, whether there are similar expected long-term economic characteristics for each operating segment and is an area of significant judgment. If the expected long-term economic characteristics were to become dissimilar, then we could be required to re-evaluate the number of reportable segments (see Note 15. Segment Information). |
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Recently Adopted Accounting Pronouncements | Recently Adopted Accounting Pronouncements |
During the first quarter of 2014, the Company adopted Financial Accountings Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carry-forward, a Similar Tax Loss, or Tax Credit Carryforward Exists.” The new guidance requires entities to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, as a reduction to a deferred tax asset for a net operating loss carry-forward, a similar tax loss, or a tax credit carry-forward. Accordingly, we adopted these presentation requirements on a prospective basis at the beginning of our first quarter of 2014. Upon adoption, $44 million of deferred tax assets of a foreign subsidiary were netted against the related liability for unrecognized tax benefits on our Condensed Consolidated Balance Sheet. The netting of deferred tax assets and liabilities with unrecognized tax benefits had no impact on the Company’s Condensed Consolidated Statements of Operations. |
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New Accounting Pronouncements Not Yet Adopted | New Accounting Pronouncements Not Yet Adopted |
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, or ASU 2014-09, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for annual periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. The standard allows for either full retrospective or modified retrospective adoption method. We are currently evaluating the effect that ASU 2014-09 will have on our consolidated financial statements and related disclosures. We have not yet selected a transition method nor have we determined the effect of the standard on our ongoing financial reporting. |
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