10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

x   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 28, 2014

o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________ to ______________

Commission File Number 0-27026

Pericom Semiconductor Corporation

(Exact Name of Registrant as Specified in Its Charter)

California (State or Other Jurisdiction of Incorporation or Organization)	77-0254621 (I.R.S. Employer Identification No.)
1545 Barber Lane Milpitas, California 95035 (Address of Principal Executive Offices)	95035 (Zip Code)

 

Registrant’s Telephone Number, Including Area Code: (408) 232-9100

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Exchange on Which Registered
Common Stock	The NASDAQ Stock Market LLC
Preferred Share Purchase Rights	The NASDAQ Stock Market LLC

 

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o  No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o  No x

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

Indicate by check mark if disclosures of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K x

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one):

Large Accelerated Filer o Accelerated Filer x Non Accelerated Filer o Smaller Reporting Company o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No x

The aggregate market value of voting stock held by non-affiliates of the Registrant, based on the closing price of the Common Stock on December 31, 2013 as reported by the NASDAQ Stock Market was approximately $177,118,000. Shares of common stock held by each officer and director have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

As of August 26, 2014 the Registrant had outstanding 21,946,000 shares of Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

Parts of the Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held December 4, 2014, which will be filed subsequently, are incorporated by reference in Part III of this report on Form 10-K.

PERICOM SEMICONDUCTOR CORPORATION

Form 10-K for the Year Ended June 28, 2014

INDEX

		PAGE
PART I
Item 1:	Business		1
Item 1A:	Risk Factors		14
Item 1B:	Unresolved Staff Comments		25
Item 2:	Properties		25
Item 3:	Legal Proceedings		25
Item 4:	Mine Safety Disclosures		25
PART II
Item 5:	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		26
Item 6:	Selected Financial Data		29
Item 7:	Management’s Discussion and Analysis of Financial Condition and Results of Operations		30
Item 7A:	Quantitative and Qualitative Disclosures about Market Risk		42
Item 8:	Financial Statements and Supplementary Data		43
Item 9:	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		44
Item 9A:	Controls and Procedures		44
Item 9B:	Other Information		44
PART III
Item 10:	Directors, Executive Officers and Corporate Governance		46
Item 11:	Executive Compensation		46
Item 12:	Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters		46
Item 13:	Certain Relationships and Related Transactions, and Director Independence		46
Item 14:	Principal Accountant Fees and Services		46
PART IV
Item 15:	Exhibits and Financial Statement Schedules		47
	Signatures		81

 

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PART I

EXPLANATORY NOTE

As used in this Form 10-K, the term “fiscal 2014” refers to our fiscal year ended June 28, 2014, the term “fiscal 2013” refers to our fiscal year ended June 29, 2013, and the term “fiscal 2012” refers to our fiscal year ended June 30, 2012.

ITEM 1. BUSINESS

Pericom Semiconductor Corporation (the “Company” or “Pericom” or “we”, “us” or “our”) was incorporated in June 1990 in the state of California. We design, develop and market high-performance integrated circuits (“ICs”) and frequency control products (“FCPs”) used in many of today’s advanced electronic systems. Our IC products include functions that support the connectivity, timing and signal conditioning of high-speed parallel and serial protocols that transfer data among a system’s microprocessor, memory and various peripherals, such as displays and monitors, and between interconnected systems. Our FCPs are electronic components that provide frequency references such as crystals and oscillators for computer, communication and consumer electronic products. Our analog, digital and mixed-signal ICs, together with our FCP products enable higher system bandwidth and signal quality, resulting in better operating reliability, signal integrity, and lower overall system cost in applications such as notebook computers, servers, network switches and routers, storage area networks, digital TVs, cell phones, GPS and digital media players.

We have one reportable segment, the interconnectivity device supply market. Additional segment reporting information is included in Note 19 of Notes to Consolidated Financial Statements in this report.

INDUSTRY BACKGROUND — OVERVIEW

Electronic systems and subsystems create the fabric that increasingly supports everyday modern life as evidenced by the continued growth of the computer, mobile communications, networking and consumer electronics markets. Systems characterized by ever-improving performance, flexibility, reliability and multi-functionality, as well as decreasing size, weight and power consumption have driven the growth of these markets. IC advancements through improvements in semiconductor technology have contributed significantly to the increased performance of, and demand for, electronic systems and to the increasing proportion of IC cost as a portion of overall system cost. This technological progress occurs at an accelerated pace, while at the same time, the cost of electronic systems continues to decline.

Development of high-performance computer requirements for higher network performance and increased levels of connectivity among different types of electronic devices drive the demand for new and varying types of high-speed, high-performance signal conditioning, connectivity and timing products to handle the conditioning, routing, bridging and timing of digital and analog signals at high speeds with minimal loss of signal quality. High-speed signal transfer is essential to maximize the speed and bandwidth of the microprocessor, the memory and the local or wide area network. High signal quality is equally essential for optimal balance between high data transmission rates and reliable system operation. Without high signal quality, transmission errors occur, resulting in retransmissions and hence lower throughput and system reliability, as bandwidth increases. The same market pressures imposed on microprocessors also drive the market requirements for connectivity and timing products, and include higher speed, reduced power consumption, lower voltage operation, smaller size and higher levels of integration.

Our FCPs are devices incorporating quartz crystal resonators. Quartz crystals have the physical property such that, when stimulated electrically, they resonate at a precise and consistent frequency. A crystal oscillator, combining a quartz crystal and a simple electronic circuit, also generates a signal at a precise and consistent frequency. All types of crystal oscillators are clocks in the sense that they provide a frequency reference for various electronic systems.

The continuing increase in electronic sophistication, as well as the penetration and proliferation of electronic products into new applications, puts new demands on frequency control devices. This creates both technological

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challenges and new business opportunities for products offering faster speeds, tighter frequency tolerance, higher stability relative to temperature, smaller surface-mountable packaging and lower unit cost.

Connectivity, switching, and timing products are used to enable higher system bandwidth in applications such as notebook computers, servers, network switches and routers, storage area networks, wireless base-stations, cell phones and digital TVs. We pioneer technology in each of these areas as demonstrated in the development and implementation of our wide variety of serial protocol product families. An example is our Peripheral Component Interconnect (“PCI”) Express technology across our interface, switching, bridging and timing product areas. PCI Express is a relatively new industry-standard serial protocol developed to offer higher bandwidth to and from the CPU chipset and peripherals like Ethernet, Universal Serial Bus (“USB”), video, and other types of connectivity devices. Almost every market segment and end product application is adopting PCI Express as the new serial high-speed signal path. As a serial protocol, PCI Express can offer many times the bandwidth of PCI, the industry-standard parallel protocol that preceded PCI Express. PCI Express allows cost-effective means to send high-speed signals across longer distances.

However, this expanded bandwidth comes at a price: signal quality and integrity becomes difficult to maintain as data rates routinely exceed multi-gigabits per second. The problems associated with signal quality that must be addressed by the connectivity IC’s are magnified by increased speed at which these products must transfer, route and time electrical signals. The performance challenges presented to today’s designers are significant: signals must transfer at high speed with low propagation delay, while signal degradation—such as ‘noise,’ ‘jitter,’ ‘skew,’ and electromagnetic interference (“EMI”)—must be minimal. In short, high-speed signal conditioning is essential for state-of-the-art electronic systems to function reliably and cost effectively. Our signal conditioning technology and resulting products address these critical issues, and support the major serial high-speed protocols including Gigabit Ethernet, PCI Express, High Definition Multimedia Interface (“HDMI”), USB, Serial Advanced Technology Architecture (“SATA”), serial attached SCSI (“SAS”) and DisplayPort (“DP”). SCSI stands for Small Computer System Interface, referred to and pronounced “skuzzy”. Pericom refers to its signal conditioning products as ‘ReDrivers^TM’.

High frequency and high data transfer rates are critical in the reliability of systems prevalent in the major market trends of today. Internet and high-performance network applications continue to push for more data bandwidth on system buses and across system boundaries. Computer and networking system clock frequencies continue to increase at a very rapid rate, shortening the time available to perform data transfers. While the data transfer rate has typically increased every few years, the continuing desire for higher system reliability with minimal system downtime creates increasing pressure to achieve lower data error rates. These factors all increase the need for high speed, high performance connectivity and switching products.

In server, networking and computing applications, we support higher system bandwidth with our PCI Express to PCI-X/PCI bridges, and PCI Express packet switches as well as PCI Express signal switching and re-driver products enabling optimum system partitioning and design flexibility. All major server original equipment manufacturers (“OEM”) have adopted PCI Express. PCI Express bridges and packet switches allow the transfer and switching of high speed data in and out of the CPU chipset to serial I/O ports such as Fiber Channel, Gigabit Ethernet and SAS.

In high-bandwidth systems, data transfer needs to be synchronized, creating a high demand for timing products. Our clocks and FCPs provide the precise timing signals needed to ensure reliable data transfer at high speeds in applications ranging from notebook computers to network switches. As systems continue to grow in processing power and complexity, the demand for these products will accelerate. The demand for higher precision will also continue to increase as timing margins shrink in higher bandwidth serial connectivity systems.

Our SATA switch and ReDriver products enable external SATA (“eSATA”) disk drive expansion and standard compliance. They are applicable to desktop and notebook PCs, set top boxes, portable media players and game consoles. We have expanded our SATA and SAS ReDriver product families to support the latest generation of SATA3 and SAS2 (6Gbps) and the newest SAS3 (12Gb) for computing and storage applications.

Our video switch products address the need for higher video resolution, enable the integration of horizontal and vertical synchronous signals as well as control signals, and accommodate switching of up to four video input streams with improved cross-talk, off-isolation and electrostatic discharge (“ESD”) protection features. These products

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address the HDMI, DP, and Digital Video Interface (“DVI”) switching, signal conditioning and voltage shifting requirements for PC video/graphics and LCD monitors, as well as digital television (“DTV”) and other digital video applications.

In fiscal 2012, we saw the widespread adoption of our standards-compliant USB3 5Gbps ReDriver by major computing customers, and we introduced switching and signal conditioning products supporting 10Gb Ethernet and Thunderbolt applications. In fiscal 2013, we introduced a new family of high performance signal integrity products (redrivers) supporting 8Gb PCI Express GEN3, 10Gb Ethernet, and 12Gb SAS3 (Serial Attached SCSI), which are being targeted for high speed storage applications. In addition, we launched a new family of USB3 redrivers in very small size packages targeting mobility products.

In fiscal 2014, we introduced a total of 70 new products across our timing, switching, connectivity, and signal integrity product families. These products are targeted to our focus market segments, such as mobility (tablet, smart phone and ultrabook) and cloud computing (server and storage). Many of these new products are specifically targeted to address the advancements of our customer platforms, such as lower power, faster speeds, and more highly integrated functionality. At the product level, we saw early adoption of our new SAS3 12Gb signal integrity products, HiFlex crystal oscillator (“XO”) and clock generators, video decoders, and PCI Express (“PCIe”) GEN2 packet switches.

OUR STRATEGY

As a supplier of high-performance IC and FCP products, we enable serial connectivity with solutions for the computing, communications and consumer market segments. Today’s markets feature ever-increasing speed-and-bandwidth-demanding applications. With our analog, digital and mixed-signal ICs, along with FCPs, our complete solutions support the timing, switching, bridging and conditioning of high-speed signals for the latest generation of products.

We define our products in collaboration with industry-leading OEMs and industry enablers and our modular design methodology shortens our time to market and time to volume production. The key elements of our strategy are:

Market Focus:

We are focused on high growth segments within the computer, communications and consumer markets which allow multi-product penetration opportunities that align well with our technology focus. These growth applications include servers, storage, enterprise networks, telecommunications and embedded applications (including automotive, video surveillance and medical). We will continue to support applications in other segments which include notebooks and PCs, tablets, digital video and television and mobile devices such as smart phones.

Using our development expertise, our understanding of our customers’ product evolution, and our rapid-cycle IC development, we continue to pursue new opportunities in existing and emerging markets to expand our market share as a solution provider.

Customer Focus:

Our customer strategy is to use a superior level of responsiveness and high quality proprietary solutions to support customer needs and sell a wider range of products to our existing customers, as well as targeted new customers. Key elements of our customer strategy include:

•   Penetrate target accounts through joint product development. We approach prospective customers primarily by working with their system design engineers at the product specification stage with the goal that one or more Pericom ICs or FCPs will be incorporated into a new system design. Our understanding of our customers’ requirements combined with our ability to develop and deliver reliable, high-performance products within our customers’ product introduction schedules has enabled us to establish strong relationships with many leading OEMs.

•   Solidify customer relationships through superior responsiveness. We believe that our customer service orientation is a significant competitive advantage. We seek to maintain short product lead times and provide our customers

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with excellent on-schedule delivery, in part by having available adequate finished goods inventory for anticipated customer demands. We emphasize product quality for our products and we have been ISO-9001 certified since 1995. We also endeavor to be a good corporate citizen, required by many customers, with solid environmental and other processes and we received our ISO 14001 Environmental Management System certification in 2004.

•   Expand customer relationships through broad-based solutions. We aim to grow our business with existing customers by offering product lines that provide increasingly extensive solutions for their high-speed interfacing needs. By providing our customers with superior support in existing programs and anticipating our customers’ needs in next-generation products, we have often been able to increase our overall volume of business with those customers substantially. With larger customers, we have also initiated electronic data interchange (“EDI”) and remote warehousing programs, annual purchase and supply programs, joint development projects and other services intended to enhance our position as a key vendor.

Technology Focus:

High bandwidth, high-speed serial protocols inherently present challenges in system design, such as error-free signal routing, end-point integrity and timing sensitivities. We focus on three main technology areas: serial high-speed protocol switching, advanced silicon and quartz based timing and signal conditioning solutions. These focus areas combine at the product level to provide a complementary and complete system level solution for high-speed serial protocol implementation.

Because of this focus, we provide a broad solution in high-speed analog switching technology. We possess a history of ‘industry first’ product introductions, such as our dual HDMI and PCI Express signal switching solutions and our serial signal conditioning technology. Focused product families include high-frequency Signal Switches, Packet Switches, Bridges, ReDrivers, Clock Generators/Buffers, Crystals and Oscillators.

Today, our technology encompasses all major serial high-speed protocols including PCI Express, USB, HDMI/DVI, Display Port, SAS/SATA, 10-Gigabit Attachment Unit Interface (“XAUI”) and Ethernet.

Our primary efforts are in the creation of additional proprietary digital, analog and mixed-signal functionality. We work closely with our wafer suppliers to incorporate their advanced complementary metal oxide semiconductor (“CMOS”) process technologies to improve our ability to introduce next generation products expeditiously. We continue to expand our patent portfolio with the goal of providing increasingly proprietary product lines.

For FCPs, our strategy is to further our position in high-frequency, superior-performance, low-jitter timing products by combining our crystal and silicon design capabilities. In addition, we address the growing needs of very small size surface mount crystals and crystal oscillators for the growing wireless and other portable consumer markets. By leveraging internal proprietary IC designs in digital, analog and mixed-signal functionality, we add specialized features and optimize costs to provide advanced timing solutions for our target market segments. Working closely with historical manufacturing partners while developing new ones, we will continue to advance proprietary process techniques and capabilities required to complement new technology products.

Manufacturing Focus:

We closely integrate our manufacturing strategy with our focus on customer needs. Central to this strategy is our ability to support high-volume shipment requirements at a low cost. We design products so that we may manufacture many different ICs from a single partially processed wafer. Accordingly, we keep inventory in the form of a wafer bank, from which wafers can be completed to produce a variety of specific ICs in as little as five weeks. This approach has enabled us to reduce our overall work-in-process inventory while providing increased availability to produce a variety of finished products. In addition, we keep some inventory in the form of die bank, which can become finished product in three weeks or less. We have established relationships with four leading foundries, Magnachip Semiconductor, Ltd. (“Magnachip”), GlobalFoundries Inc. (“GlobalFoundries”), Taiwan Semiconductor Manufacturing Company Limited (“TSMC”), and Semiconductor Manufacturing International Corporation (“SMIC”), as well as several other suppliers. We rely on foreign subcontractors for the assembly, testing and packaging of our finished products. Some of these subcontractors are a single source supplier for certain packages.

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For FCPs, our vertically integrated Asian design and manufacturing subsidiaries, PSE Technology Corporation (“PSE-TW”) and PSE Technology (Shandong) Corporation (“PSE-SD”) provide a significant competitive advantage through highly efficient design and volume crystal manufacturing processes, in combination with strict quality standards and low-cost labor. We maintain high quality standards and all our subcontractors’ plants are ISO 9000 certified. We operate our own FCP factories, located in Chungli (Taiwan) and Jinan, in the Shandong Province of the People’s Republic of China (“PRC”).

Strategic and Collaborative Relationships Focus:

We pursue a strategy of entering into new relationships and expanding existing relationships with companies that engage in the product design, manufacturing and marketing of ICs and frequency control products. We have an active internal program focused on reference designs with key IC suppliers in the Pericom target market segments and partner programs, which can strengthen and leverage our marketing and sales presence worldwide. We believe that these relationships enable us to access additional design and application expertise, accelerate product introductions, reduce costs and obtain additional needed capacity. Our established collaborative relationships with leading wafer manufacturers allow us to access high performance digital and analog core libraries for use in our future products.

OUR PRODUCTS

We use our expertise in high-performance digital, analog, mixed-signal silicon-based IC and quartz-based FCP designs, our reusable core cell library and our modular design methodology to achieve a rapid rate of new product introductions. Within each of our IC product families, the product portfolio has evolved from a standard building block into both standard products of increasing performance and application-specific standard products (“ASSP”), which are tailored to meet a specific high volume application. Within each product family, we continue to address the common trends of decreasing supply voltage, higher integration and faster speeds. Within our quartz based FCP product families, including crystal, crystal oscillator (“XO”), voltage controlled crystal oscillator (“VCXO”), temperature compensated crystal oscillator (“TCXO”) and voltage controlled, temperature compensated crystal oscillator (“VCTCXO”) we have evolved our technologies to include specialized XO and hybrid capabilities.

In fiscal 2014, IC product revenues, which includes $13.5 million of revenues from Pericom Technology Inc. (“PTI”) products, were $78.3 million or 61.1% of the $128.1 million in total revenues, with the balance of $49.8 million attributable to FCP product revenues. In fiscal 2013, IC product revenues, which includes $14.4 million of revenues from PTI products, were $77.2 million or 59.7% of the $129.3 million in total revenues, with the balance of $52.1 million attributable to FCP product revenues. In fiscal 2012, IC product revenues, which includes $13.3 million of revenues from PTI products, were $85.4 million or 62.3% of the $137.1 million in total revenues, with the balance of $51.7 million attributable to FCP product revenues.

IC PRODUCTS

Pericom has four main IC product categories: Connectivity, Switching, Timing, and Signal Integrity. The following summarizes the various product families in each of these categories.

1. SiliconConnect^TM Family:

Our SiliconConnect family offers the highest level of complexity and integration among our products. It consists of our PCI and PCI-X Bridges and our PCI Express Bridges and Packet Switches, our recently-introduced video decoder family, and our PCI Express Serial Bridges.

PCI/PCI-X:

With a comprehensive product portfolio based on performance and value, this legacy product family consists of both existing and new applications across multiple market segments. Manufacturers continue to use PCI and PCI-X for legacy designs, especially in long-term higher-end platforms, such as networking, storage, high-end server and embedded systems used in military, industrial and computing applications, and PC based video surveillance products. In fiscal 2012, we saw our legacy PCI and PCI-X products begin to transition to PCI Express, especially

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in PC-based video surveillance applications and the embedded market segment, where legacy CPU-based systems are being replaced by PCI Express-based CPU systems. In fiscal 2013, we continued to support legacy PCI and PCI-X platforms in our customer base, although the shift to PCI Express continued. In fiscal 2014, we saw the continued gradual decline of PCI to PCI bridges in favor of PCIe to PCI bridges and PCIe packet switch functionality.

PCI Express:

PCI Express (“PCIe”) is the next generation replacement for PCI. PCIe is a serial, high-speed technology, which offers many advantages over the parallel bus based PCI technology. All market segment applications have adopted or are in the process of adopting PCIe, and our PCIe products actively target all major PCIe based applications, including mainstream and industrial PCs, PC peripherals, embedded systems, high-end multifunction printers, video security monitoring, redundant arrays of independent disks (“RAID”) and Fiber Channel cards in the Storage Area Network space, Multi-channel Ethernet Network Interface Controllers (“Ethernet NICs”), and routers and switches. In fiscal 2012, we expanded our PCIe 3.0 switch, clock generator, and buffer product families to support the newest PCIe speed generation. We also continued to expand our PCIe Express 1.0 serial bridge family to support non-Microsoft based operating systems, as well as expanding our PCIe to PCI bridge family to support ‘legacy PCI’ port applications, mainly in the computing and embedded segments. In fiscal 2013, we expanded our ‘serial bridge’ concept by introducing a family of PCIe to video decoders, targeting the surveillance market segment. These highly integrated products process video camera surveillance data. In fiscal 2014, we continued to expand our serial bridge families with Inter-Integrated Circuit (“I2C”) and Serial Peripheral Interface (“SPI”) to Universal Asynchronous Receiver/Transmitter (“UART”), and PCIe to local bus, targeted mainly to industrial and embedded applications. In addition, we also continued to expand our PCIe GEN2 Packet Switch family, meeting growing demand in networking, computing, and embedded applications.

2. SiliconSwitch^TM Family

Our SiliconSwitch product family offers a broad range of high-performance ICs for switching digital and analog signals. The ability to switch or route high-speed digital or analog signals with minimal delay and signal distortion is a critical requirement in many high-speed computers, networking and multi-media applications. Historically, systems designers have used mechanical relays and solid-state relays, which have significant disadvantages compared to IC switches. Mechanical relays are bulky, dissipate significant power and have very low response times, while solid-state relays are expensive.

ASSP Switch:

We offer a line of ASSP switches for local area networks (“LAN”), Analog Video, Digital Video such as DVI/HDMI, PCI Express and USB applications. The LAN switches address the high-performance demands of 10/100/1000 Ethernet LANs. The video switches address the high bandwidth that enables the switching between different video sources associated with video graphic cards and flat panel displays. Some of our newest video switches address the HDMI^TM Rev. 1.3 standard. We are also marketing our PCI Express signal switches with GEN1 (2.5Gbps) and GEN2 (5.0Gbps) speeds for desktop PC, gaming stations, servers and storage applications. We continue to expand our innovations in this area to address next generation networking, computing and media platforms. In fiscal 2012, we expanded our PCIe 3.0 switch family, and added to our Thunderbolt 10Gb switch family as well. In fiscal 2013, we introduced a new family of high speed switches spanning up to 10Gb switching speed. In fiscal 2014, we expanded our ASSP switch family with USB3 switches for computing and server applications.

Analog Switches:

We offer a family of analog switches for low-voltage (1.8-volt to 7-volt) applications such as multimedia audio and video signal switching with enhanced characteristics such as low power, high bandwidth, low crosstalk and low distortion to maintain analog signal integrity. Our analog switches have significantly lower distortion than traditional analog switches due to our advanced CMOS switch design. To support space-constrained applications, such as wireless handsets and global positioning system receivers, we offer 3-volt low resistance 0.4-ohm switches.

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To complement this low-voltage family we also offer higher voltage (17-volt) analog switches for applications requiring higher signal range, such as instrumentation, telecommunications and industrial controls.

Microprocessor Supervisor Family:

The fundamental application of a Microprocessor Supervisory (“MPS”) circuit is to keep the microprocessor of a system under control. A system with good microprocessor (“uP”) supervisory circuitry can greatly enhance the quality and reliability of the product. We focus on IC-designed uP supervisory products for the market. Currently we provide a broad series of MPS for engineers to select for many kinds of applications including telecom, networking, hand-held devices and television.

We also provide high accuracy voltage supervisors with watchdog power-up reset and manual reset serial functions to improve system reliability.

Home Appliance Controller:

We offer highly integrated mixed-signal IC products for small home appliance applications, such as single-chip temperature controller IC products for hair curlers, toaster ovens and smart electronic irons. We also offer IC products for shaver power switches and smart battery charger applications. We provide our customers with very cost effective total solutions utilizing leading-edge semiconductor products. Through joint efforts with our global customers, our home appliance IC products pass stringent regulatory standards, such as Underwriters Laboratories (“UL”), Electrical Fast Transient (“EFT”), and Conformite-Europeenne (“CE”).

Power Management:

We offer a series of power management products, including power switches, load switches, and low dropout (“LDO”) regulators. The load switches are the latest power management family, aimed at battery powered mobility products and providing controlled turn-on characteristics to manage battery load. Power switches integrate a current-limiting circuit to protect the input power supply from falling out of regulation against large currents. Power switches are designed for turning power on/off and providing fault protection. When the output loading exceeds the current-limit threshold or a short-circuit situation is present, the devices limit the output current by switching into a constant-current mode. When switched, power dissipation increases and causes the junction temperature to rise, whereupon a thermal protection circuit turns off the switch to prevent damage. Recovery from a thermal shutdown occurs automatically once the device has cooled sufficiently.

We offer a series of LDO regulators, including a low dropout voltage linear regulator featuring low noise, high ripple rejection and low current consumption specifications. We provide many extremely small packages, such as 1mm by 1mm size LDO regulators to fulfill ultra-mobility applications. We also provide a multi-output power supply in one package to save printed circuit board (“PCB”) space and reduce the bill of materials cost.

3. Signal Integrity Products (ReDriver/Repeaters):

As high speed serial signals continue to increase in data rates, systems designers are increasingly confronted with challenges associated with maintaining clean eye-pattern signal integrity at the receiver end points. The signal attenuation loss increases is almost exponential as trace lengths increase in a signal path using high-speed differential signaling. In addition, as CPU chipsets continue to shrink to reduce power consumption, their capability to drive high speed signals decreases. Our ReDriver family of products boost signals back to required levels by combining programmable equalization and de-emphasis techniques at the transmit and receive points, respectively, on a signal path to ensure good signal integrity at the end points.

Through this line of products, we offer a broad range of ReDrivers to manage standard protocols such as PCIe, SATA, SAS, USB3 and XAUI for applications including servers, storage, networking, notebook, tablet and docking stations. Systems designers benefit from our ReDriver products in another way: they can now use our ReDrivers with inexpensive cables, such as CAT6 or flexible ribbon cables instead of using very expensive passive cables to achieve good signal integrity at the end of the trace. In fiscal 2012, we received industry standard (USB-IF) compliance testing approval, resulting in widespread adoption of our USB3 redriver products in the latest generation

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of computing products. We also introduced our 10Gbps Redriver to support mainly 10Gb Ethernet applications, and we further expanded our SATA3 and SAS2 ReDriver families to support low power portable products, such as notebook and tablet computers. In fiscal 2013, we introduced a family of ReDrivers covering the new SAS3 12Gb data rate as part of a new design generation with higher performance for storage and data center applications. In fiscal 2014, we launched video protocol ReDrivers for HDMI and Display Port, as well as new generations of USB3 ReDrivers addressing low voltage mobility applications.

4. Timing Products — Quartz, FCP and SiliconClock^TM Families

In high-bandwidth systems, data transfer must be synchronized and this creates a demand for timing products. Our timing products provide the precise timing signals needed to ensure reliable data transfer at high speeds in applications ranging from servers to network switches to televisions. As systems continue to grow in processing power and complexity, we expect the demand for these products to accelerate. The requirement for precision will also increase as timing margins shrink in higher-bandwidth systems.

Our timing product line provides a broad range of general-purpose solutions including clock generators, clock fanout buffers/converters, and zero delay buffers to meet customers’ needs for their timing trees. In fiscal 2012, we developed high performance differential clock buffers with ultra-low jitter mainly for the next generation networking, cloud computing infrastructure and systems. These new products offer multiple frequency outputs and are designed to meet the extremely low jitter requirements of the newest high speed PCI Express GEN3, SAS2, 10Gb Ethernet, and other high speed protocols. Many of these new products were also introduced in smaller package sizes and reduced power requirements to help enable Energy Star ratings for end customer platforms. In fiscal 2013, we introduced TCXO, VCXO, and VCTCXO crystal oscillator families for mobility, networking and embedded market segments. In fiscal 2014, we continued to expand our Silicon Clock product lines with high performance clock buffers for specific applications and introduced new Real Time Clock products for mobility applications.

HiFlex^TM Clock Family:

This clock generator family includes high frequency and low jitter clock signals generated from fundamental crystals to provide high performance and flexible timing solutions to networking and storage systems. Performance of less than one picosecond of jitter makes these products ideal for replacing multiple XO buffer generators in a system and provides additional cost savings to our customers. In fiscal 2012, our HiFlex clock family began being adopted by major networking customers worldwide. In fiscal 2013, we launched our next generation HiFlex clock generator family with even higher performance and a broader selection of frequency options to target more applications. In fiscal 2014, we continued to expand our HiFlex multiple output XO and clock families aimed mainly at networking and cloud computing applications.

Clock Buffers and Zero-Delay Clock Drivers:

Clock buffers receive a clock signal from a frequency source and create multiple copies of the same frequency for distribution across system boards. We offer 1.2-volt (1.2V), 1.5V, 1.8V, 2.5V, 3.3V and 5V clock buffers for high-speed, low-skew applications in computers and networking equipment. We offer options for integrated crystal oscillators and provide a flexible selection of output levels for interfacing to various system components. For systems that require higher performance, we have differential clock buffers with frequencies up to 800MHz. Zero-delay clocks virtually eliminate propagation delays by synchronizing the clock outputs with the incoming frequency source. Our 3.3V, 2.5V and 1.8V zero-delay clock drivers offer frequencies of up to 400MHz for applications in networking switches, routers and hubs, computer servers, and memory modules. Differential zero-delay clock buffers support GEN2 PCIe as well as fully buffered dual in-line memory modules (“DIMM”). Zero-delay buffers support the 2nd generation double date rate (“DDR II”) memory technologies available today. In fiscal 2012, we developed high performance differential clock buffers with ultra-low jitter for the next generation networking, cloud computing infrastructure and systems. In fiscal 2013, we continued to expand the high performance clock buffer family targeting a broader range of applications such as wired and wireless networking and enterprise and cloud computing. In fiscal 2014, we launched a number of advanced multiple output clock buffers for next generation networking and computing platforms.

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Clock Generators:

Clock generators generate various output frequencies using a single input frequency source and provide critical timing signals to microprocessors, memory and peripheral functions. Our products support a wide range of microprocessor systems and their associated integrated chipsets for computing, communication and consumer applications. For computing applications, we provide PCIe clock synthesizers for server, notebook and desktop PC applications. For high-performance networking and storage applications, we have high-frequency clock synthesizers targeted up to 300MHz with very low jitter. For emerging networking and consumer platforms with PCIe interface, we provide PCIe GEN2 and GEN3 compliant clock generator/buffers. For consumer applications such as digital TV and digital set-top boxes, we have developed a line of high-performance audio and video clocks. For GPS applications, we have developed low power clock generators to supply a clock reference for processor, real-time clock and other peripheral interface circuits. We have also developed broad-spectrum clock generators used for reducing EMI in graphics and video applications.

Real Time Clock:

The fundamental application for a Real Time Clock (“RTC”) circuit is to provide calendar/clock and data storage functions, such as application-specific integrated circuits for various systems where the RTC is used as the clock signal source and parameter storage circuit. We provide high accuracy and low power consumption RTC products for many kinds of applications such as STB, DTV, power meters and hand-held devices.

Voltage Controlled Crystal Oscillator IC:

We offer a VCXO based jitter cleaner product to provide a very low jitter recovered clock signal in synchronous networking systems supporting SyncE function.

Programmable Skew Clocks:

In large computing and communications systems, customers need to provide precise timing across large PCBs. At the very high frequencies used today, these large PCB traces can result in significant timing delays and matching these delays (or timing skew) can be a significant challenge for the system designer. We have responded to this challenge with a family of programmable skew clock products.

FCP — Quartz based product families

FCPs include crystals that resonate at a precise frequency, and XOs, a circuit assembly comprising a crystal and accompanying electronic circuitry providing very stable output frequency. Crystals and XOs are essential components used in a wide variety of electronic devices. There are three general categories of oscillator products. Clock Oscillators are oscillators without temperature compensation and voltage tuning options used primarily in networking, telecommunication, wireless and computer/peripheral applications. VCXOs are frequency tunable crystal stabilized oscillators that are voltage controlled and generally operate below 1 GHz. Manufacturers use these oscillators primarily for synchronization in data networking and communications applications.

The ultra-miniature ceramic packaged crystal and clock oscillators are tailored for densely populated applications such as Wireless Local Area Networking (“WLAN”), mobile phones, portable multimedia players, personal data assistants (“PDA”s), GPS modules, networking equipment, and hard disk drives. The ultra-miniature package allows system designers to overcome the physical space constraint of integrating more features into portable applications. The set of available frequencies supports various industry standard protocols and applications.

The XP series of crystal clock oscillators is a proprietary technology that combines our silicon ICs with our quartz crystals to improve reliability and performance for high frequency 2.5V and 3.3V, low voltage complementary metal oxide semiconductor (“LVCMOS”) and low voltage positive emitter coupled logic (“LVPECL”) clock applications. The product family is drop-in compatible with existing Overtone XO, surface acoustic wave (“SAW”) and PLL-based oscillator solutions in 5x7mm and 3.2x5mm packages, yet aims to provide better cost performance benefits. These high frequency clock oscillators are used to provide a stable timing reference in various networking and storage serial connectivity platforms such as 1/10 Gigabit Ethernet, Fiber Channel, SATA, SAS, synchronous optical

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networking/synchronous digital hierarchy (“SONET/SDH”) and Passive Optical Network (“PON”). In fiscal 2012, we introduced our high performance programmable XO family with off the shelf delivery service. In fiscal 2013, we introduced a family of TCXO and VCTCXO products. These products are mainly aimed at storage, networking, data center, enterprise, and consumer market segments. In fiscal 2014, we introduced new families of HiFlex XO, and added to our popular HiFlex ASSP XO family targeting specific networking, storage, enterprise, and PCIe platforms.

OUR CUSTOMERS

The following is a list of some of our customers and end-users:

Notebook, Desktop and Servers	Telecommunications	Digital Media
Acer	Alcatel-Lucent	Amtran
Asustek	Avaya	Echostar
Dell	Cisco	Hikvision
Gigabyte	Dell	LGE
Google	Huawei	Pace
Hewlett-Packard	Huawei-3Com	Primary Technology
IBM	Motorola Solutions	Proview
Intel	Polycom	Toshiba
Lenovo	Tellabs
Micro Star	Zhongxing Telecom (ZTE)
Samsung
Wistron
Networking Equipment	Mobile Terminal	Contract Manufacturing
Alpha Networks	Even	Celestica
Askey	Garmin	Flextronics
Brocade Communications	Inventec Appliance	Foxconn
Cameo Communications	LG Electronics	Inventec
Cisco	Panasonic	Jabil
Delta Networks	Samsung	Sanmina-SCI
Freebox		Solectron
H3C
Huawei
Inspur
Juniper
Nokia-Siemens
TP-LINK
Peripherals	Storage
EFI	Brocade
Hewlett-Packard	Hitachi
Konica-Minolta	JMSH International Corp.
Lexmark	M&J Technologies
Xerox	USI
	Western Digital

 

Our customers include distributors, contract manufacturers and OEMs for computer, networking, telecommunications, embedded and consumer markets. Our direct sales include shipments to distributors, contract manufacturers, and OEMs. We consider our end-user customer to be the OEM producing the final electronics product for sale.

In fiscal 2014, direct sales to Avnet and Techmosa accounted for approximately 26% and 10% of net revenues, respectively, and direct sales to our top five direct customers accounted for approximately 47% of net revenues. One end-user customer accounted for greater than 10% of net revenues in the fiscal year ended June 28, 2014 and sales to the top five end-user customers totaled approximately 32% of net revenues. End-user customer revenues

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include both direct purchases and purchases through distributor or contract manufacturer channels. We rely on the end customer data provided by our direct distribution and contract manufacturing customers for end customer sales data.

In fiscal 2013, direct sales to Avnet and Techmosa accounted for approximately 21% and 12% of net revenues, respectively, and direct sales to our top five direct customers accounted for approximately 42% of net revenues. One end-user customer accounted for greater than 10% of net revenues in the fiscal year ended June 29, 2013 and sales to the top five end-user customers totaled approximately 29% of net revenues.

In fiscal 2012, direct sales to Avnet and Techmosa accounted for approximately 18% and 14% of net revenues, respectively, and direct sales to our top five direct customers accounted for approximately 47% of net revenues. No end-user customer accounted for greater than 10% of net revenues in the fiscal year ended June 30, 2012 and sales to the top five end-user customers totaled approximately 28% of net revenues.

We continue to expect a small number of customers to account for a large portion of our net revenues. See Item 1A “Risk Factors; Risks Related to our Business and Operating Results — The demand for our products depends on the growth of our end users’ markets” and “Risk Factors; Risks Related to our Business and Operating Results — A large portion of our revenues is derived from sales to a few key customers, and the loss of one or more of our key customers, or their key end user customers, could significantly reduce our revenues. In addition, our sales through distributors increases the complexity of our business.” of this Annual Report on Form 10-K.

DESIGN AND PROCESS TECHNOLOGY

Our design efforts focus on the development of high-performance digital, analog and mixed-signal ICs. To minimize design cycle times of high-performance products, we use a modular design methodology that has enabled us to produce many new products each year and to meet our customers’ need for fast time-to-market response. This methodology uses state-of-the-art computer-aided design software tools such as high-level description language (“HDL”), logic synthesis, full-chip mixed-signal simulation, and automated design layout and verification and uses our library of high-performance digital and analog core cells. We have developed this family of core cells over several years and it contains high-performance, specialized digital and analog functions not available in commercial application-specific integrated circuit (“ASIC”) libraries. Among these cells are our proprietary mixed-voltage input/output (“I/O”) cells, high-speed, low-noise I/O cells, analog and digital PLLs, charge pumps and data communication transceiver circuits using low voltage differential signaling. The United States Patent and Trademark Office has granted us 97 U.S. patents and we have nine U.S. patent applications pending. Another advantage of our modular design methodology is that it allows the application of final design options late in the wafer manufacturing process to determine a product’s specific function. This option gives us the ability to use pre-staged wafers, which significantly reduces the design and manufacturing cycle time and enables us to respond rapidly to a customer’s prototype needs and volume requirements.

We use advanced CMOS processes to achieve higher performance and lower die cost. Our process and device engineers work closely with our independent wafer foundry partners to develop and evaluate new process technologies. Our process engineers also work closely with circuit design engineers to improve the performance and reliability of our cell library. We currently manufacture a majority of our products using 0.8, 0.6, 0.5, 0.35, 0.25, 0.18 and 0.13u micron CMOS process technologies and are currently developing and beginning to ship new products using 0.09u (90 nanometer) technology. We are also using a high-voltage CMOS process developed by one of our wafer suppliers in the design of higher voltage switch products.

For FCPs, we have a well-established design focus, methodology and execution technique. We implement the majority of designs for oscillators and higher-functionality parts with CMOS process technologies. However, we also pursue designs incorporating Bipolar, BiCMOS and Silicon-Germanium (“SiGe”) technologies, as well as utilization of complex programmable logic device (“CPLD”) and field-programmable gate array (“FPGA”) components. Crystal components developed and marketed by all suppliers are similar. However, the operating behavior of the resonator and the specific techniques employed in their design, modeling, manufacturing & testing processes are highly specialized and distinctive. As such, manufacturing processes, equipment and test procedures can form an important part of the design activity. The outcome of the development becomes a permanent and proprietary part of the design specification.

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SALES AND MARKETING

We market and distribute our products through a worldwide network of independent sales representatives and distributors supported by our internal and field sales organization. Sales to domestic and international distributors represented 68% of our net revenues in fiscal 2014, 66% of our net revenues in fiscal 2013 and 67% of our net revenues in fiscal 2012. Our major distributors in North America and Europe include Avnet, Arrow Electronics, Future Electronics and Nu Horizons Electronics. Our major Asian distributors include AIT (Hong Kong), Avnet (Asia), Chinatronics (Hong Kong), Desner Electronics (Singapore), Internix (Japan), MCM (Japan), RTI Holdings (Hong Kong) and Techmosa (Taiwan).

We have two regional sales offices in the United States (New England and Texas), as well as international sales offices in Taiwan, Korea, Singapore, Hong Kong, Japan and the United Kingdom. International sales comprised approximately 95% of our net revenues in each of fiscal 2014, 2013 and 2012. For further information regarding our international and domestic revenues, see the discussion under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operation — Comparison of Fiscal 2014, 2013 and 2012— Net Revenues” in Item 7 of this Annual Report on this Form 10-K. We also support field sales design-in and training activities with application engineers. Marketing and product management personnel are located at our corporate headquarters in Milpitas, California and in Taiwan.

We focus our marketing efforts on market knowledge, product definition, new product introduction, product marketing and advertising. We use advertising both domestically and internationally to market our products independently and in cooperation with our distributors. Our product information is available on our website, which contains overview presentations, technical information on our products, and offers design modeling/applications support plus sample-request capabilities online. We also publish and circulate technical briefs relating to our products and their applications.

MANUFACTURING

We have adopted a fabrication foundry non-ownership (“fabless”) IC manufacturing strategy by subcontracting our wafer production to independent wafer foundries. We have established collaborative relationships with selected independent foundries with which we can develop a strategic relationship to the benefit of both parties. We believe that our fabless strategy enables us to introduce high performance products quickly at competitive cost. Currently, our principal manufacturing relationships have been with Magnachip, GlobalFoundries, TSMC and SMIC. We have an ongoing effort to qualify new foundry vendors that offer cost or other advantages.

We rely on foreign subcontractors for the assembly, testing and packaging of our finished products. Some of these subcontractors are a single source supplier for certain packages.

To enhance our manufacturing capability of FCPs, which are composed of crystals and oscillators housed in multiple sized surface mount ceramic packages, PSE-TW and PSE-SD have advanced, high volume production lines capable of manufacturing FCPs with tight specifications to competitively support the most popular high volume target industries including telecommunications, medical, computing and security as well as other commercial sectors. PSE-TW is ISO9001 certified and also has TS16949 certification, which allows us access to the automotive FCP market. To supplement our manufacturing capacity we are maintaining established relationships with our manufacturing partners and we have a plan already implemented for qualifying additional factories and creating new partners. New relationships and our expanded capacity are necessary to continue cost reduction, grow our revenue and maintain our competitive position in the FCP market. We have an operations team based in Asia that pursues lower cost packaging techniques and both monitors and modifies manufacturing processes to maximize yields and improve quality. After a manufacturing partner has been qualified through a stringent process, we maintain design and process controls that include using recurring factory audits and in some cases using onsite inspectors.

In order to complement our FCP manufacturing capabilities, we also have established relationships with selected companies for subcontracting some of the manufacturing. The primary ones are Yantai Dynamic in Yantai, China and Zhejiang East Crystal in Zhejiang, China. We have an ongoing effort to establish relationships and qualify additional factories to continue cost reduction and maintain our competitive position in the FCP market.

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COMPETITION

The IC semiconductor and FCP industry is intensely competitive. Significant competitive factors in the market for high-performance ICs and FCPs include the following:

•   product features and performance;

•   price;

•   product quality;

•   success in developing new products;

•   timing of new product introductions;

•   general market and economic conditions;

•   adequate wafer fabrication, assembly and test capacity and sources of raw materials;

•   efficiency of production; and

•   ability to protect intellectual property rights and proprietary information.

Our IC competitors include Analog Devices, Avago Technologies, Fairchild Semiconductor International, Hitachi, Integrated Device Technology, Inc., Maxim Integrated Products, Inc., On Semiconductor Corp., NXP, Parade Technologies, Silicon Laboratories, Inc., STMicroelectronics and Texas Instruments, Inc. Most of those competitors have substantially greater financial, technical, marketing, distribution and other resources, broader product lines and longer-standing customer relationships than we do. We also compete with other major or emerging companies that sell products to certain segments of our markets. Competitors with greater financial resources or broader product lines may have a greater ability to sustain price reductions in our primary markets in order to gain or maintain market share. We also face competition from the makers of ASICs and other system devices. These devices may include interface functions, which may eliminate the need or sharply reduce the demand for our products in particular applications.

Our FCP competitors include Vectron International, Inc., Connor Winfield Ltd., Ecliptek Corporation, Mtron PTI, Epson Toyocom Corporation, Kyocera Kinseki Corporation, Daishinku Corporation, Nihon Dempa Kogyo Company, Ltd, TXC Corporation, Siward Crystal Technology Co, Ltd, Taitien Electronics Co, Ltd and Hosonic Electronic Co, Ltd. A second group of competitors in China primarily pursues the lower end of the FCP market with limited technical content products. However, they do have some sales to our target customer base.

RESEARCH AND DEVELOPMENT

We believe that the continued timely development of new interface ICs and FCPs is essential to maintaining our competitive position. Accordingly, we have assembled a team of highly skilled engineers whose activities are focused on the development of signal transfer, routing and timing technologies and products. We have IC design centers located in Milpitas, California, Hong Kong, Shanghai, Yangzhou and Taiwan and we develop FCP products in Milpitas, California and Taiwan. Research and development expenses were $19.8 million in 2014, $21.0 million in 2013 and $21.7 million in fiscal 2012. Additionally, we actively seek cooperative product development relationships.

INTELLECTUAL PROPERTY

In the United States, we hold 97 patents covering certain aspects of our product designs, with various expiration dates through June 2032, and we have nine additional patent applications pending. We expect to continue to file patent applications where appropriate to protect our proprietary technologies; however, we believe that our continued success depends primarily on factors such as the technological skills and innovation of our personnel, rather than on our patents.

EMPLOYEES

As of June 28, 2014, we had 940 full-time employees, including 106 in sales, marketing and customer support, 526 in manufacturing, assembly and testing, 175 in research and development and 133 in finance and administration, including information systems and quality assurance. We have never had a work stoppage and no labor organization represents any of our employees. We consider our employee relations to be good.

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AVAILABLE INFORMATION

We file electronically with the Securities and Exchange Commission (“SEC”) our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. The SEC maintains an Internet site at http://www.sec.gov that contains these reports, proxy and information statements. We make available on our website at http://www.pericom.com, free of charge, copies of these reports as soon as reasonably practicable after filing or furnishing the information to the SEC. Any reports or financial information presented at our website are not to be considered part of this annual report filed on Form 10-K.

ITEM 1A. RISK FACTORS

In addition to other information contained in this Form 10-K, investors should carefully consider the following factors that could adversely affect our business, financial condition and operating results as well as adversely affect the value of an investment in our common stock. This Annual Report on Form 10-K includes “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. All statements other than statements of historical fact are “forward-looking statements” for purposes of these provisions, including any statements regarding: projections of revenues, research and development expenses, selling, general and administrative expenses, other expenses, gross profit, gross margin, order backlog or other financial items; the plans and objectives of management for future operations; the implementation of advanced process technologies; our tax rate; the adequacy of allowances for returns, price protection and other concessions; future demand for legacy products; proposed new products or services; the sufficiency of cash generated from operations and cash balances; our exposure to interest rate risk; future economic conditions or performance; plans to focus on cost control; plans to seek intellectual property protection for our technologies; expectations regarding export sales and net revenues; the expansion of sales efforts; acquisition prospects; the results of our possible future acquisitions; technological trends; and assumptions underlying any of the foregoing. In some cases, forward-looking statements can be identified by the use of terminology such as “may,” “will,” “expects,” “plans,” “anticipates,” “estimates,” “potential,” or “continue,” or the negative thereof or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained herein are reasonable, there can be no assurance that such expectations or any of the forward-looking statements will prove to be correct, and actual results could differ materially from those projected or assumed in the forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to risks and uncertainties, including but not limited to the factors set forth below and elsewhere in this report. All forward-looking statements and reasons why results may differ included in this Annual Report are made as of the date hereof, and we assume no obligation to update any such forward-looking statement or reason why actual results may differ.

RISKS RELATED TO OUR BUSINESS AND OPERATING RESULTS

In the past, our operating results have varied significantly and are likely to fluctuate in the future, making it difficult to predict our future operating results.

We continue to face a challenging business environment and limited visibility on end-market demands. Wide varieties of factors affect our operating results, many of which are beyond our control. These factors and risks include, but are not limited to, the following:

•   changes in the quantity of our products sold;

•   changes in the average selling price of our products;

•   general conditions in the semiconductor industry;

•   changes in our product mix;

•   a change in the gross margins of our products;

•   the operating results of the FCP product line, which normally has a lower profit margin than IC products;

•   expenses incurred in obtaining, enforcing, and defending intellectual property rights;

•   the timing of new product introductions and announcements by us and by our competitors;

•   customer acceptance of new products introduced by us;

•   delay or decline in orders received from distributors;

•   growth or reduction in the size of the market for interface ICs;

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•   the availability of manufacturing capacity with our wafer suppliers, especially to support sales growth and new products;

•   changes in manufacturing costs;

•   fluctuations in manufacturing yields;

•   disqualification by our customers for quality or performance related issues;

•   the ability of customers to pay us;

•   increased research and development expenses associated with new product introductions or process changes;

•   the impairment of our intangible assets or other long-lived assets; and

•   fluctuations in our effective tax rate from quarter to quarter.

All of these factors are difficult to forecast and could seriously harm our operating results. Our expense levels are based in part on our expectations regarding future sales and are largely fixed in the short term. Therefore, we may be unable to reduce our expenses fast enough to compensate for any unexpected shortfall in sales. Any significant decline in demand relative to our expectations or any material delay of customer orders could harm our operating results. In addition, if our operating results in future quarters fall below public market analysts’ and investors’ expectations, the market price of our common stock would likely decrease.

The demand for our products depends on the growth of our end users’ markets.

Our continued success depends in large part on the continued growth of markets for the products into which our semiconductor and frequency control products are incorporated. These markets include the following:

•   computers, notebooks, tablets and connectivity to related peripherals;

•   data communications and telecommunications equipment including switches and routers;

•   servers and storage equipment including cloud computing requirements;

•   consumer electronics equipment; and

•   embedded systems including video surveillance, medical and automotive.

Any decline in the demand for products in these markets could seriously harm our business, financial condition and operating results. These markets have also historically experienced significant fluctuations in demand, and over the past two years we’ve been impacted by declines in the markets for PC’s and notebook computers. We may also be seriously harmed by slower growth in the other markets in which we sell our products.

Customer demands for the Company’s products are volatile and difficult to predict.

Our business is characterized by short-term orders and shipment schedules. We do not have long-term purchase agreements with any of our customers. Customers can typically cancel or reschedule their orders without significant penalty. We typically plan production and inventory levels based on forecasts of customer demand generated with input from customers and sales representatives. Our customers continuously adjust their inventories in response to changes in end market demand for their products and the availability of semiconductor components. This results in frequent changes in demand for our products. Accordingly, we must rely on multiple assumptions to forecast customer demand. Various external factors that are outside of our control can make it difficult to accurately make such forecasts, and the volatility of customer demand limits our ability to predict future levels of sales and profitability.

Further, as end customer demand can change very quickly, the supply of semiconductors can quickly and unexpectedly match or exceed demand. Also, semiconductor suppliers can rapidly increase production output. This can lead to a sudden oversupply situation and a subsequent reduction in order rates and revenues as customers adjust their inventories to true demand rates. A rapid and sudden decline in customer demand for our products can result in excess quantities of certain of our products relative to demand. Under such circumstances, we may be required to record significant provisions for excess and obsolete inventories. This could materially and adversely affect our results of operations and financial condition.

The markets for our products are characterized by rapidly changing technology, and our financial results could be harmed if we do not successfully develop and implement new manufacturing technologies or develop, introduce and sell new products.

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The markets for our products are characterized by rapidly changing technology, frequent new product introductions and declining selling prices over product life cycles. We currently offer a comprehensive portfolio of silicon and quartz based products. Our future success depends upon the timely completion and introduction of new products, across all our product lines, at competitive price and performance levels. The success of new products depends on a variety of factors, including the following:

•   product performance and functionality;

•   customer acceptance;

•   competitive cost structure and pricing;

•   successful and timely completion of product development;

•   sufficient wafer fabrication capacity; and

•   achievement of acceptable manufacturing yields by our wafer suppliers.

Our failure to successfully develop new products that achieve market acceptance in a timely fashion and that can be efficiently and successfully integrated with our customers’ products could adversely affect our ability to grow our business and improve our operating results. The development, introduction and market acceptance of new products is critical to our ability to sustain and grow our business. Any failure to successfully develop, introduce, market and sell new products could materially adversely affect our business and operating results.

We may also experience delays, difficulty in procuring adequate fabrication capacity for the development and manufacture of new products, or other difficulties in achieving volume production of these products. Even relatively minor errors may significantly affect the development and manufacture of new products. If we fail to complete and introduce new products in a timely manner at competitive price and performance levels, our business would be significantly harmed.

If we do not develop products that our customers and end-users design into their products, or if their products do not sell successfully, our business and operating results would be harmed.

We have relied in the past and continue to rely upon our relationships with our customers and end-users for insights into product development strategies for emerging system requirements. We generally incorporate new products into a customer’s or end-user’s product or system at the design stage. Our success has been, and will continue to be, dependent upon manufacturers designing our connectivity products into their products. To achieve design wins, which are decisions by manufacturers to design our products into their systems, we must define and deliver cost effective and innovative connectivity solutions on a timely basis that satisfy the manufacturers’ requirements and specifications. Our ability to achieve design wins is subject to numerous risks including competitive pressures as well as technological risks and delays in our product development cycle. However, these design efforts, which can often require significant expenditures by us, may precede product sales, if any, by a year or more. With the increasing complexity of new generation products the development cost of each new product increases, making the selection process ever more critical with limited staff and financial resources. Moreover, the value to us of any design win will depend in large part on the ultimate success of the customer or end-user’s product and on the extent to which the system’s design accommodates components manufactured by our competitors. If we fail to achieve design wins or if the design wins fail to result in significant future revenues, our operating results would be harmed. If we have problems developing or maintaining our relationships with our customers and end-users, our ability to develop well-accepted new products may be impaired.

Intense competition in the semiconductor industry may reduce the demand for our products or the prices of our products, which could reduce our revenues and gross profits and limit our ability to maintain or grow our business.

The semiconductor industry is intensely competitive, and we expect competition in this industry to continue to increase. This competition has resulted in rapid technological change, evolving standards, reductions in product selling prices and rapid product obsolescence leading to excess and obsolete inventory writedowns (for further detail, see Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, Critical Accounting Policies — Inventories). If we are unable to successfully meet these competitive challenges, we may be unable to maintain and grow our business. Any inability on our part to compete successfully would also adversely affect our results of operations and impair our financial condition.

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Our competitors include Analog Devices, Avago Technologies, Cypress Semiconductor, Fairchild Semiconductor, Hitachi, Integrated Device Technology, Maxim Integrated Products, Motorola, On Semiconductor, NXP, Parade Technologies, Silicon Laboratories, STMicroelectronics, Texas Instruments, and Toshiba. Most of those competitors have substantially greater financial, technical, marketing, distribution and other resources, broader product lines and longer-standing customer relationships than we do. We also compete with other major or emerging companies that sell products to certain segments of our markets. Competitors with greater financial resources or broader product lines may have a greater ability to sustain price reductions in our primary markets in order to gain or maintain market share.

We believe that our future success will depend on our ability to continue to improve and develop our products and processes. Unlike us, many of our competitors maintain internal manufacturing capacity for the fabrication and assembly of semiconductor products. This ability may provide them with more reliable manufacturing capability, shorter development and manufacturing cycles and time-to-market advantages. In addition, competitors with their own wafer fabrication facilities that are capable of producing products with the same design geometries as ours may be able to manufacture and sell competitive products at lower prices. Any introduction of products by our competitors that are manufactured with improved process technology could seriously harm our business. As is typical in the semiconductor industry, our competitors have developed and marketed products that function similarly or identically to ours. If our products do not achieve performance, price, size or other advantages over products offered by our competitors, we might lose market share. Competitive pressures could also reduce market acceptance of our products, reduce our prices and increase our expenses.

We also face competition from the makers of ASICs and other system devices. These devices may include interface logic functions that may eliminate the need or sharply reduce the demand for our products in particular applications.

Downturns in the semiconductor industry, rapidly changing technology, accelerated selling price erosion and evolving industry standards can harm our operating results.

The semiconductor industry has historically been cyclical and periodically subject to significant economic downturns, characterized by diminished product demand, accelerated erosion of selling prices, overcapacity and excess and obsolete inventory as well as rapidly changing technology and evolving industry standards. In the future, we may experience substantial period-to-period fluctuations in our business and operating results due to general semiconductor industry conditions, overall economic conditions or other factors. Our business is also subject to the risks associated with the effects of legislation and regulations relating to the import or export of semiconductor products.

Recent domestic and worldwide economic conditions adversely affected and could have future adverse effects on our business, results of operations, financial condition and cash flows.

Our revenues and earnings have fluctuated significantly in the past and may fluctuate significantly in the future. General economic or other conditions could cause a downturn in the market for our products or technology. The 2008-2009 financial disruption affecting the banking system, investment banks, insurance companies and the financial markets negatively impacted general domestic and global economic conditions. These economic conditions resulted in our facing a very challenging period leading to reduced sales and earnings in fiscal 2009.

In 2011 and 2012, concerns over European sovereign debt and the ability of countries to borrow funds have again raised questions about the loan portfolios of large international banks, and low economic growth rates have increased the possibility of an economic downturn. In 2013, our sales were again down from the prior year due to continued economic softness in many parts of the world and only tepid growth in others. There could be a number of effects on our business that could also adversely affect our operating results. Disruptions may result in the insolvency of key suppliers resulting in product delays; the inability of our customers to obtain credit to finance purchases of our products and/or customer insolvencies that cause our customers to change delivery schedules, cancel or reduce orders; a slowdown in global economies which could result in lower end-user demand for our products; and increased impairments of our investments. Net income could vary from expectations depending on the gains or losses realized on the sale or exchange of securities, gains or losses from equity method investments, and impairment charges related to intangible assets, long-term assets, investments and marketable securities. Our cash and

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marketable securities investments represent significant assets that may be subject to fluctuating or even negative returns depending upon interest rate movements and financial market conditions in fixed income securities.

Volatility in the financial markets and overall economic uncertainty increases the risk of substantial quarterly and annual fluctuations in our earnings. Given the current economic environment, we remain cautious and we expect our customers to be cautious as well, which could affect our future results. If the economic recovery slows down or dissipates, our business, financial condition, results of operations and cash flows could be materially and adversely affected.

The complexity of our products makes us susceptible to manufacturing problems, which could increase our costs and delay our product shipments.

The manufacture and assembly of our products is highly complex and sensitive to a wide variety of factors, including:

•   the level of contaminants in the manufacturing environment;

•   impurities in the materials used; and

•   the performance of manufacturing personnel and production equipment.

In a typical semiconductor manufacturing process, silicon wafers produced by a foundry are cut into individual die. These die are assembled into individual packages and tested for performance. Our wafer fabrication suppliers have from time to time experienced lower than anticipated yields of suitable die. In the event of such decreased yields, we would incur additional costs to sort wafers, an increase in average cost per usable die and an increase in the time to market or availability of our products. These conditions could reduce our net revenues and gross margin and harm our customer relations.

We rely on independent manufacturers who may not be able to meet our manufacturing requirements.

We do not manufacture any of our IC products. Therefore, we are referred to in the semiconductor industry as a “fabless” producer. We depend upon third party foundries to produce wafers and subcontractors to manufacture IC products that meet our specifications. We currently have third party manufacturers located in China, Taiwan, Singapore, Malaysia, India, Korea and Japan that can produce products that meet our needs. However, as the industry continues to progress to smaller manufacturing and design geometries, the complexities of producing semiconductors will increase. Decreasing geometries may introduce new problems and delays that may affect product development and deliveries. Due to the nature of the industry and our status as a “fabless” IC semiconductor company, we could encounter fabrication-related problems that may affect the availability of our products, delay our shipments or increase our costs.

Our contracts with our wafer suppliers do not obligate them to a minimum supply or set prices. Any inability or unwillingness of our wafer suppliers generally, and GlobalFoundries, TSMC and Magnachip in particular, to meet our manufacturing requirements would delay our production and product shipments and harm our business.

In recent years, we purchased over 70% of our wafers from MagnaChip, TSMC and GlobalFoundries, with the balance from other wafer suppliers. Our reliance on independent wafer suppliers to fabricate our wafers at their production facilities subjects us to possible risks such as:

•   lack of adequate capacity or assured product supply;

•   lack of available manufactured products;

•   reduced control over delivery schedules, quality assurance, manufacturing yields and production costs; and

•   unanticipated changes in wafer prices.

Any inability or unwillingness of our wafer suppliers to provide adequate quantities of finished wafers to meet our needs in a timely manner would delay our production and product shipments and seriously harm our business. In the past, a wafer supplier shut down one of their production facilities used to manufacture our products. We transitioned the production of these products to different facilities. The transfer of production to other facilities subjects us to the above listed risks as well as potential yield or other production problems, which could arise as a result of any change.

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At present, we purchase wafers from our suppliers through the issuance of purchase orders based on our rolling nine-month forecasts. The purchase orders are subject to acceptance by each wafer supplier. We do not have long-term supply contracts that obligate our suppliers to a minimum supply or set prices. We also depend upon our wafer suppliers to participate in process improvement efforts, such as the transition to finer geometries. If our suppliers are unable or unwilling to do so, our development and introduction of new products could be delayed. Furthermore, sudden shortages of raw materials or production capacity constraints can lead wafer suppliers to allocate available capacity to customers other than us or for their internal uses, interrupting our ability to meet our product delivery obligations. Any significant interruption in our wafer supply would seriously harm our operating results and our customer relations. Our reliance on independent wafer suppliers may also lengthen the development cycle for our products, providing time-to-market advantages to our competitors that have in-house fabrication capacity.

In the event that our suppliers are unable or unwilling to manufacture our key products in required volumes, we will have to identify and qualify additional wafer foundries. The qualification process can take up to nine months or longer. Furthermore, we are unable to predict whether additional wafer foundries will become available to us or will be in a position to satisfy any of our requirements on a timely basis, or at all.

We depend on single or limited source assembly subcontractors with whom we do not have written contracts. Any inability or unwillingness of our assembly subcontractors to meet our assembly requirements would delay our product shipments and harm our business.

We primarily rely on foreign subcontractors for the assembly and packaging of our products and, to a lesser extent, for the testing of finished products. Some of these subcontractors are our single source supplier for some of our packages. In addition, changes in our or a subcontractor’s business could cause us to become materially dependent on a single subcontractor. We have from time to time experienced difficulties in the timeliness and quality of product deliveries from our subcontractors and may experience similar or more severe difficulties in the future. We generally purchase these single or limited source components or services pursuant to purchase orders and have no guaranteed arrangements with these subcontractors. These subcontractors could cease to meet our requirements for components or services, or there could be a significant disruption in supplies from them, or degradation in the quality of components or services supplied by them. Any circumstance that would require us to qualify alternative supply sources could delay shipments, result in the loss of customers and limit or reduce our revenues. Introducing new products or transferring existing products to a new third party manufacturer or process may result in unforeseen product specification and operating problems. These problems may affect our shipments and may be costly to correct.

We may experience integration or other problems with potential future acquisitions, which could have an adverse effect on our business or results of operations. New acquisitions could dilute the interests of existing stockholders, and the announcement of new acquisitions could result in a decline in the price of our common stock.

Our previous and potential future acquisitions could result in the following:

•   large one-time write-offs;

•   the difficulty in integrating newly-acquired businesses and operations in an efficient and effective manner;

•   the challenges in achieving strategic objectives, cost savings, and other benefits from acquisitions as anticipated;

•   the risk of diverting the attention of senior management from other business concerns;

•   risks of entering geographic and business markets in which we have no or limited prior experience and potential loss of key employees of acquired organizations;

•   the risk that our markets do not evolve as anticipated and that the technologies and capabilities acquired do not prove to be those needed to be successful in those markets;

•   potentially dilutive issuances of equity securities;

•   excessive usages of cash;

•   the incurrence of debt and contingent liabilities or amortization expenses related to intangible assets;

•   difficulties in the assimilation of operations, personnel, technologies, products and the information systems of the acquired companies; and

•   difficulties in integrating or expanding information technology systems and other financial or business processes that may lead to financial reporting issues.

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As part of our business strategy, we may seek acquisition prospects that would complement our existing product offerings, improve our market coverage or enhance our technological capabilities. In addition, from time to time, we invest in other companies, without actually acquiring them, and such investments involve many of the same risks as are involved with acquisitions.

Implementation of new Financial Accounting Standards Board (“FASB”) rules and the issuance of new corporate governance regulations or other accounting regulations, or reinterpretation of existing laws or regulations, could materially impact our business or stated results.

In general, from time to time the government, courts and the financial accounting boards may issue new corporate governance regulations or accounting regulations, or modify or reinterpret existing ones. There may be future changes in laws, interpretations or regulations that would affect our financial results or the way in which we present them. Additionally, changes in the laws or regulations could have adverse effects on hiring and many other aspects of our business that would affect our ability to compete, both nationally and internationally.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 required the SEC to establish new disclosure and reporting requirements for those companies who use “conflict” minerals mined from the Democratic Republic of Congo and adjoining countries in their products, whether or not these products are manufactured by third parties. We filed our initial report with the SEC in May 2014. There will be future costs associated with complying with the disclosure requirements, including for due diligence in regard to the sources of any conflict minerals used in our products and, beginning with the report for calendar year 2015, an audit report of our Conflict Minerals Report prepared by an independent private sector auditor. In addition, depending on the outcome of such verification activities, there may be costs of remediation and other changes to products, processes, or sources of supply.

If we are unable to maintain processes and procedures to sustain effective internal control over our financial reporting, our ability to provide reliable and timely financial reports could be harmed and this could have a material adverse effect on our stock price.

Under the rules promulgated under Section 404 of the Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley Act, we are required to maintain, and evaluate the effectiveness of, our internal control over financial reporting and disclosure controls and procedures. In our annual reports on Form 10-K for the years ended July 3, 2010, June 27, 2009, June 30, 2007 and July 2, 2005, we reported material weaknesses in our internal control over financial reporting. We have since remediated these deficiencies and continue to spend a significant amount of time and resources to ensure compliance with Section 404 of the Sarbanes Oxley Act of 2002. As reported in Item 9A of this Form 10-K, our management does not believe that we had any material weaknesses in our internal control over financial reporting as of June 28, 2014, and management has determined that as of June 28, 2014, our internal control over financial reporting was effective. However, we have and will continue to evolve our business in a changing marketplace. In addition, we are expanding our overseas operations, and as we grow in these locations, we may have difficulty in recruiting and retaining a complement of personnel with an appropriate level of accounting knowledge, experience and training in the application of U.S. generally accepted accounting principles commensurate with our financial reporting requirements. Due to these factors, there can be no assurance that other material weaknesses or significant deficiencies will not arise in the future. Should we or our independent registered public accounting firm determine in future periods that we have a material weakness in our internal control over financial reporting, the reliability of our financial reports may be impacted, and investors could lose confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on our stock price and we could suffer other materially adverse consequences.

Changes to environmental laws and regulations applicable to manufacturers of electrical and electronic equipment are causing us to redesign our products, and may increase our costs and expose us to liability.

The implementation of new environmental regulatory legal requirements, such as lead free initiatives, may affect our product designs and manufacturing processes. The impact of such regulations on our product designs and manufacturing processes could affect the timing of compliant product introductions as well as their commercial success. Redesigning our products to comply with new regulations may result in increased research and development and manufacturing and quality control costs. In addition, the products we manufacture that comply

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with new regulatory standards may not perform as well as our current products. Moreover, if we are unable to successfully and timely redesign existing products and introduce new products that meet new standards set by environmental regulation and our customers, sales of our products could decline, which could materially adversely affect our business, financial condition and results of operations.

We compete with others to attract and retain key personnel, and any loss of or inability to attract key personnel would harm us.

To a greater degree than non-technology companies, our future success will depend on the continued contributions of our executive officers and other key management and technical personnel. None of these individuals has an employment agreement with us and each one would be difficult to replace. We do not maintain any key person life insurance policies on any of these individuals. The loss of the services of one or more of our executive officers or key personnel or the inability to continue to attract qualified personnel could delay product development cycles or otherwise harm our business, financial condition and results of operations.

Our future success also will depend on our ability to attract and retain qualified technical, sales, marketing, finance and management personnel, particularly highly skilled design, process and test engineers, for whom competition can be intense. During strong business cycles, we expect to experience difficulty in filling our needs for qualified engineers and other personnel. If we do not succeed in hiring and retaining candidates with appropriate qualifications, our revenues, operations and product development efforts could be harmed.

Our limited ability to protect our intellectual property and proprietary rights could harm our competitive position. Litigation regarding intellectual property could divert management attention, be costly to defend and prevent us from using or selling the challenged technology.

Our success depends in part on our ability to obtain patents and licenses and preserve other intellectual property rights covering our products and development and testing tools. In the United States, we currently hold 97 patents covering certain aspects of our product designs and have nine additional patent applications pending. Copyrights, mask work protection, trade secrets and confidential technological know-how are also key to our business. Additional patents may not be issued to us or our patents or other intellectual property may not provide meaningful protection. We may be subject to, or initiate, interference proceedings in the U.S. Patent and Trademark Office. These proceedings can consume significant financial and management resources. We may become involved in litigation relating to alleged infringement by us of others’ patents or other intellectual property rights. This type of litigation is frequently expensive to both the winning party and the losing party and takes up significant amounts of management’s time and attention. In addition, if we lose such a lawsuit, a court could require us to pay substantial damages and/or royalties or prohibit us from using essential technologies. For these and other reasons, this type of litigation could seriously harm our business. Also, although we may seek to obtain a license under a third party’s intellectual property rights in order to bring an end to certain claims or actions asserted against us, we may not be able to obtain such a license on reasonable terms or at all.

Because it is important to our success that we are able to prevent competitors from copying our innovations, we intend to continue to seek patent, trade secret and mask work protection for our technologies. The process of seeking patent protection can be long and expensive, and we cannot be certain that any currently pending or future applications will actually result in issued patents, or that, even if patents are issued, they will be of sufficient scope or strength to provide meaningful protection or any commercial advantage to us. Furthermore, others may develop technologies that are similar or superior to our technology or design around the patents we own.

We also rely on trade secret protection for our technology, in part through confidentiality agreements with our employees, consultants and third parties. However, these parties may breach these agreements. In addition, the laws of some territories in which we develop, manufacture or sell our products may not protect our intellectual property rights to the same extent as do the laws of the United States.

Our independent foundries use a process technology that may include technology we helped develop with them, that may generally be used by those foundries to produce their own products or to manufacture products for other companies, including our competitors. In addition, we may not have the right to implement key process technologies used to manufacture some of our products with foundries other than our present foundries.

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We may not provide adequate allowances for exchanges, returns and concessions.

We recognize revenue from the sale of products when shipped, less an allowance based on future authorized and historical patterns of returns, price protection, exchanges and other concessions. We believe our methodology and approach are appropriate. However, if the actual amounts we incur exceed the allowances, it could decrease our revenue and corresponding gross profit.

Our future tax rates and tax payments could be higher than we anticipate and may harm our results of operations.

As a multinational corporation, we conduct our business in many countries and are subject to taxation in many jurisdictions. The taxation of our business is subject to the application of multiple and sometimes conflicting tax laws and regulations as well as multinational tax conventions. A number of factors, including unanticipated changes in the mix of earnings in countries with differing statutory tax rates or by unexpected changes in existing tax laws or our interpretation of them, could unfavorably affect our future effective tax rate. In the event our management determines it is no longer more likely than not that we will realize a portion of our deferred tax assets we will be required to increase our valuation allowance which will result in an increase in our effective tax rate. Furthermore, our tax returns are subject to examination in all the jurisdictions in which we operate which subjects us to potential increases in our tax liabilities. The Internal Revenue Service recently completed their examination of the federal tax returns for fiscal 2010 and 2011, and the Company made additional tax payments of approximately $208,000 including interest charges for the two years that were examined.

In addition, during the quarter ended December 29, 2012, we began implementation of an operating structure to more efficiently align the Company’s transaction flows with the Company’s geographic business operations. As a result we have formed new legal entities and begun realigning existing ones, completed the intercompany transfer of intellectual property rights, inventory and fixed assets across different tax jurisdictions, and implemented intercompany intellectual property licensing agreements between our U.S. and foreign entities. These changes may result in unanticipated changes to our tax rates and tax payments. All of these factors could have an adverse effect on our financial condition and results of operations.

If our liability for U.S. and foreign taxes is greater than we have anticipated and reserved for, our operating results may suffer.

We are subject to taxation in the United States and in foreign jurisdictions in which we do business, including China. We believe that we have adequately estimated and reserved for our income tax liability. However, our effective tax rates may not be as low as we anticipate. Our business operations, including our transfer pricing for transactions among our various business entities operating in different tax jurisdictions, may be audited at any time by the U.S., Chinese or other foreign tax authorities.

A number of factors may adversely impact our future effective tax rates, such as:

•   changes in the tax laws of any of the countries in which we pay substantial taxes, including changes to tax rates or to transfer pricing standards, or more fundamental changes such as the various proposals that exist from time to time for U.S. international tax reform;

•   changes in the valuation of our deferred tax assets and liabilities;

•   changes in U.S. general accepted accounting principles; and

•   the repatriation of non-U.S. earnings with respect to which we have not previously provided for U.S. taxes.

A change in our effective tax rate due to any of these factors may adversely impact our future results from operations. Also, changes in tax laws could have a material adverse effect on our ability to utilize cash in a tax efficient manner.

A large portion of our revenues is derived from sales to a few key customers, and the loss of one or more of our key customers, or their key end user customers, could significantly reduce our revenues. In addition, our sales through distributor channels increases the complexity of our business.

A relatively small number of key customers have accounted for a significant portion of our net revenues in each of the past several fiscal years. In general we expect this to continue for the foreseeable future. We had two direct customers who accounted for more than 10% of net revenues during each of the fiscal years ended June 28, 2014, June 29, 2013 and June 30, 2012. As a percentage of net revenues, sales to our top five direct customers during

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the fiscal year ended June 28, 2014 totaled 47%, as compared with 42% in the fiscal year ended June 29, 2013 and 47% in the fiscal year ended June 30, 2012.

We do not have long-term sales agreements with any of our customers. Our customers are not subject to minimum purchase requirements, may reduce or delay orders periodically due to excess inventory and may discontinue purchasing our products at any time. Our distributors typically offer competing products in addition to ours. For the fiscal year ended June 28, 2014, sales to our domestic and international distributors were approximately 68% of net revenues, as compared with approximately 66% of net revenues in the fiscal year ended June 29, 2013 and approximately 67% in the fiscal year ended June 30, 2012. Distributors therefore continue to account for a significant portion of our sales. The loss of one or more significant customers, or the decision by a significant distributor to carry additional product lines of our competitors could decrease our revenues.

Selling through distributor channels increases the complexity of our business, requiring us to, among other matters:

•   manage a more complex supply chain;

•   manage the level of inventory at each distributor;

•   provide for credits, return rights and price protection;

•   estimate the impact of credits, return rights, price protection and unsold inventory at distributors; and

•   monitor the financial condition and creditworthiness of our distributors.

Any failure to manage these challenges, or the occurrence of an unforseen change in the supply-demand dynamic, could cause us to inaccurately forecast sales and carry excess or insufficient inventory, thereby adversely affecting our operating results and cash flows. For further detail on credits, return rights and price protection, see Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, Critical Accounting Policies — Revenue Recognition.

Because we sell products in foreign markets and have operations outside of the United States, we face foreign business, political, economic and currency risks that could seriously harm us. Almost all of our wafer suppliers and assembly subcontractors are located in Southeast Asia, as are our FCP manufacturing facilities, which exposes us to the problems associated with international operations.

Risks associated with international business operations include the following:

•   disruptions or delays in shipments;

•   changes in economic conditions in the countries where these subcontractors are located;

•   currency fluctuations;

•   changes in political conditions;

•   potentially reduced protection for intellectual property;

•   foreign governmental regulatory requirements and unexpected changes in them;

•   the burdens of complying with a variety of foreign laws;

•   import and export controls;

•   delays resulting from difficulty in obtaining export licenses for technology;

•   changes in tax laws, tariffs and other barriers, and freight rates; and

•   compliance with Generally Accepted Accounting Principles in the United States (“U. S. GAAP”).

Regulatory, geopolitical and other factors could seriously harm our business or require us to modify our current business practices. We are subject to general geopolitical risks in connection with our international operations, such as political and economic instability and changes in diplomatic and trade relationships. Although most of our products are sold in U.S. dollars, we incur a significant amount of certain types of expenses, such as payroll, utilities, capital equipment purchases and taxes in local currencies. The impact of currency exchange rate movements could harm our results and financial condition. In addition, changes in tariff and import regulations and in U.S. and non-U.S. monetary policies could harm our results and financial condition by increasing our expenses and reducing our revenue. Varying tax rates in different jurisdictions could harm our results of operations and financial condition by increasing our overall tax rate.

In each of fiscal years 2014, 2013, and 2012, we generated approximately 92%, 5% and 3% of our net revenues from sales in Asia, the United States and the rest of the world, respectively. We expect that foreign sales will continue

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to represent by far the majority of net revenues. This will require significant management attention and financial resources and further subject us to international operating risks.

We have subsidiaries located in Asia. We manufacture some of our FCPs in Taiwan as well as in the Jinan Development Zone in the Shandong Province of the PRC. The development of the Jinan facility depended upon various tax concessions, tax rebates and other support from the local governmental entity. There can be no assurance that the local governmental entity will not change their position regarding such tax and other support and such a change might adversely affect the profitability of this facility. In addition, there can be no assurance we will be able to assemble and maintain sufficient management resources in our Asia subsidiaries, including a sales force knowledgeable about our target markets and an accounting staff with sufficient U. S. GAAP accounting expertise.

We are expanding our presence in China with manufacturing and research and development activities. We will be subject to increased risks relating to foreign currency exchange rate fluctuations that could have a material adverse effect on our business, financial condition and operating results. The value of the Chinese renminbi against the United States dollar and other currencies may fluctuate and is affected by, among other things, changes in China’s political and economic conditions. Significant future appreciation of the renminbi could increase our component and other raw material costs as well as our labor costs, and could adversely affect our financial results. To the extent that we need to convert United States dollars into renminbi for our operations, appreciation of renminbi against the United States dollar could have a material adverse effect on our business, financial condition and results of operations. Conversely, if we decide to convert our renminbi into United States dollars for other business purposes and the United States dollar appreciates against the renminbi, the United States dollar equivalent of the renminbi we convert would be reduced. The Chinese government now measures the exchange rate of the renminbi against a number of currencies, rather than just the United States dollar. Fluctuations in the renminbi exchange rate could increase and could adversely affect our ability to operate our business.

In addition, there is a potential risk of conflict and further instability in the relationship between Taiwan and the PRC. Conflict or instability could disrupt the operations of one of our principal wafer suppliers, several of our assembly subcontractors located in Taiwan, and our FCP manufacturing operations in Taiwan and the PRC.

Our operations and financial results could be severely harmed by natural disasters.

Our headquarters and some of our major suppliers’ manufacturing facilities are located near major earthquake faults. In particular, our Asian operations and most of our third party service providers involved in the manufacturing of our products are located within relative close proximity. Therefore, any disaster that strikes within or close to that geographic area could be extremely disruptive to our business and could materially and adversely affect our operating results and financial condition.

One of the foundries we use is located in Taiwan, which has suffered severe earthquakes in the past. Taiwan is also exposed to typhoons and tsunamis, which can affect not only foundries we rely upon but also our PSE-TW subsidiary. In March 2011, an earthquake and tsunami occurred off the northeast coast of Japan which disrupted the global supply chain for core materials manufactured in Japan that are incorporated in our products and manufacturing equipment. Thailand experienced floods in the quarter ended December 31, 2011, which interrupted the industry’s supply chain for storage products and impacted our sales as well. If a major earthquake, typhoon, tsunami or other natural disaster were to affect our operations or those of our suppliers, our product supply could be interrupted, which would seriously harm our business. Natural disasters could also affect the operations of the distributors and contract manufacturers we sell to, as well as the operations of our end use customers, which would adversely affect our operations and financial results. Natural disasters anywhere in the world may potentially adversely affect us by harming or causing interruptions to our supply chain or the supply chains of our suppliers, direct customers or end use customers.

RISKS RELATED TO THE SECURITIES MARKETS AND OWNERSHIP OF OUR COMMON STOCK

Our stock has been and will likely continue to be subject to substantial price and volume fluctuations due to a number of factors, many of which are beyond our control.

The trading price of our common stock has been, and is likely to continue to be, highly volatile. The securities markets have experienced significant price and volume fluctuations in the past, and the market prices of the securities

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of semiconductor companies have been especially volatile. This market volatility, as well as general economic, market or political conditions, including the current global economic situation, could reduce the market price of our common stock in spite of our operating performance. Our stock price could fluctuate widely in response to factors some of which are not within our control, including:

•   general conditions in the semiconductor and electronic systems industries;

•   actual or anticipated fluctuations in our operating results;

•   changes in expectations as to our future financial performance;

•   announcements of technological innovations or new products by us or our competitors;

•   changes in earnings estimates by analysts; and

•   price and volume fluctuations in the overall stock market, which have particularly affected the market prices of many high technology companies.

Our shareholder rights plan may adversely affect existing shareholders.

On March 6, 2012, we adopted a shareholder rights plan that may have the effect of deterring, delaying, or preventing a change in control that otherwise might be in the best interests of our shareholders. Under the rights plan, we declared a dividend of one preferred share purchase right for each share of our common stock held by shareholders of record as of March 6, 2012. Each right entitles shareholders, after the rights become exercisable, to purchase one one-thousandth of a share of our Series D Junior Participating Preferred Stock.

In general, the rights become exercisable when a person or group acquires 15% or more of our common stock or a tender offer for 15% or more of our common stock is announced or commenced. After such event, our other stockholders may purchase from us additional shares of our common stock at a 50% discount to the then-current market price. The rights will cause substantial dilution to a person or group that attempts to acquire us on terms not approved by our Board of Directors. The rights should not interfere with any merger or other business combination approved by our Board of Directors since the rights may be redeemed by us at $0.001 per right at any time before any person or group acquire 15% or more of our outstanding common stock. These rights expire in March 2022.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

In July 2012, we purchased a building of 85,040 square feet to serve as our new corporate headquarters in Milpitas, California, and we moved into this new facility in August 2013. We also own, through our PSE-TW subsidiary, a manufacturing facility near Taipei, Taiwan consisting of approximately 74,000 square feet. Our PSE-TW subsidiary also owns a facility of approximately 8,840 square feet in Taipei and has leased approximately 1,570 square feet of space in Hsin Chu, Taiwan for research and development as well as sales and administrative functions. In addition, we have land use rights until July 8, 2058 from the PRC for our factory in the Jinan Development Zone in Shandong Province, China. This factory, which is for the development and manufacture of frequency control products, is approximately 344,000 total square feet and consists of an administrative building, a workers dormitory, and a fabrication plant. We own a 15,000 square foot office building in Shanghai, China that is occupied by our PTI subsidiary. We also have leased or rented international sales offices in Hong Kong, Japan, Korea, Singapore and the United Kingdom. We believe our current facilities are adequate to support our needs through the end of fiscal 2015.

ITEM 3. LEGAL PROCEEDINGS

We are subject to various routine claims and legal proceedings that arise in the ordinary course of business. We are presently not subject to any legal proceedings that could have a material impact on our business or financial condition.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The information required by this item regarding equity compensation plans is incorporated by reference to the information set forth in Item 12 of this Annual Report on Form 10-K.

COMMON STOCK PRICE RANGE

Our common stock began trading publicly on the NASDAQ National Market on October 31, 1997 under the symbol PSEM. Prior to that date, there was no public market for the common stock. We have not paid cash dividends and have no present plans to do so. It is our policy to reinvest our earnings to finance expansion of our operations and to repurchase shares of our common stock to help counter dilution from the Company’s Stock Incentive and Employee Stock Purchase Plans. The following table sets forth, for the periods indicated, the high and low prices of the common stock on the NASDAQ Stock Market. As of June 28, 2014, we had 42 holders of record of our common stock. Holders of record do not include shareowners whose shares are in broker or other nominee accounts. During fiscal year 2014, we did not sell any unregistered securities.

	Common Stock Prices
	High		Low
Fiscal year ended June 29, 2013
First Quarter	$	9.22	$	7.80
Second Quarter		8.95		6.80
Third Quarter		8.32		6.61
Fourth Quarter		7.45		6.10
Fiscal year ended June 28, 2014
First Quarter	$	7.93	$	7.01
Second Quarter		9.67		7.05
Third Quarter		9.31		6.16
Fourth Quarter		9.25		7.20

 

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PERFORMANCE GRAPH

 

    

The graph and other information furnished under the above caption “Performance Graph” in this Part II, Item 5 of this Form 10-K shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C, or to the liabilities of the Exchange Act, as amended.

SHAREHOLDER RIGHTS PLAN

On March 6, 2012, we adopted a new shareholder rights plan following the expiration of our previous rights plan. Under the rights plan, we declared a dividend of one preferred share purchase right for each share of our common stock held by shareholders of record as of March 6, 2012. Each right entitles shareholders, after the rights become exercisable, to purchase one one-thousandth of a share of our Series D Junior Participating Preferred Stock.

In general, the rights become exercisable when a person or group acquires 15% or more of our common stock or a tender offer for 15% or more of our common stock is announced or commenced. After such event, our other stockholders may purchase from us additional shares of our common stock at a 50% discount to the then-current market price. The rights will cause substantial dilution to a person or group that attempts to acquire us on terms not approved by our Board of Directors. The rights should not interfere with any merger or other business combination approved by our Board of Directors since the rights may be redeemed by us at $0.001 per right at any time before any person or group acquire 15% or more of our outstanding common stock. These rights expire in March 2022.

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STOCK REPURCHASE PLAN

On April 26, 2012, the Board of Directors authorized a share repurchase program for up to $25 million of shares of the Company’s common stock, and on April 24, 2014 the Board authorized an additional $20 million for the share repurchase program. The Company was authorized to repurchase the shares from time to time in the open market or private transactions, at the discretion of the Company’s management. During the year ended June 28, 2014, the Company repurchased 1,354,511 shares for an aggregate cost of $11.3 million. Repurchases during the fourth quarter of fiscal 2014 were as follows:

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum $ Value of Shares That May Yet be Purchased Under the Plans or Programs
April 2014		217,232	$	7.86		217,232	$	29,348,985
May 2014		260,257		8.57		260,257		27,119,813
June 2014		57,958		8.77		57,958		26,611,355
Total		535,447	$	8.30		535,447	$	26,611,355

 

During the year ended June 29, 2013, the Company repurchased 1,100,306 shares for an aggregate cost of $7.8 million, of which purchases of approximately $701,000 were made under a now expired 2008 authorization. During the year ended June 30, 2012, the Company repurchased 1,482,572 shares for an aggregate cost of $11.6 million.

As of June 28, 2014, the Company had $26.6 million of purchase authority remaining under the 2012 and 2014 authorizations.

Current cash balances and the proceeds from stock option exercises and purchases in the stock purchase plan have funded stock repurchases in the past, and the Company expects to fund future stock repurchases from these same sources.

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ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data of the Company is qualified by reference to and should be read in conjunction with the consolidated financial statements, including the Notes thereto, and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Item 7. The consolidated statements of operations data for each year in the three-year period ended June 28, 2014, and the consolidated balance sheets data as of June 28, 2014 and June 29, 2013, are derived from, and are qualified by reference to, the consolidated financial statements included herein. We derived the consolidated statements of operations data for the years ended July 2, 2011 and July 3, 2010 and the consolidated balance sheets data as of June 30, 2012, July 2, 2011 and July 3, 2010 from audited financial statements not included herein. The fiscal year ending July 3, 2010 contained 53 weeks and all other years presented contained 52 weeks. On August 31, 2010, we completed the acquisition of PTI. The results of operations for PTI from the date of acquisition are included in our consolidated financial statements.

	Fiscal Year Ended
	June 28, 2014			June 29, 2013			June 30, 2012			July 2, 2011(1)			July 3, 2010
	(in thousands, except per share data)
Consolidated Statements of Operations Data:
Net revenues	$	128,068		$	129,255		$	137,135		$	166,343		$	146,913
Cost of revenues		76,983			81,388			88,484			110,661			96,146
Gross profit		51,085			47,867			48,651			55,682			50,767
Operating expenses:
Research and development		19,795			21,017			21,722			20,230			17,208
Selling, general and administrative		30,320			29,581			29,648			29,447			26,478
Goodwill impairment		—			16,899			—			—			—
Total operating expenses		50,115			67,497			51,370			49,677			43,686
Income (loss) from operations		970			(19,630	)		(2,719	)		6,005			7,081
Interest and other income, net		2,792			4,043			3,684			15,142			5,252
Interest expense		—			(19	)		(70	)		(765	)		(30	)
Income (loss) before income taxes		3,762			(15,606	)		895			20,382			12,303
Income tax expense (benefit)		(230	)		6,223			3,097			7,619			3,911
Net income (loss) from consolidated companies		3,992			(21,829	)		(2,202	)		12,763			8,392
Equity in net income of unconsolidated affiliates		132			215			134			700			2,430
Net income (loss)		4,124			(21,614	)		(2,068	)		13,463			10,822
Net income (loss) attributable to noncontrolling interests		—			—			—			—			(28	)
Net income (loss) attributable to Pericom shareholders	$	4,124		$	(21,614	)	$	(2,068	)	$	13,463		$	10,794
Basic income (loss) per share to Pericom shareholders	$	0.18		$	(0.93	)	$	(0.09	)	$	0.54		$	0.42
Diluted income (loss) per share to Pericom shareholders	$	0.18		$	(0.93	)	$	(0.09	)	$	0.53		$	0.42
Shares used in computing basic income (loss) per share(2)		22,594			23,251			24,094			24,923			25,412
Shares used in computing diluted income (loss) per share(2)		22,797			23,251			24,094			25,254			25,717

 

	June 28, 2014		June 29, 2013			June 30, 2012			July 2, 2011(1)			July 3, 2010
	(in thousands)
Consolidated Balance Sheets Data:
Working capital	$	142,649	$	140,188	(3)	$	151,265	(3)	$	150,460	(3)	$	151,300 (3	)
Total assets		240,079		246,567			275,806			301,016			256,048
Total long-term obligations		13,726		16,761			17,339			17,754			7,776
Total shareholders’ equity		207,492		208,891			233,635			242,725			221,906

 

(1)   On August 31, 2010, the Company completed the acquisition of PTI.

(2)   See Note 1 of Notes to Consolidated Financial Statements for an explanation of the method used to determine the number of shares used in computing basic and diluted earnings per share.

(3)   Working capital has been adjusted to conform with the current year presentation in which all available-for-sale securities are classified as short-term investments.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CRITICAL ACCOUNTING POLICIES

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of such statements requires us to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period and the reported amounts of assets and liabilities as of the date of the financial statements. Our estimates are based on historical experience and other assumptions that we consider to be reasonable given the circumstances. Actual results may vary from our estimates.

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 financial statements. The Securities and Exchange Commission has defined the most critical accounting policies as the ones that are most important to the portrayal of a company’s financial condition and results of operations, and require the company to make its most difficult and subjective accounting judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, our most critical accounting policies include revenue recognition and accounts receivable allowances, which impact the recording of revenues; valuation of inventories, which impacts costs of goods sold and gross margins; accounting for income taxes, which impacts the income tax provision and net income; impairment of goodwill, other intangible assets and investments, which impacts the goodwill, intangible asset and investment accounts; and share-based compensation, which impacts costs of goods sold and operating expenses. These policies and the estimates and judgments involved are discussed further below. We also have other important policies that we discuss in Note 1 to the Consolidated Financial Statements.

REVENUE RECOGNITION. We recognize revenue from the sale of our products when:

•   Persuasive evidence of an arrangement exists;

•   Delivery has occurred;

•   The sales price is fixed or determinable; and

•   Collectability is reasonably assured.

Generally, the Company meets these conditions upon shipment because, in most cases, title and risk of loss passes to the customer at that time. In addition, the Company estimates and records provisions for future returns and other charges against revenue at the time of shipment.

We sell products to both large domestic and international distributors. We sell our products to domestic distributors at the price listed in our price book for that distributor. At the time of shipment, we record a sales reserve for the entire amount if the customer has the right to return the product. In addition, at the time of sale we record a sales reserve for ship from stock and debits (“SSD”s), stock rotation amounts expected to be returned, return material authorizations (“RMA”s), authorized price protection programs, and any special programs approved by management. These sales reserves offset revenues, which produces the net revenues amount we report in our consolidated financial statements.

The market price for our products can be significantly different from the book price at which we sold the product to the distributor. When the market price, as compared with the book price, of a particular sales opportunity from our distributor to their customer would result in low or negative margins to our distributor, we negotiate a ship from stock and debit with the distributor. We analyze our SSD history and use the history to develop SSD rates that form the basis of the SSD sales reserve we record each period. We use historical SSD rates to estimate the ultimate net sales price to the distributor.

Our distribution agreements provide for semi-annual stock rotation privileges in a range from 1% to 10% of net sales for the previous six-month period. The contractual stock rotation applies only to shipments at book price. Asian distributors typically buy our product at less than book price and therefore are not entitled to the 10% stock rotation privilege. In order to provide for routine inventory refreshing, for our benefit as well as theirs, we typically grant Asian distributors stock rotation privileges between 1% and 10% even though we are not contractually obligated

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to do so. Each month we adjust the sales reserve for the estimated stock rotation privilege anticipated to be utilized by our distributors.

From time to time, customers may request to return parts for various reasons including the customers’ belief that the parts are not performing to specification. Many such return requests are the result of customers incorrectly using the parts, not because the parts are defective. Our management reviews these requests and, if approved, we establish a RMA. We are only obligated to accept returns of defective parts. For customer convenience, we may approve a particular return request, even though we are not obligated to do so. Each month, we record a sales reserve for the approved RMAs that have not yet been returned. In the past, we have not kept a general warranty reserve because historically valid warranty returns, which are the result of a part not meeting specifications or being non-functional, have been immaterial and frequently we can resell parts to other customers for use in other applications. We monitor and assess RMA activity and overall materiality to assess whether a general warranty reserve has become appropriate.

We grant price protection solely at the discretion of our management. The purpose of price protection is to reduce our distributors’ cost of inventory as market prices fall, which reduces our SSD rates. Our sales management team prepares price protection proposals for individual products located at individual distributors. Our general management reviews these proposals and if a particular price protection arrangement is approved, we estimate the dollar impact based on the book price reduction per unit for the products approved and the number of units of those products in that distributor’s inventory. We record a sales reserve in that period for the estimated amount at the time revenue is recognized.

At the discretion of our management, we may offer rebates on specific products sold to specific end customers. The purpose of the rebates is to allow for pricing adjustments for large programs without affecting the pricing we charge our distributor customers. We record the customer’s rebate at the time of shipment.

Customers are typically granted payment terms of between 30 and 60 days and they generally pay within those terms. We grant relatively few customers any sales terms that include cash discounts. We invoice our distributors for shipments at our listed book price. When our distributors pay those invoices, they may claim debits for SSDs, stock rotations, cash discounts, RMAs and price protection when appropriate. Once claimed, we confirm these debits are in line with our management’s prior authorizations and reduce the reserve we previously established for that customer.

The revenue we record for sales to our distributors is net of estimated provisions for these programs. When determining this net revenue, we must make significant judgments and estimates. We base our estimates on historical experience rates, inventory levels in the distribution channel, current trends and other related factors. However, because of the inherent nature of estimates, there is a risk that there could be significant differences between actual amounts and our estimates. Our financial condition and operating results depend on our ability to make reliable estimates and we believe that our estimates are reasonable.

CASH AND CASH EQUIVALENTS. Cash and cash equivalents consist of cash on hand and in banks and all highly liquid investments with an original or remaining maturity of three months or less at the time of purchase.

SHORT-TERM INVESTMENTS. Our policy is to invest excess funds in instruments with investment grade credit ratings. We classify our investments as “available-for-sale”. We recognize unrealized gains and losses in our available-for sale securities as an increase or reduction in shareholders’ equity. We report our available-for-sale securities at their fair values. We evaluate our available-for-sale securities for impairment quarterly. We recognize the credit portion of an impairment loss as other than temporary decline in the value of investment in our consolidated statement of operations in the period in which we discover the impairment. Any non-credit portion of an impairment loss is recorded in other comprehensive income in our consolidated balance sheet for the period in which we discover the impairment.

We have also made other investments including loans and bridge loans convertible to equity as well as direct equity investments. We make these loans and investments with strategic intentions and, historically, are in privately held technology companies, which by their nature are high risk. These investments are included in other assets in the consolidated balance sheet and we carry them at the lower of cost or market if the investment has experienced an

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“other than temporary” decline in value. We monitor these investments quarterly and make appropriate reductions in carrying value if we deem a decline in value is other than temporary.

ALLOWANCE FOR DOUBTFUL ACCOUNTS. We evaluate our allowance for doubtful accounts using a combination of factors. We record a specific allowance in cases where we become aware of circumstances that may impair a specific customer’s ability to pay fully their financial obligation to us. For all other customers, we recognize an allowance based on the length of time the receivable balances are past due, based on the current economic environment and our historical experience.

INVENTORIES. For our IC and certain FCP products we record inventories at the lower of standard cost (which approximates actual cost on a first-in, first-out basis) or market value. We adjust the carrying value of inventory for excess and obsolete inventory based on inventory age, shipment history and our forecast of demand over a specific future period. The semiconductor markets that we serve are volatile and actual results may vary from our forecast or other assumptions, potentially affecting our assessment of excess and obsolete inventory resulting in material effects on our gross margin.

We record the inventories of the remainder of our FCP products at the lower of weighted-average cost (which approximates actual cost) or market value. Weighted average cost is comprised of average manufacturing costs weighted by the volume produced in each production run. We define market value as the net realizable value for our finished goods and replacement cost for raw materials and work in process.

We consider raw material inventory slow moving and fully reserve for it if it has not moved in 365 days. For assembled devices, we disaggregate the inventory by part number. We compare the quantities on hand in each part number category to the quantity we shipped in the previous twelve months, the quantity in backlog and to the quantity we expect to ship in the next twelve months. We record a reserve to the extent the value of each quantity on hand is in excess of the lesser of the three comparisons. In certain circumstances, management will determine, based on expected usage or other factors, that inventory considered excess by these guidelines should not be reserved. The Company does occasionally determine that last twelve months’ sales levels will not continue and reserves inventory in line with the quantity forecasted. We believe our method of evaluating our inventory fairly represents market conditions.

We consider the reserved material to be available for sale. We do not revalue the reserved inventory should market conditions change or if a market develops for the obsolete inventory. In the past, we have sold obsolete inventory that we have previously fully reserved. Refer to the discussion under the caption “Gross Profit” in this Management’s Discussion and Analysis of Financial Condition and Results of Operations for further discussion of sales of our obsolete inventory.

PROPERTY, PLANT AND EQUIPMENT. We record our property, plant and equipment at cost and depreciate the cost over the estimated useful lives of each asset classification, ranging between 3 and 40 years. Cost includes purchase cost, applicable taxes, freight, installation costs and interest incurred in the acquisition of any asset that requires a period of time to make it ready for use. In addition, we capitalize the cost of major replacements, improvements and betterments, while we expense normal maintenance and repair.

INVESTMENTS IN UNCONSOLIDATED AFFILIATES. We hold and have held ownership interests in various investees. Our ownership in these affiliates has varied from 20% to approximately 49%, which we classify as investments in unconsolidated affiliates in our consolidated balance sheets. We account for long-term investments in companies in which we have an ownership share larger than 20% and in which we have significant influence over the activities of the investee using the equity method. We recognize our proportionate share of each investee’s income or loss in the period in which the investee reports the income or loss. We eliminate all intercompany transactions in accounting for our equity method investments.

IMPAIRMENT OF GOODWILL AND OTHER INTANGIBLE ASSETS. Goodwill and indefinite-lived intangible assets are tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. The provisions of the accounting standard for goodwill and other intangibles require that we perform a two-step impairment test on goodwill. In the first step, we compare the fair value of each to its carrying value. In general, our reporting units are one step below the segment level. We determine the fair value of our reporting units based on a weighting of income and market approaches. Under the income approach, we

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calculate the fair value of a reporting unit based on the present value of estimated future cash flows. Under the market approach, we estimate the fair value based on market multiples of revenue or earnings for comparable companies. Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, and future economic and market conditions and determination of appropriate market comparables. The Company bases these fair value estimates on reasonable assumptions but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates. In addition, the Company makes certain judgments and assumptions in allocating shared assets and liabilities to determine the carrying values for each reporting unit.

If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not impaired and we are not required to perform further testing. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then we must perform the second step of the impairment test in order to determine the implied fair value of the reporting unit’s goodwill. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, then we record an impairment loss equal to the difference. We determined that no impairment of our other indefinite-lived intangible assets existed as of June 28, 2014. We also evaluate other definite-lived intangible assets for impairment when events or changes in circumstances indicate that the assets might be impaired. We determined that no impairment for these other definite-lived intangible assets existed at June 28, 2014.

SHARE-BASED COMPENSATION. The Company recognizes employee share-based compensation through measurement at grant date based on the fair value of the award, and the fair value is recognized as an expense over the employee’s requisite service period. See Note 14 for further discussion of share-based compensation.

INCOME TAXES. We account for income taxes using an asset and liability approach to recording deferred taxes. Our deferred income tax assets represent temporary differences between the financial statement carrying amount and the tax basis of existing assets and liabilities that will result in deductible amounts in future years, including net operating loss carry forwards. Based on estimates, the carrying value of our net deferred tax assets assumes that it is more likely than not that we will be able to generate sufficient future taxable income in certain tax jurisdictions. Our judgments regarding future profitability may change due to future market conditions, changes in U.S. or international tax laws and other factors. If, in the future, we experience losses for a sustained period of time, we may not be able to conclude that it is more likely than not that we will be able to generate sufficient future taxable income to realize our deferred tax assets. If this occurs, we may be required to increase the valuation allowance against the deferred tax assets resulting in additional income tax expense.

Our income tax calculations are based on application of the respective U.S. federal, state or foreign tax laws. Our tax filings, however, are subject to audit by the respective tax authorities. Accordingly, we recognize tax liabilities based on its estimates of whether, and the extent to which, additional taxes will be due when such estimates are more-likely-than-not to be sustained. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. To the extent the final tax liabilities are different than the amounts originally accrued, the increases or decreases are recorded as income tax expense or benefit in the Consolidated Statements of Operations.

EXECUTIVE OVERVIEW

We incorporated Pericom Semiconductor Corporation in June 1990 in California. We design, develop and market high-performance integrated circuits and frequency control products used in many of today’s advanced electronic systems.

In recent years, our revenues have declined in the computing market segment as sales of our products used in personal computers and laptops declined with the transition to mobile devices such as tablets and smart phones where we have lower market share. Our strategy to target the ultramobility and embedded markets, including automotive, has produced revenue growth that has not yet surpassed the revenue decline in the computing market segment.

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During fiscal year 2014, net sales decreased 1% as compared with fiscal year 2013; however, we continued to grow revenues in our target markets of ultramobility, which approximately doubled from fiscal 2013, and embedded, which was up a little over 10%, offset by further declines in the networking and computing market segments, with each decreasing approximately 10%. We increased gross profit in fiscal year 2014 to $51.1 million for an increase of $3.2 million from $47.9 million in fiscal year 2013, primarily due to improved product mix in both IC and FCP products. The resulting gross margin for fiscal year 2014 was 39.9%, a 290 basis point improvement, as compared to 37.0% in fiscal year 2013.

Operating income was $1.0 million in fiscal year 2014, including a charge of $0.8 million related to the write-off of an uncollected government subsidy, as compared with an operating loss of $19.6 million in fiscal year 2013 that included a charge of $16.9 million related to the impairment of goodwill associated with the acquisition of PTI.

Net income for fiscal year 2014 was $4.1 million, or $0.18 per diluted share as compared to a net loss of $21.6 million or a loss of $0.93 per share for fiscal 2013.

In summary, our progress in the execution of our market segment transition and gross margin expansion activities are evident in our financial results for fiscal year 2014.

RESULTS OF OPERATIONS

The following table sets forth certain statement of operations data as a percentage of net revenues for the periods indicated:

	Fiscal Year Ended
	June 28, 2014			June 29, 2013			June 30, 2012
Net revenues		100.0	%		100.0	%		100.0	%
Cost of revenues		60.1			63.0			64.5
Gross margin		39.9			37.0			35.5
Operating expenses:
Research and development		15.5			16.2			15.9
Selling, general and administrative		23.7			22.9			21.6
Goodwill impairment		—			13.1			—
Total operating expenses		39.2			52.2			37.5
Income (loss) from operations		0.7			(15.2	)		(2.0	)
Interest and other income, net		2.2			3.1			2.7
Income (loss) before income taxes		2.9			(12.1	)		0.7
Income tax expense (benefit)		(0.2	)		4.8			2.3
Net income (loss) from consolidated companies		3.1			(16.9	)		(1.6	)
Equity in net income of unconsolidated affiliates		0.1			0.2			0.1
Net income (loss)		3.2	%		(16.7	)%		(1.5	)%

 

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COMPARISON OF FISCAL 2014, 2013 AND 2012

NET REVENUES

The following table sets forth our revenues and the customer concentrations with respect to such revenues for the periods indicated:

	Fiscal Year Ended									Fiscal Year Ended
(in thousands)	June 28, 2014			June 29, 2013			% Change			June 29, 2013			June 30, 2012			% Change
Net revenues	$	128,068		$	129,255			–0.9	%	$	129,255		$	137,135			–5.7	%
Percentage of net revenues accounted for by top 5 direct customers(1)		47	%		42	%					42	%		47	%
Number of direct customers that each account for more than 10% of net revenues		2			2						2			2
Percentage of net revenues accounted for by top 5 end customers(2)		32	%		29	%					29	%		28	%
Number of end customers that each account for more than 10% of net revenues		1			1						1			—

 

(1)   Direct customers include distributors, contract manufacturers and OEMs.

(2)   End customers are OEMs and their products are manufactured using the Company’s products. End customers may purchase directly from the Company or from distributors or contract manufacturers. For end customer sales data, we rely on information provided by our direct distribution and contract manufacturing customers.

Net revenues consist of product sales, which we generally recognize upon shipment, less an estimate for returns and allowances.

Our order backlog stood at $18.2 million as of June 28, 2014 and $20.6 million as of June 29, 2013. We expect to fulfill most of our backlogged orders as of June 28, 2014 within the first quarter of fiscal 2015. We remain heavily reliant on orders that book and ship in the same quarter (“turns orders”). Our reliance on turns orders, the uncertain strength of our end-markets and the uncertain growth rate of the world economy make it difficult to predict near-term demand.

Net revenue decreased $1.2 million or 0.9% in fiscal 2014 versus 2013 primarily as the result of:

•   An increase of $1.1 million or 1.5% in sales of our IC products to $78.3 million, which included $13.5 million from PTI, which was offset by

•   a $2.3 million decrease in sales of FCP products to $49.8 million, for a 4.4% decrease.

The increased sales of IC products was driven by a $6.8 million gain in sales of ultramobility (cell phone) products, partially offset by declines in sales of PC/notebook and network products. The decreases in FCP product revenues were primarily in networking, PC/notebook, server and storage products.

Net revenue decreased $7.9 million or 5.7% in fiscal 2013 versus 2012 primarily as the result of:

•   A decrease of $8.3 million or 9.7% in sales of our IC products to $77.2 million, which included $14.4 million from the acquisition of PTI, partially offset by

•   a $393,000 increase in sales of FCP products to $52.1 million, for a 0.8% increase.

The sales decreases are primarily the result of declines in unit sales volumes of existing products, as opposed to price decreases, and occurred for the most part in the markets for PC’s and notebook computers.

For the years ended June 28, 2014 and June 29, 2013, gross revenues were impacted by sales reserves in the amount of $4.9 million and $4.5 million, respectively. In the future, market conditions could become more difficult as other companies compete more aggressively for business. Pricing for our higher margin IC Analog Switch, Clock and Connect products, many of which are proprietary, is more stable, and new product introductions and cost reductions generally offset price declines.

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The following table sets forth net revenues by country as a percentage of total net revenues for the fiscal years ended June 28, 2014, June 29, 2013, and June 30, 2012:

	Fiscal Year Ended
(in thousands)	June 28, 2014			June 29, 2013			June 30, 2012
Net revenues by country:
China (including Hong Kong)		47.7	%		47.6	%		35.1	%
Taiwan		30.8			33.4			46.2
United States		4.6			5.0			5.3
Others (less than 10% each)		16.9			14.0			13.4
Total net revenues		100.0	%		100.0	%		100.0	%

 

Over the past three years, sales to China and Taiwan have constituted the majority of our sales. We expect this trend will continue in the future.

GROSS PROFIT

	Fiscal Year Ended									Fiscal Year Ended
(in thousands)	June 28, 2014			June 29, 2013			% Change			June 29, 2013			June 30, 2012			% Change
Net revenues	$	128,068		$	129,255			–0.9	%	$	129,255		$	137,135			–5.7	%
Gross profit		51,085			47,867			6.7	%		47,867			48,651			–1.6	%
Gross profit percentage		39.9	%		37.0	%					37.0	%		35.5	%

 

The $3.2 million increase in gross profit in fiscal 2014 as compared to fiscal 2013 is primarily the result of:

•   Higher margins at 39.9%, resulting in a $3.7 million increase in gross profit, partially offset by

•   A 0.9% decrease in sales, resulting in $439,000 of reduced gross profit.

Gross margins improved in both IC and FCP products, from 47.9% to 49.3% for IC and from 20.9% to 25.2% for FCP from fiscal 2013 to fiscal 2014, respectively.

The $784,000 decrease in gross profit in fiscal 2013 as compared to fiscal 2012 is primarily the result of:

•   A 5.7% decrease in sales, which led to $2.8 million of decreased gross profit, partially offset by

•   higher margins at 37.0%, due primarily to a higher-margin product mix, resulting in a $2.0 million increase in gross profit.

During fiscal years 2014, 2013 and 2012, gross profits and gross margins benefited from the sale of inventory of $327,000, $306,000 and $188,000, respectively, that we had previously identified as excess and reserved.

Future gross profit and gross margin are highly dependent on the level and product mix included in net revenues. This includes the mix of sales between lower margin FCP products and our higher margin integrated circuit products. Although we have been successful at favorably improving our integrated circuit product mix and penetrating new end markets, there can be no assurance that this will continue. Accordingly, we are not able to predict future gross profit levels or gross margins with certainty.

RESEARCH AND DEVELOPMENT

	Fiscal Year Ended									Fiscal Year Ended
(in thousands)	June 28, 2014			June 29, 2013			% Change			June 29, 2013			June 30, 2012			% Change
Net revenues	$	128,068		$	129,255			–0.9	%	$	129,255		$	137,135			–5.7	%
Research and development		19,795			21,017			–5.8	%		21,017			21,722			–3.2	%
R&D as a percentage of net revenues		15.5	%		16.3	%					16.3	%		15.9	%

 

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Research and development (“R&D”) expenses consist primarily of costs related to personnel and overhead, non-recurring engineering charges and other costs associated with the design, prototyping and testing of new product concepts, manufacturing process support and customer applications support. The approximately $1.2 million expense decrease for fiscal 2014 as compared with fiscal 2013 is primarily attributable to decreases of $684,000 in depreciation and amortization charges, and reductions of $517,000 for outside consultants and recruiting expenses.

The approximately $705,000 expense decrease for fiscal 2013 as compared with fiscal 2012 is primarily attributable to decreases of $678,000 for masks, assembly, design consultants and freight expenditures, $556,000 in depreciation and amortization charges, and $200,000 in facilities-related expenses, partially offset by increased compensation expenses of $735,000.

We believe that continued investment in research and development to develop new products and improve manufacturing processes is critical to our success and, consequently, we expect to increase research and development expenses in future periods over the long term.

SELLING, GENERAL AND ADMINISTRATIVE

	Fiscal Year Ended									Fiscal Year Ended
(in thousands)	June 28, 2014			June 29, 2013			% Change			June 29, 2013			June 30, 2012			% Change
Net revenues	$	128,068		$	129,255			–0.9	%	$	129,255		$	137,135			–5.7	%
Selling, general and administrative		30,320			29,581			2.5	%		29,581			29,648			–0.2	%
SG&A as a percentage of net revenues		23.7	%		22.9	%					22.9	%		21.6	%

 

Selling, general and administrative (“SG&A”) expenses consist primarily of personnel and related overhead costs for sales, marketing, finance, administration, human resources and general management. The $739,000 expense increase for fiscal 2014 as compared with fiscal 2013 is primarily attributable to increases of $1.5 million in compensation-related expenses and $843,000 of government subsidy receivable write-off, partially offset by reductions of $848,000 in facilities expenses and $702,000 for outside consultants.

The $67,000 expense decrease for fiscal 2013 as compared with fiscal 2012 is primarily attributable to decreases of $844,000 in notes receivable write-offs and $194,000 in recruiting expenses, partially offset by increases of $386,000 in facilities expenses, $282,000 in compensation-related expenses and $282,000 in outside accounting services.

We anticipate that selling, general and administrative expenses will increase in future periods as we add to our support and administrative staff, particularly in sales and marketing, and as we face increasing commission expense to the extent we achieve higher sales levels. We intend to continue to focus on controlling selling, general and administrative expenses.

GOODWILL IMPAIRMENT

We test goodwill for impairment annually. We first assess qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying value. If the carrying value exceeds its fair value, then the second step is performed to determine the implied fair value of the reporting unit’s goodwill, and an impairment loss is recorded for an amount equal to the difference between the implied fair value and the carrying value of the goodwill. The fiscal 2013 goodwill impairment analysis resulted in an impairment charge of $16.9 million, in which we wrote-off the goodwill associated with the acquisition of PTI in 2010 and Pericom Taiwan Limited in 2009. This was based on a combination of factors including a decline in the net present value of expected future cash flows from our three reporting units as well as a decline in our market capitalization. There was no goodwill impairment for the years ended June 28, 2014 and June 30, 2012.

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INTEREST AND OTHER INCOME, NET

	Fiscal Year Ended							Fiscal Year Ended
(in thousands)	June 28, 2014		June 29, 2013		% Change			June 29, 2013		June 30, 2012		% Change
Net revenues	$	128,068	$	129,255		–0.9	%	$	129,255	$	137,135		–5.7	%
Interest income		2,656		3,442		–22.8	%		3,442		3,460		–0.5	%
Other income		136		601		–77.4	%		601		224		168.3	%
Total interest and other income, net	$	2,792	$	4,043				$	4,043	$	3,684

 

The decrease in interest income including realized gains for fiscal 2014, as compared to fiscal 2013, was primarily the result of an $890,000 decrease in realized gains from the sale of investment securities, partially offset by a modest increase in interest earned. The $465,000 decrease in other income for fiscal 2014 included a $573,000 decrease in currency exchange gains and a $108,000 increase in other income.

The $377,000 increase in other income for fiscal 2013, as compared to fiscal 2012, was primarily the result of a $228,000 increase in currency exchange gains and a $150,000 increase in other income.

INTEREST EXPENSE

Less than $1,000 of interest expense was recorded in fiscal 2014, as compared with $19,000 in fiscal 2013. There was no debt outstanding at the end of fiscal 2014.

Interest expense decreased to $19,000 in fiscal 2013 from $70,000 in fiscal 2012 as a result of reduced levels of debt outstanding during the year. There was no debt outstanding at the end of fiscal 2013.

PROVISION FOR INCOME TAXES

	Fiscal Year Ended									Fiscal Year Ended
(in thousands)	June 28, 2014			June 29, 2013			% Change			June 29, 2013			June 30, 2012			% Change
Pre-tax income (loss)	$	3,762		$	(15,606	)		124.1	%	$	(15,606	)	$	895			–1843.7	%
Income tax provision (benefit)		(230	)		6,223			–103.7	%		6,223			3,097			100.9	%
Effective tax rate		–6.1	%		–39.9	%					–39.9	%		346.0	%

 

Our effective tax rate differs from the federal statutory rate primarily due to state income taxes, the effect of foreign income tax and foreign losses, the utilization of research and development tax credits and changes in the deferred tax asset valuation allowance.

The effective tax rate for fiscal 2014 resulted in a 6.1% tax benefit primarily due to the release of $1.8 million of tax reserves during the year. A reconciliation of our tax rates for fiscal years 2014, 2013 and 2012 is detailed in Note 17 to the Consolidated Financial Statements contained in this report on Form 10-K.

The income tax provision for fiscal 2013 increased from fiscal 2012 primarily as a result of our implementation of an operating structure to more efficiently align our transaction flows with our geographic business operations, resulting in a taxable gain in the U.S. for which we booked a $5.0 million income tax provision. Further, the pre-tax loss in fiscal 2013 is primarily the result of the $16.9 million charge for goodwill impairment, which is not deductible for tax purposes.

EQUITY IN NET INCOME OF UNCONSOLIDATED AFFILIATE

	Fiscal Year Ended							Fiscal Year Ended
(in thousands)	June 28, 2014		June 29, 2013		% Change			June 29, 2013		June 30, 2012		% Change
Equity in net income of unconsolidated affiliate	$	132	$	215		–38.6	%	$	215	$	134		60.4	%

 

Equity in net income of unconsolidated affiliate consists of the Company’s allocated portion of the net income of Jiyuan Crystal Photoelectric Frequency Technology Ltd. (“JCP”), an FCP manufacturing company located in Science Park of Jiyuan City, Henan Province, China. JCP is a key manufacturing partner of PSE-TW, and PSE-TW

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has acquired a 49% equity interest in JCP. For fiscal 2014, the Company’s allocated portion of JCP’s results was income of $132,000, as compared with $215,000 and $134,000 for fiscal 2013 and 2012, respectively.

LIQUIDITY AND CAPITAL RESOURCES

As of June 28, 2014, our principal sources of liquidity included continuing operations as well as cash, cash equivalents, and short-term investments of approximately $119.1 million, as compared with $117.7 million at June 29, 2013 and $127.8 million at June 30, 2012.

The Company’s investment in debt securities includes government securities, corporate debt securities and mortgage backed and asset backed securities. Government securities include US treasury securities, US federal agency securities, foreign government and agency securities, and US state and municipal bond obligations. Many of the municipal bonds are insured; those that are not are nearly all AAA/Aaa rated. The corporate debt securities are all investment grade and nearly all are single A-rated or better. The asset-backed securities are AAA/Aaa rated and are backed by auto loans, student loans, credit card balances and residential or commercial mortgages. Most of our mortgage-backed securities are collateralized by prime residential mortgages issued by government agencies including the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and Federal Home Loan Banks. Those issued by commercial banks are AAA-rated. As of June 28, 2014, unrealized gains on marketable securities, net of taxes were $132,000. When assessing marketable securities for other-than-temporary declines in value, we consider a number of factors. Our analyses of the severity and duration of price declines, portfolio manager reports, economic forecasts and the specific circumstances of issuers indicate that it is reasonable to expect marketable securities with unrealized losses as of June 28, 2014 to recover in fair value up to our cost basis within a reasonable period of time. We have the ability and intent to hold investments with unrealized losses until maturity, when the obligors are required to redeem them at full face value or par, and we believe the obligors have the financial resources to redeem the debt securities. Accordingly, we do not consider our investments to be other than temporarily impaired as of June 28, 2014.

As of June 28, 2014, we owned assets classified as cash and cash equivalents of $33.0 million as compared to $30.8 million at June 29, 2013 and $24.3 million at June 30, 2012. The maturities of our short-term investments are staggered throughout the year to ensure we meet our cash requirements. Because we are primarily a fabless semiconductor manufacturer, we have lower capital equipment requirements than other semiconductor manufacturers that own fabrication foundries. During the 2014 fiscal year, we purchased $5.0 million of property and equipment as compared to $13.2 million and $4.3 million in fiscal 2013 and 2012, respectively.

We generated approximately $2.8 million of interest and other income, net during the fiscal year ended June 28, 2014 compared to $4.0 million and $3.7 million in the fiscal years ended June 29, 2013 and June 30, 2012, respectively. In the longer term, we may generate less interest and other income if our total invested balance decreases and the decrease is not offset by rising interest rates or realized gains on the sale of investment securities.

In fiscal 2014, our net cash provided by operating activities of $14.5 million was the result of net income of $4.1 million plus $14.4 million in net favorable non-cash adjustments to net income, partially offset by unfavorable changes in assets and liabilities of $4.0 million. The favorable adjustments to net income were primarily comprised of depreciation and amortization of $10.0 million, stock based compensation of $2.8 million, $843,000 write-off of government subsidy, $343,000 of property and equipment write-offs and stock compensation tax benefit of $700,000, partially offset by $179,000 of realized gain on investments and $132,000 of non-cash equity in net income of our unconsolidated affiliate. The favorable changes in assets and liabilities primarily included a $2.6 million decrease in net inventory, a $245,000 decrease in prepaids and other current assets, a $338,000 decrease in other long-term assets and a $349,000 increase in accrued liabilities, partially offset by a $2.2 million increase in accounts receivable and a $3.4 million decrease in accounts payable.

In fiscal 2013, our net cash provided by operating activities of $11.0 million was the result of $31.0 million in net favorable non-cash adjustments to a net loss of $21.6 million, and favorable changes in assets and liabilities of $1.6 million. The favorable adjustments to the net loss were primarily comprised of goodwill impairment charge of $16.9 million, depreciation and amortization of $11.2 million, share-based compensation of $3.3 million, share-based compensation tax benefit of $492,000 and $475,000 of property and equipment writeoffs, partially offset by $1.0 million of realized gain on investments and $215,000 of non-cash equity in net income of our

39

unconsolidated affiliates. The favorable changes in assets and liabilities primarily included a $2.5 million decrease in accounts receivable, a $1.9 million decrease in net inventory and a $654,000 increase in long-term liabilities, partially offset by a $2.8 million decrease in accounts payable and a $956,000 decrease in accrued liabilities.

In fiscal 2012, our net cash provided by operating activities of $27.7 million was the result of $18.3 million in net favorable non-cash adjustments to a net loss of $2.1 million, and favorable changes in assets and liabilities of $11.5 million. The favorable adjustments to the net loss were primarily comprised of depreciation and amortization of $11.9 million, share-based compensation of $3.7 million, $1.8 million in deferred taxes, $856,000 in notes receivable writeoffs, share-based compensation tax benefit of $512,000 and $354,000 of property and equipment writeoffs, partially offset by $673,000 of realized gain on investments and $134,000 of non-cash equity in net income of our unconsolidated affiliates. The favorable changes in assets and liabilities primarily included a $6.3 million decrease in accounts receivable, a $5.0 million decrease in net inventory, a $676,000 decrease in other assets, a $2.7 million increase in accounts payable and a $453,000 increase in long-term liabilities, partially offset by an $883,000 increase in prepaid expenses and other current assets and a $2.7 million decrease in accrued liabilities.

In fiscal 2014, we used cash in our investing activities of $3.5 million, which was primarily the result of purchases of property and equipment of $5.0 million, partially offset by net maturities of investments of approximately $1.5 million.

In fiscal 2013, our investing activities provided cash of $3.3 million, which was primarily comprised of maturities and sales of investments exceeding purchases by $16.5 million, partially offset by purchases of property and equipment of $13.2 million.

In fiscal 2012, we used $15.2 million of cash in our investing activities, which was primarily comprised of final payouts of $8.1 million to complete the PTI acquisition, purchases of property and equipment of $4.3 million, and net purchases of investments of $5.7 million, partially offset by a $2.9 million reduction in restricted cash balances.

In fiscal 2014, we used cash in financing activities of $8.9 million, which consisted of $11.3 million used to repurchase common stock, partially offset by $2.4 million of proceeds from employee stock option exercises and purchases under the Employee Stock Purchase Plan.

In fiscal 2013, we used cash in financing activities of $8.4 million, which consisted of $7.8 million used to repurchase common stock and $1.4 million of net paydowns of short-term bank loans, partially offset by $797,000 of proceeds from employee stock option exercises and purchases under the Employee Stock Purchase Plan.

In fiscal 2012, we used cash in financing activities of $17.6 million, which consisted of $11.6 million used to repurchase common stock and $6.9 million of net paydowns of short-term bank loans, partially offset by $918,000 of proceeds from employee stock option exercises and purchases under the Employee Stock Purchase Plan.

We believe our existing cash and investment balances, as well as cash expected to be generated from operating activities, will be sufficient to meet our anticipated cash needs for at least the next 12 months.

On April 26, 2012, the Board of Directors authorized a share repurchase program for up to $25 million of shares of the Company’s common stock, and on April 24, 2014, the Board authorized an additional $20 million for the share repurchase program. During the year ended June 28, 2014, the Company repurchased 1,354,511 shares for an aggregate cost of $11.3 million. During the year ended June 29, 2013, the Company repurchased 1,100,306 shares for an aggregate cost of $7.8 million. During the year ended June 30, 2012, the Company repurchased 1,482,572 shares for an aggregate cost of $11.6 million. As of June 28, 2014, approximately $26.6 million may still be purchased under the 2012 and 2014 authorizations.

We may use a portion of our cash to acquire or invest in complementary businesses or products or to obtain the right to use complementary technologies. From time to time, in the ordinary course of business, we may evaluate potential acquisitions of such businesses, products or technologies.

Our long-term future capital requirements will depend on many factors, including our level of revenues, the timing and extent of spending to support our product development efforts, the expansion of sales and marketing activities, the timing of our introductions of new products, the costs to ensure access to adequate manufacturing capacity, and the continuing market acceptance of our products. We could be required, or could elect, to seek additional

40

funding through public or private equity or debt financing and additional funds may not be available on terms acceptable to us or at all.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

The following table depicts our contractual obligations as of June 28, 2014:

	Payments Due by Period
(in thousands) Contractual obligation	Total		Less than 1 Year		1-3 Years		3-5 Years		Thereafter
Operating leases and operating expense commitments	$	540	$	485	$	55	$	—	$	—
Capital equipment purchase commitments		4		4		—		—		—
Facility modification commitments		12		12		—		—		—
Total contractual obligations	$	556	$	501	$	55	$	—	$	—

 

The operating lease commitments are primarily facility leases at certain of the Company’s Asian subsidiaries.

The Company has no purchase obligations other than routine purchase orders and the facility modifications shown in the table as of June 28, 2014.

OFF-BALANCE SHEET ARRANGEMENTS

As of June 28, 2014, the Company did not have any off-balance sheet arrangements, as defined in Item 303(a)(4) of SEC Regulation S-K.

RECENTLY ISSUED ACCOUNTING STANDARDS

In July 2013, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2013-11, Income Taxes (Topic 740)-Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. ASU 2013-11 provides guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, similar tax loss, or tax credit carryforward exists. This new standard requires the netting of unrecognized tax benefits (“UTBs”) against a deferred tax asset for a loss or other carryforward that would apply in settlement of the uncertain tax positions. UTBs will be netted against all available same-jurisdiction loss or other tax carryforwards that would be utilized, rather than only against carryforwards that are created by the UTBs. ASU 2013-11 will be effective for annual reporting periods, and interim reporting periods within those years, beginning after December 15, 2013. Early adoption is permitted. Since ASU 2013-11 only impacts financial statement disclosure requirements for unrecognized tax benefits, the Company does not expect its adoption to have an impact on the Company’s financial position or results of operations.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. ASU 2014-09 outlines a single comprehensive model for accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. ASU 2014-09 requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 will be effective for annual and interim reporting periods beginning after December 15, 2016. The impact on our financial condition, results of operations and cash flows as a result of the adoption of ASU 2014-09 has not yet been determined.

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ITEM 7A. QUANTITATIVE & QUALITATIVE DISCLOSURES ABOUT MARKET RISK

MARKET RISK DISCLOSURE

At June 28, 2014, the Company’s investment portfolio consisted primarily of fixed income securities, excluding those classified as cash equivalents, with fair value of $86.1 million (see Note 1 of Notes to Financial Statements). These securities are subject to interest rate risk and will decline in value if market interest rates increase. We could realize a loss on these securities if we were forced to sell them in a period when interest rates are higher than current rates. For example, if market interest rates were to increase immediately and uniformly by 10% from levels as of June 28, 2014, such as from 1.7% to 1.87%, the decline in the fair value of the portfolio would be approximately $7.8 million. On the other hand, if interest rates were to decline the effect on our portfolio would be in the opposite direction.

When the general economy weakens significantly, as it did in 2008 and 2009, the credit profile, financial strength and growth prospects of certain issuers of interest-bearing securities held in our investment portfolios may deteriorate, and our interest-bearing securities may lose value either temporarily or other than temporarily. We may implement investment strategies of different types with varying duration and risk/return trade-offs that do not perform well. As of June 28, 2014, we held a significant portion of our corporate cash in diversified portfolios of investment-grade marketable securities, mortgage- and asset-backed securities, and other securities that had net unrealized gains of $132,000 net of tax. Although we consider unrealized gains and losses on individual securities to be temporary, there is a risk that we may incur other-than-temporary impairment charges if credit and equity markets are unstable and adversely impact securities issuers.

The Company transacts business in various non-U.S. currencies, primarily the New Taiwan Dollar, the Hong Kong Dollar and the Chinese Renminbi. The Company is exposed to fluctuations in foreign currency exchange rates on accounts receivable and accounts payable from sales and purchases in these foreign currencies and the net monetary assets and liabilities of our foreign subsidiaries. A hypothetical 10% unfavorable change in the foreign currency exchange rate would reduce cash by approximately $3.1 million as those monetary assets are converted to cash.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

		Page No.
1.	INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
	The following Consolidated Financial Statements are filed as part of this report:
	Report of Independent Registered Public Accounting Firm		50
	Consolidated Balance Sheets as of June 28, 2014 and June 29, 2013		51
	Consolidated Statements of Operations for each of the three fiscal years in the period ended June 28, 2014		52
	Consolidated Statements of Comprehensive Income (Loss) for each of the three fiscal years in the period ended June 28, 2014		53
	Consolidated Statements of Shareholders’ Equity for each of the three fiscal years in the period ended June 28, 2014		54
	Consolidated Statements of Cash Flows for each of the three fiscal years in the period ended June 28, 2014		55
	Notes to Consolidated Financial Statements		56
2.	INDEX TO FINANCIAL STATEMENT SCHEDULE
	The following financial statement schedule of Pericom Semiconductor Corporation for the years ended June 28, 2014, June 29, 2013 and June 30, 2012 is filed as part of this report and should be read in conjunction with the Consolidated Financial Statements of Pericom Semiconductor Corporation.
	Schedule II — Valuation and Qualifying Accounts for each of the three fiscal years in the period ended June 28, 2014		Sii

 

Schedules other than those listed above have been omitted since they are either not required, not applicable or the information is otherwise included.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Based on their evaluation as of June 28, 2014, our Chief Executive Officer and Chief Financial Officer, have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e), under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) were effective to ensure that the information required to be disclosed by us in this Annual Report on Form 10-K was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and instructions for Form 10-K and that such disclosure controls and procedures were also effective to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the Exchange Act. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has assessed the effectiveness of our internal control over financial reporting as of June 28, 2014. In making this assessment, our management used the criteria established in the 1992 framework, Internal Control—Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Our management has concluded that, as of June 28, 2014, our internal control over financial reporting is effective based on these criteria.

Our independent registered public accounting firm, Burr Pilger Mayer, Inc., which audited the financial statements in this Annual Report on Form 10-K, independently assessed the effectiveness of the Company’s internal control over financial reporting. Burr Pilger Mayer, Inc. has issued an attestation report, which appears as part of this Annual Report on Form 10-K.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the year ended June 28, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON
INTERNAL CONTROL OVER FINANCIAL REPORTING

To the Board of Directors and Shareholders
of Pericom Semiconductor Corporation

We have audited the internal control over financial reporting of Pericom Semiconductor Corporation and its subsidiaries (the “Company”) as of June 28, 2014, based on criteria established in Internal Control — Integrated Framework (1992 Framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting, included in Item 9A. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 28, 2014, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Pericom Semiconductor Corporation and its subsidiaries as of June 28, 2014 and June 29, 2013, and the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity and cash flows for each of the three years in the period ended June 28, 2014, and the related financial statement schedule and our report dated August 28, 2014 expressed an unqualified opinion on those consolidated financial statements and the related financial statement schedule.

/s/ Burr Pilger Mayer, Inc.

San Jose, California
August 28, 2014

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this item is incorporated by reference to the Company’s Definitive Proxy Statement related to the Annual Meeting of Shareholders to be held December 4, 2014, to be filed by the Company with the SEC (the “Proxy Statement”).

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference to the Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The security ownership information required by this item is incorporated by reference to the Proxy Statement.

EQUITY COMPENSATION PLANS

The following table summarizes share and exercise price information about our equity compensation plans as of June 28, 2014.

Plan Category	Number of securities to be issued upon exercise of outstanding options and RSUs			Weighted average exercise price of outstanding options, warrants and rights			Number of securities remaining available for future issuance under plans
Equity compensation plans approved by shareholders:
Stock incentive plans		2,733,937	(1)	$	10.25	(2)		1,045,650
Employee stock purchase plan		—						1,581,556
Total		2,733,937		$	10.25			2,627,206

 

(1)   Represents shares of the Company’s Common Stock issuable upon exercise of outstanding options under the following equity compensation plans: the 2004 Stock Incentive Plan, the 2001 Stock Incentive Plan and the 1995 Stock Option Plan, and 648,501 shares underlying outstanding restricted stock unit awards granted under the 2004 Stock Incentive Plan that may be delivered in the future upon satisfaction of vesting requirements.

(2)   This calculation does not take into account shares underlying restricted stock unit awards.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this item is incorporated by reference to the Proxy Statement.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item is incorporated by reference to the Proxy Statement.

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)   The following documents are filed as part of this report:

(1)   Financial Statements and Financial Statement Schedule — See Index to Financial Statements and Financial Statement Schedule at Item 8 of this annual report on Form 10-K.

(2)   Exhibits. The following exhibits are filed as part of, or incorporated by reference into, this Report:

Exhibit	Description
3.1	Restated Articles of Incorporation of the Company, filed as Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2001, and incorporated herein by reference.
3.2	Amended and Restated Bylaws of the Company (as amended by an amendment adopted on June 25, 2013), filed as Exhibit 3.1 to the Company’s Form 8-K filed June 27, 2013, and incorporated herein by reference.
3.3	Amended and Restated Certificate of Determination of the Series D Junior Participating Preferred Shares, filed as Exhibit 3.1 to the Company’s Form 8-K filed March 8, 2012, and incorporated herein by reference.
4.1	Rights Agreement between Pericom Semiconductor Corporation and Computershare Trust Company, N.A., dated as of March 6, 2012, including Form of Right Certificate attached thereto as Exhibit B, filed as Exhibit 4.1 to the Company’s Form 8-K filed March 8, 2012, and incorporated herein by reference.
10.1*	Pericom’s 1995 Stock Option Plan, including Form of Agreement thereunder, filed as Exhibit 10.2 to the Company’s Registration Statement on Form S-1 filed September 10, 1997, and incorporated herein by reference.
10.2*	Form of Indemnification Agreement, filed as Exhibit 10.11 to the Company’s Registration Statement on Form S-1 filed September 10, 1997, and incorporated herein by reference.
10.3*	Form of Notice of Grant of Stock Option and Option Agreement for Inducement Options, filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 27, 2003, and incorporated herein by reference.
10.5*	Amended and Restated 2001 Stock Incentive Plan including Form of Agreement thereunder, filed as Exhibit 10.2 to the Company’s Form 8-K filed December 21, 2004, and incorporated herein by reference.
10.6**	English translation of Cooperation Agreement between Pericom Semiconductor Corporation and the Jinan Hi-Tech Industries Development Zone Commission, dated as of January 26, 2008, filed as Exhibit 10.1 to the Company’s Form 8-K/A filed May 5, 2008, and incorporated herein by reference.
10.7*	Forms of Restricted Stock Award Grant Notice and Restricted Stock Award Agreement under each of the Amended and Restated Pericom 2001 Stock Incentive Plan and the Amended and Restated Pericom 2004 Stock Incentive Plan, filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 29, 2008, and incorporated herein by reference.
10.8*	Amended and Restated Change of Control Agreement, filed as Exhibit 10.1 to the Company’s Form 8-K filed November 6, 2012, and incorporated herein by reference.

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Exhibit	Description
10.9*	Amended and Restated 2004 Stock Incentive Plan, attached as Appendix A to the Company’s Definitive Proxy Statement on Schedule 14A filed October 23, 2008, and incorporated herein by reference.
10.10*	Pericom’s 2010 Employee Stock Purchase Plan, attached as Appendix A to the Company’s Definitive Proxy Statement on Schedule 14A filed October 23, 2009, and incorporated herein by reference.
10.11**	English translation of R&D Center Investment Agreement, dated as of December 1, 2009, between Yangzhou Economic and Technological Development Zone and Pericom Asia Limited, filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended December 26, 2009, and incorporated herein by reference.
10.12	Purchase and Sale Agreement, dated July 6, 2012, between Pericom Semiconductor Corporation and Barber Lane Investors, LLC for the acquisition of the office building at 1545 Barber Lane, Milpitas, California, filed as Exhibit 10.13 to the Company’s Annual Report on Form 10-K for the year ended June 30, 2012, and incorporated herein by reference.
10.13	First Amendment to the Purchase and Sale Agreement between Pericom Semiconductor Corporation and Barber Lane Investors, LLC dated August 6, 2012, filed as Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the year ended June 30, 2012, and incorporated herein by reference.
10.14*	Offer letter dated February 21, 2014, by and between the Company and Kevin S. Bauer, filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 29, 2014, and incorporated herein by reference.
14.1	Pericom Semiconductor Corporation Code of Business Conduct and Ethics, filed as Exhibit 14.1 to the Company’s Form 10-K for the year ended June 26, 2004 and incorporated herein by reference.
21.1	Subsidiaries of Pericom Semiconductor Corporation
23.1	Consent of Burr Pilger Mayer, Inc. Independent Registered Public Accounting Firm
24.1	Power of Attorney (see signature page)
31.1	Certification of Alex C. Hui, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Kevin S. Bauer, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Alex C. Hui, Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Kevin S. Bauer, Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

 

* Management contract or compensatory plan or arrangement.

48

** Portions of this exhibit have been omitted pursuant to a confidential treatment request that was granted by the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

(b) Exhibits: See list of exhibits under (a)(2) above.

(c) Financial Statement Schedules: See list of schedules under (a)(1) above.

49

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
Pericom Semiconductor Corporation

We have audited the accompanying consolidated balance sheets of Pericom Semiconductor Corporation and its subsidiaries (the “Company”) as of June 28, 2014 and June 29, 2013, and the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity and cash flows for each of the three years in the period ended June 28, 2014. Our audits also included the financial statement schedule listed in the Index to this Annual Report on Form 10-K at Part IV Item 15(a)(1). These consolidated financial statements and the financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and the financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Pericom Semiconductor Corporation and its subsidiaries as of June 28, 2014 and June 29, 2013, and the results of their operations and their cash flows for each of the three years in the period ended June 28, 2014, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of June 28, 2014, based on the criteria established in Internal Control — Integrated Framework (1992 Framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated August 28, 2014 expressed an unqualified opinion thereon.

/s/ Burr Pilger Mayer, Inc.

San Jose, California
August 28, 2014

50

PERICOM SEMICONDUCTOR CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

	June 28, 2014		June 29, 2013
ASSETS
Current assets:
Cash and cash equivalents	$	33,020	$	30,844
Short-term investments in marketable securities		86,104		86,839
Accounts receivable:
Trade (net of reserves and allowances of $2,461 and $2,511)		24,036		22,105
Other receivables		2,878		3,181
Inventories		12,288		14,844
Prepaid expenses and other current assets		2,458		2,705
Deferred income taxes		726		585
Total current assets		161,510		161,103
Property, plant and equipment — net		58,537		60,959
Investments in unconsolidated affiliates		2,445		2,525
Deferred income taxes — non current		2,460		3,411
Intangible assets (net of accumulated amortization of $12,849 and $9,836)		7,009		9,944
Other assets		8,118		8,625
Total assets	$	240,079	$	246,567
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	8,927	$	12,184
Accrued liabilities		9,934		8,731
Total current liabilities		18,861		20,915
Industrial development subsidy		6,354		7,263
Deferred tax liabilities		5,460		5,798
Noncurrent tax liabilities		1,041		2,788
Other long-term liabilities		871		912
Total liabilities		32,587		37,676
Commitments and contingencies (Note 12)
Shareholders’ equity:
Common stock and paid in capital — no par value, 60,000,000 shares authorized; shares issued and outstanding: at June 28, 2014, 21,974,000; at June 29, 2013, 22,813,000		113,118		119,591
Retained earnings		83,204		79,080
Accumulated other comprehensive income, net of tax		11,170		10,220
Total shareholders’ equity		207,492		208,891
Total liabilities and shareholders’ equity	$	240,079	$	246,567

 

See notes to consolidated financial statements.

51

PERICOM SEMICONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

	Year Ended
	June 28, 2014			June 29, 2013			June 30, 2012
Net revenues	$	128,068		$	129,255		$	137,135
Cost of revenues		76,983			81,388			88,484
Gross profit		51,085			47,867			48,651
Operating expenses:
Research and development		19,795			21,017			21,722
Selling, general and administrative		30,320			29,581			29,648
Goodwill impairment		—			16,899			—
Total operating expenses		50,115			67,497			51,370
Income (loss) from operations		970			(19,630	)		(2,719	)
Interest and other income, net		2,792			4,043			3,684
Interest expense		—			(19	)		(70	)
Income (loss) before income taxes		3,762			(15,606	)		895
Income tax expense (benefit)		(230	)		6,223			3,097
Net income (loss) from consolidated companies		3,992			(21,829	)		(2,202	)
Equity in net income of unconsolidated affiliates		132			215			134
Net income (loss)	$	4,124		$	(21,614	)	$	(2,068	)
Basic income (loss) per share	$	0.18		$	(0.93	)	$	(0.09	)
Diluted income (loss) per share	$	0.18		$	(0.93	)	$	(0.09	)
Shares used in computing basic earnings (loss) per share		22,594			23,251			24,094
Shares used in computing diluted earnings (loss) per share		22,797			23,251			24,094

 

See notes to consolidated financial statements.

52

PERICOM SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

	Year Ended
	June 28, 2014			June 29, 2013			June 30, 2012
Net income (loss)	$	4,124		$	(21,614	)	$	(2,068	)
Other comprehensive income:
Change in unrealized gain (loss) on securities available-for-sale, net		925			(1,005	)		(25	)
Foreign currency translation adjustment		394			1,260			635
Tax benefit (provision) related to other comprehensive income		(369	)		386			(34	)
Other comprehensive income, net of tax		950			641			576
Comprehensive income (loss)	$	5,074		$	(20,973	)	$	(1,492	)

 

See notes to consolidated financial statements.

53

PERICOM SEMICONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands)

	Common Stock
	Shares			Amount			Retained Earnings			Accumulated Other Comprehensive Income (Loss), Net			Total Shareholders’ Equity
BALANCES, July 2, 2011		24,716		$	130,960		$	102,762		$	9,003		$	242,725
Net loss		—			—			(2,068	)		—			(2,068	)
Change in unrealized gain on investments, net		—			—			—			(59	)		(59	)
Currency translation adjustment		—			—			—			635			635
Issuance of common stock under employee stock plans		332			918			—			—			918
Share-based compensation expense		—			3,723			—			—			3,723
Tax expense resulting from share-based transactions		—			(612	)		—			—			(612	)
Repurchase and retirement of common stock		(1,483	)		(11,627	)		—			—			(11,627	)
BALANCES, June 30, 2012		23,565		$	123,362		$	100,694		$	9,579		$	233,635
Net loss		—			—			(21,614	)		—			(21,614	)
Change in unrealized gain loss on investments, net		—			—			—			(619	)		(619	)
Currency translation adjustment		—			—			—			1,260			1,260
Issuance of common stock under employee stock plans		348			797			—			—			797
Share-based compensation expense		—			3,339			—			—			3,339
Tax expense resulting from share-based transactions		—			(134	)		—			—			(134	)
Repurchase and retirement of common stock		(1,100	)		(7,773	)		—			—			(7,773	)
BALANCES, June 29, 2013		22,813		$	119,591		$	79,080		$	10,220		$	208,891
Net income		—			—			4,124			—			4,124
Change in unrealized gain on investments, net		—			—			—			556			556
Currency translation adjustment		—			—			—			394			394
Issuance of common stock under employee stock plans		515			2,344			—			—			2,344
Share-based compensation expense		—			2,777			—			—			2,777
Tax expense resulting from share-based transactions		—			(278	)		—			—			(278	)
Repurchase and retirement of common stock		(1,354	)		(11,316	)		—			—			(11,316	)
BALANCES, June 28, 2014		21,974		$	113,118		$	83,204		$	11,170		$	207,492

 

See notes to consolidated financial statements.

54

PERICOM SEMICONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Year Ended
	June 28, 2014			June 29, 2013			June 30, 2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	4,124		$	(21,614	)	$	(2,068	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		10,023			11,208			11,898
Share-based compensation		2,792			3,340			3,736
Tax benefit resulting from share-based transactions		700			492			512
Excess tax benefit resulting from share-based transactions		(41	)		(4	)		(4	)
Write-off of notes receivable		—			—			856
Write-off of government subsidy receivable		843			—			—
Gain on sale of investments		(179	)		(1,013	)		(673	)
Write-off of property and equipment		343			475			354
Goodwill impairment		—			16,899			—
Equity in net income of unconsolidated affiliates		(132	)		(215	)		(134	)
Deferred taxes		90			(182	)		1,753
Changes in assets and liabilities net of effects of entities acquired:
Accounts receivable		(2,229	)		2,475			6,289
Inventories		2,602			1,884			5,008
Prepaid expenses and other current assets		245			188			(883	)
Other assets		338			151			676
Accounts payable		(3,404	)		(2,768	)		2,688
Accrued liabilities		349			(956	)		(2,735	)
Other long-term liabilities		(1,917	)		654			453
Net cash provided by operating activities		14,547			11,014			27,726
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property plant and equipment		(4,950	)		(13,231	)		(4,324	)
Acquisition of PTI, net of cash acquired		—			—			(8,077	)
Purchase of available-for-sale investments		(58,359	)		(92,993	)		(97,726	)
Maturities and sales of available-for-sale investments		59,799			109,525			91,981
Change in restricted cash balance		—			—			2,947
Net cash provided by (used in) investing activities		(3,510	)		3,301			(15,199	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from common stock issuance under stock plans		2,344			797			918
Excess tax benefit resulting from share-based transactions		41			4			4
Proceeds from short-term debt		514			3,992			10,744
Payments on short-term debt		(514	)		(5,398	)		(17,635	)
Repurchase of common stock		(11,316	)		(7,773	)		(11,627	)
Net cash used in financing activities		(8,931	)		(8,378	)		(17,596	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		70			624			(671	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		2,176			6,561			(5,740	)
CASH AND CASH EQUIVALENTS:
Beginning of year		30,844			24,283			30,023
End of year	$	33,020		$	30,844		$	24,283
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for income taxes	$	1,378		$	4,467		$	1,722
Cash paid during the period for interest	$	—		$	21		$	75

 

See notes to consolidated financial statements.

55

PERICOM SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Pericom Semiconductor Corporation (the “Company” or “Pericom”) was incorporated in June 1990 in the state of California. The Company designs, manufactures and markets high performance digital, analog and mixed-signal integrated circuits (“ICs”) and frequency control products (“FCPs”) used for the transfer, routing, and timing of digital and analog signals within and between computer, networking, datacom and telecom systems.

USE OF ESTIMATES — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses during the reporting period. Actual results could differ from those estimates.

BASIS OF PRESENTATION — These consolidated financial statements include the accounts of Pericom Semiconductor Corporation and its wholly owned subsidiaries, Pericom Global Limited (“PGL”), PSE Technology Corporation (“PSE-TW”), and Pericom Asia Limited (“PAL”). PGL has two wholly-owned subsidiaries, Pericom International Limited (“PIL”) and Pericom Semiconductor (HK) Limited (“PHK”). In addition, PAL has three subsidiaries, PSE Technology (Shandong) Corporation (“PSE-SD”), Pericom Technology Yangzhou Corporation (“PSC-YZ”) for the Jinan, China and Yangzhou, China operations, respectively, and Pericom Technology Inc. (“PTI”). All significant intercompany balances and transactions have been eliminated in consolidation.

The Company has significant operations in the People’s Republic of China (“PRC”), where certain political, economic and currency restrictions may apply. Insofar as can be reasonably determined, and based on our experience to date, the effect of foreign exchange restrictions upon the consolidated financial position and results of the Company are not material.

FISCAL PERIOD — For purposes of reporting the financial results, the Company’s fiscal years end on the Saturday closest to the end of June. The year ended July 3, 2010 contains 53 weeks, whereas all other fiscal years presented herein include 52 weeks.

CASH EQUIVALENTS — The Company considers all highly liquid investments purchased with an original or remaining maturity of three months or less when purchased to be cash equivalents. The recorded carrying amounts of the Company’s cash and cash equivalents approximate their fair value.

SHORT-TERM INVESTMENTS IN MARKETABLE SECURITIES — The Company’s policy is to invest in instruments with investment grade credit ratings. The Company classifies its short-term investments as “available-for-sale” securities and the Company bases the cost of securities sold using the specific identification method. The Company accounts for unrealized gains and losses on its available-for-sale securities as a separate component of shareholders’ equity in the consolidated balance sheets in the period in which the gain or loss occurs. In prior years, the Company classified portions of its available-for-sale securities as current or noncurrent based on each security’s attributes. Effective as of June 28, 2014, all available-for-sale securities are classified as short-term investments, as we consider the entire investment portfolio to be saleable if cash is needed or if better investment opportunities arise. Prior period balance sheets have been reclassed accordingly to conform to the current year presentation. This reclass had no effect on previously reported net income (loss), comprehensive income (loss), shareholders’ equity or cash flows.

As of June 28, 2014 and June 29, 2013, investments, and any difference between the fair market value and the underlying amortized cost of such investments, consisted of the following:

56

PERICOM SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

Available-for-Sale Securities:

	As of June 28, 2014
(in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Net Unrealized Gains (Losses)		Fair Value
Available-for-Sale Securities
Time deposits	$	17,693	$	—	$	—		$	—	$	17,693
Repurchase agreements		500		—		—			—		500
US Treasury securities		526		1		—			1		527
National government and agency securities		4,962		95		(2	)		93		5,055
State and municipal bond obligations		7,090		63		(4	)		59		7,149
Corporate bonds and notes		42,675		249		(143	)		106		42,781
Asset backed securities		7,592		28		(6	)		22		7,614
Mortgage backed securities		4,766		26		(7	)		19		4,785
Total	$	85,804	$	462	$	(162	)	$	300	$	86,104

 

	As of June 29, 2013
(in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Net Unrealized Gains (Losses)			Fair Value
Available-for-Sale Securities
Time deposits	$	12,087	$	—	$	—		$	—		$	12,087
Repurchase agreements		1,997		—		—			—			1,997
National government and agency securities		4,348		106		(3	)		103			4,451
State and municipal bond obligations		3,776		9		(27	)		(18	)		3,758
Corporate bonds and notes		48,438		71		(716	)		(645	)		47,793
Asset backed securities		10,063		19		(60	)		(41	)		10,022
Mortgage backed securities		6,755		26		(50	)		(24	)		6,731
Total	$	87,464	$	231	$	(856	)	$	(625	)	$	86,839

 

The following tables show the gross unrealized losses and fair values of the Company’s investments that have unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of June 28, 2014 and June 29, 2013:

	Continuous Unrealized Losses at June 28, 2014
	Less Than 12 Months				12 Months or Longer				Total
(in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
National government and agency securities	$	282	$	1	$	91	$	1	$	373	$	2
State and municipal bond obligations		—		—		695		4		695		4
Corporate bonds and notes		3,901		11		5,801		132		9,702		143
Asset backed securities		895		1		1,195		5		2,090		6
Mortgage backed securities		1,083		3		504		4		1,587		7
	$	6,161	$	16	$	8,286	$	146	$	14,447	$	162

 

57

PERICOM SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

	Continuous Unrealized Losses at June 29, 2013
	Less Than 12 Months				12 Months or Longer				Total
(in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
National government and agency securities	$	154	$	3	$	—	$	—	$	154	$	3
State and municipal bond obligations		2,364		27		—		—		2,364		27
Corporate bonds and notes		36,394		626		4,298		90		40,692		716
Asset backed securities		5,881		51		546		9		6,427		60
Mortgage backed securities		3,616		13		216		37		3,831		50
	$	48,409	$	720	$	5,060	$	136	$	53,469	$	856

 

The unrealized losses are of a temporary nature due to the Company’s intent and ability to hold the investments until maturity or until the cost is recoverable. The unrealized losses are primarily due to fluctuations in market interest rates. The Company reports unrealized gains and losses on its “available-for-sale” securities in accumulated other comprehensive income, net of tax, in shareholders’ equity.

The Company records gains or losses realized on sales of available-for-sale securities in interest and other income, net on its consolidated statements of operations. The cost of securities sold is based on the specific identification of the security and its amortized cost. In fiscal 2014, 2013 and 2012, realized gains on available-for-sale securities were $179,000, $1.0 million and $673,000, respectively.

The following table lists the fair value of the Company’s short-term investments by length of time to maturity as of June 28, 2014 and June 29, 2013:

(in thousands)	June 28, 2014		June 29, 2013
One year or less	$	24,963	$	19,853
Between one and three years		24,242		29,525
Greater than three years		30,449		29,244
Multiple dates		6,450		8,217
	$	86,104	$	86,839

 

Securities with maturities over multiple dates are mortgage-backed securities (“MBS”) or asset-backed securities (“ABS”) featuring periodic principle paydowns through 2041.

FAIR VALUE OF FINANCIAL INSTRUMENTS — The Company has determined that the amounts reported for cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair value because of their short maturities and/or variable interest rates. Available-for-sale investments are reported at their fair value based on quoted market prices. A further discussion of the fair value of financial instruments is detailed in Note 16 to the Consolidated Financial Statements contained in this report on Form 10-K.

ALLOWANCE FOR DOUBTFUL ACCOUNTS — The Company computes its allowance for doubtful accounts using a combination of factors. In cases where the Company is aware of circumstances that may impair a specific customer’s ability to meet its financial obligations to the Company, the Company records a specific allowance against amounts due to the Company, reducing the net recognized receivable to the amount the Company reasonably believes it will collect. For all other customers, the Company recognizes allowances for doubtful accounts based on the length of time the receivables are past due, the current business environment and its historical experience.

INVENTORIES — For IC and certain FCP products, the Company records inventories at the lower of standard cost (which generally approximates actual cost on a first-in, first-out basis) or market value. The carrying value of inventory is adjusted for excess and obsolete inventory based on inventory age, shipment history and the forecast

58

PERICOM SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

of demand over a specific future period. The semiconductor markets that the Company serves are volatile and actual results may vary from forecast or other assumptions, potentially affecting the Company’s assessment of excess and obsolete inventory, resulting in material effects on gross margin.

The inventories of the remainder of the FCP products are recorded at the lower of weighted-average cost, which approximates actual cost, or market value. Weighted average cost is comprised of average manufacturing costs weighted by the volume produced in each production run. Market value is defined as the net realizable value for finished goods, and replacement cost for raw materials and work in process.

Raw material inventory is considered slow moving and is fully reserved if it has not moved in 365 days. For assembled devices, the inventory is disaggregated by part number. The quantities on hand in each part number category are compared to the quantity that was shipped in the previous twelve months, the quantity in backlog and to the quantity expected to ship in the next twelve months. A reserve is recorded to the extent the value of each quantity on hand is in excess of the lesser of the three comparisons. The Company also periodically reviews inventory for obsolescence beyond the established formulaic tests. The Company believes this method of evaluating inventory fairly represents market conditions.

The Company considers the reserved material to be available for sale. The reserved inventory is not revalued should market conditions change or if a market develops for the obsolete inventory. In the past, the Company has sold obsolete inventory that was previously fully reserved.

PROPERTY, PLANT AND EQUIPMENT — The Company states its property, plant and equipment at cost. Cost includes purchase cost, applicable taxes, freight, installation costs and interest incurred in the acquisition of any asset that requires a period of time to make it ready for use. We compute depreciation and amortization using the straight-line method over estimated useful lives of three to eight years except for buildings, which we depreciate using the straight-line method over estimated useful lives of twenty to forty years. We depreciate leasehold improvements over the shorter of the lease term or the improvement’s estimated useful life. In addition, we capitalize the cost of major replacements, improvements and betterments, while we expense normal maintenance and repair.

INVESTMENTS IN UNCONSOLIDATED AFFILIATES — The Company holds or has held ownership interests in various investees. Our ownership in these affiliates has varied from 20% to approximately 49%. We classify these investments as investments in unconsolidated affiliates in our consolidated balance sheets. The Company accounts for long-term investments in companies in which it has an ownership share larger than 20% and in which it has significant influence over the activities of the investee using the equity method. We recognize our proportionate share of each investee’s income or loss in the period in which the investee reports the income or loss. We eliminate all intercompany transactions in accounting for our equity method investments.

OTHER ASSETS — The Company’s other assets classification includes investments in privately held companies in which we have less than a 20% interest, land use rights and deposits. The Company reports its investments in privately held companies at the lower of cost or market. The Company’s management reviews the investment in these companies for losses that may be other than temporary on a quarterly basis. Should management determine that such an impairment exists, the Company will reduce the value of the Company’s investment in the period in which management discovers the impairment and charge the impairment to the consolidated statement of operations. The Company’s management performed such an evaluation as of June 28, 2014 and determined that no impairment existed. Two of the Company’s subsidiaries, PSE-SD and PTI, hold land use rights that were acquired from the local Chinese government which entitle the Company to use the land for 15 to 50 years. The cost of the land use rights is recorded as a component of other assets and is being depreciated over 15 to 50 years, the useful life of the rights.

LONG-LIVED ASSETS — The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When the sum of the

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PERICOM SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

undiscounted future net cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount, the Company will recognize an impairment loss as the amount of the difference between carrying value and fair value as determined by discounted cash flows.

INCOME TAXES — The Company accounts for income taxes following the Financial Accounting Standards Board’s (“FASB”) statements and related interpretations, which require an asset and liability approach to recording deferred taxes. We record a valuation allowance to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. The Company’s income tax calculations are based on application of the respective U.S. federal, state or foreign tax laws. The Company’s tax filings, however, are subject to audit by the respective tax authorities. Accordingly, the Company recognizes tax liabilities based on its estimates of whether, and the extent to which, additional taxes will be due when such estimates are more-likely-than-not to be sustained. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. To the extent the final tax liabilities are different than the amounts originally accrued, the increases or decreases are recorded as income tax expense or benefit in the consolidated statements of operations.

The Internal Revenue Service completed their examination of the Company’s federal tax returns for fiscal 2010 and 2011 during fiscal 2014, and additional tax payments of approximately $208,000 were made in fiscal 2014, including interest charges for the two years that were examined. The Company had previously accrued for this exposure.

FOREIGN CURRENCY TRANSLATION — The functional currency of the Company’s foreign subsidiaries is the local currency. In consolidation, the Company translates assets and liabilities at exchange rates in effect at the balance sheet date. The Company translates revenue and expense accounts at average exchange rates during the period in which the transaction takes place. Net gains or (losses) from foreign currency translation of assets and liabilities of $394,000 and $1.3 million in fiscal 2014 and 2013, respectively, are included in the cumulative translation adjustment component of accumulated other comprehensive income, net of tax, a component of shareholders’ equity. Net gains or (losses) arising from transactions denominated in currencies other than the functional currency were $(11,000), $562,000 and $334,000 in fiscal 2014, 2013 and 2012 respectively, and are included in interest and other income, net.

SHARE-BASED COMPENSATION — The Company recognizes employee share-based compensation through measurement at grant date based on the fair value of the award, and the fair value is recognized as an expense over the employee’s requisite service period. See Note 14 for further discussion of share-based compensation.

REVENUE RECOGNITION — The Company recognizes revenue from the sale of its products when:

•   Persuasive evidence of an arrangement exists;

•   Delivery has occurred;

•   The sales price is fixed or determinable; and

•   Collectability is reasonably assured.

Generally, the Company meets these conditions upon shipment because, in most cases, title and risk of loss passes to the customer at that time. In addition, the Company estimates and records provisions for future returns and other charges against revenue at the time of shipment consistent with the terms of sale.

The Company sells products to large, domestic distributors at the price listed in its price book for that distributor. At the time of sale the Company records a sales reserve for ship from stock and debits (“SSD”s), stock rotations, return material authorizations (“RMA”s), authorized price protection programs, and any special programs approved by management. The Company offsets the sales reserve against revenues, producing the net revenue amount reported in the consolidated statements of operations.

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PERICOM SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

The market price for the Company’s products can be significantly different from the book price at which the Company sold the product to the distributor. When the market price, as compared to the Company’s original book price, of a particular distributor’s sales opportunity to their own customer would result in low or negative margins for our distributor, the Company negotiates a ship from stock and debit with the distributor. Management analyzes the Company’s SSD history to develop current SSD rates that form the basis of the SSD sales reserve recorded each period. The Company obtains the historical SSD rates from its internal records.

The Company’s distribution agreements provide for semi-annual stock rotation privileges of typically 10% of net sales for the previous six-month period. The contractual stock rotation applies only to shipments at the Company’s listed book price. Asian distributors typically buy the Company’s product at less than standard price and therefore are not entitled to the 10% stock rotation privilege. In order to provide for routine inventory refreshing, for the Company’s benefit as well as theirs, the Company grants Asian distributors stock rotation privileges between 1% and 10% even though the Company is not contractually obligated to do so. Each month the Company adjusts the sales reserve for the estimated stock rotation privilege anticipated to be utilized by the distributors.

From time to time, customers may request to return parts for various reasons including the customers’ belief that the parts are not performing to specification. Many such return requests are the result of customers incorrectly using the parts, not because the parts are defective. Management reviews these requests and, if approved, the Company prepares a RMA. The Company is only obligated to accept defective parts returns. To accommodate the Company’s customers, the Company may approve particular return requests, even though it is not obligated to do so. Each month the Company records a sales reserve for approved RMAs covering products that have not yet been returned. The Company does not maintain a general warranty reserve because, historically, valid warranty returns, which are the result of a part not meeting specifications or being non-functional, have been immaterial and the Company can frequently resell returned parts to other customers for use in other applications. The Company monitors and assesses RMA activity and overall materiality to assess whether a general warranty reserve has become appropriate.

The Company grants price protection solely at the discretion of Pericom management. The purpose of price protection is to reduce the distributor’s cost of inventory as market prices fall thus reducing SSD rates. Pericom sales management prepares price protection proposals for individual products located at individual distributors. Pericom general management reviews and approves or disapproves these proposals. If a particular price protection arrangement is approved, the Company estimates the dollar impact based on the sales price reduction per unit for the products approved and the number of units of those products in that distributor’s inventory. The Company records a sales reserve in that period for the estimated amount at the time revenue is recognized.

At the discretion of Pericom management, the Company may offer rebates on specific products sold to specific end customers. The purpose of the rebates is to allow for pricing adjustments for large programs without affecting the pricing the Company charges its distributor customers. The Company records the rebate at the time of shipment.

Pericom typically grants payment terms of between 30 and 60 days to its customers. The Company’s customers generally pay within those terms. The Company grants relatively few customers sales terms that include cash discounts. Distributors are invoiced for shipments at listed book price. When the distributors pay the Company’s invoices, they may claim debits for SSDs, stock rotations, cash discounts, RMAs and price protection when appropriate. Once claimed, the Company processes the requests against the prior authorizations and reduces the reserve previously established for that customer.

The revenue the Company records for sales to its distributors is net of estimated provisions for these programs. When determining this net revenue, the Company must make significant judgments and estimates. The Company bases its estimates on historical experience rates, inventory levels in the distribution channel, current trends and other related factors. However, because of the inherent nature of estimates, there is a risk that there could be significant differences between actual amounts and the Company’s estimates. The Company’s financial condition

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

and operating results depend on its ability to make reliable estimates and Pericom believes that such estimates are reasonable.

PRODUCT WARRANTY — The Company offers a standard one-year product replacement warranty. In the past, the Company has not had to accrue for a general warranty reserve, but assesses the level and materiality of RMAs and determines whether it is appropriate to accrue for estimated returns of defective products at the time revenue is recognized. On occasion, management may determine to accept product returns beyond the standard one-year warranty period. In those instances, the Company accrues for the estimated cost at the time management decides to accept the return. Because of the Company’s standardized manufacturing processes and product testing procedures, returns of defective product are infrequent and the quantities have not been significant. Accordingly, historical warranty costs have not been material.

SHIPPING COSTS — We charge shipping costs to cost of revenues as incurred.

CONCENTRATION OF CREDIT RISK — The Company primarily sells its products to a relatively small number of companies and generally does not require its customers to provide collateral or other security to support accounts receivable. The Company maintains allowances for estimated bad debt losses. The Company also purchases substantially all of its wafers from three suppliers and purchases other manufacturing services from a relatively small number of suppliers.

The following table indicates the percentage of our net revenues and accounts receivable in excess of 10% with any single customer:

		Percentage of
Fiscal Year Ended:		Net Revenues			Trade Accounts Receivable
June 28, 2014	Customer A		26	%		29	%
	Customer B		10			8
	All others		64			63
			100	%		100	%
June 29, 2013	Customer A		21	%		28	%
	Customer B		12			7
	All others		67			65
			100	%		100	%
June 30, 2012	Customer A		18	%		26	%
	Customer B		14			6
	All others		68			68
			100	%		100	%

 

The Company maintains cash, cash equivalents and short-term investments with various high credit quality financial institutions. The Company has designed its investment policy to limit exposure to any one institution. The Company performs periodic evaluations of the relative credit standing of those financial institutions that manage its investments. The Company is exposed to credit risk in the event of default by the financial institutions or issuers of securities to the extent of the amounts reported in the consolidated balance sheets.

RECLASSIFICATIONS — Certain reclassifications have been made to prior year financial statements to conform to the current year presentation. The reclassifications had no effect on the previously reported consolidated statement of operations, comprehensive income (loss), shareholders’ equity or cash flows.

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PERICOM SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

RECENTLY ISSUED ACCOUNTING STANDARDS — In July 2013, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2013-11, Income Taxes (Topic 740)-Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. ASU 2013-11 provides guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, similar tax loss, or tax credit carryforward exists. This new standard requires the netting of unrecognized tax benefits (“UTBs”) against a deferred tax asset for a loss or other carryforward that would apply in settlement of the uncertain tax positions. UTBs will be netted against all available same-jurisdiction loss or other tax carryforwards that would be utilized, rather than only against carryforwards that are created by the UTBs. ASU 2013-11 will be effective for annual reporting periods, and interim reporting periods within those years, beginning after December 15, 2013. Early adoption is permitted. Since ASU 2013-11 only impacts financial statement disclosure requirements for unrecognized tax benefits, the Company does not expect its adoption to have an impact on the Company’s financial position or results of operations.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. ASU 2014-09 outlines a single comprehensive model for accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. ASU 2014-09 requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 will be effective for annual and interim reporting periods beginning after December 15, 2016. The impact on our financial condition, results of operations and cash flows as a result of the adoption of ASU 2014-09 has not yet been determined.

EARNINGS (LOSS) PER SHARE — The Company bases its basic earnings (loss) per share upon the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.

Basic and diluted earnings (loss) per share for each of the three years in the period ended June 28, 2014 is as follows:

	Fiscal Year Ended
(in thousands, except for per share data)	June 28, 2014		June 29, 2013			June 30, 2012
Net income (loss)	$	4,124	$	(21,614	)	$	(2,068	)
Computation of common shares outstanding — basic earnings (loss) per share:
Weighted average shares of common stock		22,594		23,251			24,094
Basic earnings (loss) per share	$	0.18	$	(0.93	)	$	(0.09	)
Computation of common shares outstanding — diluted earnings (loss) per share:
Weighted average shares of common stock		22,594		23,251			24,094
Dilutive shares using the treasury stock method		203		—			—
Shares used in computing diluted earnings (loss) per share		22,797		23,251			24,094
Diluted earnings (loss) per share	$	0.18	$	(0.93	)	$	(0.09	)

 

As the Company incurred losses for the years ended June 29, 2013 and June 30, 2012, diluted loss per share is the same as basic loss per share since the addition of any contingently issuable share would be anti-dilutive. Options to purchase 1.9 million shares of common stock, and restricted stock units of 1,138 shares were outstanding during the year ended June 28, 2014 and were excluded from the computation of diluted net earnings per share because such options and units were anti-dilutive. Options to purchase 2.4 million shares of common stock, and restricted

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PERICOM SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

stock units of 525,000 shares were outstanding during the year ended June 29, 2013 and were excluded from the computation of diluted net earnings per share because such options and units were anti-dilutive. Options to purchase 2.5 million shares of common stock, and restricted stock units of 504,000 shares were outstanding during the year ended June 30, 2012 and were excluded from the computation of diluted net earnings per share because such options and units were anti-dilutive.

2. OTHER RECEIVABLES

Other receivables consist of:

	As of the year ended
(in thousands)	June 28, 2014		June 29, 2013
Interest receivable	$	1,516	$	1,054
VAT and other tax receivables		1,031		1,076
Government subsidy receivable		—		840
Other accounts receivable		331		211
	$	2,878	$	3,181

 

3. INVENTORIES

Inventories consist of:

	As of the year ended
(in thousands)	June 28, 2014		June 29, 2013
Finished goods	$	3,991	$	3,847
Work-in-process		2,468		3,869
Raw materials		5,829		7,128
	$	12,288	$	14,844

 

As of June 28, 2014, the Company had reserved for $3.2 million of inventory as compared to $3.1 million at June 29, 2013.

4. PROPERTY, PLANT AND EQUIPMENT — NET

	As of the year ended
(in thousands)	June 28, 2014			June 29, 2013
Machinery and equipment	$	55,408		$	55,795
Buildings		36,196			30,637
Computer equipment and software		13,742			14,449
Land		9,473			3,661
Furniture and fixtures		1,218			1,402
Leasehold improvements		595			1,115
Vehicles		151			155
Total		116,783			107,214
Accumulated depreciation and amortization		(59,500	)		(56,825	)
Construction-in-progress		1,254			10,570
Property, plant and equipment — net	$	58,537		$	60,959

 

Depreciation expense for the years ended June 28, 2014, June 29, 2013 and June 30, 2012 was $6.4 million, $7.4 million and $8.0 million, respectively.

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PERICOM SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. OTHER ASSETS

	As of the year ended
(in thousands)	June 28, 2014		June 29, 2013
Land use rights	$	6,631	$	6,821
Investments in privately held companies		1,243		1,238
Deposits		118		262
Other		126		304
Total	$	8,118	$	8,625

 

The Company purchased land use rights from the PRC in 2008 for the construction of its Jinan facility and its operation for a period of 50 years. In addition, the PTI acquisition in 2011 included land use rights for PTI’s properties in Shanghai.

The Company has investments in certain privately held companies which it accounts for under the cost method. The Company reviews these investments for impairment on a periodic basis. No impairment charges relating to investments in privately held companies were recorded during fiscal 2014, 2013 or 2012. For the year ended June 30, 2012, the Company wrote off $856,000 of promissory notes receivable due from two privately held technology companies which was recorded as a charge to general and administrative expense.

6. INVESTMENT IN UNCONSOLIDATED AFFILIATE

The Company’s investment in unconsolidated affiliate is comprised of the following:

	As of the year ended
(in thousands)	June 28, 2014		June 29, 2013
Jiyuan Crystal Photoelectric Frequency Technology Ltd.	$	2,445	$	2,525

 

PSE-TW has a 49% equity interest in Jiyuan Crystal Photoelectric Frequency Technology Ltd. (“JCP”), an FCP manufacturing company located in Science Park of Jiyuan City, Henan Province, China. JCP is a key manufacturing partner of PSE-TW. For fiscal 2014, the Company’s investment in JCP increased by the $132,000 allocated portion of JCP’s income, and decreased by a $212,000 JCP declared dividend.

The Company holds or has held ownership interests in various other privately held companies. The ownership in these affiliates varied from 20% to approximately 49%. For those companies in which the ownership interest is more than 20% and in which the Company has the ability to exercise significant influence on the affiliate’s operations, the investment is valued using the equity method of accounting. As of June 28, 2014, the amount of consolidated retained earnings of the Company represented by undistributed earnings of 50% or less entities accounted for by the equity method was approximately $3.9 million.

7. GOODWILL AND INTANGIBLE ASSETS

The following table summarizes the activity related to the carrying value of our goodwill during the year ended June 29, 2013:

(in thousands)
Goodwill
Balance at June 30, 2012	$	16,797
Other adjustments		—
Cumulative translation adjustments		102
Impairment		(16,899	)
Balance at June 29, 2013	$	—

 

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PERICOM SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7. GOODWILL AND INTANGIBLE ASSETS (Continued)

The Company tests goodwill for impairment annually. Initially there is an assessment of qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying value. If the carrying value exceeds its fair value, then the second step is performed to determine the implied fair value of each reporting unit’s goodwill, and an impairment loss is recorded for an amount equal to the difference between the implied fair value and the carrying value of the goodwill. The fiscal 2013 goodwill impairment analysis resulted in an impairment charge of $16.9 million, in which the Company wrote off the balance of the goodwill associated with the acquisition of PTI in 2010 and Pericom Taiwan Limited in 2009. This was based on a combination of factors including a decline in the net present value of expected future cash flows from the Company’s three reporting units as well as a decline in the Company’s market capitalization.

The Company’s acquired intangible assets associated with completed acquisitions for each of the following fiscal years are composed of:

	As of the year ended
	June 28, 2014							June 29, 2013
(in thousands)	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net
Customer relationships	$	6,056	$	(3,913	)	$	2,143	$	6,032	$	(2,912	)	$	3,120
In process research and development		3,564		(1,959	)		1,605		3,549		(1,367	)		2,182
Core developed technology		9,838		(6,977	)		2,861		9,800		(5,557	)		4,243
Total amortizable purchased intangible assets		19,458		(12,849	)		6,609		19,381		(9,836	)		9,545
SaRonix trade name		400		—			400		399		—			399
Total purchased intangible assets	$	19,858	$	(12,849	)	$	7,009	$	19,780	$	(9,836	)	$	9,944

 

Amortization expense related to finite-lived purchased intangible assets was approximately $3.0 million in fiscal 2014, $3.1 million in fiscal 2013 and $3.1 million in fiscal 2012. Amortization of intangible assets in fiscal 2012 included accelerated amortization related to a supplier relationship of approximately $125,000 and subsequent write-off.

The Company performs an annual impairment review of its long-lived assets, including its intangible assets. Based on the results of its most recent annual impairment tests, the Company determined that no impairment of the intangible assets existed as of June 28, 2014 or June 29, 2013. However, future impairment tests could result in a charge to earnings.

The finite-lived purchased intangible assets consist of customer relationships, capitalized in-process research and development and core developed technology, which have remaining useful lives of approximately two years. We expect our future amortization expense over the next five years associated with these assets to be:

	Fiscal Years Ending
(in thousands)	2015		2016		2017		2018 and beyond		Total
Expected Amortization
Customer relationships	$	989	$	989	$	165	$	—	$	2,143
In process research and development		594		594		417		—		1,605
Core developed technology		1,321		1,321		219		—		2,861
	$	2,904	$	2,904	$	801	$	—	$	6,609

 

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PERICOM SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. ACCRUED LIABILITIES

Accrued liabilities consist of:

	As of the year ended
(in thousands)	June 28, 2014		June 29, 2013
Accrued compensation	$	6,892	$	6,029
Income taxes payable		1,140		655
Sales commissions		307		316
Accrued construction liabilities		—		134
Other accrued expenses		1,595		1,597
	$	9,934	$	8,731

 

9. DEBT

As of June 28, 2014 and June 29, 2013, the Company has no outstanding debt. However, the Company’s subsidiary PSE-TW has two loan and credit facilities in place for equipment purchases or inventory financing via short term loans, letters of credit, and trade financing. The first is a secured facility for $200 million New Taiwan Dollars (“NTD”), approximately U.S. $6.7 million. The loans are for up to 180 days, and are based on the Taiwan Interbank Offered Rate (“TAIBOR”) plus 1.25% and may be in NTD, USD, Japanese yen (“JPY”) or other currencies. The second is an unsecured facility for $100 million NTD. Loans under this facility are limited to $70 million NTD, are for up to 180 days, and are based on TAIBOR plus 1.25% and may be in NTD, USD, JPY or other currencies.

10. RESTRICTED ASSETS

As of June 28, 2014 and June 29, 2013, the Company had pledged and restricted assets of $4.2 million, respectively, consisting of land and buildings PSE-TW has pledged for its $200 million NTD loan and credit facility.

11. COMMITMENTS AND CONTINGENCIES

The future minimum commitments at June 28, 2014 are as follows:

	Fiscal Year
(in thousands)	2015		2016		2017 and beyond		Total
Operating lease payments	$	485	$	55	$	—	$	540
Capital equipment purchase commitments		4		—		—		4
Facility modification commitments		12		—		—		12
Total	$	501	$	55	$	—	$	556

 

The operating lease commitments are primarily facility leases at certain of the Company’s Asian subsidiaries.

The Company has no purchase obligations other than routine purchase orders and the facility modifications shown in the table as of June 28, 2014.

Rent expense during the fiscal years ended June 28, 2014, June 29, 2013 and June 30, 2012 was $801,000, $2.0 million and $1.9 million, respectively.

12. INDUSTRIAL DEVELOPMENT SUBSIDY

As of June 28, 2014, industrial development subsidies in the amount of $12.8 million have been earned and applied for by PSE-SD from the Jinan Hi-Tech Industries Development Zone Commission based on meeting certain pre-defined criteria. The subsidies may be used for the acquisition of assets or to cover business expenses. When a

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PERICOM SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12. INDUSTRIAL DEVELOPMENT SUBSIDY (Continued)

subsidy is used to acquire assets, the subsidy will be amortized over the useful life of the asset. When a subsidy is used for expenses incurred, the subsidy is regarded as earned upon the incurrence of the expenditure. The remaining balance of the subsidies at June 28, 2014 was $6.4 million, which is expected to be recognized over the next six to eight years.

A portion of the $12.8 million in subsidies has been recorded as a receivable. As of June 28, 2014, the Company concluded that the remaining $843,000 of receivables will not be paid and accordingly the balance was written off.

The Company recognized $755,000 and $1.3 million of industrial development subsidy as a reduction of cost of goods sold and $187,000 and $183,000 of industrial development subsidy as a reduction of operating expenses in the consolidated statements of operations for the years ended June 28, 2014 and June 29, 2013, respectively.

13. EQUITY AND COMPREHENSIVE INCOME

Comprehensive income (loss) consists of net income (loss), changes in net unrealized gains (losses) on available-for-sale investments and changes in cumulative currency translation adjustments at consolidated subsidiaries.

As of June 28, 2014, accumulated other comprehensive income of $11.2 million consists of $11.0 million of accumulated currency translation gains and $300,000 of net unrealized gains on available-for-sale investments, which was recorded net of a $168,000 tax provision. As of June 29, 2013, accumulated other comprehensive income of $10.2 million consists of $10.6 million of accumulated currency translation gains partially offset by $625,000 of net unrealized losses on available-for-sale investments, which was recorded net of a $201,000 tax benefit.

14. SHAREHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION

PREFERRED STOCK

The Company’s shareholders have authorized the Board of Directors to issue 5,000,000 shares of preferred stock from time to time in one or more series and to fix the rights, privileges and restrictions of each series. As of June 28, 2014, the Company has issued no shares of preferred stock.

STOCK INCENTIVE PLANS

At June 28, 2014 the Company had three stock incentive plans and one employee stock purchase plan, including the 1995 Stock Option Plan, 2001 Stock Option Plan, 2004 Stock Incentive Plan and the 2010 Employee Stock Purchase Plan (“ESPP”). The Company’s aggregate compensation cost due to option and restricted stock unit grants and the ESPP for the twelve months ended June 28, 2014 totaled $2.8 million, as compared with $3.3 million and $3.7 million for fiscal 2013 and 2012, respectively. The Company recognized $910,000, $1.1 million, and $1.2 million in income tax benefit in the consolidated statements of operations for fiscal 2014, 2013 and 2012, respectively, related to the Company’s share-based compensation arrangements. The net impact of share-based compensation for the fiscal years ended June 28, 2014, June 29, 2013 and June 30, 2012 was a reduction in net income of $1.9 million, $2.2 million and $2.5 million, respectively, or a reduction of $0.08, $0.10 and $0.10 per diluted share, respectively.

Under the Company’s 2004, 2001 and 1995 stock incentive plans, the Company has reserved 4.5 million shares of common stock as of June 28, 2014 for issuance to employees, officers, directors, independent contractors and consultants of the Company in the form of incentive and nonqualified stock options and restricted stock units.

The Company may grant options at the fair value on grant date for incentive stock options and nonqualified stock options. Options vest over periods of generally 48 months as determined by the Board of Directors. Options granted under the Plans expire 10 years from the grant date.

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PERICOM SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14. SHAREHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION (Continued)

The Company estimates the fair value of each employee option on the date of grant using the Black-Scholes option valuation model and expenses that value as compensation using a straight-line method over the option’s vesting period, which corresponds to the requisite employee service period. The Company estimates expected stock price volatility based on actual historical volatility for periods that the Company believes represent predictors of future volatility. The Company uses historical data to estimate option exercises, expected option holding periods and option forfeitures. The Company bases the risk-free interest rate on the U.S. Treasury note yield for periods equal to the expected term of the option.

The following table lists the weighted average assumptions the Company used to value stock options:

	Fiscal Year Ended
	June 28, 2014	June 29, 2013	June 30, 2012
Expected life	5.9 years	5.9 years	5.5 years
Risk-free interest rate	1.47%	1.05%	2.46%
Volatility	52%	54%	54%
Dividend yield	0.00%	0.00%	0.00%

 

The following table summarizes the Company’s stock option plans as of July 2, 2011 and changes during the three fiscal periods ended June 28, 2014:

	Outstanding Options
Options	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
	(in thousands)					(years)		(in thousands)
Options outstanding at July 2, 2011		2,974		$	10.89		4.88	$	645
Options granted (weighted average grant date fair value of $3.89)		142			7.65
Options exercised		(21	)		7.77
Options forfeited or expired		(642	)		12.37
Options outstanding at June 30, 2012		2,453		$	10.34		5.12	$	912
Options granted (weighted average grant date fair value of $4.06)		233			8.07
Options exercised		(6	)		7.87
Options forfeited or expired		(249	)		9.17
Options outstanding at June 29, 2013		2,431		$	10.25		4.86	$	52
Options granted (weighted average grant date fair value of $4.06)		236			8.16
Options exercised		(190	)		8.25
Options forfeited or expired		(392	)		9.96
Options outstanding at June 28, 2014		2,085		$	10.25		4.54	$	1,077
Options vested and expected to vest at June 28, 2014		2,048		$	10.30		4.45	$	1,031
Options exercisable at June 28, 2014		1,796		$	10.62		3.85	$	742

 

At June 28, 2014, 1,046,000 shares were available for future grants under the option plans. The aggregate intrinsic value of options exercised during the fiscal years ended June 28, 2014, June 29, 2013 and June 30, 2012 was $177,000, $2,000 and $8,000, respectively.

69

PERICOM SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14. SHAREHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION (Continued)

The Company has unamortized share-based compensation expense related to options of $1.3 million, which will be amortized to expense over a weighted average period of 2.6 years.

Additional information regarding options outstanding as of June 28, 2014 is as follows:

	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number Outstanding as of June 28, 2014		Weighted Average Remaining Contractual Term (Years)		Weighted Average Exercise Price		Number Exercisable as of June 28, 2014		Weighted Average Exercise Price
$  4.89    $  7.87		458,067		6.88	$	7.51		259,883	$	7.47
$  7.88    $  8.71		420,413		3.08	$	8.34		398,919	$	8.34
$  8.72    $10.01		506,849		4.88	$	9.58		436,825	$	9.69
$10.02    $15.45		494,607		3.81	$	12.60		494,607	$	12.60
$15.45    $18.10		205,500		3.17	$	16.30		205,500	$	16.30
$  4.89    $18.10		2,085,436		4.54	$	10.25		1,795,734	$	10.62

 

Restricted Stock Units

Restricted stock units (“RSUs”) are converted into shares of the Company’s common stock upon vesting on a one-for-one basis. Typically, vesting of RSUs is subject to the employee’s continuing service to the Company. RSUs generally vest over a period of 4 years and are expensed ratably on a straight-line basis over their respective vesting period net of estimated forfeitures. The fair value of RSUs granted pursuant to the Company’s 2004 Stock Incentive Plan is the product of the number of shares granted and the grant date fair value of our common stock. The following table summarizes the RSUs as of July 2, 2011 and changes during the three fiscal years ended June 28, 2014:

	Shares			Weighted Average Grant Date Fair Value		Weighted Average Remaining Vesting Term		Aggregate Intrinsic Value
	(in thousands)					(years)		(in thousands)
RSUs outstanding at July 2, 2011		592		$	9.73		1.60	$	5,253
Awarded		156			7.78
Released		(203	)		9.91
Forfeited		(41	)		9.73
RSUs outstanding at June 30, 2012		504		$	9.06		1.42	$	4,535
Awarded		301			7.74
Released		(217	)		9.55
Forfeited		(63	)		8.24
RSUs outstanding at June 29, 2013		525		$	8.20		1.48	$	3,735
Awarded		416			8.46
Released		(196	)		8.61
Forfeited		(96	)		8.26
RSUs outstanding at June 28, 2014		649		$	8.23		1.58	$	5,901
RSUs vested and expected to vest after June 28, 2014		553		$	8.22		1.46	$	5,029

 

The Company has unamortized share-based compensation expense related to RSUs of $3.8 million, which will be amortized to expense over a weighted average period of 2.7 years.

70

PERICOM SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14. SHAREHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION (Continued)

2010 EMPLOYEE STOCK PURCHASE PLAN

The Company’s 2010 Employee Stock Purchase Plan (the “Stock Purchase Plan”) allows eligible employees of the Company to purchase shares of Common Stock through payroll deductions. The Company reserved 2.0 million shares of the Company’s Common Stock for issuance under the Stock Purchase Plan, of which 1.6 million remain available at June 28, 2014. The Stock Purchase Plan permits eligible employees to purchase Common Stock at a discount through payroll deductions during six-month purchase periods. The six-month periods come to an end on or about May 1 and November 1 and the purchases are then made. Participants in the Stock Purchase Plan may purchase stock at 85% of the lower of the stock’s fair market value on the first day and last day of the purchase period. The maximum number of shares of Common Stock that any employee may purchase under the Stock Purchase Plan during any offering period is 1,500 shares, and an employee may not accrue more than $15,000 for share purchases in any offering period. During fiscal year 2014, 2013 and 2012, the Company issued 129,000, 125,000 and 109,000 shares of common stock at weighted average prices of $6.02, $5.98 and $6.96, respectively. The weighted average grant date fair value of the fiscal 2014, 2013 and 2012 stock purchase awards were $1.75, $1.65 and $2.22 per share, respectively.

The Company estimates the fair value of stock purchase rights granted under the Company’s Stock Purchase Plan on the date of grant using the Black-Scholes option valuation model. ASC Topic 718, Stock Based Compensation, states that a “lookback” pricing provision with a share limit should be considered a combination of stock and a call option. The valuation results for these elements have been combined to value the specific features of the stock purchase rights. The Company bases volatility on the expected volatility of the Company’s stock during the accrual period. The expected term is determined as the time from enrollment until purchase. The Company uses historical data to determine expected forfeitures and the U.S. Treasury yield for the risk-free interest rate for the expected term.

The following table lists the values of the assumptions the Company used to value share-based compensation in the Stock Purchase Plan:

	Fiscal Year Ended
	June 28, 2014	June 29, 2013	June 30, 2012
Expected life	6 months	6 months	6 months
Risk-free interest rate	0.07%	0.12%	0.10%
Volatility range	26%–34%	35%–37%	43%–64%
Dividend yield	0.00%	0.00%	0.00%

 

The following table summarizes activity in the Company’s employee stock purchase plan during the fiscal year ended June 28, 2014:

	Shares			Weighted Average Purchase Price
Beginning Available		1,710,525
Purchases		(128,969	)	$	6.02
Ending Available		1,581,556

 

At June 28, 2014, the Company has $75,000 in unamortized share-based compensation related to its employee stock purchase plan. We estimate this expense will be amortized and recognized in the consolidated statements of operations over the next four months.

71

PERICOM SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14. SHAREHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION (Continued)

REPORTING SHARE-BASED COMPENSATION

The following table shows total share-based compensation expense classified by consolidated statement of operations reporting caption generated from the plans mentioned above:

	Fiscal Year Ended
(in thousands)	June 28, 2014			June 29, 2013			June 30, 2012
Cost of revenues	$	163		$	187		$	211
Research and development		1,096			1,282			1,434
Selling, general and administrative		1,533			1,871			2,091
Pre-tax stock-based compensation expense		2,792			3,340			3,736
Income tax effect		(910	)		(1,101	)		(1,229	)
Net stock-based compensation expense	$	1,882		$	2,239		$	2,507

 

The amount of share-based compensation expense in inventory at June 28, 2014, June 29, 2013 and June 30, 2012 is immaterial.

Share-based compensation expense categorized by the type of award from which it arose is as follows for fiscal years ended June 28, 2014, June 29, 2013 and June 30, 2012:

	Fiscal Year Ended
(in thousands)	June 28, 2014		June 29, 2013		June 30, 2012
Stock incentive plans	$	2,586	$	3,128	$	3,492
Less income tax effect		910		1,101		1,229
Net stock incentive plan expense		1,676		2,027		2,263
Employee stock purchase plan		206		212		244
Less income tax effect		—		—		—
Net employee stock purchase plan expense		206		212		244
	$	1,882	$	2,239	$	2,507

 

STOCK REPURCHASE PLAN

On April 26, 2012, the Board of Directors authorized a share repurchase program for up to $25 million of shares of the Company’s common stock, and on April 24, 2014 the Board authorized an additional $20 million for the share repurchase program. The Company was authorized to repurchase the shares from time to time in the open market or private transactions, at the discretion of the Company’s management. During the year ended June 28, 2014, the Company repurchased 1,354,511 shares for an aggregate cost of $11.3 million. During the year ended June 29, 2013, the Company repurchased 1,100,306 shares for an aggregate cost of $7.8 million. During the year ended June 30, 2012, the Company repurchased 1,482,572 shares for an aggregate cost of $11.6 million. As of June 28, 2014, approximately $26.6 million may yet be purchased under the 2012 and 2014 purchase authorities.

Current cash balances and the proceeds from stock option exercises and purchases in the stock purchase plan have funded stock repurchases in the past, and the Company expects to fund future stock repurchases from these same sources.

72

PERICOM SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

15. SHAREHOLDER RIGHTS PLAN

On March 6, 2012, the Company adopted a shareholder rights plan and declared a dividend of one preferred share purchase right for each share of common stock held by shareholders of record as of that date. Each right entitles shareholders, after the rights become exercisable, to purchase one one-thousandth of a share of our Series D Junior Participating Preferred Stock.

The Company designed the rights plan to protect the long-term value of the Company for its shareholders during any future unsolicited acquisition attempt. The Company did not adopt the rights plan in response to any specific attempt to acquire the Company or its shares and the Company is not aware of any current efforts to do so. The rights will become exercisable only upon the occurrence of certain events specified in the plan, including the acquisition of 15% of the Company’s outstanding common stock by a person or group. Should a person or group acquire 15% or more of the outstanding common stock or announce an unsolicited tender offer, the consummation of which would result in a person or group acquiring 15% or more of the outstanding common stock, shareholders other than the acquiring person may exercise the rights, unless the Board of Directors has approved the transaction in advance. Each right entitles the holder, other than an acquiring person, to purchase shares of the Company’s common stock (or, in the event that there are insufficient authorized common stock shares, substitute consideration such as cash, property, or other securities of the Company, such as Preferred Stock) at a 50% discount to the then prevailing market price. Prior to the acquisition by a person or group of 15% or more of the outstanding common stock, the Company may redeem the rights for $0.001 per right at the option of the Board of Directors. The rights will expire on March 6, 2022. As of June 28, 2014, there were 21,974,000 rights outstanding.

16. FAIR VALUE MEASUREMENTS

The Company defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs that may be used to measure fair value, of which the first two are considered observable and the last is considered unobservable:

•    Level 1 — Quoted prices in active markets for identical assets or liabilities.

•    Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

•    Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The following table represents our fair value hierarchy for financial assets (cash equivalents and investments) measured at fair value on a recurring basis. Level 1 available-for-sale investments are primarily comprised of investments in U.S. Treasury securities, valued using market prices in active markets. Most of the investments are classified as Level 2. Level 2 pricing is provided by third party sources of market information obtained through the Company’s investment advisors. The Company does not adjust for or apply any additional assumptions or estimates to the pricing information it receives from advisors. The Company’s investment advisors obtain pricing data from independent sources, such as Standard & Poor’s, Bloomberg and Interactive Data Corporation, and rely on comparable pricing of other securities because the Level 2 securities it holds are not actively traded and have fewer observable transactions. The Company considers this the most reliable information available for the valuation of the securities.

The Company’s Level 2 securities include time deposits, government securities, corporate debt securities and mortgage backed and asset backed securities. Government securities include US federal agency securities, foreign government and agency securities, and US state and municipal bond obligations. Many of the municipal bonds are

73

PERICOM SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16. FAIR VALUE MEASUREMENTS (Continued)

insured; those that are not are nearly all AAA/Aaa rated. The corporate debt securities are all investment grade and most are single A-rated or better. The asset-backed securities are AAA/Aaa rated and are backed by auto loans, student loans, credit card balances and residential or commercial mortgages.

Assets measured at fair value are summarized as follows:

	As of June 28, 2014
(in thousands)	Fair Value		Level 1		Level 2		Level 3
Investments(1)
US Treasury securities	$	527	$	527	$	—	$	—
Repurchase agreements		4,547		—		4,547		—
Time deposits		17,693		—		17,693		—
National government and agency securities		5,055		—		5,055		—
State and municipal bond obligations		7,149		—		7,149		—
Corporate bonds and notes		42,781		—		42,781		—
Asset backed securities		7,614		—		7,614		—
Mortgage backed securities		4,785		—		4,785		—
Total	$	90,151	$	527	$	89,624	$	—

 

	As of June 29, 2013
(in thousands)	Fair Value		Level 1		Level 2		Level 3
Investments(1)
Commercial paper	$	2,400	$	—	$	2,400	$	—
Repurchase agreements		4,988		—		4,988		—
Time deposits		12,087		—		12,087		—
National government and agency securities		4,451		—		4,451		—
State and municipal bond obligations		3,758		—		3,758		—
Corporate bonds and notes		47,793		—		47,793		—
Asset backed securities		10,022		—		10,022		—
Mortgage backed securities		6,731		—		6,731		—
Total	$	92,230	$	—	$	92,230	$	—

 

(1)   At June 28, 2014, $4,047 of the repurchase agreements are included in cash and cash equivalents; at June 29, 2013, the commercial paper and $2,991 of the repurchase agreements are included in cash and cash equivalents; the balance of the investments at June 28, 2014 and June 29, 2013 are included in short-term investments in marketable securities on the consolidated balance sheets.

The Company had no transfers between Level 1 and Level 2 during the years ended June 28, 2014 and June 29, 2013.

When assessing marketable securities for other-than-temporary declines in value, a number of factors are considered. Analyses of the severity and duration of price declines, remaining years to maturity, portfolio manager reports, economic forecasts, and the specific circumstances of issuers indicate that it is reasonable to expect marketable securities with unrealized losses at June 28, 2014 to recover in fair value up to the Company’s cost bases within a reasonable period of time. The Company does not intend to sell investments with unrealized losses before maturity, when the obligors are required to redeem them at full face value or par. The Company believes the obligors have the financial resources to redeem the debt securities. Accordingly, the Company does not consider the investments to be other-than-temporarily impaired at June 28, 2014.

74

PERICOM SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16. FAIR VALUE MEASUREMENTS (Continued)

The Company has determined that the amounts reported for cash and cash equivalents, accounts receivable, deposits, accounts payable, accrued liabilities and debt approximate fair value because of their short maturities and/or variable interest rates.

17. INCOME TAXES

Income tax expense consists of federal, state and foreign current and deferred income taxes as follows:

	Fiscal Year Ended
(in thousands)	June 28, 2014			June 29, 2013			June 30, 2012
Income (loss) before income taxes
U.S.	$	(1,282	)	$	12,176		$	341
Foreign		5,044			(27,782	)		554
		3,762			(15,606	)		895
Federal:
Current		(1,366	)		5,424			941
Deferred		95			141			(641	)
		(1,271	)		5,565			300
State:
Current		—			7			(522	)
Deferred		(12	)		(172	)		2,768
		(12	)		(165	)		2,246
Foreign:
Current		953			672			551
Deferred		100			151			—
		1,053			823			551
Total current		(413	)		6,103			970
Total deferred		183			120			2,127
Total income tax expense (benefit)	$	(230	)	$	6,223		$	3,097

 

75

PERICOM SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17. INCOME TAXES (Continued)

The reconciliation between the Company’s effective tax rate and the U.S. statutory rate is as follows:

	Fiscal Year Ended
	June 28, 2014			June 29, 2013			June 30, 2012
Tax provision at federal statutory rate		34.0	%		33.8	%		34.0	%
State income taxes, net of federal benefit		(1.3	)		2.1			(33.4	)
Foreign income and withholding taxes		1.7			(67.9	)		34.1
Benefits from resolution of certain tax audits and expiration of statute of limitations		(21.8	)		0.8			(15.4	)
Intercompany licensing of intellectual property		(27.1	)		(6.5	)		—
Share-based compensation		3.4			(1.1	)		20.5
Research and development tax credits		(2.3	)		—			(2.2	)
Change in valuation allowance		0.5			(1.8	)		307.3
Other		6.8			0.7			1.1
Income tax expense		(6.1	)%		(39.9	)%		346.0	%

 

The components of the net deferred tax assets were as follows (in thousands):

	As of the year ended
(in thousands)	June 28, 2014			June 29, 2013
Deferred tax assets:
Credit carryforwards	$	2,778		$	2,798
Accruals and reserves		843			1,311
Cumulative loss on investment		400			884
Depreciation and amortization		(933	)		(975	)
Net operating loss carryforward		1,418			1,424
Share-based compensation		3,013			3,088
Other		781			530
Total		8,300			9,060
Valuation allowance		(5,114	)		(5,064	)
Deferred tax assets	$	3,186		$	3,996
Deferred tax liabilities:
Gain on previously held shares in unconsolidated affiliate	$	(3,793	)	$	(3,768	)
Acquired PTI intangibles and other		(1,667	)		(2,030	)
Deferred tax liabilities	$	(5,460	)	$	(5,798	)

 

As of June 28, 2014, the Company has net operating loss carryforwards of approximately $207,000, $3.7 million and $5.0 million for PSE-TW in Taiwan, PSE-SD in China and PTI in Hong Kong, which will begin to expire in 2015, 2014 and no expiration, respectively. In addition, the Company has research and development tax credit carryforwards of approximately $145,000 and $4.7 million to offset future federal and state taxable income. The federal research and development tax credit carryforward will begin to expire in 2034 and the state research and development tax credit can be carried forward indefinitely.

The Company provides a valuation allowance for deferred tax assets when it is more likely than not, based upon currently available evidence and other factors, that some portion or all of the deferred tax asset will not be realized. The change in valuation allowance for the year ended June 28, 2014 and June 29, 2013 was an increase of $50,000

76

PERICOM SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17. INCOME TAXES (Continued)

and $759,000, respectively, which resulted primarily from an increase in the research and development tax credit for California and the foreign net operating losses.

Consolidated income before income taxes includes non-U.S. income (loss) of approximately $5.0 million, $(27.8) million and $554,000 for the fiscal years ended June 28, 2014, June 29, 2013 and June 30, 2012, respectively. Pericom has not provided for U.S. income taxes on a cumulative total of approximately $19.7 million of undistributed earnings reported by certain foreign subsidiaries. The Company intends to reinvest these earnings indefinitely in its foreign subsidiaries. If these earnings were distributed to the United States in the form of dividends or otherwise, or if the shares of the relevant foreign subsidiaries were sold or otherwise transferred, the Company would be subject to additional U.S. income taxes (subject to an adjustment for foreign tax credits) and foreign withholding taxes. It is not practical to determine the unrecognized deferred U.S. income tax liability that might be payable on the possible remittance of earnings that are intended to be reinvested indefinitely due to the complexities associated with its hypothetical calculation.

The Company recorded $1.7 million for unrecognized tax benefits as of June 28, 2014. A reconciliation of the beginning and ending amount of unrecognized tax benefit for the three fiscal years from July 2, 2011 through June 28, 2014 is as follows:

(in thousands)
Balance as of July 2, 2011	$	(755	)
Gross increases — prior period tax positions		(515	)
Gross increases — current period tax positions		(475	)
Reductions as a result of a lapse of statute of limitations		138
Balance as of June 30, 2012	$	(1,607	)
Gross increases — prior period tax positions		(135	)
Gross increases — current period tax positions		(1,423	)
Reductions as a result of a lapse of statute of limitations		132
Balance as of June 29, 2013	$	(3,033	)
Gross increases — prior period tax positions		(411	)
Gross increases — current period tax positions		(194	)
Reductions — prior period tax positions		1,020
Reductions as a result of a lapse of statute of limitations		887
Balance as of June 28, 2014	$	(1,731	)

 

$934,000 of the balance at June 28, 2014 would affect the Company’s effective tax rate if recognized. The Company is subject to examination by federal, foreign, and various state jurisdictions for the years 2008 through 2014. The Internal Revenue Service recently completed their examination of the Company’s federal tax returns for fiscal 2010 and 2011, and additional tax payments of approximately $208,000 were made, including interest charges for the two years.

As of June 28, 2014, the Company has accrued $215,000 for interest and penalties related to the unrecognized tax benefits. The balance of unrecognized tax benefits and the related interest and penalties is recorded as a noncurrent liability on our consolidated balance sheet.

Within the next 12 months, we do not anticipate a material decrease in the unrecognized tax benefit or any other significant changes to our tax reserves during that period.

77

PERICOM SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

18. EMPLOYEE BENEFIT PLAN

The Company has a 401(k) tax-deferred savings plan under which eligible employees may elect to have a portion of their salary deferred and contributed to the plan. The Board of Directors determines the employer matching contributions at their discretion. There were no employer-matching contributions in fiscal 2014, 2013 or 2012.

19. INDUSTRY AND GEOGRAPHICAL SEGMENT INFORMATION

The Company has three operating segments which aggregate into one reportable segment, the interconnectivity device supply market. The Company designs, develops, manufactures and markets high performance integrated circuits and frequency control products. The Chief Executive Officer has been identified as the Chief Operating Decision Maker as defined by ASC No. 280, Disclosures about Segments Reporting (“ASC 280”).

For geographical reporting, the Company attributes net sales to the country where customers are located (the “bill to” location). The Company neither conducts business in, nor sells to persons in, Iran, Syria, Sudan, or Cuba, countries located in the referenced regions that are identified as state sponsors of terrorism by the U.S. Department of State, and are subject to U.S. economic sanctions and export controls. Long-lived assets consist of all non-monetary assets, excluding non-current deferred tax assets, goodwill and intangible assets. The Company attributes long-lived assets to the country where they are located. The following presents net sales for each of the three years ended June 28, 2014; and the net book value of long-lived assets as of June 28, 2014, June 29, 2013 and June 30, 2012 by geographical segment:

	Fiscal Year Ended
(in thousands)	June 28, 2014		June 29, 2013		June 30, 2012
Net sales to countries:
China (including Hong Kong)	$	61,054	$	61,486	$	48,178
Taiwan		39,463		43,144		63,301
United States		5,927		6,517		7,242
Others (less than 10% each)		21,624		18,108		18,414
Total net sales	$	128,068	$	129,255	$	137,135

 

(in thousands)
Long-lived assets:
China (including Hong Kong)	$	32,234	$	35,180	$	37,761
Taiwan		12,914		14,120		15,005
United States		12,154		10,779		2,304
Korea		1,067		659		650
Others (less than 10% each)		168		221		382
Total long-lived assets	$	58,537	$	60,959	$	56,102

 

78

PERICOM SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

20. QUARTERLY FINANCIAL DATA (Unaudited)

Following is a summary of quarterly operating results and share data for the years ended June 28, 2014 and June 29, 2013:

PERICOM SEMICONDUCTOR CORPORATION
QUARTERLY FINANCIAL DATA
(in thousands, except per share data)
(Unaudited)

	For the Quarter Ended
	June 28, 2014		March 29, 2014			Dec 28, 2013			Sept 28, 2013
Net revenues	$	32,739	$	30,681		$	32,040		$	32,608
Cost of revenues		19,188		18,175			19,820			19,800
Gross profit		13,551		12,506			12,220			12,808
Operating expenses:
Research and development		4,782		4,694			5,274			5,045
Selling, general and administrative		8,100		7,407			7,126			7,687
Total operating expenses		12,882		12,101			12,400			12,732
Income from operations		669		405			(180	)		76
Interest and other income, net		456		802			1,047			486
Income before income tax expense		1,125		1,207			867			562
Income tax expense (benefit)		291		(421	)		(331	)		231
Net income from consolidated companies		834		1,628			1,198			331
Equity in net income of unconsolidated affiliates		50		13			27			43
Net income	$	884	$	1,641		$	1,225		$	374
Basic income per share	$	0.04	$	0.07		$	0.05		$	0.02
Diluted income per share	$	0.04	$	0.07		$	0.05		$	0.02
Shares used in computing basic income per share		22,123		22,659			22,800			22,794
Shares used in computing diluted income per share		22,338		22,880			23,019			22,951

 

79

PERICOM SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

20. QUARTERLY FINANCIAL DATA (Unaudited) (Continued)

	For the Quarter Ended
	June 29, 2013			March 30, 2013			Dec 29, 2012			Sept 29, 2012
Net revenues	$	31,707		$	30,366		$	30,433		$	36,749
Cost of revenues		19,791			19,521			19,239			22,838
Gross profit		11,916			10,845			11,194			13,911
Operating expenses:
Research and development		5,320			5,277			5,097			5,323
Selling, general and administrative		7,217			7,193			7,532			7,639
Goodwill impairment		16,899			—			—			—
Total operating expenses		29,436			12,470			12,629			12,962
Income (loss) from operations		(17,520	)		(1,625	)		(1,435	)		949
Interest and other income, net		1,277			1,318			795			635
Income (loss) before income tax expense		(16,243	)		(307	)		(640	)		1,584
Income tax expense		573			395			4,756			500
Net income (loss) from consolidated companies		(16,816	)		(702	)		(5,396	)		1,084
Equity in net income of unconsolidated affiliates		30			21			57			108
Net income (loss)	$	(16,786	)	$	(681	)	$	(5,339	)	$	1,192
Basic income (loss) per share	$	(0.74	)	$	(0.03	)	$	(0.23	)	$	0.05
Diluted income (loss) per share	$	(0.74	)	$	(0.03	)	$	(0.23	)	$	0.05
Shares used in computing basic income (loss) per share		22,783			23,162			23,515			23,543
Shares used in computing diluted income (loss) per share		22,783			23,162			23,515			23,740

 

80

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

PERICOM SEMICONDUCTOR CORPORATION
By:	/s/ ALEX C. HUI
	Alex C. Hui Chief Executive Officer, President and Chairman of the Board of Directors
Date:	August 28, 2014

 

81

POWER OF ATTORNEY

KNOWN ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Alex C. Hui and Kevin S. Bauer and each of them, his attorney-in-fact, each with the power of substitution, for him in any and all capacities, to sign any amendments to this Report on Form 10-K and file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, and hereby ratifying and confirming all that each of said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ ALEX C. HUIAlex C. Hui	Chief Executive Officer, President and Chairman of the Board of Directors (Principal Executive Officer)	August 28, 2014
/s/ KEVIN S. BAUERKevin S. Bauer	Chief Financial Officer (Principal Financial Officer and Accounting Officer)	August 28, 2014
/s/ JOHN CHI-HUNG HUIJohn Chi-Hung Hui	Senior Vice President, R&D and Director	August 28, 2014
/s/ JOHN C. EASTJohn C. East	Director	August 28, 2014
/s/ HAU L LEEHau L. Lee	Director	August 28, 2014
/s/ MICHAEL SOPHIEMichael Sophie	Director	August 28, 2014
/s/ SIMON WONGSimon Wong	Director	August 28, 2014

 

82

Schedule II

PERICOM SEMICONDUCTOR CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)

	Balance at Beginning of Period		Charged to Revenues		Deductions			Balance at End of Period
Reserves for returns and pricing adjustments
Fiscal year ended June 28, 2014	$	2,435	$	4,880	$	(4,879	)	$	2,436
Fiscal year ended June 29, 2013		2,522		4,493		(4,580	)		2,435
Fiscal year ended June 30, 2012		1,718		5,982		(5,178	)		2,522

 

	Balance at Beginning of Period		Charged to Expense		Deductions/ Write-offs			Balance at End of Period
Allowance for doubtful accounts
Fiscal year ended June 28, 2014	$	76	$	1	$	(52	)	$	25
Fiscal year ended June 29, 2013		44		49		(17	)		76
Fiscal year ended June 30, 2012		229		92		(277	)		44

 

	Balance at Beginning of Period		Charged to Expense		Deductions/ Write-offs		Balance at End of Period
Deferred tax valuation allowance
Fiscal year ended June 28, 2014	$	5,064	$	50	$	—	$	5,114
Fiscal year ended June 29, 2013		4,305		759		—		5,064
Fiscal year ended June 30, 2012		1,062		3,243		—		4,305

 

Sii

EX-21.1

EXHIBIT 21.1

LIST OF SUBSIDIARIES

Name	Jurisdiction of Incorporation
Pericom Global Limited	Cayman Islands
Pericom International Limited	Cayman Islands
PSE Technology Corporation	Taiwan
Pericom Semiconductor (HK) Limited	Hong Kong
Pericom Asia Limited	Hong Kong
PSE Technology (Shandong) Corporation	Shandong, China
Pericom Technology (Yangzhou) Corporation	Yangzhou, China
Pericom Technology Inc.	British Virgin Islands

 

EX-23.1

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-39055, 333-51229, 333-43934, 333-58522, 333-122387, 333-156807 and 333-166927) of Pericom Semiconductor Corporation of our reports dated August 28, 2014 relating to the consolidated financial statements, financial statement schedule and internal control over financial reporting which appear in this Annual Report on Form 10-K.

/s/ Burr Pilger Mayer, Inc.

San Jose, California
August 28, 2014

EX-31.1

EXHIBIT 31.1

PERICOM SEMICONDUCTOR CORPORATION
CERTIFICATION PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

I, Alex C. Hui, certify that:

1. I have reviewed this annual report on Form 10-K of Pericom Semiconductor Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally acceptable accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial data; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 28, 2014

/s/ Alex C. Hui
Alex C. Hui
Chief Executive Officer
Pericom Semiconductor Corporation

EX-31.2

EXHIBIT 31.2

PERICOM SEMICONDUCTOR CORPORATION
CERTIFICATION PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

I, Kevin S. Bauer, certify that:

1. I have reviewed this annual report on Form 10-K of Pericom Semiconductor Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally acceptable accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial data; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 28, 2014
/s/ Kevin S. Bauer
Kevin S. Bauer
Chief Financial Officer
Pericom Semiconductor Corporation

EX-32.1

EXHIBIT 32.1

PERICOM SEMICONDUCTOR CORPORATION

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with this annual report of Pericom Semiconductor Corporation (the “Company”) on Form 10-K for the twelve months ended June 28, 2014 (the “Report”), I, Alex C. Hui, Chief Executive Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

August 28, 2014

By:	/s/ Alex C. Hui
	Alex C. Hui Chief Executive Officer Pericom Semiconductor Corporation

 

EX-32.2

EXHIBIT 32.2

PERICOM SEMICONDUCTOR CORPORATION

CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with this annual report of Pericom Semiconductor Corporation (the “Company”) on Form 10-K for the twelve months ended June 28, 2014 (the “Report”), I, Kevin S. Bauer, Chief Financial Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

August 28, 2014

By:	/s/ Kevin S. Bauer
	Kevin S. Bauer Chief Financial Officer Pericom Semiconductor Corporation

 

XML

Shareholders' Equity and Share-Based Compensation (Tables)

12 Months Ended

Jun. 28, 2014

Shareholders' Equity and Share-Based Compensation [Abstract]

Assumption of the Company used value stock options

	Fiscal Year Ended
		June 28, 2014	June 29, 2013	June 30, 2012
Expected life		5.9 years	5.9 years	5.5 years
Risk-free interest rate		1.47%	1.05%	2.46%
Volatility		52%	54%	54%
Dividend yield		0.00%	0.00%	0.00%

Company's stock option plans

	Outstanding Options
Options		Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
		(in thousands)					(years)		(in thousands)
Options outstanding at July 2, 2011			2,974		$	10.89		4.88	$	645
Options granted (weighted average grant date fair value of $3.89)			142			7.65
Options exercised			(21	)		7.77
Options forfeited or expired			(642	)		12.37
Options outstanding at June 30, 2012			2,453		$	10.34		5.12	$	912
Options granted (weighted average grant date fair value of $4.06)			233			8.07
Options exercised			(6	)	7.87
Options forfeited or expired			(249	)		9.17
Options outstanding at June 29, 2013			2,431		$	10.25		4.86	$	52
Options granted (weighted average grant date fair value of $4.06)			236			8.16
Options exercised			(190	)		8.25
Options forfeited or expired			(392	)		9.96
Options outstanding at June 28, 2014			2,085		$	10.25		4.54	$	1,077
Options vested and expected to vest at June 28, 2014			2,048		$	10.30		4.45	$	1,031
Options exercisable at June 28, 2014			1,796		$	10.62		3.85	$	742

Option outstanding under exercise price range

	Options Outstanding							Options Exercisable
Range of Exercise Prices		Number Outstanding as of June 28, 2014		Weighted Average Remaining Contractual Term (Years)		Weighted Average Exercise Price			Number Exercisable as of June 28, 2014		Weighted Average Exercise Price
$  4.89    $  7.87			458,067		6.88	$	7.51			259,883	$	7.47
$  7.88    $  8.71			420,413		3.08	$	8.34			398,919	$	8.34
$  8.72    $10.01			506,849		4.88	$	9.58			436,825	$	9.69
$10.02    $15.45			494,607		3.81	$	12.60			494,607	$	12.60
$15.45    $18.10			205,500		3.17	$	16.30			205,500	$	16.30
$  4.89    $18.10			2,085,436		4.54	$	10.25			1,795,734	$	10.62

Summary of RSU's activities

	Shares			Weighted Average Grant Date Fair Value		Weighted Average Remaining Vesting Term		Aggregate Intrinsic Value
	(in thousands)					(years)		(in thousands)
RSUs outstanding at July 2, 2011		592		$	9.73		1.60	$	5,253
Awarded		156			7.78
Released		(203	)		9.91
Forfeited		(41	)		9.73
RSUs outstanding at June 30, 2012		504		$	9.06		1.42	$	4,535
Awarded		301			7.74
Released		(217	)		9.55
Forfeited		(63	)		8.24
RSUs outstanding at June 29, 2013		525		$	8.20		1.48	$	3,735
Awarded		416			8.46
Released		(196	)		8.61
Forfeited		(96	)		8.26
RSUs outstanding at June 28, 2014		649		$	8.23		1.58	$	5,901
RSUs vested and expected to vest after June 28, 2014		553		$	8.22		1.46	$	5,029

Assumption used to value stock purchase paln

	Fiscal Year Ended
		June 28, 2014	June 29, 2013	June 30, 2012
Expected life		6 months	6 months	6 months
Risk-free interest rate		0.07%	0.12%	0.10%
Volatility range		26%–34%	35%–37%	43%–64%
Dividend yield		0.00%	0.00%	0.00%

Options activities under ESOP'S

	Shares			Weighted Average Purchase Price
Beginning Available		1,710,525
Purchases		(128,969	)		$	6.02
Ending Available		1,581,556

Share based compensation expenses classified by consolidated statement of operations

	Fiscal Year Ended
(in thousands)		June 28, 2014			June 29, 2013			June 30, 2012
Cost of revenues		$	163		$	187		$	211
Research and development			1,096			1,282			1,434
Selling, general and administrative			1,533			1,871			2,091
Pre-tax stock-based compensation expense			2,792			3,340			3,736
Income tax effect			(910	)		(1,101	)		(1,229	)
Net stock-based compensation expense		$	1,882		$	2,239		$	2,507

Share-based compensation expense categorized by the type of award

	Fiscal Year Ended
(in thousands)		June 28, 2014		June 29, 2013		June 30, 2012
Stock incentive plans		$	2,586	$	3,128	$	3,492
Less income tax effect			910		1,101		1,229
Net stock incentive plan expense			1,676		2,027		2,263
Employee stock purchase plan			206		212		244
Less income tax effect			—		—		—
Net employee stock purchase plan expense			206		212		244
		$	1,882	$	2,239	$	2,507

XML

Property, Plant and Equipment - Net (Details Textual) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Jun. 28, 2014	Jun. 29, 2013	Jun. 30, 2012
Property plant and equipment net (Textual)
Depreciation expense	$ 6.4	$ 7.4	$ 8.0

XML

Business and Significant Accounting Policies (Details 4) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended								12 Months Ended
	Jun. 28, 2014	Mar. 29, 2014	Dec. 28, 2013	Sep. 28, 2013	Jun. 29, 2013	Mar. 30, 2013	Dec. 29, 2012	Sep. 29, 2012	Jun. 28, 2014	Jun. 29, 2013	Jun. 30, 2012
Basic and diluted earnings per share
Net income (loss)									$ 4,124	$ (21,614)	$ (2,068)
Computation of common shares outstanding - basic earnings (loss) per share:
Weighted average shares of common stock	22,123	22,659	22,800	22,794	22,783	23,162	23,515	23,543	22,594	23,251	24,094
Basic earnings (loss) per share	$ 0.04	$ 0.07	$ 0.05	$ 0.02	$ (0.74)	$ (0.03)	$ (0.23)	$ 0.05	$ 0.18	$ (0.93)	$ (0.09)
Computation of common shares outstanding - diluted earnings (loss) per share:
Weighted average shares of common stock									22,594	23,251	24,094
Dilutive shares using the treasury stock method									203
Shares used in computing diluted income (loss) per share	22,338	22,880	23,019	22,951	22,783	23,162	23,515	23,740	22,797	23,251	24,094
Diluted income (loss) per share	$ 0.04	$ 0.07	$ 0.05	$ 0.02	$ (0.74)	$ (0.03)	$ (0.23)	$ 0.05	$ 0.18	$ (0.93)	$ (0.09)

XML

Shareholders Equity and Share-Based Compensation (Details) (Stock Option [Member])	12 Months Ended
	Jun. 28, 2014	Jun. 29, 2013	Jun. 30, 2012
Stock Option [Member]
Assumptions of the Company used to value stock options:
Expected life	5 years 10 months 24 days	5 years 10 months 24 days	5 years 6 months
Risk-free interest rate	1.47%	1.05%	2.46%
Volatility range	52.00%	54.00%	54.00%
Dividend yield	0.00%	0.00%	0.00%

XML

Other Assets (Details) (USD $) In Thousands, unless otherwise specified	Jun. 28, 2014	Jun. 29, 2013
Other assets
Land use rights	$ 6,631	$ 6,821
Investments in privately held companies	1,243	1,238
Deposits	118	262
Other	126	304
Total	$ 8,118	$ 8,625

XML

Shareholders Equity and Share-Based Compensation (Details Textual) (USD $)	12 Months Ended
	Jun. 28, 2014	Jun. 29, 2013	Jun. 30, 2012	Apr. 24, 2014	Apr. 26, 2012
Shareholders equity and share based compensation (Textual)
Income tax benefits recognized	$ 910,000	$ 1,100,000	$ 1,200,000
Reduction in net income due to sharebased compensation	1,900,000	2,200,000	2,500,000
Reduction in net income per diluted share due to sharebased compensation	$ 0.08	$ 0.10	$ 0.10
Repurchase of common stock, Authorized				20,000,000	25,000,000
Stock repurchased during period, value	11,300,000	7,800,000	11,600,000
Stock repurchased during period, shares	1,354,511	1,100,306	1,482,572
Amount of remaining stock repurchase	26,600,000
Weighted Average Exercise Price, granted	$ 8.16	$ 8.07	$ 7.65
Aggregate intrinsic value, Options vested and expected to vest	1,031,000
Board of Directors [Member]
Shareholders equity and share based compensation (Textual)
Preferred stock, shares authorized	5,000,000
Preferred stock, shares issued	0
Restricted Stock Units (RSUs) [Member]
Shareholders equity and share based compensation (Textual)
Options vesting period	4 years
Unamortized sharebased compensation expense	3,800,000
Weighted average period of recognition	2 years 8 months 12 days
Stock option Plan [Member]
Shareholders equity and share based compensation (Textual)
Number Of Stock Option Plan	3
Reserve of common stock for issuance to employees and officers	4,500,000
Options vesting period	48 months
Option expiration period	10 years
Unamortized sharebased compensation expense	1,300,000
Weighted average period of recognition	2 years 7 months 6 days
Shares available for future grant	1,046,000
Aggregate intrinsic value, Options vested and expected to vest	177,000	2,000	8,000
Employee Stock Purchase Plan [Member]
Shareholders equity and share based compensation (Textual)
Number Of Stock Option Plan	1
Aggregate compensation expenses related to grant of option and restricted stock units	2,800,000	3,300,000	3,700,000
Reserve of common stock for issuance to employees and officers	2,000,000
Unamortized sharebased compensation expense	75,000
Shares available for future grant	1,600,000
Weighted Average Exercise Price, granted	$ 6.02	$ 5.98	$ 6.96
Purchase option for participants in purchase period	85% of the lower of the stock's fair market value on the first day and last day of the purchase period.
Maximum number of common stock by employees in purchase period	1,500
Maximum amount that can be accrued in offering periog for stock purchased	$ 15,000
Shares issued under ESOP plan	129,000	125,000	109,000

XML

Business and Significant Accounting Policies (Details 2) (USD $) In Thousands, unless otherwise specified	Jun. 28, 2014	Jun. 29, 2013
The fair value of the Company's short- and long-term investments by length of time to maturity
Fair value of investments	$ 86,104	$ 86,839
One year or less [Member]
The fair value of the Company's short- and long-term investments by length of time to maturity
Fair value of investments	24,963	19,853
Between one and three years [Member]
The fair value of the Company's short- and long-term investments by length of time to maturity
Fair value of investments	24,242	29,525
Greater than three years [Member]
The fair value of the Company's short- and long-term investments by length of time to maturity
Fair value of investments	30,449	29,244
Multiple Dates [Member]
The fair value of the Company's short- and long-term investments by length of time to maturity
Fair value of investments	$ 6,450	$ 8,217

XML

Property, Plant and Equipment - Net (Tables)

12 Months Ended

Jun. 28, 2014

Property, Plant and Equipment - Net [Abstract]

Property, plant and equipment

	As of the year ended
(in thousands)		June 28, 2014			June 29, 2013
Machinery and equipment		$	55,408		$	55,795
Buildings			36,196			30,637
Computer equipment and software			13,742			14,449
Land			9,473			3,661
Furniture and fixtures			1,218			1,402
Leasehold improvements			595			1,115
Vehicles			151			155
Total			116,783			107,214
Accumulated depreciation and amortization			(59,500	)		(56,825	)
Construction-in-progress			1,254			10,570
Property, plant and equipment — net		$	58,537		$	60,959

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Shareholder Rights Plan (Details) (USD $)	12 Months Ended
	Jun. 28, 2014
Stockholder Rights Plan (Textual)
Condition for right to become exercisable	The rights will become exercisable only upon the occurrence of certain events specified in the plan, including the acquisition of 15% of the Company's outstanding common stock by a person or group. Should a person or group acquire 15% or more of the outstanding common stock or announce an unsolicited tender offer, the consummation of which would result in a person or group acquiring 15% or more of the outstanding common stock, shareholders other than the acquiring person may exercise the rights.
Discount rate on then prevailing market price	50.00%
Exercise price of rights	$ 0.001
Expiration date of rights	Mar. 06, 2022
Rights outstanding	21,974,000
Series D Junior Participating Preferred Stock [Member]
Stockholder Rights Plan (Textual)
Condition to exercise right	To purchase one one-thousandth of a share

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Shareholders Equity and Share-Based Compensation (Details 3) (Restricted Stock Units (RSUs) [Member], USD $) In Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Jun. 28, 2014	Jun. 29, 2013	Jun. 30, 2012
Restricted Stock Units (RSUs) [Member]
Summary of RSU's activities
RSUs outstanding , Beginning balance	525	504	592
RUS's outstanding, Awarded	416	301	156
RUS's outstanding, Released	(196)	(217)	(203)
RUS's outstanding, Forfeited	(96)	(63)	(41)
RSUs outstanding, Ending Balance	649	525	504
RSU's vested and expected to vested, Number of Shares	553
RSUs outstanding, Weighted average grant date fair value, Beginning balance	$ 8.20	$ 9.06	$ 9.73
RUS's awarded, Weighted average grant date fair value	$ 8.46	$ 7.74	$ 7.78
RUS's realeased, Weighted average grant date fair value	$ 8.61	$ 9.55	$ 9.91
RUS's forfeited, Weighted average grant date fair value	$ 8.26	$ 8.24	$ 9.73
RSUs outstanding, Weighted average grant date fair value, Balance	$ 8.23	$ 8.20	$ 9.06
RSU's vested and expected to vested, Weighted average grant date fair value	$ 8.22
RSUs outstanding, Weighted average remaining vesting term	1 year 6 months 29 days	1 year 5 months 23 days	1 year 5 months 1 day
RSUs vested and expected to vest, Weighted average remaining vesting term	1 year 5 months 16 days
RSUs outstanding, Aggregate intrinsic value, Beginning balance	$ 3,735	$ 4,535	$ 5,253
RSUs outstanding, Aggregate intrinsic value, Ending balance	5,901	3,735	4,535
RSU's vested and expected to vested, Aggregate intrinsic value	$ 5,029

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Industry and Geographical Segment Information (Details Textual)	12 Months Ended
	Jun. 28, 2014 Segment
Segment Reporting Textual [Abstract]
Number of operating segments	3

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Investment in Unconsolidated Affiliate (Details) (USD $) In Thousands, unless otherwise specified	Jun. 28, 2014	Jun. 29, 2013
Investment in unconsolidated affiliate
Jiyuan Crystal Photoelectric Frequency Technology Ltd.	$ 2,445	$ 2,525

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Shareholders Equity and Share-Based Compensation (Details 6) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Jun. 28, 2014	Jun. 29, 2013	Jun. 30, 2012
Share based compensation expenses classified by consolidated statement of operations
Pre-tax stock-based compensation expense	$ 2,792	$ 3,340	$ 3,736
Income tax effect	(910)	(1,101)	(1,229)
Net stock-based compensation expense	1,882	2,239	2,507
Cost of revenue [Member]
Share based compensation expenses classified by consolidated statement of operations
Pre-tax stock-based compensation expense	163	187	211
Research and development [Member]
Share based compensation expenses classified by consolidated statement of operations
Pre-tax stock-based compensation expense	1,096	1,282	1,434
Selling, general and administrative expenses [Member]
Share based compensation expenses classified by consolidated statement of operations
Pre-tax stock-based compensation expense	$ 1,533	$ 1,871	$ 2,091

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Income Taxes (Details Textual) (USD $)	12 Months Ended
	Jun. 28, 2014	Jun. 29, 2013	Jun. 30, 2012	Jul. 02, 2011
Income Taxes (Textual)
Change in valuance allowance, deferred tax assets	$ 50,000	$ 759,000
Non-U.S. income (loss) before income tax	5,000,000	(27,782,000)	554,000
Undistributed earnings reported by certain foreign subsidiaries	19,700,000
Unrecognized tax benefits	(1,731,000)	(3,033,000)	(1,607,000)	(755,000)
Balance of unrecognized tax benefits that would affect the Company's effective tax rate if recognized	934,000
Income tax examination year under examination, range	2008 through 2014
Accrued interest and penalties related to unrecognized tax benefits	215,000
Additional tax payments	208,000
Additional payments interest charges	2 years
Federal taxable income [Member]
Income Taxes (Textual)
Research and development tax credit carryforwards	145,000
Expiration of tax credit carryforwards	2034
State taxable income [Member]
Income Taxes (Textual)
Research and development tax credit carryforwards	4,700,000
PSE-TW in Taiwan
Income Taxes (Textual)
Net operating loss carryforwards	207,000
Operating loss carryforwards begins to expiration date	2015
PSE-SD in China
Income Taxes (Textual)
Net operating loss carryforwards	3,700,000
Operating loss carryforwards begins to expiration date	2014
PTI in Hong Kong
Income Taxes (Textual)
Net operating loss carryforwards	$ 5,000,000
Operating loss carryforwards begins to expiration date	No expiration

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Fair Value Measurements (Details Textual) (USD $)	Jun. 28, 2014	Jun. 29, 2013
Fair Value Measurements (Textual)
Commercial paper included in cash and cash equivalents		$ 2,991
Repurchase agreements included in cash and cash equivalents	$ 4,047

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Employee Benefit Plan (Details) (USD $)	12 Months Ended
	Jun. 28, 2014	Jun. 29, 2013	Jun. 30, 2012
Compensation and Retirement (Textual)
Employer-matching contributions, percentage

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Shareholders Equity and Share-Based Compensation (Details 7) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Jun. 28, 2014	Jun. 29, 2013	Jun. 30, 2012
Share-based compensation expense categorized by the type of award
Income tax effect	$ 910	$ 1,101	$ 1,229
Net Stock incentive /Employee stock purchase plan expenses	2,792	3,340	3,736
Net stock-based compensation expense	1,882	2,239	2,507
Stock incentive plan [Member]
Share-based compensation expense categorized by the type of award
Stock incentive /Employee stock purchase plan expenses	2,586	3,128	3,492
Income tax effect	910	1,101	1,229
Net Stock incentive /Employee stock purchase plan expenses	1,676	2,027	2,263
Employee stock purchase plan [Member]
Share-based compensation expense categorized by the type of award
Stock incentive /Employee stock purchase plan expenses	206	212	244
Income tax effect
Net Stock incentive /Employee stock purchase plan expenses	$ 206	$ 212	$ 244

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Shareholders Equity and Share-Based Compensation (Details 1) (USD $) In Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Jun. 28, 2014	Jun. 29, 2013	Jun. 30, 2012	Jul. 02, 2011
Stock Option Plan
Beginning Balance, Options Outstanding	2,431	2,453	2,974	3,477
Options Outstanding, granted	236	233	142
Option Outstanding, exercised	(190)	(6)	(21)
Option Outstanding, forfeited or expired	(392)	(249)	(642)
Ending balance, Option Outstanding	2,085	2,431	2,453	2,974
Option Outstanding, Options vested and expected to vest	2,048
Option Outstanding, Options exercisable	1,796
Beginning Balance, Weighted Average Exercise Price	$ 10.25	$ 10.34	$ 10.89	$ 11.85
Weighted Average Exercise Price, granted	$ 8.16	$ 8.07	$ 7.65
Weighted Average Exercise Price, Exercised	$ 8.25	$ 7.87	$ 7.77
Weighted Average Exercise Price, forfeited or expired	$ 9.96	$ 9.17	$ 12.37
Ending Balance, Weighted Average Exercise Price	$ 10.25	$ 10.25	$ 10.34	$ 10.89
Weighted Average Exercise Price, Options vested and expected to vest	$ 10.30
Weighted Average Exercise Price, Options exercisable	$ 10.62
Weighted Average Remaining Contractual Term, Options outstanding	4 years 6 months 15 days	4 years 10 months 10 days	5 years 1 month 13 days	4 years 10 months 17 days
Weighted Average Remaining Contractual Term, Options vested and expected to vest	4 years 5 months 12 days
Weighted Average Remaining Contractual Term, Options exercisable	3 years 10 months 6 days
Beginning balance, Aggregate Intrinsic Value	$ 52	$ 912	$ 645
Ending balance, Aggregate Intrinsic Value	1,077	52	912	645
Aggregate intrinsic value, Options vested and expected to vest	1,031
Aggregate intrinsic value, Options exercisable	$ 742

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Employee Benefit Plan

12 Months Ended

Jun. 28, 2014

Employee Benefit Plan [Abstract]

EMPLOYEE BENEFIT PLAN

18. EMPLOYEE BENEFIT PLAN

The Company has a 401(k) tax-deferred savings plan under which eligible employees may elect to have a portion of their salary deferred and contributed to the plan. The Board of Directors determines the employer matching contributions at their discretion. There were no employer-matching contributions in fiscal 2014, 2013 or 2012.

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Other Receivables (Details) (USD $) In Thousands, unless otherwise specified	Jun. 28, 2014	Jun. 29, 2013
Components of other receivables
Interest receivable	$ 1,516	$ 1,054
VAT and other tax receivables	1,031	1,076
Government subsidy receivable		840
Other accounts receivable	331	211
Other receivables	$ 2,878	$ 3,181

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Industry and Geographical Segment Information (Tables)

12 Months Ended

Jun. 28, 2014

Industry and Geographical Segment Information [Abstract]

Schedule of net sales and net book value of long-lived assets by geographical segment

	Fiscal Year Ended
(in thousands)	June 28, 2014		June 29, 2013		June 30, 2012
Net sales to countries:
China (including Hong Kong)	$	61,054	$	61,486	$	48,178
Taiwan		39,463		43,144		63,301
United States		5,927		6,517		7,242
Others (less than 10% each)		21,624		18,108		18,414
Total net sales	$	128,068	$	129,255	$	137,135

(in thousands)
Long-lived assets:
China (including Hong Kong)	$	32,234	$	35,180	$	37,761
Taiwan		12,914		14,120		15,005
United States		12,154		10,779		2,304
Korea		1,067		659		650
Others (less than 10% each)		168		221		382
Total long-lived assets	$	58,537	$	60,959	$	56,102

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Shareholders Equity and Share-Based Compensation (Details 5) (USD $)	12 Months Ended
	Jun. 28, 2014
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Beginning Balance, Available	1,710,525
Purchases	(128,969)
Ending Balance, Available	1,581,556
Purchase, Weighted average price	$ 6.02

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Accrued Liabilities (Tables)

12 Months Ended

Jun. 28, 2014

Accrued Liabilities [Abstract]

Accrued liabilities

	As of the year ended
(in thousands)		June 28, 2014		June 29, 2013
Accrued compensation		$	6,892	$	6,029
Income taxes payable			1,140		655
Sales commissions			307		316
Accrued construction liabilities			—		134
Other accrued expenses			1,595		1,597
		$	9,934	$	8,731

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Inventories (Details Textual) (USD $) In Millions, unless otherwise specified	Jun. 28, 2014	Jun. 29, 2013
Inventories (Textual)
Inventory reserved	$ 3.2	$ 3.1

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Commitments and Contingencies (Details Textual) (USD $)	12 Months Ended
	Jun. 28, 2014	Jun. 29, 2013	Jun. 30, 2012
Commitments and Contingencies (Textual)
Rent expense	$ 801,000	$ 2,000,000	$ 1,900,000

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Goodwill and Intangible Assets (Details 2) (USD $) In Thousands, unless otherwise specified	Jun. 28, 2014	Jun. 29, 2013
Summary of future amortization expense associated with intangible assets
2015	$ 2,904
2016	2,904
2017	801
2018 and beyond
Total	6,069	9,545
Customer relationships [Member]
Summary of future amortization expense associated with intangible assets
2015		989
2016		989
2017		165
2018 and beyond
Total	2,143	3,120
Core developed technology
Summary of future amortization expense associated with intangible assets
2015		1,321
2016		1,321
2017		219
2018 and beyond
Total	2,861	4,243
IPRD [Member]
Summary of future amortization expense associated with intangible assets
2015		594
2016		594
2017		417
2018 and beyond
Total		$ 1,605

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Business and Significant Accounting Policies (Details 3)	12 Months Ended
	Jun. 28, 2014	Jun. 29, 2013	Jun. 30, 2012
Net Revenues [Member]
The percentage of net revenues and accounts receivable in excess of 10% with any single customer
Concentration risk, Percentage	100.00%	100.00%	100.00%
Net Revenues [Member] | Customer A [Member]
The percentage of net revenues and accounts receivable in excess of 10% with any single customer
Concentration risk, Percentage	26.00%	21.00%	18.00%
Net Revenues [Member] | Customer B [Member]
The percentage of net revenues and accounts receivable in excess of 10% with any single customer
Concentration risk, Percentage	10.00%	12.00%	14.00%
Net Revenues [Member] | All others [Member]
The percentage of net revenues and accounts receivable in excess of 10% with any single customer
Concentration risk, Percentage	64.00%	67.00%	68.00%
Trade Accounts Receivable [Member]
The percentage of net revenues and accounts receivable in excess of 10% with any single customer
Concentration risk, Percentage	100.00%	100.00%	100.00%
Trade Accounts Receivable [Member] | Customer A [Member]
The percentage of net revenues and accounts receivable in excess of 10% with any single customer
Concentration risk, Percentage	29.00%	28.00%	26.00%
Trade Accounts Receivable [Member] | Customer B [Member]
The percentage of net revenues and accounts receivable in excess of 10% with any single customer
Concentration risk, Percentage	8.00%	7.00%	6.00%
Trade Accounts Receivable [Member] | All others [Member]
The percentage of net revenues and accounts receivable in excess of 10% with any single customer
Concentration risk, Percentage	63.00%	65.00%	68.00%

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Other Receivables

12 Months Ended

Jun. 28, 2014

Other Receivables [Abstract]

OTHER RECEIVABLES

2. OTHER RECEIVABLES

Other receivables consist of:

	As of the year ended
(in thousands)	June 28, 2014		June 29, 2013
Interest receivable	$	1,516	$	1,054
VAT and other tax receivables		1,031		1,076
Government subsidy receivable		—		840
Other accounts receivable		331		211
	$	2,878	$	3,181

 

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Goodwill and Intangible Assets (Details Textual) (USD $)	3 Months Ended				12 Months Ended
	Jun. 29, 2013	Mar. 30, 2013	Dec. 29, 2012	Sep. 29, 2012	Jun. 28, 2014	Jun. 29, 2013	Jun. 30, 2012
Goodwill And Intangible Assets (Textual)
Amortization expense related to finite-lived purchased intangible assets					$ 3,000,000	$ 3,100,000	$ 3,100,000
Impairment of intangible assets	16,899,000
Accelerated amortization to a supplier relationship							125,000
Goodwill impairment						$ 16,899,000
Customer Relationships [Member]
Goodwill And Intangible Assets (Textual)
Finite lived intangible assets weighted average useful lives						2 years
Developed Technology Rights [Member]
Goodwill And Intangible Assets (Textual)
Finite lived intangible assets weighted average useful lives						2 years
eCERA trade name [Member]
Goodwill And Intangible Assets (Textual)
Finite lived intangible assets weighted average useful lives						2 years

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Quarterly Financial Data (Tables)

12 Months Ended

Jun. 28, 2014

Quarterly Financial Information Disclosure [Abstract]

Summary of quarterly operating results and share data

	For the Quarter Ended
	June 28, 2014		March 29, 2014			Dec 28, 2013			Sept 28, 2013
Net revenues	$	32,739	$	30,681		$	32,040		$	32,608
Cost of revenues		19,188		18,175			19,820			19,800
Gross profit		13,551		12,506			12,220			12,808
Operating expenses:
Research and development		4,782		4,694			5,274			5,045
Selling, general and administrative		8,100		7,407			7,126			7,687
Total operating expenses		12,882		12,101			12,400			12,732
Income from operations		669		405			(180	)		76
Interest and other income, net		456		802			1,047			486
Income before income tax expense		1,125		1,207			867			562
Income tax expense (benefit)		291		(421	)		(331	)		231
Net income from consolidated companies		834		1,628			1,198			331
Equity in net income of unconsolidated affiliates		50		13			27			43
Net income	$	884	$	1,641		$	1,225		$	374
Basic income per share	$	0.04	$	0.07		$	0.05		$	0.02
Diluted income per share	$	0.04	$	0.07		$	0.05		$	0.02
Shares used in computing basic income per share		22,123		22,659			22,800			22,794
Shares used in computing diluted income per share		22,338		22,880			23,019			22,951

	For the Quarter Ended
	June 29, 2013			March 30, 2013			Dec 29, 2012			Sept 29, 2012
Net revenues	$	31,707		$	30,366		$	30,433		$	36,749
Cost of revenues		19,791			19,521			19,239			22,838
Gross profit		11,916			10,845			11,194			13,911
Operating expenses:
Research and development		5,320			5,277			5,097			5,323
Selling, general and administrative		7,217			7,193			7,532			7,639
Goodwill impairment		16,899			—			—			—
Total operating expenses		29,436			12,470			12,629			12,962
Income (loss) from operations		(17,520	)		(1,625	)		(1,435	)		949
Interest and other income, net		1,277			1,318			795			635
Income (loss) before income tax expense		(16,243	)		(307	)		(640	)		1,584
Income tax expense		573			395			4,756			500
Net income (loss) from consolidated companies		(16,816	)		(702	)		(5,396	)		1,084
Equity in net income of unconsolidated affiliates		30			21			57			108
Net income (loss)	$	(16,786	)	$	(681	)	$	(5,339	)	$	1,192
Basic income (loss) per share	$	(0.74	)	$	(0.03	)	$	(0.23	)	$	0.05
Diluted income (loss) per share	$	(0.74	)	$	(0.03	)	$	(0.23	)	$	0.05
Shares used in computing basic income (loss) per share		22,783			23,162			23,515			23,543
Shares used in computing diluted income (loss) per share		22,783			23,162			23,515			23,740

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Business and Significant Accounting Policies (Policies)

12 Months Ended

Jun. 28, 2014

Business and Significant Accounting Policies [Abstract]

USE OF ESTIMATES

USE OF ESTIMATES — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses during the reporting period. Actual results could differ from those estimates.

BASIS OF PRESENTATION

BASIS OF PRESENTATION — These consolidated financial statements include the accounts of Pericom Semiconductor Corporation and its wholly owned subsidiaries, Pericom Global Limited (“PGL”), PSE Technology Corporation (“PSE-TW”), and Pericom Asia Limited (“PAL”). PGL has two wholly-owned subsidiaries, Pericom International Limited (“PIL”) and Pericom Semiconductor (HK) Limited (“PHK”). In addition, PAL has three subsidiaries, PSE Technology (Shandong) Corporation (“PSE-SD”), Pericom Technology Yangzhou Corporation (“PSC-YZ”) for the Jinan, China and Yangzhou, China operations, respectively, and Pericom Technology Inc. (“PTI”). All significant intercompany balances and transactions have been eliminated in consolidation.

The Company has significant operations in the People’s Republic of China (“PRC”), where certain political, economic and currency restrictions may apply. Insofar as can be reasonably determined, and based on our experience to date, the effect of foreign exchange restrictions upon the consolidated financial position and results of the Company are not material.

FISCAL PERIOD

FISCAL PERIOD — For purposes of reporting the financial results, the Company’s fiscal years end on the Saturday closest to the end of June. The year ended July 3, 2010 contains 53 weeks, whereas all other fiscal years presented herein include 52 weeks.

CASH EQUIVALENTS

CASH EQUIVALENTS — The Company considers all highly liquid investments purchased with an original or remaining maturity of three months or less when purchased to be cash equivalents. The recorded carrying amounts of the Company’s cash and cash equivalents approximate their fair value.

SHORT-TERM AND LONG-TERM INVESTMENTS IN MARKETABLE SECURITIES

SHORT-TERM INVESTMENTS IN MARKETABLE SECURITIES — The Company’s policy is to invest in instruments with investment grade credit ratings. The Company classifies its short-term investments as “available-for-sale” securities and the Company bases the cost of securities sold using the specific identification method. The Company accounts for unrealized gains and losses on its available-for-sale securities as a separate component of shareholders’ equity in the consolidated balance sheets in the period in which the gain or loss occurs. In prior years, the Company classified portions of its available-for-sale securities as current or noncurrent based on each security’s attributes. Effective as of June 28, 2014, all available-for-sale securities are classified as short-term investments, as we consider the entire investment portfolio to be saleable if cash is needed or if better investment opportunities arise. Prior period balance sheets have been reclassed accordingly to conform to the current year presentation. This reclass had no effect on previously reported net income (loss), comprehensive income (loss), shareholders’ equity or cash flows.

As of June 28, 2014 and June 29, 2013, investments, and any difference between the fair market value and the underlying amortized cost of such investments, consisted of the following:

Available-for-Sale Securities:

	As of June 28, 2014
(in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Net Unrealized Gains (Losses)		Fair Value
Available-for-Sale Securities
Time deposits	$	17,693	$	—	$	—		$	—	$	17,693
Repurchase agreements		500		—		—			—		500
US Treasury securities		526		1		—			1		527
National government and agency securities		4,962		95		(2	)		93		5,055
State and municipal bond obligations		7,090		63		(4	)		59		7,149
Corporate bonds and notes		42,675		249		(143	)		106		42,781
Asset backed securities		7,592		28		(6	)		22		7,614
Mortgage backed securities		4,766		26		(7	)		19		4,785
Total	$	85,804	$	462	$	(162	)	$	300	$	86,104

 
   

	As of June 29, 2013
(in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Net Unrealized Gains (Losses)			Fair Value
Available-for-Sale Securities
Time deposits	$	12,087	$	—	$	—		$	—		$	12,087
Repurchase agreements		1,997		—		—			—			1,997
National government and agency securities		4,348		106		(3	)		103			4,451
State and municipal bond obligations		3,776		9		(27	)		(18	)		3,758
Corporate bonds and notes		48,438		71		(716	)		(645	)		47,793
Asset backed securities	10,063		19		(60	)		(41	)		10,022
Mortgage backed securities		6,755		26		(50	)		(24	)		6,731
Total	$	87,464	$	231	$	(856	)	$	(625	)	$	86,839

 

The following tables show the gross unrealized losses and fair values of the Company’s investments that have unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of June 28, 2014 and June 29, 2013:

   

	Continuous Unrealized Losses at June 28, 2014
	Less Than 12 Months				12 Months or Longer				Total
(in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
National government and agency securities	$	282	$	1	$	91	$	1	$	373	$	2
State and municipal bond obligations		—		—		695		4		695		4
Corporate bonds and notes		3,901		11		5,801		132	9,702		143
Asset backed securities		895		1		1,195		5		2,090		6
Mortgage backed securities		1,083		3		504		4		1,587		7
	$	6,161	$	16	$	8,286	$	146	$	14,447	$	162

 

	Continuous Unrealized Losses at June 29, 2013
	Less Than 12 Months				12 Months or Longer				Total
(in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
National government and agency securities	$	154	$	3	$	—	$	—	$	154	$	3
State and municipal bond obligations		2,364		27		—		—		2,364		27
Corporate bonds and notes		36,394		626		4,298		90		40,692		716
Asset backed securities		5,881		51		546		9		6,427		60
Mortgage backed securities		3,616		13		216		37		3,831		50
	$	48,409	$	720	$	5,060	$	136	$	53,469	$	856

 

The unrealized losses are of a temporary nature due to the Company’s intent and ability to hold the investments until maturity or until the cost is recoverable. The unrealized losses are primarily due to fluctuations in market interest rates. The Company reports unrealized gains and losses on its “available-for-sale” securities in accumulated other comprehensive income, net of tax, in shareholders’ equity.

The Company records gains or losses realized on sales of available-for-sale securities in interest and other income, net on its consolidated statements of operations. The cost of securities sold is based on the specific identification of the security and its amortized cost. In fiscal 2014, 2013 and 2012, realized gains on available-for-sale securities were $179,000, $1.0 million and $673,000, respectively.

The following table lists the fair value of the Company’s short-term investments by length of time to maturity as of June 28, 2014 and June 29, 2013:

(in thousands)	June 28, 2014		June 29, 2013
One year or less	$	24,963	$	19,853
Between one and three years		24,242		29,525
Greater than three years		30,449		29,244
Multiple dates		6,450		8,217
	$	86,104	$	86,839

 

Securities with maturities over multiple dates are mortgage-backed securities (“MBS”) or asset-backed securities (“ABS”) featuring periodic principle paydowns through 2041.

FAIR VALUE OF FINANCIAL INSTRUMENTS

FAIR VALUE OF FINANCIAL INSTRUMENTS — The Company has determined that the amounts reported for cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair value because of their short maturities and/or variable interest rates. Available-for-sale investments are reported at their fair value based on quoted market prices. A further discussion of the fair value of financial instruments is detailed in Note 16 to the Consolidated Financial Statements contained in this report on Form 10-K.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

ALLOWANCE FOR DOUBTFUL ACCOUNTS — The Company computes its allowance for doubtful accounts using a combination of factors. In cases where the Company is aware of circumstances that may impair a specific customer’s ability to meet its financial obligations to the Company, the Company records a specific allowance against amounts due to the Company, reducing the net recognized receivable to the amount the Company reasonably believes it will collect. For all other customers, the Company recognizes allowances for doubtful accounts based on the length of time the receivables are past due, the current business environment and its historical experience.

INVENTORIES

INVENTORIES — For IC and certain FCP products, the Company records inventories at the lower of standard cost (which generally approximates actual cost on a first-in, first-out basis) or market value. The carrying value of inventory is adjusted for excess and obsolete inventory based on inventory age, shipment history and the forecast of demand over a specific future period. The semiconductor markets that the Company serves are volatile and actual results may vary from forecast or other assumptions, potentially affecting the Company’s assessment of excess and obsolete inventory, resulting in material effects on gross margin.

The inventories of the remainder of the FCP products are recorded at the lower of weighted-average cost, which approximates actual cost, or market value. Weighted average cost is comprised of average manufacturing costs weighted by the volume produced in each production run. Market value is defined as the net realizable value for finished goods, and replacement cost for raw materials and work in process.

Raw material inventory is considered slow moving and is fully reserved if it has not moved in 365 days. For assembled devices, the inventory is disaggregated by part number. The quantities on hand in each part number category are compared to the quantity that was shipped in the previous twelve months, the quantity in backlog and to the quantity expected to ship in the next twelve months. A reserve is recorded to the extent the value of each quantity on hand is in excess of the lesser of the three comparisons. The Company also periodically reviews inventory for obsolescence beyond the established formulaic tests. The Company believes this method of evaluating inventory fairly represents market conditions.

The Company considers the reserved material to be available for sale. The reserved inventory is not revalued should market conditions change or if a market develops for the obsolete inventory. In the past, the Company has sold obsolete inventory that was previously fully reserved.

PROPERTY, PLANT AND EQUIPMENT

PROPERTY, PLANT AND EQUIPMENT — The Company states its property, plant and equipment at cost. Cost includes purchase cost, applicable taxes, freight, installation costs and interest incurred in the acquisition of any asset that requires a period of time to make it ready for use. We compute depreciation and amortization using the straight-line method over estimated useful lives of three to eight years except for buildings, which we depreciate using the straight-line method over estimated useful lives of twenty to forty years. We depreciate leasehold improvements over the shorter of the lease term or the improvement’s estimated useful life. In addition, we capitalize the cost of major replacements, improvements and betterments, while we expense normal maintenance and repair.

INVESTMENTS IN UNCONSOLIDATED AFFILIATES

INVESTMENTS IN UNCONSOLIDATED AFFILIATES — The Company holds or has held ownership interests in various investees. Our ownership in these affiliates has varied from 20% to approximately 49%. We classify these investments as investments in unconsolidated affiliates in our consolidated balance sheets. The Company accounts for long-term investments in companies in which it has an ownership share larger than 20% and in which it has significant influence over the activities of the investee using the equity method. We recognize our proportionate share of each investee’s income or loss in the period in which the investee reports the income or loss. We eliminate all intercompany transactions in accounting for our equity method investments.

OTHER ASSETS

OTHER ASSETS — The Company’s other assets classification includes investments in privately held companies in which we have less than a 20% interest, land use rights and deposits. The Company reports its investments in privately held companies at the lower of cost or market. The Company’s management reviews the investment in these companies for losses that may be other than temporary on a quarterly basis. Should management determine that such an impairment exists, the Company will reduce the value of the Company’s investment in the period in which management discovers the impairment and charge the impairment to the consolidated statement of operations. The Company’s management performed such an evaluation as of June 28, 2014 and determined that no impairment existed. Two of the Company’s subsidiaries, PSE-SD and PTI, hold land use rights that were acquired from the local Chinese government which entitle the Company to use the land for 15 to 50 years. The cost of the land use rights is recorded as a component of other assets and is being depreciated over 15 to 50 years, the useful life of the rights.

LONG-LIVED ASSETS

LONG-LIVED ASSETS — The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When the sum of the undiscounted future net cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount, the Company will recognize an impairment loss as the amount of the difference between carrying value and fair value as determined by discounted cash flows.

INCOME TAXES

INCOME TAXES — The Company accounts for income taxes following the Financial Accounting Standards Board’s (“FASB”) statements and related interpretations, which require an asset and liability approach to recording deferred taxes. We record a valuation allowance to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. The Company’s income tax calculations are based on application of the respective U.S. federal, state or foreign tax laws. The Company’s tax filings, however, are subject to audit by the respective tax authorities. Accordingly, the Company recognizes tax liabilities based on its estimates of whether, and the extent to which, additional taxes will be due when such estimates are more-likely-than-not to be sustained. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. To the extent the final tax liabilities are different than the amounts originally accrued, the increases or decreases are recorded as income tax expense or benefit in the consolidated statements of operations.

The Internal Revenue Service completed their examination of the Company’s federal tax returns for fiscal 2010 and 2011 during fiscal 2014, and additional tax payments of approximately $208,000 were made in fiscal 2014, including interest charges for the two years that were examined. The Company had previously accrued for this exposure.

FOREIGN CURRENCY TRANSLATION

FOREIGN CURRENCY TRANSLATION — The functional currency of the Company’s foreign subsidiaries is the local currency. In consolidation, the Company translates assets and liabilities at exchange rates in effect at the balance sheet date. The Company translates revenue and expense accounts at average exchange rates during the period in which the transaction takes place. Net gains or (losses) from foreign currency translation of assets and liabilities of $394,000 and $1.3 million in fiscal 2014 and 2013, respectively, are included in the cumulative translation adjustment component of accumulated other comprehensive income, net of tax, a component of shareholders’ equity. Net gains or (losses) arising from transactions denominated in currencies other than the functional currency were $(11,000), $562,000 and $334,000 in fiscal 2014, 2013 and 2012 respectively, and are included in interest and other income, net.

SHARE-BASED COMPENSATION

SHARE-BASED COMPENSATION — The Company recognizes employee share-based compensation through measurement at grant date based on the fair value of the award, and the fair value is recognized as an expense over the employee’s requisite service period. See Note 14 for further discussion of share-based compensation.

REVENUE RECOGNITION

REVENUE RECOGNITION — The Company recognizes revenue from the sale of its products when:

•   Persuasive evidence of an arrangement exists;

•   Delivery has occurred;

•   The sales price is fixed or determinable; and

•   Collectability is reasonably assured.

Generally, the Company meets these conditions upon shipment because, in most cases, title and risk of loss passes to the customer at that time. In addition, the Company estimates and records provisions for future returns and other charges against revenue at the time of shipment consistent with the terms of sale.

The Company sells products to large, domestic distributors at the price listed in its price book for that distributor. At the time of sale the Company records a sales reserve for ship from stock and debits (“SSD”s), stock rotations, return material authorizations (“RMA”s), authorized price protection programs, and any special programs approved by management. The Company offsets the sales reserve against revenues, producing the net revenue amount reported in the consolidated statements of operations.

The market price for the Company’s products can be significantly different from the book price at which the Company sold the product to the distributor. When the market price, as compared to the Company’s original book price, of a particular distributor’s sales opportunity to their own customer would result in low or negative margins for our distributor, the Company negotiates a ship from stock and debit with the distributor. Management analyzes the Company’s SSD history to develop current SSD rates that form the basis of the SSD sales reserve recorded each period. The Company obtains the historical SSD rates from its internal records.

The Company’s distribution agreements provide for semi-annual stock rotation privileges of typically 10% of net sales for the previous six-month period. The contractual stock rotation applies only to shipments at the Company’s listed book price. Asian distributors typically buy the Company’s product at less than standard price and therefore are not entitled to the 10% stock rotation privilege. In order to provide for routine inventory refreshing, for the Company’s benefit as well as theirs, the Company grants Asian distributors stock rotation privileges between 1% and 10% even though the Company is not contractually obligated to do so. Each month the Company adjusts the sales reserve for the estimated stock rotation privilege anticipated to be utilized by the distributors.

From time to time, customers may request to return parts for various reasons including the customers’ belief that the parts are not performing to specification. Many such return requests are the result of customers incorrectly using the parts, not because the parts are defective. Management reviews these requests and, if approved, the Company prepares a RMA. The Company is only obligated to accept defective parts returns. To accommodate the Company’s customers, the Company may approve particular return requests, even though it is not obligated to do so. Each month the Company records a sales reserve for approved RMAs covering products that have not yet been returned. The Company does not maintain a general warranty reserve because, historically, valid warranty returns, which are the result of a part not meeting specifications or being non-functional, have been immaterial and the Company can frequently resell returned parts to other customers for use in other applications. The Company monitors and assesses RMA activity and overall materiality to assess whether a general warranty reserve has become appropriate.

The Company grants price protection solely at the discretion of Pericom management. The purpose of price protection is to reduce the distributor’s cost of inventory as market prices fall thus reducing SSD rates. Pericom sales management prepares price protection proposals for individual products located at individual distributors. Pericom general management reviews and approves or disapproves these proposals. If a particular price protection arrangement is approved, the Company estimates the dollar impact based on the sales price reduction per unit for the products approved and the number of units of those products in that distributor’s inventory. The Company records a sales reserve in that period for the estimated amount at the time revenue is recognized.

At the discretion of Pericom management, the Company may offer rebates on specific products sold to specific end customers. The purpose of the rebates is to allow for pricing adjustments for large programs without affecting the pricing the Company charges its distributor customers. The Company records the rebate at the time of shipment.

Pericom typically grants payment terms of between 30 and 60 days to its customers. The Company’s customers generally pay within those terms. The Company grants relatively few customers sales terms that include cash discounts. Distributors are invoiced for shipments at listed book price. When the distributors pay the Company’s invoices, they may claim debits for SSDs, stock rotations, cash discounts, RMAs and price protection when appropriate. Once claimed, the Company processes the requests against the prior authorizations and reduces the reserve previously established for that customer.

The revenue the Company records for sales to its distributors is net of estimated provisions for these programs. When determining this net revenue, the Company must make significant judgments and estimates. The Company bases its estimates on historical experience rates, inventory levels in the distribution channel, current trends and other related factors. However, because of the inherent nature of estimates, there is a risk that there could be significant differences between actual amounts and the Company’s estimates. The Company’s financial condition and operating results depend on its ability to make reliable estimates and Pericom believes that such estimates are reasonable.

PRODUCT WARRANTY

PRODUCT WARRANTY — The Company offers a standard one-year product replacement warranty. In the past, the Company has not had to accrue for a general warranty reserve, but assesses the level and materiality of RMAs and determines whether it is appropriate to accrue for estimated returns of defective products at the time revenue is recognized. On occasion, management may determine to accept product returns beyond the standard one-year warranty period. In those instances, the Company accrues for the estimated cost at the time management decides to accept the return. Because of the Company’s standardized manufacturing processes and product testing procedures, returns of defective product are infrequent and the quantities have not been significant. Accordingly, historical warranty costs have not been material.

SHIPPING COSTS

SHIPPING COSTS — We charge shipping costs to cost of revenues as incurred.

CONCENTRATION OF CREDIT RISK

CONCENTRATION OF CREDIT RISK — The Company primarily sells its products to a relatively small number of companies and generally does not require its customers to provide collateral or other security to support accounts receivable. The Company maintains allowances for estimated bad debt losses. The Company also purchases substantially all of its wafers from three suppliers and purchases other manufacturing services from a relatively small number of suppliers.

The following table indicates the percentage of our net revenues and accounts receivable in excess of 10% with any single customer:

		Percentage of
Fiscal Year Ended:		Net Revenues			Trade Accounts Receivable
June 28, 2014	Customer A		26	%		29	%
	Customer B		10			8
	All others		64			63
			100	%		100	%
June 29, 2013	Customer A		21	%		28	%
	Customer B		12			7
	All others		67			65
			100	%		100	%
June 30, 2012	Customer A		18	%		26	%
	Customer B		14			6
	All others		68			68
			100	%		100	%

 

The Company maintains cash, cash equivalents and short-term investments with various high credit quality financial institutions. The Company has designed its investment policy to limit exposure to any one institution. The Company performs periodic evaluations of the relative credit standing of those financial institutions that manage its investments. The Company is exposed to credit risk in the event of default by the financial institutions or issuers of securities to the extent of the amounts reported in the consolidated balance sheets.

RECLASSIFICATIONS

RECLASSIFICATIONS — Certain reclassifications have been made to prior year financial statements to conform to the current year presentation. The reclassifications had no effect on the previously reported consolidated statement of operations, comprehensive income (loss), shareholders’ equity or cash flows.

RECENTLY ISSUED ACCOUNTING STANDARDS

RECENTLY ISSUED ACCOUNTING STANDARDS — In July 2013, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2013-11, Income Taxes (Topic 740)-Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. ASU 2013-11 provides guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, similar tax loss, or tax credit carryforward exists. This new standard requires the netting of unrecognized tax benefits (“UTBs”) against a deferred tax asset for a loss or other carryforward that would apply in settlement of the uncertain tax positions. UTBs will be netted against all available same-jurisdiction loss or other tax carryforwards that would be utilized, rather than only against carryforwards that are created by the UTBs. ASU 2013-11 will be effective for annual reporting periods, and interim reporting periods within those years, beginning after December 15, 2013. Early adoption is permitted. Since ASU 2013-11 only impacts financial statement disclosure requirements for unrecognized tax benefits, the Company does not expect its adoption to have an impact on the Company’s financial position or results of operations.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. ASU 2014-09 outlines a single comprehensive model for accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. ASU 2014-09 requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 will be effective for annual and interim reporting periods beginning after December 15, 2016. The impact on our financial condition, results of operations and cash flows as a result of the adoption of ASU 2014-09 has not yet been determined.

EARNINGS (LOSS) PER SHARE

EARNINGS (LOSS) PER SHARE — The Company bases its basic earnings (loss) per share upon the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.

Basic and diluted earnings (loss) per share for each of the three years in the period ended June 28, 2014 is as follows:

	Fiscal Year Ended
(in thousands, except for per share data)	June 28, 2014		June 29, 2013			June 30, 2012
Net income (loss)	$	4,124	$	(21,614	)	$	(2,068	)
Computation of common shares outstanding — basic earnings (loss) per share:
Weighted average shares of common stock		22,594		23,251			24,094
Basic earnings (loss) per share	$	0.18	$	(0.93	)	$	(0.09	)
Computation of common shares outstanding — diluted earnings (loss) per share:
Weighted average shares of common stock		22,594		23,251			24,094
Dilutive shares using the treasury stock method		203		—			—
Shares used in computing diluted earnings (loss) per share		22,797		23,251			24,094
Diluted earnings (loss) per share	$	0.18	$	(0.93	)	$	(0.09	)

As the Company incurred losses for the years ended June 29, 2013 and June 30, 2012, diluted loss per share is the same as basic loss per share since the addition of any contingently issuable share would be anti-dilutive. Options to purchase 1.9 million shares of common stock, and restricted stock units of 1,138 shares were outstanding during the year ended June 28, 2014 and were excluded from the computation of diluted net earnings per share because such options and units were anti-dilutive. Options to purchase 2.4 million shares of common stock, and restricted stock units of 525,000 shares were outstanding during the year ended June 29, 2013 and were excluded from the computation of diluted net earnings per share because such options and units were anti-dilutive. Options to purchase 2.5 million shares of common stock, and restricted stock units of 504,000 shares were outstanding during the year ended June 30, 2012 and were excluded from the computation of diluted net earnings per share because such options and units were anti-dilutive.

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Valuation and Qualifying Accounts

12 Months Ended

Jun. 28, 2014

Valuation and Qualifying Accounts [Abstract]

Schedule of Valuation and Qualifying Accounts

Schedule II

PERICOM SEMICONDUCTOR CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)

	Balance at Beginning of Period		Charged to Revenues		Deductions			Balance at End of Period
Reserves for returns and pricing adjustments
Fiscal year ended June 28, 2014	$	2,435	$	4,880	$	(4,879	)	$	2,436
Fiscal year ended June 29, 2013		2,522		4,493		(4,580	)		2,435
Fiscal year ended June 30, 2012		1,718		5,982		(5,178	)		2,522

 

	Balance at Beginning of Period		Charged to Expense		Deductions/ Write-offs			Balance at End of Period
Allowance for doubtful accounts
Fiscal year ended June 28, 2014	$	76	$	1	$	(52	)	$	25
Fiscal year ended June 29, 2013		44		49		(17	)		76
Fiscal year ended June 30, 2012		229		92		(277	)		44

 

	Balance at Beginning of Period		Charged to Expense		Deductions/ Write-offs		Balance at End of Period
Deferred tax valuation allowance
Fiscal year ended June 28, 2014	$	5,064	$	50	$	—	$	5,114
Fiscal year ended June 29, 2013		4,305		759		—		5,064
Fiscal year ended June 30, 2012		1,062		3,243		—		4,305

 

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Other Assets (Details Textual) (USD $)	12 Months Ended
	Jun. 28, 2014	Jun. 29, 2013	Jun. 30, 2012
Other assets (Textual)
Period of construction operation	50 years
Impairment charges relating to investments in privately held companies	$ 0	$ 0	$ 0
Promissory notes receivable write-off			$ 856,000

XML

Business and Significant Accounting Policies (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Jun. 28, 2014	Jun. 29, 2013
Available-for-Sale Securities
Amortized Cost	$ 85,804	$ 87,464
Unrealized Gains	462	231
Unrealized Losses	(162)	(856)
Net Unrealized Gains (Losses)	300	(625)
Fair Value	86,104	86,839
Time Deposits [Member]
Available-for-Sale Securities
Amortized Cost	17,693	12,087
Unrealized Gains
Unrealized Losses
Net Unrealized Gains (Losses)
Fair Value	17,693	12,087
Repurchase Agreements [Member]
Available-for-Sale Securities
Amortized Cost	500	1,997
Unrealized Gains
Unrealized Losses
Net Unrealized Gains (Losses)
Fair Value	500	1,997
US Treasury securities [Member]
Available-for-Sale Securities
Amortized Cost	526
Unrealized Gains	1
Unrealized Losses
Net Unrealized Gains (Losses)	1
Fair Value	527
National government and agency securities [Member]
Available-for-Sale Securities
Amortized Cost	4,962	4,348
Unrealized Gains	95	106
Unrealized Losses	(2)	(3)
Net Unrealized Gains (Losses)	93	103
Fair Value	5,055	4,451
State and municipal bond obligations [Member]
Available-for-Sale Securities
Amortized Cost	7,090	3,776
Unrealized Gains	63	9
Unrealized Losses	(4)	(27)
Net Unrealized Gains (Losses)	59	(18)
Fair Value	7,149	3,758
Corporate bonds and notes [Member]
Available-for-Sale Securities
Amortized Cost	42,675	48,438
Unrealized Gains	249	71
Unrealized Losses	(143)	(716)
Net Unrealized Gains (Losses)	106	(645)
Fair Value	42,781	47,793
Asset backed Securities [Member]
Available-for-Sale Securities
Amortized Cost	7,592	10,063
Unrealized Gains	28	19
Unrealized Losses	(6)	(60)
Net Unrealized Gains (Losses)	22	(41)
Fair Value	7,614	10,022
Mortgage backed securities [Member]
Available-for-Sale Securities
Amortized Cost	4,766	6,755
Unrealized Gains	26	26
Unrealized Losses	(7)	(50)
Net Unrealized Gains (Losses)	19	(24)
Fair Value	$ 4,785	$ 6,731

XML

Business and Significant Accounting Policies (Tables)

12 Months Ended

Jun. 28, 2014

Business and Significant Accounting Policies [Abstract]

Summary of available for sale securities

Available-for-Sale Securities:

	As of June 28, 2014
(in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Net Unrealized Gains (Losses)		Fair Value
Available-for-Sale Securities
Time deposits	$	17,693	$	—	$	—		$	—	$	17,693
Repurchase agreements		500		—		—			—		500
US Treasury securities		526		1		—			1		527
National government and agency securities		4,962		95		(2	)		93		5,055
State and municipal bond obligations		7,090		63		(4	)		59		7,149
Corporate bonds and notes		42,675		249		(143	)		106		42,781
Asset backed securities		7,592		28		(6	)		22		7,614
Mortgage backed securities		4,766		26		(7	)		19		4,785
Total	$	85,804	$	462	$	(162	)	$	300	$	86,104

 

	As of June 29, 2013
(in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Net Unrealized Gains (Losses)			Fair Value
Available-for-Sale Securities
Time deposits	$	12,087	$	—	$	—		$	—		$	12,087
Repurchase agreements		1,997		—		—			—			1,997
National government and agency securities		4,348		106		(3	)		103			4,451
State and municipal bond obligations		3,776		9		(27	)		(18	)		3,758
Corporate bonds and notes		48,438		71		(716	)		(645	)		47,793
Asset backed securities		10,063		19		(60	)		(41	)		10,022
Mortgage backed securities		6,755		26		(50	)		(24	)		6,731
Total	$	87,464	$	231	$	(856	)	$	(625	)	$	86,839

 

Summary of gross unrealized losses and fair values

	Continuous Unrealized Losses at June 28, 2014
		Less Than 12 Months				12 Months or Longer				Total
(in thousands)		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
National government and agency securities		$	282	$	1	$	91	$	1	$	373	$	2
State and municipal bond obligations			—		—		695		4		695		4
Corporate bonds and notes			3,901		11		5,801		132		9,702		143
Asset backed securities			895		1		1,195		5		2,090		6
Mortgage backed securities			1,083		3		504		4		1,587		7
		$	6,161	$	16	$	8,286	$	146	$	14,447	$	162

	Continuous Unrealized Losses at June 29, 2013
	Less Than 12 Months				12 Months or Longer				Total
(in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
National government and agency securities	$	154	$	3	$	—	$	—	$	154	$	3
State and municipal bond obligations		2,364		27		—		—		2,364		27
Corporate bonds and notes		36,394		626		4,298		90		40,692		716
Asset backed securities		5,881		51		546		9		6,427		60
Mortgage backed securities		3,616		13		216		37		3,831		50
	$	48,409	$	720	$	5,060	$	136	$	53,469	$	856

Summary of fair market value of the Company's short and long-term investments by length of time to maturity

(in thousands)	June 28, 2014		June 29, 2013
One year or less	$	24,963	$	19,853
Between one and three years		24,242		29,525
Greater than three years		30,449		29,244
Multiple dates		6,450		8,217
	$	86,104	$	86,839

Summary of percentage of net revenues and accounts receivable in excess of 10% with any single customer

		Percentage of
Fiscal Year Ended:			Net Revenues			Trade Accounts Receivable
June 28, 2014	Customer A			26	%		29	%
	Customer B			10			8
	All others			64			63
				100	%		100	%
June 29, 2013	Customer A			21	%		28	%
	Customer B			12			7
	All others			67			65
				100	%		100	%
June 30, 2012	Customer A			18	%		26	%
	Customer B			14			6
	All others			68			68
				100	%		100	%

 

Summary of basic and diluted earnings per share

	Fiscal Year Ended
(in thousands, except for per share data)		June 28, 2014		June 29, 2013			June 30, 2012
Net income (loss)		$	4,124	$	(21,614	)	$	(2,068	)
Computation of common shares outstanding — basic earnings (loss) per share:
Weighted average shares of common stock			22,594		23,251			24,094
Basic earnings (loss) per share		$	0.18	$	(0.93	)	$	(0.09	)
Computation of common shares outstanding — diluted earnings (loss) per share:
Weighted average shares of common stock			22,594		23,251			24,094
Dilutive shares using the treasury stock method			203		—			—
Shares used in computing diluted earnings (loss) per share			22,797		23,251			24,094
Diluted earnings (loss) per share		$	0.18	$	(0.93	)	$	(0.09	)

 

XML

Other Receivables (Tables)

12 Months Ended

Jun. 28, 2014

Other Receivables [Abstract]

Other receivables

	As of the year ended
(in thousands)	June 28, 2014		June 29, 2013
Interest receivable	$	1,516	$	1,054
VAT and other tax receivables		1,031		1,076
Government subsidy receivable		—		840
Other accounts receivable		331		211
	$	2,878	$	3,181

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Business and Significant Accounting Policies

12 Months Ended

Jun. 28, 2014

Business and Significant Accounting Policies [Abstract]

BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Pericom Semiconductor Corporation (the “Company” or “Pericom”) was incorporated in June 1990 in the state of California. The Company designs, manufactures and markets high performance digital, analog and mixed-signal integrated circuits (“ICs”) and frequency control products (“FCPs”) used for the transfer, routing, and timing of digital and analog signals within and between computer, networking, datacom and telecom systems.

USE OF ESTIMATES — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses during the reporting period. Actual results could differ from those estimates.

BASIS OF PRESENTATION — These consolidated financial statements include the accounts of Pericom Semiconductor Corporation and its wholly owned subsidiaries, Pericom Global Limited (“PGL”), PSE Technology Corporation (“PSE-TW”), and Pericom Asia Limited (“PAL”). PGL has two wholly-owned subsidiaries, Pericom International Limited (“PIL”) and Pericom Semiconductor (HK) Limited (“PHK”). In addition, PAL has three subsidiaries, PSE Technology (Shandong) Corporation (“PSE-SD”), Pericom Technology Yangzhou Corporation (“PSC-YZ”) for the Jinan, China and Yangzhou, China operations, respectively, and Pericom Technology Inc. (“PTI”). All significant intercompany balances and transactions have been eliminated in consolidation.

The Company has significant operations in the People’s Republic of China (“PRC”), where certain political, economic and currency restrictions may apply. Insofar as can be reasonably determined, and based on our experience to date, the effect of foreign exchange restrictions upon the consolidated financial position and results of the Company are not material.

FISCAL PERIOD — For purposes of reporting the financial results, the Company’s fiscal years end on the Saturday closest to the end of June. The year ended July 3, 2010 contains 53 weeks, whereas all other fiscal years presented herein include 52 weeks.

CASH EQUIVALENTS — The Company considers all highly liquid investments purchased with an original or remaining maturity of three months or less when purchased to be cash equivalents. The recorded carrying amounts of the Company’s cash and cash equivalents approximate their fair value.

SHORT-TERM INVESTMENTS IN MARKETABLE SECURITIES — The Company’s policy is to invest in instruments with investment grade credit ratings. The Company classifies its short-term investments as “available-for-sale” securities and the Company bases the cost of securities sold using the specific identification method. The Company accounts for unrealized gains and losses on its available-for-sale securities as a separate component of shareholders’ equity in the consolidated balance sheets in the period in which the gain or loss occurs. In prior years, the Company classified portions of its available-for-sale securities as current or noncurrent based on each security’s attributes. Effective as of June 28, 2014, all available-for-sale securities are classified as short-term investments, as we consider the entire investment portfolio to be saleable if cash is needed or if better investment opportunities arise. Prior period balance sheets have been reclassed accordingly to conform to the current year presentation. This reclass had no effect on previously reported net income (loss), comprehensive income (loss), shareholders’ equity or cash flows.

As of June 28, 2014 and June 29, 2013, investments, and any difference between the fair market value and the underlying amortized cost of such investments, consisted of the following:

Available-for-Sale Securities:

	As of June 28, 2014
(in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Net Unrealized Gains (Losses)		Fair Value
Available-for-Sale Securities
Time deposits	$	17,693	$	—	$	—		$	—	$	17,693
Repurchase agreements		500		—		—			—		500
US Treasury securities		526		1		—			1		527
National government and agency securities		4,962		95		(2	)		93		5,055
State and municipal bond obligations		7,090		63		(4	)		59		7,149
Corporate bonds and notes		42,675		249		(143	)		106		42,781
Asset backed securities		7,592		28		(6	)		22		7,614
Mortgage backed securities		4,766		26		(7	)		19		4,785
Total	$	85,804	$	462	$	(162	)	$	300	$	86,104

	As of June 29, 2013
(in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Net Unrealized Gains (Losses)			Fair Value
Available-for-Sale Securities
Time deposits	$	12,087	$	—	$	—		$	—		$	12,087
Repurchase agreements		1,997		—		—			—			1,997
National government and agency securities		4,348		106		(3	)		103			4,451
State and municipal bond obligations		3,776		9		(27	)		(18	)		3,758
Corporate bonds and notes		48,438		71		(716	)		(645	)		47,793
Asset backed securities		10,063		19		(60	)		(41	)		10,022
Mortgage backed securities		6,755		26		(50	)		(24	)		6,731
Total	$	87,464	$	231	$	(856	)	$	(625	)	$	86,839

The following tables show the gross unrealized losses and fair values of the Company’s investments that have unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of June 28, 2014 and June 29, 2013:

	Continuous Unrealized Losses at June 28, 2014
	Less Than 12 Months				12 Months or Longer				Total
(in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
National government and agency securities	$	282	$	1	$	91	$	1	$	373	$	2
State and municipal bond obligations		—		—		695		4		695		4
Corporate bonds and notes		3,901		11		5,801		132		9,702		143
Asset backed securities		895		1		1,195		5		2,090		6
Mortgage backed securities		1,083		3		504		4		1,587		7
	$	6,161	$	16	$	8,286	$	146	$	14,447	$	162

	Continuous Unrealized Losses at June 29, 2013
	Less Than 12 Months				12 Months or Longer				Total
(in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
National government and agency securities	$	154	$	3	$	—	$	—	$	154	$	3
State and municipal bond obligations		2,364		27		—		—		2,364		27
Corporate bonds and notes		36,394		626		4,298		90		40,692		716
Asset backed securities		5,881		51		546		9		6,427		60
Mortgage backed securities		3,616		13		216		37		3,831		50
	$	48,409	$	720	$	5,060	$	136	$	53,469	$	856

The unrealized losses are of a temporary nature due to the Company’s intent and ability to hold the investments until maturity or until the cost is recoverable. The unrealized losses are primarily due to fluctuations in market interest rates. The Company reports unrealized gains and losses on its “available-for-sale” securities in accumulated other comprehensive income, net of tax, in shareholders’ equity.

The Company records gains or losses realized on sales of available-for-sale securities in interest and other income, net on its consolidated statements of operations. The cost of securities sold is based on the specific identification of the security and its amortized cost. In fiscal 2014, 2013 and 2012, realized gains on available-for-sale securities were $179,000, $1.0 million and $673,000, respectively.

The following table lists the fair value of the Company’s short-term investments by length of time to maturity as of June 28, 2014 and June 29, 2013:

(in thousands)	June 28, 2014		June 29, 2013
One year or less	$	24,963	$	19,853
Between one and three years		24,242		29,525
Greater than three years		30,449		29,244
Multiple dates		6,450		8,217
	$	86,104	$	86,839

Securities with maturities over multiple dates are mortgage-backed securities (“MBS”) or asset-backed securities (“ABS”) featuring periodic principle paydowns through 2041.

FAIR VALUE OF FINANCIAL INSTRUMENTS — The Company has determined that the amounts reported for cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair value because of their short maturities and/or variable interest rates. Available-for-sale investments are reported at their fair value based on quoted market prices. A further discussion of the fair value of financial instruments is detailed in Note 16 to the Consolidated Financial Statements contained in this report on Form 10-K.

ALLOWANCE FOR DOUBTFUL ACCOUNTS — The Company computes its allowance for doubtful accounts using a combination of factors. In cases where the Company is aware of circumstances that may impair a specific customer’s ability to meet its financial obligations to the Company, the Company records a specific allowance against amounts due to the Company, reducing the net recognized receivable to the amount the Company reasonably believes it will collect. For all other customers, the Company recognizes allowances for doubtful accounts based on the length of time the receivables are past due, the current business environment and its historical experience.

INVENTORIES — For IC and certain FCP products, the Company records inventories at the lower of standard cost (which generally approximates actual cost on a first-in, first-out basis) or market value. The carrying value of inventory is adjusted for excess and obsolete inventory based on inventory age, shipment history and the forecast

of demand over a specific future period. The semiconductor markets that the Company serves are volatile and actual results may vary from forecast or other assumptions, potentially affecting the Company’s assessment of excess and obsolete inventory, resulting in material effects on gross margin.

The inventories of the remainder of the FCP products are recorded at the lower of weighted-average cost, which approximates actual cost, or market value. Weighted average cost is comprised of average manufacturing costs weighted by the volume produced in each production run. Market value is defined as the net realizable value for finished goods, and replacement cost for raw materials and work in process.

Raw material inventory is considered slow moving and is fully reserved if it has not moved in 365 days. For assembled devices, the inventory is disaggregated by part number. The quantities on hand in each part number category are compared to the quantity that was shipped in the previous twelve months, the quantity in backlog and to the quantity expected to ship in the next twelve months. A reserve is recorded to the extent the value of each quantity on hand is in excess of the lesser of the three comparisons. The Company also periodically reviews inventory for obsolescence beyond the established formulaic tests. The Company believes this method of evaluating inventory fairly represents market conditions.

The Company considers the reserved material to be available for sale. The reserved inventory is not revalued should market conditions change or if a market develops for the obsolete inventory. In the past, the Company has sold obsolete inventory that was previously fully reserved.

PROPERTY, PLANT AND EQUIPMENT — The Company states its property, plant and equipment at cost. Cost includes purchase cost, applicable taxes, freight, installation costs and interest incurred in the acquisition of any asset that requires a period of time to make it ready for use. We compute depreciation and amortization using the straight-line method over estimated useful lives of three to eight years except for buildings, which we depreciate using the straight-line method over estimated useful lives of twenty to forty years. We depreciate leasehold improvements over the shorter of the lease term or the improvement’s estimated useful life. In addition, we capitalize the cost of major replacements, improvements and betterments, while we expense normal maintenance and repair.

INVESTMENTS IN UNCONSOLIDATED AFFILIATES — The Company holds or has held ownership interests in various investees. Our ownership in these affiliates has varied from 20% to approximately 49%. We classify these investments as investments in unconsolidated affiliates in our consolidated balance sheets. The Company accounts for long-term investments in companies in which it has an ownership share larger than 20% and in which it has significant influence over the activities of the investee using the equity method. We recognize our proportionate share of each investee’s income or loss in the period in which the investee reports the income or loss. We eliminate all intercompany transactions in accounting for our equity method investments.

OTHER ASSETS — The Company’s other assets classification includes investments in privately held companies in which we have less than a 20% interest, land use rights and deposits. The Company reports its investments in privately held companies at the lower of cost or market. The Company’s management reviews the investment in these companies for losses that may be other than temporary on a quarterly basis. Should management determine that such an impairment exists, the Company will reduce the value of the Company’s investment in the period in which management discovers the impairment and charge the impairment to the consolidated statement of operations. The Company’s management performed such an evaluation as of June 28, 2014 and determined that no impairment existed. Two of the Company’s subsidiaries, PSE-SD and PTI, hold land use rights that were acquired from the local Chinese government which entitle the Company to use the land for 15 to 50 years. The cost of the land use rights is recorded as a component of other assets and is being depreciated over 15 to 50 years, the useful life of the rights.

LONG-LIVED ASSETS — The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When the sum of the

undiscounted future net cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount, the Company will recognize an impairment loss as the amount of the difference between carrying value and fair value as determined by discounted cash flows.

INCOME TAXES — The Company accounts for income taxes following the Financial Accounting Standards Board’s (“FASB”) statements and related interpretations, which require an asset and liability approach to recording deferred taxes. We record a valuation allowance to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. The Company’s income tax calculations are based on application of the respective U.S. federal, state or foreign tax laws. The Company’s tax filings, however, are subject to audit by the respective tax authorities. Accordingly, the Company recognizes tax liabilities based on its estimates of whether, and the extent to which, additional taxes will be due when such estimates are more-likely-than-not to be sustained. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. To the extent the final tax liabilities are different than the amounts originally accrued, the increases or decreases are recorded as income tax expense or benefit in the consolidated statements of operations.

The Internal Revenue Service completed their examination of the Company’s federal tax returns for fiscal 2010 and 2011 during fiscal 2014, and additional tax payments of approximately $208,000 were made in fiscal 2014, including interest charges for the two years that were examined. The Company had previously accrued for this exposure.

FOREIGN CURRENCY TRANSLATION — The functional currency of the Company’s foreign subsidiaries is the local currency. In consolidation, the Company translates assets and liabilities at exchange rates in effect at the balance sheet date. The Company translates revenue and expense accounts at average exchange rates during the period in which the transaction takes place. Net gains or (losses) from foreign currency translation of assets and liabilities of $394,000 and $1.3 million in fiscal 2014 and 2013, respectively, are included in the cumulative translation adjustment component of accumulated other comprehensive income, net of tax, a component of shareholders’ equity. Net gains or (losses) arising from transactions denominated in currencies other than the functional currency were $(11,000), $562,000 and $334,000 in fiscal 2014, 2013 and 2012 respectively, and are included in interest and other income, net.

SHARE-BASED COMPENSATION — The Company recognizes employee share-based compensation through measurement at grant date based on the fair value of the award, and the fair value is recognized as an expense over the employee’s requisite service period. See Note 14 for further discussion of share-based compensation.

REVENUE RECOGNITION — The Company recognizes revenue from the sale of its products when:

•   Persuasive evidence of an arrangement exists;

•   Delivery has occurred;

•   The sales price is fixed or determinable; and

•   Collectability is reasonably assured.

Generally, the Company meets these conditions upon shipment because, in most cases, title and risk of loss passes to the customer at that time. In addition, the Company estimates and records provisions for future returns and other charges against revenue at the time of shipment consistent with the terms of sale.

The Company sells products to large, domestic distributors at the price listed in its price book for that distributor. At the time of sale the Company records a sales reserve for ship from stock and debits (“SSD”s), stock rotations, return material authorizations (“RMA”s), authorized price protection programs, and any special programs approved by management. The Company offsets the sales reserve against revenues, producing the net revenue amount reported in the consolidated statements of operations.

The market price for the Company’s products can be significantly different from the book price at which the Company sold the product to the distributor. When the market price, as compared to the Company’s original book price, of a particular distributor’s sales opportunity to their own customer would result in low or negative margins for our distributor, the Company negotiates a ship from stock and debit with the distributor. Management analyzes the Company’s SSD history to develop current SSD rates that form the basis of the SSD sales reserve recorded each period. The Company obtains the historical SSD rates from its internal records.

The Company’s distribution agreements provide for semi-annual stock rotation privileges of typically 10% of net sales for the previous six-month period. The contractual stock rotation applies only to shipments at the Company’s listed book price. Asian distributors typically buy the Company’s product at less than standard price and therefore are not entitled to the 10% stock rotation privilege. In order to provide for routine inventory refreshing, for the Company’s benefit as well as theirs, the Company grants Asian distributors stock rotation privileges between 1% and 10% even though the Company is not contractually obligated to do so. Each month the Company adjusts the sales reserve for the estimated stock rotation privilege anticipated to be utilized by the distributors.

From time to time, customers may request to return parts for various reasons including the customers’ belief that the parts are not performing to specification. Many such return requests are the result of customers incorrectly using the parts, not because the parts are defective. Management reviews these requests and, if approved, the Company prepares a RMA. The Company is only obligated to accept defective parts returns. To accommodate the Company’s customers, the Company may approve particular return requests, even though it is not obligated to do so. Each month the Company records a sales reserve for approved RMAs covering products that have not yet been returned. The Company does not maintain a general warranty reserve because, historically, valid warranty returns, which are the result of a part not meeting specifications or being non-functional, have been immaterial and the Company can frequently resell returned parts to other customers for use in other applications. The Company monitors and assesses RMA activity and overall materiality to assess whether a general warranty reserve has become appropriate.

The Company grants price protection solely at the discretion of Pericom management. The purpose of price protection is to reduce the distributor’s cost of inventory as market prices fall thus reducing SSD rates. Pericom sales management prepares price protection proposals for individual products located at individual distributors. Pericom general management reviews and approves or disapproves these proposals. If a particular price protection arrangement is approved, the Company estimates the dollar impact based on the sales price reduction per unit for the products approved and the number of units of those products in that distributor’s inventory. The Company records a sales reserve in that period for the estimated amount at the time revenue is recognized.

At the discretion of Pericom management, the Company may offer rebates on specific products sold to specific end customers. The purpose of the rebates is to allow for pricing adjustments for large programs without affecting the pricing the Company charges its distributor customers. The Company records the rebate at the time of shipment.

Pericom typically grants payment terms of between 30 and 60 days to its customers. The Company’s customers generally pay within those terms. The Company grants relatively few customers sales terms that include cash discounts. Distributors are invoiced for shipments at listed book price. When the distributors pay the Company’s invoices, they may claim debits for SSDs, stock rotations, cash discounts, RMAs and price protection when appropriate. Once claimed, the Company processes the requests against the prior authorizations and reduces the reserve previously established for that customer.

The revenue the Company records for sales to its distributors is net of estimated provisions for these programs. When determining this net revenue, the Company must make significant judgments and estimates. The Company bases its estimates on historical experience rates, inventory levels in the distribution channel, current trends and other related factors. However, because of the inherent nature of estimates, there is a risk that there could be significant differences between actual amounts and the Company’s estimates. The Company’s financial condition

and operating results depend on its ability to make reliable estimates and Pericom believes that such estimates are reasonable.

PRODUCT WARRANTY — The Company offers a standard one-year product replacement warranty. In the past, the Company has not had to accrue for a general warranty reserve, but assesses the level and materiality of RMAs and determines whether it is appropriate to accrue for estimated returns of defective products at the time revenue is recognized. On occasion, management may determine to accept product returns beyond the standard one-year warranty period. In those instances, the Company accrues for the estimated cost at the time management decides to accept the return. Because of the Company’s standardized manufacturing processes and product testing procedures, returns of defective product are infrequent and the quantities have not been significant. Accordingly, historical warranty costs have not been material.

SHIPPING COSTS — We charge shipping costs to cost of revenues as incurred.

CONCENTRATION OF CREDIT RISK — The Company primarily sells its products to a relatively small number of companies and generally does not require its customers to provide collateral or other security to support accounts receivable. The Company maintains allowances for estimated bad debt losses. The Company also purchases substantially all of its wafers from three suppliers and purchases other manufacturing services from a relatively small number of suppliers.

The following table indicates the percentage of our net revenues and accounts receivable in excess of 10% with any single customer:

		Percentage of
Fiscal Year Ended:		Net Revenues			Trade Accounts Receivable
June 28, 2014	Customer A		26	%		29	%
	Customer B		10			8
	All others		64			63
			100	%		100	%
June 29, 2013	Customer A		21	%		28	%
	Customer B		12			7
	All others		67			65
			100	%		100	%
June 30, 2012	Customer A		18	%		26	%
	Customer B		14			6
	All others		68			68
			100	%		100	%

The Company maintains cash, cash equivalents and short-term investments with various high credit quality financial institutions. The Company has designed its investment policy to limit exposure to any one institution. The Company performs periodic evaluations of the relative credit standing of those financial institutions that manage its investments. The Company is exposed to credit risk in the event of default by the financial institutions or issuers of securities to the extent of the amounts reported in the consolidated balance sheets.

RECLASSIFICATIONS — Certain reclassifications have been made to prior year financial statements to conform to the current year presentation. The reclassifications had no effect on the previously reported consolidated statement of operations, comprehensive income (loss), shareholders’ equity or cash flows.

RECENTLY ISSUED ACCOUNTING STANDARDS — In July 2013, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2013-11, Income Taxes (Topic 740)-Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. ASU 2013-11 provides guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, similar tax loss, or tax credit carryforward exists. This new standard requires the netting of unrecognized tax benefits (“UTBs”) against a deferred tax asset for a loss or other carryforward that would apply in settlement of the uncertain tax positions. UTBs will be netted against all available same-jurisdiction loss or other tax carryforwards that would be utilized, rather than only against carryforwards that are created by the UTBs. ASU 2013-11 will be effective for annual reporting periods, and interim reporting periods within those years, beginning after December 15, 2013. Early adoption is permitted. Since ASU 2013-11 only impacts financial statement disclosure requirements for unrecognized tax benefits, the Company does not expect its adoption to have an impact on the Company’s financial position or results of operations.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. ASU 2014-09 outlines a single comprehensive model for accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. ASU 2014-09 requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 will be effective for annual and interim reporting periods beginning after December 15, 2016. The impact on our financial condition, results of operations and cash flows as a result of the adoption of ASU 2014-09 has not yet been determined.

EARNINGS (LOSS) PER SHARE — The Company bases its basic earnings (loss) per share upon the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.

Basic and diluted earnings (loss) per share for each of the three years in the period ended June 28, 2014 is as follows:

	Fiscal Year Ended
(in thousands, except for per share data)	June 28, 2014		June 29, 2013			June 30, 2012
Net income (loss)	$	4,124	$	(21,614	)	$	(2,068	)
Computation of common shares outstanding — basic earnings (loss) per share:
Weighted average shares of common stock		22,594		23,251			24,094
Basic earnings (loss) per share	$	0.18	$	(0.93	)	$	(0.09	)
Computation of common shares outstanding — diluted earnings (loss) per share:
Weighted average shares of common stock		22,594		23,251			24,094
Dilutive shares using the treasury stock method		203		—			—
Shares used in computing diluted earnings (loss) per share		22,797		23,251			24,094
Diluted earnings (loss) per share	$	0.18	$	(0.93	)	$	(0.09	)

As the Company incurred losses for the years ended June 29, 2013 and June 30, 2012, diluted loss per share is the same as basic loss per share since the addition of any contingently issuable share would be anti-dilutive. Options to purchase 1.9 million shares of common stock, and restricted stock units of 1,138 shares were outstanding during the year ended June 28, 2014 and were excluded from the computation of diluted net earnings per share because such options and units were anti-dilutive. Options to purchase 2.4 million shares of common stock, and restricted

stock units of 525,000 shares were outstanding during the year ended June 29, 2013 and were excluded from the computation of diluted net earnings per share because such options and units were anti-dilutive. Options to purchase 2.5 million shares of common stock, and restricted stock units of 504,000 shares were outstanding during the year ended June 30, 2012 and were excluded from the computation of diluted net earnings per share because such options and units were anti-dilutive.

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Inventories (Tables)

12 Months Ended

Jun. 28, 2014

Inventory [Abstract]

Inventories

	As of the year ended
(in thousands)	June 28, 2014		June 29, 2013
Finished goods	$	3,991	$	3,847
Work-in-process		2,468		3,869
Raw materials		5,829		7,128
	$	12,288	$	14,844

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Income Taxes (Details 1)	12 Months Ended
	Jun. 28, 2014	Jun. 29, 2013	Jun. 30, 2012
Effective Income Tax Rate Reconciliation, Percent [Abstract]
Tax provision at federal statutory rate	34.00%	33.80%	34.00%
State income taxes, net of federal benefit	(1.30%)	2.10%	(33.40%)
Foreign income and withholding taxes	1.70%	(67.90%)	34.10%
Benefits from resolution of certain tax audits and expiration of statute of limitations	(21.80%)	0.80%	(15.40%)
Intercompany licensing of intellectual property	(21.70%)	(6.50%)
Share-based compensation	3.40%	(1.10%)	20.50%
Research and development tax credits	(2.30%)		(2.20%)
Change in valuation allowance	0.50%	(1.80%)	307.30%
Other	6.80%	0.70%	1.10%
Income tax expense	(6.10%)	(39.90%)	346.00%

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Fair Value Measurements (Tables)

12 Months Ended

Jun. 28, 2014

Fair Value Measurements [Abstract]

Fair value measurements

	As of June 28, 2014
(in thousands)	Fair Value		Level 1		Level 2		Level 3
Investments(1)
US Treasury securities	$	527	$	527	$	—	$	—
Repurchase agreements		4,547		—		4,547		—
Time deposits		17,693		—		17,693		—
National government and agency securities		5,055		—		5,055		—
State and municipal bond obligations		7,149		—		7,149		—
Corporate bonds and notes		42,781		—		42,781		—
Asset backed securities		7,614		—		7,614		—
Mortgage backed securities		4,785		—		4,785		—
Total	$	90,151	$	527	$	89,624	$	—

	As of June 29, 2013
(in thousands)	Fair Value		Level 1		Level 2		Level 3
Investments(1)
Commercial paper	$	2,400	$	—	$	2,400	$	—
Repurchase agreements		4,988		—		4,988		—
Time deposits		12,087		—		12,087		—
National government and agency securities		4,451		—		4,451		—
State and municipal bond obligations		3,758		—		3,758		—
Corporate bonds and notes		47,793		—		47,793		—
Asset backed securities		10,022		—		10,022		—
Mortgage backed securities		6,731		—		6,731		—
Total	$	92,230	$	—	$	92,230	$	—

(1)   At June 28, 2014, $4,047 of the repurchase agreements are included in cash and cash equivalents; at June 29, 2013, the commercial paper and $2,991 of the repurchase agreements are included in cash and cash equivalents; the balance of the investments at June 28, 2014 and June 29, 2013 are included in short-term investments in marketable securities on the consolidated balance sheets.

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Property, Plant and Equipment - Net (Details) (USD $) In Thousands, unless otherwise specified	Jun. 28, 2014	Jun. 29, 2013
Property, Plant and Equipment
Total	$ 116,783	$ 107,214
Accumulated depreciation and amortization	(59,500)	(56,825)
Construction-in-progress	1,254	10,570
Property, plant and equipment - net	58,537	60,959
Machinery and equipment [Member]
Property, Plant and Equipment
Total	55,408	55,795
Buildings [Member]
Property, Plant and Equipment
Total	36,196	30,637
Computer equipment and software [Member]
Property, Plant and Equipment
Total	13,742	14,449
Land [Member]
Property, Plant and Equipment
Total	9,473	3,661
Furniture and fixtures [Member]
Property, Plant and Equipment
Total	1,218	1,402
Leasehold improvements [Member]
Property, Plant and Equipment
Total	595	1,115
Vehicles [Member]
Property, Plant and Equipment
Total	$ 151	$ 155

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Shareholders Equity and Share-Based Compensation (Details 2) (USD $)	12 Months Ended
	Jun. 28, 2014
Exercise price range one [Member]
Share based compensation arrangement by share based payment award options outstanding exercise price range
Range of exercise price, lower range limit	$ 4.89
Range of exercise price, Upper range limit	$ 7.87
Range of Exercise Prices, Number Outstanding	458,067
Range of Exercise Prices, Weighted Average Remaining Contractual Term	6 years 10 months 17 days
Range of Exercise Prices, Weighted Average Exercise Price	$ 7.51
Range of Exercise Prices, Number Exercisable	259,883
Range of Exercise Prices, Weighted Average Exercise Price	$ 7.47
Exercise price range two [Member]
Share based compensation arrangement by share based payment award options outstanding exercise price range
Range of exercise price, lower range limit	$ 7.88
Range of exercise price, Upper range limit	$ 8.71
Range of Exercise Prices, Number Outstanding	420,413
Range of Exercise Prices, Weighted Average Remaining Contractual Term	3 years 29 days
Range of Exercise Prices, Weighted Average Exercise Price	$ 8.34
Range of Exercise Prices, Number Exercisable	398,919
Range of Exercise Prices, Weighted Average Exercise Price	$ 8.34
Exercise price range three [Member]
Share based compensation arrangement by share based payment award options outstanding exercise price range
Range of exercise price, lower range limit	$ 8.72
Range of exercise price, Upper range limit	$ 10.01
Range of Exercise Prices, Number Outstanding	506,849
Range of Exercise Prices, Weighted Average Remaining Contractual Term	4 years 10 months 17 days
Range of Exercise Prices, Weighted Average Exercise Price	$ 9.58
Range of Exercise Prices, Number Exercisable	436,825
Range of Exercise Prices, Weighted Average Exercise Price	$ 9.69
Exercise price range four [Member]
Share based compensation arrangement by share based payment award options outstanding exercise price range
Range of exercise price, lower range limit	$ 10.02
Range of exercise price, Upper range limit	$ 15.15
Range of Exercise Prices, Number Outstanding	494,607
Range of Exercise Prices, Weighted Average Remaining Contractual Term	3 years 9 months 22 days
Range of Exercise Prices, Weighted Average Exercise Price	$ 12.60
Range of Exercise Prices, Number Exercisable	494,607
Range of Exercise Prices, Weighted Average Exercise Price	$ 12.60
Exercise price range five [Member]
Share based compensation arrangement by share based payment award options outstanding exercise price range
Range of exercise price, lower range limit	$ 15.45
Range of exercise price, Upper range limit	$ 18.10
Range of Exercise Prices, Number Outstanding	205,500
Range of Exercise Prices, Weighted Average Remaining Contractual Term	3 years 2 months 1 day
Range of Exercise Prices, Weighted Average Exercise Price	$ 16.30
Range of Exercise Prices, Number Exercisable	205,500
Range of Exercise Prices, Weighted Average Exercise Price	$ 16.30
Exercise price range six [Member]
Share based compensation arrangement by share based payment award options outstanding exercise price range
Range of exercise price, lower range limit	$ 4.89
Range of exercise price, Upper range limit	$ 18.10
Range of Exercise Prices, Number Outstanding	2,085,436
Range of Exercise Prices, Weighted Average Remaining Contractual Term	4 years 6 months 15 days
Range of Exercise Prices, Weighted Average Exercise Price	$ 10.25
Range of Exercise Prices, Number Exercisable	1,795,734
Range of Exercise Prices, Weighted Average Exercise Price	$ 10.62

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Jun. 28, 2014	Jun. 29, 2013
Current assets:
Cash and cash equivalents	$ 33,020	$ 30,844
Short-term investments in marketable securities	86,104	86,839
Accounts receivable:
Trade (net of reserves and allowances of $2,461 and $2,511)	24,036	22,105
Other receivables	2,878	3,181
Inventories	12,288	14,844
Prepaid expenses and other current assets	2,458	2,705
Deferred income taxes	726	585
Total current assets	161,510	161,103
Property, plant and equipment - net	58,537	60,959
Investments in unconsolidated affiliates	2,445	2,525
Deferred income taxes - non current	2,460	3,411
Intangible assets (net of accumulated amortization of $12,849 and $9,836)	7,009	9,944
Other assets	8,118	8,625
Total assets	240,079	246,567
Current liabilities:
Accounts payable	8,927	12,184
Accrued liabilities	9,934	8,731
Total current liabilities	18,861	20,915
Industrial development subsidy	6,354	7,263
Deferred tax liabilities	5,460	5,798
Noncurrent tax liabilities	1,041	2,788
Other long-term liabilities	871	912
Total liabilities	32,587	37,676
Commitments and contingencies (Note 12)
Shareholders' equity:
Common stock and paid in capital - no par value, 60,000,000 shares authorized; shares issued and outstanding: at June 28, 2014, 21,974,000; at June 29, 2013, 22,813,000	113,118	119,591
Retained earnings	83,204	79,080
Accumulated other comprehensive income, net of tax	11,170	10,220
Total shareholders' equity	207,492	208,891
Total liabilities and shareholders' equity	$ 240,079	$ 246,567

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Business and Significant Accounting Policies (Details 1) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Jun. 28, 2014	Jun. 29, 2013
Gross unrealized losses and fair market values of the Company's investments
Less Than 12 Months, Fair Value	$ 6,161	$ 48,409
Less Than 12 Months, Unrealized Losses	16	720
12 Months or Longer, Fair Value	8,286	5,060
12 Months or Longer, Unrealized Losses	146	136
Total, Fair Value	14,447	53,469
Total, Unrealized Losses	162	856
National government and agency securities [Member]
Gross unrealized losses and fair market values of the Company's investments
Less Than 12 Months, Fair Value	282	154
Less Than 12 Months, Unrealized Losses	1	3
12 Months or Longer, Fair Value	91
12 Months or Longer, Unrealized Losses	1
Total, Fair Value	373	154
Total, Unrealized Losses	2	3
State and municipal bond obligations [Member]
Gross unrealized losses and fair market values of the Company's investments
Less Than 12 Months, Fair Value		2,364
Less Than 12 Months, Unrealized Losses		27
12 Months or Longer, Fair Value	695
12 Months or Longer, Unrealized Losses	4
Total, Fair Value	695	2,364
Total, Unrealized Losses	4	27
Corporate bonds and notes [Member]
Gross unrealized losses and fair market values of the Company's investments
Less Than 12 Months, Fair Value	3,901	36,394
Less Than 12 Months, Unrealized Losses	11	626
12 Months or Longer, Fair Value	5,801	4,298
12 Months or Longer, Unrealized Losses	132	90
Total, Fair Value	9,702	40,692
Total, Unrealized Losses	143	716
Asset backed Securities [Member]
Gross unrealized losses and fair market values of the Company's investments
Less Than 12 Months, Fair Value	895	5,881
Less Than 12 Months, Unrealized Losses	1	51
12 Months or Longer, Fair Value	1,195	546
12 Months or Longer, Unrealized Losses	5	9
Total, Fair Value	2,090	6,427
Total, Unrealized Losses	6	60
Mortgage backed securities [Member]
Gross unrealized losses and fair market values of the Company's investments
Less Than 12 Months, Fair Value	1,083	3,616
Less Than 12 Months, Unrealized Losses	3	13
12 Months or Longer, Fair Value	504	216
12 Months or Longer, Unrealized Losses	4	37
Total, Fair Value	1,587	3,831
Total, Unrealized Losses	$ 7	$ 50

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Consolidated Statements of Shareholders' Equity (USD $) In Thousands, except Share data	Total	Common Stock	Retained Earnings	Accumulated Other Comprehensive Income (Loss), Net
Balance at Jul. 02, 2011	$ 242,725	$ 130,960	$ 102,762	$ 9,003
Balance (Shares) at Jul. 02, 2011		24,716
Net income	(2,068)		(2,068)
Change in unrealized gain on investments, net	(59)			(59)
Currency translation adjustment	635			635
Issuance of common stock under employee stock plans	918	918
Issuance of common stock under employee stock plans (Shares)		332
Share-based compensation expense	3,723	3,723
Tax expense resulting from share-based transactions	(612)	(612)
Repurchase and retirement of common stock	(11,627)	(11,627)
Repurchase and retirement of common stock (Shares)		(1,483)
Balance at Jun. 30, 2012	233,635	123,362	100,694	9,579
Balance (Shares) at Jun. 30, 2012		23,565
Net income	(21,614)		(21,614)
Change in unrealized gain on investments, net	(619)			(619)
Currency translation adjustment	1,260			1,260
Issuance of common stock under employee stock plans	797	797
Issuance of common stock under employee stock plans (Shares)		348
Share-based compensation expense	3,339	3,339
Tax expense resulting from share-based transactions	(134)	(134)
Repurchase and retirement of common stock	(7,773)	(7,773)
Repurchase and retirement of common stock (Shares)		(1,100)
Balance at Jun. 29, 2013	208,891	119,591	79,080	10,220
Balance (Shares) at Jun. 29, 2013		22,813
Net income	4,124		4,124
Change in unrealized gain on investments, net	556			556
Currency translation adjustment	394			394
Issuance of common stock under employee stock plans	2,344	2,344
Issuance of common stock under employee stock plans (Shares)		515
Share-based compensation expense	2,777	2,777
Tax expense resulting from share-based transactions	(278)	(278)
Repurchase and retirement of common stock	(11,316)	(11,316)
Repurchase and retirement of common stock (Shares)		(1,354)
Balance at Jun. 28, 2014	$ 207,492	$ 113,118	$ 83,204	$ 11,170
Balance (Shares) at Jun. 28, 2014		21,974

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Goodwill and Intangible Assets (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Jun. 28, 2014	Jun. 29, 2013	Jun. 30, 2012
Schedule of goodwill
Beginning balance		$ 16,797
Other adjustments
Cumulative translation adjustments		102
Impairment		16,899
Ending balance			$ 16,797

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Investment in Unconsolidated Affiliate (Tables)

12 Months Ended

Jun. 28, 2014

Investments in Unconsolidated Affiliate [Abstract]

Investment in unconsolidated affiliates

	As of the year ended
(in thousands)		June 28, 2014		June 29, 2013
Jiyuan Crystal Photoelectric Frequency Technology Ltd.		$	2,445	$	2,525

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Restricted Assets (Details) (PSE-TW [Member], USD $) In Millions, unless otherwise specified	Jun. 28, 2014	Jun. 29, 2013
PSE-TW [Member]
Restricted Assets (Textual)
Other restricted assets, total	$ 4.2	$ 4.2
Loan and credit facility	$ 200	$ 200

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Shareholder Rights Plan

12 Months Ended

Jun. 28, 2014

Shareholder Rights Plan [Abstract]

SHAREHOLDER RIGHTS PLAN

15. SHAREHOLDER RIGHTS PLAN

On March 6, 2012, the Company adopted a shareholder rights plan and declared a dividend of one preferred share purchase right for each share of common stock held by shareholders of record as of that date. Each right entitles shareholders, after the rights become exercisable, to purchase one one-thousandth of a share of our Series D Junior Participating Preferred Stock.

The Company designed the rights plan to protect the long-term value of the Company for its shareholders during any future unsolicited acquisition attempt. The Company did not adopt the rights plan in response to any specific attempt to acquire the Company or its shares and the Company is not aware of any current efforts to do so. The rights will become exercisable only upon the occurrence of certain events specified in the plan, including the acquisition of 15% of the Company’s outstanding common stock by a person or group. Should a person or group acquire 15% or more of the outstanding common stock or announce an unsolicited tender offer, the consummation of which would result in a person or group acquiring 15% or more of the outstanding common stock, shareholders other than the acquiring person may exercise the rights, unless the Board of Directors has approved the transaction in advance. Each right entitles the holder, other than an acquiring person, to purchase shares of the Company’s common stock (or, in the event that there are insufficient authorized common stock shares, substitute consideration such as cash, property, or other securities of the Company, such as Preferred Stock) at a 50% discount to the then prevailing market price. Prior to the acquisition by a person or group of 15% or more of the outstanding common stock, the Company may redeem the rights for $0.001 per right at the option of the Board of Directors. The rights will expire on March 6, 2022. As of June 28, 2014, there were 21,974,000 rights outstanding.

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Goodwill and Intangible Assets (Tables)

12 Months Ended

Jun. 28, 2014

Goodwill and Intangible Assets [Abstract]

Schedule of goodwill

(in thousands)
Goodwill
Balance at June 30, 2012	$	16,797
Other adjustments		—
Cumulative translation adjustments		102
Impairment		(16,899	)
Balance at June 29, 2013	$	—

Summary of acquired intangible assets

	As of the year ended
	June 28, 2014							June 29, 2013
(in thousands)	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net
Customer relationships	$	6,056	$	(3,913	)	$	2,143	$	6,032	$	(2,912	)	$	3,120
In process research and development		3,564		(1,959	)		1,605		3,549		(1,367	)		2,182
Core developed technology		9,838		(6,977	)		2,861		9,800		(5,557	)		4,243
Total amortizable purchased intangible assets		19,458		(12,849	)		6,609		19,381		(9,836	)		9,545
SaRonix trade name		400		—			400		399		—			399
Total purchased intangible assets	$	19,858	$	(12,849	)	$	7,009	$	19,780	$	(9,836	)	$	9,944

Summary of future amortization expense associated with intangible assets

	Fiscal Years Ending
(in thousands)		2015		2016		2017		2018 and beyond		Total
Expected Amortization
Customer relationships		$	989	$	989	$	165	$	—	$	2,143
In process research and development			594		594		417		—		1,605
Core developed technology			1,321		1,321		219		—		2,861
		$	2,904	$	2,904	$	801	$	—	$	6,609

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Income Taxes

12 Months Ended

Jun. 28, 2014

Income Tax Disclosure [Abstract]

INCOME TAXES

17. INCOME TAXES

Income tax expense consists of federal, state and foreign current and deferred income taxes as follows:

	Fiscal Year Ended
(in thousands)	June 28, 2014			June 29, 2013			June 30, 2012
Income (loss) before income taxes
U.S.	$	(1,282	)	$	12,176		$	341
Foreign		5,044			(27,782	)		554
		3,762			(15,606	)		895
Federal:
Current		(1,366	)		5,424			941
Deferred		95			141			(641	)
		(1,271	)		5,565			300
State:
Current		—			7			(522	)
Deferred		(12	)		(172	)		2,768
		(12	)		(165	)		2,246
Foreign:
Current		953			672			551
Deferred		100			151			—
		1,053			823			551
Total current		(413	)		6,103			970
Total deferred		183			120			2,127
Total income tax expense (benefit)	$	(230	)	$	6,223		$	3,097

The reconciliation between the Company’s effective tax rate and the U.S. statutory rate is as follows:

	Fiscal Year Ended
	June 28, 2014			June 29, 2013			June 30, 2012
Tax provision at federal statutory rate		34.0	%		33.8	%		34.0	%
State income taxes, net of federal benefit		(1.3	)		2.1			(33.4	)
Foreign income and withholding taxes		1.7			(67.9	)		34.1
Benefits from resolution of certain tax audits and expiration of statute of limitations		(21.8	)		0.8			(15.4	)
Intercompany licensing of intellectual property		(27.1	)		(6.5	)		—
Share-based compensation		3.4			(1.1	)		20.5
Research and development tax credits		(2.3	)		—			(2.2	)
Change in valuation allowance		0.5			(1.8	)		307.3
Other		6.8			0.7			1.1
Income tax expense		(6.1	)%		(39.9	)%		346.0	%

The components of the net deferred tax assets were as follows (in thousands):

	As of the year ended
(in thousands)	June 28, 2014			June 29, 2013
Deferred tax assets:
Credit carryforwards	$	2,778		$	2,798
Accruals and reserves		843			1,311
Cumulative loss on investment		400			884
Depreciation and amortization		(933	)		(975	)
Net operating loss carryforward		1,418			1,424
Share-based compensation		3,013			3,088
Other		781			530
Total		8,300			9,060
Valuation allowance		(5,114	)		(5,064	)
Deferred tax assets	$	3,186		$	3,996
Deferred tax liabilities:
Gain on previously held shares in unconsolidated affiliate	$	(3,793	)	$	(3,768	)
Acquired PTI intangibles and other		(1,667	)		(2,030	)
Deferred tax liabilities	$	(5,460	)	$	(5,798	)

As of June 28, 2014, the Company has net operating loss carryforwards of approximately $207,000, $3.7 million and $5.0 million for PSE-TW in Taiwan, PSE-SD in China and PTI in Hong Kong, which will begin to expire in 2015, 2014 and no expiration, respectively. In addition, the Company has research and development tax credit carryforwards of approximately $145,000 and $4.7 million to offset future federal and state taxable income. The federal research and development tax credit carryforward will begin to expire in 2034 and the state research and development tax credit can be carried forward indefinitely.

The Company provides a valuation allowance for deferred tax assets when it is more likely than not, based upon currently available evidence and other factors, that some portion or all of the deferred tax asset will not be realized. The change in valuation allowance for the year ended June 28, 2014 and June 29, 2013 was an increase of $50,000 and $759,000, respectively, which resulted primarily from an increase in the research and development tax credit for California and the foreign net operating losses.

Consolidated income before income taxes includes non-U.S. income (loss) of approximately $5.0 million, $(27.8) million and $554,000 for the fiscal years ended June 28, 2014, June 29, 2013 and June 30, 2012, respectively. Pericom has not provided for U.S. income taxes on a cumulative total of approximately $19.7 million of undistributed earnings reported by certain foreign subsidiaries. The Company intends to reinvest these earnings indefinitely in its foreign subsidiaries. If these earnings were distributed to the United States in the form of dividends or otherwise, or if the shares of the relevant foreign subsidiaries were sold or otherwise transferred, the Company would be subject to additional U.S. income taxes (subject to an adjustment for foreign tax credits) and foreign withholding taxes. It is not practical to determine the unrecognized deferred U.S. income tax liability that might be payable on the possible remittance of earnings that are intended to be reinvested indefinitely due to the complexities associated with its hypothetical calculation.

The Company recorded $1.7 million for unrecognized tax benefits as of June 28, 2014. A reconciliation of the beginning and ending amount of unrecognized tax benefit for the three fiscal years from July 2, 2011 through June 28, 2014 is as follows:

(in thousands)
Balance as of July 2, 2011	$	(755	)
Gross increases — prior period tax positions		(515	)
Gross increases — current period tax positions		(475	)
Reductions as a result of a lapse of statute of limitations		138
Balance as of June 30, 2012	$	(1,607	)
Gross increases — prior period tax positions		(135	)
Gross increases — current period tax positions		(1,423	)
Reductions as a result of a lapse of statute of limitations		132
Balance as of June 29, 2013	$	(3,033	)
Gross increases — prior period tax positions		(411	)
Gross increases — current period tax positions		(194	)
Reductions — prior period tax positions		1,020
Reductions as a result of a lapse of statute of limitations		887
Balance as of June 28, 2014	$	(1,731	)

$934,000 of the balance at June 28, 2014 would affect the Company’s effective tax rate if recognized. The Company is subject to examination by federal, foreign, and various state jurisdictions for the years 2008 through 2014. The Internal Revenue Service recently completed their examination of the Company’s federal tax returns for fiscal 2010 and 2011, and additional tax payments of approximately $208,000 were made, including interest charges for the two years.

As of June 28, 2014, the Company has accrued $215,000 for interest and penalties related to the unrecognized tax benefits. The balance of unrecognized tax benefits and the related interest and penalties is recorded as a noncurrent liability on our consolidated balance sheet.

Within the next 12 months, we do not anticipate a material decrease in the unrecognized tax benefit or any other significant changes to our tax reserves during that period.

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Industrial Development Subsidy (Details) (USD $)	12 Months Ended
	Jun. 28, 2014	Jun. 29, 2013
Industrial Development Subsidy (Textual)
Subsidy recieved	$ 12,800,000
Remaining subsidy	6,400,000
Period over which remaining subsidy to be recognized	Six to eight years.
Subsidy used in reduction in cost of goods sold	755,000	1,300,000
Subsidy used in reduction in cost of operating expenses	$ 187,000	$ 183,000

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Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Jun. 28, 2014	Jun. 29, 2013	Jun. 30, 2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$ 4,124	$ (21,614)	$ (2,068)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	10,023	11,208	11,898
Share-based compensation	2,792	3,340	3,736
Tax benefit resulting from share-based transactions	700	492	512
Excess tax benefit resulting from share-based transactions	(41)	(4)	(4)
Write-off of notes receivable			856
Write-off of government subsidy receivable	843
Gain on sale of investments	(179)	(1,013)	(673)
Write-off of property and equipment	343	475	354
Goodwill impairment		16,899
Equity in net income of unconsolidated affiliates	(132)	(215)	(134)
Deferred taxes	90	(182)	1,753
Changes in assets and liabilities net of effects of entities acquired:
Accounts receivable	(2,229)	2,475	6,289
Inventories	2,602	1,884	5,008
Prepaid expenses and other current assets	245	188	(883)
Other assets	338	151	676
Accounts payable	(3,404)	(2,768)	2,688
Accrued liabilities	349	(956)	(2,735)
Other long-term liabilities	(1,917)	654	453
Net cash provided by operating activities	14,547	11,014	27,726
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property plant and equipment	(4,950)	(13,231)	(4,324)
Acquisition of PTI, net of cash acquired			(8,077)
Purchase of available-for-sale investments	(58,359)	(92,993)	(97,726)
Maturities and sales of available-for-sale investments	59,799	109,525	91,981
Change in restricted cash balance			2,947
Net cash provided by (used in) investing activities	(3,510)	3,301	(15,199)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from common stock issuance under stock plans	2,344	797	918
Excess tax benefit resulting from share-based transactions	41	4	4
Proceeds from short-term debt	514	3,992	10,744
Payments on short-term debt	(514)	(5,398)	(17,635)
Repurchase of common stock	(11,316)	(7,773)	(11,627)
Net cash used in financing activities	(8,931)	(8,378)	(17,596)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	70	624	(671)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	2,176	6,561	(5,740)
CASH AND CASH EQUIVALENTS:
Beginning of year	30,844	24,283	30,023
End of year	33,020	30,844	24,283
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for income taxes	1,378	4,467	1,722
Cash paid during the period for interest		$ 21	$ 75

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Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Jun. 28, 2014	Jun. 29, 2013
Balance Sheets [Abstract]
Net of reserves and allowances of trade receivables	$ 2,461	$ 2,511
Accumulated amortization on intangible assets	$ 12,849	$ 9,836
Common stock and paid in capital, par value (in dollars per share)
Common stock and paid in capital, shares authorized	60,000,000	60,000,000
Common stock and paid in capital, shares issued	21,974,000	22,813,000
Common stock and paid in capital, shares outstanding	21,974,000	22,813,000

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Restricted Assets

12 Months Ended

Jun. 28, 2014

Restricted Assets [Abstract]

RESTRICTED ASSETS

10. RESTRICTED ASSETS

As of June 28, 2014 and June 29, 2013, the Company had pledged and restricted assets of $4.2 million, respectively, consisting of land and buildings PSE-TW has pledged for its $200 million NTD loan and credit facility.

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Valuation and Qualifying Accounts (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Jun. 28, 2014	Jun. 29, 2013	Jun. 30, 2012
Reserves for returns and pricing adjustments
Valuation and Qualifying Accounts Disclosure [Line Items]
Beginning Balance	$ 2,435	$ 2,522	$ 1,718
Charged to Revenues	4,880	4,493	5,982
Deductions/Write-off	(4,879)	(4,580)	(5,718)
Ending Balance	2,436	2,435	2,522
Allowance for Doubtful Accounts
Valuation and Qualifying Accounts Disclosure [Line Items]
Beginning Balance	76	44	229
Charged to Expense	1	49	92
Deductions/Write-off	(52)	(17)	(277)
Ending Balance	25	76	44
Deferred tax valuation allowance
Valuation and Qualifying Accounts Disclosure [Line Items]
Beginning Balance	5,064	4,305	1,062
Charged to Expense	50	759	3,243
Deductions/Write-off
Ending Balance	$ 5,114	$ 5,064	$ 4,305

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Document and Entity Information (USD $)	12 Months Ended
	Jun. 28, 2014	Aug. 26, 2014	Dec. 31, 2013
Document and Entity Information [Abstract]
Entity Registrant Name	PERICOM SEMICONDUCTOR CORP
Entity Central Index Key	0001001426
Document Type	10-K
Document Period End Date	Jun. 28, 2014
Amendment Flag	false
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	FY
Current Fiscal Year End Date	--06-28
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		21,946,000
Entity Public Float			$ 177,118,000

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Commitments and Contingencies

12 Months Ended

Jun. 28, 2014

Commitments and Contingencies [Abstract]

COMMITMENTS AND CONTINGENCIES

11. COMMITMENTS AND CONTINGENCIES

The future minimum commitments at June 28, 2014 are as follows:

	Fiscal Year
(in thousands)	2015		2016		2017 and beyond		Total
Operating lease payments	$	485	$	55	$	—	$	540
Capital equipment purchase commitments		4		—		—		4
Facility modification commitments		12		—		—		12
Total	$	501	$	55	$	—	$	556

The operating lease commitments are primarily facility leases at certain of the Company’s Asian subsidiaries.

The Company has no purchase obligations other than routine purchase orders and the facility modifications shown in the table as of June 28, 2014.

Rent expense during the fiscal years ended June 28, 2014, June 29, 2013 and June 30, 2012 was $801,000, $2.0 million and $1.9 million, respectively.

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Fair Value Measurements (Details) (USD $) In Thousands, unless otherwise specified	Jun. 28, 2014		Jun. 29, 2013
Fair Value [Member]
Fair value mesurement
Fair value measurement of assets	$ 90,151	[1]	$ 92,230	[1]
Fair Value [Member] | Commercial paper [Member]
Fair value mesurement
Fair value measurement of assets			2,400	[1]
Fair Value [Member] | Repurchase Agreements [Member]
Fair value mesurement
Fair value measurement of assets	4,547	[1]	4,988	[1]
Fair Value [Member] | Time deposits [Member]
Fair value mesurement
Fair value measurement of assets	17,693	[1]	12,087	[1]
Fair Value [Member] | US Treasury securities [Member]
Fair value mesurement
Fair value measurement of assets	527	[1]
Fair Value [Member] | National government and agency securities [Member]
Fair value mesurement
Fair value measurement of assets	5,055	[1]	4,451	[1]
Fair Value [Member] | State and municipal bond obligations [Member]
Fair value mesurement
Fair value measurement of assets	7,149	[1]	3,758	[1]
Fair Value [Member] | Corporate bonds and notes [Member]
Fair value mesurement
Fair value measurement of assets	42,781	[1]	47,793	[1]
Fair Value [Member] | Asset-backed Securities [Member]
Fair value mesurement
Fair value measurement of assets	7,614	[1]	10,022	[1]
Fair Value [Member] | Mortgage backed securities [Member]
Fair value mesurement
Fair value measurement of assets	4,785	[1]	6,731	[1]
Level 1 [Member]
Fair value mesurement
Fair value measurement of assets	527	[1]		[1]
Level 1 [Member] | Commercial paper [Member]
Fair value mesurement
Fair value measurement of assets				[1]
Level 1 [Member] | Repurchase Agreements [Member]
Fair value mesurement
Fair value measurement of assets		[1]		[1]
Level 1 [Member] | Time deposits [Member]
Fair value mesurement
Fair value measurement of assets		[1]		[1]
Level 1 [Member] | US Treasury securities [Member]
Fair value mesurement
Fair value measurement of assets	527	[1]
Level 1 [Member] | National government and agency securities [Member]
Fair value mesurement
Fair value measurement of assets		[1]		[1]
Level 1 [Member] | State and municipal bond obligations [Member]
Fair value mesurement
Fair value measurement of assets		[1]		[1]
Level 1 [Member] | Corporate bonds and notes [Member]
Fair value mesurement
Fair value measurement of assets		[1]		[1]
Level 1 [Member] | Asset-backed Securities [Member]
Fair value mesurement
Fair value measurement of assets		[1]		[1]
Level 1 [Member] | Mortgage backed securities [Member]
Fair value mesurement
Fair value measurement of assets		[1]		[1]
Level 2 [Member]
Fair value mesurement
Fair value measurement of assets	89,624	[1]	92,230	[1]
Level 2 [Member] | Commercial paper [Member]
Fair value mesurement
Fair value measurement of assets			2,400	[1]
Level 2 [Member] | Repurchase Agreements [Member]
Fair value mesurement
Fair value measurement of assets	4,547	[1]	4,988	[1]
Level 2 [Member] | Time deposits [Member]
Fair value mesurement
Fair value measurement of assets	17,693	[1]	12,087	[1]
Level 2 [Member] | US Treasury securities [Member]
Fair value mesurement
Fair value measurement of assets		[1]
Level 2 [Member] | National government and agency securities [Member]
Fair value mesurement
Fair value measurement of assets	5,055	[1]	4,451	[1]
Level 2 [Member] | State and municipal bond obligations [Member]
Fair value mesurement
Fair value measurement of assets	7,149	[1]	3,758	[1]
Level 2 [Member] | Corporate bonds and notes [Member]
Fair value mesurement
Fair value measurement of assets	42,781	[1]	47,793	[1]
Level 2 [Member] | Asset-backed Securities [Member]
Fair value mesurement
Fair value measurement of assets	7,614	[1]	10,022	[1]
Level 2 [Member] | Mortgage backed securities [Member]
Fair value mesurement
Fair value measurement of assets	4,785	[1]	6,731	[1]
Level 3 [Member]
Fair value mesurement
Fair value measurement of assets		[1]		[1]
Level 3 [Member] | Commercial paper [Member]
Fair value mesurement
Fair value measurement of assets		[1]		[1]
Level 3 [Member] | Repurchase Agreements [Member]
Fair value mesurement
Fair value measurement of assets		[1]		[1]
Level 3 [Member] | Time deposits [Member]
Fair value mesurement
Fair value measurement of assets		[1]		[1]
Level 3 [Member] | US Treasury securities [Member]
Fair value mesurement
Fair value measurement of assets		[1]
Level 3 [Member] | National government and agency securities [Member]
Fair value mesurement
Fair value measurement of assets		[1]		[1]
Level 3 [Member] | State and municipal bond obligations [Member]
Fair value mesurement
Fair value measurement of assets		[1]		[1]
Level 3 [Member] | Corporate bonds and notes [Member]
Fair value mesurement
Fair value measurement of assets		[1]		[1]
Level 3 [Member] | Asset-backed Securities [Member]
Fair value mesurement
Fair value measurement of assets		[1]		[1]
Level 3 [Member] | Mortgage backed securities [Member]
Fair value mesurement
Fair value measurement of assets		[1]		[1]

[1] At June 28, 2014, $4,047 of the repurchase agreements are included in cash and cash equivalents; at June 29, 2013, the commercial paper and $2,991 of the repurchase agreements are included in cash and cash equivalents; the balance of the investments at June 28, 2014 and June 29, 2013 are included in short-term investments in marketable securities on the consolidated balance sheets.

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Quarterly Financial Data (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended								12 Months Ended
	Jun. 28, 2014	Mar. 29, 2014	Dec. 28, 2013	Sep. 28, 2013	Jun. 29, 2013	Mar. 30, 2013	Dec. 29, 2012	Sep. 29, 2012	Jun. 28, 2014	Jun. 29, 2013	Jun. 30, 2012
Summary of quarterly operating results and share data
Net revenues	$ 32,739	$ 30,681	$ 32,040	$ 32,608	$ 31,707	$ 30,366	$ 30,433	$ 36,749	$ 128,068	$ 129,255	$ 137,135
Cost of revenues	19,188	18,175	19,820	19,800	19,791	19,521	19,239	22,838	76,983	81,388	88,484
Gross profit	13,551	12,506	12,220	12,808	11,916	10,845	11,194	13,911	51,085	47,867	48,651
Operating expenses:
Research and development	4,782	4,694	5,274	5,045	5,320	5,277	5,097	5,323	19,795	21,017	21,722
Selling, general and administrative	8,100	7,407	7,126	7,687	7,217	7,193	7,532	7,639	30,320	29,581	29,648
Goodwill impairment					16,899
Total operating expenses	12,882	12,101	12,400	12,732	29,436	12,470	12,629	12,962	50,115	67,497	51,370
Income (loss) from operations	669	405	(180)	76	(17,520)	(1,625)	(1,435)	949	970	(19,630)	(2,719)
Interest and other income, net	456	802	1,047	486	1,277	1,318	795	635	2,792	4,043	3,684
Income (loss) before income tax	1,125	1,207	867	562	(16,243)	(307)	(640)	1,584	3,762	(15,606)	895
Income tax expense	291	(421)	(331)	231	573	395	4,756	500	(230)	6,223	3,097
Net income (loss) from consolidated companies	834	1,628	1,198	331	(16,816)	(702)	(5,396)	1,084	3,992	(21,829)	(2,202)
Equity in net income of unconsolidated affiliates	50	13	27	43	30	21	57	108	132	215	134
Net income	$ 884	$ 1,641	$ 1,225	$ 374	$ (16,786)	$ (681)	$ (5,339)	$ 1,192	$ 4,124	$ (21,614)	$ (2,068)
Basic income (loss) per share	$ 0.04	$ 0.07	$ 0.05	$ 0.02	$ (0.74)	$ (0.03)	$ (0.23)	$ 0.05	$ 0.18	$ (0.93)	$ (0.09)
Diluted income (loss) per share	$ 0.04	$ 0.07	$ 0.05	$ 0.02	$ (0.74)	$ (0.03)	$ (0.23)	$ 0.05	$ 0.18	$ (0.93)	$ (0.09)
Shares used in computing basic income (loss) per share	22,123	22,659	22,800	22,794	22,783	23,162	23,515	23,543	22,594	23,251	24,094
Shares used in computing diluted income (loss) per share	22,338	22,880	23,019	22,951	22,783	23,162	23,515	23,740	22,797	23,251	24,094

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Consolidated Statements of Operations (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Jun. 28, 2014	Jun. 29, 2013	Jun. 30, 2012
Statements Of Operations [Abstract]
Net revenues	$ 128,068	$ 129,255	$ 137,135
Cost of revenues	76,983	81,388	88,484
Gross profit	51,085	47,867	48,651
Operating expenses:
Research and development	19,795	21,017	21,722
Selling, general and administrative	30,320	29,581	29,648
Goodwill impairment		16,899
Total operating expenses	50,115	67,497	51,370
Income (loss) from operations	970	(19,630)	(2,719)
Interest and other income, net	2,792	4,043	3,684
Interest expense		(19)	(70)
Income (loss) before income taxes	3,762	(15,606)	895
Income tax expense (benefit)	(230)	6,223	3,097
Net income (loss) from consolidated companies	3,992	(21,829)	(2,202)
Equity in net income of unconsolidated affiliates	132	215	134
Net income (loss)	$ 4,124	$ (21,614)	$ (2,068)
Basic income (loss) per share	$ 0.18	$ (0.93)	$ (0.09)
Diluted income (loss) per share	$ 0.18	$ (0.93)	$ (0.09)
Shares used in computing basic earnings (loss) per share	22,594	23,251	24,094
Shares used in computing diluted earnings (loss) per share	22,797	23,251	24,094

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Other Assets

12 Months Ended

Jun. 28, 2014

Other Assets [Abstract]

OTHER ASSETS

5. OTHER ASSETS

	As of the year ended
(in thousands)	June 28, 2014		June 29, 2013
Land use rights	$	6,631	$	6,821
Investments in privately held companies		1,243		1,238
Deposits		118		262
Other		126		304
Total	$	8,118	$	8,625

The Company purchased land use rights from the PRC in 2008 for the construction of its Jinan facility and its operation for a period of 50 years. In addition, the PTI acquisition in 2011 included land use rights for PTI’s properties in Shanghai.

The Company has investments in certain privately held companies which it accounts for under the cost method. The Company reviews these investments for impairment on a periodic basis. No impairment charges relating to investments in privately held companies were recorded during fiscal 2014, 2013 or 2012. For the year ended June 30, 2012, the Company wrote off $856,000 of promissory notes receivable due from two privately held technology companies which was recorded as a charge to general and administrative expense.

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Property, Plant And Equipment - Net

12 Months Ended

Jun. 28, 2014

Property, Plant and Equipment - Net [Abstract]

PROPERTY, PLANT AND EQUIPMENT - NET

4. PROPERTY, PLANT AND EQUIPMENT — NET

	As of the year ended
(in thousands)	June 28, 2014			June 29, 2013
Machinery and equipment	$	55,408		$	55,795
Buildings		36,196			30,637
Computer equipment and software		13,742			14,449
Land		9,473			3,661
Furniture and fixtures		1,218			1,402
Leasehold improvements		595			1,115
Vehicles		151			155
Total		116,783			107,214
Accumulated depreciation and amortization		(59,500	)		(56,825	)
Construction-in-progress		1,254			10,570
Property, plant and equipment — net	$	58,537		$	60,959

Depreciation expense for the years ended June 28, 2014, June 29, 2013 and June 30, 2012 was $6.4 million, $7.4 million and $8.0 million, respectively.

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Fair Value Measurements

12 Months Ended

Jun. 28, 2014

Fair Value Measurements [Abstract]

FAIR VALUE MEASUREMENTS

16. FAIR VALUE MEASUREMENTS

The Company defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs that may be used to measure fair value, of which the first two are considered observable and the last is considered unobservable:

•    Level 1 — Quoted prices in active markets for identical assets or liabilities.

•    Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

•    Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The following table represents our fair value hierarchy for financial assets (cash equivalents and investments) measured at fair value on a recurring basis. Level 1 available-for-sale investments are primarily comprised of investments in U.S. Treasury securities, valued using market prices in active markets. Most of the investments are classified as Level 2. Level 2 pricing is provided by third party sources of market information obtained through the Company’s investment advisors. The Company does not adjust for or apply any additional assumptions or estimates to the pricing information it receives from advisors. The Company’s investment advisors obtain pricing data from independent sources, such as Standard & Poor’s, Bloomberg and Interactive Data Corporation, and rely on comparable pricing of other securities because the Level 2 securities it holds are not actively traded and have fewer observable transactions. The Company considers this the most reliable information available for the valuation of the securities.

The Company’s Level 2 securities include time deposits, government securities, corporate debt securities and mortgage backed and asset backed securities. Government securities include US federal agency securities, foreign government and agency securities, and US state and municipal bond obligations. Many of the municipal bonds are

insured; those that are not are nearly all AAA/Aaa rated. The corporate debt securities are all investment grade and most are single A-rated or better. The asset-backed securities are AAA/Aaa rated and are backed by auto loans, student loans, credit card balances and residential or commercial mortgages.

Assets measured at fair value are summarized as follows:

	As of June 28, 2014
(in thousands)	Fair Value		Level 1		Level 2		Level 3
Investments(1)
US Treasury securities	$	527	$	527	$	—	$	—
Repurchase agreements		4,547		—		4,547		—
Time deposits		17,693		—		17,693		—
National government and agency securities		5,055		—		5,055		—
State and municipal bond obligations		7,149		—		7,149		—
Corporate bonds and notes		42,781		—		42,781		—
Asset backed securities		7,614		—		7,614		—
Mortgage backed securities		4,785		—		4,785		—
Total	$	90,151	$	527	$	89,624	$	—

	As of June 29, 2013
(in thousands)	Fair Value		Level 1		Level 2		Level 3
Investments(1)
Commercial paper	$	2,400	$	—	$	2,400	$	—
Repurchase agreements		4,988		—		4,988		—
Time deposits		12,087		—		12,087		—
National government and agency securities		4,451		—		4,451		—
State and municipal bond obligations		3,758		—		3,758		—
Corporate bonds and notes		47,793		—		47,793		—
Asset backed securities		10,022		—		10,022		—
Mortgage backed securities		6,731		—		6,731		—
Total	$	92,230	$	—	$	92,230	$	—

(1)   At June 28, 2014, $4,047 of the repurchase agreements are included in cash and cash equivalents; at June 29, 2013, the commercial paper and $2,991 of the repurchase agreements are included in cash and cash equivalents; the balance of the investments at June 28, 2014 and June 29, 2013 are included in short-term investments in marketable securities on the consolidated balance sheets.

The Company had no transfers between Level 1 and Level 2 during the years ended June 28, 2014 and June 29, 2013.

When assessing marketable securities for other-than-temporary declines in value, a number of factors are considered. Analyses of the severity and duration of price declines, remaining years to maturity, portfolio manager reports, economic forecasts, and the specific circumstances of issuers indicate that it is reasonable to expect marketable securities with unrealized losses at June 28, 2014 to recover in fair value up to the Company’s cost bases within a reasonable period of time. The Company does not intend to sell investments with unrealized losses before maturity, when the obligors are required to redeem them at full face value or par. The Company believes the obligors have the financial resources to redeem the debt securities. Accordingly, the Company does not consider the investments to be other-than-temporarily impaired at June 28, 2014.

The Company has determined that the amounts reported for cash and cash equivalents, accounts receivable, deposits, accounts payable, accrued liabilities and debt approximate fair value because of their short maturities and/or variable interest rates.

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Industrial Development Subsidy

12 Months Ended

Jun. 28, 2014

Industrial Development Subsidy [Abstract]

INDUSTRIAL DEVELOPMENT SUBSIDY

12. INDUSTRIAL DEVELOPMENT SUBSIDY

As of June 28, 2014, industrial development subsidies in the amount of $12.8 million have been earned and applied for by PSE-SD from the Jinan Hi-Tech Industries Development Zone Commission based on meeting certain pre-defined criteria. The subsidies may be used for the acquisition of assets or to cover business expenses. When a subsidy is used to acquire assets, the subsidy will be amortized over the useful life of the asset. When a subsidy is used for expenses incurred, the subsidy is regarded as earned upon the incurrence of the expenditure. The remaining balance of the subsidies at June 28, 2014 was $6.4 million, which is expected to be recognized over the next six to eight years.

A portion of the $12.8 million in subsidies has been recorded as a receivable. As of June 28, 2014, the Company concluded that the remaining $843,000 of receivables will not be paid and accordingly the balance was written off.

The Company recognized $755,000 and $1.3 million of industrial development subsidy as a reduction of cost of goods sold and $187,000 and $183,000 of industrial development subsidy as a reduction of operating expenses in the consolidated statements of operations for the years ended June 28, 2014 and June 29, 2013, respectively.

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Income Taxes (Details 2) (USD $) In Thousands, unless otherwise specified	Jun. 28, 2014	Jun. 29, 2013
Deferred tax assets:
Credit carryforwards	$ 2,778	$ 2,798
Accruals and reserves	843	1,311
Cumulative loss on investment	400	884
Depreciation and amortization	(933)	(975)
Net operating loss carryforward	1,418	1,424
Share-based compensation	3,013	3,088
Other	781	530
Total	8,300	9,060
Valuation allowance	(5,114)	(5,064)
Deferred tax assets	3,186	3,996
Deferred tax liabilities:
Gain on previously held shares in unconsolidated affiliate	(3,793)	(3,768)
Acquired PTI intangibles and other	(1,667)	(2,030)
Deferred tax liabilities	$ (5,460)	$ (5,798)

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Accrued Liabilities

12 Months Ended

Jun. 28, 2014

Accrued Liabilities [Abstract]

ACCRUED LIABILITIES

8. ACCRUED LIABILITIES

Accrued liabilities consist of:

	As of the year ended
(in thousands)	June 28, 2014		June 29, 2013
Accrued compensation	$	6,892	$	6,029
Income taxes payable		1,140		655
Sales commissions		307		316
Accrued construction liabilities		—		134
Other accrued expenses		1,595		1,597
	$	9,934	$	8,731

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Goodwill and Intangible Assets (Details 1) (USD $) In Thousands, unless otherwise specified	Jun. 28, 2014	Jun. 29, 2013
Summary of components of other intangible assets and related accumulated amortization as part of business combinations
Finite lived intangible assets. Gross	$ 19,458	$ 19,836
Finite lived intangible assets, Accumulated Amortization	(12,849)	(9,836)
Finite lived intangible assets, Net	6,069	9,545
Purchased intangible assets, Gross	19,858	19,780
Purchased intangible assets, Accumulated Amortization	(12,849)	(9,836)
Purchased intangible assets, Net	7,009	9,944
SaRonix trade name [Member]
Summary of components of other intangible assets and related accumulated amortization as part of business combinations
Indefinite lived intangible assets, Gross	400	399
Indefinite lived intangible assets, Accumulated Amortization
Indefinite lived intangible assets, Net	400	399
In-process research and development [Member]
Summary of components of other intangible assets and related accumulated amortization as part of business combinations
Indefinite lived intangible assets, Gross	3,564	3,549
Indefinite lived intangible assets, Accumulated Amortization	(1,959)	(1,367)
Indefinite lived intangible assets, Net	1,605	2,182
Customer relationships [Member]
Summary of components of other intangible assets and related accumulated amortization as part of business combinations
Finite lived intangible assets. Gross	6,056	6,032
Finite lived intangible assets, Accumulated Amortization	(3,913)	(2,912)
Finite lived intangible assets, Net	2,143	3,120
Core developed technology
Summary of components of other intangible assets and related accumulated amortization as part of business combinations
Finite lived intangible assets. Gross	9,838	9,800
Finite lived intangible assets, Accumulated Amortization	(6,977)	(5,557)
Finite lived intangible assets, Net	$ 2,861	$ 4,243

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Investment in Unconsolidated Affiliate

12 Months Ended

Jun. 28, 2014

Investments in Unconsolidated Affiliate [Abstract]

INVESTMENT IN UNCONSOLIDATED AFFILIATE

6. INVESTMENT IN UNCONSOLIDATED AFFILIATE

The Company’s investment in unconsolidated affiliate is comprised of the following:

	As of the year ended
(in thousands)	June 28, 2014		June 29, 2013
Jiyuan Crystal Photoelectric Frequency Technology Ltd.	$	2,445	$	2,525

PSE-TW has a 49% equity interest in Jiyuan Crystal Photoelectric Frequency Technology Ltd. (“JCP”), an FCP manufacturing company located in Science Park of Jiyuan City, Henan Province, China. JCP is a key manufacturing partner of PSE-TW. For fiscal 2014, the Company’s investment in JCP increased by the $132,000 allocated portion of JCP’s income, and decreased by a $212,000 JCP declared dividend.

The Company holds or has held ownership interests in various other privately held companies. The ownership in these affiliates varied from 20% to approximately 49%. For those companies in which the ownership interest is more than 20% and in which the Company has the ability to exercise significant influence on the affiliate’s operations, the investment is valued using the equity method of accounting. As of June 28, 2014, the amount of consolidated retained earnings of the Company represented by undistributed earnings of 50% or less entities accounted for by the equity method was approximately $3.9 million.

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Goodwill and Intangible Assets

12 Months Ended

Jun. 28, 2014

Goodwill and Intangible Assets [Abstract]

GOODWILL AND INTANGIBLE ASSETS

7. GOODWILL AND INTANGIBLE ASSETS

The following table summarizes the activity related to the carrying value of our goodwill during the year ended June 29, 2013:

(in thousands)
Goodwill
Balance at June 30, 2012	$	16,797
Other adjustments		—
Cumulative translation adjustments		102
Impairment		(16,899	)
Balance at June 29, 2013	$	—

The Company tests goodwill for impairment annually. Initially there is an assessment of qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying value. If the carrying value exceeds its fair value, then the second step is performed to determine the implied fair value of each reporting unit’s goodwill, and an impairment loss is recorded for an amount equal to the difference between the implied fair value and the carrying value of the goodwill. The fiscal 2013 goodwill impairment analysis resulted in an impairment charge of $16.9 million, in which the Company wrote off the balance of the goodwill associated with the acquisition of PTI in 2010 and Pericom Taiwan Limited in 2009. This was based on a combination of factors including a decline in the net present value of expected future cash flows from the Company’s three reporting units as well as a decline in the Company’s market capitalization.

The Company’s acquired intangible assets associated with completed acquisitions for each of the following fiscal years are composed of:

	As of the year ended
	June 28, 2014							June 29, 2013
(in thousands)	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net
Customer relationships	$	6,056	$	(3,913	)	$	2,143	$	6,032	$	(2,912	)	$	3,120
In process research and development		3,564		(1,959	)		1,605		3,549		(1,367	)		2,182
Core developed technology		9,838		(6,977	)		2,861		9,800		(5,557	)		4,243
Total amortizable purchased intangible assets		19,458		(12,849	)		6,609		19,381		(9,836	)		9,545
SaRonix trade name		400		—			400		399		—			399
Total purchased intangible assets	$	19,858	$	(12,849	)	$	7,009	$	19,780	$	(9,836	)	$	9,944

Amortization expense related to finite-lived purchased intangible assets was approximately $3.0 million in fiscal 2014, $3.1 million in fiscal 2013 and $3.1 million in fiscal 2012. Amortization of intangible assets in fiscal 2012 included accelerated amortization related to a supplier relationship of approximately $125,000 and subsequent write-off.

The Company performs an annual impairment review of its long-lived assets, including its intangible assets. Based on the results of its most recent annual impairment tests, the Company determined that no impairment of the intangible assets existed as of June 28, 2014 or June 29, 2013. However, future impairment tests could result in a charge to earnings.

The finite-lived purchased intangible assets consist of customer relationships, capitalized in-process research and development and core developed technology, which have remaining useful lives of approximately two years. We expect our future amortization expense over the next five years associated with these assets to be:

	Fiscal Years Ending
(in thousands)	2015		2016		2017		2018 and beyond		Total
Expected Amortization
Customer relationships	$	989	$	989	$	165	$	—	$	2,143
In process research and development		594		594		417		—		1,605
Core developed technology		1,321		1,321		219		—		2,861
	$	2,904	$	2,904	$	801	$	—	$	6,609

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Debt

12 Months Ended

Jun. 28, 2014

Debt [Abstract]

DEBT

9. DEBT

As of June 28, 2014 and June 29, 2013, the Company has no outstanding debt. However, the Company’s subsidiary PSE-TW has two loan and credit facilities in place for equipment purchases or inventory financing via short term loans, letters of credit, and trade financing. The first is a secured facility for $200 million New Taiwan Dollars (“NTD”), approximately U.S. $6.7 million. The loans are for up to 180 days, and are based on the Taiwan Interbank Offered Rate (“TAIBOR”) plus 1.25% and may be in NTD, USD, Japanese yen (“JPY”) or other currencies. The second is an unsecured facility for $100 million NTD. Loans under this facility are limited to $70 million NTD, are for up to 180 days, and are based on TAIBOR plus 1.25% and may be in NTD, USD, JPY or other currencies.

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Debt (Details) (PSE-TW [Member], TWD) In Millions, unless otherwise specified	Jun. 28, 2014	Jun. 29, 2013
PSE-TW [Member]
Debt (Textual)
Loan and credit facility #2 in place for equipment purchases or inventory financing	100
Interest rate on loan (spread over TAIBOR)	1.25%
Loan and credit facility #1 in place for equipment purchases or inventory financing	200	200

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Income Taxes (Details 3) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Jun. 28, 2014	Jun. 29, 2013	Jun. 30, 2012
Income Tax Disclosure [Abstract]
Beginning balance	$ (3,033)	$ (1,607)	$ (755)
Gross increases - prior period tax positions	(411)	(135)	(515)
Gross increases - current period tax positions	(194)	(1,423)	(475)
Reductions - Gross increases - prior period tax positions	1,020
Reductions as a result of a lapse of statute of limitations	887	132	138
Balance as of June 29,2013	$ (1,731)	$ (3,033)	$ (1,607)

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Commitments and Contingencies (Details) (USD $) In Thousands, unless otherwise specified	Jun. 28, 2014
Future minimum commitments
2015	$ 501
2016	55
2017 and beyond
Total	556
Operating Lease Payments [Member]
Future minimum commitments
2015	485
2016	55
2017 and beyond
Total	540
Capital Equipment Purchase Commitments [Member]
Future minimum commitments
2015	4
2016
2017 and beyond
Total	4
Facility Modification Commitments [Member]
Future minimum commitments
2015	12
2016
2017 and beyond
Total	$ 12

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Accrued Liabilities (Details) (USD $) In Thousands, unless otherwise specified	Jun. 28, 2014	Jun. 29, 2013
Schedule of accrued liabilities
Accrued compensation	$ 6,892	$ 6,029
Income taxes payable	1,140	655
Sales commissions	307	316
Accrued construction liabilities		134
Other accrued expenses	1,595	1,597
Total accrued liabilities	$ 9,934	$ 8,731

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Other Assets (Tables)

12 Months Ended

Jun. 28, 2014

Other Assets [Abstract]

Other assets

	As of the year ended
(in thousands)	June 28, 2014		June 29, 2013
Land use rights	$	6,631	$	6,821
Investments in privately held companies		1,243		1,238
Deposits		118		262
Other		126		304
Total	$	8,118	$	8,625

 

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Inventories (Details) (USD $) In Thousands, unless otherwise specified	Jun. 28, 2014	Jun. 29, 2013
Inventories
Finished goods	$ 3,991	$ 3,847
Work in process	2,468	3,869
Raw materials	5,829	7,128
Inventories	$ 12,288	$ 14,844

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Shareholders' Equity and Share-Based Compensation

12 Months Ended

Jun. 28, 2014

Shareholders' Equity and Share-Based Compensation [Abstract]

SHAREHOLDERS' EQUITY AND SHARE-BASED COMPENSATION

14. SHAREHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION

PREFERRED STOCK

The Company’s shareholders have authorized the Board of Directors to issue 5,000,000 shares of preferred stock from time to time in one or more series and to fix the rights, privileges and restrictions of each series. As of June 28, 2014, the Company has issued no shares of preferred stock.

STOCK INCENTIVE PLANS

At June 28, 2014 the Company had three stock incentive plans and one employee stock purchase plan, including the 1995 Stock Option Plan, 2001 Stock Option Plan, 2004 Stock Incentive Plan and the 2010 Employee Stock Purchase Plan (“ESPP”). The Company’s aggregate compensation cost due to option and restricted stock unit grants and the ESPP for the twelve months ended June 28, 2014 totaled $2.8 million, as compared with $3.3 million and $3.7 million for fiscal 2013 and 2012, respectively. The Company recognized $910,000, $1.1 million, and $1.2 million in income tax benefit in the consolidated statements of operations for fiscal 2014, 2013 and 2012, respectively, related to the Company’s share-based compensation arrangements. The net impact of share-based compensation for the fiscal years ended June 28, 2014, June 29, 2013 and June 30, 2012 was a reduction in net income of $1.9 million, $2.2 million and $2.5 million, respectively, or a reduction of $0.08, $0.10 and $0.10 per diluted share, respectively.

Under the Company’s 2004, 2001 and 1995 stock incentive plans, the Company has reserved 4.5 million shares of common stock as of June 28, 2014 for issuance to employees, officers, directors, independent contractors and consultants of the Company in the form of incentive and nonqualified stock options and restricted stock units.

The Company may grant options at the fair value on grant date for incentive stock options and nonqualified stock options. Options vest over periods of generally 48 months as determined by the Board of Directors. Options granted under the Plans expire 10 years from the grant date.

The Company estimates the fair value of each employee option on the date of grant using the Black-Scholes option valuation model and expenses that value as compensation using a straight-line method over the option’s vesting period, which corresponds to the requisite employee service period. The Company estimates expected stock price volatility based on actual historical volatility for periods that the Company believes represent predictors of future volatility. The Company uses historical data to estimate option exercises, expected option holding periods and option forfeitures. The Company bases the risk-free interest rate on the U.S. Treasury note yield for periods equal to the expected term of the option.

The following table lists the weighted average assumptions the Company used to value stock options:

	Fiscal Year Ended
	June 28, 2014	June 29, 2013	June 30, 2012
Expected life	5.9 years	5.9 years	5.5 years
Risk-free interest rate	1.47%	1.05%	2.46%
Volatility	52%	54%	54%
Dividend yield	0.00%	0.00%	0.00%

The following table summarizes the Company’s stock option plans as of July 2, 2011 and changes during the three fiscal periods ended June 28, 2014:

	Outstanding Options
Options	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
	(in thousands)					(years)		(in thousands)
Options outstanding at July 2, 2011		2,974		$	10.89		4.88	$	645
Options granted (weighted average grant date fair value of $3.89)		142			7.65
Options exercised		(21	)		7.77
Options forfeited or expired		(642	)		12.37
Options outstanding at June 30, 2012		2,453		$	10.34		5.12	$	912
Options granted (weighted average grant date fair value of $4.06)		233			8.07
Options exercised		(6	)		7.87
Options forfeited or expired		(249	)		9.17
Options outstanding at June 29, 2013		2,431		$	10.25		4.86	$	52
Options granted (weighted average grant date fair value of $4.06)		236			8.16
Options exercised		(190	)		8.25
Options forfeited or expired		(392	)		9.96
Options outstanding at June 28, 2014		2,085		$	10.25		4.54	$	1,077
Options vested and expected to vest at June 28, 2014		2,048		$	10.30		4.45	$	1,031
Options exercisable at June 28, 2014		1,796		$	10.62		3.85	$	742

At June 28, 2014, 1,046,000 shares were available for future grants under the option plans. The aggregate intrinsic value of options exercised during the fiscal years ended June 28, 2014, June 29, 2013 and June 30, 2012 was $177,000, $2,000 and $8,000, respectively.

The Company has unamortized share-based compensation expense related to options of $1.3 million, which will be amortized to expense over a weighted average period of 2.6 years.

Additional information regarding options outstanding as of June 28, 2014 is as follows:

	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number Outstanding as of June 28, 2014		Weighted Average Remaining Contractual Term (Years)		Weighted Average Exercise Price		Number Exercisable as of June 28, 2014		Weighted Average Exercise Price
$  4.89    $  7.87		458,067		6.88	$	7.51		259,883	$	7.47
$  7.88    $  8.71		420,413		3.08	$	8.34		398,919	$	8.34
$  8.72    $10.01		506,849		4.88	$	9.58		436,825	$	9.69
$10.02    $15.45		494,607		3.81	$	12.60		494,607	$	12.60
$15.45    $18.10		205,500		3.17	$	16.30		205,500	$	16.30
$  4.89    $18.10		2,085,436		4.54	$	10.25		1,795,734	$	10.62

Restricted Stock Units

Restricted stock units (“RSUs”) are converted into shares of the Company’s common stock upon vesting on a one-for-one basis. Typically, vesting of RSUs is subject to the employee’s continuing service to the Company. RSUs generally vest over a period of 4 years and are expensed ratably on a straight-line basis over their respective vesting period net of estimated forfeitures. The fair value of RSUs granted pursuant to the Company’s 2004 Stock Incentive Plan is the product of the number of shares granted and the grant date fair value of our common stock. The following table summarizes the RSUs as of July 2, 2011 and changes during the three fiscal years ended June 28, 2014:

	Shares			Weighted Average Grant Date Fair Value		Weighted Average Remaining Vesting Term		Aggregate Intrinsic Value
	(in thousands)					(years)		(in thousands)
RSUs outstanding at July 2, 2011		592		$	9.73		1.60	$	5,253
Awarded		156			7.78
Released		(203	)		9.91
Forfeited		(41	)		9.73
RSUs outstanding at June 30, 2012		504		$	9.06		1.42	$	4,535
Awarded		301			7.74
Released		(217	)		9.55
Forfeited		(63	)		8.24
RSUs outstanding at June 29, 2013		525		$	8.20		1.48	$	3,735
Awarded		416			8.46
Released		(196	)		8.61
Forfeited		(96	)		8.26
RSUs outstanding at June 28, 2014		649		$	8.23		1.58	$	5,901
RSUs vested and expected to vest after June 28, 2014		553		$	8.22		1.46	$	5,029

The Company has unamortized share-based compensation expense related to RSUs of $3.8 million, which will be amortized to expense over a weighted average period of 2.7 years.

2010 EMPLOYEE STOCK PURCHASE PLAN

The Company’s 2010 Employee Stock Purchase Plan (the “Stock Purchase Plan”) allows eligible employees of the Company to purchase shares of Common Stock through payroll deductions. The Company reserved 2.0 million shares of the Company’s Common Stock for issuance under the Stock Purchase Plan, of which 1.6 million remain available at June 28, 2014. The Stock Purchase Plan permits eligible employees to purchase Common Stock at a discount through payroll deductions during six-month purchase periods. The six-month periods come to an end on or about May 1 and November 1 and the purchases are then made. Participants in the Stock Purchase Plan may purchase stock at 85% of the lower of the stock’s fair market value on the first day and last day of the purchase period. The maximum number of shares of Common Stock that any employee may purchase under the Stock Purchase Plan during any offering period is 1,500 shares, and an employee may not accrue more than $15,000 for share purchases in any offering period. During fiscal year 2014, 2013 and 2012, the Company issued 129,000, 125,000 and 109,000 shares of common stock at weighted average prices of $6.02, $5.98 and $6.96, respectively. The weighted average grant date fair value of the fiscal 2014, 2013 and 2012 stock purchase awards were $1.75, $1.65 and $2.22 per share, respectively.

The Company estimates the fair value of stock purchase rights granted under the Company’s Stock Purchase Plan on the date of grant using the Black-Scholes option valuation model. ASC Topic 718, Stock Based Compensation, states that a “lookback” pricing provision with a share limit should be considered a combination of stock and a call option. The valuation results for these elements have been combined to value the specific features of the stock purchase rights. The Company bases volatility on the expected volatility of the Company’s stock during the accrual period. The expected term is determined as the time from enrollment until purchase. The Company uses historical data to determine expected forfeitures and the U.S. Treasury yield for the risk-free interest rate for the expected term.

The following table lists the values of the assumptions the Company used to value share-based compensation in the Stock Purchase Plan:

	Fiscal Year Ended
	June 28, 2014	June 29, 2013	June 30, 2012
Expected life	6 months	6 months	6 months
Risk-free interest rate	0.07%	0.12%	0.10%
Volatility range	26%–34%	35%–37%	43%–64%
Dividend yield	0.00%	0.00%	0.00%

The following table summarizes activity in the Company’s employee stock purchase plan during the fiscal year ended June 28, 2014:

	Shares			Weighted Average Purchase Price
Beginning Available		1,710,525
Purchases		(128,969	)	$	6.02
Ending Available		1,581,556

At June 28, 2014, the Company has $75,000 in unamortized share-based compensation related to its employee stock purchase plan. We estimate this expense will be amortized and recognized in the consolidated statements of operations over the next four months.

REPORTING SHARE-BASED COMPENSATION

The following table shows total share-based compensation expense classified by consolidated statement of operations reporting caption generated from the plans mentioned above:

	Fiscal Year Ended
(in thousands)	June 28, 2014			June 29, 2013			June 30, 2012
Cost of revenues	$	163		$	187		$	211
Research and development		1,096			1,282			1,434
Selling, general and administrative		1,533			1,871			2,091
Pre-tax stock-based compensation expense		2,792			3,340			3,736
Income tax effect		(910	)		(1,101	)		(1,229	)
Net stock-based compensation expense	$	1,882		$	2,239		$	2,507

The amount of share-based compensation expense in inventory at June 28, 2014, June 29, 2013 and June 30, 2012 is immaterial.

Share-based compensation expense categorized by the type of award from which it arose is as follows for fiscal years ended June 28, 2014, June 29, 2013 and June 30, 2012:

	Fiscal Year Ended
(in thousands)	June 28, 2014		June 29, 2013		June 30, 2012
Stock incentive plans	$	2,586	$	3,128	$	3,492
Less income tax effect		910		1,101		1,229
Net stock incentive plan expense		1,676		2,027		2,263
Employee stock purchase plan		206		212		244
Less income tax effect		—		—		—
Net employee stock purchase plan expense		206		212		244
	$	1,882	$	2,239	$	2,507

STOCK REPURCHASE PLAN

On April 26, 2012, the Board of Directors authorized a share repurchase program for up to $25 million of shares of the Company’s common stock, and on April 24, 2014 the Board authorized an additional $20 million for the share repurchase program. The Company was authorized to repurchase the shares from time to time in the open market or private transactions, at the discretion of the Company’s management. During the year ended June 28, 2014, the Company repurchased 1,354,511 shares for an aggregate cost of $11.3 million. During the year ended June 29, 2013, the Company repurchased 1,100,306 shares for an aggregate cost of $7.8 million. During the year ended June 30, 2012, the Company repurchased 1,482,572 shares for an aggregate cost of $11.6 million. As of June 28, 2014, approximately $26.6 million may yet be purchased under the 2012 and 2014 purchase authorities.

Current cash balances and the proceeds from stock option exercises and purchases in the stock purchase plan have funded stock repurchases in the past, and the Company expects to fund future stock repurchases from these same sources.

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Industry and Geographical Segment Information

12 Months Ended

Jun. 28, 2014

Industry and Geographical Segment Information [Abstract]

INDUSTRY AND GEOGRAPHICAL SEGMENT INFORMATION

19. INDUSTRY AND GEOGRAPHICAL SEGMENT INFORMATION

The Company has three operating segments which aggregate into one reportable segment, the interconnectivity device supply market. The Company designs, develops, manufactures and markets high performance integrated circuits and frequency control products. The Chief Executive Officer has been identified as the Chief Operating Decision Maker as defined by ASC No. 280, Disclosures about Segments Reporting (“ASC 280”).

For geographical reporting, the Company attributes net sales to the country where customers are located (the “bill to” location). The Company neither conducts business in, nor sells to persons in, Iran, Syria, Sudan, or Cuba, countries located in the referenced regions that are identified as state sponsors of terrorism by the U.S. Department of State, and are subject to U.S. economic sanctions and export controls. Long-lived assets consist of all non-monetary assets, excluding non-current deferred tax assets, goodwill and intangible assets. The Company attributes long-lived assets to the country where they are located. The following presents net sales for each of the three years ended June 28, 2014; and the net book value of long-lived assets as of June 28, 2014, June 29, 2013 and June 30, 2012 by geographical segment:

	Fiscal Year Ended
(in thousands)	June 28, 2014		June 29, 2013		June 30, 2012
Net sales to countries:
China (including Hong Kong)	$	61,054	$	61,486	$	48,178
Taiwan		39,463		43,144		63,301
United States		5,927		6,517		7,242
Others (less than 10% each)		21,624		18,108		18,414
Total net sales	$	128,068	$	129,255	$	137,135

(in thousands)
Long-lived assets:
China (including Hong Kong)	$	32,234	$	35,180	$	37,761
Taiwan		12,914		14,120		15,005
United States		12,154		10,779		2,304
Korea		1,067		659		650
Others (less than 10% each)		168		221		382
Total long-lived assets	$	58,537	$	60,959	$	56,102

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Business and Significant Accounting Policies (Details Textual) (USD $)	12 Months Ended
	Jun. 28, 2014	Jun. 29, 2013	Jun. 30, 2012
Business And Significant Accounting Policies Textual [Abstract]
Stock rotation privileges, Percentage	10.00%
Business And Significant Accounting Policies Additional Textual [Abstract]
Gross realized gains on available-for-sale-securities	$ 179,000	$ 1,000,000	$ 673,000
Inventory turnover period	365 days
Comparison of delivery periods for inventory, Description	The quantities on hand in each part number category are compared to the quantity that was shipped in the previous twelve months, the quantity in backlog and to the quantity expected to ship in the next twelve months.
Description of an uncertain income tax position recognized	An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained.
Net gains or (losses) from foreign currency translation of assets and liabilities	394,000	1,300,000
Net gains (losses) from foreign currency transaction	(11,000)	562,000	334,000
Period of warranty	1 year
Additional tax payments	$ 208,000
Stock Option [Member]
Business And Significant Accounting Policies Textual [Abstract]
Number of shares excluded from the computation of diluted net earnings per share	1,900,000	2,400,000	2,500,000
Restricted Stock [Member]
Business And Significant Accounting Policies Textual [Abstract]
Number of shares excluded from the computation of diluted net earnings per share	1,138	525,000	504,000
Maximum [Member]
Business And Significant Accounting Policies Textual [Abstract]
Interest in privately held companies	20.00%
Ownership interest	49.00%
Stock rotation privileges, Percentage	10.00%
Period of payments from customers	60 days
Minimum [Member]
Business And Significant Accounting Policies Textual [Abstract]
Ownership interest	20.00%
Stock rotation privileges, Percentage	1.00%
Period of payments from customers	30 days
Building [Member] | Maximum [Member]
Business And Significant Accounting Policies Textual [Abstract]
Estimated useful life	40 years
Building [Member] | Minimum [Member]
Business And Significant Accounting Policies Textual [Abstract]
Estimated useful life	20 years
Property And Equipement [Member] | Maximum [Member]
Business And Significant Accounting Policies Textual [Abstract]
Estimated useful life	3 years
Property And Equipement [Member] | Minimum [Member]
Business And Significant Accounting Policies Textual [Abstract]
Estimated useful life	8 years
Land [Member] | Maximum [Member]
Business And Significant Accounting Policies Textual [Abstract]
Estimated useful life	50 years
Land [Member] | Minimum [Member]
Business And Significant Accounting Policies Textual [Abstract]
Estimated useful life	15 years
Land use right [Member] | Maximum [Member]
Business And Significant Accounting Policies Textual [Abstract]
Estimated useful life	50 years
Land use right [Member] | Minimum [Member]
Business And Significant Accounting Policies Textual [Abstract]
Estimated useful life	15 years

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Income Taxes (Tables)

12 Months Ended

Jun. 28, 2014

Income Tax Disclosure [Abstract]

Income tax expense consists of Federal, state and foreign current and deferred income taxes

	Fiscal Year Ended
(in thousands)	June 28, 2014			June 29, 2013			June 30, 2012
Income (loss) before income taxes
U.S.	$	(1,282	)	$	12,176		$	341
Foreign		5,044			(27,782	)		554
		3,762			(15,606	)		895
Federal:
Current		(1,366	)		5,424			941
Deferred		95			141			(641	)
		(1,271	)		5,565			300
State:
Current		—			7			(522	)
Deferred		(12	)		(172	)		2,768
		(12	)		(165	)		2,246
Foreign:
Current		953			672			551
Deferred		100			151			—
		1,053			823			551
Total current		(413	)		6,103			970
Total deferred		183			120			2,127
Total income tax expense (benefit)	$	(230	)	$	6,223		$	3,097

Reconciliation between Company's effective tax rate and U.S. statutory rate

	Fiscal Year Ended
		June 28, 2014			June 29, 2013			June 30, 2012
Tax provision at federal statutory rate			34.0	%		33.8	%		34.0	%
State income taxes, net of federal benefit			(1.3	)		2.1			(33.4	)
Foreign income and withholding taxes			1.7			(67.9	)		34.1
Benefits from resolution of certain tax audits and expiration of statute of limitations			(21.8	)		0.8			(15.4	)
Intercompany licensing of intellectual property			(27.1	)		(6.5	)		—
Share-based compensation			3.4			(1.1	)		20.5
Research and development tax credits			(2.3	)		—			(2.2	)
Change in valuation allowance			0.5			(1.8	)		307.3
Other			6.8			0.7			1.1
Income tax expense			(6.1	)%		(39.9	)%		346.0	%

Components of net deferred tax assets

	As of the year ended
(in thousands)		June 28, 2014			June 29, 2013
Deferred tax assets:
Credit carryforwards		$	2,778		$	2,798
Accruals and reserves			843			1,311
Cumulative loss on investment			400			884
Depreciation and amortization			(933	)		(975	)
Net operating loss carryforward			1,418			1,424
Share-based compensation			3,013			3,088
Other			781			530
Total			8,300			9,060
Valuation allowance			(5,114	)		(5,064	)
Deferred tax assets		$	3,186		$	3,996
Deferred tax liabilities:
Gain on previously held shares in unconsolidated affiliate		$	(3,793	)	$	(3,768	)
Acquired PTI intangibles and other			(1,667	)		(2,030	)
Deferred tax liabilities		$	(5,460	)	$	(5,798	)

Reconciliation of beginning and ending amount of unrecognized tax benefit

(in thousands)
Balance as of July 2, 2011	$	(755	)
Gross increases — prior period tax positions		(515	)
Gross increases — current period tax positions		(475	)
Reductions as a result of a lapse of statute of limitations		138
Balance as of June 30, 2012	$	(1,607	)
Gross increases — prior period tax positions		(135	)
Gross increases — current period tax positions		(1,423	)
Reductions as a result of a lapse of statute of limitations		132
Balance as of June 29, 2013	$	(3,033	)
Gross increases — prior period tax positions		(411	)
Gross increases — current period tax positions		(194	)
Reductions — prior period tax positions		1,020
Reductions as a result of a lapse of statute of limitations		887
Balance as of June 28, 2014	$	(1,731	)

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Condensed Consolidated Statements of Comprehensive Income (Loss) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Jun. 28, 2014	Jun. 29, 2013	Jun. 30, 2012
Statements Of Comprehensive Income (Loss) [Abstract]
Net income (loss)	$ 4,124	$ (21,614)	$ (2,068)
Other comprehensive income:
Change in unrealized gain (loss) on securities available for sale, net	925	(1,005)	(25)
Foreign currency translation adjustment	394	1,260	635
Tax benefit (provision) related to other comprehensive income	(369)	386	(34)
Other comprehensive income, net of tax	950	641	576
Comprehensive income (loss)	$ 5,074	$ (20,973)	$ (1,492)

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Industry and Geographical Segment Information (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Jun. 28, 2014	Jun. 29, 2013	Jun. 30, 2012
Schedule of net sales and net book value of long-lived assets by geographical segment
Total net sales	$ 128,068	$ 129,255	$ 137,135
Total long-lived assets	58,537	60,959	56,102
China (including Hong Kong) [Member]
Schedule of net sales and net book value of long-lived assets by geographical segment
Total net sales	61,054	61,486	48,178
Total long-lived assets	32,234	35,180	37,761
Taiwan [Member]
Schedule of net sales and net book value of long-lived assets by geographical segment
Total net sales	39,463	43,144	63,301
Total long-lived assets	12,914	14,120	15,005
United States [Member]
Schedule of net sales and net book value of long-lived assets by geographical segment
Total net sales	5,927	6,517	7,242
Total long-lived assets	12,154	10,779	2,304
Korea [Member]
Schedule of net sales and net book value of long-lived assets by geographical segment
Total long-lived assets	1,067	659	650
Others (less than 10% each) [Member]
Schedule of net sales and net book value of long-lived assets by geographical segment
Total net sales	21,624	18,108	18,414
Total long-lived assets	$ 168	$ 221	$ 382

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Inventories

12 Months Ended

Jun. 28, 2014

Inventory [Abstract]

INVENTORIES

3. INVENTORIES

Inventories consist of:

	As of the year ended
(in thousands)	June 28, 2014		June 29, 2013
Finished goods	$	3,991	$	3,847
Work-in-process		2,468		3,869
Raw materials		5,829		7,128
	$	12,288	$	14,844

 

As of June 28, 2014, the Company had reserved for $3.2 million of inventory as compared to $3.1 million at June 29, 2013.

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Investment in Unconsolidated Affiliate (Details Textual) (USD $)	3 Months Ended								12 Months Ended
	Jun. 28, 2014	Mar. 29, 2014	Dec. 28, 2013	Sep. 28, 2013	Jun. 29, 2013	Mar. 30, 2013	Dec. 29, 2012	Sep. 29, 2012	Jun. 28, 2014	Jun. 29, 2013	Jun. 30, 2012
Investment in Unconsolidated Affiliate (Textual)
Noncontrolling Interest, Description									Is more than 20
Percentage of net earnings									50% or less
Amount of consolidated retained earnings of the Company represented by undistributed earnings of 50% or less	$ 3,900,000								$ 3,900,000
Allocated portion of JCP's income, increased	(50,000)	(13,000)	(27,000)	(43,000)	(30,000)	(21,000)	(57,000)	(108,000)	(132,000)	(215,000)	(134,000)
Maximum [Member]
Investment in Unconsolidated Affiliate (Textual)
Equity interest	49.00%								49.00%
Minimum [Member]
Investment in Unconsolidated Affiliate (Textual)
Equity interest	20.00%								20.00%
Jiyuan Crystal Photoelectric Frequency Technology Ltd [Member]
Investment in Unconsolidated Affiliate (Textual)
Equity interest	49.00%								49.00%
JCP declared dividend, decreased									212,000
Allocated portion of JCP's income, increased									$ 132,000

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Income Taxes (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Jun. 28, 2014	Mar. 29, 2014	Dec. 28, 2013	Sep. 28, 2013	Jun. 29, 2013	Mar. 30, 2013	Dec. 29, 2012	Sep. 29, 2012	Jun. 28, 2014	Jun. 29, 2013	Jun. 30, 2012
Income (loss) before income taxes
U.S.									$ (1,282)	$ 12,176	$ 341
Foreign									5,000	(27,782)	554
Income (loss) before income taxes	1,125	1,207	867	562	(16,243)	(307)	(640)	1,584	3,762	(15,606)	895
Federal
Current									(1,366)	5,424	941
Deferred									95	141	(641)
Federal Income Tax Expense (Benefit), Continuing Operations									(1,271)	5,565	300
State
Current										7	(522)
Deferred									(12)	(172)	2,768
State and Local Income Tax Expense (Benefit), Continuing Operations									(12)	(165)	2,246
Foreign
Current									953	672	551
Deferred									100	151
Foreign Income Tax Expense (Benefit), Continuing Operations									1,053	823	551
Total current									(413)	6,103	970
Total deferred									90	(182)	1,753
Total income tax expense (benefit)	$ 291	$ (421)	$ (331)	$ 231	$ 573	$ 395	$ 4,756	$ 500	$ (230)	$ 6,223	$ 3,097

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Equity and Comprehensive Income (Details) (USD $)	12 Months Ended
	Jun. 28, 2014	Jun. 29, 2013
Equity and Comprehensive Income (Textual)
Accumulated other comprehensive income	$ 11,170,000	$ 10,220,000
Accumulated currency translation gains included in accumulated other comprehensive income	11,000,000	10,600,000
Net unrealized gains on available-for-sale investments	300,000	625,000
Tax provision/benefit	$ 168,000	$ 201,000

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Quarterly Financial Data (Unaudited)

12 Months Ended

Jun. 28, 2014

Quarterly Financial Information Disclosure [Abstract]

QUARTERLY FINANCIAL DATA

20. QUARTERLY FINANCIAL DATA (Unaudited)

Following is a summary of quarterly operating results and share data for the years ended June 28, 2014 and June 29, 2013:

PERICOM SEMICONDUCTOR CORPORATION
QUARTERLY FINANCIAL DATA
(in thousands, except per share data)
(Unaudited)

	For the Quarter Ended
	June 28, 2014		March 29, 2014			Dec 28, 2013			Sept 28, 2013
Net revenues	$	32,739	$	30,681		$	32,040		$	32,608
Cost of revenues		19,188		18,175			19,820			19,800
Gross profit		13,551		12,506			12,220			12,808
Operating expenses:
Research and development		4,782		4,694			5,274			5,045
Selling, general and administrative		8,100		7,407			7,126			7,687
Total operating expenses		12,882		12,101			12,400			12,732
Income from operations		669		405			(180	)		76
Interest and other income, net		456		802			1,047			486
Income before income tax expense		1,125		1,207			867			562
Income tax expense (benefit)		291		(421	)		(331	)		231
Net income from consolidated companies		834		1,628			1,198			331
Equity in net income of unconsolidated affiliates		50		13			27			43
Net income	$	884	$	1,641		$	1,225		$	374
Basic income per share	$	0.04	$	0.07		$	0.05		$	0.02
Diluted income per share	$	0.04	$	0.07		$	0.05		$	0.02
Shares used in computing basic income per share		22,123		22,659			22,800			22,794
Shares used in computing diluted income per share		22,338		22,880			23,019			22,951

PERICOM SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

	For the Quarter Ended
	June 29, 2013			March 30, 2013			Dec 29, 2012			Sept 29, 2012
Net revenues	$	31,707		$	30,366		$	30,433		$	36,749
Cost of revenues		19,791			19,521			19,239			22,838
Gross profit		11,916			10,845			11,194			13,911
Operating expenses:
Research and development		5,320			5,277			5,097			5,323
Selling, general and administrative		7,217			7,193			7,532			7,639
Goodwill impairment		16,899			—			—			—
Total operating expenses		29,436			12,470			12,629			12,962
Income (loss) from operations		(17,520	)		(1,625	)		(1,435	)		949
Interest and other income, net		1,277			1,318			795			635
Income (loss) before income tax expense		(16,243	)		(307	)		(640	)		1,584
Income tax expense		573			395			4,756			500
Net income (loss) from consolidated companies		(16,816	)		(702	)		(5,396	)		1,084
Equity in net income of unconsolidated affiliates		30			21			57			108
Net income (loss)	$	(16,786	)	$	(681	)	$	(5,339	)	$	1,192
Basic income (loss) per share	$	(0.74	)	$	(0.03	)	$	(0.23	)	$	0.05
Diluted income (loss) per share	$	(0.74	)	$	(0.03	)	$	(0.23	)	$	0.05
Shares used in computing basic income (loss) per share		22,783			23,162			23,515			23,543
Shares used in computing diluted income (loss) per share		22,783			23,162			23,515			23,740

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Shareholders Equity and Share-Based Compensation (Details 4) (Stock purchase plan [Member])	12 Months Ended
	Jun. 28, 2014	Jun. 29, 2013	Jun. 30, 2012
Assumption used to value stock compensation under stock purchase plan
Expected life	6 years	6 months	6 months
Risk-free interest rate	0.07%	0.12%	0.10%
Volatility range, Minimum	26.00%	35.00%	43.00%
Volatility range, Maximum	34.00%	37.00%	64.00%
Dividend yield	0.00%	0.00%	0.00%

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Commitments and Contingencies (Tables)

12 Months Ended

Jun. 28, 2014

Commitments and Contingencies [Abstract]

Future minimum commitments

	Fiscal Year
(in thousands)		2015		2016		2017 and beyond		Total
Operating lease payments		$	485	$	55	$	—	$	540
Capital equipment purchase commitments			4		—		—		4
Facility modification commitments			12		—		—		12
Total		$	501	$	55	$	—	$	556

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Equity and Comprehensive Income

12 Months Ended

Jun. 28, 2014

Equity and Comprehensive Income [Abstract]

EQUITY AND COMPREHENSIVE INCOME

13. EQUITY AND COMPREHENSIVE INCOME

Comprehensive income (loss) consists of net income (loss), changes in net unrealized gains (losses) on available-for-sale investments and changes in cumulative currency translation adjustments at consolidated subsidiaries.

As of June 28, 2014, accumulated other comprehensive income of $11.2 million consists of $11.0 million of accumulated currency translation gains and $300,000 of net unrealized gains on available-for-sale investments, which was recorded net of a $168,000 tax provision. As of June 29, 2013, accumulated other comprehensive income of $10.2 million consists of $10.6 million of accumulated currency translation gains partially offset by $625,000 of net unrealized losses on available-for-sale investments, which was recorded net of a $201,000 tax benefit.