NOTE 7 – Segment Information and Revenue

Segment Reporting. For financial reporting purposes, we operate in a single segment, standard semiconductor products, through our various manufacturing and distribution facilities. We aggregate our products because the products are similar and have similar economic characteristics, use similar production processes and share the same customer type. Our primary operations include operations in Asia, North America and Europe. During the three and nine months ended September 30, 2018, one customer, a broad-based global distributor that sells to thousands of different end users, accounted for 10.2% and 10.5% or $32.7 million and $94.4 million, respectively, of our revenue. The same customer accounted for 10.3%, or $29.3 million, of our revenue for the three months ended September 30, 2017. No customer accounted for 10% or greater of our outstanding accounts receivable at September 30, 2018 or 2017. No customer accounted for 10% or greater of our revenue for the nine months ended September 30, 2017.

The tables below set forth net sales based on the location of the subsidiary producing the net sale.

Three Months Ended
September 30, 2018	Asia			North America			Europe			Consolidated
Total sales	$	283,635		$	51,640		$	49,209		$	384,484
Intercompany elimination		(40,690	)		(8,773	)		(14,075	)		(63,538	)
Net sales	$	242,945		$	42,867		$	35,134		$	320,946

Three Months Ended
September 30, 2017	Asia			North America			Europe			Consolidated
Total sales	$	263,088		$	31,320		$	47,307		$	341,715
Intercompany elimination		(37,475	)		(4,061	)		(14,932	)		(56,468	)
Net sales	$	225,613		$	27,259		$	32,375		$	285,247


As of and for the Nine Months Ended
September 30, 2018	Asia			North America			Europe			Consolidated
Total sales	$	797,455		$	116,868		$	150,382		$	1,064,705
Intercompany elimination		(106,330	)		(16,276	)		(42,556	)		(165,162	)
Net sales	$	691,125		$	100,592		$	107,826		$	899,543

Property, plant and equipment, net	$	399,632		$	30,133		$	24,321		$	454,086
Total assets	$	1,075,840		$	202,024		$	189,920		$	1,467,784

As of and for the Nine Months Ended
September 30, 2017	Asia			North America			Europe			Consolidated
Total sales	$	731,982		$	122,072		$	134,132		$	988,186
Intercompany elimination		(111,963	)		(44,547	)		(45,902	)		(202,412	)
Net sales	$	620,019		$	77,525		$	88,230		$	785,774

Property, plant and equipment, net	$	372,153		$	52,737		$	21,162		$	446,052
Total assets	$	1,017,801		$	301,763		$	221,025		$	1,540,589

Changes in Accounting Policies. Effective January 1, 2018, we adopted a comprehensive new revenue recognition standard. The details of the significant changes to our accounting policies resulting from the adoption of the new standard are set out below. We adopted the standard using a modified retrospective method. There was no change in our revenue reported for the three and nine months ended September 30, 2017. The adoption of this standard did not have a material impact on our condensed consolidated financial position, reported revenue, results of operations or cash flows as of and for the three or nine months ended September 30, 2018.

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account under ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Generally speaking, our performance obligations represent a promise to transfer various semiconductor products, and have the same pattern of revenue recognition. Our performance obligations are satisfied at either a point in time, or over time as work progresses. The vast majority of our revenue from products and services is accounted for at a point in time. Substantially all of our revenue in direct and Distributor sales is recognized at a point in time. Further, the payment terms on our sales are based on negotiations with our customers.

Customers can order different types of semiconductors in a single contract (purchase order), and each line on a purchase order represents a separate performance obligation. Depending on the terms of an arrangement, we may also be responsible for shipping and handling activities. In accordance with ASC 606-10-25-18B, we have elected to account for shipping and handling as activities to fulfill our promise to transfer the good(s). As such, shipping and handling activities do not represent a separate performance obligation, and are accrued as a fulfillment cost. Further, although we offer warranties on our products, our warranties are considered to be assurance-type in nature and do not cover anything beyond ensuring that the product is functioning as intended. Based on the guidance in ASC 606, assurance-type warranties do not represent separate performance obligations; therefore, the primary performance obligation in the majority of our contracts is the delivery of a specific good through the purchase order submitted by our customer.

We record allowances/reserves for a number of items. The following items are the largest dollar items for which we record allowances/reserves with ship and debit making up the vast majority: (i) ship and debit, which arise when we issue credit to certain distributors upon their shipments to their end customers; (ii) stock rotation, which are contractual obligations that permit certain distributors, up to four times a year, to return a portion of their inventory based on historical shipments to them in exchange for an equal and offsetting order; and (iii) price protection, which arise when market conditions cause average selling prices to decrease and we issue credit to certain distributors on their inventory. Ship and debit reserves are recorded as a reduction to net sales with a corresponding reduction to accounts receivable. Stock rotation reserves and price protection reserves are recorded as a reduction to net sales with a corresponding increase in accrued liabilities.

We also assess our customer’s ability and intention to pay, which is based on a variety of factors including our customer’s historical payment experience, their financial condition and the condition of the global economy and financial markets. Payment terms and conditions typically vary depending on negotiations with the customer.

Disaggregation of Revenue. We disaggregate revenue from contracts with customers into direct sales and distribution sales (“Distributors”) and by geographic area. Direct sales customers consist of those customers using our product in their manufacturing process, and Distributors are those customers who resell our products to third parties. We sell our products to customers in multiple areas of the world including Asia, Europe, and North America. Across these regions, we sell products to end users in a variety of markets such as consumer electronics, computing, communications, industrial and automotive. Further, most of our contracts are fixed-price arrangements, and are short term in nature, ranging from days to several months.

The tables below set forth the amount of net sales by type, direct sales or Distributor and the location of the customer based on the location to where the products were shipped for the three and nine months ended September 30, 2018 and 2017:

	Net Sales for the Three Months Ended September 30,
	Direct Sales		Distributor
	2018	2017	2018	2017
China	$60,037	$54,052	$113,191	$103,183
U.S.	4,409	4,688	30,550	20,698
Korea	4,597	5,134	13,250	12,287
Germany	3,076	3,078	20,912	18,678
Singapore	637	461	16,979	17,440
Taiwan	621	578	17,675	14,749
All others ⁽¹⁾	20,574	17,413	14,438	12,808
Total	$93,951	$85,404	$226,995	$199,843

	Percent of Net Sales by Type for the Three Months Ended September 30,
	Direct Sales		Distributor
	2018	2017	2018	2017
China	64%	63%	50%	52%
U.S.	5%	5%	13%	10%
Korea	5%	6%	6%	6%
Germany	3%	4%	9%	9%
Singapore	1%	1%	7%	9%
Taiwan	1%	1%	8%	7%
All others ⁽¹⁾	21%	20%	7%	7%
Total	100%	100%	100%	100%

	Total Net Sales for the Three Months Ended September 30,
	Dollar		Percent of Net Sales
	2018	2017	2018	2017
China	$173,228	$157,235	54%	55%
U.S.	34,959	25,386	11%	9%
Korea	17,847	17,421	6%	6%
Germany	23,988	21,756	7%	8%
Singapore	17,616	17,901	5%	6%
Taiwan	18,296	15,327	6%	5%
All others ⁽¹⁾	35,012	30,221	11%	11%
Total	$320,946	$285,247	100%	100%

	Net Sales for the Nine Months Ended September 30,
	Direct Sales		Distributor
	2018	2017	2018	2017
China	$164,109	$162,241	$323,875	$270,904
U.S.	12,866	13,149	78,081	57,212
Korea	12,148	14,092	32,163	36,693
Germany	9,001	8,248	63,343	49,962
Singapore	1,549	635	52,380	43,205
Taiwan	2,399	5,132	52,696	44,453
All others ⁽¹⁾	52,558	47,940	42,375	31,908
Total	$254,630	$251,437	$644,913	$534,337

	Percent of Net Sales by Type for the Nine Months Ended September 30,
	Direct Sales		Distributor
	2018	2017	2018	2017
China	64%	65%	50%	51%
U.S.	5%	5%	12%	11%
Korea	5%	6%	5%	7%
Germany	4%	3%	10%	9%
Singapore	1%	-	8%	8%
Taiwan	1%	2%	8%	8%
All others ⁽¹⁾	20%	19%	7%	6%
Total	100%	100%	100%	100%

	Total Net Sales for the Nine Months Ended September 30,
	Dollar		Percent of Net Sales
	2018	2017	2018	2017
China	$487,984	$433,145	54%	55%
U.S.	90,947	70,361	10%	9%
Korea	44,311	50,785	5%	6%
Germany	72,344	58,210	8%	7%
Singapore	53,929	43,840	6%	6%
Taiwan	55,095	49,585	6%	6%
All others ⁽¹⁾	94,933	79,848	11%	11%
Total	$899,543	$785,774	100%	100%

(1)	Represents countries with less than 3% of the total net sales each.

Contract Balances. The timing of revenue recognition, billings, and cash collections can result in billed accounts receivable, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities) on the condensed consolidated balance sheets. However, billing generally occurs at or near the same time as revenue recognition, resulting in limited activity related to contract assets and liabilities. Contract asset and liability balances for the periods ended September 30, 2018, and December 31, 2017 were immaterial to our condensed consolidated financial statements.

Other Practical Expedients Elected. The Company decided to make use of the following practical expedients available under ASC 606:

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Sales tax excluded from the transaction price - The FASB decided to provide in ASU 2016-12 a practical expedient that permits entities to exclude from the transaction price all sales taxes that are assessed by a governmental authority and that are imposed on and concurrent with a specific revenue-producing transaction and collected by the entity from a customer (for example, sales, use, value added, and some excise taxes);

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Incremental contract costs - Expense the incremental costs of obtaining a contract, when incurred and the amortization period of the asset that the entity otherwise would have recognized is one year or less; and

•

Portfolio approach - This guidance specifies the accounting for an individual contract with a customer. However, as a practical expedient, an entity may apply this guidance to a portfolio of contracts (or performance obligations) with similar characteristics if the entity reasonably expects that the effects on the financial statements of applying this guidance to the portfolio would not differ materially from applying this guidance to the individual contracts (or performance obligations) within that portfolio.