Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of IXYS Corporation and our wholly-owned subsidiaries after elimination of all intercompany balances and transactions.

Foreign Currency Translation and Transaction

The local currency is considered to be the functional currency of some of our wholly-owned international subsidiaries. Among them, IXYS Semiconductor GmbH, or IXYS GmbH, utilizes the Euro as its functional currency, while IXYS UK Westcode Limited, or IXYS UK, utilizes the British pound sterling as its functional currency. For such subsidiaries, the assets and liabilities are translated at the exchange rate in effect at year-end and the revenues and expenses are translated at average rates during the year. Adjustments resulting from the translation of these accounts of these subsidiaries into U.S. dollars are included in accumulated other comprehensive income (loss), a separate component of stockholders’ equity. Foreign currency transaction gains and losses are included as a component of other income or expense. The functional currency is U.S. dollars for our other significant subsidiaries.

Use of Estimates

The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from our estimates. Areas where management uses subjective judgments include, but are

not

limited to, revenue reserves, inventory valuation, deferred income taxes and related valuation allowances, allocation of purchase price in business combinations, valuation of goodwill and identifiable intangible assets and asset impairment analysis.

Revenue Recognition

Revenue is recognized when there is persuasive evidence that an arrangement exists, when delivery has occurred, when the price to the buyer is fixed or determinable and when collectability of the receivable is reasonably assured. These elements are typically met when title to the products is passed to the buyer, which is generally when product is shipped to the customer with sales terms ex-works, or when product is delivered to the customer with sales terms delivered duty paid.

We sell to distributors and original equipment manufacturers. Revenues from distributors were approximately

58.7%,

56.7%

and

55.6%

in fiscal

2017,

2016

and

2015,

respectively. Accounts receivable from distributors are recognized and inventory is relieved when title to inventories transfers, typically upon shipment from us, at which point we have a legally enforceable right to collection under normal payment terms.

We provide some of our distributors with the following programs: stock rotation and ship and debit. Reserves for sales returns and allowances, including allowances for

“ship and debit” transactions, are recorded at the time of shipment, and are based on historical levels of returns,

current economic trends and changes in customer demand.

We state our revenues net of any taxes collected from customers that are required to be remitted to various government agencies. The amount of taxes collected from customers and payable to governmental entities is included on the balance sheet as part of “Accrued expenses and other current liabilities.”

Allowance for sales returns.

We maintain an allowance for sales returns based on estimated product returns by our customers. We estimate our allowance for sales returns based on our historical return experience, known returns we have

not

received, current economic trends, changes in customer demand, and other assumptions. If we were to make different judgments or utilize different estimates, the amount and timing of our revenues could be materially different. Given that our revenues consist of a high volume of relatively similar products, to date our actual returns and allowances have

not

fluctuated significantly from period to period and our returns provisions have historically been reasonably accurate. This allowance is included as part of “Accounts receivable, net” on the balance sheet and as a reduction of revenues in the statement of operations.

Allowance for stock rotation.

We also provide “stock rotation” to select distributors. The rotation allows distributors to return a percentage of the previous

six

months’ sales in exchange for orders of an equal or greater amount. In the fiscal years ended

March

31,

2017,

2016

and

2015,

approximately

$1,459,000,

$1,494,000

and

$1,741,000,

respectively, of products were returned to us under the program. We establish the allowance for sales to distributors.

The allowance, which is management’s best estimate of future returns, is based upon the historical experience of returns and inventory levels at the distributors. This allowance is included as part of “Accounts receivable, net” on the balance sheet and as a reduction of revenues in the statement of operations. Should distributors increase stock rotations beyond our estimates, these statements would be adversely affected.

Allowance for ship and debit.

Ship and debit is a program designed to assist distributors in meeting competitive prices in the marketplace on sales to their end-customers. Ship and debit requires a request from the distributor for a pricing adjustment for a specific part for a customer sale to be shipped from the distributor’s stock. We have

obligation to accept this request. However, it is our historical practice to allow some distributors to obtain pricing adjustments for inventory held. We receive periodic statements regarding our products held by our distributors. Ship and debit authorizations

may

cover current and future distributor activity for a specific part for sale to a distributor’s customer. At the time we record sales to distributors, we provide an allowance for the estimated future distributor activity related to such sales since it is probable that such sales to distributors will result in ship and debit activity. The sales allowance requirement is based on sales during the period, credits issued to distributors, distributor inventory levels, historical trends, market conditions, pricing trends we see in our direct sales activity with original equipment manufacturers and other customers, and input from sales, marketing and other key management. We believe that the analysis of these inputs enables us to make reliable estimates of future credits under the ship and debit program. This analysis requires the exercise of significant judgments. Our actual results to date have approximated our estimates. At the time the distributor ships the part from stock, the distributor debits us for the authorized pricing adjustment. This allowance is included as part of “Accounts receivable, net” on the balance sheet and as a reduction of revenues in the statement of operations. If competitive pricing were to decrease sharply and unexpectedly, our estimates might be insufficient, which could significantly adversely affect our operating results.

Additions to the ship and debit allowance are estimates of the amount of expected future ship and debit activity related to sales during the period. Additions to the allowance reduce revenues and gross profit in the period. The following table sets forth the beginning and ending balances of, additions to, and deductions from, our allowance for ship and debit during the

three

years ended

March 31, 2017 (

in thousands):

Balance March 31, 2014	$	1,071
Additions		5,765
Deductions		(5,777	)
Balance March 31, 2015		1,059
Additions		4,479
Deductions		(4,672	)
Balance March 31, 2016		866
Additions		7,363
Deductions		(6,680	)
Balance March 31, 2017	$	1,549

Trade accounts receivable and allowance for doubtful accounts.

Trade accounts receivable are recorded at the invoiced amount and do

not

bear interest. The allowance for doubtful accounts is our best estimate of the amount of probable credit losses in the existing accounts receivable. We determine the allowance based on the aging of our accounts receivable, the financial condition of our customers and their payment history, our historical write-off experience and other assumptions. Past due balances and other specified accounts as necessary are reviewed individually. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances

may

be required. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Actual write-offs

may

be in excess of the recorded allowance. This allowance is reported on the balance sheet as part of “Accounts receivable, net” and is included on the statement of operations as part of selling, general and administrative expenses, or SG&A expenses.

Cash and Cash Equivalents

We consider all highly liquid investments with original maturities of

three

months or less at the time of purchase to be cash equivalents. Cash equivalents include investments in commercial paper and money market accounts at banks.

Restricted Cash

Restricted cash balances at

March 31, 2017

and

March 31, 2016

were

$1.3

million and

$277,000,

respectively. At both dates, restricted cash balances included funds segregated for pension payments in Germany. Restricted cash as of

March 31, 2017

also included a security deposit of

€1.0

million, or approximately

$1.1

million, made in relation to a loan with IKB Deutsche Industriebank, or IKB, during fiscal

2017.

The security deposit will mature on

December

29,

2017

so long as compliance occurs through that date.

Inventories

Inventories are recorded at the lower of standard cost, which approximates actual cost on a

first

-in-

first

-out basis, or market value. Our accounting for inventory costing is based on the applicable expenditure incurred, directly or indirectly, in bringing the inventory to its existing condition. Such expenditures include acquisition costs, production costs and other costs incurred to bring the inventory to its use. As it is impractical to track inventory from the time of purchase to the time of sale for the purpose of specifically identifying inventory cost, our inventory is, therefore, valued based on a standard cost, given that the materials purchased are identical and interchangeable at various production processes. We review our standard costs on an as-needed basis but in any event at least once a year, and update them as appropriate to approximate actual costs. The authoritative guidance provided by Financial Accounting Standards Board, or FASB

, requires certain abnormal expenditures to be recognized as expenses in the current period instead of capitalized in inventory. It also requires that the amount of fixed production overhead allocated to inventory be based on the normal capacity of the production facilities.

We typically plan our production and inventory levels based on internal forecasts of customer demand, which are highly unpredictable and can fluctuate substantially. The value of our inventories is dependent on our estimate of future demand as it relates to historical sales. If our projected demand is overestimated, we

may

be required to reduce the valuation of our inventories below cost. We regularly review inventory quantities on hand and record an estimated provision for excess inventory based primarily on our historical sales and expectations for future use. We also recognize a reserve based on known technological obsolescence, when appropriate. Actual demand and market conditions

may

be different from those projected by our management. This could have a material effect on our operating results and financial position. If we were to make different judgments or utilize different estimates, the amount and timing of our write-down of inventories could be materially different.

Excess inventory frequently remains saleable. When excess inventory is sold, it yields a gross profit margin of up to

100%.

Sales of excess inventory have the effect of increasing the gross profit margin beyond that which would otherwise occur, because of previous write-downs. Once we have written down inventory below cost, we do

not

write it up when it is subsequently utilized, sold or scrapped. We do

not

physically segregate excess inventory nor do we assign unique tracking numbers to it in our accounting systems. Consequently, we cannot isolate the sales prices of excess inventory from the sales prices of non-excess inventory. Therefore, we are unable to report the amount of gross profit resulting from the sale of excess inventory or quantify the favorable impact of such gross profit on our gross profit margin.

The following table provides information on our excess and obsolete inventory reserve charged against inventory at cost (in thousands):

Balance at March 31, 2014	$	24,304
Utilization or sale		(1,637	)
Scrap		(2,901	)
Additional provision		4,487
Foreign currency translation adjustments		(1,500	)
Balance at March 31, 2015		22,753
Utilization or sale		(2,455	)
Scrap		(3,217	)
Additional provision		4,125
Foreign currency translation adjustments		174
Balance at March 31, 2016		21,380
Utilization or sale		(3,813	)
Scrap		(3,682	)
Additional provision		5,838
Foreign currency translation adjustments		(425	)
Balance at March 31, 2017	$	19,298

The practical efficiencies of wafer fabrication require the manufacture of semiconductor wafers in minimum lot sizes. Often, when manufactured, we do

not

know whether or when all the semiconductors resulting from a lot of wafers will sell. With more than

10,000

different part numbers for semiconductors, excess inventory resulting from the manufacture of some of those semiconductors will be continual and ordinary. Because the cost of storage is minimal when compared to the potential value and because our products do

not

quickly become obsolete, we expect to hold excess inventory for potential future sale for years. Consequently, we have

set time line for the utilization, sale or scrapping of excess inventory.

In addition, our inventory is also being written down to the lower of cost or market. We review our inventory listing on a quarterly basis for an indication of losses being sustained for costs that exceed selling prices less direct costs to sell. When it is evident that our selling price is lower than current cost, inventory is marked down accordingly. At

March 31, 2017

and

2016,

our lower of cost or market reserves were

$384,000

and

$409,000,

respectively.

Furthermore, we perform an annual inventory count or periodic cycle counts for specific parts that have a high turnover. We also periodically identify any inventory that is

longer usable and write it off.

Property, Plant and Equipment

Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over estimated useful lives of

years for equipment and

years to

years for property and plant. Upon disposal, the assets and related accumulated depreciation are removed from our accounts and the resulting gains or losses are reflected in the statements of operations. Repairs and maintenance costs are charged to expense. Depreciation of leasehold improvements is provided on the straight-line method over the shorter of the estimated useful life or the term of the lease.

The authoritative guidance provided by FASB requires evaluating the recoverability of the carrying amount of our property, plant and equipment, net whenever events or changes in circumstances indicate that the carrying amount of an asset

may

not

be fully recoverable. Impairment is assessed when the forecasted undiscounted cash flows derived for the operation to which the assets relate are less than the carrying amount including associated intangible assets of the operation. If the operation is determined to be unable to recover the carrying amount of its assets, then impairment loss is recognized by reducing the carrying amount of the long-lived asset group on a pro-rata basis using the relative carrying amounts of those assets. Fair value is determined based on discounted cash flows or appraised values, depending on the nature of the assets. Judgment is used when applying these impairment rules to determine the timing of the impairment test, the undiscounted expected cash flows used to assess impairments and the fair value of an impaired asset. The dynamic economic environment in which we operate and the resulting assumptions used to estimate future cash flows affect the outcome of these impairment tests.

Our facility in Lampertheim, Germany serves as collateral for our borrowings from IKB. See Note

“Borrowing Arrangements” for more details.

Treasury Stock

We account for treasury stock using the cost method. Costs include fees charged in connection with acquiring treasury stock.

Other Assets

Other assets include marketable equity securities classified as available-for-sale

, long term equity investments accounted for under the equity method and investments accounted for under the cost method. Investments designated as available-for-sale are reported at fair value with the unrealized gains and losses, net of tax, recorded in other comprehensive income (loss). Realized gains and losses (calculated as proceeds less specifically identified costs) and declines in value of these investments judged by management to be other than temporary, if any, are included in other income (expense), net.

We have a

45%

equity interest in Powersem GmbH, or Powersem, a semiconductor manufacturer based in Germany, and an approximately

20%

equity interest in EB Tech Ltd., or EB Tech, a radiation services provider based in South Korea. In fiscal

2015,

we acquired approximately a

24%

equity interest in Automated Technology, Inc., or ATEC, an assembly and test services provider in the Philippines. These investments are accounted for using the equity method. In fiscal

2017,

we recognized income of

$809,000

on these investments. In fiscal

2016

and

2015,

we recognized losses of

$120,000

and

$7,000

on these investments, respectively.

Investments which do

not

have readily determinable fair values and are

not

required to be accounted for under the equity method are accounted for using the cost method. As of

March 31, 2017,

we have

$3.1

million of cost method investments. We did

not

hold any cost method investments as of

March 31, 2016.

Investments accounted for using the equity method and cost method are subject to a review for impairment if, and when, events and circumstances indicate that the fair value of our investment would be less than the carrying value.

Refer to Note

“Other Assets” and Note

13,

“Related Party Transactions” for further information regarding the investment balances and the related transactions of those long term investments.

Goodwill and Intangible Assets

Goodwill represents the excess of the purchase price over the estimated fair value of the net assets acquired. The costs of acquired intangible assets are recorded at fair value at acquisition. Intangible assets with finite lives are amortized using the straight-line method or accelerated method over their estimated useful lives and evaluated for impairment in accordance with the authoritative guidance provided by FASB.

Goodwill and intangible assets with indefinite lives are reviewed at least annually for impairment charges during the quarter ending

March 31,

or more frequently if events and circumstances indicate that the asset might be impaired, in accordance with the authoritative guidance provided by FASB. We

first

assess qualitative factors to determine whether it is necessary to perform the

two

-step fair value-based impairment test described below. If we believe that, as a result of

the qualitative assessment, it is more likely than

not

that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. Otherwise,

further testing is required.

Under the quantitative approach effective prior to

January 2017,

there were

two

steps in the determination of the impairment of goodwill. The

first

step compared the carrying amount of the net assets to the fair value of the reporting unit. The

second

step, if necessary, recognized an impairment loss to the extent the carrying value of the reporting unit’s net assets exceeds the implied fair value of goodwill. An impairment loss was recognized to the extent that the carrying amount of goodwill exceeds its implied fair value. In

January 2017,

FASB issued amended guidance which eliminated the

second

step in goodwill impairment testing. Under the new guidance, goodwill impairment is measured as the amount by which a reporting unit’s carrying value exceeds its fair value,

not

to exceed the carrying value of goodwill. The new guidance

longer requires us to determine goodwill impairment by calculating the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. We adopted the new guidance on a prospective basis commencing with the quarter ended

March 31, 2017.

We operate our business as

one

reporting unit.

We assess the recoverability of the finite-lived intangible assets by examining the occurrences of certain events or changes of circumstances that indicate that the carrying amounts

may

not

be recoverable. After our initial assessment, if it is necessary, we perform the impairment test by determining whether

the estimated undiscounted cash flows attributable to the assets in question are less than their carrying values. Impairment losses, if any, are measured as the amount by which the carrying values of the assets exceed their fair value and are recognized in operating results. If a useful life is determined to be shorter than originally estimated, we accelerate the rate of amortization and amortize the remaining carrying value over the new shorter useful life.

During the quarter ended

December 31, 2016,

based on our assessment, the intangible assets resulting from the RadioPulse acquisition were determined to be fully impaired and an impairment charge of

$1.4

million was recognized. See Note

“Goodwill and Intangible Assets” for further discussion of impairment analysis of goodwill and intangible assets and related charges recorded.

Defined Benefit Plans

We maintain pension plans covering certain of our employees. For financial reporting purposes, net periodic pension costs are calculated based upon a number of actuarial assumptions, including a discount rate for plan obligations, assumed rate of return on pension plan assets and assumed rate of compensation increases for plan employees. All of these assumptions are based upon management’s judgment, considering all known trends and uncertainties. Actual results that differ from these assumptions would impact the future expense recognition and cash funding requirements of our pension plans. The authoritative guidance provided by FASB requires us to recognize the funded status of our defined benefit pension and post-retirement benefit plans in our consolidated balance sheets, with a corresponding adjustment to accumulated other comprehensive income (loss), net of tax. See Note

“Pension Plans” for further information.

Fair Value of Financial Instruments

The assessment of fair value for our financial instruments is based on the authoritative guidance provided by FASB in connection with fair value measurements. It defines fair value, establishes a framework for measuring fair value and expands disclosure of fair value measurements.

Carrying amounts of some of our financial instruments, including cash and cash equivalents, accounts receivable and accounts payable, approximate fair value due to their short maturities. Based on borrowing rates currently available to us for loans with similar terms, the carrying value of notes payable to banks and loans payable approximate fair value and represent level

valuations.

Advertising Expense

We expense advertising as the costs are incurred. Advertising expense for the years ended

March 31, 2017,

2016

and

2015

was

$411,000,

$433,000

and

$437,000,

respectively. Advertising expense is included in “Selling, general and administrative expenses” on our consolidated statements of operations.

Research and Development Expense

Research and development costs are charged to operations as incurred.

Income Taxes

Our provision for income taxes is comprised of our current tax liability and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is required to reduce the deferred tax assets to the amount that management estimates is more likely than

not

to be realized. In determining the amount of the valuation allowance, we consider income over recent years, estimated future taxable income, feasible tax planning strategies and other factors, in each taxing jurisdiction in which we operate. If we determine that it is more likely than

not

that we will

not

realize all or a portion of our remaining deferred tax assets, we will increase our valuation allowance with a charge to income tax expense. Conversely, if we determine that it is more likely than

not

that we will ultimately be able to utilize all or a portion of the deferred tax assets for which a valuation allowance has been provided, the related portion of the valuation allowance will be released, which will have the effect of reducing income tax expense. Significant management judgment is required in determining the provision for income taxes, the deferred tax assets and liabilities and any valuation allowance recorded against net deferred tax assets. In the event that actual results differ from these estimates or we adjust these estimates in future periods, we

may

need to establish or increase an additional valuation allowance that could materially impact our financial position and results of operations. Our ability to utilize our deferred tax assets and the continuing need for related valuation allowances are monitored on an ongoing basis. See Note

16,

“Income Taxes” for further discussion regarding income taxes.

Other Income (Expense)

Other income and expense primarily consists of gains and losses on foreign currency transactions and interest income and expense, together with our share of income or loss from investments accounted for on the equity method and other than temporary impairment charges on available-for-sale securities.

Indemnification

Product guarantees and warranties have

not

historically proved to be material. On occasion, we provide limited indemnification to customers against intellectual property infringement claims related to our products. To date, we have

not

experienced significant activity or claims related to such indemnifications. We also provide in the normal course of business indemnification to our officers, directors and selected parties. We are unable to estimate the potential future liability, if any. Therefore,

liability for these indemnification agreements has been recorded as of

March 31, 2017

and

2016.

Legal Contingencies

We are subject to various legal proceedings and claims, the outcomes of which are subject to significant uncertainty. The authoritative guidance provided by FASB requires that an estimated loss from a loss contingency should be accrued by a charge to income if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. Disclosure of a contingency is required if there is at least a reasonable possibility that a material loss has been incurred. We evaluate, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. Changes in these factors could materially impact our financial position, results of operations or cash flows.

Net Income (Loss) per Share

Basic net income (loss) available per common share is computed using net income (loss) and the weighted average number of common shares outstanding during the period. Diluted net income (loss) per common share is computed using net income (loss) and the weighted average number of common shares outstanding, assuming dilution, which includes potentially dilutive common shares outstanding during the period. Potentially dilutive common shares include the assumed exercise of stock options and assumed vesting of restricted stock units using the treasury stock method. See Note

12,

“Computation of Earnings per Share.”

Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) represents foreign currency translation adjustments, unrealized gain or loss on equity investments classified as “available-for-sale” and minimum pension liability, net of tax. See Note

11,

“Accumulated Other Comprehensive Income (Loss).”

Concentration and Business Risks

Dependence on Third Parties for Wafer Fabrication and Assembly

Measured in dollars, in fiscal

2017

we manufactured approximately

52.6%

of our wafers, an integral component of our products, in our facilities in Germany, the UK, Massachusetts and California. We relied on

third

party suppliers to provide the remaining

47.4%.

There can be

assurance that material disruptions in supply will

not

occur in the future. In such event, we

may

have to identify and secure additional foundry capacity and

may

be unable to identify or secure sufficient foundry capacity to meet demand. Even if such capacity is available from another manufacturer, the qualification process could take

six

months or longer. If we were unable to qualify alternative manufacturing sources for existing or new products in a timely manner or if such sources were unable to produce semiconductor devices with acceptable manufacturing yields and at acceptable prices, our business, financial condition and results of operations would be materially and adversely affected.

Dependence on Suppliers

We purchase silicon substrates from a limited number of vendors, most of whom we do

not

have long term supply agreements with. Any of these suppliers could terminate their relationship with us at any time. Our reliance on a limited number of suppliers involves several risks, including potential inability to obtain an adequate supply of silicon substrates and reduced control over the price, timely delivery, reliability and quality of the silicon substrates. There can be

assurance that problems will

not

occur in the future with suppliers.

Employees Covered by Collective Bargaining Arrangements

Approximately

56.3%

and

94.9%

of our employees in the UK and Germany, respectively, are covered by collective bargaining arrangements.

Concentration of Credit Risk

Financial instruments that potentially subject us to credit risk comprise principally cash and cash equivalents and trade accounts receivable. We invest our excess cash in accordance with our investment policy that has been approved by the Board of Directors and is reviewed periodically by management to minimize credit risk. Regarding cash and cash equivalents, the policy authorizes the investment of excess cash in deposit accounts, certificates of deposit, bankers’ acceptances, commercial paper rated AA or better and other money market accounts and instruments of similar liquidity and credit quality.

We invest our excess cash primarily in foreign and domestic banks in short term time deposit and money market accounts. Maturities are generally

three

months or less. Our non-interest bearing domestic cash balances exceed federally insured limits. Additionally, we

may

invest in commercial paper with financial institutions that management believes to be creditworthy. These securities mature within

ninety

days or less and bear minimal credit risk. We have

not

experienced any losses on such investments.

We sell our products primarily to distributors and original equipment manufacturers. We perform ongoing credit evaluations of our customers and generally do

not

require collateral. An allowance for potential credit losses is maintained by us.

See Note

15,

“Segment and Geographic Information” for information related to customers that owe us more than

10%

of our total accounts receivable.

We continually monitor the credit risk in our portfolio and mitigate our credit risk exposures in accordance with the policies approved by our Board of Directors.

Stock-Based Compensation Plans

We have employee equity incentive plans and an employee stock purchase plan, which are described more fully in Note

10,

“Employee Equity Incentive Plans.” The authoritative guidance provided by FASB requires employee stock options and rights to purchase shares under stock participation plans to be accounted for under the fair value method and requires the use of an option pricing model for estimating fair value. Accordingly, share-based compensation is measured at grant date, based on the fair value of the award and shares expected to vest. We use the straight-line attribution method to recognize share-based compensation costs over the service period of the award.

Recent Accounting Pronouncements and Accounting Changes

May 2014,

FASB issued a new standard on the recognition of revenue from contracts with customers, which includes a single set of rules and criteria for revenue recognition to be used across all industries. The revenue standard’s core principle is built on the contract between a vendor and a customer for the provision of goods and services. It attempts to depict the exchange of rights and obligations between the parties in the pattern of revenue recognition based on the consideration to which the vendor is entitled. To accomplish this objective, the standard requires

five

basic steps: identify the contract with the customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract and recognize revenue when or as the entity satisfies a performance obligation. For public companies, this standard is effective for annual reporting periods beginning after

December 15, 2017,

including interim periods during the annual period. Early adoption is permitted for annual periods commencing after

December 15, 2016.

Two different transition methods are available: full retrospective method and a modified retrospective approach.

We do

not

plan to adopt this guidance early. We are currently evaluating the potential impact of this standard on our financial position and results of operations, as well as our selected transition method. Based on our preliminary assessment, we believe the new standard will

not

have a material impact on our financial position and results of operations, as our revenue is primarily generated from the sale of finished products to customers.

Sales predominantly contain a single delivery element and revenue is recognized at a single point in time when ownership, risks, and rewards transfer. We do

not

expect to change the manner or timing of recognizing revenue on a majority of our revenue transactions.

July 2015,

FASB issued an amendment to modify the inventory measurement guidance in Topic

330,

Inventory

, for inventory that is measured using the methods other than last-in,

first

-out, or LIFO, and the retail inventory method. It requires that an entity measure inventory within the scope of this update at the lower of cost and net realizable value. It eliminated the guidance in Topic

330

that required a reporting entity measuring inventory at the lower of cost or market to consider the replacement cost of inventory and the net realizable value of inventory less an approximately normal profit margin along with net realizable value in determining the market value. The guidance will be effective for annual reporting periods beginning after

December 15, 2016,

and interim periods during the annual period. The new standard is required to be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. We do

not

expect this change to have a significant impact on our consolidated financial statements.

January 2016,

FASB issued authoritative guidance that modifies how entities measure equity investments and present changes in the fair value of financial liabilities. Under the new guidance, entities will have to measure equity investments that do

not

result in consolidation and are

not

accounted for under the equity method at fair value and recognize any changes in fair value in net income unless the investments qualify for the new practicality exception. A practicality exception will apply to those equity investments that do

not

have a readily determinable fair value and do

not

qualify for the practical expedient to estimate fair value under Accounting Standards Codification,

Fair Value Measurements

, or ASC

820,

and as such these investments

may

be measured at cost. This guidance is effective for financial statements issued for fiscal years beginning after

December 15, 2017,

and interim periods within those fiscal years. We are currently evaluating the impact of this standard on our consolidated financial statements.

February 2016,

FASB issued amended guidance for lease arrangements, which requires lessees to recognize the following for all leases with terms longer than

months: a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, or ROU asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. The amendment is effective for financial statements issued for fiscal years beginning after

December 15, 2018,

and interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact of this amended guidance on our consolidated financial statements.

March 2016,

FASB issued amended guidance which simplifies several aspects of the accounting for employee share-based payment awards, including forfeitures, employer tax withholding on share-based compensation and excess tax benefits or deficiencies. The amended guidance also clarifies the statement of cash flows presentation for share-based awards. The guidance is effective for financial statements issued for fiscal years beginning after

December 15, 2016,

and interim periods within those fiscal years. Early adoption is permitted in any interim or annual period for which financial statements have

not

yet been issued or have

not

been made available for issuance. We are currently evaluating the impact of this amended guidance on our consolidated financial statements.

August 2016,

FASB issued amended guidance that provides clarification on cash flow classification related to

eight

specific issues, including debt prepayment or debt extinguishment costs, contingent consideration payments made after a business combination, distributions received from equity method investees and proceeds from the settlement of insurance claims. The guidance will be effective for fiscal years beginning after

December 15, 2017,

including interim reporting periods within those fiscal years. Early adoption is permitted. The amended guidance should be applied retrospectively to all periods presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. We do

not

expect this change to have a significant impact on our consolidated financial statements.

October 2016,

FASB issued amended guidance which requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. This eliminates the current exception for all intra-entity transfers of an asset other than inventory that requires deferral of the tax effects until the asset is sold to a

third

party or otherwise recovered through use. The guidance will be effective for fiscal years beginning after

December 15, 2017,

including interim reporting periods within those annual reporting periods. Early adoption is permitted in the

first

interim period only. The amendments should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. We are in the process of evaluating the impacts of the adoption of this amendment.

November 2016,

FASB issued amended guidance which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and restricted cash. Therefore, restricted cash should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The guidance is effective for fiscal years beginning after

December 15, 2017,

and interim periods within those fiscal years, and is to be applied on a retrospective basis. Early adoption is permitted. We have adopted the guidance on a retrospective basis from the quarter ended

December 31, 2016.

Based on the guidance, the beginning and ending balance of cash and cash equivalents for the respective periods in our audited condensed consolidated statements of cash flow included restricted cash.

January 2017,

FASB issued amended guidance which narrows the existing definition of a business and provides a framework for evaluating whether a transaction should be accounted for as an acquisition (or disposal) of assets or a business. The definition of a business affects areas of accounting such as acquisitions, disposals and goodwill. The revised definition of a business under this guidance is expected to reduce the number of transactions that are accounted for as business combinations. The guidance is effective on a prospective basis for fiscal years beginning after

December 15, 2017,

and interim periods within those fiscal years, with early adoption permitted. The impact on our consolidated financial statements will depend on the facts and circumstances of any specific future transactions

January 2017,

FASB issued amended guidance which eliminates the

second

step in goodwill impairment testing in which

goodwill impairment is determined by calculating the implied fair value of goodwill by hypothetically assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. Under the amended standard, goodwill impairment is measured as the amount by which a reporting unit’s carrying value exceeds its fair value,

not

to exceed the carrying value of goodwill. The guidance is effective on a prospective basis for fiscal years beginning after

December 15, 2019,

and interim periods within those fiscal years.

Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after

January

2017.

We have adopted the guidance on a prospective basis commencing with the quarter ended

March 31, 2017.

The adoption did

not

have any impact on our consolidated financial statements for the quarter ended

March 31, 2017.