Annual report pursuant to Section 13 and 15(d)

Impact to Reported Results of the Adoption of ASC 606, Revenue from Contracts with Customers

v3.8.0.1
Impact to Reported Results of the Adoption of ASC 606, Revenue from Contracts with Customers
12 Months Ended
Dec. 30, 2017
Revenue from Contract with Customer [Abstract]  
Impact to Reported Results of the Adoption of ASC 606, Revenue from Contracts with Customers
Impact to Reported Results of the Adoption of ASC 606, Revenue from Contracts with Customers    
As discussed in Note 2, the Company elected to adopt ASC 606, using the full retrospective method, which requires retrospective application of the standard to prior reporting periods. The most significant impacts of the adoption of ASC 606 to the Company relate to (1) the acceleration of revenue recognition for sales of custom products subject to a non-cancellable customer purchase order, (2) the acceleration of revenue recognition for sales to distributors, and (3) the timing and financial statement classification of certain development and intellectual property licensing agreements.
Custom products which are associated with the Company’s Enterprise, Embedded, and Semi-Custom segment (semi-custom products), under non-cancellable purchases orders, which are manufactured to customers’ specifications, and cannot be re-sold to another customer, will be recognized as revenue, based on the value of the inventory and expected margin, over the time of production of the products by the Company, rather than upon shipment. Revenue from sales to the Company's distributors will be recognized as revenue upon shipment of the product to the distributors (sell-in), instead of the current revenue recognition upon reported resale of the product by the distributors to their customers (sell-through). For a development and intellectual property licensing agreement executed in 2017, the Company will recognize revenue for the entire consideration upon transfer of control of the intellectual property (IP) license to the customer in a future period. Previously, the agreement resulted in the reduction to research and development expenses in 2017 for development work as the expenses were incurred and would have resulted in licensing revenue to be recognized in periods beyond 2017 upon completion of the deliverables, based on a fair value allocation of the consideration received. Revenue recognition related to the Company’s other revenue streams will remain substantially unchanged.
The adoption of the new standard has an impact on the Company’s Consolidated Statements of Operations and Consolidated Balance Sheets, but has no impact on cash provided by or used in operating, financing, or investing activities on the Consolidated Statements of Cash Flows.
The impact on the Company’s 2017 and 2016 Consolidated Statement of Operations as a result of the adoption of the new standard is as follows:
  
Year Ended
  
December 30,
2017
 
December 31,
2016
 
As reported
 
Adjustment
 
As adjusted
 
As reported
 
Adjustment
 
As adjusted
 
(In millions, except per share amounts)
Net revenue (1)
$
5,329

 
$
(76
)
 
$
5,253

 
$
4,272

 
$
47

 
$
4,319

Cost of sales (1)
3,506

 
(40
)
 
3,466

 
3,274

 
42

 
3,316

Gross margin
1,823

 
(36
)
 
1,787

 
998

 
5

 
1,003

Research and development (2)
1,160

 
36

 
1,196

 
1,008

 

 
1,008

Marketing, general and administrative
511

 
5

 
516

 
460

 
6

 
466

Restructuring and other special charges, net

 

 

 
(10
)
 

 
(10
)
Licensing gain
(52
)
 

 
(52
)
 
(88
)
 

 
(88
)
Operating income (loss)
204

 
(77
)
 
127

 
(372
)
 
(1
)
 
(373
)
Interest expense
(126
)
 

 
(126
)
 
(156
)
 

 
(156
)
Other income (expense), net
(9
)
 

 
(9
)
 
80

 

 
80

Income (loss) before equity loss and income taxes
69

 
(77
)
 
(8
)
 
(448
)
 
(1
)
 
(449
)
Provision for income taxes
19

 
(1
)
 
18

 
39

 

 
39

Equity loss in investee
(7
)
 

 
(7
)
 
(10
)
 

 
(10
)
Net income (loss)
$
43

 
$
(76
)
 
$
(33
)
 
$
(497
)
 
$
(1
)
 
$
(498
)
Earnings (loss) per share
 
 
 
 
 
 
 
 
 
 
 
  Basic
$
0.04

 
$
(0.07
)
 
$
(0.03
)
 
$
(0.60
)
 
$

 
$
(0.60
)
  Diluted
$
0.04

 
$
(0.07
)
 
$
(0.03
)
 
$
(0.60
)
 
$

 
$
(0.60
)
Shares used in per share calculation
 
 
 
 
 
 
 
 
 
 
 
  Basic
952

 
 
 
952

 
835

 
 
 
835

  Diluted
1,039

 
 
 
952

 
835

 
 
 
835



(1) 
2017 and 2016 revenue and cost of sales changes were due to a net drain (decrease in revenue) or net build (increase in revenue) in channel and semi-custom product inventories.

(2) 
2017 Research and development expenses increased due to the absence of credits to research and development expenses recognized for a development and intellectual property licensing agreement under the “As reported” standard, which will be recognized as revenue for the entire consideration upon transfer of control of the IP license to the customer under the new standard.
The impact on the Company’s affected 2017 and 2016 Consolidated Balance Sheets line items, as a result of the adoption of the new standard is as follows:
 
Year Ended
 
December 30,
2017
 
December 31,
2016
 
As reported
 
Adjustment
 
As adjusted
 
As reported
 
Adjustment
 
As adjusted
 
(In millions)
Accounts receivable, net (1)
$
400

 
$
54

 
$
454

 
$
311

 
$
61

 
$
372

Inventories, net (2)
739

 
(45
)
 
694

 
751

 
(60
)
 
691

Other current assets
188

 
3

 
191

 
109

 
6

 
115

Accrued liabilities
541

 
14

 
555

 
391

 
9

 
400

Other current liabilities (3)
57

 
35

 
92

 
69

 

 
69

Deferred income on shipments to distributors (4)
22

 
(22
)
 

 
63

 
(63
)
 

Accumulated deficit
(7,760
)
 
(15
)
 
(7,775
)
 
(7,803
)
 
61

 
(7,742
)
(1) 
2017 and 2016 Accounts receivable, net increased primarily due to the acceleration in timing of semi-custom product revenue.
(2) 
2017 and 2016 Inventories, net decreased primarily due to the acceleration in timing of semi-custom product revenue.
(3) 
2017 Other current liabilities adjusted primarily due to the absence of credits to research and development expenses recognized for a development and intellectual property licensing agreement under the “As reported” standard, which will be recognized as revenue for the entire consideration upon transfer of control of the IP license to the customer under the new standard. The credits are recorded as deferred revenue under the new standard.
(4) 
2017 and 2016 deferred income on shipments to distributors is eliminated due to the change in the revenue recognition model for sales to distributors, whereby revenue is recognized upon the shipment of the product to the distributors (sell-in), instead of upon reported resale of the product by the distributors to their customers (sell-through).
The impact on the Company’s 2017 and 2016 net revenue and operating income (loss) by segments as a result of the adoption of the new standard is as follows:
 
Year Ended
 
December 30,
2017
 
December 31,
2016
 
As reported
 
Adjustment
 
As adjusted
 
As reported
 
Adjustment
 
As adjusted
 
(In millions)
Net revenue:
 
 
 
 
 
 
 
 
 
 
 
       Computing and Graphics (1)
$
3,029

 
$
(52
)
 
$
2,977

 
$
1,967

 
$
21

 
$
1,988

       Enterprise, Embedded and Semi-Custom (2)
2,300

 
(24
)
 
2,276

 
2,305

 
26

 
2,331

Total net revenue
$
5,329

 
$
(76
)
 
$
5,253

 
$
4,272

 
$
47

 
$
4,319

Operating income (loss):
 
 
 
 
 
 
 
 
 
 
 
       Computing and Graphics (3)
$
147

 
$
(55
)
 
$
92

 
$
(238
)
 
$
(5
)
 
$
(243
)
       Enterprise, Embedded and Semi-Custom (4)
154

 
(22
)
 
132

 
283

 
4

 
287

       All Other
(97
)
 

 
(97
)
 
(417
)
 

 
(417
)
Total operating income (loss)
$
204

 
$
(77
)
 
$
127

 
$
(372
)
 
$
(1
)
 
$
(373
)

(1) 
2017 and 2016 Computing and Graphics revenue changes were due to a net drain (decrease in revenue) or net build (increase in revenue) in channel inventory.
(2) 
2017 and 2016 Enterprise, Embedded and Semi-Custom revenue changes were due to a net drain (decrease in revenue) or net build (increase in revenue) in semi-custom product inventory.
(3) 
2017 Computing and Graphics operating income decreased primarily due to the lower revenue from sales to distributors. In addition, 2017 is lower due to the absence of credits to research and development expenses recognized for a development and intellectual property licensing agreement under the “As Reported” standard, which will be recognized as revenue for the entire consideration upon transfer of control of the IP license to the customer under the new standard. 2016 Computing and Graphics operating loss increased due to slightly higher operating expenses.
(4) 
2017 Enterprise, Embedded and Semi-Custom operating income decreased primarily due to lower revenue from sales of semi-custom products. In addition, 2017 is lower due to the absence of credits to research and development expenses recognized for a certain development and intellectual property licensing agreement under the “As reported” standard, which will be recognized as revenue for the entire consideration upon transfer of control of the IP license to the customer under the new standard. 2016 Enterprise, Embedded and Semi-Custom operating income increased due to higher revenue from sales of semi-custom products.