We recognize product revenue when the earnings process is complete, as evidenced
by persuasive evidence of an arrangement (typically in the form of a purchase
order) when the sales price is fixed or determinable, collection of revenue is
reasonably assured, and title and risk of loss have passed to the customer.
For the year ended June 30, 2013, 57% of our product sales were made to
distributors. Distributors stock inventory and sell our products to their own
customer base, which may include: value added resellers; manufacturers who
incorporate our products into their own manufactured goods; or ultimate end
users of our products. We recognize revenue upon shipment of our products to our
distributors. This arrangement is often referred to as a "sell-in" or
"point-of-purchase" model as opposed to a "sell-through" or "point-of-sale"
model, where revenue is deferred and not recognized until the distributor sells
the product through to their customer.
Our distributors may be provided limited rights that allow them to return a
portion of inventory (Product Exchange Rights or Stock Rotation Rights) and
receive credits for changes in selling prices (Price Protection Rights) or
customer pricing arrangements under our "ship and debit" program or other
targeted sales incentives. When determining our net revenue, we make significant
judgments and estimates corresponding with product shipments. We recognize a
reserve for estimated future returns, changes in selling prices, and other
targeted sales incentives when product ships. We also recognize an asset for the
estimated value of product returns that we believe will be returned to inventory
in the future and resold, and these estimates are based upon historical data,
current economic trends, distributor inventory levels and other related factors.
Our financial condition and operating results are dependent upon our ability to
make reliable estimates. Actual results may vary and could have a significant
impact on our operating results.
From time to time, we will issue a new price book for our products, and provide
a credit to certain distributors for inventory quantities on hand if required by
our agreement with the distributor. This practice is known as price protection.
These credits are applied against the reserve that we establish upon initial
shipment of product to the distributor.
Under the ship and debit program, products are sold to distributors at
negotiated prices and the distributors are required to pay for the products
purchased within our standard commercial terms. Subsequent to the initial
product purchase, a distributor may request a price allowance for a particular
part number(s) for certain target customers, prior to the distributor reselling
the particular part to that customer. If we approve an allowance and the
distributor resells the product to the target customer, we credit the
distributor according to the allowance we approved. These credits are applied
against a reserve we establish upon initial shipment of product to the
In addition, we run sales incentive programs with certain distributors and
resellers, such as product rebates and cooperative advertising campaigns. We
recognize these incentives at the time they are offered to customers and record
a credit to their account with an offsetting expense as either a reduction to
revenue, increase to cost of revenue, or marketing expense depending on the type
of sales incentive.