Commitments and Contingencies

12 Months Ended

Dec. 31, 2019

Commitments and Contingencies Disclosure [Abstract]

On December 15, 2009, the Company entered into a lease agreement for approximately 125,000 square feet of office space located at 1050 Enterprise Way in Sunnyvale, California commencing on July 1, 2010 and expiring on June 30, 2020. The office space is used for the Company’s corporate headquarters, as well as engineering, sales, marketing and administrative operations and activities. The annual base rent for these leases includes certain rent abatement and increases annually over the lease term. The Company has two options to extend the lease for a period of 60 months each and a one-time option to terminate the lease after 84 months in exchange for an early termination fee. Pursuant to the terms of the lease, the landlord agreed to reimburse the Company approximately $9.1 million, which was received by the year ended December 31, 2011. On November 4, 2011, to better plan for future expansion, the Company entered into an amended lease for its Sunnyvale facility for approximately an additional 31,000 square-foot space commencing on March 1, 2012 and expiring on June 30, 2020. Additionally, a tenant improvement allowance to be provided by the landlord was approximately $1.7 million. On

September 29, 2012, the Company entered into a second amended Sunnyvale lease to reduce the tenant improvement allowance to approximately $1.5 million. On January 31, 2013, the Company entered into a third amendment to the Sunnyvale lease to surrender the 31,000 square-foot space from the first amendment back to the landlord and recorded a total charge of $2.0 million related to the surrender of the amended lease.

Refer to Note 10, “Leases,” for information regarding the Company’s lease agreement for a new corporate headquarters in San Jose, California.

On March 8, 2010, the Company entered into a lease agreement for approximately 25,000 square feet of office and manufacturing areas, located in Brecksville, Ohio. The office area was used for the lighting division’s engineering activities while the manufacturing area was used for the manufacture of prototypes. This lease was amended on September 29, 2011 to expand the facility to approximately 51,000 total square feet and the amended lease expired on July 31, 2019. The Company had an option to extend the lease for a period of 60 months. During 2018, the Company closed its lighting division and manufacturing operations in Brecksville, Ohio, and sold the related equipment. Refer to Note 18, “Restructuring and Other Charges,” for additional details.

The Company undertook a series of structural improvements to ready the Sunnyvale and Brecksville facilities for its use. Since these improvements were considered structural in nature and the Company was responsible for any cost overruns, for accounting purposes, the Company was treated in substance as the owner of each construction project during the construction period. At the completion of each construction, the Company concluded that it retained sufficient continuing involvement to preclude de-recognition of the building under the FASB authoritative guidance applicable to the sale leasebacks of real estate. As such, prior to January 1, 2019 when the New Leasing Standard became effective for the Company, the Company accounted for the buildings as owned real estate and recorded an imputed financing obligation for its obligations to the legal owners. Upon adoption of the New Leasing Standard, these leases were treated as operating leases.

Prior to the adoption of the New Leasing Standard, monthly lease payments on these facilities were allocated between the land element of the lease (which was accounted for as an operating lease) and the imputed financing obligation. The imputed financing obligation was amortized using the effective interest method and the interest rate was determined in accordance with the requirements of sale leaseback accounting. For the years ended December 31, 2018 and 2017, the Company recognized in its Consolidated Statements of Operations $4.3 million and $4.4 million, respectively, of interest expense in connection with the imputed financing obligation on these facilities. As of December 31, 2018, the imputed financing obligation balance in connection with these facilities was $37.6 million, which was primarily classified under long-term imputed financing obligation.

As of December 31, 2018, the Company had capitalized $40.3 million in property, plant and equipment based on the estimated fair value of the portion of the pre-construction shell, construction costs related to the build-out of the facilities and capitalized interest during construction period.

On November 17, 2017, the Company entered into an Indenture with U.S. Bank, National Association, as trustee, relating to the issuance by the Company of $172.5 million aggregate principal amount of the 2023 Notes. The aggregate principal amount of the 2023 Notes as of December 31, 2019 was $172.5 million, offset by unamortized debt discount and unamortized debt issuance costs of $22.2 million and $1.5 million, respectively, on the accompanying consolidated balance sheets. The unamortized discount related to the 2023 Notes is being amortized to interest expense using the effective method over the remaining 3.1 years until maturity of the 2023 Notes on February 1, 2023. Refer to Note 12, “Convertible Notes,” for additional details.

As of December 31, 2019, the Company’s material contractual obligations were as follows (in thousands):



	Total		2020		2021		2022		2023		2024
Contractual obligations (1) (2)
Other contractual obligations	$	468	$	234	$	234	$	—	$	—	$	—
Software licenses (3)	31,530		13,525		11,977		6,028		—		—
Acquisition retention bonuses (4)	9,998		3,499		3,499		3,000		—		—
Convertible notes	172,500		—		—		—		172,500		—
Interest payments related to convertible notes	8,308		2,372		2,372		2,372		1,192		—
Total	$	222,804	$	19,630	$	18,082	$	11,400	$	173,692	$	—

______________________________________

(1)

The above table does not reflect possible payments in connection with unrecognized tax benefits of approximately $24.6 million including $22.8 million recorded as a reduction of long-term deferred tax assets and $1.8 million in long-term income taxes payable, as of December 31, 2019. As noted below in Note 19, “Income Taxes,” although it is possible that some of the unrecognized tax benefits could be settled within the next 12 months, the Company cannot reasonably estimate the outcome at this time.


(2)	For the Company’s lease commitments as of December 31, 2019, refer to Note 10, “Leases.”


(3)	The Company has commitments with various software vendors for agreements generally having terms longer than one year.


(4)	In connection with the acquisitions of Northwest Logic in August 2019 and the Secure Silicon IP and Protocols business in December 2019, the Company is obligated to pay retention bonuses to certain employees subject to certain eligibility and acceleration provisions including the condition of employment.

Refer to Note 3, “Recent Accounting Pronouncements” and Note 10, “Leases,” for a discussion related to the Company’s facility leases due to the adoption of the New Leasing Standard on January 1, 2019.

Additionally, the Company’s lease-related obligations as of December 31, 2018, as determined under the prior accounting standard, were as follows (in thousands):



	Total		2019		2020		2021		2022		2023
Lease-related obligations
Imputed financing obligation (1)	$	8,081	$	5,677	$	2,404	$	—	$	—	$	—
Leases	19,415		5,333		4,883		4,960		3,271		968
Total	$	27,496	$	11,010	$	7,287	$	4,960	$	3,271	$	968

_________________________________________


(1)	With respect to the imputed financing obligation, the main components of the difference between the amount reflected in the table above and the amount reflected on the consolidated balance sheet are the interest on the imputed financing obligation and the estimated common area expenses over the future periods. The amount includes the amended Ohio lease and the amended Sunnyvale lease.

Indemnifications

From time to time, the Company indemnifies certain customers as a necessary means of doing business. Indemnification covers customers for losses suffered or incurred by them as a result of any patent, copyright, or other intellectual property infringement or any other claim by any third party arising as result of the applicable agreement with the Company. The Company generally attempts to limit the maximum amount of indemnification that the Company could be required to make under these agreements to the amount of fees received by the Company, however, this is not always possible. The fair value of the liability as of December 31, 2019 and 2018 was not material.