Edgar Filing: SIGMA DESIGNS INC - Form 10-K SIGMA DESIGNS INC Form 10-K March 30, 2017 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ☒Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended: January 28, 2017 OR ☐Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission File Number 001-32207 SIGMA DESIGNS, INC. (Exact name of Registrant as specified in its charter) California 94-2848099 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number) 47467 Fremont Boulevard Fremont, California 94538 (Address of principal executive offices) (Zip code) Registrant’s telephone number, including area code: (510) 897-0200 1 Edgar Filing: SIGMA DESIGNS INC - Form 10-K Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock, no par value The NASDAQ Stock Market LLC Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer ☐ Accelerated filer ☒ Non-accelerated filer ☐ Smaller reporting company ☐ 2 Edgar Filing: SIGMA DESIGNS INC - Form 10-K 3 Edgar Filing: SIGMA DESIGNS INC - Form 10-K Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒ The aggregate market value of the registrant’s common stock, no par value, held by non-affiliates of the registrant on July 30, 2016, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $244,010,322 based on the closing sale price of $6.70 per share on that date. Shares of common stock held by each executive officer, director and shareholder known by the registrant to own 10% or more of the registrant’s outstanding common stock based on Schedule 13G or 13D filings and other information known to the registrant, have been excluded because such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. There were 38,153,106 shares of the registrant’s common stock outstanding on March 15, 2017. DOCUMENTS INCORPORATED BY REFERENCE Part III incorporates by reference information from the registrant’s proxy statement or as an amendment to this Form 10-K to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year covered by this report on Form 10-K. 1 4 Edgar Filing: SIGMA DESIGNS INC - Form 10-K Sigma Designs, Inc. 2017 ANNUAL REPORT ON FORM 10-K TABLE OF CONTENTS Page No PART I Item 1. Business 3 Item 1A.Risk Factors 14 Item 1B. Unresolved Staff Comments 28 Item 2. Properties 28 Item 3. Legal Proceedings 28 Item 4. Mine Safety Disclosures 28 PART II Market for the Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Item 5. 29 Equity Securities Item 6. Selected Consolidated Financial Data 30 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 31 Item 7A.Quantitative and Qualitative Disclosures About Market Risk 48 Item 8. Financial Statements and Supplementary Data 49 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 85 Item 9A.Controls and Procedures 85 Item 9B. Other Matters 86 PART III Item 10. Directors, Executive Officers of the Registrant and Corporate Governance 86 Item 11. Executive Compensation 86 Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Item 12. 86 Matters Item 13. Certain Relationships and Related Transactions and Director Independence 86 Item 14. Principal Accounting Fees and Services 86 PART IV Item 15. Exhibits and Financial Statement Schedules 87 Signatures 88 2 5 Edgar Filing: SIGMA DESIGNS INC - Form 10-K FORWARD-LOOKING INFORMATION This Annual Report on Form 10-K for the year ended January 28, 2017 contains forward-looking statements within the meaning of Private Securities Litigation Reform Act of 1995, including statements regarding our future results of operations and financial position, business strategy and our objectives for future operations. The words “may,” “predict,” “potential,” “will,” “should,” “could,” “expect,” “anticipate,” “believe,” “estimate,” “intend,” “continue” and other similar expressions are intended to identify forward-looking statements. Specifically, these forward-looking statements include, but are not limited to, statements regarding: •anticipated trends and challenges in our business and the markets in which we operate; •our expectations regarding our expenses and international sales; •plans for future products and services and for enhancements of existing products and services; •our research and development; our belief that a portion of our products will be one of the preferred solutions for telecommunication and • multi-service operators in the future; our anticipated cash needs and our estimates regarding our capital requirements and our needs for additional • financing; •our anticipated growth strategies; •our intellectual property; •our ability to attract customers; and •sources of new revenue. These forward-looking statements represent our current views with respect to future events, including estimates and assumptions only as of the date of this Form 10-K. As new risks emerge from time to time, it is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any 6 Edgar Filing: SIGMA DESIGNS INC - Form 10-K factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. We do not intend, and undertake no obligation, to update any of our forward-looking statements after the date of this report to reflect actual results or future events or circumstances that occur after the statement is made. Given these risks and uncertainties, readers are cautioned not to place undue reliance on any such forward-looking statements. Throughout this report, we refer to Sigma Designs, Inc., together with its subsidiaries, as “we,” “us,” “our,” or “Sigma,” unless the context indicates otherwise. PART I ITEM 1. BUSINESS Overview We are a global integrated system-on-chip (“SoC”) solutions provider offering intelligent platforms for use in a variety of home entertainment and home control appliances. Our goal is to ensure that our chipsets serve as the foundation for some of the world’s leading consumer products, including televisions, media connectivity, smart home devices, and mobile Internet of Things (“IoT”) products. Our business generates revenue primarily by delivery of relevant, cost-effective semiconductors that are targeted toward end-product manufacturers, Original Equipment Manufacturers, or OEMs, and Original Design Manufacturers, or ODMs. We also derive a portion of our revenue from other products and services, including technology licenses, software development kits, and engineering support services for hardware and software. 3 7 Edgar Filing: SIGMA DESIGNS INC - Form 10-K We sell our products into two target markets: Connected Smart TV Platforms and IoT Devices. Connected Smart TV Platforms products consist of a range of platforms that are based on highly integrated chips, embedded software, and hardware reference designs. These products include all of our products that are sold into digital televisions, connected media processors and players delivering IP streaming video, including hybrid versions of these products, and wired home networking controller chipsets that are designed to provide connectivity solutions between various home entertainment products and incoming video streams. IoT Devices consist of our wireless Z-Wave chipsets, modules and mobile IoT cellular solutions. Starting with the first quarter of fiscal 2017, we have combined certain target markets commensurate with changes taking effect in our industry as a whole. Specifically, we combined the Smart TV, Media Connectivity and Set-top Box markets into one target market, which we refer to as the Connected Smart TV Platforms target market. This target market is intended to include all of our products sold into or supporting the digital television experience including products designed for video-post processing, delivering of IP streaming video, audio, VoIP, or data and the equipment intended to connect these various home entertainment products.