Lattice Semiconductor
Annual Report 2017

Plain-text annual report

Table of ContentsUNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-K(Mark One)þANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDEDDECEMBER 30, 2017 or¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIODFROM __________ TO __________Commission file number: 000-18032 LATTICE SEMICONDUCTOR CORPORATION(Exact name of registrant as specified in its charter)Delaware93-0835214(State of Incorporation)(I.R.S. Employer Identification Number)111 SW Fifth Ave, Ste 700, Portland, OR97204(Address of principal executive offices)(Zip Code)Registrant's telephone number, including area code: (503) 268-8000________________________________________Securities registered pursuant to Section 12(b) of the Act:________________________________________(Title of Class)(Name of each exchange on which registered)Common Stock, $.01 par valueNASDAQ Global Select MarketSecurities registered pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No þIndicate 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 þIndicate 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 shorterperiod that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ 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 Rule405 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 þ No ¨Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant'sknowledge, 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. þIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”,“accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):Large accelerated filer ¨Accelerated filer þNon-accelerated filer ¨Smaller reporting company ¨Emerging growth company ¨ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standardsprovided pursuant to Section 13(a) of the Exchange Act. ¨ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No þAggregate market value of voting stock held by non-affiliates of the registrant as of July 1, 2017$613,585,307Number of shares of common stock outstanding as of March 2, 2018124,210,928DOCUMENTS INCORPORATED BY REFERENCEThe information required by Part III of this Report, to the extent not set forth herein, is incorporated herein by reference from the registrant's definitive proxy statement relating tothe 2018 Annual Meeting of Stockholders, which definitive proxy statement shall be filed with the Securities and Exchange Commission within 120 days after the end of the fiscalyear to which this Report relates. Table of ContentsLATTICE SEMICONDUCTOR CORPORATIONANNUAL REPORT ON FORM 10-KTABLE OF CONTENTS PagePART I Item 1. Business 4Item 1A. Risk Factors 11Item 1B. Unresolved Staff Comments 24Item 2. Properties 24Item 3. Legal Proceedings 24Item 4. Mine Safety Disclosures 24 PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters & Issuer Purchases of Equity Securities 25Item 6. Selected Financial Data 27Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 28Item 7A. Quantitative and Qualitative Disclosures About Market Risk 46Item 8. Financial Statements and Supplementary Data 47Item 9. Changes in and Disagreements with Accountants On Accounting and Financial Disclosure 85Item 9A. Controls and Procedures 85Item 9B. Other Information 86 PART III Item 10. Directors, Executive Officers and Corporate Governance 87Item 11. Executive Compensation 87Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 87Item 13. Certain Relationships and Related Transactions, and Director Independence 88Item 14. Principal Accountant Fees and Services 88 PART IV Item 15. Exhibits 89 Signatures 912Table of ContentsForward-Looking StatementsThis Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, andSection 21E of the Securities Exchange Act of 1934, as amended. These involve estimates, assumptions, risks and uncertainties. Any statements about ourexpectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. We use words orphrases such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” “may,” “will,” “should,” “continue,” “ongoing,”“future,” “potential” and similar words or phrases to identify forward-looking statements.Examples of forward-looking statements include, but are not limited to, statements about: our transitions to newly adopted accounting standards; the effect ofthe implementation of new accounting standards on adjustments and our revenue in future periods; the effects of product, end market and customer mix onour gross margin in the future; our strategies and beliefs regarding the markets we serve or may serve; growth opportunities and growth in markets we mayserve; our making significant future investments in research and development; our expectations regarding cash provided by or used in operating activities;our expectations regarding total restructuring charges under restructuring plans adopted by our Board; our expectation that we will not pay U.S. federalincome taxes until we fully realize our tax net operating loss and credit carryforwards; the sufficiency of our financial resources to meet our working capitalneeds through at least the next 12 months; our strategies and beliefs regarding the markets we serve or may serve; growth opportunities and growth inmarkets we may serve; the advantages our technology provides to our customers, including advanced features in an increasingly intense global technologymarket; our future product development and marketing plans; our intention to continually introduce new products and enhancements and reducemanufacturing costs; our expectation of emerging technology trends; the anticipation that we will become increasingly dependent on revenue from newerproducts; our expectation of production volumes and the associated revenue stream for certain mobile handset providers; acceptance of our devices; ourcontinued participation in consortia that develop and promote the High-Definition Multimedia Interface ("HDMI"), Mobile High-Definition Link ("MHL") andWirelessHD specifications, and our participation in other standard setting initiatives; the effect of termination of our agent functions regarding the HDMIconsortium, related reduction in adopter fees, revenue recognition, impairment charges and any other changes in the agreements relating to variousintellectual property or standards consortia and their sharing of past or present fees or royalties; our expectation that we will continue to transition toincreasingly smaller geometry process technologies and the difficulties in transitioning; our need and ability to maintain or develop successful foundryrelationships to produce new products; the adequacy of assembly and test capacity commitments; the impact of our global tax structure and expectationsregarding taxes and tax adjustments; our conclusion that we should maintain a valuation allowance against certain tax assets; our belief that we mayrecognize certain tax benefits during the next twelve months; our ability to forecast uncertain tax positions; the effect of tax reform on our financial results; ourability to forecast future sales and the relative product mix of those revenues; our mitigation of the concentration of credit risk; our expectation that we mayconsider acquisition opportunities to further extend our product or technology portfolios and further expand our product offerings; our beliefs regarding theadequacy of our liquidity and facilities, our ability to meet our operating and capital requirements and obligations; and our ability to implement a company-wide enterprise resource planning system.Forward-looking statements involve estimates, assumptions, risks, and uncertainties that could cause actual results to differ materially from those expressedin the forward-looking statements. The key factors, among others, that could cause our actual results to differ materially from the forward-looking statementsincluded global economic conditions and uncertainty, the concentration of our sales in the Mobile and Consumer and Communications and Computing endmarkets, particularly as it relates to the concentration of our sales in the Asia Pacific region, market acceptance and demand for our new products, our abilityto license our intellectual property, any disruption of our distribution channels, the impact of competitive products and pricing, unexpected charges, delays orresults relating to our restructuring plans, unexpected complications with our implementation of a company-wide enterprise resource planning system, theeffect of the downturn in the economy on capital markets and credit markets, unanticipated taxation requirements or positions of the U.S. Internal RevenueService, unanticipated effects of tax reform, or unexpected impacts of recent accounting guidance. In addition, actual results are subject to other risks anduncertainties that relate more broadly to our overall business, including those more fully described herein and that are otherwise described from time to timein our filings with the Securities and Exchange Commission, including but not limited to the items discussed in “Risk Factors” in Item 1A of Part I of this AnnualReport on Form 10-K.You should not unduly rely on forward-looking statements because our actual results could differ materially from those expressed in any forward-lookingstatements made by us. In addition, any forward-looking statement applies only as of the date on which it is made. We do not plan to, and undertake noobligation to, update any forward-looking statements to reflect events or circumstances that occur after the date on which such statements are made or toreflect the occurrence of unanticipated events.3Table of ContentsPART IItem 1. BusinessOverviewLattice Semiconductor Corporation and its subsidiaries (“Lattice,” the “Company,” “we,” “us,” or “our”) develop semiconductor technologies that we monetizethrough products, solutions, and licenses.We enable our customers to quickly and easily develop smart and connected products. We help their products become more aware, interact moreintelligently, and make better and faster connections. In an increasingly intense global technology market, we help our customers get their products to marketfaster than their competitors.Our historic focus was on programmable logic devices ("PLDs"). In 2011, we made the strategic decision to competitively differentiate from other establishedprogrammable logic companies with ultra-low power and ultra-small sized field programmable gate array ("FPGA") solutions, a type of PLD. As a result, weacquired a leader in this technology, SiliconBlue Technologies, Inc. In 2015, we extended our capabilities beyond FPGAs with the acquisition of SiliconImage, Inc. ("Silicon Image") and its portfolio of standards-driven video connectivity application specific standard products ("ASSPs"), 60 GHz mmWavedevices, and associated intellectual property ("IP"). Together, the control and connect features of our FPGAs and these acquired technologies form a strongbase business from which we are able to offer a variety of solutions to multiple established and emerging markets and customers.We believe the emerging trend of computing in smart devices at the network edge is an opportunity for Lattice. These devices often act independently andneed to make instantaneous, independent decisions. As such, they need their own computing and learning capabilities to perform functions like facedetection, image recognition, and video analytics — capabilities that we have today through the acquisition of Silicon Image. To accomplish these functions,devices require high levels of processing power, speed, and memory, the need to operate with low power consumption, and the ability to integrate complexfunctionality into a highly compact footprint. These requirements align to the capabilities of our FPGA devices. Our low power, small form factor silicon, andthe design flexibility of our FPGAs puts us in a unique position to meet the growing edge-computing needs.Our traditional FPGA devices provide us with a strong, growing base of ‘control and connect’ technologies. We believe growth in the edge connectivity andedge computing arenas will allow us to increase our market share and capabilities.Our Markets and CustomersWe sell globally in three markets groups: Mobile and Consumer, Communications and Computing, and Industrial and Automotive.In the Mobile and Consumer Market, you can find our solutions making consumer products smarter and thinner, including: smartphones, tablets and e-readers, wearables, accessories such as chargers and docks, smart home devices, Virtual Reality ("VR") headsets, Ultra High-Definition ("UHD") TVs, digitalSLR cameras, drones, and other connected devices.Our Mobile and Consumer customers are driven by the need to deliver richer and more responsive experiences. They typically require:•More intelligence and computing power. Products need to be always-on and always-aware.•Longer battery lives for handheld devices and reduced energy consumption for plugged-in devices.•Real-time transmission of higher resolution video content on larger screen sizes.•Fast design cycles. Products must be quickly and easily differentiated.•Smaller form factors. Products need to lay flatter on the wall or fit more easily in people’s pockets.•Various levels of video processing and analytics.Lattice solutions help solve these challenges with the following products and services:•FPGAs bring multiple benefits to our customers. An FPGA’s parallel architecture enables faster processing than competing devices, such asprocessors, allowing for a user experience with shorter pauses and fewer delays. Our FPGAs are among the lowest power in the industry, enablingthe application processor and other high power components to remain dormant longer, resulting in longer battery life. Finally, with some of theindustry’s smallest packages, we enable thinner end products.4Table of Contents•mmWave Devices such as our SiBEAM Snap and WirelessHD products simplify connectivity. SiBEAM Snap is a wireless connection technology thatcan transfer a high definition movie to a mobile device in seconds while eliminating the connector port. WirelessHD products enable laptops,projectors, accessories, and other consumer products to communicate wirelessly at very high speeds.•A full suite of standards-based HDMI and MHL Video Connectivity ASSPs enable the immersive audio-visual experience that consumers demand.•Intellectual Property Licensing enables customers who wish to develop a proprietary solution to use our proven technology.Our proprietary solutions help our customers get their products to market faster than typical development cycles. With re-programmability and flexibility, ourFPGAs inherently allow our customers to have quicker product development. Our deep engagement with industry standards bodies gives us an intimateknowledge of various video technologies and the ability to get our customers latest and greatest products to market faster. Our mmWave technology is at theforefront of high speed, high bandwidth wireless connectivity innovation. All of Lattice’s solution time-to-market advantages are critical given shorter productlife cycles and higher competition in our customers’ end markets.In the Communications and Computing Market, our solutions play key roles in data center systems such as servers, heterogeneous network ("HetNet")small cell base stations, network backhaul, wired access aggregation, and other related applications.Our Communications and Computing customers need to “connect anything to everything,” at ever-increasing data rates.•As data center servers become smaller and power costs become more dominant, there is a growing requirement for smaller form factors with lowerinstalled and operational costs. Lattice’s low cost per look up table, and high I/O count enable customers to use fewer devices in much smallerspaces.•Additionally, they need simplified control logic, enhanced security, and rigorous power and thermal management.•Networks typically require progressively higher bandwidth and increased reliability as more data is demanded by consumer and other connecteddevices. Bandwidth demands are also driven by the rapid transition to a cloud-based infrastructure.•As wireless cells become more compact without fans, there is a growing requirement for smaller form factors optimized for low power consumption.•To be able to connect high speed fiber to homes, campuses or city infrastructures, mmWave products enable the lowest cost, highest throughputsolutions.We help customers solve these problems with the following products:•FPGAs optimized for Input-Output (I/O) expansion, low cost look up tables, hardware acceleration, hardware management, and affordability. OurFPGAs consume very low power, which reduces operating costs. Their small form factor enables higher functional density in less space. Finally, ourFPGAs are I/O rich, which allows for more connections with system application specific integrated circuits (ASICs) and ASSPs. Our programmablemixed signal devices make power and thermal management easy and reliable.•mmWave transceivers feature high-integration, low power design, and internal / external antenna options. Our beam-steering technology makespoint-to-point links smaller, cheaper, more reliable, lower power and easier to install, enabling backhaul at “wireless fiber” data rates.Examples of our products enabling intelligent automation in the Industrial and Automotive Market include machine vision, robotics, factory automation,industrial handhelds, surveillance cameras and DVRs, digital signage, driver assistance, automotive infotainment, servers, and data center networks.Our Industrial and Automotive customers face numerous challenges:•As smart factories develop, sensors are proliferating and machine vision is becoming higher definition, in turn requiring increasing amounts of datato be gathered, connected, and processed.•Cars, trucks, and trains are also becoming smarter and more connected. Drivers and passengers are demanding better in-cabin experiencesincluding entertainment, diagnostics, and enhanced safety — often involving multiple displays, cameras, and sensors.•In addition, as factories and automotive continue their evolution of computerization, lower power, faster time to design in and market, along withlower costs are becoming more of the normal.Our product portfolio helps solve these challenges with the following products and services:•Our small-sized, low-power FPGAs not only provide the I/O expansion, bridging, connectivity, and processing inherent in FPGAs to the full IndustrialMarket, but they also form the backbone of several integrated solutions, including complete HD camera and DVR solutions on a single FPGA deviceand Human-Machine Interfaces (HMI) on a chip.•Performance-tested and regulatory-approved mmWave modules greatly reduce latency response and the complexity of adding high-performancewireless video capabilities to displays, without the wires that clutter a factory floor or medical suite.•Automotive qualified MHL / HDMI Video Connectivity ASSPs allow consumers to stream UHD video from their mobile phones to their in-carentertainment system, delivering the ultimate connected car experience.5Table of ContentsOur Products, Services, and CompetitionWe deliver three types of semiconductor devices to help solve our customers' problems: PLDs, Video Connectivity ASSPs, and mmWave devices. We alsoserve our customers with IP licensing and various other services.Field Programmable Gate Arrays (“FPGAs”)FPGAs are regular arrays of logic that can be custom-configured by the user through software. This programmability allows our customers flexibility andreduced time to market while allowing us to offer the chips to many different customers in many different markets. Five product family lines anchor ourFPGA offerings:•The ECP families are our “Connectivity & Acceleration FPGAs.” They offer customers the lowest cost per gate, Digital Signal Processing (DSP)capability, and Serialize-Deserialize (SerDes) connectivity. ECP devices are optimized for the Communications and Computing market but also findsignificant use in the Industrial and Automotive market.•The MachXO families are known as “Bridging and Expansion FPGAs.” They are control oriented and offer the lowest cost per I/O, along with thelowest cost per look up table. MachXO families are widely used across our three primary target markets: Communications and Computing, Industrialand Automotive, and Mobile and Consumer.•iCE40 families are known as the “World’s Smallest FPGAs.” Their small size and ultra-low power make them the optimal products for customizingConsumer mobile and Industrial handheld products. The iCE40 UltraLite was named “Digital Semiconductor Product of the Year” by the 2015Elektra European Electronics Industry Awards. In 2016, we released the latest member of the family, iCE40 UltraPlus, focused on smart phone andIoT edge devices.•CrossLink was introduced in 2016 as the world’s first video “pASSP” (programmable Application Specific Standard Part). CrossLink combines thepower and speed benefits of hardened video camera and display bridging cores with the flexibility of FPGA fabric. CrossLink was the 2016 recipientof the “Editor’s Choice Award” by EEPW magazine.•Programmable Mixed Signal devices, such as our Platform Manger 2 and L-ASC10 combine programmable digital logic with analog functionality tohelp customers manage power, thermal, and control planes in real time.To enable our customers to get to market faster we support the FPGAs with intellectual property cores, reference designs, development kits, and designsoftware.Competition for our FPGAs is fragmented.•While ASICs, ASSPs, and microcontrollers have historically dominated high-volume market segments through low cost and reduced powerconsumption, our FPGAs have become small enough with sufficiently low power consumption that we are now considered by customers in caseswhere they need the architectural benefits of FPGAs, namely programmability with its accelerated time-to-market and the speed that comes fromparallelism. Not only can customers use FPGAs to add new features and support new standards, but if a customer’s design is not working asintended, the customer can quickly change it using the programmability of our FPGAs through software. In contrast, ASICs and ASSPs require timeconsuming and expensive redesign and fabrication. Against microcontrollers, we differentiate our products with smaller sized packages and higherperformance.•Our main FPGA competitors are Xilinx and Intel. Both make FPGAs but are generally focused on the high-density end of the market, making devicesthat are up to a full order of magnitude larger than ours with the associated increases in power and size. We differentiate from them with ultra-lowpower and very small sized packages.Video Connectivity ASSPsIn the Mobile and Consumer market, consumers need to connect many different types of audio-video devices and expect them to work seamlessly together.We refer to these connections as “Video Connectivity.” Industry standards, such as HDMI, MHL, and USB Type-C, ensure that consumers are able tosuccessfully make those connections. These industry standards support resolutions up to 8K, High Dynamic Range, Deep Color, and HDCP 2.2 contentprotection. Our Video Connectivity ASSPs implement these standards along with value-added features and allow consumer original equipmentmanufacturers (OEMs) manufacturers to quickly get feature rich and interoperable products to market.Our Video Connectivity ASSPs perform many functions, including ensuring interoperability, enhancing picture quality, converting between resolutions, andtransmitting / receiving content without the need for additional components. Specific device types include port processors, port controllers, video processors,transmitters, receivers, bridges, and converters. These devices are used in products such as mobile phones, UHD TVs, home theater systems, HDMI cableextenders, automotive infotainment, PCs, accessories, projectors, and monitors.In general, our Video Connectivity competition includes:•HDMI or MHL functionality offered in either discrete devices or integrated into system-on-a-chip products. These are offered by a small number ofcompanies.•In-house semiconductor solutions designed by large consumer electronics OEMs.•Alternative HD connectivity technologies such as DisplayPort and MiraCast, which are offered by select companies.6Table of ContentsWhile our competition mainly tries to win with price, we believe that we have an advantage because of our deep engagement with industry standards bodies.This involvement enables us to bring our “standards plus” products and IP to market more quickly and gives our customers confidence that we have theexpertise needed to successfully execute.mmWave DevicesOur mmWave devices and modules allow customers to transfer data and UHD video content wirelessly at gigabit speeds. Built using our proprietary 60 GHzSiBEAM technology, our mmWave transceivers, processors, and antenna arrays are divided into three groups, differentiated by their transmission range:•Gigabit Connector devices or wireless USB “eliminate the connectors on your mobile products.” Built with SiBEAM Snap technology, these devicesconnect consumer products to deliver up to 12 Gb/s of bi-directional bandwidth for ultra-fast data transfers and are effective across centimeterdistances.•Our Gigabit Indoor devices and modules utilizing WiGig “cut the wires in home, office, and factory.” Geared around the Consumer and IndustrialMarkets these devices deliver "Blu-ray" quality video at 1080p and 4k20 resolutions with 5ms average latency and reach distances measured inmeters.•Gigabit Outdoor products provide “wireless fiber for network backhaul.” Gigabit-speed 60 GHz modules and devices address the need for highcapacity wireless links in wireless broadband networks, urban LTE small cells and metro Wi-Fi hot spots, and other link applications. Achieving arange of 100’s of meters these devices provide the Communications market with ultra-high speed links for point-to-point connectivity.Our competition includes a small number of established semiconductor companies that work to create an advantage by bundling mmWave technology intotheir reference designs and processors. We believe that the depth of our 60 GHz experience enables us to get products to market faster and when combinedwith advanced features, such as our advanced beam-forming technology, gives us an edge over our competition.Intellectual Property (IP) LicensingLattice has a broad set of technological capabilities and many U.S. and international patents. We generate revenue from our technology portfolio via upfrontfees and on-going royalty payments with three sets of activities:1.Standard IP Licensing - these activities include our participation in two consortia for the licensing of HDMI and MHL technologies to customers whoadopt the technology into their products and voluntarily report their usage and royalties. The royalties are split between consortia members,including us.2.IP Core Licensing - some customers need Lattice’s technology for specific functions or features, but for various reasons are not able to use oursilicon solutions. In those cases, we may sell them IP cores, which they can integrate into their own ASICs. In contrast to the use of consortia, theselicensing activities are generally performed internally.3.Patent Monetization - we sell certain patents from our portfolio generally for technology that we are no longer actively developing. The revenue fromthese sales generally consists of upfront payments and potential future royalties.Simplay LabsSimplay Labs develops performance standards, testing services, development tools, and technologies for Mobile and Consumer product manufacturers. Wesold certain of our assets comprising Simply Labs to Invecas, Inc. on September 30, 2017 while maintaining a contractual relationship that includes hostingthe personnel engaged in the provision of testing services and related assets in various geographies for a term. By partnering with Simplay Labs,manufacturers can reduce the time and cost to market, providing products that are distinguished by reliability and ease of operation while delivering the high-performance HD their customers demand. The products that Simplay Labs tests include televisions, A/V receivers, sound bars, set-top boxes, gamingconsoles, and media hubs. Simplay Labs has service centers operating in the United States, South Korea, China, and Taiwan. Simplay’s service centersprovide compliance, interoperability and performance testing.Research and Development We place a substantial emphasis on new product development, where return on investment is the key driver, and believe that continued investment inresearch and development is required to maintain and improve our competitive position. Our product development activities emphasize new proprietaryproducts, advanced packaging, enhancement of existing products and process technologies, improvement of software development tools, development ofinnovative technology standards, and enhanced services. Research and development activities occur primarily in Hillsboro, Oregon; San Jose, California;Shanghai, China; and Muntinlupa City, Philippines.Research and development expenses were $103.4 million in 2017, $117.5 million in 2016, and $136.9 million in 2015. The decreases in research anddevelopment expense is due mainly to the cost reductions realized from the restructuring actions and integration of operations undertaken since theacquisition of Silicon Image, including headcount reductions, site consolidations, and the sales of assets and business units. We believe that a continuedcommitment to research and development is essential to maintaining product leadership and providing innovative new product offerings and, therefore, weexpect to continue to make significant future investments in research and development.7Table of ContentsOperationsWe do not manufacture our own silicon products. We maintain strategic relationships with large, established semiconductor foundries to source our finishedsilicon wafers. This strategy allows us to focus our internal resources on product and market development, and eliminates the fixed cost of owning andoperating semiconductor manufacturing facilities. We are able to take advantage of the ongoing advanced process technology development efforts ofsemiconductor foundries, and to choose to apply those technologies when they become most economically beneficial to us and to our customers.Seiko Epson ("Epson") manufactures our 500nm, 350nm, 250nm and 180nm products. Lattice and Fujitsu Limited ("Fujitsu") have entered into agreementspursuant to which Fujitsu manufactures our next generation products on its 130nm, 90nm and 65nm CMOS process technologies, as well as embedded flashmemory in these technical nodes. United Microelectronics Corporation ("UMC") manufactures certain of our next generation 40nm products. TaiwanSemiconductor Manufacturing Company Ltd. (“TSMC”) manufactures our acquired Silicon Blue and Silicon Image products.All of our assembly and volume test operations are performed by outside suppliers.We rely on third party vendors to provide cost-effective and efficient supply chain services. Among other activities, these outsourced services relate to directsales logistics, including order fulfillment, inventory management and warehousing, and shipment of inventory to third party distributors.We perform certain test operations as well as reliability and quality assurance processes internally. We have achieved and maintained ISO9001:2015 QualityManagement Systems Certification and released a line of products qualified to the AEC-Q100 Reliability Standard.Wafer FabricationWe source silicon wafers from our foundry partners, Fujitsu and Epson in Japan, and TSMC and UMC in Taiwan, pursuant to agreements with each companyand their respective affiliates. We negotiate wafer volumes, prices and other terms with our foundry partners and their respective affiliates on a periodic basis.AssemblyAfter wafer fabrication and initial testing, we ship wafers to independent subcontractors for assembly. During assembly, wafers are separated into individualdie and encapsulated in plastic packages. We have qualified two major assembly partners, ASE and Amkor and are second sourced where volume andcustomer requirements are necessary. All ASE and Amkor manufacturing is in Asia. We negotiate assembly prices, volumes and other terms with ourassembly partners and their respective affiliates on a periodic basis.We currently offer an extensive list of standard products in lead (Pb) free packaging. Our lead-free products meet the European Parliament Directive entitled"Restrictions on the use of Hazardous Substances" ("ROHS"). A select and growing subset of our ROHS compliant products are also offered with a "HalogenFree" material set.Testing (Sort and Final Test)We electrically sort test the die on most wafers prior to shipment for assembly. Wafer sort testing is performed mostly by Amkor Japan and we have a secondsource in KYEC Taiwan. Some legacy products are tested at Unisem, Indonesia.Following assembly, but prior to customer shipment, each product undergoes final testing and quality assurance procedures. Final testing is performed byASE and Amkor, our assembly partners in Asia.Sales and RevenueWe generate revenue by monetizing our technology and patents using two go-to-market strategies.•Product and Technology Sales involve direct and channel sales of silicon based products with their associated solutions and services.•Intellectual Property Licensing involves either the license or sale of intellectual property that we have developed, some of which we use in ourproducts.SeasonalityWhile we periodically may experience some seasonal trends in the sale of our products, general economic conditions and the cyclical nature of the endmarkets we serve generally have a greater impact on our business and financial results than seasonal trends.8Table of ContentsBacklogOur backlog consists of orders from distributors and certain OEMs that require delivery within the next year. Historically, our backlog has not been a predictorof future sales or customer demand for the following reasons:•Purchase orders, consistent with common industry practices, can generally be revised or canceled up to 30 days before the scheduled delivery datewithout significant penalty.•Our backlog for sell-through distributors is valued at list price, which in most cases is substantially higher than the prices ultimately recognized asrevenue.•A sizable portion of our revenue comes from our "turns business," where the product is ordered and delivered within the same quarter.A portion of our revenue arises from vendor managed inventory arrangements where the timing and volume of customer utilization is difficult to predict.Sales and CustomersWe primarily sell our products to end customers from Lattice Semiconductor Corporation or our wholly-owned subsidiary, Lattice SG Pte. Ltd. We sell bothdirectly and through a network of independent manufacturers' representatives. Additionally, we sell indirectly through independent sell-in (primarily Japan)and sell-through distributors. We also employ a direct sales management and field applications engineering organization to support our end customers andindirect sales resources. Our end customers are primarily original equipment manufacturers ("OEMs") in the Communications and Computing, Mobile andConsumer, and Industrial and Automotive end markets.We have agreements with 20 manufacturers' representatives in North America. We have established sales channels in over 44 foreign countries andmaintain a network of 10 international sales representatives. A substantial portion of our sales are made through distributors.We provide global technical support to our end customers with engineering staff based at our headquarters, product development centers and selected fieldsales offices. We maintain numerous domestic and international field sales offices in major metropolitan areas.Resale of product by sell-through distributors accounted for approximately 66% of our net revenue in fiscal 2017, approximately 61% of our net revenue infiscal 2016, and approximately 45% of our net revenue in fiscal 2015, and we expect our distributors to generate a significant portion of our revenue in thefuture. We depend on our distributors to sell our products to end customers, complete order fulfillment, and maintain sufficient inventory of our products. Ourdistributors also provide technical support and other value-added services to our end customers. We have two global sell-through distributors. We also haveregional distribution in Asia, Japan, Israel, and North America, and we sell through three major on-line distributors.In fiscal years 2017, 2016, and 2015, our revenue was broadly distributed across end markets and end customers, with no individual end customeraccounting for more than 10% of the total revenue.Revenue from foreign sales as a percentage of total revenue was 87%, 88%, and 92%, for fiscal 2017, 2016, and 2015, respectively. We assign revenue togeographies based on customer ship-to address at the point where revenue is recognized. Revenue attributed to China for fiscal 2017 was approximately50% of total revenue, compared to 44% and 41% in fiscal 2016 and fiscal 2015, respectively (see "Geographic Information" in Note 22 - Segment andGeographic Information to our Consolidated Financial Statements in Part II, Item 8). In the case of sell-in distributors and OEMs, revenue is typicallyrecognized, and geography is assigned, when products are shipped. In the case of sell-through distributors, revenue is recognized when resale to the endcustomer occurs and geography is assigned based on the end customer location on the resale reports provided by the distributor. Both foreign and domesticsales are denominated in U.S. dollars.The composition of our revenue by geography, based on ship-to location, is as follows: Year Ended % Change in(In thousands)December 30, 2017 December 31, 2016 January 2, 2016 2017 2016Asia$277,638 72% $305,093 71% $308,534 76% (9) (1)Europe44,547 12 59,835 14 55,596 14 (26) 8Americas63,776 16 62,126 15 41,836 10 3 48Total revenue$385,961 100% $427,054 100% $405,966 100% (10) 59Table of ContentsIntellectual Property, Patents, and LicensingIntellectual PropertyWe seek to protect our products and technologies primarily through patents, trade secrecy measures, copyrights, mask work protection, trademarkregistrations, licensing restrictions, confidentiality agreements and other approaches designed to protect proprietary information. There can be no assurancethat others may not independently develop competitive technology not covered by our intellectual property rights or that measures we take to protect ourtechnology will be effective.PatentsWe hold numerous United States and international patents and have patent applications pending in the United States and internationally. Our current patentswill expire at various times between 2018 and 2036, subject to our payment of periodic maintenance fees. There can be no assurance that pending or futurepatent applications will result in issued patents, or that any issued patents will survive challenges to their validity. Although we believe that our patents havevalue, there can be no assurance that our patents, or any additional patents that may be issued in the future, will provide meaningful protection fromcompetition. We believe that our success will depend primarily upon the technical expertise, experience, and creativity, and the sales and marketing abilitiesof our personnel.Patent and other proprietary rights infringement claims are common in our industry. There can be no assurance that, with respect to any claim made againstus, we would be able to successfully defend against the claim or that we could obtain a license that would allow us to use the proprietary rights on terms orunder conditions that would not harm our business.LicensesWe have acquired various licenses from third parties to certain technologies that are implemented in IP cores or embedded in our products. Those licensessupport our continuing ability to make and sell these products to our customers. While our various licenses are important to our success, we believe ourbusiness as a whole is not materially dependent on any particular license, or group of licenses.Our TeamAs of December 30, 2017, we had 834 full-time employees worldwide. We believe that our future success will depend, in part, on our ability to continue toattract and retain highly skilled technical, sales, and management personnel. None of our employees are represented by a collective bargaining agreement.We have never experienced any work stoppages and consider our employee relations to be good.Corporate BackgroundLattice was incorporated in Oregon in 1983 and reincorporated in Delaware in 1985. Our headquarters is located at 111 SW Fifth Avenue, Suite 700,Portland, Oregon 97204, and our website is www.latticesemi.com. Information contained or referenced on our website is not incorporated by reference into,and does not form a part of, this Annual Report on Form 10-K. Our common stock trades on the NASDAQ Global Select Market under the symbol LSCC.Reporting CalendarWe report based on a 52 or 53-week fiscal year ending on the Saturday closest to December 31. Our fiscal 2017, 2016, and 2015 were 52-week years thatended December 30, 2017, December 31, 2016, and January 2, 2016, respectively. Our fiscal 2018 will be a 52-week year and will end on December 29,2018. All references to quarterly or yearly financial results are references to the results for the relevant fiscal period.Our results for the year ended January 2, 2016 (fiscal 2015) include the results associated with the acquisition of Silicon Image for the approximately 10-month period from March 11, 2015 through January 2, 2016. Results presented for periods prior to fiscal 2015 are those historically reported for Lattice only.10Table of ContentsAvailable InformationWe make available, free of charge through the Investor Relations section of our website at www.latticesemi.com, our annual reports on Form 10-K, quarterlyreports on Form 10-Q, current reports on Form 8-K, proxy statements and amendments to those reports and statements as soon as reasonably practicableafter such materials are electronically filed with, or furnished to, the SEC. You may also obtain free copies of these materials by contacting our InvestorRelations Department at 111 SW Fifth Ave, Ste. 700, Portland, Oregon 97204, telephone (503) 268-8000. Our SEC filings are also available at the SEC'swebsite at www.sec.gov, and they may be read and copied at the SEC's public reference room at 100 F Street NE, Washington, DC 20549. Information on theoperation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. The content on any website referred to in this filing is notincorporated by reference into this filing unless expressly noted otherwise.ITEM 1A. Risk FactorsThe following risk factors and other information included in this Annual Report should be carefully considered before making an investment decision relatingto our common stock. If any of the risks described below occur, our business, financial condition, operating results and cash flows could be materiallyadversely affected. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us orthat we currently deem immaterial also may impair our business operations and financial results.We rely on a limited number of independent suppliers for the manufacture of all of our products and a failure by our suppliers to provide timely, cost-effective, and quality products could adversely affect our operations and financial results.We depend on independent foundries to supply silicon wafers for our products. These foundries include Fujitsu in Japan and United MicroelectronicsCorporation in Taiwan, which supply the majority of our programmable logic wafers, and Taiwan Semiconductor Manufacturing, which supplies most of ourHDMI and MHL integrated circuits. We negotiate wafer volumes, prices, and other terms with our foundry partners and their respective affiliates on a periodicbasis typically resulting in short-term agreements which do not ensure long-term supply or allocation commitments. We rely on our foundry partners toproduce wafers with competitive performance attributes. If the foundries that supply our wafers experience manufacturing problems, including unacceptableyields, delays in the realization of the requisite process technologies, or difficulties due to limitations of new and existing process technologies, our operatingresults could be adversely affected.If for any reason the foundries are unable to, or do not manufacture sufficient quantities of our products or continue to manufacture a product for the full life ofthe product, we may be required to prematurely limit or discontinue the sales of certain products or incur significant costs to transfer products to otherfoundries, and our customer relationships and operating results could be adversely affected. In addition, weak economic conditions may adversely impact thefinancial health and viability of the foundries and cause them to limit or discontinue their business operations, resulting in shortages of supply and an inabilityto meet their commitments to us, which could adversely affect our financial condition and operating results.A disruption of one or more of our foundry partners' operations as a result of a fire, earthquake, act of terrorism, political or labor unrest, governmentaluncertainty, war, disease, or other natural disaster or catastrophic event, or any other reason, could disrupt our wafer supply and could adversely affect ouroperating results.Establishing, maintaining and managing multiple foundry relationships requires the investment of management resources as well as additional costs. If wefail to maintain our foundry relationships, or elect or are required to change foundries, we will incur significant costs and manufacturing delays. The successof certain of our next generation products is dependent upon our ability to successfully partner with Fujitsu, Taiwan Semiconductor, Seiko Epson, and otherfoundry partners. If for any reason one or more of our foundry partners does not provide its facilities and support for our development efforts, we may beunable to effectively develop new products in a timely manner.Should a change in foundry relationships be required, we may be unsuccessful in establishing new foundry relationships for our current or next generationproducts, or we may incur substantial cost or manufacturing delays until we form and ramp relationships and migrate products, all of which could adverselyaffect our operating results.We depend on distributors to generate a significant portion of our revenue and complete order fulfillment and any adverse change in our relationshipor our distributors' financial health, reduction of selling efforts, or inaccuracy in resale reports could harm our sales or result in misreporting ourresults.We depend on our distributors to sell our products to end customers, complete order fulfillment, and maintain sufficient inventory of our products. Ourdistributors also provide technical support and other value-added services to our end customers. Resales through sell-through distributors accounted for 66%of our total revenue in fiscal 2017, with two distributors accounting for 51% of our total revenue in fiscal 2017.11Table of ContentsWe expect our distributors to generate a significant portion of our revenue in the future. Any adverse change to our relationships with our distributors or afailure by one or more of our distributors to perform its obligations to us could have a material impact on our business. In addition, a significant reduction ofeffort by a distributor to sell our products or a material change in our relationship with one or more distributors may reduce our access to certain endcustomers and adversely affect our ability to sell our products.The financial health of our distributors is important to our success. Economic conditions may adversely impact the financial health of one or more of ourdistributors. This could result in the inability of distributors to finance the purchase of our products or cause the distributors to delay payment of their obligationto us and increase our credit risk. If the financial health of our distributors impairs their performance and we are unable to secure alternate distributors, ourfinancial condition and results of operations may be negatively impacted.Since we have limited ability to forecast inventory levels of our end customers, it is possible that there may be significant build-up of inventories in thedistributor channel, with the OEM or the OEM’s contract manufacturer. Such a buildup could result in a slowdown in orders, requests for returns fromcustomers, or requests to move out planned shipments. This could adversely affect our revenues and profits. Any failure to manage these challenges coulddisrupt or reduce sales of our products and unfavorably impact our financial results.Based on our assessment of the implementation of Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606),we believe the most significant impact of the new standard will be to accelerate the timing of revenue recognition on product shipments to our sell-throughdistributors. Assuming all other revenue recognition criteria have been met, the new guidance would require us to recognize revenue and costs relating tosuch sales upon shipment to the distributor - subject to reductions for estimated reserves for price adjustments and returns - rather than upon the ultimate saleby the distributor to its end customer, as is our current practice. The impact of this change will depend primarily on the level of inventory held by sell-throughdistributors at the beginning and end of each period. To the extent these inventory levels fluctuate significantly, revenue under the new standard could bematerially different than that under the current standard.We depend on the timeliness and accuracy of resale reports from our distributors. Late or inaccurate resale reports could have a detrimental effect on ourability to properly recognize revenue, especially under the new revenue standard, and on our ability to predict future sales.We depend on a concentrated group of customers for a significant portion of our revenues. If any of these customers reduce their use of ourproducts, our revenue could decrease significantly.A significant portion of our revenue depends on sales to a limited number of customers. In fiscal 2017, our largest end customer accounted for approximately7% of our total revenue, and our top five end customers accounted for approximately 26% of our total revenue. If any of these relationships were to diminish, ifthese customers were to develop their own solutions or adopt alternative solutions or competitors' solutions, or if our relationship with any future customerwhich accounts for a significant portion of our revenue were to diminish due to these factors, our results could be adversely affected.While we strive to maintain strong relationships with our customers, their continued use of our products is frequently reevaluated, as certain of our customers'product life cycles are relatively short and they continually develop new products. The selection process for our products to be included in our customers' newproducts is highly competitive. There are no guarantees that our products will be included in the next generation of products introduced by these customers.For example, one of our largest customers from the second half of 2016 through the first half of 2017 was a major mobile handset provider. The productionvolume for this mobile handset peaked in the fourth quarter of fiscal 2016, and the associated revenue stream has declined in subsequent quarters as theend product completes its lifecycle. At this time, there is no guarantee that our products will be included in this provider's next generation handset, nor in anyof its other devices. Any significant loss of, or a significant reduction in purchases by, one or more of these customers or their failure to meet theircommitments to us, could have an adverse effect on our financial condition and results of operations. If any one or more of our concentrated groups ofcustomers were to experience significantly adverse financial conditions, our financial condition and business could be adversely affected as well.Our success and future revenue depends on our ability to innovate, develop and introduce new products that achieve customer and marketacceptance and to successfully compete in the highly competitive semiconductor industry, and failure to do so could have a material adverse effecton our financial condition and results of operations.The semiconductor industry is highly competitive and many of our direct and indirect competitors have substantially greater financial, technological,manufacturing, marketing, and sales resources. Consolidation in our industry may increasingly mean that our competitors have greater resources, or othersynergies, that could put us at a competitive disadvantage. We currently compete directly with companies that have licensed our technology or havedeveloped similar products, as well as numerous semiconductor companies that offer products based on alternative solutions, such as applicationsprocessor, application specific standard product, microcontroller, analog, and digital signal processing technologies. Competition from these semiconductorcompanies may intensify as we offer more products in any of our end markets. These competitors include established, multinational semiconductorcompanies, as well as emerging companies.12Table of ContentsThe markets in which we compete are characterized by rapid technology and product evolution, generally followed by a relatively longer process of rampingup to volume production on advanced technologies. Our markets are also characterized by evolving industry standards, frequent new product introduction,short product life cycles, and increased demand for higher levels of integration and smaller process geometry. Our competitive position and success dependson our ability to innovate, develop, and introduce new products that compete effectively on the basis of price, density, functionality, power consumption, formfactor, and performance addressing the evolving needs of the markets we serve. These new products typically are more technologically complex than theirpredecessors.Our future growth and the success of new product introductions depend upon numerous factors, including:•timely completion and introduction of new product designs;•ability to generate new design opportunities and design wins, including those which result in sales of significant volume;•availability of specialized field application engineering resources supporting demand creation and customer adoption of new products;•ability to utilize advanced manufacturing process technologies;•achieving acceptable yields and obtaining adequate production capacity from our wafer foundries and assembly and test subcontractors;•ability to obtain advanced packaging;•availability of supporting software design tools;•utilization of predefined IP logic;•market acceptance of our MHL-enabled and wireless mobile products, and our 60 GHz wireless products;•customer acceptance of advanced features in our new products;•availability of competing alternative technologies; and•market acceptance of our customers' products.Our product innovation and development efforts may not be successful; our new products, MHL-enabled products, and 60GHz wireless products may notachieve market or customer acceptance; and we may not achieve the necessary volume of production to achieve acceptable cost. Revenue relating to ourmature products is expected to decline in the future, which is normal for our product life cycles. As a result, we may be increasingly dependent on revenuederived from our newer products as well as anticipated cost reductions in the manufacture of our current products. We rely on obtaining yield improvementsand corresponding cost reductions in the manufacture of existing products and on introducing new products that incorporate advanced features and otherprice/performance factors that enable us to increase revenues while maintaining acceptable margins. To the extent such cost reductions and new productintroductions do not occur in a timely manner, or that our products do not achieve market acceptance or market acceptance at acceptable pricing, ourforecasts of future revenue, financial condition, and operating results could be materially adversely affected.Our outstanding indebtedness could reduce our strategic flexibility and liquidity and may have other adverse effects on our results of operations.In connection with our acquisition of Silicon Image, we entered into a secured Credit Agreement providing for a $350 million term loan that matures on March10, 2021. Our obligations under the Credit Agreement are guaranteed by our U.S. subsidiaries. Our obligations include a requirement to pay up to 75% of ourexcess cash flow toward repayment of the facility. The Credit Agreement also contains certain restrictive covenants, including limitations on liens, mergersand consolidations, sales of assets, payment of dividends, and additional indebtedness. The amount and terms of our indebtedness, as well as our creditrating, could have important consequences, including the following:•we may be more vulnerable to economic downturns, less able to withstand competitive pressures, and less flexible in responding to changing businessand economic conditions;•our cash flow from operations may be allocated to the payment of outstanding indebtedness, and not to research and development, operations orbusiness growth;•we might not generate sufficient cash flow from operations or other sources to enable us to meet our payment obligations under the facility and to fundother liquidity needs;•our ability to make distributions to our stockholders in a sale or liquidation may be limited until any balance on the facility is repaid in full; and•our ability to incur additional debt, including for working capital, acquisitions, or other needs, is more limited.If we breach a loan covenant, the lenders could accelerate the repayment of the term loan. We might not have sufficient assets to repay such indebtednessupon acceleration. If we are unable to repay the indebtedness, the lenders could initiate a bankruptcy proceeding against us or collection proceedings withrespect to our assets and subsidiaries securing the facility, which could materially decrease the value of our common stock.13Table of ContentsThe intellectual property licensing component of our business strategy increases our business risk and fluctuation of our revenue.Our business strategy includes licensing our intellectual property to companies that incorporate it into their respective technologies that address markets inwhich we do not directly participate or compete. We also license our intellectual property into markets where we do participate and compete. Our licensingand services revenue may be impacted by the introduction of new technologies by customers in place of the technologies based on our intellectual property,changes in the law that may weaken our ability to prevent the use of our patented technology by others, the expiration of our patents, and changes of sellingprices for products using licensed patents. We cannot assure that our licensing customers will continue to license our technology on commercially favorableterms or at all, or that these customers will introduce and sell products incorporating our technology, accurately report royalties owed to us, pay agreed uponroyalties, honor agreed upon market restrictions, or maintain the confidentiality of our proprietary information, or will not infringe upon or misappropriate ourintellectual property. Our intellectual property licensing agreements are complex and depend upon many factors, including completion of milestones,allocation of values to delivered items and customer acceptances. Many of these require significant judgments. Additionally, this is a relatively new endmarket for us, with which we do not yet have extensive experience.We have also generated revenue from the sale of certain patents from our portfolio, generally for technology that we are no longer actively developing. Whilewe plan to continue to monetize our patent portfolio through sales of non-core patents, we may not be able to realize adequate interest or prices for thosepatents. Accordingly, we cannot provide assurance that we will continue to generate revenue from these sales. In addition, although we seek to be strategicin our decisions to sell patents, we might incur reputational harm if a purchaser of our patents sues one of our customers for infringement of the purchasedpatent, and we might later decide to enter a space that requires the use of one or more of the patents we sold. In addition, as we sell groups of patents, we nolonger have the opportunity to license those patents and receive a continuing royalty stream.Our licensing and services revenue fluctuates, sometimes significantly, from period to period because it is heavily dependent on a few key transactions beingcompleted in a given period, the timing of which is difficult to predict and may not match our expectations. Because of its high margin, the licensing andservices revenue portion of our overall revenue can have a disproportionate impact on gross profit and profitability. Generating revenue from intellectualproperty licenses is a lengthy and complex process that may last beyond the period in which our efforts begin, and the accounting rules governing therecognition of revenue from intellectual property licensing transactions are increasingly complex and subject to interpretation. As a result, the amount oflicense revenue recognized in any period may differ significantly from our expectations.The semiconductor industry routinely experiences cyclical market patterns and a significant industry downturn could adversely affect our operatingresults.Our revenue and gross margin can fluctuate significantly due to downturns in the semiconductor industry. These downturns can be severe and prolongedand can result in price erosion and weak demand for our products. Weak demand for our products resulting from general economic conditions affecting theend markets we serve or the semiconductor industry specifically and reduced spending by our customers can result, and in the past has resulted, in excessand obsolete inventories and corresponding inventory write-downs. The dynamics of the markets in which we operate make prediction of and timely reactionto such events difficult. Due to these and other factors, our past results are not reliable predictors of our future results.Our expense levels are based, in part, on our expectations of future sales. Many of our expenses, particularly those relating to facilities, capital equipment,and other overhead, are relatively fixed. We might be unable to reduce spending quickly enough to compensate for reductions in sales. Accordingly,shortfalls in sales could adversely affect our operating results.General economic conditions and deterioration in the global business environment could have a material adverse effect on our business, operatingresults, and financial condition.Adverse economic conditions or our customers’ perceptions of the economic environment may negatively affect customer demand for our products andservices and result in delayed or decreased spending. Weak global economic conditions in the past have resulted in weak demand for our products in certaingeographies and had an adverse impact on our results of operations. If global economic conditions weaken, our business could be harmed due to customersor potential customers reducing or delaying orders. In addition, the inability of customers to obtain credit, the insolvency of one or more customers, or theinsolvency of key suppliers could result in sales or production delays. Any of these effects could impact our ability to effectively manage inventory levels andcollect receivables, require additional restructuring actions, and decrease our revenue and profitability. Uncertainty about future economic conditions makesit difficult for us to forecast operating results and to make decisions about future investments. Any or all of these factors could adversely affect our financialcondition and results of operations in the future.14Table of ContentsWe may experience difficulties in transitioning to smaller geometry process technologies or in achieving higher levels of design integration, whichmay result in reduced manufacturing yields, delays in product deliveries, and increased expenses.To remain competitive, we expect to continue to transition our semiconductor products to increasingly smaller geometries. This requires us to change themanufacturing processes for our products and to redesign some products as well as standard cells and other integrated circuit designs we may use inmultiple products. We periodically evaluate the benefits, on a product-by-product basis, of migrating to smaller geometry process technologies to reduce ourcosts. The transition to lower nanometer geometry process technologies will result in significantly higher mask and prototyping costs, as well as additionalexpenditures for engineering design tools.We depend on our relationships with our foundry partners to transition to smaller geometry processes successfully. We make no assurance that our foundrypartners will be able to effectively manage the transition in a timely manner, or at all. If we or any of our foundry partners experience significant delays in thistransition or fail to efficiently implement this transition, we could experience reduced manufacturing yields, delays in product deliveries, and increasedexpenses, all of which could adversely affect our relationships with our customers and our financial condition and operating results.Foreign sales, accounting for the majority of our revenue, are subject to various risks associated with selling in international markets, which couldhave a material adverse effect on our operations, financial condition, and results of operations.We derive the majority of our revenue from sales outside of the United States. Accordingly, if we experience a decline in foreign sales, our operating resultscould be adversely affected. Our foreign sales are subject to numerous risks, including:•changes in local economic conditions;•currency exchange rate volatility;•governmental stimulus packages, controls, and trade restrictions;•governmental policies that promote development and consumption of domestic products;•export license requirements, foreign trade compliance matters, and restrictions on the use of technology;•political instability, war, terrorism, or pandemic disease;•changes in tax rates, tariffs, or freight rates;•reduced protection for intellectual property rights;•longer receivable collection periods;•natural or man-made disasters in the countries where we sell our products;•interruptions in transportation;•interruptions in the global communication infrastructure; and•labor regulations.Any of these factors could adversely affect our financial condition and results of operations in the future.We have significant international operations exposing us to various economic, regulatory, political, and business risks, which could have a materialadverse effect on our operations, financial condition, and results of operations.We have significant international operations, including foreign sales offices to support our international customers and distributors, and operational andresearch and development sites in China, India, the Philippines, and other Asian locations. In addition, we purchase our wafers from foreign foundries; haveour commercial products assembled, packaged, and tested by subcontractors located outside of the United States; and rely on an international serviceprovider for inventory management, order fulfillment, and direct sales logistics.These and other integral business activities outside of the United States are subject to the risks and uncertainties associated with conducting business inforeign economic and regulatory environments including trade barriers; economic sanctions; environmental regulations; import and export regulations; dutiesand tariffs and other trade restrictions; changes in trade policies; anti-corruption laws; domestic and foreign governmental regulations; potential vulnerabilityof and reduced protection for intellectual property; disruptions or delays in production or shipments; and instability or fluctuations in currency exchange rates,any of which could have a material adverse effect on our business, financial condition, and operating results. In addition, with the acquisition of Silicon Image,we have increased the operational challenges of conducting our business in and across multiple geographic regions around the world, especially in the faceof different business practices, social norms, and legal standards.Moreover, our financial condition and results of operations could be affected in the event of political instability, including as a result of the United Kingdomreferendum on June 23, 2016, in which voters approved an exit from the European Union (commonly referred to as "Brexit"), terrorist activity, U.S. or othermilitary actions, or economic crises in countries where our main wafer suppliers, end customers, contract manufacturers, and logistics providers are located.15Table of ContentsThe Mobile and Consumer end market is rapidly changing and cyclical, and a downturn in this end market or our failure to accurately predict thefrequency, duration, timing, and severity of these cycles could adversely affect our financial condition and results.With the acquisition of Silicon Image, the Mobile and Consumer end market has increased in importance to us. Revenue from the Mobile and Consumer endmarket accounted for 28% of our revenue in fiscal 2017. Revenue from the Mobile and Consumer end market consists primarily of revenue from our productsdesigned and used in a broad range of consumer electronics products including smartphones, tablets and e-readers, wearables, accessories such aschargers and docks, Ultra High-Definition (UHD) TVs, Digital SLR cameras, drones, and other connected devices. This market is characterized by rapidlychanging requirements and product features and volatility in consumer demand. Our success in this market will depend principally on our ability to:•meet the market windows for consumer products;•predict technology and market trends;•develop IP cores to meet emerging market needs;•develop products on a timely basis;•maintain multiple design wins across different markets and customers to dampen the effects of market volatility;•be designed into our customers' products; and•avoid cancellations or delay of products.Our inability to accomplish any of the foregoing, or to offset the volatility of this end market through diversification into other markets, could materially andadversely affect our business, financial condition, and results of operations. Cyclicality in the Mobile and Consumer end market could periodically result inhigher or lower levels of revenue and revenue concentration with a single or small number of customers. In addition, rapid changes in this market may affectdemand for our products, and may cause our revenue derived from sales in this market to vary significantly over time, adversely affecting our financial results.A downturn in the Communications and Computing end market could cause a meaningful reduction in demand for our products and limit our ability tomaintain revenue levels and operating results.Revenue from the Communications and Computing end market accounted for 29% of our revenue in fiscal 2017. Three of our top five programmable logiccustomers participate primarily in the Communications and Computing end market. In the past, cyclical weakening in demand for programmable logicproducts from customers in the Communications and Computing end market has adversely affected our revenue and operating results. In addition,telecommunication equipment providers are building network infrastructure for which we compete for product sales. Any deterioration in the Communicationsand Computing end market, our end customers' reduction in spending, or a reduction in spending by their customers to support this end market or use of ourcompetitors’ products could lead to a reduction in demand for our products which could adversely affect our revenue and results of operations. This type ofdecline impacted our results in the past and could do so again in the future.A single large customer may be in a position to demand certain functionality, pricing or timing requirements that may detract from or interfere withour normal business activities. If this happens, delays in our normal development schedules could occur, causing our products to miss marketwindows, thereby reducing the total number of units sold of a particular product.The products we develop are complex and require significant planning and resources. In the Mobile and Consumer end market, new products are typicallyintroduced early in the year, often in association with key trade shows. In order to meet these deadlines, our customers must complete their productdevelopment by year-end, which usually means we must ship sample parts in early spring. If we cannot ship sample parts in early spring, customers may beforced to remove the feature provided by our product, use a competitor’s product, or use an alternate technology in order to meet their timelines. We plan ourproduct development with these market windows in mind, but if we receive requests from a large customer to deploy resources to meet their requirements orwork on a specific solution, our normal development path could be delayed, causing us to miss sample deadlines and therefore future revenues.We rely on information technology systems, and failure of these systems to function properly may cause business disruptions.We rely in part on various information technology ("IT") systems to manage our operations, including financial reporting, and we regularly make changes toimprove them as necessary by periodically implementing new, or upgrading or enhancing existing, operational and IT systems, procedures, and controls. Wehave undergone a significant integration and systems implementation following the acquisition of Silicon Image.We have recently implemented a new enterprise resource planning ("ERP") system to standardize our processes worldwide and adopt best-in-classcapabilities. We converted to the new ERP system at the beginning of the second quarter of fiscal 2017. We have committed significant resources to this newERP system, which replaces multiple legacy systems, and realizing the full functionality of this conversion is extremely complex, in part, because of the widerange of processes and the multiple legacy systems that must be integrated.16Table of ContentsAs a result of the conversion process and during our initial use of the new ERP system, we may experience delays or disruptions in the integration of our newor enhanced systems, procedures, or controls. We may also encounter errors in data, an inability to accurately process or record transactions, and security ortechnical reliability issues. All of these could harm our ability to conduct core operating functions such as processing invoices, shipping and receiving,recording and reporting financial and management information on a timely and accurate basis, and could impact our internal control compliance efforts. If thetechnical solution or end user training are inadequate, it could limit our ability to manufacture and ship products as planned.These systems are also subject to power and telecommunication outages or other general system failures. Failure of our IT systems or difficulties or delays inmanaging and integrating them could impact the company's ability to perform necessary operations, which could materially adversely affect our business.Acquisitions, strategic investments and strategic partnerships present risks, and we may not realize the goals that were contemplated at the time of atransaction.On March 10, 2015, we acquired Silicon Image, and we may make further acquisitions and strategic investments in the future. Acquisitions and strategicinvestments, including our acquisition of Silicon Image, present risks, including:•our ongoing business may be disrupted and our management's attention may be diverted by investment, acquisition, transition, or integration activities;•an acquisition or strategic investment may not perform as well or further our business strategy as we expected, and we may not integrate an acquiredcompany or technology as successfully as we expected;•we may incur unexpected costs, claims, or liabilities that we assume from an acquired company or technology or that are otherwise related to anacquisition;•we may discover adverse conditions post-acquisition that are not covered by representations and warranties;•we may increase some of our risks, such as increasing customer or end product concentration;•we may have difficulty incorporating acquired technologies or products with our existing product lines;•we may have higher than anticipated costs in continuing support and development of acquired products, and in general and administrative functions thatsupport such products;•we may have difficulty integrating and retaining key personnel;•we may have difficulty integrating business systems, processes, and tools, such as accounting software, inventory management systems, or revenuesystems which may have an adverse effect on our business;•our liquidity and/or capital structure may be adversely impacted;•our strategic investments may not perform as expected;•we may experience unexpected changes in how we are required to account for our acquisitions and strategic investments pursuant to U.S. GAAP;•we may have difficulty integrating acquired entities into our global tax structure with potentially negative impacts on our effective tax rate;•if the acquisition or strategic investment does not perform as projected, we might take a charge to earnings due to impaired goodwill;•we may divest certain assets of acquired businesses, leading to charges against earnings;•we may experience unexpected negative responses from vendors or customers to the acquisition, which may adversely impact our operations; and•we may have difficulty integrating the processes and control environment.The occurrence of any of these risks could have a material adverse effect on our business, results of operations, financial condition, or cash flows, particularlyin the case of a larger acquisition or several concurrent acquisitions or strategic investments. In addition, we may enter into strategic partnerships with thirdparties with the goal of gaining access to new and innovative products and technologies. Strategic partnerships pose many of the same risks as acquisitionsor investments.We cannot guarantee that we will be able to complete any future acquisitions or that we will realize any anticipated benefits from any of our past or futureacquisitions, strategic investments, or strategic partnerships. We may not be able to find suitable acquisition opportunities that are available at attractivevaluations, if at all. A sustained decline in the price of our common stock may make it more difficult and expensive to initiate or complete additionalacquisitions on commercially acceptable terms.We are required under U.S. GAAP to test goodwill for possible impairment on an annual basis and to test goodwill and long-lived assets, includingamortizable intangible assets, for impairment at any other time that circumstances arise indicating the carrying value may not be recoverable. For purposes oftesting goodwill for impairment, the Company currently operates as one reporting unit: the core Lattice ("Core") business, which includes intellectual propertyand semiconductor devices. No impairment charges related to goodwill were recorded in either fiscal year 2017 or 2016, and no impairment charges relatedto goodwill were recorded for the Core segment in fiscal 2015. Impairment charges related to amortizable intangible assets from the Silicon Image acquisitiontotaled approximately $32.4 million and $7.9 million in fiscal years 2017 and 2016, respectively. There is no assurance that future impairment tests willindicate that goodwill or amortizable intangible assets will be deemed recoverable. As we continue to review our business operations and test for impairmentor in connection with possible sales of assets, we may have impairment charges in the future, which may be material.17Table of ContentsA number of factors, including our inventory strategy, can impact our gross margins.A number of factors, including how products are manufactured to support the consumer market segment, yield, wafer pricing, cost of packaging raw materials,product mix, market acceptance of our new products, competitive pricing dynamics, geographic and/or end market mix, and pricing strategies, can cause ourgross margins to fluctuate significantly either positively or negatively from period to period. In addition, forecasting our gross margins is difficult because asignificant portion of our business is based on turns within the same quarter.Our customers typically test and evaluate our products prior to deciding to design our product into their own products, and then require additional time tobegin volume production of those products. This lengthy sales cycle may cause us to experience significant delays and to incur additional inventory costsuntil we generate revenue from our products. It is possible that we may never generate any revenue from products after incurring significant expenditures.While our sales cycles are typically long, our average product life cycles tend to be short as a result of the rapidly changing technology environment in whichwe operate. In addition, our inventory levels may be higher than historical norms, from time to time, due to inventory build decisions aimed at meetingexpected demand from a single large customer, reducing direct material cost or enabling responsiveness to expected demand. In the event the expecteddemand does not materialize, or if our short sales cycle does not generate sufficient revenue, we may be subject to incremental excess and obsolescencecosts. In addition, future product cost reductions could impact our inventory valuation, which could adversely affect our operating results.We and our connectivity customers depend on the availability of certain functions and capabilities within mobile and personal computing operatingsystems over which we may have no control. New releases of these operating systems may render certain of our products inoperable or may requiresignificant engineering effort to create new device driver software.Certain portions of our business operate within a market that is dominated by a few key OEMs. These OEMs could play a role in driving the growth of ourbusiness or could prevent our growth through deliberate or non-deliberate action. We do not have a presence in the Windows eco-system or in all iOS orAndroid devices. Our success and ability to grow depend upon our ability to continue to be successful within the iOS and Android eco-systems or gainsignificant traction within the Windows eco-system. Failure to maintain and grow our presence in these key eco-systems could adversely affect unit volumes.Further, many of our products depend on the availability of certain functionality in the device operating system, typically Android, Linux, Windows, or iOS.Certain operating system primitives are needed to support video output. We have no control over these operating systems or the companies that producethem, and it is unlikely that we could influence any internal decision these companies make that may have a negative impact on our integrated circuits andtheir function. Updates to these operating systems that, for example, change the way video is output or remove the ability to output video could materiallyaffect sales of MHL and HDMI integrated circuits.Products targeted to personal computing or mobile, laptop, or notebook designs often require device driver software to operate. This software is difficult toproduce and may require certifications before being released. Failure to produce this software could have a negative impact on our relation with operatingsystem providers and may damage our reputation with end consumers as a quality supplier of products.Shortages in, or increased costs of, wafers and materials could adversely impact our gross margins and lead to reduced revenues.Worldwide manufacturing capacity for silicon wafers is relatively inelastic. If the demand for silicon wafers or assembly material materially exceeds marketsupply, our supply of silicon wafers or assembly material could quickly become limited. A shortage in manufacturing capacity could hinder our ability to meetproduct demand and therefore reduce our revenue. In addition, silicon wafers constitute a material portion of our product cost. If we are unable to purchasewafers at favorable prices, our gross margins will be adversely affected.We depend on independent contractors for most of our assembly and test services, and disruption of their services, or an increased in cost of theseservices, could negatively impact our financial condition and results of operations.We depend on subcontractors to assemble, test, and ship our products with acceptable quality and yield levels. Our operations and operating results may beadversely affected if we experience problems with our subcontractors that impact the delivery of product to our customers. Those problems may include:prolonged inability to obtain wafers or packaging materials with competitive performance and cost attributes; inability to achieve adequate yields or timelydelivery; disruption or defects in assembly, test, or shipping services; or delays in stabilizing manufacturing processes or ramping up volume for newproducts. Economic conditions may adversely impact the financial health and viability of our subcontractors and result in their inability to meet theircommitments to us resulting in product shortages, quality assurance problems, reduced revenue, and/or increased costs which could negatively impact ourfinancial condition and results of operations.18Table of ContentsIn the past, we have experienced delays in obtaining assembled and tested products and in securing assembly and test capacity commitments from oursuppliers. We currently anticipate that our assembly and test capacity commitments are adequate; however, these existing commitments may not be sufficientfor us to satisfy customer demand in future periods. We negotiate assembly and test prices and capacity commitments from our contractors on a periodicbasis. If any of our assembly or test contractors reduce their capacity commitment or increase their prices, and we cannot find alternative sources, ouroperating results could be adversely affected.We rely on independent software and hardware developers and disruption of their services could negatively affect our operations and financialresults.We rely on independent software and hardware developers for the design, development, supply, and support of intellectual property cores; design anddevelopment software; and certain elements of evaluation boards. As a result, failure or significant delay to complete software or deliver hardware inaccordance with our plans, specifications, and agreements could disrupt the release of or introduction of new or existing products, which could be detrimentalto the capability of our new or existing products to win designs. Any of these delays or inability to complete the design or development could have an adverseeffect on our business, financial condition, or operating results.Our participation in HDMI and MHL has included our acting as agent for these consortia for which we have been receiving adopter fees. We no longeract as agent for the HDMI standard and there is no guarantee that we will continue to act as agent for the MHL standard. Accordingly, we now receivea reduced share of HDMI adopter fees and we could in the future lose MHL adopter fees.Through our wholly owned subsidiary, HDMI Licensing, LLC, we acted as agent of the HDMI consortium until December 31, 2016 and were responsible forpromoting and administering the specification. We received all of the adopter fees paid by adopters of the HDMI specification in connection with our role asagent. In September 2016, the founders of the HDMI consortium ("Founders"), of which we are a member, amended the Founders Agreement resulting inchanges to our role as agent for the HDMI consortium and to the model for sharing adopter fee revenues. Under the terms of the agreement, our role as theagent was terminated effective January 1, 2017 and a new independent entity was appointed to act as the new HDMI licensing agent with responsibility forlicensing and the distribution of royalties among Founders. As a result of the amended model for sharing adopter fee revenue, we will be entitled to a reducedshare of adopter fees paid by parties adopting the HDMI standard.In addition, another member of the HDMI consortium asserts that we owe the other HDMI consortium founders their respective shares of any HDMI adopterfees not used by us in the marketing and other activities in furtherance of the HDMI standard from our time as agent. The consortium member has previouslyindicated its belief that the HDMI founders enjoy a right to these funds but has never pursued such claim. If a determination is made that there were excessadopter fees or if it is determined that we were obligated to share such fees with other consortium members, it could negatively impact our financial position.At this stage of the proceedings, we do not have an estimate of the likelihood or the amount of any financial consequences to us.We share HDMI royalties with the other HDMI founders based on an allocation formula, which is reviewed every three years. The most recent royalty sharingformula covered the period from January 1, 2014 through December 31, 2016, and a new agreement is yet to be signed. Our portion of the royalty allocationhas declined for the last several years. In 2015, we received between 24% and 25% of the royalty allocation, while for 2016, we received 20% of the royaltyallocation. The royalty allocation for 2017 and future years is not yet known but may decline. If the level continues to decline, our financial performance couldbe adversely affected. In addition, delays in the signing of new royalty sharing agreements impacted our timing of revenue recognition and ability torecognize revenue related to the royalties in fiscal 2017. With our adoption of ASU 2014-09, Revenue from Contracts with Customers (Topic 606) as of thebeginning of fiscal 2018, we will recognize revenue related to royalties based on estimates of the amounts we will be entitled to receive, and these estimatescould differ materiality from actual royalty sharing amounts.Through our wholly owned subsidiary, MHL, LLC, we act as agent of the MHL specification and are responsible for promoting and administering thespecification. As agent, we are entitled to receive license fees paid by adopters of the MHL specification sufficient to reimburse us for the costs we incur topromote and administer the specification. Given the limited number of MHL adopters to date, we do not believe the license fees paid by such adopters will besufficient to reimburse us for these costs and we make no assurance that the license fees paid by MHL adopters will ever be sufficient to reimburse us thecosts we incur as agent of the specification.We currently intend to promote and continue to be involved and actively participate in other standard setting initiatives. For example, through Silicon Image’sacquisition of SiBEAM, Inc. in May 2011, it achieved SiBEAM’s prior position as founder and chair of the WirelessHD Consortium. We may decide to licenseadditional elements of our intellectual property to others for use in implementing, developing, promoting, or adopting standards in our target markets, incertain circumstances at little or no cost. This may make it easier for others to compete with us in such markets. In addition, even if we receive license fees orroyalties in connection with the licensing of our intellectual property, we make no assurance that such license fees or royalties will compensate usadequately.19Table of ContentsOur failure to control unauthorized access to our IT systems may cause problems with key business partners or liability.We may be subject to unauthorized access to our IT systems through a security breach or cyber-attack. In the ordinary course of our business, we maintainsensitive data on our networks, including our intellectual property and proprietary or confidential business information relating to our business and that of ourcustomers and business partners. The secure maintenance of this information is critical to our business and reputation. We believe that companies havebeen increasingly subject to a wide variety of security incidents, cyber-attacks, and other attempts to gain unauthorized access. Cyber-attacks have becomemore prevalent and much harder to detect and defend against. Our network and storage applications may be subject to unauthorized access by hackers orbreached due to operator error, malfeasance, or other system disruptions. It is often difficult to anticipate or immediately detect such incidents and to assessthe damage caused by them. In the past, third parties have attempted to penetrate and/or infect our network and systems with malicious software in an effortto gain access to our network and systems.These data breaches and any unauthorized access or disclosure of our information or intellectual property could compromise our intellectual property andexpose sensitive business information. Cyber-attacks could also cause us to incur significant remediation costs, result in product development delays, disruptkey business operations, and divert attention of management and key information technology resources. Our reputation, brand, and business could besignificantly harmed, and we could be subject to third party claims in the event of such a security breach.Recent tax law changes and our global organizational structure and operations expose us to unanticipated tax consequences.Our legal organizational structure could result in unanticipated unfavorable tax or other consequences which could have an adverse effect on our financialcondition and results of operations. We have a global tax structure to more effectively align our corporate structure with our business operations includingresponsibility for sales and purchasing activities. We created new and realigned existing legal entities; completed intercompany sales of rights to intellectualproperty, inventory, and fixed assets across different tax jurisdictions; and implemented cost-sharing and intellectual property licensing and royaltyagreements between our legal entities. We currently operate legal entities in countries where we conduct supply-chain management, design, and salesoperations around the world. In some countries, we maintain multiple entities for tax or other purposes. In addition, we are currently conducting furtherrestructuring activities following our acquisition of Silicon Image as we integrate Silicon Image and its subsidiaries, which include numerous foreign entities,into our existing global tax and corporate structures. These integration activities, changes in tax laws, regulations, future jurisdictional profitability of theCompany and its subsidiaries, and related regulatory interpretations in the countries in which we operate may impact the taxes we pay or tax provision werecord, which could adversely affect our results of operations.We are subject to taxation in the United States, Singapore, and other countries. Future effective tax rates could be affected by changes in the composition ofearnings in countries with differing tax rates, changes in the valuation of deferred tax assets and liabilities, or changes in tax laws. We compute our effectivetax rate using actual jurisdictional profits and losses. Changes in the jurisdictional mix of profits and losses may cause fluctuations in the effective tax rate.Adverse changes in tax rates, our tax assets, and tax liabilities could negatively affect our results in the future.We make no assurance as to what taxes we pay or the ability to estimate our future effective tax rate because of, among other things, uncertainty regardingthe tax policies of the jurisdictions where we operate. In particular, we anticipate that the Tax Cuts and Jobs Act, enacted December 22, 2017, will impact us.While we are able to quantify or estimate the effects of some of the provisions now in the act, we do not know of all of the rules the Internal Revenue Service("IRS") will enact to fully implement the tax law changes, or the IRS’ interpretations of the changes. We also continue to analyze and understand the changesand the impacts on us, including the indirect impacts that result from how our industry or we might modify behaviors in a response to the new tax lawstructure. We also provide no assurance that estimates we provide to quantify the effect of the changes may be accurate.Product quality problems could lead to reduced revenue, gross margins, and net income.In general, we warrant our products for varying lengths of time against non-conformance to our specifications and certain other defects. Because ourproducts, including hardware, software, and intellectual property cores, are highly complex and increasingly incorporate advanced technology, our qualityassurance programs may not detect all defects, whether manufacturing defects in individual products or systematic defects that could affect numerousshipments. Inability to detect a defect could result in a diversion of our engineering resources from product development efforts, increased engineeringexpenses to remediate the defect, and increased costs due to customer accommodation or inventory impairment charges. On occasion we have alsorepaired or replaced certain components, made software fixes, or refunded the purchase price or license fee paid by our customers due to product orsoftware defects. If there are significant product defects, the costs to remediate such defects, net of reimbursed amounts from our vendors, if any, or to resolvewarranty claims may adversely affect our revenue, gross margins, and net income.20Table of ContentsWe may have difficulty implementing the new revenue recognition requirements. Although we have spent considerable time preparing to implement new Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts withCustomers (Topic 606), we do not have extensive experience with the new requirements in practice. The SEC requires us to publish our financial results inshort time frames, which could result in our having difficulty actually implementing the new requirements as intended within the proscribed financial reportingperiods. We provide no assurance that our current estimates of the effects of ASU No. 2014-09 contained elsewhere in this Annual Report are accurate.The nature of our business makes our revenue and gross margin subject to fluctuation and difficult to predict with accuracy, which could have anadverse impact on our business and our ability to provide forward-looking revenue and gross margin guidance.In addition to the challenging market conditions we may face, we have limited visibility into the demand for our products, particularly new products, becausedemand for our products depends upon our products being designed into our end customers' products and those products achieving market acceptance.Due to the complexity of our customers' designs, the design to volume production process for many of our customers requires a substantial amount of time,frequently longer than a year. In addition, we are dependent upon "turns," orders received and turned for shipment in the same quarter. These factors make itdifficult for us to accurately forecast future sales and project quarterly revenues. The difficulty in forecasting future sales weakens our ability to project ourinventory requirements, which could result, and in the past has resulted, in inventory write-downs or failure to meet customer product demands in a timelymanner. While we may give guidance, the difficulty in forecasting revenues as well as the relative customer and product mix of those revenues limits ourability to provide accurate forward-looking revenue and gross margin guidance.Reductions in the average selling prices of our products could have a negative impact on our gross margins.The average selling prices of our products generally decline as the products mature or may decline as we compete for market share or customer acceptancein competitive markets. We seek to offset the decrease in selling prices through yield improvement, manufacturing cost reductions, and increased unit sales.We also seek to continue to develop higher value products or product features that increase, or slow the decline of, the average selling price of our products.However, we cannot guarantee that our ongoing efforts will be successful or that they will keep pace with the decline in selling prices of our products, whichcould ultimately lead to a decline in revenues and have a negative effect on our gross margins.If we are unable to adequately protect our intellectual property rights, our financial results and our ability to compete effectively may suffer.Our success depends in part on our proprietary technology and we rely upon patent, copyright, trade secret, mask work, and trademark laws to protect ourintellectual property. We intend to continue to protect our proprietary technology, however, we may be unsuccessful in asserting our intellectual propertyrights or such rights may be invalidated, violated, circumvented, or challenged. From time to time, third parties, including our competitors, have assertedagainst us patent, copyright, and other intellectual property rights to technologies that are important to us. Third parties may attempt to misappropriate ourintellectual property through electronic or other means or assert infringement claims against us in the future. Such assertions by third parties may result incostly litigation, indemnity claims, or other legal actions, and we may not prevail in such matters or be able to license any valid and infringed patents fromthird parties on commercially reasonable terms. This could result in the loss of our ability to import and sell our products or require us to pay costly royalties tothird parties in connection with sales of our products. Any infringement claim, indemnification claim, or impairment or loss of use of our intellectual propertycould materially adversely affect our financial condition and results of operations.A material change in the agreements governing encryption keys we use could place additional restrictions on us, or our distributors or contractmanufacturers, which could restrict product shipment or significantly increase the cost to track products throughout the distribution chain.Many of the components in our products contain encryption keys used in connection with High Definition Content Protection (HDCP). The regulation anddistribution of these encryption keys are controlled through license agreements with Digital Content Protection (DCP), a wholly owned subsidiary of IntelCorporation. These license agreements have been modified by DCP from time to time, and such changes could impact us, our distributors, and ourcustomers. An important element of both HDMI and MHL is the ability to implement link protection for high definition (HD), and more recently, 4K UltraHD,content. We implement various aspects of the HDCP link protection within certain parts we sell. We also, for the benefit of our customers, include thenecessary HDCP encryption keys in parts we ship to customers. These encryption keys are provided to us from DCP. We have a specific process for trackingand handling these encryption keys. If DCP changes any of the tracking or handling requirements associated with HDCP encryption keys, we may berequired to change our manufacturing and distribution processes, which could adversely affect our manufacturing and distribution costs associated with theseproducts. If we cannot satisfy new requirements for the handling and tracking of encryption keys, we may have to cease shipping or manufacturing certainproducts.21Table of ContentsOur participation in consortia for the development and promotion of industry standards in certain of our target markets, including the HDMI, MHL, andWirelessHD standards, requires us to license some of our intellectual property for free or under specified terms and conditions, which makes it easierfor others to compete with us in such markets.An element of our business strategy includes participating in consortia to establish industry standards in certain of our target markets; promoting andenhancing specifications; and developing and marketing products based on those specifications and future enhancements. We intend to continueparticipating in consortia that develop and promote the HDMI, MHL, and WirelessHD specifications. In connection with our participation in these consortia, wemake certain commitments regarding our intellectual property, in each case with the effect of making certain of our intellectual property available to others,including our competitors, desiring to implement the specification in question. For example, we must license specific elements of our intellectual property toothers for use in implementing the HDMI specification, including enhancements, as long as we remain part of the consortium. Also, we must agree not toassert certain necessary patent claims against other members of the MHL consortium, even if those members may have infringed upon those patents inimplementing the MHL specification.Accordingly, certain companies that implement these specifications in their products may use specific elements of our intellectual property to compete with us.Although in the case of the HDMI and MHL consortia, there are annual fees and royalties associated with the adopters’ use of the technology, we make noassurance that our shares of such annual fees and royalties will adequately compensate us for having to license or refrain from asserting our intellectualproperty. In September 2016, the Founders of the HDMI consortium, of which we are a member, amended the Founders Agreement resulting in changes toour role as agent for the HDMI consortium and to the model for sharing adopter fee revenues. Under the terms of the agreement, our role as the agent wasterminated effective January 1, 2017 and a new independent entity was appointed to act as the new HDMI licensing agent with responsibility for licensingand the distribution of royalties among Founders. As a result of the amended model for sharing adopter fee revenue, we will be entitled to a reduced share ofadopter fees paid by parties adopting the HDMI standard.Our revenue depends, in part, on the continued adoption and widespread implementation of the HDMI and MHL specifications and the newimplementation and adoption of the WirelessHD specifications.Our future revenue depends, in part, upon the continued adoption and widespread implementation of the HDMI, MHL, and WirelessHD specifications. Fromtime to time, competing standards have been established which negatively affect the success of existing standards or jeopardize the creation of newstandards. Our failure to continue to drive innovation in the MHL specifications could have an adverse effect on our business going forward.MHL has not been widely adopted, and if manufacturers who have included MHL in their designs decide that MHL is no longer necessary or cost-effective asa product feature, they could choose to omit the MHL functionality (and our product) from their designs. Such decisions would adversely affect our revenues.We now have 60GHz wireless technology that we hope will be made widely available and adopted by the marketplace through the efforts of the WirelessHDconsortium and incorporated into certain of our future products. As with our HDMI and MHL products and intellectual property, our success with thistechnology will depend on our ability to introduce first-to-market WirelessHD-enabled semiconductor and intellectual property solutions to our customers andto continue to innovate within the WirelessHD standard. WiGig is an example of a competing 60GHz standard that has been created as an alternative high-bandwidth wireless connectivity solution for the personal computing industry. While the WiGig standard has not been in the market as long as the WirelessHDstandard, it does represent a viable alternative to WirelessHD for 60GHz connectivity. If WiGig should gain broader adoption before WirelessHD is adopted, itcould negatively impact the adoption of WirelessHD.As successor-in-interest to Silicon Image, we have granted Intel Corporation certain rights with respect to our intellectual property, which could allowIntel to develop products that compete with ours or otherwise reduce the value of our intellectual property.Silicon Image entered into a patent cross-license agreement with Intel in which each of them granted the other a license to use the patents filed by the grantorprior to a specified date, except for use related to identified types of products. We believe that the scope of this license to Intel excludes our current productsand anticipated future products. Intel could, however, exercise its rights under this agreement to use certain of our patents received in the acquisition ofSilicon Image to develop and market other products that compete with ours, without payment to us. Additionally, Intel’s rights to these patents could reducethe value of the patents to any third-party who otherwise might be interested in acquiring rights to use these patents in such products. Finally, Intel couldendorse competing products, including a competing digital interface, or develop its own proprietary digital interface. Any of these actions could substantiallyharm our business and results of operations.22Table of ContentsLitigation and unfavorable results of legal proceedings could adversely affect our financial condition and operating results.From time to time we are subject to various legal proceedings and claims that arise out of the ordinary conduct of our business. Certain claims are not yetresolved, including those that are discussed under Note 15 contained in the Notes to Consolidated Financial Statements, and additional claims may arise inthe future. Results of legal proceedings cannot be predicted with certainty. Regardless of merit, litigation may be both time-consuming and disruptive to ouroperations and cause significant expense and diversion of management attention and we may enter into material settlements to avoid these risks. Should wefail to prevail in certain matters, we may be faced with significant monetary damages or injunctive relief against us that could materially and adversely affectour financial condition and operating results and certain portions of our business.We depend upon a third party to provide inventory management, order fulfillment, and direct sales logistics and disruption of these services couldadversely impact our business and results of operations.We rely on a third party vendor to provide cost-effective and efficient supply chain services. Among other activities, these outsourced services relate to directsales logistics, including order fulfillment, inventory management and warehousing, and distribution of inventory to third party distributors. If our third partysupply chain provider were to discontinue services for us or its operations are disrupted as a result of a fire, earthquake, act of terrorism, political unrest,governmental uncertainty, war, disease, or other natural disaster or catastrophic event, or any other reason, our ability to fulfill direct sales orders anddistribute inventory timely, cost effectively, or at all, would be hindered, which could adversely affect our business.We may have failed to adequately insure against certain risks, and, as a result, our financial condition and results may be adversely affected.We carry insurance customary for companies in our industry, including, but not limited to, liability, property, and casualty; workers' compensation; andbusiness interruption insurance. We also insure our employees for basic medical expenses. In addition, we have insurance contracts that provide directorand officer liability coverage for our directors and officers. Other than the specific areas mentioned above, we are self-insured with respect to most other risksand exposures, and the insurance we carry in many cases is subject to a significant policy deductible or other limitation before coverage applies. Based onmanagement's assessment and judgment, we have determined that it is more cost effective to self-insure against certain risks than to incur the insurancepremium costs. The risks and exposures for which we self-insure include, but are not limited to, certain natural disasters, certain product defects, political risk,certain theft, patent infringement, and employment practice matters. Should there be a catastrophic loss due to an uninsured event (such as an earthquake)or a loss due to adverse occurrences in any area in which we are self-insured, our financial condition or operating results could be adversely affected.We compete with others to attract and retain key personnel, and any loss of, or inability to attract, such personnel could adversely affect our ability tocompete effectively.We depend on the efforts and abilities of certain key members of management and other technical personnel. Our future success depends, in part, upon ourability to retain such personnel and attract and retain other highly qualified personnel, particularly product engineers who can respond to market demandsand required product innovation. Competition for such personnel is intense and we may not be successful in hiring or retaining new or existing qualifiedpersonnel. From time to time we have effected restructurings which have eliminated a number of positions. Even if such personnel are not directly affected bythe restructuring effort, such terminations can have a negative impact on morale and our ability to attract and hire new qualified personnel in the future. If welose existing qualified personnel or are unable to hire new qualified personnel, as needed, we could have difficulty competing in our highly-competitive andinnovative environment.23Table of ContentsItem 1B. Unresolved Staff CommentsNone.Item 2. PropertiesOur corporate headquarters and executive office are in a 23,680 square foot of space leased in Portland, Oregon through March 2025. We also leased a47,800 square foot of space in Hillsboro, Oregon as a research and development facility through November 2022. We also currently lease a 98,874 squarefoot research and development facility in San Jose, California through September 2026.In Muntinlupa City, Philippines, we lease a total of 48,565 square feet through May 2025 and 1,938 square feet through June 2025 for research anddevelopment and operations facilities. In this location, we also lease another 2,856 square feet through April 2018.The March 2015 acquisition of Silicon Image added 128,154, 66,385 and 22,507 square feet of leased spaces in Sunnyvale, California, Shanghai, China andHyderabad, India through June 2018, May 2018 and December 2017, respectively. We terminated the Sunnyvale lease in February 2017 and the Hyderabadlease in September 2017.In Shanghai, China, we leased space for 3,212 square feet, prior to the acquisition of Silicon Image, which we terminated in November 2015. We also ownedan 18,869 square foot research and development facility in Shanghai, China, which we sold in August 2017. In this location, we also lease another 66,361square feet through May 2018.We also lease office facilities in multiple other metropolitan locations for our domestic and international sales staff. We believe that our existing facilities aresuitable and adequate for our current and foreseeable future needs.Item 3. Legal ProceedingsFrom time to time, we are exposed to certain asserted and unasserted potential claims. Periodically, we review the status of each significant matter andassess its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and a range of possible losses can beestimated, we then accrue a liability for the estimated loss. Legal proceedings are subject to uncertainties, and the outcomes are difficult to predict. Becauseof such uncertainties, accruals are based only on the best information available at the time. As additional information becomes available, we reassess thepotential liability related to pending claims and litigation and may revise estimates.Item 4. Mine Safety DisclosuresNot applicable.24Table of ContentsPART IIItem 5. Market for Registrant's Common Equity, Related StockholderMatters, and Issuer Purchases of Equity SecuritiesMarket Information Our common stock is traded on the NASDAQ Global Select Market under the symbol "LSCC". The following table sets forth the low and high intraday saleprices for our common stock for the last two fiscal years, as reported by NASDAQ. Low High2017: First Quarter$6.76 $7.55Second Quarter6.51 7.10Third Quarter5.05 7.03Fourth Quarter5.14 6.602016: First Quarter$4.02 $6.67Second Quarter4.89 6.47Third Quarter5.21 6.69Fourth Quarter5.91 7.99HoldersAs of March 2, 2018, we had approximately 240 stockholders of record.DividendsThe payment of dividends on our common stock is within the discretion of our Board of Directors. We intend to retain earnings to finance our business. Wehave never paid cash dividends.Recent Sales of Unregistered SecuritiesNone.Issuer Purchases of Equity SecuritiesNone.Comparison of Total Cumulative Stockholder ReturnThe following graph shows the five-year comparison of cumulative stockholder return on our common stock, the Standard and Poor's (“S&P”) 500 Index andthe Philadelphia Semiconductor Index (“PHLX”) from December 2012 through December 2017. Cumulative stockholder return assumes $100 invested at thebeginning of the period in our common stock, the S&P and PHLX. Historical stock price performance is not necessarily indicative of future stock priceperformance.25Table of ContentsLattice Cumulative Stockholder Return26Table of ContentsItem 6. Selected Financial Data Year Ended *STATEMENT OF OPERATIONS:December 30, 2017 December 31, 2016 January 2,2016 ** January 3, 2015 December 28, 2013(In thousands, except per share data) Revenue: Product$356,502 $390,704 $369,200 $366,127 $332,525Licensing and services29,459 36,350 36,766 — —Total Revenue385,961 427,054 405,966 366,127 332,525Costs and expenses: Cost of product revenue164,657 179,983 184,914 159,940 154,281Cost of licensing and services revenue4,725 637 1,143 — —Research and development103,357 117,518 136,868 88,079 80,966Selling, general, and administrative90,718 98,602 97,349 73,527 67,144Amortization of acquired intangible assets31,340 33,575 29,580 2,948 2,960Restructuring charges7,196 9,267 19,239 17 388Acquisition related charges3,781 6,305 22,450 — —Impairment of goodwill and acquiredintangible assets32,431 7,866 21,655 — —Gain on sale of building(4,624) — — — —Total costs and expenses433,581 453,753 513,198 324,511 305,739(Loss) Income from operations(47,620) (26,699) (107,232) 41,616 26,786Interest expense(18,807) (20,327) (18,389) (172) (152)Other (expense) income, net ***(3,286) 2,844 (1,072) 1,497 (148)(Loss) income before income taxes(69,713) (44,182) (126,693) 42,941 26,486Income tax expense (benefit)849 9,917 32,540 (5,639) 4,165Net (loss) income$(70,562) $(54,099) $(159,233) $48,580 $22,321 Net (loss) income per share: Basic$(0.58) $(0.45) $(1.36) $0.41 $0.19Diluted$(0.58) $(0.45) $(1.36) $0.40 $0.19 Shares used in per share calculations: Basic122,677 119,994 117,387 117,708 115,701Diluted122,677 119,994 117,387 120,245 117,081 BALANCE SHEET:December 30, 2017 December 31, 2016 January 2, 2016 January 3, 2015 December 28, 2013(In thousands) Cash, cash equivalents, and short-termmarketable securities$111,797 $116,860 $102,574 $254,844 $215,815Total assets$635,961 $766,883 $785,920 $510,530 $447,876Long term liabilities$334,621 $338,903 $369,223 $8,809 $3,588Total liabilities$418,268 $496,453 $480,400 $69,555 $62,196Total stockholders' equity$217,693 $270,430 $305,520 $440,975 $385,680 * The year ended January 3, 2015 was a 53-week year as compared to the other years presented, which were based on our standard 52-week year.** Our results for the year ended January 2, 2016 include the results associated with the acquisition of Silicon Image for the approximately 10-month period from March 11, 2015 through January 2, 2016. Results presented for periods prior to fiscal 2015 are those historically reported for Lattice only.*** Equity in net loss of an unconsolidated affiliate previously presented separately is now included in Other (expense) income, net for all periods presented. (see "Reclassifications" in Note 1 - Nature of Operations and Significant Accounting Policies to our Consolidated Financial Statements in Part II, Item 8).27Table of ContentsITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONSOverviewLattice Semiconductor and its subsidiaries (“Lattice,” the “Company,” “we,” “us,” or “our”) develops semiconductor technologies that we monetize throughproducts, solutions, and licenses. We engage in smart connectivity solutions, providing intellectual property ("IP") and low-power, small form-factor devicesthat enable global customers to quickly and easily develop innovative, smart, and connected products. We help their products become more aware, interactmore intelligently, and make better and faster connections. In an increasingly intense global technology market, we help our customers get their products tomarket faster than their competitors. Our broad end-market exposure extends from mobile devices and consumer electronics to industrial and automotiveequipment, communications and computing infrastructure, and licensing.Lattice was founded in 1983 and is headquartered in Portland, Oregon. We acquired Silicon Image, Inc. ("Silicon Image") in March 2015. Silicon Image wasengaged in setting industry standards including the HDMI®, DVI®, MHL® and WirelessHD® standards.Plan of Merger and Reorganization TerminatedOn November 3, 2016, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Canyon Bridge Acquisition Company, Inc., aDelaware corporation (“Parent”), and Canyon Bridge Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of Parent (“Merger Sub”),providing for the merger of Merger Sub with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary ofParent.The closing of the Merger was subject to certain closing conditions. These closing conditions included clearance by the Committee on Foreign Investment inthe United States (“CFIUS”) under the Defense Production Act of 1950, as amended. On September 13, 2017, the President of the United States issued anorder (the “Order”) prohibiting the Merger. As a result of the issuance of the Order, clearance by CFIUS was not obtained, the Merger cannot beconsummated, and we have terminated the Merger Agreement in accordance with its terms. Neither the Company nor Parent will incur any termination feesin connection with the termination of the Merger Agreement.Critical Accounting Policies and Use of EstimatesCritical accounting policies are those that are both most important to the portrayal of a company's financial condition and results, and that requiremanagement's most difficult, subjective, and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherentlyuncertain. We base our estimates and judgments on historical experience, knowledge of current conditions, and our beliefs of what could occur in the futureconsidering available information. While we believe that our estimates, assumptions, and judgments are reasonable, they are based on information availablewhen made, and actual results may differ from these estimates under different assumptions or conditions. We evaluate our estimates and judgments on anongoing basis. We believe the following accounting policies and the related estimates are critical in the portrayal of our financial condition and results ofoperations, and require management's most difficult, subjective, or complex judgments. See "Note 1 - Nature of Operations and Significant AccountingPolicies" under Part II, Item 8 of this report for further information on the significant accounting policies and methods used in the preparation of theconsolidated financial statements.Revenue Recognition and Deferred IncomeProduct RevenueWe sell our products though several channels: directly to end customers, through a network of independent manufacturers' representatives, and indirectlythrough a network of independent sell-in and sell-through distributors. Distributors provide periodic data regarding the product, price, quantity, and endcustomer when products are resold, as well as the quantities of our products they still have in stock.Revenue from sales to original equipment manufacturers ("OEMs") and sell-in distributors is generally recognized upon shipment. Reserves for sell-in stockrotations, where applicable, are estimated based primarily on historical experience and provided for at the time of shipment. Revenue from sales by our sell-through distributors is recognized at the time of reported resale. Under both types of revenue recognition, persuasive evidence of an arrangement exists, theprice is fixed or determinable, title has transferred, collection of resulting receivables is reasonably assured, and there are no remaining customer acceptancerequirements and no remaining significant performance obligations.28Table of ContentsOrders from our sell-through distributors are initially recorded at published list prices; however, for a majority of our sales, the final selling price is determinedat the time of resale and in accordance with a distributor price agreement. For this reason, we do not recognize revenue until products are resold by sell-through distributors to an end customer. In certain circumstances, we allow sell-through distributors to return unsold products. At times, we protect our sell-through distributors against reductions in published list prices.At the time of shipment to sell-through distributors, we (a) record accounts receivable at published list price since there is a legally enforceable obligationfrom the distributor to pay us currently for product delivered, (b) relieve inventory for the carrying value of goods shipped since legal title has passed to thedistributor, and (c) record deferred revenue and deferred cost of sales in Deferred income and allowances on sales to sell-through distributors in the liabilitysection of our Consolidated Balance Sheets. Revenue and cost of sales to sell-through distributors are deferred until either the product is resold by thedistributor or, in certain cases, return privileges terminate, at which time Revenue and Cost of product revenue are reflected in Net loss in our ConsolidatedStatements of Operations, and Accounts receivable, net is adjusted to reflect the final selling price.Licensing and Services RevenueOur licensing and services revenue is comprised of revenue from our intellectual property ("IP") core licensing activity, patent monetization activities, androyalty and adopter fee revenue from our standards activities. These activities are complementary to our product sales and help us monetize our IP andaccelerate market adoption curves associated with our technology and standards.From time to time we enter into patent sale and licensing agreements to monetize and license a broad portfolio of our patented inventions. Such licensingagreements may include upfront license fees and ongoing royalties. The contractual terms of the agreements generally provide for payments of upfrontlicense fees and/or royalties over an extended period of time. Revenue from such license fees is recognized when payments become due and payable aslong as all other revenue recognition criteria are met, while revenue from royalties is recognized when reported to us by customers.We enter into IP licensing agreements that generally provide licensees the right to incorporate our IP components into their products pursuant to terms andconditions that vary by licensee. Revenue earned under these agreements is classified as Licensing and services revenue. Our IP licensing agreementsgenerally include multiple elements, which may include one or more off-the-shelf or customized IP licenses bundled with support services covering a fixedperiod of time, generally one year. If the different elements of a multiple-element arrangement qualify as separate units of accounting, we allocate the totalarrangement consideration to each element based on relative selling price.Amounts allocated to off-the-shelf IP licenses are recognized at the time of sale provided the other conditions for revenue recognition have been met.Amounts allocated to the support services are deferred and recognized on a straight-line basis over the support period, generally one year. Certain licensingagreements provide for royalty payments based on agreed-upon royalty rates, which may be fixed or variable depending on the terms of the agreement. Theamount of revenue we recognize is based on a specified time period or on the agreed-upon royalty rate multiplied by the reported number of units shipped bythe customer.From time to time, we enter into IP licensing agreements that involve significant modification, customization or engineering services. Revenues derived fromthese contracts are accounted for using the percentage-of-completion method or completed contract method. The completed contract method is used forcontracts where there is a risk associated with final acceptance by the customer or for short-term contracts.Inventories and Cost of Product Revenue Inventories are recorded at the lower of average cost determined on a first-in-first-out basis or market. We establish provisions for inventory if it is obsolete orwe hold quantities which are in excess of projected customer demand. The creation of such provisions results in a write-down of inventory to net realizablevalue and a charge to Cost of product revenue.Restructuring ChargesExpenses associated with exit or disposal activities are recognized when incurred under ASC 420, “Exit or Disposal Cost Obligations,” for everything butseverance. Because the Company has a history of paying severance benefits, the cost of severance benefits associated with a restructuring plan is recordedwhen such costs are probable and the amount can be reasonably estimated in accordance with ASC 712, “Compensation - Nonretirement PostemploymentBenefits.” When leased facilities are vacated, an amount equal to the total future lease obligations from the date of vacating the premises through theexpiration of the lease, net of any future sublease income, is recorded as a part of restructuring charges.29Table of ContentsImpairment of Long-Lived AssetsLong-lived assets, including amortizable intangible assets, are carried on our financial statements based on their cost less accumulated depreciation oramortization. We monitor the carrying value of our long-lived assets for potential impairment and test the recoverability of such assets annually during thefourth quarter and whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. These events or changes incircumstances, including management decisions pertaining to such assets, are referred to as impairment indicators. If an impairment indicator occurs, weperform a test of recoverability by comparing the carrying value of the asset group to its undiscounted expected future cash flows. If the carrying values are inexcess of undiscounted expected future cash flows, we measure any impairment by comparing the fair value of the asset group to its carrying value. Fairvalue is generally determined by considering (i) internally developed discounted projected cash flow analysis of the asset group; (ii) actual third-partyvaluations; and/or (iii) information available regarding the current market for similar asset groups. If the fair value of the asset group is determined to be lessthan the carrying amount of the asset group, an impairment in the amount of the difference is recorded in the period that the impairment indicator occurs andis included in our Consolidated Statements of Operations. Estimating future cash flows requires significant judgment and projections may vary from the cashflows eventually realized, which could impact our ability to accurately assess whether an asset has been impaired.Valuation of GoodwillGoodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individuallyidentified and separately recognized. We review goodwill for impairment annually during the fourth quarter and whenever events or changes incircumstances indicate the carrying value of goodwill may not be recoverable. When evaluating whether goodwill is impaired, we make a qualitativeassessment to determine if it is more likely than not that the reporting unit's fair value is less than the carrying amount. If the qualitative assessmentdetermines that it is more likely than not that the fair value is less than the carrying amount, the fair value of the reporting unit is compared with its carryingvalue (including goodwill). If the fair value of the reporting unit is less than its carrying value, an indication of goodwill impairment exists for the reporting unitand we must measure the impairment loss. The impairment loss, if any, is recognized for any excess of the carrying amount of the reporting unit's goodwillover the implied fair value of the goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similarto purchase price allocation and the residual fair value after this allocation is the implied fair value of the reporting unit goodwill. Fair value of the reportingunit is determined using a discounted cash flow analysis. If the fair value of the reporting unit exceeds its carrying value, no further impairment analysis isneededAccounting for Income TaxesOur provision for income tax is comprised of our current tax liability and changes in deferred tax assets and liabilities. Deferred tax assets and liabilities arerecognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts in thefinancial statements using enacted tax rates and laws that will be in effect when the difference is expected to reverse. Valuation allowances are provided toreduce deferred tax assets to an amount that in management’s judgment is more-likely-than-not to be recoverable against future taxable income. U.S. taxreform required a deemed repatriation of foreign earnings as of December 30, 2017 and no future U.S. taxes will be due on these earnings because ofenactment of a 100% dividends received deduction. Foreign earnings may be subject to withholding taxes if they are distributed and repatriated to Lattice inthe United States.Our income tax calculations are based on application of the respective U.S. federal, state or foreign tax law. Our tax filings, however, are subject to audit bythe relevant tax authorities. Accordingly, we recognize tax liabilities based upon our estimate of whether, and the extent to which, additional taxes will be duewhen such estimates are more-likely-than-not to be sustained. An uncertain income tax position will not be recognized if it has less than a 50% likelihood ofbeing sustained. To the extent the final tax liabilities are different than the amounts originally accrued, the increases or decreases as well as any interest orpenalties are recorded as income tax expense or benefit in the Consolidated Statements of Operations.In assessing the ability to realize deferred tax assets, we evaluate both positive and negative evidence that may exist and consider whether it is more-likely-than-not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation offuture taxable income during the periods in which those temporary differences become deductible.30Table of ContentsResults of OperationsKey elements of our Consolidated Statements of Operations are presented in the following table: Year Ended(In thousands)December 30, 2017 December 31, 2016 January 2, 2016 *Revenue$385,961 100.0 % $427,054 100.0 % $405,966 100.0 % Gross margin216,579 56.1 246,434 57.7 219,909 54.2Research and development103,357 26.8 117,518 27.5 136,868 33.7Selling, general, and administrative90,718 23.5 98,602 23.1 97,349 24.0Amortization of acquired intangible assets31,340 8.1 33,575 7.9 29,580 7.3Restructuring charges7,196 1.9 9,267 2.2 19,239 4.7Acquisition related charges3,781 1.0 6,305 1.5 22,450 5.5Impairment of goodwill and acquired intangibleassets32,431 8.4 7,866 1.8 21,655 5.3Gain on sale of building(4,624) (1.2) — — — —Loss from operations$(47,620) (12.3)% $(26,699) (6.3)% $(107,232) (26.4)%* Lattice acquired Silicon Image on March 10, 2015. Results of Operations for the year ended January 2, 2016 (fiscal 2015) include the financial results of the Silicon Imagebusiness for the approximately 10-month period from March 11, 2015 through January 2, 2016.Revenue Year Ended % Change in(In thousands)December 30, 2017 December 31, 2016 January 2, 2016 2017 2016Revenue$385,961 $427,054 $405,966 (10) 5Revenue decreased $41.1 million, or 10%, in fiscal 2017 compared to fiscal 2016, primarily driven by lower revenue from consumer mobile handsets andreductions from Digital Television ("DTV") and Home Theater related devices. This was coupled with a decline from the line item reduction caused by theobsoleting of tin leaded assembly material in one of the complex programmable logic devices ("CPLD") in the industrial and communications markets, forwhich shipments predominately occurred in fiscal 2016 but did not recur in fiscal 2017. These decreases were partially offset by a broad market increase inprogrammable logic device revenue in the Industrial and Automotive end market, and the production ramp of a server reference design being widely adoptedin the computing market. Additionally, we saw growth in our XO2/XO3 and EC5 product families, revenue from a patent sale transaction, and modest growthin the 60GHz wireless silicon products.Revenue increased $21.1 million, or 5%, in fiscal 2016 compared to fiscal 2015, primarily driven by approximately $40.6 million of growth in the Industrialand Automotive end market for programmable logic devices, along with a significant increase in new programmable production volume for a major mobilehandset provider, and the inclusion of additional revenue in connection with our acquisition of Silicon Image for the full year of fiscal 2016 relative to only anapproximately 10-month period in fiscal 2015, partially offset by approximately $20.4 million of decline in the Communications and Computing end market forprogrammable logic devices.31Table of ContentsRevenue by End MarketThe end market data below is derived from data provided to us by our distributors and end customers. With a diverse base of customers who maymanufacture end products spanning multiple end markets, the assignment of revenue to a specific end market requires the use of estimates and judgment.Therefore, actual results may differ from those reported. Our Licensing and services end market includes revenue from the licensing of our IP, the collection ofcertain royalties, patent sales, the revenue related to our participation in consortia and standard-setting activities, and services. While Licensing products areprimarily sold into the Mobile and Consumer market, Licensing and services revenue is reported separately as it has characteristics that differ from othercategories, most notably its higher gross margin.The following are examples of end market applications:Communications and ComputingMobile and ConsumerIndustrial and AutomotiveLicensing and ServicesWirelessSmartphonesSecurity and SurveillanceIP RoyaltiesWirelineCamerasMachine VisionAdopter FeesData BackhaulDisplaysIndustrial AutomationIP LicensesComputingTabletsHuman Computer InteractionPatent SalesServersWearablesAutomotiveTesting ServicesData StorageTelevisions and Home TheaterDrones The composition of our revenue by end market is presented in the following table: Year Ended * % Change in(In thousands)December 30, 2017 December 31, 2016 January 2, 2016 2017 2016Communications and Computing$113,019 29% $123,021 29% $143,424 35% (8) (14)Mobile and Consumer108,844 28 127,405 30 126,130 31 (15) 1Industrial and Automotive134,639 35 140,278 33 99,646 25 (4) 41Licensing and Services29,459 8 36,350 8 36,766 9 (19) (1)Total revenue$385,961 100% $427,054 100% $405,966 100% (10) 5* During the first quarter of fiscal 2016, we realigned our end market categories to group Computing with Communications rather than withIndustrial, as had been the previous grouping. Prior periods have been reclassified to match current period presentation.Our revenue in the Communications and Computing end market is largely dependent on a small number of large telecommunications equipment providers.For fiscal 2017, Communications and Computing end market revenue declined 8% primarily in the communications market, which saw a significant decreasein revenue from a major telecommunications customer whose business was affected by Commerce department actions, and by conversion of materials from200mm to 300mm wafers. This was partially offset by growth in the Communications and Computing end market due to the initial production ramp of theserver platform reference design being widely adopted in that sector. For fiscal 2016, Communications and Computing end market revenue declined 14%primarily in programmable products, and was across a broad base of communications customers and modestly in our largest computing customer.Mobile and Consumer end market revenue decreased 15% in fiscal 2017, after increasing 1% in fiscal 2016. Mobile and Consumer end market revenuedecreased in fiscal 2017 primarily due to a significant decrease in volume for a major mobile handset provider. The production volume for this mobilehandset peaked in the fourth quarter of fiscal 2016, and the associated revenue stream has declined in subsequent quarters as the end product completes itslifecycle. These decreases were coupled with declines in revenue from HDMI devices used in DTV and Home Theater related products and from MHLdevices used in mobile handsets. Mobile and Consumer end market revenue increased in fiscal 2016 primarily due to a significant increase in newprogrammable production volume for a major mobile handset provider offset by a nearly equal decline in ASSP shipments related to high-definition television("HDTV") and mobile handsets.For fiscal 2017, Industrial and Automotive end market revenue decreased 4% when compared to fiscal 2016. This is primarily due to a decline from the lineitem reduction caused by the obsoleting of tin leaded assembly material in one of the CPLD devices for which shipments predominately occurred in fiscal2016 but did not recur in fiscal 2017. This decrease was substantially offset by broad market growth in this end market, especially from our XO2/XO3 FPGAproduct families. For fiscal 2016, Industrial and Automotive end market revenue increased 41% when compared to fiscal 2015. This is primarily due tostrength in programmable products revenue resulting from line item reduction caused by the obsoleting of tin leaded assembly material in one of the CPLDdevices affecting both the Americas and Europe.32Table of ContentsLicensing and Services revenue decreased by 19% in fiscal 2017 primarily due to lower revenue from HDMI licensing and adopter fees as a new royaltysharing agreement had not been finalized, and by the termination of our role as agent for the HDMI consortium. As a result of the amended model for sharingrevenue and the appointment of a new independent agent for the HDMI consortium, we will be entitled to a reduced share of adopter fees paid by partiesadopting the HDMI standard in 2017 and future years. The termination of our role as agent for the HDMI consortium resulted in a decrease of approximately$11 million for fiscal 2017 compared to fiscal 2016. While a new royalty sharing agreement is being negotiated, the HDMI agent is collecting royalties but isunable to distribute a majority of the royalties to the Founders. Given that a new royalty sharing agreement was not fully executed under current revenueguidance, the fixed and determinable revenue recognition criteria was not met, and we were unable to recognize all of the HDMI royalty revenue in fiscal2017. Revenue attributable to HDMI royalties is down approximately $9 million for fiscal 2017 compared to fiscal 2016 mainly as a result of the royaltysharing formula not being finalized. The decrease related to HDMI was partially offset by a patent sale transaction of $18 million in fiscal 2017.Licensing and Services revenue decreased by 1% in fiscal 2016 primarily due to slightly reduced license and adopter fees at licensed end customers.Licensing and Services revenue was first recognized in fiscal 2015 following the acquisition of Silicon Image in March 2015. Previously, we did not haveLicensing and Services revenue. Revenue from this end market is expected to fluctuate, sometimes significantly, from period to period as a result of the timingof completion of IP license arrangements, IP sales, patent sales, and settlement of royalty audits.Based on our assessment of the implementation of Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606),we anticipate that, until an HDMI royalty sharing agreement is reached, the new standard will allow us to recognize certain licensing revenues which are notrecognizable under current GAAP due to the fixed and determinable revenue recognition criteria not being met. Once an HDMI royalty sharing agreement isreached, we will not be able to recognize HDMI royalty revenues related to prior periods under the new standard that we would have been able to recognizeunder current GAAP. We estimate that the effect on 2018 licensing revenues under the new standard will be an increase of $5 million to $10 million if aroyalty sharing agreement is not reached in 2018, and a decrease of $5 million to $10 million if a royalty sharing agreement is reached in 2018.Revenue by GeographyWe assign revenue to geographies based on customer ship-to address at the point where revenue is recognized. In the case of sell-in distributors and OEMcustomers, revenue is typically recognized, and geography is assigned, when products are shipped to our distributor or OEM customer. In the case of sell-through distributors, revenue is recognized when resale to the end customer occurs and geography is assigned based on the end customer location on theresale reports provided by the distributor. Both foreign and domestic sales are denominated in U.S. dollars.The composition of our revenue by geography, based on ship-to location, is presented in the following table: Year Ended % Change in(In thousands)December 30, 2017 December 31, 2016 January 2, 2016 2017 2016Asia$277,638 72% $305,093 71% $308,534 76% (9) (1)Europe44,547 12 59,835 14 55,596 14 (26) 8Americas63,776 16 62,126 15 41,836 10 3 48Total revenue$385,961 100% $427,054 100% $405,966 100% (10) 5Revenue in Asia decreased 9% in fiscal 2017 and decreased 1% in fiscal 2016. In fiscal 2017, revenue decreased in Asia primarily due to a significantdecrease in Communications and Computing end market revenue from a major telecommunications customer whose business was affected by governmentregulations, and by conversion of materials from 200mm to 300mm wafers. Additionally, the Mobile and Consumer end market saw a significant decrease involume for a major North American mobile handset provider. The production volume for this mobile handset peaked in the fourth quarter of fiscal 2016, andthe associated revenue stream has declined in subsequent quarters as the end product completes its lifecycle. This was coupled with decreased revenuefrom DTV and Home Theater related devices. In fiscal 2016, revenue decreased in Asia primarily due to declines in HDTV and ASSP revenue, althoughthese were substantially offset by increases in revenue from field programmable gate array logic products in the Mobile and Consumer end market. Webelieve the Asia Pacific region will remain the primary source of our revenue due to relatively more favorable business conditions in Asia and a continuingtrend towards the migration of manufacturing by North American and European customers to the Asia Pacific region.Revenue in Europe decreased 26% in fiscal 2017 primarily due to a decline in the line item reduction caused by the obsoleting of tin leaded assemblymaterial in one of the CPLD devices, for which shipments predominately occurred in fiscal 2016 but did not recur in fiscal 2017. Revenue in Europeincreased 8% in fiscal 2016 primarily due to line item reduction and CPLD conversions.33Table of ContentsRevenue from the Americas increased 3% in fiscal 2017 primarily due to a patent sale transaction for $18.0 million recognized in fiscal 2017, substantiallyoffset by a decline in the line item reduction and CPLD conversion program, for which shipments predominately occurred in fiscal 2016 but did not recur infiscal 2017. Revenue from the Americas increased 48% in fiscal 2016 primarily due to line item reduction and CPLD conversions.Revenue from foreign sales as a percentage of total revenue was 87%, 88%, and 92% for fiscal 2017, 2016 and 2015, respectively.Revenue from End CustomersOur top five end customers constituted approximately 26% in fiscal 2017, compared to approximately 27% and 32% in fiscal years 2016 and 2015,respectively, primarily due to a more diverse customer base.During fiscal years 2017, 2016 and 2015, no end customer accounted for more than 10% of total revenue. Our largest end customer in fiscal 2017 accountedfor approximately 7.3% of total revenue. Our largest end customer in fiscal 2016 accounted for approximately 9.9% of total revenue, while our largest endcustomer in fiscal 2015 accounted for approximately 9.3% of total revenue.Revenue from Sell-Through DistributorsSales through distributors have historically accounted for a significant portion of our total revenue. Revenue attributable to resale of products by sell-throughdistributors as a percentage of total revenue is presented in the following table: Year Ended December 30, 2017 December 31, 2016 January 2, 2016Arrow Electronics Inc.24% 24% 20%Weikeng Group27 22 12All others15 15 13All sell-through distributors66% 61% 45%Revenue attributable to revenue streams other than sell-through distributors decreased in fiscal 2017 compared to fiscal 2016, resulting in increases in sell-through distribution revenue as a percentage of total revenue. Revenue from sell-through distributors as a percent of total revenue increased in fiscal 2016primarily due to an increase in new programmable production volume in consumer mobile devices shipped through a sell-through distributor in 2016, as wellas declines in channels other than sell-through distributors from 2015 levels, mainly due to declines in DTV and Home Theater related devices and handsetcontent revenues.Based on our assessment of the implementation of Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606),we believe the most significant impact of the new standard will be to accelerate the timing of revenue recognition on product shipments to our sell-throughdistributors. Assuming all other revenue recognition criteria have been met, the new guidance would require us to recognize revenue and costs relating tosuch sales upon shipment to the distributor - subject to reductions for estimated reserves for price adjustments and returns - rather than upon the ultimate saleby the distributor to its end customer, as is our current practice. The impact of this change will depend primarily on the level of inventory held by sell-throughdistributors at the beginning and end of each period. To the extent these inventory levels fluctuate significantly, revenue under the new standard could bematerially different than that under the current standard. We anticipate the adoption of the new standard to increase revenue from sell-through distributors forfiscal 2018 in the $5 million to $10 million range.Gross marginThe composition of our gross margin, including as a percentage of revenue, is presented in the following table: Year Ended(In thousands)December 30, 2017 December 31, 2016 January 2, 2016Gross margin$216,579 $246,434 $219,909Percentage of revenue56.1% 57.7% 54.2%Product gross margin %53.8% 53.9% 49.9%Licensing and services gross margin %84.0% 98.2% 96.9%34Table of ContentsGross margin, as a percentage of revenue, decreased 1.6 percentage points from fiscal 2016 to fiscal 2017 primarily due to the decrease in licensing andservices gross margin, which decreased 14.2 percentage points from fiscal 2016 to fiscal 2017. This was primarily due to the $18.0 million patent sale infiscal 2017. The costs associated with the patent sale of $3.6 million, primarily the net book value of the patents acquired in our acquisition of Silicon Image,were greater than usual for this category and had a substantial impact on licensing and services gross margin.Gross margin and Product gross margin, as a percentage of revenue, increased 3.5 and 4.0 percentage points, respectively, from fiscal 2015 to fiscal 2016.Of this increase, approximately 2.5 percentage points was due to product cost reductions from lower overhead burden rates, reduced wafer and packagingcosts, and improved yields. Approximately another 1.5 percentage points of the increase was due to the reduced amortization in the current year of purchaseprice accounting adjustments (now completed) associated with the sell-through of acquired inventory and deferred revenue. These increases were partiallyoffset by a less favorable product and customer mix.Because of its higher margin, the licensing and services portion of our overall revenue can have a disproportionate impact on gross margin and profitability.For programmable and standard products, we expect that product, end market, and customer mix will subject our gross margin to fluctuation, while we expectdownward pressure on average selling price to adversely affect our gross margin in the future. If we are unable to realize additional or sufficient product costreductions in the future to balance changes in product and customer mix, we may experience degradation in our product gross margin.Operating ExpensesResearch and development expenseThe composition of our research and development expenses, including as a percentage of revenue, is presented in the following table: Year Ended % Change in(In thousands)December 30, 2017 December 31, 2016 January 2, 2016 2017 2016Research and development$103,357 $117,518 $136,868 (12.1)% (14.1)%Percentage of revenue26.8% 27.5% 33.7% Mask costs included in Research and development$931 $3,328 $5,770 (72.0)% (42.3)%Research and development expense includes costs for compensation and benefits, stock compensation, development masks, engineering wafers,depreciation, licenses, and outside engineering services. These expenditures are for the design of new products, IP cores, processes, packaging, andsoftware to support new products.We believe that a continued commitment to research and development is essential to maintaining product leadership and providing innovative new productofferings and, therefore, we expect to continue to make significant future investments in research and development.The decrease in research and development expense for fiscal 2017 compared to fiscal 2016 is due mainly to the cost reductions realized from therestructuring actions and integration of operations undertaken since the acquisition of Silicon Image, including the sales of assets and business units. Thesesavings were predominantly from headcount reductions and site consolidations. Additionally, we saw reduced mask, wafer, and assembly costs, anddepreciation expense, partially offset by higher bonus and IP insourcing expensesThe decrease in research and development expense for fiscal 2016 compared to fiscal 2015 is due mainly to significantly reduced headcount expenses and,to a lesser extent, reduced mask and wafer costs, lab supplies, time-based licenses, and outside services.35Table of ContentsSelling, general, and administrative expenseThe composition of our selling, general and administrative expenses, including as a percentage of revenue, is presented in the following table: Year Ended % Change in(In thousands)December 30, 2017 December 31, 2016 January 2, 2016 2017 2016Selling, general, and administrative$90,718 $98,602 $97,349 (8.0)% 1.3%Percentage of revenue23.5% 23.1% 24.0% Selling, general, and administrative expense includes costs for compensation and benefits related to selling, general, and administrative employees,commissions, depreciation, professional and outside services, trade show, and travel expenses.The decrease in selling, general, and administrative expense for fiscal 2017 compared to fiscal 2016 was due mainly to lower bad debt expense in 2017. Wealso saw lower legal and accounting fees that were partially offset by increased bonus, travel, and depreciation expenses.The increase in selling, general, and administrative expense for fiscal 2016 compared to fiscal 2015 was due mainly to an increase in bad debt expenserelated to the bankruptcy of one of our distributor groups, substantially offset by the decrease in expenses due to restructuring and integration of operationsundertaken since the acquisition of Silicon Image, predominantly headcount reductions and site consolidations.Amortization of Acquired Intangible AssetsThe composition of our amortization of acquired intangible assets, including as a percentage of revenue, is presented in the following table: Year Ended % Change in(In thousands)December 30, 2017 December 31, 2016 January 2, 2016 2017 2016Amortization of acquired intangible assets$31,340 $33,575 $29,580 (6.7)% 13.5%Percentage of revenue8.1% 7.9% 7.3% For fiscal 2017 compared to fiscal 2016, amortization of acquired intangible assets decreased due to the reduction of certain intangibles as a result ofimpairment charges, patent sales, and sale of the Qterics business unit, partially offset by additional amortization due to the completion of certain in-processresearch and development projects acquired from Silicon Image.For fiscal 2016 compared to fiscal 2015, amortization of acquired intangible assets increased due to the inclusion of additional amortization expense fromnew intangible assets acquired in connection with our acquisition of Silicon Image for the full year of fiscal 2016 relative to only an approximately 10-monthperiod in fiscal 2015, partially offset by the reduction of certain intangibles as a result of impairment charges in late 2015, and the sale of Qterics in April 2016.Restructuring chargesThe composition of our restructuring charges, including as a percentage of revenue, is presented in the following table: Year Ended % Change in(In thousands)December 30, 2017 December 31, 2016 January 2, 2016 2017 2016Restructuring charges$7,196 $9,267 $19,239 (22.3)% (51.8)%Percentage of revenue1.9% 2.2% 4.7% Restructuring charges include expenses resulting from reductions in our worldwide workforce, consolidation of our facilities, and cancellation of softwarecontracts and engineering tools.36Table of ContentsIn March 2015, our Board of Directors approved an internal restructuring plan (the "March 2015 Plan"), in connection with our acquisition of Silicon Image.The March 2015 Plan was designed to realize synergies from the acquisition by eliminating redundancies created as a result of combining the twocompanies. The March 2015 Plan is substantially complete, subject to certain remaining expected costs that we do not expect to be material and anychanges in sublease assumptions should they occur, which will be expensed as incurred. Approximately $20.5 million of total expense has been incurredthrough December 30, 2017 under the Mach 2015 Plan, and we believe this amount approximates the total costs expected.In September 2015, we implemented a further reduction of our worldwide workforce (the "September 2015 Reduction") separate from the March 2015 Plan.The September 2015 Reduction was designed to resize the company in line with the market environment and to better balance our workforce with the long-term strategic needs of our business. The September 2015 Reduction is substantially complete, subject to certain remaining expected costs that we do notexpect to be material, which will be expensed as incurred. Approximately $7.2 million of total expense has been incurred through December 30, 2017 underthe September 2015 Reduction, and we believe this amount approximates the total costs expected.In June 2017, our Board of Directors approved an additional internal restructuring plan (the "June 2017 Plan"), which included the sale of 100% of the equityof our Hyderabad, India subsidiary and certain assets related to our Simplay Labs testing and certification business, a worldwide workforce reduction, and aninitiative to reduce our infrastructure costs. These actions are part of an overall plan to achieve financial targets and to enhance our financial and competitiveposition by better aligning our revenue and operating expenses. Approximately $8.0 million of total expense has been incurred through December 30, 2017under the June 2017 Plan, and we expect the total cost to be approximately $8.0 million to $19.0 million.The $2.1 million decrease in restructuring expense from fiscal 2016 to fiscal 2017 is primarily the result of significant lease restructuring charges in the prioryear related to the March 2015 Plan versus a significantly smaller charge in the current year under the June 2017 Plan. Increased systems restructuringcharges in fiscal year 2017 were substantially offset by reduced severance and other restructuring charges.The $10.0 million decrease in restructuring expense from fiscal 2015 to fiscal 2016 is primarily the result of decreased headcount related restructuringcharges in the current year slightly offset by an incremental net charge in the fourth quarter of 2016 to terminate the lease for our Sunnyvale site.Acquisition related chargesThe composition of our acquisition related charges, including as a percentage of revenue, is presented in the following table: Year Ended % Change in(In thousands)December 30, 2017 December 31, 2016 January 2, 2016 2017 2016Acquisition related charges$3,781 $6,305 $22,450 (40.0)% (71.9)%Percentage of revenue1.0% 1.5% 5.5% Acquisition related charges includes severance and professional fees directly related to acquisitions.For fiscal 2017 and 2016, Acquisition related charges were entirely attributable to legal fees and outside services in connection with our proposed acquisitionby Canyon Bridge Acquisition Company, Inc.For fiscal 2015, acquisition related charges were entirely attributable to our acquisition of Silicon Image in March 2015 and were comprised of professionalservices including legal, accounting, licenses and fees, and severance and stock compensation costs related to change of control payments to departingexecutives. Charges related to the acquisition of Silicon Image were substantially completed as of January 2, 2016.Impairment of goodwill and acquired intangible assetsThe composition of our Impairment of goodwill and acquired intangible assets, including as a percentage of revenue, is presented in the following table: Year Ended % Change in(In thousands)December 30, 2017 December 31, 2016 January 2, 2016 2017 2016Impairment of goodwill and acquired intangible assets$32,431 $7,866 $21,655 +100% (63.7)%Percentage of revenue8.4% 1.8% 5.3% 37Table of ContentsIn the third quarter of fiscal 2017, we updated our annual strategic long-range plan, which resulted in revised forecasts. We also sold 100% of the equity ofour Hyderabad, India subsidiary and certain assets related to our Simplay Labs testing and certification business to an unrelated third party. We determinedthat these activities constituted impairment indicators related to the developed technology intangible assets acquired in our acquisition of Silicon Image. Ourassessment of the fair value of these intangible assets concluded that they had been impaired as of September 30, 2017, and we recorded a preliminary$36.2 million impairment charge in the Consolidated Statements of Operations. During the fourth quarter of fiscal 2017, we completed our detailed analysisand evaluation of the information and assumptions used in the determination of the impairment charge, which included reviewing information, inputs,assumptions, and valuation methodologies used to estimate the fair value of these intangible assets, and finalization of review by an independent valuationexpert. As a result, we recorded a $3.8 million reduction to the preliminary impairment charge recorded in the third quarter of fiscal 2017, for a net impairmentcharge of $32.4 million in fiscal 2017. No impairment charges related to goodwill were recorded in fiscal 2017 as no indicators of impairment were present.In September 2016, the founders of the HDMI consortium ("Founders"), of which we are a member, updated the Founders Agreement as part of a regularamendment process resulting in changes to our role as agent for the HDMI consortium and to the model for sharing adopter fee revenues. Under the terms ofthe amendment agreement, our role as the agent was terminated effective January 1, 2017 and a new independent entity was appointed to act as the newHDMI licensing agent with responsibility for licensing and the distribution of royalties among Founders. As a result of the amended model for sharingrevenue, we will be entitled to a reduced share of adopter fees paid by parties adopting the HDMI standard. We determined that this modification constitutedan impairment indicator related to the intangible assets acquired in the Silicon Image acquisition associated with future HDMI adopter fees. Our assessmentof the fair value of these intangible assets concluded that they had been impaired as of October 1, 2016, and we recorded a $7.9 million impairment charge inthe Consolidated Statements of Operations. No impairment charges related to goodwill were recorded in fiscal 2016 as no indicators of impairment werepresent.For fiscal 2015, the impairment of goodwill and intangible assets was related to Qterics, Inc., which was acquired in the March 2015 acquisition of SiliconImage. During the fourth quarter of fiscal 2015, we determined that we experienced an impairment indicator related to the long-lived assets of the Qtericsoperating segment. For purposes of testing for impairment in fiscal 2015, the Company operated as two reporting units: the continuing core Lattice ("Core")business, which includes intellectual property and semiconductor devices, and Qterics, which was a discrete software-as-a-service business unit in theLattice legal entity structure until it was sold in April 2016. Although these two operating segments constituted two reportable segments in fiscal 2015, wecombined Qterics with our Core business and reported them together as one reportable segment due to the immaterial nature of the Qterics segment.Following this assessment, we concluded that goodwill and intangible assets had been impaired in the Qterics segment as of January 2, 2016. As a result,we recorded impairment charges amounting to $21.7 million, or approximately 92% of the previous value of goodwill and intangible assets, in theConsolidated Statements of Operations for the year ended January 2, 2016, comprising $12.7 million pertaining to goodwill, $3.9 million pertaining todeveloped technology, and $5.1 million pertaining to customer relationships. The valuation was based on the market approach and was our best estimate offair value as of the end of fiscal 2015. No impairment charges were recorded for the Core segment in fiscal 2015.Gain on sale of buildingIn August 2017, we sold building space which we owned in Shanghai, China. The building space was vacated in fiscal 2015, upon consolidation of facilitiesto a single, alternate site in Shanghai following our acquisition of Silicon Image, and was sold for gross proceeds of approximately $7.9 million. As of the saledate, the asset had a historical cost of $3.6 million, accumulated depreciation of $1.4 million and we incurred $1.1 million of direct selling costs, resulting in anet gain on sale of $4.6 million, which is presented as Gain on sale of building in our Consolidated Statements of Operations.Interest ExpenseThe composition of our Interest expense, including as a percentage of revenue, is presented in the following table: Year Ended % Change in(In thousands)December 30, 2017 December 31, 2016 January 2, 2016 2017 2016Interest expense$(18,807) $(20,327) $(18,389) (7.5)% 10.5%Percentage of revenue(4.9)% (4.8)% (4.5)% The decrease in Interest expense for fiscal 2017 compared to fiscal 2016 was largely driven by the reduction in the principal balance of our long-term debt asa result of the additional principal payments made in the first six months of fiscal 2017.The increase in interest expense for fiscal 2016 compared to fiscal 2015 was primarily driven by the interest expense related to our debt acquired to partiallyfund the Silicon Image acquisition, which is further discussed in the Credit Arrangements section under Liquidity and Capital Resources. This interestexpense is comprised of contractual interest and amortization of original issue discount and debt issuance costs based on the effective interest method andwas recognized for the full year of fiscal 2016 versus only an approximately 10-month period in fiscal 2015. The latter shorter period was the result of theSilicon Image acquisition date late in the first quarter of fiscal 2015.38Table of ContentsOther (expense) income, netThe composition of our Other (expense) income, net, including as a percentage of revenue, is presented in the following table: Year Ended % Change in(In thousands)December 30, 2017 December 31, 2016 January 2, 2016 2017 2016Other (expense) income, net$(3,286) $2,844 $(1,072) (100+)% 100+%Percentage of revenue(0.9)% 0.7% (0.3)% As of December 30, 2017, we held a 22.7% preferred stock and convertible debt ownership interest in a privately-held company that designs human-computer interaction technology (see "Reclassifications" in Note 1 - Nature of Operations and Significant Accounting Policies to our Consolidated FinancialStatements in Part II, Item 8). We assessed this investment for impairment as of December 30, 2017 by applying a fair value analysis using a revenue multipleapproach. This yielded a fair value for our ownership stake of $2.3 million, which was less than its carrying value at the date of assessment. We determinedthat this impairment was other-than-temporary and adjusted the carrying value to the fair value. The total impairment adjustments against this cost-investmentthat we recognized in fiscal 2017 were $1.8 million.Additionally for fiscal 2017 compared to fiscal 2016, Other (expense) income, net is comprised of a $1.8 million loss on the sale of 100% of the equity of ourHyderabad, India subsidiary and certain assets related to our Simplay Labs testing and certification business to an unrelated third party, partially offset by a$0.3 million gain related to the sale of Qterics on an escrow payment received in fiscal 2017.For fiscal 2016 compared to fiscal 2015, the increase in Other (expense) income, net is driven by the $2.6 million gain on the sale of Qterics to an unrelatedthird party, escrow proceeds received from the sale of assets by Silicon Image prior to our acquisition in 2015, proceeds received from the bankruptcysettlement distribution of a prior customer, all in fiscal 2016, and the loss on sale of assets in the prior year, not recurring in the current year. This was offset bya $1.0 million increase in impairment of a cost-method investment.Income taxesThe composition of our income tax expense is presented in the following table: Year Ended % Change in(In thousands)December 30, 2017 December 31, 2016 January 2, 2016 2017 2016Income tax expense$849 $9,917 $32,540 (91.4)% (69.5)%The decrease in income tax expense in fiscal 2017 as compared to fiscal 2016 is primarily due to the decrease in foreign withholding taxes as a result of thetermination of our role as the HDMI agent.Our overall tax expense for fiscal 2016, compared to fiscal 2015 decreased primarily due to the recording of a valuation allowance in 2015 resulting in anincrease to the tax provision of $21 million, not recurring in the current year. In the first quarter of 2015, we completed the acquisition of Silicon Image, Inc. Atthe time of the acquisition, we evaluated the combined entity's net deferred income taxes, which included an assessment of the cumulative income or lossover the prior three-year period and future periods, to determine if a valuation allowance is required. After considering the impact of the acquisition includinginterest expense and other restructuring expenses, we recorded a valuation allowance on all of our net U.S. federal and state deferred tax assets.We are not currently paying U.S. federal income taxes and do not expect to pay such taxes until we fully utilize our tax net operating loss and creditcarryforwards. We expect to pay a nominal amount of state income tax. We are paying foreign income taxes, which are primarily related to withholding taxeson income from foreign royalties, and related to foreign sales and to the cost of operating offshore research and development, marketing, and salessubsidiaries. We accrue interest and penalties related to uncertain tax positions in income tax expense on our Consolidated Statements of Operations.The inherent uncertainties related to the geographical distribution and relative level of profitability among various high and low tax jurisdictions make itdifficult to estimate the impact of the global tax structure on our future effective tax rate.39Table of ContentsThe Tax Cuts and Jobs Act, enacted December 22, 2017, contains provisions that affect Lattice. Our new U.S. federal tax rate decreased from 35% to21%. The new limitation on net interest expense will limit current deductibility of some of the interest on our debt although this deduction may be carriedforward for utilization in future years. The Global Intangible Low-Taxed Income (“GILTI”) may result in a minimum tax on our non-U.S. sourced income. To theextent we are required to pay additional taxes under these provisions, we have approximately $350 million in net operating loss carry forwards as ofDecember 31, 2017 available for offset. Adoption of the territorial system concept will facilitate our ability to repatriate future foreign earnings without incurringadditional U.S. tax. The new Base Erosion Anti-Abuse Tax (“BEAT”), which effectively requires U.S. companies with related non-U.S. persons to pay aminimum amount of U.S. tax, does not apply to us currently as we are below the $500 million revenue threshold.Liquidity and Capital ResourcesThe following sections discuss the effects of changes in our Consolidated Balance Sheets and the effects of our credit arrangements and contractualobligations on our liquidity and capital resources, our share repurchase program, as well as our non-GAAP measures.We classify our marketable securities as short-term based on their nature and availability for use in current operations. Our cash equivalents and short-termmarketable securities consist primarily of high quality, investment-grade securities.We have historically financed our operating and capital resource requirements through cash flows from operations. Cash provided by or used in operatingactivities will fluctuate from period to period due to fluctuations in operating results, the timing and collection of accounts receivable, and required inventorylevels, among other things.We believe that our financial resources will be sufficient to meet our working capital needs through at least the next 12 months. As of December 30, 2017, wedid not have significant long-term commitments for capital expenditures. In the future, and to the extent our Credit Agreement permits, we may continue toconsider acquisition opportunities to further extend our product or technology portfolios and further expand our product offerings. In connection with fundingcapital expenditures, completing other acquisitions, securing additional wafer supply, or increasing our working capital, we may seek to obtain equity oradditional debt financing, or advance purchase payments or similar arrangements with wafer manufacturers. We may also need to obtain equity or additionaldebt financing if we experience downturns or cyclical fluctuations in our business that are more severe or longer than we anticipated when determining ourcurrent working capital needs, which financing may now be more difficult to obtain in light of our indebtedness related to the Credit Agreement.LiquidityCash and cash equivalents and Short-term marketable securities(In thousands)December 30, 2017 December 31, 2016 $ ChangeCash and cash equivalents$106,815 $106,552 $263Short-term marketable securities4,982 10,308 (5,326)Total Cash and cash equivalents and Short-term marketable securities$111,797 $116,860 $(5,063)As of December 30, 2017, we had total Cash and cash equivalents and Short-term marketable securities of $111.8 million, of which approximately $89.9million in Cash and cash equivalents was held by our foreign subsidiaries. We manage our global cash requirements considering (i) available funds amongthe subsidiaries through which we conduct business, (ii) the geographic location of our liquidity needs, and (iii) the cost to access international cashbalances. As of December 30, 2017, we could access all cash held by our foreign subsidiaries without incurring significant additional expense.The net decrease in Cash and cash equivalents and Short-term marketable securities of $5.1 million between December 31, 2016 and December 30, 2017,was primarily driven by $35.4 million cash used in the repayment of debt and $21.4 million of cash used in capital expenditures and payment for softwarelicenses, offset by $7.9 million of proceeds from the sale of a building, and by $38.5 million in cash provided by operations, which includes a total $18.0million received from a patent sale transaction.40Table of ContentsAccounts receivable, net(In thousands)December 30, 2017 December 31, 2016 $Change %ChangeAccounts receivable, net$55,104 $99,637 $(44,533) (44.7)%Days sales outstanding - Overall53 77 (24) Days sales outstanding - Product53 75 (22) Days sales outstanding - Licensing and services29 106 (77) Accounts receivable, net as of December 30, 2017 decreased by $44.5 million, or 44.7%, compared to December 31, 2016. A majority of the decrease inreceivables was due to a decrease in product billings, net of credits, during the fourth quarter of 2017 mainly to our sell-through customers. There was aninventory buildup at our sell-through distributors during 2017 followed by a return to more normal inventory levels at the end of 2017. This resulted in adecrease in sell-through customer billings and accounts receivable of approximately $25 million at the end of 2017. There was also a reduction ofreceivables related to licensing and services. The termination of our role as agent for the HDMI consortium accounted for $6.3 million of the decrease, andcollections of other licensing and services receivables outstanding at December 31, 2016 contributed another $1.1 million to the reduction in receivablesduring the fiscal year ended December 30, 2017. Timing of collections and lower 2017 revenues as compared to 2016 contributed to the remaining decreasein receivables.Overall days sales outstanding at December 30, 2017 was 53 days, a decrease of 24 days from 77 days at December 31, 2016. Days sales outstanding atDecember 30, 2017 related to Product revenue was 53 days, a decrease of 22 days from 75 days at December 31, 2016, as a result of the decrease in sell-through distributor billings described above. Days sales outstanding at December 30, 2017 related to Licensing and services revenue was 29 days, adecrease of 77 days from 106 days at December 31, 2016, as a result of a decrease in HDMI related receivables during the year ended December 30, 2017due to the termination of our role as agent for the HDMI consortium.Inventories(In thousands)December 30, 2017 December 31, 2016 $Change %ChangeInventories$79,903 $79,168 $735 0.9%Months of inventory on hand5.4 4.3 1.1 Inventories as of December 30, 2017 increased $0.7 million, or 0.9%, compared to December 31, 2016, primarily to support forecasted sales for variousproduct lines and new product demand. This increase was substantially offset by an inventory decline related to the ramp down of a major consumerproduct's sales program.The months of inventory on hand ratio compares the inventory balance at the end of a period to the cost of sales in that period. Our months of inventory onhand increased to 5.4 months at December 30, 2017 from 4.3 months at December 31, 2016, as the cost of sales decreased between these periods, whileinventory levels remained relatively unchanged due to the reasons mentioned above.Credit ArrangementsOn March 10, 2015, we entered into a secured credit agreement (the "Credit Agreement") with Jefferies Finance, LLC and certain other lenders for purposesof funding, in part, our acquisition of Silicon Image. The Credit Agreement provided for a $350 million term loan (the "Term Loan") maturing on March 10,2021 (the "Term Loan Maturity Date"). We received $346.5 million, net of an original issue discount of $3.5 million and we paid debt issuance costs of $8.3million. The Term Loan bears variable interest equal to the one-month LIBOR, subject to a 1.00% floor, plus a spread of 4.25%. The current effective interestrate on the Term Loan is 6.29%.The Term Loan is payable through a combination of (i) quarterly installments of approximately $0.9 million, (ii) annual excess cash flow payments as definedin the Credit Agreement, which are due 95 days after the last day of our fiscal year, and (iii) any payments due upon certain issuances of additionalindebtedness and certain asset dispositions, with any remaining outstanding principal amount due and payable on the Term Loan Maturity Date. Thepercentage of excess cash flow we are required to pay ranges from 0% to 75%, depending on our leverage and other factors as defined in the CreditAgreement. Currently, the Credit Agreement would require a 75% excess cash flow payment.41Table of ContentsIn the second quarter of fiscal 2016, we made a required additional principal payment of $1.7 million due to the sale of Qterics. In the first quarter of fiscal2017, we made a required additional principal payment of $9.9 million due to a sale of patents. In the second quarter of fiscal 2017, we made anotherrequired additional principal payment of $8.3 million due to a sale of patents, and a required annual excess cash flow payment of $13.7 million. There wereno other required principal payments outside of our quarterly installment payments. Over the next twelve months, our principal payments will be comprisedmainly of regular quarterly installments. We have determined that the annual excess cash flow payment required in fiscal 2018, as calculated according to theCredit Agreement, is not material to our Consolidated Balance Sheet at December 30, 2017.While the Credit Agreement does not contain financial covenants, it does contain informational covenants and certain restrictive covenants, includinglimitations on liens, mergers and consolidations, sales of assets, payment of dividends, and indebtedness. We were in compliance with all such covenants atDecember 30, 2017.As of December 30, 2017, we had no significant long-term purchase commitments for capital expenditures or existing used or unused credit arrangements.Share Repurchase ProgramWe did not repurchase any shares in either fiscal year 2017 or 2016. We most recently repurchased shares in fiscal year 2015 under a stock repurchaseprogram approved by our Board of Directors on March 3, 2014. This 2014 program authorized the repurchase of up to $20.0 million of outstanding commonstock from time to time over a period of twelve months. The 2014 program completed during the first quarter of fiscal 2015, during which approximately 1.1million shares were repurchased for approximately $7.0 million. All shares repurchased in fiscal 2015 under the 2014 program were retired during fiscal2015 (see our Consolidated Statements of Shareholders' Equity). All repurchases were open market transactions funded from available working capital.Contractual Cash ObligationsThe following table summarizes our contractual cash obligations at December 30, 2017:(In thousands) Fiscal year Operating leases (1)Long-term Debt (2)2018 $6,310$20,0272019 4,78441,3662020 4,86071,8492021 4,654219,9662022 4,694—Thereafter 14,259— $39,561$353,208(1) Certain of our facilities and equipment are leased under operating leases, which expire at various times through 2026.(2) Cash payments due for long-term debt include estimated interest payments, which are based on outstanding principal amounts, currently effectiveinterest rates as of December 30, 2017, timing of scheduled payments and the debt term. See Liquidity section of Item 7 for further discussionpertaining to our Credit Arrangements.Our significant operating leases are for our facilities in Portland and Hillsboro, Oregon; San Jose, California; Muntinlupa City, Philippines; and Shanghai,China. We also had a significant lease for a facility in Sunnyvale, California which was terminated in February 2017.In November 2014, we entered into a lease for a new corporate headquarters facility in Portland, Oregon which expires in March 2025. Annual rental costsare estimated at $0.7 million with average annual increases of approximately 5%. We commenced operations at the new headquarters location in March2015. In November 2014, we sold the property where our headquarters was formerly located in Hillsboro, Oregon for net proceeds of $14.6 million. Weleased back the majority of this facility from November 2014 until March 2015, after which we leased a smaller portion of the facility until November 2022.Annual rental costs are estimated at $0.5 million with 3% annual increases.Our lease in San Jose, California expires September 2026 with total annual rental costs estimated to be $2.3 million and annual increases of approximately3%. Two of our leases in Muntinlupa City, Philippines expire in May 2025 and June 2025, with total annual rental costs estimated to be $0.7 million andannual increases of approximately 5%. Our lease in Shanghai expires in May 2018, with remaining rental costs estimated to be $1.1 million. Leaseholdimprovements are amortized over the shorter of the non-cancelable lease term or the estimated useful life of the assets.42Table of ContentsNew Accounting PronouncementsThe information contained under the heading "New Accounting Pronouncements" in Note 1 - Nature of Operations and Significant Accounting Policies to ourConsolidated Financial Statements in Part II, Item 8 is incorporated by reference into this Part II, Item 7.Off-Balance Sheet ArrangementsAs of December 30, 2017, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.Non-GAAP Financial MeasuresTo supplement our consolidated financial results presented in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"), we also presentnon-GAAP financial measures which are adjusted from the most directly comparable U.S. GAAP financial measures. The non-GAAP measures set forthbelow exclude charges and adjustments primarily related to stock-based compensation, restructuring charges, acquisition-related charges, amortization ofacquired intangible assets, impairment of intangible assets, purchase accounting adjustments, gain on sale of building, gain or loss on sale of business unit,and the estimated tax effect of these items. These charges and adjustments may be nonrecurring in nature but are a result of periodic or non-core operatingactivities of the company.Management believes that these non-GAAP financial measures provide an additional and useful way of viewing aspects of our performance that, whenviewed in conjunction with our U.S. GAAP results, provide a more comprehensive understanding of the various factors and trends affecting our ongoingfinancial performance and operating results than GAAP measures alone. In particular, investors may find the non-GAAP measures useful in reviewing ouroperating performance without the significant accounting charges resulting from the Silicon Image acquisition, alongside the comparably adjusted prior yearresults. Management also uses these non-GAAP measures for strategic and business decision-making, internal budgeting, forecasting, and resourceallocation processes and believes that investors should have access to similar data when making their investment decisions. In addition, these non-GAAPfinancial measures facilitate management’s internal comparisons to our historical operating results and comparisons to competitors’ operating results.These non-GAAP measures are included solely for informational and comparative purposes and are not meant as a substitute for GAAP and should beconsidered together with the consolidated financial information located in this report. Pursuant to the requirements of Regulation S-K and to make clear to ourinvestors the adjustments we make to U.S. GAAP measures, we have provided the following reconciliations of the non-GAAP measures to the most directlycomparable U.S. GAAP financial measures.43Table of ContentsReconciliation of U.S. GAAP to Non-GAAP Financial Measures(In thousands, except per share amounts)Year Ended(unaudited)December 30, 2017 December 31, 2016 January 2, 2016 Revenue Reconciliation GAAP Revenue$385,961 $427,054 $405,966Acquisition related deferred revenue effect (1)— — 5,187Non-GAAP Revenue$385,961 $427,054 $411,153 Gross Margin Reconciliation GAAP Gross margin$216,579 $246,434 $219,909Acquisition related net deferred revenue effect (1) (2)— — 3,691Acquisition related inventory fair value effect (3)— 523 6,078Stock-based compensation expense - gross margin788 888 1,416Non-GAAP Gross margin$217,367 $247,845 $231,094 Gross Margin % Reconciliation GAAP Gross margin %56.1 % 57.7 % 54.2 %Cumulative effect of non-GAAP Gross Margin adjustments0.2 % 0.3 % 2.0 %Non-GAAP Gross margin %56.3 % 58.0 % 56.2 % Operating Expenses Reconciliation GAAP Operating expenses$264,199 $273,133 $327,141Amortization of acquired intangible assets(31,340) (33,575) (29,580)Restructuring charges(7,196) (9,267) (19,239)Acquisition related charges (4)(3,781) (6,305) (22,450)Impairment of goodwill and acquired intangible assets(32,431) (7,866) (21,655)Stock-based compensation expense - operations(11,755) (15,325) (15,934)Gain on sale of building4,624 — —Non-GAAP Operating expenses$182,320 $200,795 $218,283 (Loss) Income from Operations Reconciliation GAAP Loss from operations$(47,620) $(26,699) $(107,232)Acquisition related net deferred revenue effect (1) (2)— — 3,691Acquisition related inventory fair value effect (3)— 523 6,078Stock-based compensation expense - gross margin788 888 1,416Amortization of acquired intangible assets31,340 33,575 29,580Restructuring charges7,196 9,267 19,239Acquisition related charges (4)3,781 6,305 22,450Impairment of goodwill and acquired intangible assets32,431 7,866 21,655Stock-based compensation expense - operations11,755 15,325 15,934Gain on sale of building(4,624) — —Non-GAAP Income from operations$35,047 $47,050 $12,811 (1) Fair value adjustment to deferred revenue from purchase accounting(2) Fair value adjustment to deferred cost of sales from purchase accounting(3) Fair value adjustment for inventory step-up from purchase accounting(4) Includes legal fees and outside services that were related to our proposed acquisition by Canyon Bridge Acquisition Company, Inc. and stock-based compensation and severance costs related to change in control.44Table of ContentsReconciliation of U.S. GAAP to Non-GAAP Financial Measures (In thousands, except per share amounts)Year Ended(unaudited)December 30, 2017 December 31, 2016 January 2, 2016 (Loss) Income from Operations % Reconciliation GAAP Loss from operations %(12.3)% (6.3)% (26.4)%Cumulative effect of non-GAAP Gross Margin and Operating adjustments21.4 % 17.3 % 29.5 %Non-GAAP Income from operations %9.1 % 11.0 % 3.1 % Other (Expense) Income, Net Reconciliation GAAP Other (expense) income, net$(3,286) $2,844 $(1,072)Loss (gain) on sale of assets and business units1,496 (2,646) — Non-GAAP Other income (expense), net$(1,790) $198 $(1,072) Income Tax Expense Reconciliation GAAP Income tax expense$849 $9,917 $32,540Estimated tax effect of non-GAAP adjustments (5)— — (21,030)Non-GAAP Income tax expense$849 $9,917 $11,510 Net (Loss) Income Reconciliation GAAP Net loss$(70,562) $(54,099) $(159,233)Acquisition related net deferred revenue effect (1) (2)— — 3,691Acquisition related inventory fair value effect (3)— 523 6,078Stock-based compensation expense - gross margin788 888 1,416Amortization of acquired intangible assets31,340 33,575 29,580Restructuring charges7,196 9,267 19,239Acquisition related charges (4)3,781 6,305 22,450Impairment of goodwill and acquired intangible assets32,431 7,866 21,655Stock-based compensation expense - operating expense11,755 15,325 15,934Gain on sale of building(4,624) — —Loss (gain) on sale of assets and business units1,496 (2,646) —Estimated tax effect of non-GAAP adjustments (5)— — 21,030Non-GAAP Net income (loss)$13,601 $17,004 $(18,160) (1) Fair value adjustment to deferred revenue from purchase accounting(2) Fair value adjustment to deferred cost of sales from purchase accounting(3) Fair value adjustment for inventory step-up from purchase accounting(4) Includes legal fees and outside services that were related to our proposed acquisition by Canyon Bridge Acquisition Company, Inc.and stock-based compensation and severance costs related to change in control.(5) We calculate non-GAAP tax expense by applying our tax provision model to year-to-date and projectedincome after adjusting for non-GAAP items. The difference between calculated values for GAAP andnon-GAAP tax expense has been included as the “Estimated tax effect of non-GAAP adjustments.”45Table of ContentsReconciliation of U.S. GAAP to Non-GAAP Financial Measures (In thousands, except per share amounts)Year Ended(unaudited)December 30, 2017 December 31, 2016 January 2, 2016 Net (Loss) Income Per Share Reconciliation GAAP Net loss per share - basic and diluted$(0.58) $(0.45) $(1.36)Cumulative effect of Non-GAAP adjustments0.69 0.59 1.21Non-GAAP Net income (loss) per share - basic and diluted$0.11 $0.14 $(0.15) Shares used in per share calculations: Basic122,677 119,994 117,387Diluted - GAAP (6)122,677 119,994 117,387Diluted - non-GAAP (6)124,499 121,957 117,387 (6) Diluted shares are calculated using the GAAP treasury stock method. In a loss position, diluted shares equal basic shares.Item 7A. Quantitative and Qualitative Disclosures About Market RiskForeign Currency Exchange Rate RiskWe collect an annual Japanese consumption tax refund in yen, and as a result of having various international subsidiary and branch operations, our financialposition and results of operations are subject to foreign currency exchange rate risk.We mitigate the resulting foreign currency exchange rate exposure by entering into foreign currency forward exchange contracts, details of which arepresented in the following table: December 30, 2017 December 31, 2016Total cost of contracts for Japanese yen (thousands) $2,204 $2,323Number of contracts 2 2Settlement month June 2018 June 2017Although these hedges mitigate our foreign currency exchange rate exposure from an economic perspective, they were not designated as "effective" hedgesunder U.S. GAAP and as such are adjusted to fair value through Other (expense) income, net. We do not engage in speculative trading in any financial orcapital market.The net fair value of these contracts was favorable by approximately $0.1 million at December 30, 2017 and favorable by approximately $0.2 million atDecember 31, 2016. A hypothetical 10% unfavorable exchange rate change in the yen against the U.S. dollar would have resulted in an unfavorable changein net fair value of approximately $0.2 million at both December 30, 2017 and December 31, 2016. Changes in fair value resulting from foreign exchange ratefluctuations would be substantially offset by the change in value of the underlying hedged transactions.Interest Rate RiskAt December 30, 2017, we had $306.8 million outstanding on the $350 million gross term loan outstanding under our Credit Agreement, with a variablecontractual interest rate based on the one-month LIBOR as of December 30, 2017, subject to a 1.00% floor, plus a spread of 4.25%. A hypothetical increasein the one-month LIBOR by 1% (100 basis points) during fiscal 2017 would have increased our Interest expense by approximately $3.2 million for the twelvemonth period ended December 30, 2017.46Table of ContentsItem 8. Financial Statements and Supplementary DataIndex to Consolidated Financial Statements PageConsolidated Financial Statements: Consolidated Balance Sheets 48Consolidated Statements of Operations 49Consolidated Statements of Comprehensive Loss 50Consolidated Statements of Stockholders' Equity 51Consolidated Statements of Cash Flows 52Notes to Consolidated Financial Statements 54Report of Independent Registered Public Accounting Firm 8347Table of ContentsLATTICE SEMICONDUCTOR CORPORATIONCONSOLIDATED BALANCE SHEETS(In thousands, except share and par value data)December 30, 2017 December 31, 2016ASSETS Current assets: Cash and cash equivalents$106,815 $106,552Short-term marketable securities4,982 10,308Accounts receivable, net of allowance for doubtful accounts55,104 99,637Inventories79,903 79,168Prepaid expenses and other current assets16,567 19,035Total current assets263,371 314,700Property and equipment, net40,423 49,481Intangible assets, net51,308 118,863Goodwill267,514 269,758Deferred income taxes198 372Other long-term assets13,147 13,709Total assets$635,961 $766,883 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses (includes restructuring)$54,405 $80,933Accrued payroll obligations10,416 9,865Current portion of long-term debt1,508 33,767Deferred income and allowances on sales to sell-through distributors17,250 32,257Deferred licensing and services revenue68 728Total current liabilities83,647 157,550Long-term debt299,667 300,855Other long-term liabilities34,954 38,048Total liabilities418,268 496,453Commitments and contingencies (Notes 13 and 20)— —Stockholders' equity: Preferred stock, $.01 par value, 10,000,000 shares authorized, none issued andoutstanding— —Common stock, $.01 par value, 300,000,000 shares authorized; 123,895,000 sharesissued and outstanding as of December 30, 2017 and 121,645,000 shares issued andoutstanding as of December 31, 20161,239 1,216Additional paid-in capital695,768 680,315Accumulated deficit(477,862) (406,945)Accumulated other comprehensive loss(1,452) (4,156)Total stockholders' equity217,693 270,430Total liabilities and stockholders' equity$635,961 $766,883The accompanying notes are an integral part of these Consolidated Financial Statements.48Table of ContentsLATTICE SEMICONDUCTOR CORPORATIONCONSOLIDATED STATEMENTS OF OPERATIONSYear Ended(In thousands, except per share data)December 30,2017 December 31, 2016 January 2, 2016Revenue: Product $356,502 $390,704 $369,200Licensing and services 29,459 36,350 36,766Total revenue 385,961 427,054 405,966Costs and expenses: Cost of product revenue 164,657 179,983 184,914Cost of licensing and services revenue 4,725 637 1,143Research and development 103,357 117,518 136,868Selling, general, and administrative 90,718 98,602 97,349Amortization of acquired intangible assets 31,340 33,575 29,580Restructuring charges 7,196 9,267 19,239Acquisition related charges 3,781 6,305 22,450Impairment of goodwill and acquired intangible assets 32,431 7,866 21,655Gain on sale of building (4,624) — —Total costs and expenses 433,581 453,753 513,198Loss from operations (47,620) (26,699) (107,232)Interest expense (18,807) (20,327) (18,389)Other (expense) income, net (3,286) 2,844 (1,072)Loss before income taxes (69,713) (44,182) (126,693)Income tax expense 849 9,917 32,540Net loss $(70,562) $(54,099) $(159,233) Net loss per share, basic and diluted $(0.58) $(0.45) $(1.36) Shares used in per share calculations, basic and diluted 122,677 119,994 117,387The accompanying notes are an integral part of these Consolidated Financial Statements49Table of ContentsLATTICE SEMICONDUCTOR CORPORATIONCONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS Year Ended(In thousands) December 30, 2017 December 31, 2016 January 2, 2016Net loss $(70,562) $(54,099) $(159,233)Other comprehensive loss: Unrealized loss related to marketable securities, net of tax (73) (172) (69)Reclassification adjustment for losses related to marketable securities included inother (expense) income 252 79 442Translation adjustment loss, net of tax 2,620 (1,303) (1,243)Change in actuarial valuation of defined benefit pension (95) 150 (156)Comprehensive loss $(67,858) $(55,345) $(160,259)The accompanying notes are an integral part of these Consolidated Financial Statements50Table of ContentsLATTICE SEMICONDUCTOR CORPORATIONCONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Common Stock($.01 par value) Paid-incapital Treasurystock Accumulateddeficit Accumulated othercomprehensive loss (In thousands, except par value data)Shares Amount TotalBalances, January 3, 2015117,288 $1,173 $635,299 $— $(193,613) $(1,884) $440,975Net loss for 2015— — — — (159,233) — (159,233)Unrealized loss related to marketable securities,net of tax— — — — — (69) (69)Recognized loss on redemption of marketablesecurities, previously unrealized— — — — — 442 442Translation adjustments, net of tax— — — — — (1,243) (1,243)Common stock issued in connection with theexercise of stock options, ESPP and vestedRSUs, net of tax2,415 25 2,161 — — — 2,186Stock repurchase— — — (6,970) — — (6,970)Retirement of treasury stock(1,052) (11) (6,959) 6,970 — — —Stock-based compensation expense related tooptions, ESPP and RSUs— — 18,396 — — — 18,396Fair value of partially vested stock options andRSUs assumed in acquisition— — 5,139 — — — 5,139Defined benefit pension, net of actuarial losses— — — — — (156) (156)Redemption of noncontrolling interest, net ofprevious accretion to redemption value.— — 6,053 — — — 6,053Balances, January 2, 2016118,651 $1,187 $660,089 $— $(352,846) $(2,910) $305,520Net loss for 2016— — — — (54,099) — (54,099)Unrealized loss related to marketable securities,net of tax— — — — — (172) (172)Recognized loss on redemption of marketablesecurities, previously unrealized— — — — — 79 79Translation adjustments, net of tax— — — — — (1,303) (1,303)Common stock issued in connection with theexercise of stock options, ESPP and vestedRSUs, net of tax2,994 29 4,013 — — — 4,042Stock-based compensation expense related tooptions, ESPP and RSUs— — 16,213 — — — 16,213Defined benefit pension, net of actuarial losses— — — — — 150 150Balances, December 31, 2016121,645 $1,216 $680,315 $— $(406,945) $(4,156) $270,430Net loss for 2017— — — — (70,562) — (70,562)Unrealized loss related to marketable securities,net of tax— — — — — (73) (73)Recognized loss on redemption of marketablesecurities, previously unrealized— — — — — 252 252Translation adjustments, net of tax— — — — — 2,620 2,620Common stock issued in connection with theexercise of stock options, ESPP and vestedRSUs, net of tax2,250 23 2,795 — — — 2,818Stock-based compensation expense related tostock options, ESPP and RSUs (1)— — 12,658 — — — 12,658Defined benefit pension, net of actuarial losses— — — — — (95) (95)Accounting method transition adjustment (2)— — — — (355) — (355)Balances, December 30, 2017123,895 $1,239 $695,768 $— $(477,862) $(1,452) $217,693(1) In the third quarter of fiscal 2017, in relation to the sale of 100% of the equity of our Hyderabad, India subsidiary and certain assets related to our SimplayLabs testing and certification business, certain stock compensation was accelerated due to a change of control agreement. As a result of this acceleration,the equity effect of stock compensation shown above includes approximately $0.1 million that was charged to restructuring expense as part of the June2017 Plan (see Note 15).(2) During the first quarter of fiscal 2017, we early adopted ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory.This guidance is required to be applied on a modified retrospective basis through a cumulative-effect adjustment to the balance sheet as of the beginningof the fiscal year of adoption. As a result of this adoption, we recorded a nominal amount to accumulated deficit, as detailed in the table above.The accompanying notes are an integral part of these Consolidated Financial Statements51Table of ContentsLATTICE SEMICONDUCTOR CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended(In thousands)December 30, 2017 December 31, 2016 January 2, 2016Cash flows from operating activities: Net loss$(70,562) $(54,099) $(159,233)Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization57,861 61,806 60,808Impairment of goodwill and acquired intangible assets32,431 7,866 21,655Amortization of debt issuance costs and discount1,982 1,350 2,835Change in deferred income tax provision(154) 90 21,367Loss on sale or maturity of marketable securities252 79 333Gain on forward contracts(77) (184) —Stock-based compensation expense12,543 16,213 18,396(Gain) loss on disposal of fixed assets(75) 597 —Gain on sale of building(4,624) — —Loss (Gain) on sale of assets and business units1,496 (2,646) —Impairment of cost-method investment1,761 1,459 492Changes in assets and liabilities: Accounts receivable, net44,613 (11,419) 4,578Inventories(902) (3,272) 9,868Prepaid expenses and other assets889 (2,270) (6,710)Accounts payable and accrued expenses (includes restructuring)(23,588) 8,338 6,301Accrued payroll obligations726 402 (10,202)Income taxes payable(556) 3,216 1,749Deferred income and allowances on sales to sell-through distributors(15,007) 14,391 2,920Deferred licensing and services revenue(495) (183) 1,958Net cash provided by (used in) operating activities38,514 41,734 (22,885)Cash flows from investing activities: Proceeds from sales of and maturities of short-term marketable securities12,689 14,897 142,956Purchase of marketable securities(7,420) (7,490) (15,982)Cash paid for business acquisition, net of cash acquired— — (431,068)Proceeds from sale of building7,895 — —Cash paid for costs of sale of building(1,004) — —Capital expenditures(12,855) (16,717) (18,209)Proceeds from sale of assets and business units, net of cash sold967 1,972 —Repayment received on short-term loan to cost-method investee2,000 — —Short-term loan to cost-method investee(2,000) — —Cash paid for a cost-method investment— (1,000) (5,000)Cash paid for software licenses(8,532) (9,035) (9,515)Net cash used in investing activities$(8,260) $(17,373) $(336,818) The accompanying notes are an integral part of these Consolidated Financial Statements52Table of ContentsLATTICE SEMICONDUCTOR CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS (continued) Year Ended(In thousands)December 30,2017 December 31,2016 January 2, 2016Cash flows from financing activities: Restricted stock unit withholdings$(3,267) $(3,565) $(3,493)Proceeds from issuance of common stock6,085 7,607 5,679Net proceeds from issuance of long-term debt— — 346,500Cash paid for debt issuance costs— — (8,283)Repayment of debt(35,429) (5,154) (2,625)Purchase of treasury stock— — (6,970)Cash paid to redeem noncontrolling interest— — (867)Net cash (used in) provided by financing activities$(32,611) $(1,112) $329,941Effect of exchange rate change on cash$2,620 $(1,303) $(1,243)Net increase (decrease) in cash and cash equivalents263 21,946 (31,005)Beginning cash and cash equivalents106,552 84,606 115,611Ending cash and cash equivalents$106,815 $106,552 $84,606 Supplemental cash flow information: Change in unrealized loss related to marketable securities, net of tax, included inAccumulated other comprehensive loss$73 $172 $69Income taxes paid, net of refunds$2,387 $9,359 $8,339Interest paid$20,649 $18,159 $11,071Accrued purchases of property and equipment$588 $1,028 $1,277Note receivable resulting from sale of assets and business units$3,050 $— $—Transfer of residual temporary equity to additional paid-in capital on redemption ofnoncontrolling interest$— $— $6,773The accompanying notes are an integral part of these Consolidated Financial Statements53Table of ContentsLATTICE SEMICONDUCTOR CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSNote 1 - Nature of Operations and Significant Accounting PoliciesNature of OperationsLattice Semiconductor (“Lattice,” the “Company,” “we,” “us,” or “our”) is a Delaware company that develops semiconductor technologies that we monetizethrough products, solutions, and licenses. We engage in smart connectivity solutions, providing intellectual property ("IP") and low-power, small form-factordevices that enable global customers to quickly and easily develop innovative, smart, and connected products. Our broad end-market exposure extends frommobile devices and consumer electronics to industrial and automotive equipment, communications and computing infrastructure, and licensing.We do not manufacture our own silicon wafers. We maintain strategic relationships with large, established semiconductor foundries located in Asia to sourceour finished silicon wafers. In addition, all of our assembly operations and most of our test and logistics operations are performed by outside suppliers locatedin Asia. We perform certain test operations and reliability and quality assurance processes internally.We place substantial emphasis on new product development and believe that continued investment in this area is required to maintain and improve ourcompetitive position. Our product development activities emphasize new proprietary products, advanced packaging, enhancement of existing products andprocess technologies, and improvement of software development tools. Research and development activities occur primarily in: Hillsboro, Oregon; San Jose,California; Shanghai, China; and Muntinlupa City, Philippines.Fiscal Reporting PeriodWe report based on a 52 or 53-week fiscal year ending on the Saturday closest to December 31. Our fiscal 2017, 2016, and 2015 were 52-week years thatended December 30, 2017, December 31, 2016, and January 2, 2016 respectively. Our fiscal 2018 will be a 52-week year and will end on December 29,2018. All references to quarterly or yearly financial results are references to the results for the relevant fiscal period.Principles of ConsolidationThe accompanying Consolidated Financial Statements include the accounts of Lattice and its subsidiaries after the elimination of all intercompany balancesand transactions.ReclassificationsCertain amounts in prior fiscal years in the accompanying consolidated financial statements and notes thereto have been reclassified to conform to thepresentation adopted in the current fiscal year. These reclassifications had no material effect on the results of operations or financial position for any periodpresented. We had previously treated an investment as an equity-method investment and reported equity in net loss of an unconsolidated affiliate separately,amounting to approximately $1.5 million and $0.5 million for the years ended December 31, 2016 and January 2, 2016, respectively. We have reclassifiedthe prior year losses to Other (expense) income, net on our Consolidated Statements of Income to be consistent with the current year treatment of theinvestment as a cost-method investment.Use of EstimatesThe preparation of financial statements in conformity with U.S. generally accepted accounting principles ("U.S. GAAP") requires management to makeestimates and assumptions that affect the reported amounts and classification of assets, such as marketable securities, accounts receivable, inventory,goodwill (including the assessment of reporting unit), intangible assets, current and deferred income taxes, accrued liabilities (including restructuring chargesand bonus arrangements), deferred income and allowances on sales to sell-through distributors, disclosure of contingent assets and liabilities at the date ofthe financial statements, amounts used in acquisition valuations and purchase accounting, impairment assessments, and the reported amounts of productrevenue, licensing and services revenue, and expenses during the fiscal periods presented. Actual results could differ from those estimates.54Table of ContentsCash Equivalents and Marketable SecuritiesWe consider all investments that are readily convertible into cash and that have original maturities of three months or less to be cash equivalents. Cashequivalents consist primarily of highly liquid investments in time deposits or money market accounts and are carried at cost. We account for marketablesecurities as available-for-sale investments, as defined by U.S. GAAP, and record unrealized gains or losses to Accumulated other comprehensive loss onour Consolidated Balance Sheets, unless losses are considered other than temporary, in which case, those are recorded directly to the ConsolidatedStatements of Operations and Consolidated Statements of Comprehensive Loss. Deposits with financial institutions at times exceed Federal DepositInsurance Corporation insurance limits.Fair Value of Financial InstrumentsWe invest in various financial instruments, which may include corporate and government bonds, notes, and commercial paper. We value these instruments attheir fair value and monitor our portfolio for impairment on a periodic basis. In the event that the carrying value of an investment exceeds its fair value and thedecline in value is determined to be other than temporary, we would record an impairment charge and establish a new carrying value. We assess other-than-temporary impairment of marketable securities in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification(“ASC”) 820, “Fair Value Measurements.” The framework under the provisions of ASC 820 establishes three levels of inputs that may be used to measure fairvalue. Each level of input has different levels of subjectivity and difficulty involved in determining fair value.Level 1 instruments generally represent quoted prices for identical assets or liabilities in active markets. Therefore, determining fair value for Level 1instruments generally does not require significant management judgment, and the estimation is not difficult. Our Level 1 instruments consist of U.S.Government agency obligations, corporate notes and bonds, and commercial paper that are traded in active markets and are classified as Short-termmarketable securities on our Consolidated Balance Sheets.Level 2 instruments include inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities,quoted prices for identical instruments in markets that are not active, or other inputs that are observable or can be corroborated by observable market data forsubstantially the full term of the assets or liabilities. Our Level 2 instruments consist of certificates of deposit and foreign currency exchange contracts, enteredinto to hedge against fluctuation in the Japanese yen.Level 3 instruments include unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets orliabilities. As a result, the determination of fair value for Level 3 instruments requires significant management judgment and subjectivity. We did not have anyLevel 3 instruments during the periods presented.Foreign Exchange and Translation of Foreign CurrenciesWhile our revenues and the majority of our expenses are denominated in U.S. dollars, we have international subsidiary and branch operations that conductsome transactions in foreign currencies, and we collect an annual Japanese consumption tax refund in yen. Gains or losses from foreign exchange ratefluctuations on balances denominated in foreign currencies are reflected in Other (expense) income, net. Realized gains or losses on foreign currencytransactions were not significant for the periods presented.We translate accounts denominated in foreign currencies in accordance with ASC 830, “Foreign Currency Matters,” using the current rate method underwhich asset and liability accounts are translated at the current rate, while stockholders' equity accounts are translated at the appropriate historical rates, andrevenue and expense accounts are translated at average monthly exchange rates. Translation adjustments related to the consolidation of foreign subsidiaryfinancial statements are reflected in Accumulated other comprehensive loss in Stockholders' equity (See our Consolidated Statements of Stockholders'Equity).Derivative Financial InstrumentsWe mitigate foreign currency exchange rate risk by entering into foreign currency forward exchange contracts, details of which are presented in the followingtable: December 30, 2017 December 31, 2016Total cost of contracts for Japanese yen (in thousands) $2,204 $2,323Number of contracts 2 2Settlement month June 2018 June 201755Table of ContentsAlthough these hedges mitigate our foreign currency exchange rate exposure from an economic perspective, they were not designated as "effective" hedgesunder U.S. GAAP and as such are adjusted to fair value through Other (expense) income, net, with gains of approximately $0.1 million and approximately$0.2 million, respectively, for the years ended December 30, 2017 and December 31, 2016. We do not hold or issue derivative financial instruments fortrading or speculative purposes.Concentration RiskPotential exposure to concentration risk may impact revenue, trade receivables, marketable securities, and supply of wafers for our new products.Customer concentration risk may impact revenue. The percentage of total revenue attributable to our top five end customers and largest end customer ispresented in the following table: Year Ended December 30, 2017 December 31, 2016 January 2, 2016Revenue attributable to top five end customers 26% 27% 32%Revenue attributable to largest end customer 7.3% 9.9% 9.3%No end customer accounted for more than 10% of total revenue during these periods.Sales through distributors have historically accounted for a significant portion of our total revenue. Revenue attributable to resale of products by sell-throughdistributors as a percentage of total revenue is presented in the following table: Year Ended December 30, 2017 December 31, 2016 January 2, 2016Revenue attributable to sell-through distributors 66% 61% 45%Our largest distributor groups also account for a substantial portion of our trade receivables. At December 30, 2017, one distributor group accounted for 54%of gross trade receivables. At December 31, 2016, two distributor groups accounted for 38% and 24%, respectively, of gross trade receivables. No otherdistributor group or end customer accounted for more than 10% of gross trade receivables at these dates.Concentration of credit risk with respect to trade receivables is mitigated by our credit and collection process including active management of collections,credit limits, routine credit evaluations for essentially all customers, and secure transactions with letters of credit or advance payments where appropriate. Weregularly review our allowance for doubtful accounts and the aging of our accounts receivable.Accounts receivable do not bear interest and are shown net of allowances for doubtful accounts of $9.4 million and $9.3 million at December 30, 2017 andDecember 31, 2016, respectively. The allowance for doubtful accounts reflects our best estimate of probable losses inherent in the accounts receivablebalance. We determine the allowance based on assessment of known troubled accounts, analysis of the aging of our accounts receivable, historicalexperience, management judgment, and other currently available evidence. We write off accounts receivable against the allowance when we determine abalance is uncollectible and no longer actively pursue collection of the receivable. The amounts of accounts receivable written off were insignificant for allperiods presented. Bad debt expense was negligible for fiscal 2017. During fiscal 2016, we recorded a full allowance on our accounts receivable, net ofdeferred revenue, from a bankrupt distributor group resulting in an increase in allowance for doubtful accounts of $9.0 million and bad debt expense of $7.5million in that year.We place our investments primarily through one financial institution and mitigate the concentration of credit risk by limiting the maximum portion of theinvestment portfolio which may be invested in any one instrument. Our investment policy defines approved credit ratings for investment securities.Investments on-hand in marketable securities consisted primarily of money market instruments, “AA” or better corporate notes and bonds and commercialpaper, and U.S. government agency obligations. See Note 3 for a discussion of the liquidity attributes of our marketable securities.We rely on a limited number of foundries for our wafer purchases including Fujitsu Limited, Seiko Epson Corporation, Taiwan Semiconductor ManufacturingCompany, Ltd, and United Microelectronics Corporation. We seek to mitigate the concentration of supply risk by establishing, maintaining and managingmultiple foundry relationships; however, certain of our products are sourced from a single foundry and changing from one foundry to another can have asignificant cost.56Table of ContentsRevenue Recognition and Deferred IncomeThe following describes our revenue recognition policy during fiscal 2017. In fiscal 2018, we will adopt ASU 2014-09, Revenue from Contracts withCustomers (Topic 606). See "New Accounting Pronouncements" later in this Note 1 for a discussion of the impact of adoption on our revenue recognition.Product RevenueWe sell our products though several channels: directly to end customers, through a network of independent manufacturers' representatives, and indirectlythrough a network of independent sell-in and sell-through distributors. Distributors provide periodic data regarding the product, price, quantity, and endcustomer when products are resold, as well as the quantities of our products they still have in stock.Revenue from sales to original equipment manufacturers ("OEMs") and sell-in distributors is generally recognized upon shipment. Reserves for sell-in stockrotations, where applicable, are estimated based primarily on historical experience and provided for at the time of shipment. Revenue from sales by our sell-through distributors is recognized at the time of reported resale. Under both types of revenue recognition, persuasive evidence of an arrangement exists, theprice is fixed or determinable, title has transferred, collection of resulting receivables is reasonably assured, and there are no remaining customer acceptancerequirements and no remaining significant performance obligations.Orders from our sell-through distributors are initially recorded at published list prices; however, for a majority of our sales, the final selling price is determinedat the time of resale and in accordance with a distributor price agreement. For this reason, we do not recognize revenue until products are resold by sell-through distributors to an end customer. In certain circumstances, we allow sell-through distributors to return unsold products. At times, we protect our sell-through distributors against reductions in published list prices.At the time of shipment to sell-through distributors, we (a) record accounts receivable at published list price since there is a legally enforceable obligationfrom the distributor to pay us currently for product delivered, (b) relieve inventory for the carrying value of goods shipped since legal title has passed to thedistributor, and (c) record deferred revenue and deferred cost of sales in Deferred income and allowances on sales to sell-through distributors in the liabilitysection of our Consolidated Balance Sheets. Revenue and cost of sales to sell-through distributors are deferred until either the product is resold by thedistributor or, in certain cases, return privileges terminate, at which time Revenue and Cost of product revenue are reflected in Net loss in our ConsolidatedStatements of Operations, and Accounts receivable, net is adjusted to reflect the final selling price.The components of Deferred income and allowances on sales to sell-through distributors are presented in the following table:(In thousands) December 30, 2017 December 31, 2016Inventory valued at published list price and held by sell-through distributors with right ofreturn $74,788 $86,218Allowance for distributor advances (44,990) (37,090)Deferred cost of sales related to inventory held by sell-through distributors (12,548) (16,871)Total Deferred income and allowances on sales to sell-through distributors $17,250 $32,257Licensing and Services RevenueOur licensing and services revenue is comprised of revenue from our intellectual property ("IP") core licensing activity, patent monetization activities, androyalty and adopter fee revenue from our standards activities. These activities are complementary to our product sales and help us monetize our IP andaccelerate market adoption curves associated with our technology and standards.From time to time we enter into patent sale and licensing agreements to monetize and license a broad portfolio of our patented inventions. Such licensingagreements may include upfront license fees and ongoing royalties. The contractual terms of the agreements generally provide for payments of upfrontlicense fees and/or royalties over an extended period of time. Revenue from such license fees is recognized when payments become due and payable aslong as all other revenue recognition criteria are met, while revenue from royalties is recognized when reported to us by customers.We enter into IP licensing agreements that generally provide licensees the right to incorporate our IP components into their products pursuant to terms andconditions that vary by licensee. Revenue earned under these agreements is classified as Licensing and services revenue. Our IP licensing agreementsgenerally include multiple elements, which may include one or more off-the-shelf or customized IP licenses bundled with support services covering a fixedperiod of time, generally one year. If the different elements of a multiple-element arrangement qualify as separate units of accounting, we allocate the totalarrangement consideration to each element based on relative selling price.57Table of ContentsAmounts allocated to off-the-shelf IP licenses are recognized at the time of sale provided the other conditions for revenue recognition have been met.Amounts allocated to the support services are deferred and recognized on a straight-line basis over the support period, generally one year. Certain licensingagreements provide for royalty payments based on agreed-upon royalty rates, which may be fixed or variable depending on the terms of the agreement. Theamount of revenue we recognize is based on a specified time period or on the agreed-upon royalty rate multiplied by the reported number of units shipped bythe customer.From time to time, we enter into IP licensing agreements that involve significant modification, customization or engineering services. Revenues derived fromthese contracts are accounted for using the percentage-of-completion method or completed contract method. The completed contract method is used forcontracts where there is a risk associated with final acceptance by the customer or for short-term contracts.HDMI royalty revenue is determined by a contractual allocation formula agreed to by the Founders of the HDMI consortium. The contractual allocation formulais subject to periodic adjustment, generally every three years. The most recent agreement expired on December 31, 2016 and a new agreement has not yetbeen entered into covering the period beginning January 1, 2017. As a result, the HDMI agent is unable to distribute the majority of the royalties collected tothe Founders and, given that the fixed and determinable revenue recognition criteria has not been met, we are unable to recognize all of the HDMI royaltyrevenue for the fiscal year ended December 30, 2017. Our estimate of unbilled receivables from the HDMI agent that are not reflected in our financialstatements at December 30, 2017 are in the $5 million to $10 million range.We acted as the agent of the HDMI consortium until December 31, 2016. From time to time, as the agent, we performed audits on royalty reporting customersto ensure compliance. As a result of those compliance efforts, we entered into settlement agreements for the payment of unreported royalties. The contractualterms of those agreements provided for upfront payment of unreported royalties or payment over a period of time, generally not to exceed one year. Revenuefrom those arrangements was recognized when the agreement was executed by both parties, as long as price was fixed and determinable and collection wasreasonably assured.Inventories and Cost of Product Revenue Inventories are recorded at the lower of average cost determined on a first-in-first-out basis or market. We establish provisions for inventory if it is obsolete orwe hold quantities which are in excess of projected customer demand. The creation of such provisions results in a write-down of inventory to net realizablevalue and a charge to Cost of product revenue. Shipping and handling costs are included in Cost of product revenue in our Consolidated Statements ofOperations.Property and EquipmentProperty and equipment are stated at cost. Depreciation and amortization are computed using the straight-line method for financial reporting purposes overthe estimated useful lives of the related assets, generally three to five years for equipment and software, one to three years for tooling, and thirty years forbuildings and building space. Leasehold improvements are amortized over the shorter of the non-cancelable lease term or the estimated useful life of theassets. Upon disposal of property and equipment, the accounts are relieved of the costs and related accumulated depreciation and amortization, andresulting gains or losses are reflected in the Consolidated Statements of Operations for recognized gains and losses, or in the Consolidated Balance Sheetsfor deferred gains and losses. Repair and maintenance costs are expensed as incurred.Variable Interest Entities and Equity Investments in Privately Held CompaniesWe have an interest in an entity that is a Variable Interest Entity ("VIE"). If we are the primary beneficiary of a VIE, we are required to consolidate it. Todetermine if we are the primary beneficiary, we evaluate whether we have the power to direct the activities that most significantly impact the VIE's economicperformance and the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. Our evaluationincludes identification of significant activities and an assessment of our ability to direct those activities based on governance provisions and arrangements toprovide or receive product and process technology, product supply, operations services, equity funding, financing, and other applicable agreements andcircumstances. Our assessments of whether we are the primary beneficiary of our VIE requires significant assumptions and judgments. We have concludedthat we are not the primary beneficiary of this VIE as we do not have the power to direct the activities that most significantly impact the VIE's economicperformance.Equity investments in privately held companies that we are not required to consolidate are accounted for under the cost method, as assessed under ASC325-20, "Cost Method Investments." These investments are reviewed on a quarterly basis to determine if their values have been impaired and adjustmentsare recorded as necessary. We assess the potential impairment of these investments by applying a fair value analysis using a revenue multiple approach.Declines in value that are judged to be other-than-temporary are reported in Other (expense) income, net in the accompanying Consolidated Statements ofOperations with a commensurate decrease in the carrying value of the investment (see Note 10). Upon disposition of these investments, the specificidentification method is used to determine the cost basis in computing realized gains or losses.58Table of ContentsImpairment of Long-Lived AssetsLong-lived assets, including amortizable intangible assets, are carried on our financial statements based on their cost less accumulated depreciation oramortization. We monitor the carrying value of our long-lived assets for potential impairment and test the recoverability of such assets annually during thefourth quarter and whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. These events or changes incircumstances, including management decisions pertaining to such assets, are referred to as impairment indicators. If an impairment indicator occurs, weperform a test of recoverability by comparing the carrying value of the asset group to its undiscounted expected future cash flows. If the carrying values are inexcess of undiscounted expected future cash flows, we measure any impairment by comparing the fair value of the asset group to its carrying value. Fairvalue is generally determined by considering (i) internally developed discounted projected cash flow analysis of the asset group; (ii) actual third-partyvaluations; and/or (iii) information available regarding the current market for similar asset groups. If the fair value of the asset group is determined to be lessthan the carrying amount of the asset group, an impairment in the amount of the difference is recorded in the period that the impairment indicator occurs andis included in our Consolidated Statements of Operations. Estimating future cash flows requires significant judgment and projections may vary from the cashflows eventually realized, which could impact our ability to accurately assess whether an asset has been impaired. The results of our assessments aredetailed in Note 9.Valuation of GoodwillGoodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individuallyidentified and separately recognized. We review goodwill for impairment annually during the fourth quarter and whenever events or changes incircumstances indicate the carrying value of goodwill may not be recoverable. When evaluating whether goodwill is impaired, we make a qualitativeassessment to determine if it is more likely than not that the reporting unit's fair value is less than the carrying amount. If the qualitative assessmentdetermines that it is more likely than not that the fair value is less than the carrying amount, the fair value of the reporting unit is compared with its carryingvalue (including goodwill). If the fair value of the reporting unit is less than its carrying value, an indication of goodwill impairment exists for the reporting unitand we must measure the impairment loss. The impairment loss, if any, is recognized for any excess of the carrying amount of the reporting unit's goodwillover the implied fair value of the goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similarto purchase price allocation and the residual fair value after this allocation is the implied fair value of the reporting unit goodwill. Fair value of the reportingunit is determined using a discounted cash flow analysis. If the fair value of the reporting unit exceeds its carrying value, no further impairment analysis isneeded. For purposes of testing goodwill for impairment, we currently operate as a single reporting unit: the core Lattice ("Core") business, which includesintellectual property and semiconductor devices. In fiscal 2015 only, we separately tested goodwill for impairment in Qterics, a discrete software-as-a-servicebusiness unit that was an immaterial operating segment in the Lattice legal entity structure prior to its sale to an unrelated third party in April 2016. Althoughthese two operating units constituted two reportable segments in fiscal 2015, we combined Qterics with our Core business and reported them together as onereportable segment due to the immaterial nature of the Qterics unit. The results of our assessments are detailed in Note 9.LeasesWe lease office space and classify our leases as either operating or capital lease arrangements in accordance with the criteria of ASC 840, “Leases.” Certainof our office space operating leases contain provisions under which monthly rent escalates over time and certain leases may also contain provisions forreimbursement of a specified amount of leasehold improvements. When lease agreements contain escalating rent clauses, we recognize expense on astraight-line basis over the term of the lease. When lease agreements provide allowances for leasehold improvements, we capitalize the leaseholdimprovement assets and amortize them on a straight-line basis over the lesser of the lease term or the estimated useful life of the asset, and reduce rentexpense on a straight-line basis over the term of the lease by the amount of the asset capitalized.Restructuring ChargesExpenses associated with exit or disposal activities are recognized when incurred under ASC 420, “Exit or Disposal Cost Obligations,” for everything butseverance. Because the Company has a history of paying severance benefits, the cost of severance benefits associated with a restructuring plan is recordedwhen such costs are probable and the amount can be reasonably estimated in accordance with ASC 712, “Compensation - Nonretirement PostemploymentBenefits.” When leased facilities are vacated, an amount equal to the total future lease obligations from the date of vacating the premises through theexpiration of the lease, net of any future sublease income, is recorded as a part of restructuring charges.59Table of ContentsResearch and DevelopmentResearch and development expenses include costs for compensation and benefits, development masks, engineering wafers, depreciation, licenses, andoutside engineering services. These expenditures are for the design of new products, intellectual property cores, processes, packaging, and software tosupport new products. Research and development costs are expensed as incurred.Accounting for Income TaxesOur provision for income tax is comprised of our current tax liability and changes in deferred tax assets and liabilities. Deferred tax assets and liabilities arerecognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts in thefinancial statements using enacted tax rates and laws that will be in effect when the difference is expected to reverse. Valuation allowances are provided toreduce deferred tax assets to an amount that in management’s judgment is more-likely-than-not to be recoverable against future taxable income. U.S. taxreform required a deemed repatriation of foreign earnings as of December 30, 2017 and no future U.S. taxes will be due on these earnings because ofenactment of a 100% dividends received deduction. Foreign earnings may be subject to withholding taxes if they are distributed and repatriated to Lattice inthe United States.Our income tax calculations are based on application of the respective U.S. federal, state or foreign tax law. Our tax filings, however, are subject to audit bythe relevant tax authorities. Accordingly, we recognize tax liabilities based upon our estimate of whether, and the extent to which, additional taxes will be duewhen such estimates are more-likely-than-not to be sustained. An uncertain income tax position will not be recognized if it has less than a 50% likelihood ofbeing sustained. To the extent the final tax liabilities are different than the amounts originally accrued, the increases or decreases as well as any interest orpenalties are recorded as income tax expense or benefit in the Consolidated Statements of Operations.In assessing the ability to realize deferred tax assets, we evaluate both positive and negative evidence that may exist and consider whether it is more-likely-than-not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation offuture taxable income during the periods in which those temporary differences become deductible.Any adjustment to the net deferred tax asset valuation allowance is recorded in the Consolidated Statements of Operations for the period that the adjustmentis determined to be required.Stock-Based CompensationWe use the Black-Scholes option pricing model to estimate the fair value of substantially all share-based awards consistent with the provisions of ASC 718,“Compensation - Stock Compensation.” Option pricing models, including the Black-Scholes model, require the use of input assumptions, including expectedvolatility, expected term, expected dividend rate, and expected risk-free rate of return. The assumptions for expected volatility and expected term mostsignificantly affect the grant date fair value.We have also used a lattice-based option-pricing model to determine and fix the fair value of stock options with a market condition granted to certainexecutives. This valuation model incorporates a Monte-Carlo simulation, and considered the likelihood that we would achieve the market condition. Theoptions have a two year vesting and vest between 0% and 200% of the target amount, based on the Company's relative Total Shareholder Return ("TSR")when compared to the TSR of a component of companies of the PHLX Semiconductor Sector Index over a two year period. TSR is a measure of stock priceappreciation plus dividends paid, if any, in the performance period.New Accounting PronouncementsRecently Adopted Accounting StandardsIn July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory. Under this ASU, inventory will be measured at the “lower of cost andnet realizable value” and options that currently exist for “market value” will be eliminated. The ASU defines net realizable value as the “estimated sellingprices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.” ASU 2015-11 is effective for interimand annual periods beginning after December 15, 2016. Early application is permitted and should be applied prospectively. Our adoption of this accountingstandard update in the first quarter of fiscal 2017 did not have a material impact on our consolidated financial statements.60Table of ContentsIn March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation, Improvements to Employee Share-Based payment Accounting (Topic718). This update is intended to provide simplification of the accounting for share based payment transactions, including the accounting for income taxes,forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The guidance is effective for interim and annualperiods beginning after December 15, 2016. Early application is permitted and should be applied prospectively. Our adoption of this accounting standardupdate in the first quarter of fiscal 2017 did not have a material impact on our consolidated financial statements.In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. This update is intended torecognize the income tax consequences of intra-entity transfers of assets other than inventory when they occur by removing the exception to postponerecognition until the asset has been sold to an outside party. For public business entities, this guidance is effective for interim and annual periods beginningafter December 15, 2017. Early adoption is permitted, and it is required to be applied on a modified retrospective basis through a cumulative-effectadjustment to the balance sheet as of the beginning of the fiscal year of adoption. We early adopted this accounting standard in the first quarter of fiscal 2017and recorded a nominal amount to accumulated deficit based on the guidance, as detailed in our Consolidated Statements of Stockholders' Equity.Recently Issued Accounting StandardsIn May 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which requires anentity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. In August 2015, theFASB issued ASU 2015-14 deferring the effective date of ASU 2014-09 to periods beginning on or after December 15, 2017, with early adoption permitted forannual reporting periods beginning after December 15, 2016, and interim periods within that year. The new standard allows for two transition methods - (i) afull retrospective method applied to each prior reporting period presented, or (ii) a modified retrospective method applied with the cumulative effect ofadoption recognized on December 31, 2017, the first day of our fiscal 2018. We will adopt this guidance on December 31, 2017 using the modifiedretrospective transition method, which will result in an adjustment to accumulated deficit for the cumulative effect of applying this guidance to contracts inprocess as of the adoption date. Under this approach, we will not restate the prior financial statements presented. This guidance requires us to provideadditional disclosures of the amount by which each financial statement line item is affected in the current reporting period during 2018 as compared to theguidance that was in effect before the change, and an explanation of the reasons for significant changes.Based on our current assessment of the impacts of the standard to revenue, we believe the most significant impact of the new standard will be to acceleratethe timing of revenue recognition on product shipments to our sell-through distributors. Assuming all other revenue recognition criteria have been met, thenew guidance would require us to recognize revenue and costs relating to such sales upon shipment to the distributor - subject to reductions for estimatedreserves for price adjustments and returns - rather than upon the ultimate sale by the distributor to its end customer, as is our current practice. The impact ofthis change will depend primarily on the level of inventory held by sell-through distributors at the beginning and end of each period. To the extent theseinventory levels fluctuate significantly, revenue under the new standard could be materially different than that under the current standard. Revenue to our sell-through distributors accounted for approximately 66% and 61% of our total revenue, respectively, during the years ended December 30, 2017 and December31, 2016. We also anticipate that the new standard will require us to recognize certain licensing revenues which are not recognizable under current GAAPdue to the fixed and determinable revenue recognition criteria not being met. We anticipate that the cumulative adjustment resulting from this recognition willbe a reduction to 2018 opening accumulated deficit in the $20 million to $30 million range, and we don’t anticipate a material change relating to capitalizationof commission expenses.In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, to mainly change theaccounting for investments in equity securities and financial liabilities carried at fair value as well as to modify the presentation and disclosure requirementsfor financial instruments. The ASU is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. Adoption ofthe ASU is retrospective with a cumulative adjustment to retained earnings or accumulated deficit as of the adoption date. We do not expect that the adoptionof ASU 2016-01 will have a material effect on our consolidated financial statements.61Table of ContentsIn February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires the recognition of assets and liabilities arising from lease transactionson the balance sheet and will also require significant additional disclosures about the amount, timing, and uncertainty of cash flows from leases. Substantiallyall leases, including current operating leases, will be recognized by lessees on their balance sheet as a lease asset for its right to use the underlying assetand a lease liability for the corresponding lease obligation. The new guidance requires a modified prospective transition approach to recognize and measureleases at the beginning of the earliest period presented. For public business entities, the standard is effective for fiscal years beginning after December 15,2018, including interim periods within those fiscal years. Early application is permitted for all entities. We have commenced our implementation efforts, whichhave focused on considerations for external consultation and development of a project plan. We are currently evaluating the impact of ASU 2016-02 on ourconsolidated financial statements and related disclosures, including the increase in the assets and liabilities on our balance sheet, and the impact on ourcurrent lease portfolio from both a lessor and lessee perspective. To facilitate this, we are utilizing a comprehensive approach to review our lease portfolio, aswell as assessing system requirements and control implications. We believe that we have sufficient time and resources to complete our implementationefforts no later than the first quarter of fiscal 2019. See Note 13 - Lease Obligations for our future minimum lease commitments under operating leases.In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The newguidance is intended to reduce diversity in practice in how cash receipts and cash payments are classified in the statement of cash flows. For public businessentities, this guidance will be effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted. We do not expect thatthe adoption of ASU 2016-15 will have a material effect on our consolidated financial statements.In January 2017, the FASB issued ASU No. 2017-01, Clarifying the Definition of a Business, which narrows the existing definition of a business and providesa framework for evaluating whether a transaction should be accounted for as an acquisition (or disposal) of assets or a business. This update requires anentity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiableassets; if so, the set of transferred assets and activities (collectively, the set) is not a business. To be considered a business, the set would need to include aninput and a substantive process that together significantly contribute to the ability to create outputs. The standard also narrows the definition of outputs. Thedefinition of a business affects areas of accounting such as acquisitions, disposals and goodwill. Under the new guidance, fewer acquired sets are expectedto be considered businesses. For public business entities, this guidance is effective for interim and annual periods beginning after December 15, 2017. Theimpact of ASU 2017-01 will depend upon the nature of future acquisitions or dispositions that we may make.In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which simplifiesthe subsequent measurement of goodwill by eliminating step two from the goodwill impairment test. Under the new guidance, an entity will recognize animpairment charge for the amount by which the carrying value exceeds the fair value. This standard is effective for annual or any interim goodwill impairmenttests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing datesafter January 1, 2017 and requires a prospective transition method. We will early adopt this accounting standard effective fiscal 2018 on a prospective basis.We do not expect the standard to have an impact on our consolidated financial statements. We expect the adoption of this update to simplify our annualgoodwill impairment testing process, by eliminating the need to estimate the implied fair value of a reporting unit’s goodwill, if its respective carrying valueexceeds fair value.In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, which provides clarity onwhich changes to the terms or conditions of share-based payment awards require entities to apply the modification accounting provisions required in Topic718. This standard is effective for all entities for annual reporting periods beginning after December 15, 2017, with early adoption permitted, includingadoption in any interim period for which financial statements have not yet been issued. We do not expect that the adoption of ASU 2017-09 will have amaterial effect on our consolidated financial statements.In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, whichimproves the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financialstatements and simplifies the application of the hedge accounting guidance. This standard is effective for annual periods beginning after December 15, 2018,including interim periods within those annual periods, with early adoption permitted. We are currently evaluating the impact of ASU 2017-12 on ourconsolidated financial statements and related disclosures.Note 2 - Net Loss Per ShareWe compute basic net loss per share by dividing net loss by the weighted average number of common shares outstanding during the period. To determinediluted share count, we apply the treasury stock method to determine the dilutive effect of outstanding stock option shares, restricted stock units ("RSUs"), andEmployee Stock Purchase Plan ("ESPP") shares. Our application of the treasury stock method includes, as assumed proceeds, the average unamortizedstock-based compensation expense for the period. When we are in a net loss position, we do not include dilutive securities as their inclusion would reducethe net loss per share.62Table of ContentsA summary of basic and diluted net loss per share is presented below: Year Ended(in thousands, except per share data) December 30, 2017 December 31, 2016 January 2, 2016Net loss $(70,562) $(54,099) $(159,233) Shares used in basic and diluted net loss per share 122,677 119,994 117,387 Basic and diluted net loss per share $(0.58) $(0.45) $(1.36)The computation of diluted net loss per share excludes the effects of stock options, RSUs, and ESPP shares that are antidilutive, aggregating approximatelythe following number of shares: Year Ended(in thousands) December 30, 2017 December 31, 2016 January 2, 2016Stock options, RSUs, and ESPP shares excluded as they are antidilutive 6,622 8,978 9,243Stock options, RSUs, and ESPP shares are considered antidilutive when the aggregate of exercise price and unrecognized stock-based compensationexpense are greater than the average market price for our common stock during the period. Stock options, RSUs, and ESPP shares that are antidilutive atDecember 30, 2017 could become dilutive in the future.Note 3 - Marketable SecuritiesWe classify our marketable securities as short-term based on their nature and availability for use in current operations. Our Short-term marketable securitieshave contractual maturities of up to two years, with less than one year remaining term as of December 30, 2017 and December 31, 2016.The following table summarizes the composition of our Short-term marketable securities at fair value: (In thousands)December 30, 2017 December 31, 2016Short-term marketable securities: Corporate and government bonds and notes$4,982 $10,230Certificates of deposit— 78Total marketable securities$4,982 $10,308Note 4 - Fair Value of Financial Instruments Fair value measurements as of Fair value measurements as of December 30, 2017 December 31, 2016(In thousands)Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3Short-term marketable securities$4,982 $4,982 $— $— $10,308 $10,230 $78 $—Foreign currency forward exchangecontracts, net77 — 77 — 184 — 184 —Total fair value of financial instruments$5,059 $4,982 $77 $— $10,492 $10,230 $262 $—We invest in various financial instruments that may include corporate and government bonds and notes, commercial paper, and certificates of deposit. Inaddition, we enter into foreign currency forward exchange contracts to mitigate our foreign currency exchange rate exposure. We carry these instruments attheir fair value in accordance with ASC 820, "Fair Value Measurements." The framework under the provisions of ASC 820 establishes three levels of inputsthat may be used to measure fair value. Each level of input has different levels of subjectivity and difficulty involved in determining fair value, as summarizedin Note 1. There were no transfers between any of the levels during fiscal 2017, 2016, and 2015.63Table of ContentsIn accordance with ASC 320, “Investments-Debt and Equity Securities,” we recorded an unrealized loss of approximately $0.1 million during the fiscal yearended December 30, 2017, and an unrealized loss of approximately $0.2 million during the fiscal year ended December 31, 2016 on certain Short-termmarketable securities (Level 1 instruments), which have been recorded in Accumulated other comprehensive loss. Future fluctuations in fair value related tothese instruments that we deem to be temporary, including any recoveries of previous write-downs, would be recorded to Accumulated other comprehensiveloss. If we were to determine in the future that any further decline in fair value is other-than-temporary, we would record an impairment charge, which couldhave a material adverse effect on our operating results. If we were to liquidate our position in these securities, it is likely that the amount of any future realizedgain or loss would be different from the unrealized gain or loss reported in Accumulated other comprehensive loss.Note 5 - Inventories(In thousands)December 30, 2017 December 31, 2016Work in progress$49,642 $50,688Finished goods30,261 28,480Total inventories$79,903 $79,168Note 6 - Property and Equipment(In thousands)December 30, 2017 December 31, 2016Buildings$— $3,554Computer and test equipment155,492 162,388Office furniture and equipment2,914 3,460Leasehold and building improvements13,277 14,865 171,683 184,267Accumulated depreciation and amortization(131,260) (134,786) $40,423 $49,481Depreciation and amortization expense for property and equipment was $16.3 million and $18.4 million for fiscal years 2017 and 2016, respectively. Forfiscal year 2015, depreciation and amortization expense for property and equipment was $18.1 million, including $1.5 million of restructuring expense.In August 2017, we sold building space which we owned in Shanghai, China. The building space was vacated in fiscal 2015, upon consolidation of facilitiesto a single, alternate site in Shanghai following our acquisition of Silicon Image, and was sold for gross proceeds of approximately $7.9 million. As of the saledate, the asset had a historical cost of $3.6 million, accumulated depreciation of $1.4 million and we incurred $1.1 million of direct selling costs, resulting in anet gain on sale of $4.6 million, which is presented as Gain on sale of building in our Consolidated Statements of Operations.In November 2014, we sold land and buildings, comprising the former location of our corporate headquarters and executive office in Hillsboro, Oregon, fornet proceeds of approximately $14.6 million. This property had a historical cost of $30.9 million and accumulated depreciation of $17.9 million, resulting in anet gain on sale of $1.6 million. We leased back a portion of the facilities for a lease term of eight years, resulting in deferral of the gain, which is beingamortized over the life of the lease.Note 7 - Sales of Assets and Business Units, Business Combinations, and GoodwillSales of Assets and Business UnitsOn September 30, 2017, in conjunction with our June 2017 restructuring plan (see Note 15), we sold 100% of the equity of our Hyderabad, India subsidiaryand certain assets related to our Simplay Labs testing and certification business to Invecas, Inc. The fair value of purchase price consideration was $5.3million, which was comprised of $2.3 million of cash and a $3.0 million note receivable. We recorded a $1.8 million loss on the sale, including a $2.2 milliondisposal of a relative fair value share of our goodwill, which is included in Other (expense) income, net in the Consolidated Statements of Operations.In April 2016, we sold Qterics to an unrelated third party for net proceeds of $2.0 million, net of cash sold, resulting in a gain of $2.6 million. The gain wasincluded in Other (expense) income, net in the Consolidated Statements of Operations in the period of sale. In the second quarter of fiscal 2017, we receiveda final escrow payment of $0.3 million related to the sale of Qterics, which was included as a gain in Other (expense) income, net in the ConsolidatedStatements of Operations for the period of receipt.64Table of ContentsBusiness CombinationsOn March 10, 2015, we acquired 100% of the outstanding equity of Silicon Image, Inc. ("Silicon Image"), a provider of video, audio, and data connectivitysolutions for the mobile, consumer electronics, and personal computer markets for total fair value purchase consideration of $588.5 million in cash andassumed partially vested stock options and RSUs.Purchase consideration was allocated to the tangible and intangible assets and liabilities assumed on the basis of the respective estimated fair values on theacquisition date. The estimation of the fair values of the intangible assets required the use of valuation techniques including the income approach and thecost approach, and entailed consideration of all the relevant factors that might affect the fair value such as present value factors, and estimates of futurerevenues and costs.GoodwillGoodwill represents the excess of the purchase price over the fair value of the underlying net tangible and intangible assets. Goodwill is not amortized, but isinstead tested for impairment annually or more frequently if certain indicators of impairment are present. We do not expect goodwill impairment to be taxdeductible for income tax purposes. No impairment charges relating to goodwill were recorded for either fiscal 2017 or fiscal 2016 as no indicators ofimpairment were present. A $12.7 million charge to fully impair the Qterics goodwill was recorded for fiscal 2015 (Note 9).In the first quarter of 2016, we finalized our valuation and allocation of purchase price consideration related to the acquisition of Silicon Image, Inc. ("SiliconImage") resulting in $2.1 million of additional long-term liabilities related to an uncertain tax position and $0.1 million of other tax-related adjustments with anequivalent revision to Goodwill, which is reflected in the Consolidated Balance Sheets for the period ended December 31, 2016.As part of our accounting for the asset sale to Invecas, Inc. in September 2017, we recorded a $2.2 million disposal of a relative fair value share of ourGoodwill.Changes to the Goodwill balances on the Consolidated Balance Sheets are summarized in the following table:(In thousands) December 30, 2017 December 31, 2016Beginning balance $269,758 $267,549Additions — 2,209Disposals (2,244) —Ending balance $267,514 $269,758Note 8 - Intangible AssetsIn connection with our acquisitions of Silicon Image in March 2015 and SiliconBlue in December 2011 we recorded identifiable intangible assets related todeveloped technology, customer relationships, licensed technology, patents, and in-process research and development based on guidance for determiningfair value under the provisions of ASC 820, "Fair Value Measurements." Additionally, during fiscal 2015 and 2017, we licensed additional third-partytechnology. We do not believe there is any significant residual value associated with these intangible assets. We are amortizing the intangible assets usingthe straight-line method over their estimated useful lives.During the first quarter of fiscal 2017, we sold a portfolio of patents that had been acquired in our acquisition of Silicon Image for $18.0 million. This amountwas received in two installments over the first and second quarters of fiscal 2017, and was recognized as licensing and services revenue in our ConsolidatedStatements of Operations during the respective periods in which the installment payments were received. As a result of this transaction, Intangible assets, netwas reduced by approximately $3.5 million on our Consolidated Balance Sheets.We monitor the carrying value of our intangible assets for potential impairment and test the recoverability of such assets annually during the fourth quarterand whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. The results of our assessments aresummarized below and more fully detailed in Note 9.65Table of ContentsDuring the fourth quarter of fiscal 2017, we finalized our impairment assessment procedures related to certain of the developed technology intangible assetsacquired in our acquisition of Silicon Image, resulting in a $3.8 million reduction to the preliminary impairment charge of $36.2 million recorded in the thirdquarter of fiscal 2017, for a net impairment charge of $32.4 million in fiscal 2017. During the third quarter of fiscal 2016, we recorded a $7.9 millionimpairment charge to the intangible assets associated with future HDMI adopter fees. During the fourth quarter of fiscal 2015, we recorded a $9.0 millionimpairment charge to the intangible assets of the then Qterics operating segment comprising developed technology of $3.9 million, and customerrelationships of $5.1 million. With the sale of Qterics in April 2016, its balances for intangible assets, accumulated amortization, and impairment have beenremoved from the balance for Intangible assets, net in the Consolidated Balance Sheet as of December 31, 2016.The following tables summarize the details of our Intangible assets, net as of December 30, 2017 and December 31, 2016: December 30, 2017(In thousands) Weighted AverageAmortization Period(in years) Gross Impairment AccumulatedAmortization Intangible assets,netDeveloped technology 4.7 $158,700 $(32,431) $(81,847) $44,422Customer relationships 5.7 22,934 — (16,696) 6,238Licensed technology 3.5 2,392 — (1,744) 648Total identified intangible assets $184,026 $(32,431) $(100,287) $51,308 December 31, 2016(In thousands) Weighted AverageAmortization Period(in years) Gross Impairment AccumulatedAmortization Intangible assets,netDeveloped technology 4.7 $141,359 $— $(55,493) $85,866Customer relationships 6.1 30,800 (7,866) (13,694) 9,240Licensed technology 3.3 2,127 — (1,201) 926Patents 5 769 — (279) 490Total identified finite-livedintangible assets 175,055 (7,866) (70,667) 96,522In-process research anddevelopment indefinite 22,341 — — 22,341Total identified intangible assets $197,396 $(7,866) $(70,667) $118,863We recorded amortization expense related to intangible assets on the Consolidated Statements of Operations as presented in the following table: Year Ended(In thousands)December 30, 2017 December 31, 2016 January 2, 2016Research and development$569 $745 $731Amortization of acquired intangible assets31,340 33,575 29,580 $31,909 $34,320 $30,31166Table of ContentsThe annual expected amortization expense of acquired intangible assets with finite lives is as follows:(In thousands)Amount2018$19,419201916,61920207,50420215,14820222,352Thereafter266Total$51,308Note 9 - Impairment of Goodwill and Acquired Intangible AssetsIn connection with our acquisitions of Silicon Image in March 2015 and SiliconBlue in December 2011 we recorded goodwill and identifiable intangibleassets related to developed technology, customer relationships, licensed technology, patents, and in-process research. We monitor the carrying value of ourgoodwill and acquired intangible assets for potential impairment and test the recoverability of such assets annually during the fourth quarter and wheneverevents or changes in circumstances indicate that their carrying amounts may not be recoverable. When we are required to determine the fair value ofintangible assets other than goodwill, we use the income approach. We start with a forecast of all expected net cash flows associated with the asset and thenapply a discount rate to arrive at fair value.In the third quarter of fiscal 2017, we updated our annual strategic long-range plan, which resulted in revised forecasts. We also sold 100% of the equity ofour Hyderabad, India subsidiary and certain assets related to our Simplay Labs testing and certification business to an unrelated third party. We determinedthat these activities constituted impairment indicators related to the developed technology intangible assets acquired in our acquisition of Silicon Image. Ourassessment of the fair value of these intangible assets concluded that they had been impaired as of September 30, 2017, and we recorded a preliminaryimpairment charge of $36.2 million in the Consolidated Statements of Operations. During the fourth quarter of fiscal 2017, we completed our detailed analysisand evaluation of the information and assumptions used in the determination of the impairment charge, which included reviewing information, inputs,assumptions, and valuation methodologies used to estimate the fair value of these intangible assets, and finalization of review by an independent valuationexpert. As a result, we recorded a $3.8 million reduction to the preliminary impairment charge recorded in the third quarter of fiscal 2017, for a net impairmentcharge of $32.4 million in fiscal 2017. No impairment charges related to goodwill were recorded in fiscal 2017 as no indicators of impairment were present.In September 2016, the Founders of the HDMI consortium, of which we are a member, amended the existing Founders Agreement as part of a regularamendment process resulting in changes to our role as agent for the HDMI consortium and to the model for sharing adopter fee revenues. Under the terms ofthe amendment agreement, our role as the agent was terminated effective January 1, 2017 and a new independent entity was appointed to act as the newHDMI licensing agent with responsibility for licensing and the distribution of royalties among Founders. As a result of the amended model for sharingrevenue, we will be entitled to a reduced share of adopter fees paid by parties adopting the HDMI standard. We determined that this modification constitutedan impairment indicator related to the intangible assets acquired in the Silicon Image acquisition associated with future HDMI adopter fees. Our assessmentof the fair value of these intangible assets concluded that they had been impaired as of the end of the third quarter of fiscal 2016, and we recorded a $7.9million impairment charge in the Consolidated Statements of Operations. No impairment charges related to goodwill were recorded in fiscal 2016 as noindicators of impairment were present.For fiscal 2015, the impairment of goodwill and intangible assets was related to Qterics, Inc., which was acquired in the March 2015 acquisition of SiliconImage. During the fourth quarter of fiscal 2016, we determined that we experienced an impairment indicator related to the long-lived assets of the Qtericsoperating segment. For purposes of testing for impairment in fiscal 2015, the Company operated as two reporting units: the continuing core Lattice ("Core")business, which includes intellectual property and semiconductor devices, and Qterics, which was a discrete software-as-a-service business unit in theLattice legal entity structure until it was sold in April 2016. Although these two operating segments constituted two reportable segments in fiscal 2015, wecombined Qterics with our Core business and reported them together as one reportable segment due to the immaterial nature of the Qterics segment.Following this assessment, we concluded that goodwill and intangible assets had been impaired in the Qterics segment as of December 31, 2016. As a resultwe recorded an impairment charge amounting to $21.7 million, or approximately 92% of the previous value of goodwill and intangible assets, in theConsolidated Statements of Operations for the year ended December 31, 2016, comprising $12.7 million pertaining to goodwill, $3.9 million pertaining todeveloped technology, and $5.1 million pertaining to customer relationships. The valuation was based on the market approach and was our best estimate offair value as of the end of fiscal 2015. No impairment charges were recorded for the Core segment in fiscal 2015.67Table of ContentsNote 10 - Cost Method Investment and Collaborative ArrangementDuring fiscal 2015, we purchased a series of preferred stock ownership interests in a privately-held company that designs human-computer interactiontechnology for total consideration of $5.0 million. This gross investment constituted a 22.7% ownership interest. In the third quarter of fiscal 2016, we made anadditional investment of $1.0 million via a convertible debt instrument, bringing our gross investment in the investee to $6.0 million.In each of the second and third quarters of fiscal 2017, we advanced the investee $1.0 million through a short-term instrument, bringing our total short-termadvances to the investee to $2.0 million. As these advances were due and payable in the fourth quarter of fiscal 2017, they were included in Prepaidexpenses and other current assets in our Consolidated Balance Sheets while outstanding. The investee repaid the total advances in October 2017.In 2017, we signed new development and licensing contracts with the investee, and the investee obtaining preferred debt that effectively subordinates ourownership position between their debt and common shareholders. After evaluating these events and our investment position, we concluded that we have avariable interest in the privately-held company. However, since we are not the primary beneficiary of the investee, are not holding in-substance commonstock, and do not have a significant amount of influence to direct the activities that most significantly impact the investee’s economic performance, accordinglywe account for our investment in this company under the cost method.We assessed this investment for impairment as of December 30, 2017 by applying a fair value analysis using a revenue multiple approach. This yielded a fairvalue for our ownership stake of $2.3 million, which was less than its carrying value at the date of assessment. We determined that this impairment was other-than-temporary and adjusted the carrying value to the fair value.The total impairment adjustments against this investment that we have recognized through Other (expense) income, net in the Consolidated Statements ofOperations are presented in the following table: Year Ended(In thousands) December 30, 2017 December 31, 2016 January 2, 2016Impairment of cost-basis investment $(1,761) $(1,459) $(492)Through December 30, 2017, we have reduced the value of our investment by approximately $3.7 million. The net balance of our investment included inOther long-term assets in the Consolidated Balance Sheets is detailed in the following table:(In thousands) TotalBalance at January 2, 2016 $4,508Investment made during fiscal year 1,000Impairment of cost-basis investment (1,459)Balance at December 31, 2016 4,049Impairment of cost-basis investment (1,761)Balance at December 30, 2017 $2,288At December 30, 2017, our maximum exposure to loss as a result of involvement with this VIE totals $2.9 million, which is comprised of the $2.3 million fairvalue of our investment plus $0.6 million of prepaid royalties further described in the section below on the related collaborative arrangement.68Table of ContentsCollaborative ArrangementConcurrent with the initiation of the investment discussed above, we entered into a collaborative arrangement with the investee. Under this arrangement, theparties undertook the development of certain fast, multi-touch sensing devices for touch screen controller applications. The new development and licensingagreements we entered into in 2017 specified the transfer of certain Intellectual Property ("IP") from the investee to us, payment of royalties from us to theinvestee and from investee to us for future sales of co-developed products, as well as an agreement to perform certain services for each other at no charge.We will also make periodic payments to the investee. These will be automatically credited against any future revenue share amount owed to investee and willbe accounted for as prepaid royalties under ASC 340-10-05-05. The schedule of periodic payments for prepaid royalties is as follows: Amount of eachFiscal Year Frequency payment (In thousands)2017 In the fourth calendar quarter $6252018 At the end of each calendar quarter $8752019 At the end of each calendar quarter $1,250At December 30, 2017, royalties prepaid to the investee total $0.6 million and are included in Prepaid expenses and other current assets in our ConsolidatedBalance Sheets. There is no liability related to these payments as they are contractually associated with specific future periods.Note 11 - Accounts Payable and Accrued ExpensesIncluded in Accounts payable and accrued expenses in the Consolidated Balance Sheets are the following balances:(In thousands)December 30, 2017 December 31, 2016Trade accounts payable$35,350 $37,800Liability for non-cancelable contracts4,531 5,744Payable to members of the MHL and HDMI consortia*87 9,698Other accrued expenses14,437 27,691Total accounts payable and accrued expenses$54,405 $80,933* As an agent of the MHL consortium, we administer royalty reporting and distributions to the members of this consortium.This excludes amounts payable to us, and is payable quarterly based on collections from MHL customers. Our role as theagent of the HDMI consortium terminated on January 1, 2017 and, therefore, the balance as of December 30, 2017 is due toMHL consortium members only.Note 12 - Redeemable Noncontrolling InterestWith the acquisition of Silicon Image on March 10, 2015, we also assumed a redeemable noncontrolling interest which comprised a 7% investment in Qtericsamounting to $7.0 million invested by the noncontrolling interest holder initially entered into on December 4, 2014. The investment was redeemable at fairmarket value at the third-party holder's option on the third, fourth, or fifth year anniversaries. If the fair market value at the redemption date, as negotiated andagreed to by the parties, did not exceed $21 million, the redemption price would be 130% of the fair market value.As of the acquisition date, the fair value of the noncontrolling interest was determined to be $7.2 million, recorded as temporary equity and reported asRedeemable noncontrolling interest in the Consolidated Balance Sheets. We elected to accrete the carrying value to the estimated redemption value over thethree-year redemption period and reported the accretion charge as a reduction to Additional-paid-in-capital. During fiscal 2015, we recorded cumulativeaccretion charges amounting to $0.4 million bringing the value of the redeemable noncontrolling interest to $7.6 million.During the fourth quarter of fiscal 2015, we entered into an agreement with the holder pursuant to which the entire interest was redeemed for a cash paymentof approximately $0.9 million. The difference between the carrying value and the redemption amount of approximately $6.7 million was partially offset byaccretion charges and net loss attributable to noncontrolling interest recorded prior to redemption totaling approximately $0.6 million. The net amount ofapproximately $6.1 million was recorded as Additional paid-in-capital during the year ended January 2, 2016 (See our Consolidated Statements ofStockholders' Equity).69Table of ContentsNote 13 - Lease ObligationsCertain of our facilities are leased under operating leases, which expire at various times through 2026. Rental expense under operating leases was $8.9million, $9.5 million and $7.4 million for fiscal years 2017, 2016 and 2015, respectively. Future minimum lease commitments at December 30, 2017 were asfollows:Fiscal year Amount(In thousands) 2018 $6,3102019 4,7842020 4,8602021 4,6542022 4,694Thereafter 14,259 $39,561Note 14 - Income TaxesThe domestic and foreign components of loss before income taxes were as follows: Year Ended(In thousands) December 30, 2017 December 31, 2016 January 2, 2016Domestic $(17,341) $(33,962) $(93,229)Foreign (52,372) (10,220) (33,464)Loss before taxes $(69,713) $(44,182) $(126,693)The components of the income tax expense are as follows: Year Ended(In thousands) December 30, 2017 December 31, 2016 January 2, 2016Current: Federal $508 $1,896 $968State 30 13 80Foreign 304 7,918 10,634 842 9,827 11,682Deferred: Federal — — 18,713State — — 2,318Foreign 7 90 (173) 7 90 20,858Income tax expense $849 $9,917 $32,54070Table of ContentsIncome tax expense differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to pretax income as aresult of the following differences: Year Ended December 30,2017 December 31,2016 January 2, 2016 % % %Statutory federal rate (35) (35) (35)Adjustments for tax effects of: State taxes, net (7) 7 (6)Research and development credits (1) (2) (2)Stock compensation 3 3 1Foreign rate differential 28 15 12Foreign dividends 1 — 5Foreign withholding taxes — 9 3Other permanent — 3 4Goodwill impairment — — 4Valuation allowance (73) 17 46Change in uncertain tax benefit accrual 1 5 (8)Stock compensation adoption (8) — —Tax rate change 93 — 3Other (1) 1 (1)Effective income tax rate 1 23 26ASC 740, “Income Taxes”, provides for the recognition of deferred tax assets if realization of these assets is more-likely-than-not. We evaluate both positiveand negative evidence to determine if some or all of our deferred tax assets should be recognized on a quarterly basis.In fiscal 2015, we completed the acquisition of Silicon Image, Inc. At the time of the acquisition, we evaluated the combined entity's net deferred income taxes,which included an assessment of the cumulative income or loss over the prior three-year period, to determine if a valuation allowance is required. Afterconsidering the significant loss for fiscal 2015, the company recorded a valuation allowance on its net federal and state deferred tax assets. We concludedthat it was more-likely-than-not that we would not be able to realize the benefit of our remaining U.S. deferred tax assets, resulting in an increase to thevaluation allowance and an increase to the tax provision of $21.0 million in fiscal 2015. We exercised significant judgment and considered estimates aboutour ability to generate revenue and gross profits sufficient enough to offset expenditures in future periods within the United States.Through December 30, 2017, we continued to evaluate the valuation allowance position in the United States and concluded we should maintain a valuationallowance against the net federal and state deferred tax assets.We will continue to evaluate both positive and negative evidence in future periods to determine if more deferred tax assets should be recognized. We don'thave a valuation allowance in any foreign jurisdictions as it has been concluded it is more likely than not that we will realize the net deferred tax assets infuture periods. The net decrease in the total valuation allowance affecting the effective tax rate for the year ended December 30, 2017 was approximately$51.0 million, mainly attributable to the tax impact of the recent tax law change that reduced the value of our income tax deferred tax assets and reduced therelated valuation allowance.71Table of ContentsThe components of our net deferred tax assets are as follows:(In thousands) December 30, 2017 December 31, 2016Deferred tax assets: Accrued expenses and reserves $3,096 $5,143Inventory 2 290Deferred Revenue 228 426Stock-based and deferred compensation 4,018 7,269Intangible assets 19,576 20,063Fixed assets 216 678Net operating loss carry forwards 86,410 137,521Tax credit carry forwards 90,530 89,174Capital loss carry forwards 3,926 962Other 2,323 2,973 210,325 264,499Less: valuation allowance (209,691) (260,687)Net deferred tax assets 634 3,812Deferred tax liabilities: Fixed Assets 559 —Other 16 3,746Total deferred tax liabilities 575 3,746Net deferred tax assets $59 $66At December 30, 2017, we had U.S. federal net operating loss ("NOL") carryforwards (pretax) of approximately $351.4 million that expire at various datesbetween 2018 and 2036. We had state NOL carryforwards (pretax) of approximately $162.9 million that expire at various dates from 2018 through 2036. Wealso had federal and state credit carryforwards of $50.2 million and $59.2 million, respectively. Of the $59.3 million state credit carryforwards, $57.9 million donot expire. The federal and remaining state credits expire at various dates from 2018 through 2037.Future utilization of federal and state net operating losses and tax credit carry forwards may be limited if cumulative changes to ownership exceed 50% withinany three-year period. This has not occurred through fiscal 2017. If there is a significant change in ownership, future tax attribute utilization may be restricted(§382 limitation) and NOL carryforwards and/or R&D credits will be reduced to reflect the limitation.U.S. tax reform required a deemed repatriation of deferred foreign earnings as of December 30, 2017 and no future U.S. taxes will be due on these earningsbecause of enactment of a 100% dividends received deduction. At December 30, 2017, we had no impact from this transition tax due to negative post-1986earnings and profits.At December 30, 2017, our unrecognized tax benefits associated with uncertain tax positions were $44.8 million, of which $42.9 million, if recognized, wouldaffect the effective tax rate, subject to valuation allowance. As of December 30, 2017, interest and penalties associated with unrecognized tax benefits were$8.1 million.Our liability for uncertain tax positions (including penalties and interest) was $26.9 million and $29.6 million at December 30, 2017 and December 31, 2016,respectively, and is recorded as a component of Other long-term liabilities on our Consolidated Balance Sheets. The remainder of our uncertain tax positionexposure of $24.6 million is netted against deferred tax assets.72Table of ContentsThe following table summarizes the changes to unrecognized tax benefits for fiscal years 2017, 2016 and 2015:(In thousands) AmountBalance at January 3, 2015 $18,673Additions based on tax positions related to the current year 4,381Additions based on tax positions of prior years —Additions due to acquisition 41,083Reduction for tax positions of prior years (14,958)Settlements —Reduction as a result of lapse of applicable statute of limitations (972)Balance at January 2, 2016 48,207Additions based on tax positions related to the current year 2,573Additions based on tax positions of prior years 530Additions due to acquisition —Reduction for tax positions of prior years (1,824)Settlements —Reduction as a result of lapse of applicable statute of limitations (1,863)Balance at December 31, 2016 47,623Additions based on tax positions related to the current year 471Additions based on tax positions of prior years 11Additions due to acquisition —Reductions for tax positions of prior years (1,226)Settlements —Reduction as a result of lapse of applicable statute of limitations (2,047)Balance at December 30, 2017 $44,832At December 30, 2017, it is reasonably possible that $1.5 million of unrecognized tax benefits and $0.1 million of associated interest and penalties could berecognized during the next twelve months.We are subject to federal and state income tax as well as income tax in the various foreign jurisdictions in which we operate. Additionally, the years thatremain subject to examination are 2014 for federal income taxes, 2013 for state income taxes, and 2011 for foreign income taxes, including years endingthereafter. However, to the extent allowed by law, the tax authorities may have the right to examine prior periods where net operating losses or tax creditswere generated and carried forward, and make adjustments up to the amount of the net operating losses or credit carryforward amount.Our income tax return for China is currently under examination for 2014 through 2016. We are not under examination in any other jurisdiction.On December 18, 2015, the Protecting Americans from Tax Hikes Act of 2015 (the "2015 Tax Act") was enacted. The 2015 Tax Act included several businesstax provisions including the permanent extension of the credit for qualified research and development. The tax benefit in each year resulting from thesereinstatements of the federal research and development tax credit was offset by a valuation allowance and therefore did not impact our annual effective taxrate.The Tax Cuts and Jobs Act (the "2017 Tax Act"), enacted December 22, 2017, contains provisions that affect us, but the impact will be absorbed by utilizingNOL carry forwards. Reduction of the corporate tax rate from 35% to 21% reduced the value of our domestic deferred tax assets and reduced our associatedfull valuation allowance on those assets, resulting in no net impact on our Consolidated Statements of Operation.The SEC issued SAB 118 on December 22, 2017 which addresses situations where the registrant does not have all the necessary information available oranalyzed to complete the accounting for certain income tax effects under the 2017 Tax Act. Due to the lack of authoritative guidance issued, complexity, andenactment timing of the 2017 Tax Act, we have made a reasonable estimate of the income tax effect of the deemed repatriation of deferred foreign earnings.We may refine this as additional guidance, clarification, and analysis is available. Any changes to our estimate will be reflected in continuing operations in theperiod the amounts are determined and within the “measurement period” allowed under SAB 118.73Table of ContentsWe are not currently paying U.S. federal income taxes and do not expect to pay such taxes until we fully utilize our tax NOL and credit carryforwards. Weexpect to pay a nominal amount of state income tax. We are paying foreign income and withholding taxes, which are reflected in income tax expense in ourConsolidated Statements of Operations and are primarily related to the cost of operating offshore activities and subsidiaries. We accrue interest and penaltiesrelated to uncertain tax positions in income tax expense.Note 15 - RestructuringIn March 2015, our Board of Directors approved an internal restructuring plan (the "March 2015 Plan"), in connection with our acquisition of Silicon Image.The March 2015 Plan was designed to realize synergies from the acquisition by eliminating redundancies created as a result of combining the twocompanies. This included reductions in our worldwide workforce, consolidation of facilities, and cancellation of software contracts and engineering tools. TheMarch 2015 Plan is substantially complete subject to certain remaining expected costs that we do not expect to be material and any changes in subleaseassumptions should they occur, which will be expensed as incurred. Under this plan, approximately $0.1 million of credit, and $7.3 million and $13.3 millionof expense was incurred during the years ended December 30, 2017, December 31, 2016, and January 2, 2016, respectively. Approximately $20.5 million oftotal expense has been incurred through December 30, 2017 under the March 2015 Plan, and we believe this amount approximates the total costs expected.In September 2015, we implemented a further reduction of our worldwide workforce (the "September 2015 Reduction") separate from the March 2015 Plan.The September 2015 Reduction was designed to resize the company in line with the market environment and to better balance our workforce with the long-term strategic needs of our business. The September 2015 Reduction is substantially complete subject to certain remaining expected costs, which we do notexpect to be material but which will be expensed as incurred. Under this reduction, approximately $0.7 million of credit, and $2.0 million and $5.9 million ofexpense was incurred during the years ended December 30, 2017, December 31, 2016, and January 2, 2016, respectively. Approximately $7.2 million oftotal expense has been incurred through December 30, 2017 under the September 2015 Reduction, and we believe this amount approximates the total costsexpected.In June 2017, our Board of Directors approved an additional internal restructuring plan (the "June 2017 Plan"), which included the sale of 100% of the equityof our Hyderabad, India subsidiary and certain assets related to our Simplay Labs testing and certification business, a worldwide workforce reduction, and aninitiative to reduce our infrastructure costs. These actions are part of an overall plan to achieve financial targets and to enhance our financial and competitiveposition by better aligning our revenue and operating expenses. Approximately $8.0 million of total expense has been incurred through December 30, 2017under the June 2017 Plan, and we expect the total cost to be approximately $8.0 million to $19.0 million.For fiscal 2017, the approximately $8.0 million of expense related to the June 2017 Plan has been offset by credits from the March 2015 Plan and theSeptember 2015 Reduction discussed above totaling approximately $0.8 million, resulting in the net charge of approximately $7.2 million recorded torestructuring charges on our Consolidated Statements of Operations. The restructuring accrual balance is presented in Accounts payable and accruedexpenses (includes restructuring) on our Consolidated Balance Sheets.The following table displays the activity related to the restructuring plans described above:(In thousands)Severance &related * Leasetermination SoftwareContracts &EngineeringTools** Other TotalBalance at January 3, 2015$— $43 $— $139 $182Restructuring charges12,861 2,667 3,040 671 19,239Costs paid or otherwise settled(9,165) (1,705) (2,663) (810) (14,343)Balance at January 2, 2016$3,696 $1,005 $377 $— $5,078Restructuring charges2,883 2,993 1,903 1,488 9,267Costs paid or otherwise settled(5,778) (2,962) (2,255) (1,476) (12,471)Balance at December 31, 2016$801 $1,036 $25 $12 $1,874Restructuring charges2,484 811 3,066 835 7,196Costs paid or otherwise settled(2,093) (977) (2,731) (822) (6,623)Balance at December 30, 2017$1,192 $870 $360 $25 $2,447* Includes employee relocation costs and accelerated stock compensation**Includes cancellation of contracts, asset impairments, and accelerated depreciation on certain enterprise resource planning and customerrelationship management systems74Table of ContentsNote 16 - Long-Term DebtOn March 10, 2015, we entered into a secured credit agreement (the "Credit Agreement") with Jefferies Finance, LLC and certain other lenders for purposesof funding, in part, our acquisition of Silicon Image. The Credit Agreement provided for a $350 million term loan (the "Term Loan") maturing on March 10,2021 (the "Term Loan Maturity Date"). We received $346.5 million net of an original issue discount of $3.5 million and we paid debt issuance costs of $8.3million. The Term Loan bears variable interest equal to the one-month LIBOR, subject to a 1.00% floor, plus a spread of 4.25%. The current effective interestrate on the Term Loan is 6.29%.The Term Loan is payable through a combination of (i) quarterly installments of approximately $0.9 million, (ii) annual excess cash flow payments as definedin the Credit Agreement, which are due 95 days after the last day of our fiscal year, and (iii) any payments due upon certain issuances of additionalindebtedness and certain asset dispositions, with any remaining outstanding principal amount due and payable on the Term Loan Maturity Date. Thepercentage of excess cash flow we are required to pay ranges from 0% to 75%, depending on our leverage and other factors as defined in the CreditAgreement. Currently, the Credit Agreement would require a 75% excess cash flow payment.In the second quarter of fiscal 2016, we made a required additional principal payment of $1.7 million due to the sale of Qterics. In the first quarter of fiscal2017, we made a required additional principal payment of $9.9 million due to a sale of patents. In the second quarter of fiscal 2017, we made anotherrequired additional principal payment of $8.3 million due to a sale of patents, and a required annual excess cash flow payment of $13.7 million. There wereno other required principal payments outside of our quarterly installment payments. Over the next twelve months, our principal payments will be comprisedmainly of regular quarterly installments. We have determined that the annual excess cash flow payment required in fiscal 2018, as calculated according to theCredit Agreement, is not material to our Consolidated Balance Sheet at December 30, 2017.While the Credit Agreement does not contain financial covenants, it does contain informational covenants and certain restrictive covenants, includinglimitations on liens, mergers and consolidations, sales of assets, payment of dividends, and indebtedness. We were in compliance with all such covenants atDecember 30, 2017.The original issue discount and the debt issuance costs have been accounted for as a reduction to the carrying value of the Term Loan on our ConsolidatedBalance Sheets and are being amortized to Interest expense in our Consolidated Statements of Operations over the contractual term, using the effectiveinterest method.The fair value of the Term Loan approximates the carrying value, which is reflected in our Consolidated Balance Sheets as follows:(in thousands)December 30, 2017 December 31, 2016Principal amount$306,791 $342,221Unamortized original issue discount and debt issuance costs(5,616) (7,599)Less: Current portion of long-term debt(1,508) (33,767)Long-term debt$299,667 $300,855Interest expense related to the Term Loan was included in Interest expense on the Consolidated Statements of Operations as follows: Year Ended (in thousands)December 30, 2017 December 31, 2016 January 2, 2016Contractual interest$16,503 $18,518 $15,225Amortization of debt issuance costs and discount1,982 1,350 2,835Total Interest expense related to the Term Loan$18,485 $19,868 $18,060As of December 30, 2017, expected future principal payments on the Term Loan were as follows:Fiscal year (in thousands) 2018 $3,5002019 26,2352020 59,1872021 217,869 $306,79175Table of ContentsNote 17 - Common Stock Repurchase Program We did not repurchase any shares in either fiscal year 2017 or 2016. We most recently repurchased shares in fiscal year 2015 under a stock repurchaseprogram approved by our Board of Directors on March 3, 2014. This 2014 program authorized the repurchase of up to $20.0 million of outstanding commonstock from time to time over a period of twelve months. The 2014 program completed during the first quarter of fiscal 2015, during which approximately 1.1million shares were repurchased for approximately $7.0 million. All shares repurchased in fiscal 2015 under the 2014 program were retired during fiscal2015 (see our Consolidated Statements of Shareholders' Equity). All repurchases were open market transactions funded from available working capital.Note 18 - Stockholders' EquityEmployee and Director Stock Options, Restricted Stock and ESPPWe have four equity incentive plans (the "1996 Stock Incentive Plan," the "2001 Stock Plan," the "2013 Incentive Plan" and the "2011 Non-Employee DirectorEquity Incentive Plan"). Awards granted under the 1996 Stock Incentive Plan and the 2001 Stock Plan remain outstanding, but no shares are available forfuture awards under these plans. Shares remain available for grants to employees and non-employee directors only under the 2013 Incentive Plan and the2011 Non-Employee Director Equity Incentive Plan, respectively. "Incentive stock options" under Section 422 of the U.S. Internal Revenue Code andrestricted stock unit ("RSU") grants are part of our equity compensation practices for employees who receive equity grants. Options and RSUs generally vestquarterly over a four-year period beginning on the grant date. The contractual terms of options granted do not exceed ten years.In May 2012, the Company's stockholders approved the 2012 Employee Stock Purchase Plan ("2012 ESPP"), which authorizes the issuance of 3.0 millionshares of common stock to eligible employees to purchase shares of common stock through payroll deductions, which cannot exceed 10% of an employee'scompensation. The purchase price of the shares is the lower of 85% of the fair market value of the stock at the beginning of each six-month offering period or85% of the fair market value at the end of such period. During fiscal 2017 only, the ESPP was suspended. We have treated the 2012 ESPP as acompensatory plan. We recorded no related compensation expense in fiscal 2017, and related compensation expense of $0.6 million and $0.4 million forfiscal years 2016 and 2015, respectively.At December 30, 2017, a total of 3.6 million shares of our common stock were available for future grants under the 2013 Incentive Plan and the 2011 Non-Employee Director Equity Incentive Plan. Shares subject to stock option grants that expire or are canceled, without delivery of such shares, generally becomeavailable for re-issuance under equity incentive plans. At December 30, 2017, a total of 1.9 million shares of our common stock were available for futurepurchases under the 2012 ESPP. On March 10, 2015, in conjunction with the acquisition of Silicon Image, we assumed certain outstanding stock option andRSU grants of the Silicon Image Equity Incentive Plans. We assumed all stock option grants that were unvested or vested and out-of-the-money and alloutstanding unvested RSU grants. The exchange ratio for the conversion was 1.09816 for all grants. The conversion ratio was determined by the weightedaverage closing price of Lattice common stock for the ten days prior to the acquisition date divided by the offer price of $7.30. The converted outstandingoption grants totaled 2,087,605 shares and converted RSU grants totaled 2,025,255 shares as of March 10, 2015. As of December 30, 2017, 275,991 optionsand 30,679 RSU shares arising from this conversion remained outstanding.Stock-Based CompensationTotal stock-based compensation expense included in our Consolidated Statements of Operations is presented in the following table: Year Ended(In thousands) December 30, 2017 December 31, 2016 January 2, 2016Cost of products sold $795 $888 $1,416Research and development 5,245 7,928 9,141Selling, general, and administrative 6,503 7,397 6,793Acquisition related charges — — 4,293Total stock-based compensation $12,543 $16,213 $21,643Of the $21.6 million total stock-based compensation for the twelve months ended January 2, 2016, $3.9 million was paid in cash during the period as a resultof the acquisition of Silicon Image on March 10, 2015.76Table of ContentsASC 718, “Compensation-Stock Compensation (“ASC 718”),” requires that we recognize compensation expense for only the portion of employee and directoroptions and ESPP rights that are expected to vest.The fair values of each option award on the date of grant and of the shares expected to be issued under the employee stock purchase plan are estimatedusing the Black-Scholes valuation model and the assumptions noted in the following table. The expected term is based on historical vested option exercisesand includes an estimate of the expected term for options that are fully vested and outstanding. The expected volatility of both stock options and ESPP sharesis based on the daily historical volatility of our stock price, measured over the expected term of the option or the ESPP purchase period. The risk-free interestrate is based on the implied yield on a U.S. Treasury zero-coupon issue with a remaining term closest to the expected term of the option. The dividend yieldreflects that we have not paid any cash dividends since inception and do not intend to pay any cash dividends in the foreseeable future.The following table summarizes the assumptions used in the valuation of stock option and ESPP compensation: Year Ended December 30, 2017 December 31, 2016 January 2, 2016Employee and Director Stock Options Expected volatility40.96% to 48.01% 44.2% to 50.8% 43.6% to 47.3%Risk-free interest rate1.99% to 2.09% .94% to 2.06% 1.4% to 1.7%Expected term (years)4.08 to 4.25 4.06 to 4.78 4.08 to 4.75Dividend yield—% —% —%Employee Stock Purchase Plan * Weighted average expected volatility—% 57.9% 33.6%Weighted average risk-free interest rate—% 0.43% 0.12%Expected termN/A 6 months 6 monthsDividend yield—% —% —% * ESPP suspended during fiscal 2017 onlyAt December 30, 2017, there was $12.4 million of total unrecognized compensation cost related to unvested employee and director stock options, which isexpected to be recognized over a weighted average period of 2.8 years. Our current practice is to issue new shares to satisfy option exercises. Compensationexpense for all stock-based compensation awards is recognized using the straight-line method.The following table summarizes our stock option activity and related information for the year ended December 30, 2017:(Shares and aggregate intrinsic value in thousands)Shares Weightedaverageexercise price Weighted averageremainingcontractual term(years) AggregateIntrinsic ValueBalance, December 31, 201612,566 $5.70 Granted3,732 5.73 Exercised(1,803) 5.07 Forfeited or expired(1,556) 6.00 Balance, December 30, 201712,939 $5.77 Vested and expected to vest at December 30, 201712,939 $5.77 4.47 $3,333Exercisable, December 30, 20176,601 $5.81 2.87 $2,485The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between the Company's closing stock price on thelast trading day of the fiscal year and the exercise price, multiplied by the number of in-the-money options) that would have been received by the optionholders had all option holders exercised their options on that day. This amount changes based on the fair market value of the Company's stock. Total intrinsicvalue of options exercised for fiscal 2017, 2016 and 2015, and was $2.2 million, $3.3 million and $2.5 million, respectively. The total fair value of options andRSUs vested and expensed in fiscal 2017, 2016 and 2015 and was $12.5 million, $15.6 million and $18.0 million, respectively.77Table of ContentsThe resultant grant date weighted-average fair values for stock options granted, calculated using the Black-Scholes option pricing model with the notedassumptions for stock options, were $2.02, $2.14 and $2.35 for fiscal years 2017, 2016 and 2015, respectively. The weighted average fair values for theESPP, calculated using the Black-Scholes option pricing model with the noted assumptions for the ESPP, were $0.00, $1.82 and $1.51 for fiscal years 2017,2016 and 2015, respectively.The following table summarizes our RSU activity for the year ended December 30, 2017:(Shares in thousands)Shares Weighted average grant datefair valueBalance, December 31, 20163,247 $5.90Granted1,530 5.83Exercised(1,478) 5.95Forfeited or expired(533) 5.84Balance, December 30, 20172,766 $5.85At December 30, 2017 there was $14.4 million of total unrecognized compensation cost related to unvested RSUs. Our current practice is to issue newshares when RSUs vest. Compensation expense for RSUs is recognized using the straight-line method over the related vesting period.In fiscal years 2015 through 2017, we granted stock options and RSUs with a market condition to certain executives. The options have a two year vesting andvest between 0% and 200% of the target amount, based on the Company's relative Total Shareholder Return (TSR) when compared to the TSR of acomponent of companies of the PHLX Semiconductor Sector Index over a two year period. TSR is a measure of stock price appreciation plus dividends paid,if any, in the performance period. The fair values of the options and RSUs were determined and fixed on the date of grant using a lattice-based option-pricingvaluation model incorporating a Monte-Carlo simulation and a consideration of the likelihood that we would achieve the market condition.The following table summarizes the activity for our stock options with a market condition:(Shares in thousands) Unvested Vested TotalBalance, December 31, 2016 597 — 597Granted 475 — 475Vested (92) 92 —Exercised — (9) (9)Canceled (273) — (273)Balance, December 30, 2017 707 83 790Additionally, we granted 70 thousand RSUs with a market condition to a certain executive in fiscal 2015. These RSUs had the same market condition as thestock options above and were canceled in fiscal 2016 due to termination.We incurred stock compensation expense related to these stock option and RSU market condition awards of approximately $0.5 million, $0.8 million, and$0.6 million in fiscal years 2017, 2016, and 2015, respectively, which is recorded as a component of total options and RSU expense.The following table summarizes the assumptions used in the valuation of stock options and RSUs with a market condition: Year Ended December 30,2017 December 31,2016 January 2, 2016Executive stock options with a market condition Expected volatility41% 46% 44% to 46%Risk-free interest rate1.9% 1.1% 1.4%Expected term (years)4.5 4.5 4.5Dividend yield—% —% —%Executive RSUs with a market condition Expected volatilityn/a n/a 36.9%Risk-free interest raten/a n/a 0.6%Expected term (years)n/a n/a 2.0Dividend yieldn/a n/a —%78Table of ContentsNote 19 - Employee Benefit PlansQualified Investment PlanIn 1990, we adopted a 401(k) plan, which provides participants with an opportunity to accumulate funds for retirement. The plan does not allow investments inthe Company's common stock. The plan allows for the Company to make discretionary matching contributions in cash. We recorded matching contributions ofapproximately $0.8 million in fiscal 2017, and of approximately $0.9 million in each of fiscal 2016 and fiscal 2015.2017 Cash Incentive PlanOn December 20, 2016, upon the recommendation of the Compensation Committee, the Board of Directors of the Company approved the 2017 CashIncentive Plan (the “2017 Cash Plan”). The chief executive officer, other executive officers, and other members of senior management, including vicepresidents and director-level employees, together with all other employees of the Company not on the Company's sales incentive plan are eligible toparticipate in the 2017 Cash Plan. Under the 2017 Cash Plan, individual cash incentive payments for the eligible employees will be based both on Companyfinancial performance, as measured by achievement of operating income (before incentive plan accruals) and revenue goals within specified rangesestablished by the Compensation Committee, and Company performance, as measured by the achievement of personal management objectives. TheCompensation Committee determines the performance of the chief executive officer, the chief financial officer and other participants based on theachievement of the management objectives established by the Compensation Committee during the first fiscal quarter of 2017. There was $7.2 million ofexpense recorded under this plan in fiscal 2017.2016 Cash Incentive PlanOn December 21, 2015, upon the recommendation of the Compensation Committee, the Board of Directors of the Company approved the 2016 CashIncentive Plan (the “2016 Cash Plan”). The chief executive officer, other executive officers, and other members of senior management, including vicepresidents and director-level employees, together with all other employees of the Company not on the Company's sales incentive plan are eligible toparticipate in the 2016 Cash Plan. Under the 2016 Cash Plan, individual cash incentive payments for the eligible employees will be based both on Companyfinancial performance, as measured by achievement of operating income (before incentive plan accruals) and revenue goals within specified rangesestablished by the Compensation Committee, and Company performance, as measured by the achievement of personal management objectives. TheCompensation Committee determines the performance of the chief executive officer, the chief financial officer and other participants based on theachievement of the management objectives established by the Compensation Committee during the first fiscal quarter of 2016. There was $4.7 million ofexpense recorded under this plan in fiscal 2016.2015 Cash Incentive PlanOn December 4, 2014, upon the recommendation of the Compensation Committee, the Board of Directors of the Company approved the 2015 Cash IncentivePlan (the “2015 Cash Plan”). The chief executive officer, other executive officers, and other members of senior management, including vice presidents anddirector-level employees, together with all other employees of the Company not on the Company's sales incentive plan were eligible to participate in the2015 Cash Plan. Under the 2015 Cash Plan, individual cash incentive payments for the eligible employees were based both on Company financialperformance, as measured by achievement of operating income (before incentive plan accruals) and revenue goals within specified ranges established bythe Compensation Committee, and Company performance, as measured by the achievement of personal management objectives. The CompensationCommittee determined the performance of the chief executive officer, the chief financial officer and other participants based on the achievement of themanagement objectives established by the Compensation Committee during the first fiscal quarter of 2015. There was $1.0 million of expense recordedunder this plan in fiscal 2015.79Table of ContentsNote 20 - ContingenciesLegal MattersFrom time to time, we are exposed to certain asserted and unasserted potential claims. Periodically, we review the status of each significant matter andassess its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and a range of possible losses can beestimated, we then accrue a liability for the estimated loss. Legal proceedings are subject to uncertainties, and the outcomes are difficult to predict. Becauseof such uncertainties, accruals are based only on the best information available at the time. As additional information becomes available, we reassess thepotential liability related to pending claims and litigation and may revise estimates.Other MattersWe maintain certain Value-Added Tax ("VAT") benefits derived from our research and development operations that require filing tax exempt statusdocumentation with local taxing authorities. In relation to one of our Chinese legal entities, we are undergoing an audit of this documentation as ofDecember 30, 2017. This audit may or may not result in favorable or unfavorable findings. Due to the uncertainty in both the outcome and the estimated therange of any findings, no liability been accrued as of December 30, 2017. We believe the findings would not have a material impact on our ConsolidatedFinancial Statements and could be in a range from $0 to less than $2 million.Note 21 - Valuation and Qualifying AccountsThe following table displays the activity related to changes in our valuation and qualifying accounts:(In thousands)Balance atbeginning ofperiod Balancereceivedthroughacquisition Charged(Credit) tocosts andexpenses Charged(credit) toother accounts Settlements &write-offsnet ofrecoveries Balance at endof periodFiscal year ended December 30, 2017 Allowance for deferred taxes260,687 — (50,960) (36) — 209,691Allowance for doubtful accounts9,299 — 3 38 31 9,371Allowance for warranty expense352 — 100 — (197) 255 $270,338 $— $(50,857) $2 $(166) $219,317Fiscal year ended December 31, 2016 Allowance for deferred taxes$252,578 $— $7,450 $659 $— $260,687Allowance for doubtful accounts621 — 7,362 2,284 (968) 9,299Allowance for warranty expense370 — 216 — (234) 352 $253,569 $— $15,028 $2,943 $(1,202) $270,338Fiscal year ended January 2, 2016 Allowance for deferred taxes$141,215 $52,481 $58,658 $224 $— $252,578Allowance for doubtful accounts875 — (438) 189 (5) 621Allowance for warranty expense81 136 153 — — 370 $142,171 $52,617 $58,373 $413 $(5) $253,56980Table of ContentsNote 22 - Segment and Geographic InformationSegment InformationAs of December 30, 2017, we had one operating segment: the core Lattice business, which includes IP and semiconductor devices. Qterics, a discretesoftware-as-a-service business unit, was previously an immaterial operating segment in the Lattice legal entity structure prior to the sale of Qterics in April2016.Geographic InformationOur revenue by major geographic area, based on ship-to location, is presented in the following table: Year Ended(In thousands) December 30, 2017 December 31, 2016 January 2, 2016United States: $48,315 13% $51,752 12% $33,677 8% China* 193,590 50 186,865 44 165,582 41Europe 44,547 12 59,835 14 55,596 14Japan 42,286 11 49,080 12 44,067 11Taiwan 14,846 4 31,322 7 31,181 8Other Asia* 26,916 7 37,826 9 67,704 17Other Americas 15,461 4 10,374 3 8,159 2Total foreign revenue 337,646 87 375,302 88 372,289 92Total revenue $385,961 100% $427,054 100% $405,966 100%* During 2017, we realigned our geographic categories to group Hong Kong with China rather than with Other Asia. Prior periods have beenreclassified to match current period presentation.We assign revenue to geographies based on the customer ship-to address at the point where revenue is recognized. In the case of sell-in distributors andOEM customers, revenue is typically recognized, and geography is assigned, when products are shipped to our distributor or customer. In the case of sell-through distributors, revenue is recognized when resale occurs and geography is assigned based on the customer location on the resale reports provided bythe distributor.Our Property and equipment, net by country at the end of each period was as follows:(In thousands)December 30, 2017 December 31, 2016 January 2, 2016United States$30,338 $30,532 $25,615 China4,632 10,617 14,998Philippines3,883 4,928 3,948Taiwan958 2,310 3,677India— 215 1,470Japan313 637 1,211Other299 242 933Total foreign property and equipment, net10,085 18,949 26,237Total property and equipment, net$40,423 $49,481 $51,85281Table of ContentsRevenue by DistributorsOur largest customers are often distributors and sales through distributors have historically made up a significant portion of our total revenue. Revenueattributable to resale of products by our primary distributors as a percentage of total revenue is presented in the following table: % of Total Revenue in Year Ended December 30, 2017 December 31, 2016 January 2, 2016Arrow Electronics Inc.24% 24% 20%Weikeng Group27 22 12All others15 15 13All sell-through distributors66% 61% 45%Orders from our sell-through distributors are initially recorded at published list prices; however, for a majority of our sales, the final selling price is determinedat the time of resale and in accordance with a distributor price agreement. For this reason, we do not recognize revenue until products are resold by sell-through distributors to an end customer. In certain circumstances, we allow sell-through distributors to return unsold products. At times, we protect our sell-through distributors against reductions in published list prices.Note 23 - Quarterly Financial Data (Unaudited)A summary of the Company's consolidated quarterly results of operations is as follows: 2017 2016(In thousands, except per share data) Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1Revenue $95,266 $91,971 $94,137 $104,587 $118,108 $113,225 $99,209 $96,512Gross margin 51,216 53,322 51,209 60,832 63,480 67,424 58,426 57,104Restructuring charges 2,483 3,071 1,576 66 951 317 2,568 5,431Net loss $(7,213) $(43,052) $(13,022) $(7,275) $(8,164) $(12,414) $(13,810) $(19,711) Net loss per share - basic anddiluted $(0.06) $(0.35) $(0.11) $(0.06) $(0.07) $(0.10) $(0.12) $(0.17)82Table of ContentsReport of Independent Registered Public Accounting FirmThe Board of Directors and StockholdersLattice Semiconductor Corporation:Opinion on the Consolidated Financial StatementsWe have audited the accompanying consolidated balance sheets of Lattice Semiconductor Corporation and subsidiaries (the Company) as of December 30,2017 and December 31, 2016, the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each of theyears in the three‑year period ended December 30, 2017, and the related notes (collectively, the consolidated financial statements). In our opinion, theconsolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 30, 2017 and December 31,2016, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 30, 2017, in conformity withU.S. generally accepted accounting principles.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’sinternal control over financial reporting as of December 30, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued bythe Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 13, 2018 expressed an adverse opinion on theeffectiveness of the Company’s internal control over financial reporting.Basis for OpinionThese consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on theseconsolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent withrespect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and ExchangeCommission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits includedperforming procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performingprocedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in theconsolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, aswell as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion./s/ KPMG LLPWe have served as the Company's auditor since 2007.Portland, OregonMarch 13, 201883Table of ContentsReport of Independent Registered Public Accounting FirmThe Board of Directors and StockholdersLattice Semiconductor Corporation:Opinion on Internal Control Over Financial ReportingWe have audited Lattice Semiconductor Corporation and subsidiaries’ (the Company) internal control over financial reporting as of December 30, 2017,based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the TreadwayCommission. In our opinion, because of the effect of the material weakness, described below, on the achievement of the objectives of the control criteria, theCompany has not maintained effective internal control over financial reporting as of December 30, 2017, based on criteria established in Internal Control -Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidatedbalance sheets of the Company as of December 30, 2017 and December 31, 2016, the related consolidated statements of operations, comprehensive loss,stockholders’ equity, and cash flows for each of the years in the three-year period ended December 30, 2017, and the related notes (collectively, theconsolidated financial statements), and our report dated March 13, 2018 expressed an unqualified opinion on those consolidated financial statements.A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibilitythat a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. Managementconcluded there is a material weakness due to ineffective risk assessment over significant unusual transactions and the design and implementation of controlactivities over the accounting for those significant unusual transactions. The material weakness was considered in determining the nature, timing, and extentof audit tests applied in our audit of the 2017 consolidated financial statements, and this report does not affect our report on those consolidated financialstatements.Basis for OpinionThe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibilityis to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with thePCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules andregulations of the Securities and Exchange Commission and the PCAOB.We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financialreporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing andevaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other proceduresas we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.Definition and Limitations of Internal Control Over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary topermit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the companyare being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regardingprevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financialstatements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate./s/ KPMG LLPPortland, OregonMarch 13, 201884Table of ContentsItem 9. Changes in and Disagreements with Accountants On Accountingand Financial DisclosureNone.Item 9A. Controls and ProceduresConclusion Regarding the Effectiveness of Disclosure Controls and ProceduresIn connection with the filing of this Form 10-K, our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectivenessof the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the SecuritiesExchange Act of 1934, as amended (the “Exchange Act”)) as of December 30, 2017. We seek to design our disclosure controls and procedures to providereasonable assurance that the reports we file or submit under the Exchange Act contain the required information and that we submit these reports within thetime periods specified in SEC rules and forms. We also seek to design these controls and procedures to ensure that we accumulate and communicate correctinformation to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding requireddisclosure.Based on the evaluation of our disclosure controls and procedures as of December 30, 2017, our Chief Executive Officer and Chief Financial Officerconcluded that our disclosure controls were not effective based on the material weakness discussed in Management’s Report on Internal Control overFinancial Reporting described below. Notwithstanding such material weakness in internal control over financial reporting, our management concluded thatthe consolidated financial statements in this annual report on Form 10-K present fairly, in all material respects, the Company’s financial position, results ofoperations and cash flows as of the dates, and for the periods presented, in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”).Management's Report on Internal Control Over Financial ReportingThe management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) or 15d-15(f) under the Securities Exchange Act of 1934. The Company's internal control over financial reporting is a process designed to providereasonable assurance regarding reliability of financial reporting and the preparation and fair presentation of published financial statements for externalpurposes in accordance with generally accepted accounting principles.Our internal control over financial reporting includes those policies and procedures that:(i)pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets ofthe Company;(ii)provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance withU.S. GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management anddirectors of the Company; and(iii)provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’sassets that could have a material effect on the financial statements.A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility thata material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. Because of its inherent limitations,internal control over financial reporting may not prevent or detect misstatements. A control system, no matter how well conceived and operated, can provideonly reasonable, not absolute, assurance that the objectives of the control system are met, and may not prevent or detect misstatements.Management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the company's internal controlover financial reporting as of December 30, 2017. In making this assessment, management used the criteria set forth by the Committee of SponsoringOrganizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework (2013). Based on this assessment, management identified thecontrol deficiencies described below.We did not conduct an effective risk assessment over significant unusual transactions and as a result, did not design and implement control activities over theaccounting for those significant unusual transactions. These deficiencies could impact any of the amounts reported in our financial statements.85Table of ContentsThe control deficiencies resulted in certain immaterial misstatements, which were corrected in the consolidated financial statements as of and for the yearended December 30, 2017 prior to issuance as well as other immaterial misstatements that were not corrected. Because the control deficiencies create areasonable possibility that a material misstatement in the annual or interim consolidated financial statements will not be prevented or detected on a timelybasis, they represent a material weakness and accordingly, management concluded its internal control over financial reporting was ineffective as ofDecember 30, 2017.KPMG LLP, our independent registered public accounting firm, has audited the Company's internal control over financial reporting and, because of thematerial weakness described above, has issued an adverse opinion on the effectiveness of the Company's internal control over financial reporting, whichappears on page 84 in this Annual Report on Form 10-K.Changes in Internal Control over Financial ReportingOther than the material weakness described in Management's Report on Internal Control over Financial Reporting and as described above, there were nochanges in our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, orare reasonably likely to materially affect, our internal control over financial reporting.Remediation Steps to Address Material WeaknessManagement, and the Company’s Board of Directors, is focused on improving the Company’s processes and internal controls. The Audit Committee of theBoard of Directors of the Company, has directed management to proceed with a remediation plan. The following actions and plans have been or are currentlybeing implemented:•Establish regular technical accounting reviews involving the Corporate Controller, CFO, and other staff as appropriate to ensure an effective riskassessment is performed to identify and assess changes within the business and external environment that may impact financial reporting.•As changes are identified we will design and implement control activities on a timely basis.•The Disclosure Committee, a senior management committee, will meet routinely before and during the quarterly and annual close cycles to identify andassess unique or non-recurring transactions or events, the accounting for these matters, and associated relevant risk assessments.•The Disclosure Committee membership will be expanded to ensure comprehensive representation from throughout the Company’s operations.•Continued risk assessment of the accounting implications as warranted with the Audit Committee.The Audit Committee has directed management to develop a detailed plan and timetable for the implementation of remedial measures and will monitor theirimplementation. In addition, under the direction of the Audit Committee, management will continue to review and make necessary changes to the overalldesign of the Company's internal control environment as well as policies and procedures to improve the overall effectiveness of internal control over financialreporting.Management believes the measures described above and others that will be implemented will remediate the control deficiency identified and will strengthenour internal control over financial reporting. Management is committed to continuous improvement of the Company's internal control processes and willcontinue to diligently review our financial reporting controls and procedures. As management continues to evaluate and work to improve internal control overfinancial reporting, we may take additional measures to address control deficiencies or determine to modify, or in appropriate circumstances not to complete,certain of the remediation measures described above.Item 9B. Other InformationNone.86Table of ContentsPART IIICertain information required by Part III is incorporated by reference from our definitive proxy statement (the “Proxy Statement”) for the 2018 Annual Meeting ofStockholders, pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended, which we will file not later than 120 days after the end of thefiscal year covered by this report. With the exception of the information expressly incorporated by reference from the Proxy Statement, the Proxy Statement isnot to be deemed filed as a part of this report.Item 10. Directors, Executive Officers and Corporate GovernanceInformation regarding our directors that is required by this item is incorporated by reference from the information contained under the captions “Proposal 1:Election of Directors” and “Corporate Governance and Other Matters--Board Meetings and Committees” in the Proxy Statement. Information regarding ourexecutive officers that is required by this item is incorporated by reference from the information contained under the caption "Proposal 2: ExecutiveCompensation--The Executive Officers of the Company” in the Proxy Statement.Information regarding Section 16(a) reporting compliance that is required by this item is incorporated by reference from the information contained under thecaption “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement.We have adopted a Code of Conduct that applies to all of our employees, including our principal executive officer, principal financial officer, principalaccounting officer, and persons performing similar functions. The Code of Conduct is posted on our website at www.latticesemi.com. There were no changesto our code of conduct during fiscal 2017. Amendments to the Code of Conduct or any grant of a waiver from a provision of the code of ethics requiringdisclosure under applicable SEC rules, if any, will be disclosed on our website at www.latticesemi.com.Information about our “Director Code of Ethics” and written committee charters for our Audit Committee, Compensation Committee, and Nominating andGovernance Committee are available free of charge on the Company's website at www.latticesemi.com and are available in print to any shareholder uponrequest.On February 3, 2018, our Board of Directors determined to extend to March 2, 2018, the deadline under the Company’s bylaws for stockholders to nominatedirectors and propose other business for consideration at our 2018 Annual Meeting of Stockholders, as announced in our Current Report on Form 8-K filedon February 8, 2018. Other than this extension of the nomination period, there have been no material changes to the procedures by which security holdersmay recommend nominees to our Board of Directors since the filing of our Annual Report on Form 10-K for the year ended December 31, 2016. Theprocedures by which security holders may recommend nominees to our Board of Directors were described in detail in the information concerning ourNominating and Governance Committee under the caption “Board Meetings and Committees” in our Proxy Statement filed April 28, 2017.Information regarding our Audit Committee that is required by this Item is incorporated by reference from the information concerning our Audit Committeecontained under the caption “Corporate Governance and Other Matters--Board Meetings and Committees” in the Proxy Statement.Item 11. Executive CompensationThe information contained under the captions “Executive Compensation,” "Director Compensation," “Compensation Committee Interlocks and InsiderParticipation,” and “Compensation Committee Report” in the Proxy Statement is incorporated herein by reference.Item 12. Security Ownership of Certain Beneficial Owners andManagement and Related Stockholder MattersThe information contained under the captions “Security Ownership of Certain Beneficial Owners and Management” and "Equity Compensation PlanInformation" in the Proxy Statement is incorporated herein by reference.87Table of ContentsItem 13. Certain Relationships and Related Transactions, and DirectorIndependenceMr. Brian Beattie was appointed to our Board effective July 3, 2016. He served as the Executive Vice President, Business Operations, and ChiefAdministrative Officer of Synopsys, Inc. ("Synopsys") through May 1, 2017, and then served as an advisor until his official retirement from Synopsys onDecember 22, 2017. During the years ended December 30, 2017, December 31, 2016, and January 2, 2016, we paid approximately $2.1 million, $2.5million, and $2.4 million, respectively, to Synopsys for new and renewed license arrangements. Subsequent to July 3, 2016, we have paid Synopsys $3.5million. We had no accounts payable to Synopsys at December 30, 2017. Mr. Beattie received no direct compensation from the transactions. In addition, theinformation contained under the captions entitled “Certain Relationships and Related Transactions” and “Corporate Governance and Other Matters--DirectorIndependence” in the Proxy Statement is incorporated herein by reference.Item 14. Principal Accountant Fees and ServicesThe information contained under the caption entitled “Audit and Related Fees” in the Proxy Statement is incorporated herein by reference.88Table of ContentsPART IVItem 15. Exhibits.(a) List of Documents Filed as Part of this Report(1) All financial statements.The following financial statements are filed as part of this report under Item 8.Consolidated Financial Statements:PageConsolidated Balance Sheets 48Consolidated Statements of Operations 49Consolidated Statements of Comprehensive Loss 50Consolidated Statements of Stockholders' Equity 51Consolidated Statements of Cash Flows 52Notes to Consolidated Financial Statements 54All other schedules have been omitted because the required information is included in the Consolidated Financial Statements or the notes thereto, or is notapplicable or required.(2) Exhibits.ExhibitNumber Description 2.1 Agreement and Plan of Merger, dated January 26, 2015, by and among Lattice Semiconductor Corporation, Cayabyab Merger Companyand Silicon Image, Inc. (Incorporated by reference to Exhibit 2.1 filed with the Company’s Current Report on Form 8-K filed January 27,2015). 3.1 The Company’s Restated Certificate of Incorporation filed, as amended on June 4, 2009 (Incorporated by reference to Exhibit 3.1 filed withthe Company's Current Report on Form 8-K filed June 4, 2009). 3.2 The Company’s Bylaws, as amended as of November 3, 2016 (Incorporated by reference to Exhibit 3.2 filed with the Company's AnnualReport on Form 10-K for the fiscal year ended December 31, 2016). 10.1* Lattice Semiconductor Corporation 1996 Stock Incentive Plan, as amended, and Related Form of Option Agreement (Incorporated byreference to Exhibit 10.24 filed with the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 2012). 10.2* 2001 Stock Plan, as amended, and related Form of Option Agreement (Incorporated by reference to Exhibit 10.34 filed with the Company'sAnnual Report on Form 10-K for the fiscal year ended December 29, 2012). 10.3* Form of Indemnification Agreement executed by each director and executive officer of the Company and certain other officers andemployees of the Company and its subsidiaries (Incorporated by reference to Exhibit 10.41 filed with the Company’s Annual Report onForm 10-K for the fiscal year ended January 3, 2004). 10.4* Form of Amendment to Stock Option Agreements for 1996 Stock Incentive Plan, as amended, and 2001 Stock Plan, as amended(Incorporated by reference to Exhibit 99.3 filed with the Company’s Current Report on Form 8-K filed on December 12, 2005). 10.5* Form of Notice of Grant of Restricted Stock Units to Executive Officer (Incorporated by reference to Exhibit 99.1 filed with the Company’sCurrent Report on Form 8-K filed on February 8, 2007). 89Table of ContentsExhibitNumber Description 10.6* Employment Agreement between Lattice Semiconductor Corporation and Byron Milstead effective as of December 30, 2008 (Incorporatedby reference to Exhibit 10.66 filed with the Company's Annual Report on Form 10-K filed for the fiscal year ended January 3, 2009). 10.7* Employment Agreement between Lattice Semiconductor Corporation and Darin G. Billerbeck dated as of November 8, 2010 (Incorporatedby reference to Exhibit 10.70 filed with the Company's Quarterly Report on Form 10-Q for the quarter ended October 2, 2010). 10.8* Lattice Semiconductor Corporation 2012 Employee Stock Purchase Plan (incorporated by reference to Annex 1 to the Company'sDefinitive Proxy Statement on Schedule 14A for the 2012 Annual Meeting of Stockholders filed on April 12, 2012). 10.9* Lattice Semiconductor Corporation Amended 2011 Non-Employee Director Equity Incentive Plan (Incorporated by reference to Annex B tothe Company's Definitive Proxy Statement on Schedule 14A filed on filed on April 28, 2017). 10.10* Lattice Semiconductor Corporation 2013 Incentive Plan (Incorporated by reference to Annex A to the Company's Definitive Proxy Statementon Schedule 14A filed on April 28, 2017). 10.11 Office Lease, effective as of October 21, 2014, between 555 SW Oak, LLC and Lattice Semiconductor Corporation (Incorporated byreference to Exhibit 10.1 filed with the Company’s Current Report on Form 8-K filed October 27, 2014). 10.12* Lattice Semiconductor Corporation 2017 Cash Incentive Plan 10.13* Employment Agreement between Lattice Semiconductor Corporation and Glen Hawk dated November 6, 2015 (Incorporated by referenceto Exhibit 10.79 filed with the Company’s Annual Report on Form 10-K filed March 2, 2016). 10.14* Employment Agreement between Lattice Semiconductor Corporation and Max Downing, dated October 18, 2017 21.1 Subsidiaries of the Registrant. 23.1 Consent of Independent Registered Public Accounting Firm. 31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended. 31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended. 32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS XBRL Instance Document 101.SCH XBRL Taxonomy Extension Schema Document 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF XBRL Taxonomy Extension Definition Linkbase Document 101.LAB XBRL Taxonomy Extension Labels Linkbase Document 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document *Management contract or compensatory plan or arrangement required to be filed as an Exhibit to this AnnualReport on Form 10-K pursuant to Item 15(b) thereof.90Table of ContentsSIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.LATTICE SEMICONDUCTOR CORPORATION(Registrant) By:/s/ Max Downing Max DowningChief Financial Officer(Duly Authorized Officer and Principal Financial and Accounting Officer)Date:March 13, 2018 KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Darin G. Billerbeck and MaxDowning, or either of them, his or her attorneys-in-fact, each with the power of substitution, for such person in any and all capacities, to sign any amendmentsto this report and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, herebyratifying and confirming all that either of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant inthe capacities indicated and on the dates indicated:SignatureTitleDate Principal Executive Officer /s/ Darin G. Billerbeck March 13, 2018Darin G. BillerbeckPresident, Chief Executive Officer and Director Principal Financial and Accounting Officer /s/ Max Downing March 13, 2018Max DowningChief Financial Officer Directors /s/ Robin Abrams March 13, 2018Robin AbramsDirector /s/ Brian Beattie March 13, 2018Brian BeattieDirector /s/ John Bourgoin March 13, 2018John BourgoinDirector /s/ Robert Herb March 13, 2018Robert HerbDirector /s/ Mark JensenMarch 13, 2018Mark JensenDirector /s/ Jeff Richardson March 13, 2018Jeff RichardsonDirector /s/ Fred Weber March 13, 2018Fred WeberDirector 91Exhibit 10.12LATTICE SEMICONDUCTOR CORPORATION2017 Cash Incentive Plan SummaryPurposeThe Lattice Cash Incentive Plan (the “Plan”) will encourage and reward strong financial performance and operational results.Employees will be compensated both for achievement of specific financial measures derived from the Company’s annual operatingplan and corporate performance measured by the achievement of corporate MBOs. The Plan is established under the terms of andis governed by the Company’s 2013 Incentive Plan and the Plan accordingly is subject to administration by the CompensationCommittee of the Company’s Board of Directors (the “Compensation Committee”).Effective DateThe Plan is effective the first day of the fiscal year as defined by the Lattice Finance Department.Incentive PeriodThe Incentive Period is the fiscal year as defined by the Lattice Finance Department. Incentives are paid to Non-Executives (see“Eligibility” below for a definition) based on the Company’s fiscal quarters that form a part of the Incentive Period.EligibilityRegular employees below grade 16 or CVP (hereafter “Non-Executives”) become eligible to participate in the Plan beginning thefirst full fiscal quarter after their hire date, except as otherwise provided under the heading "Other General Provisions" hereafter.Employees in grade 16 and above (hereafter “Executives”) become eligible to participate as provided in their initial offer letter orEmployment Agreement, as applicable.Eligibility excludes the following:•Those who are eligible under the Company’s Sales Incentive Plan (“SIP”);•Temporary employees (including interns) and contractors; and•Any other persons deemed ineligible by application of the provisions set forth under the heading "Other General Provisions"hereafter.Incentive TargetsEach participant will be assigned an incentive target (the “Individual Target”) within a range of values established under theCompany’s compensation practices. The target, stated as a percentage of Eligible Wages (as defined below), is the potentialincentive amount that an employee may earn if all funding and performance criteria for the Incentive Period are met at 100% oftarget.The individual Target used for purposes of calculating the given quarter's payout will be that effective as of the last day of the givenfiscal quarter.Participants may earn from 0% up to 200% of their Individual Target based on achievement of funding and performance criteria asoutlined herein.FundingAchievement by the Company of specified levels of GAAP Operating Income before incentive accrual and acquisition relatedexpenses (“Operating Income”) is required to fund the payment of incentives for the achievement of the operating income andrevenue elements of the Plan.For Non-Executives, the Plan will fund and potentially pay quarterly incentives for the achievement of the Operating Income and theRevenue elements if the quarterly thresholds set forth hereafter are met (indicated as 0 and 50 because the Plan initially pays at ascore of 50 at the threshold). For Non-Executives, the plan may fund with respect to the MBO element even if the OperatingIncome threshold has not been met; provided, however, that payments under the Plan for achievement of quarterly MBOs mayonly be made if Operating Income is positive and those payments may not exceed 50% of Operating Income during the period forwhich payment is to be made. In addition, the aggregate payout to Executives and Non-Executives after the end of a fiscal yearand application of the Executive payment formula and the yearly Non-Executive formula, when applied, shall not exceed 28% ofOperating Income.Financial ThresholdsA - Non-ExecutivesFinancial thresholds are measured quarterly. The Compensation Committee reserves the right to change the financial thresholdson an annual or ad hoc basis, as necessary. If a target Operating Income level is surpassed, the plan will continue funding (and bescored) on a linear basis until the maximum points are attained.B - ExecutivesFinancial thresholds are measured annually. As in the case of Non-Executives, if a target Operating Income level is surpassed, theplan will continue funding (and be scored) on a linear basis until the maximum points are attained.The Plan will fund and potentially pay annually if the annual thresholds are met.Note: In the case of both the Non-Executive and Executive funding of the Plan, the Compensation Committee reserves the right tochange the financial thresholds on an annual or ad hoc basis, as necessary.Performance CriteriaOnce the funding is achieved, Company financial performance and/or achievement of corporate MBOs are required for anincentive to be paid.Performance MetricWeight1 - Operating Income33.33%2 - Revenue33.33%3 - Corporate MBOs33.33%Total100%1 - Operating IncomeOne third of the bonus is earned based on achievement of Operating Income Targets (the "OI score").2 - RevenueOne third of the bonus is earned based on achievement of Revenue Targets (the "Revenue score").3 - Corporate MBOsOne third of the bonus is earned based on achievement of Corporate MBOs (the MBO score"). These measurable goals will beestablished and communicated at the beginning of the Incentive Period. The MBOs are approved by the Compensation Committeeof the Board of Directors and that Committee will approve the scoring of the MBOs at the end of each fiscal quarter. .Thedetermination of the Compensation Committee is final.PayoutA - Non-ExecutivesOn a quarterly basis, applying the foregoing scoring elements, Non-Executives will be eligible for a cash incentive based on thefollowing formula for each of the first three fiscal quarters:Non-Executive Employee Payout = Quarterly Eligible Wages * Individual Target * [(Quarterly OI score *.33) + (QuarterlyRevenue score * .33) + (Quarterly MBO score * .33)]The Quarterly OI score and the Quarterly Revenue score each shall not exceed 100 points for any quarterly calculation. As isreflected in the foregoing formula, the payout to any Non-Executive employee may not exceed more than Quarterly Eligible Wages* Individual Target at the end of any quarter. At the end of the Incentive Period (the fourth fiscal quarter), the Annual Thresholds forOperating Income and Revenue (as set forth for Executives) will be applied to the following formula for Non-Executive Employeesto determine any additional incentive to be paid to Non-Executive employees for the year:Non-Exec Final Payout = [Annual Eligible Wages * Individual Target * ((Annual OI score *.33) + (Annual Revenue score *.33) + (Annual MBO score * .33))] - [Q1 Incentive Payout + Q2 Incentive Payout + Q3 Incentive Payout + Q4 IncentivePayout]The annual formula will only be applied and payments made thereunder to the extent that the resulting payment to Non-Executives,when aggregated with the payment to Executives upon application of the Executive Formula, will result in a payment that is lessthan or equal to 28% of Operating Income for the fiscal year. The Compensation Committee reserves the right to reduce anyamount payable under this Plan at its sole discretion, including without limitation amounts payable on application of this formula, orin the event that the Quarterly Threshold for OI has not been met at the 100 point level for any quarter during the fiscal year.Furthermore, an annual payment may only be made if such calculation results in a positive difference paid to Non-Executivesbased on the quarterly calculations. In the event the difference is negative, however, no claw back will be undertaken with respectto the Non-Executive employees.B - ExecutivesAt the end of the Incentive Period, applying the foregoing scoring elements, Executives will be eligible for an incentive based on thefollowing formula:Executive Payout = Annual Eligible Wages * Individual Target * [(OI score *.33) + (Revenue score * .33) + (MBO score *.33)]Other General ProvisionsPayment and Active EmploymentCurrent EmployeesEmployee must be an active employee on the first working day of the fiscal quarter for which the bonus is to be paid to be eligible toreceive a bonus for such fiscal quarter. For purposes of this provision, the first working day shall mean the first day after thecommencement of the fiscal quarter that employees are expected by the Company to attend to their employment duties and bepresent at their designated workplace.New EmployeesNew employees must be actively at work no later than 14 calendar days after the commencement of the fiscal quarter (inclusive ofthat first day) for which the bonus is to be paid to be eligible to receive a bonus for such fiscal quarter. For purposes of thisprovision, the first working day shall mean the first day after the commencement of the fiscal quarter that employees are expectedby the Company to attend to their employment duties and be present at their designated workplace.Employee must be in an active, eligible employment status as of the date incentive payments are actually paid to be eligible toreceive an incentive payment for the prior fiscal quarter or Incentive Period and such incentive is not deemed to be earned until thepayment date. No pro rata or partial payment will be paid for employees who are not actively employed on the date payments aremade.Incentive payments will be made after the end of the fiscal quarter, or the fiscal year, as applicable, once financial results havebeen determined, and in the case of the fiscal year end audited, and team goal achievement has been reviewed and approved bythe Compensation Committee and Board of Directors as provided above.Eligible WagesEligible Wages means the 12-month base salary paid during the applicable incentive period, exclusive of any bonuses or wagesupplements. In the case of hourly employees, Eligible Wages mean ordinary wages earned and paid exclusive of any overtimewages paid during the incentive period.For Non-Executive employees, the Incentive Target used in any calculation is that Incentive Target that is effective the last day ofthe given fiscal quarter. For Executives, the Incentive target used in any calculation is that Incentive Target that is effective the lastday of the fourth fiscal quarter.Leave of AbsencesEmployees who are on an approved Leave of Absence at the time the incentive is paid and who have met the criteria for a payoutwill be eligible for an incentive payment provided they have worked at least fifty percent of the working days during that fiscalquarter of Incentive Period, as applicable, unless otherwise provided by local law.Performance Improvement PlanEmployees who are on a formal Performance Improvement Plan (PIP) due to an Improvement Required rating determination orother unsatisfactory performance review at any time during a fiscal quarter are not eligible to receive an incentive payment for thatquarter. The determination of the employee’s manager shall be conclusive and final with respect to the issue of whether a PIP hasbeen satisfactorily performed.TaxingAll required and applicable taxes and deductions will be withheld from incentive payments.Plan AdministratorsThe Compensation Committee of the Board of Directors will oversee the Plan. The Human Resources Department will administerthe Plan.Company DiscretionParticipation in this plan does not constitute a contract of employment with the Company for any specified period of time, nor is it anentitlement to participate in any other program or any future program. The Compensation Committee reserves the right to cancel,revise, interpret, and apply this Plan and its provisions and to reduce any amounts payable under its terms at its sole discretion.Changes to the Plan must be in writing. Changes impacting the Executives must be approved by the Compensation Committee.The Company’s VP of Corporate Services, VP of Human Resources, and CEO must approve any exceptions to the Plan.Exhibit 10.14Employment AgreementThis Employment Agreement (the “Agreement”) is entered into by and between Max Downing (the “Executive”) and LATTICESEMICONDUCTOR CORPORATION, a Delaware corporation (the “Company”) as of October 18, 2017 (the “Effective Date”).1.Duties and Scope of Employment.(a)Position. For the term of his employment under this Agreement (“Employment”), the Executive will serve as theCorporate Vice President, Chief Financial Officer (“CVP/CFO”). The Executive shall report to the Company’s Chief Executive Officer (the “CEO”). Executivewill render such business and professional services in the performance of his duties, consistent with the Executive’s position within the Company, as willreasonably be assigned to him by the CEO.(b)Obligations. The Executive shall have such duties, authority and responsibilities that are commensurate with being anexecutive officer. During the term of his Employment, the Executive will devote Executive’s full business efforts and time to the Company. For the duration ofhis Employment, Executive agrees not to actively engage in any other employment, occupation, or consulting activity for any direct or indirect remunerationwithout the prior approval of the Board of Directors (the “Board”) (which approval will not be unreasonably withheld); provided, however, that Executive may,without the approval of the Board, serve in any capacity with any civic, educational, or charitable organization, provided such services do not interfere withExecutive’s obligations to the Company. Executive shall perform his duties primarily at the Company’s corporate facility in Portland, Oregon.(c)Effective Date. The Executive shall commence full-time Employment as CVP/CFO under this Agreement on theEffective Date.2.Cash and Incentive Compensation.(a)Salary. As of the Effective Date and thereafter, the Company shall pay Executive as compensation for his services abase salary at a gross annual rate of not less than $275,000 (such annual salary, as is then in effect, to be referred to herein as “Base Salary”). The BaseSalary will be paid periodically in accordance with the Company’s normal payroll practices and be subject to the usual, required withholdings, provided,however, that Executive shall receive pro-rata payments of Base Salary no less frequently than once per month. Executive’s Base Salary will be subject toreview by the Compensation Committee of the Board (the “Committee”) not less than annually, and adjustments will be made in the discretion of theCommittee.(b)Incentive Bonuses. For the Company’s fiscal year 2017 and beyond, Executive shall be a participant in a CashIncentive Plan as established by the Company (the “CIP”). Under the CIP, Executive shall be eligible to be considered for an annual fiscal year incentivepayment based on a percentage of Executive’s Base Salary as of the beginning of such fiscal year or such higher figure that the Committee may select (suchannual amount is the “Target Amount”). Executive’s initial target percentage amount is 50% of the Executive’s Base Salary (“Initial Target Amount”). TheTarget Amount shall be awarded based upon the achievement of specific milestones that will be mutually agreed upon by the Committee and Executive nolater than 60 days after the start of each fiscal year (the “Target Amount Milestones”). For superior achievement of the Target Amount Milestones, Executivemay earn a maximum annual fiscal year incentive bonus of up to 200% of Executive’s Target Amount (or 150% of Executive’s Base Salary). Cash payment foreach fiscal year’s variable compensation actually earned shall be made to Executive no later than 45 days after the end of the applicable fiscal year for whichthe annual incentive was earned; provided, however, that the Company shall have no obligation to make such payment for a fiscal year until such time as theaudit of the Company’s financial statements for such fiscal year has been completed and the Company has publicly reported its financial results for suchfiscal year as long as such payment is made within 70 days of the end of the applicable fiscal year. All awards of incentive compensation to executive officersof the Company are subject to the Company’s policy to seek recovery, at the direction of the Company’s Board of Directors, to the extent permitted byapplicable law, of incentive compensation awarded or paid to an executive officer of the Company for a fiscal period if the result of a performance measureupon which the award was based or paid is subsequently restated or otherwise adjusted in a manner that would reduce the size of the award or payment.(c)Terms of Company Compensatory Equity Awards. Executive shall be eligible for grants of options to purchaseshares of the Company’s common stock, restricted stock units, or other Company equity, pursuant to an applicable stockholder-approved equitycompensation plan (the “Plan”), at times and in such amounts as determined by the Committee (any prior or future compensatory equity grants to Executiveshall be collectively referred to herein as “Compensatory Equity”). All future grants of Compensatory Equity (and the issuance of any underlying shares) toExecutive shall be: (i) issued pursuant to the Plan and (ii) issued pursuant to an effective registration statement filed with the Securities and ExchangeCommission under the Securities Act of 1933 as amended. Accelerated vesting of Compensatory Equity may occur: (x) pursuant to the terms of thisAgreement and in addition (y) pursuant to the terms of the Plan and any applicable Compensatory Equity agreement. Executive may elect to establish atrading plan in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934 for any ofhis Compensatory Equity shares, provided, however, that such trading plan must comply with all of the requirements for the safe harbor under Rule 10b5-1and must be either (i) approved by the Board (such approval not to be unreasonably withheld) or (ii) approved in accordance with any Rule 10b5-1 TradingPlan Policy the Company may subsequently implement.(d)Service Definition. For purposes of this Agreement and Executive’s Compensatory Equity, “Service” shall meanservice by the Executive as an employee and/or consultant of the Company (or any subsidiary or parent or affiliated entity of the Company) and/or service bythe Executive as a member of the Board.3.Vacation and Employee Benefits. During the term of his Employment, the Executive shall be entitled to vacation in accordancewith the Company’s standard vacation policy. During the term of his Employment, the Executive shall be eligible to participate in any employee benefit plansor arrangements maintained by the Company on no less favorable terms than for other Company executives, subject in each case to the generally applicableterms and conditions of the plan or arrangement in question and to the determinations of any person or committee administering such plan or arrangement.4.Business Expenses. During the term of his Employment, the Executive shall be authorized to incur necessary and reasonabletravel, entertainment and other business expenses in connection with his duties hereunder. The Company shall promptly reimburse the Executive for suchexpenses upon presentation of appropriate supporting documentation, all in accordance with the Company’s generally applicable policies. The Companyshall also timely pay for all of Executive’s reasonable home telecommunications phone and facsimile lines used for business purposes and reimburseExecutive for his actual and reasonable mobile phone costs on a monthly basis. All such payments shall be made by the end of Executive’s next tax year. Theamount eligible for reimbursement in one year will not affect the amount eligible for reimbursement in any other year, and the right to reimbursement is notsubject to liquidation or exchange for another benefit.5.Term of Employment.(a)Term of Agreement. This Agreement will commence on the Effective Date and continue for a period of three (3) years(“Initial Term”), unless earlier terminated as provided herein. This Agreement and Executive’s Employment hereunder may be extended by mutual agreementof the parties for successive terms on such terms and conditions as the parties hereto shall mutually agree unless not less than sixty (60) days prior to theexpiration of the Initial Term or any successive term, either party shall have given notice to the other that it does not wish to extend this Agreement. If thisAgreement is not extended by the Parties, it will terminate at the end of the Initial Term or any successive term.(b)Basic Rule. The Company may terminate the Executive’s Employment with or without Cause, by giving the Executive30 days advance notice in writing. Provided, however, where the termination is for Cause constituting events such as fraud, willful violation of insider tradingrules, willful violation of conflict of interest policies, willful or unauthorized use or disclosure of trade secrets or other confidential information or conviction of afelony, the Company may terminate Executive’s Employment effective immediately upon notice. The Executive may terminate his Employment by giving theCompany 30 days advance notice in writing. The Executive’s Employment shall terminate automatically in the event of his death.(c)Employment at Will. The Executive’s Employment with the Company shall be “at will,” meaning that either theExecutive or the Company shall be entitled to terminate the Executive’s employment at any time and for any reason, with or without Cause. This Agreementshall constitute the full and complete agreement between the Executive and the Company on the “at will” nature of the Executive’s Employment, which mayonly be changed in an express written agreement signed by the Executive and a member of the Board.(d)Rights Upon Termination. Upon the termination of the Executive’s Employment, the Executive shall be entitled to thecompensation, benefits and reimbursements described in this Agreement for the period ending as of the effective date of the termination (the “TerminationDate”). Upon termination of Executive’s Employment for any reason, the Executive shall receive the following payments on the Termination Date: (i) allunpaid salary, and unpaid vacation accrued (if applicable), through the Termination Date, (ii) any unpaid, but earned and accrued incentive payments for anycompleted applicable determination period under the CICP (whether paid quarterly, annually or as might otherwise be established under the CICP) whichhas not yet been paid on the Termination Date and (iii) any unreimbursed business expenses. Executive may also be eligible for other post-Employmentpayments and benefits as provided in this Agreement.6.Termination Benefits.(a)Severance Pay. If there is an Involuntary Termination (as defined below) of Executive’s Employment, then theCompany shall pay the Executive an amount equal to 1.0 times Executive’s then Base Salary, plus up to 1.0 times Executive’s then Target Amount (adjustedpro rata on a monthly basis depending upon the month in which the Involuntary Termination may occur) (collectively in the aggregate, the “Cash Severance”).Such Cash Severance shall be made in a single lump sum cash payment to Executive on the effective date of the separation agreement referenced inSection 8(a). Executive shall also be entitled to receive the benefits provided in Sections 6(b) and 6(c) and, if applicable, 6(d).(b)Health Insurance. If Subsection (a) above applies, but subject to applicable law, and if Executive properly and timelyelects to continue coverage under the Company’s group health plan pursuant to Section 4980B(f) of the Code (“COBRA”) following the termination of hisEmployment, then the Company shall reimburse Executive’s monthly premium under COBRA until the earliest of (i) twelve months after the Termination Date,(ii) the date when Executive commences receiving substantially equivalent health insurance coverage in connection with new employment, or (iii) the dateExecutive is no longer entitled to COBRA continuation coverage under the Company’s group health plan. Notwithstanding the foregoing, Company mayunilaterally amend this Section 6(b) or eliminate the benefit provided hereunder to the extent it deems necessary to avoid the imposition of excise taxes,penalties or similar charges on Company or any of its affiliates, including, without limitation, under Section 4980D of the Code.(c)Equity Vesting. If Subsection (a) above applies, then Executive will be vested only in that number of shares ofCompany common stock under all of Executive’s outstanding Compensatory Equity as are actually vested as of the Termination Date according to the termsof such Compensatory Equity arrangements.(d)Effect of Change in Control. If the Company is subject to a Change in Control (as defined below) and if there is anInvoluntary Termination of Executive’s Employment in connection with such Change in Control (it will automatically be deemed to be in connection with theChange in Control if there is an Involuntary Termination during the period commencing immediately prior to the Change in Control and extending through thedate that is 24 months after the Change in Control): (x) Executive shall immediately vest in (and the Company’s right to repurchase, if applicable, shall lapseimmediately as to) all of Executive’s Compensatory Equity, (y) the amount of the Cash Severance in Section 6(a) shall be increased such that while theExecutive shall still receive 1.0 times Base Salary, he shall receive in addition 1.0 times Target Amount (with no pro ration), and (z) the duration of subsidizedCOBRA coverage shall be as described in Section 6(b); provided, however, that Company may unilaterally amend clause (z) of this sentence or eliminate thebenefit provided thereunder to the extent it deems necessary to avoid the imposition of excise taxes, penalties or similar charges on Company or any of itsaffiliates, including, without limitation, under Section 4980D of the Code.(e)Excise Tax. In the event that the benefits provided for in this Agreement (i) constitute “parachute payments” within themeaning of Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”) and (ii) but for this Subsection (e), would be subject to the excisetax imposed by Section 4999 of the Code, then the Executive’s benefits under this Agreement shall be payable either (1) in full, or (2) as to such lesseramount which would result in no portion of the such benefits being subject to excise tax under Section 4999 of the Code, whichever of the foregoing amounts,taking into account the applicable federal, state and local income taxes and the excise tax imposed by Section 4999, results in the receipt by the Executive onan after-tax basis, of the greatest amount of benefits under this Agreement, notwithstanding that all or some portion of such benefits may be taxable underSection 4999 of the Code. Unless Executive and the Company agree otherwise in writing, the determination of Executive’s excise tax liability, if any, and theamount, if any, required to be paid under this Subsection (e) will be made in writing by the independent auditors who are primarily used by the Companyimmediately prior to the Change of Control (the “Accountants”). For purposes of making the calculations required by this Subsection (e), the Accountants maymake reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning theapplication of Sections 280G and 4999 of the Code. Executive and the Company agree to furnish such information and documents as the Accountants mayreasonably request in order to make a determination under this Subsection (e). The Company will bear all costs the Accountants may reasonably incur inconnection with any calculations contemplated by this Subsection (e). Any reduction of benefits under this Agreement shall be made first to any payments orbenefits that are exempt from the application of Section 409A of the Code, and thereafter to any payments or benefits that are subject to Section 409A of theCode on a pro-rata basis.(f)Change in Control Definition. For purposes of this Agreement, “Change in Control” shall mean the occurrence of any ofthe following events: (i) the consummation of a merger or consolidation of the Company with or into another entity or any other corporate reorganization, ifpersons who were not stockholders of the Company immediately prior to such merger, consolidation or other reorganization own immediately after suchmerger, consolidation or other reorganization more than 50% of the voting power of the outstanding securities of each of (A) the continuing or surviving entityand (B) any direct or indirect parent corporation of such continuing or surviving entity, (ii) the sale, transfer or other disposition of all or substantially all of theCompany’s assets, or (iii) solely with respect to determining the treatment of Compensatory Equity under the terms of this Agreement, the terms of anyapplicable definition provided by the Plan and the applicable Compensatory Equity agreement. A transaction shall not constitute a Change in Control if itssole purpose is to change the state of the Company’s incorporation or to create a holding company that will be owned in substantially the same proportionsby the persons who held the Company’s securities immediately before such transaction.(g)Cause Definition. For purposes of this Agreement, “Cause” shall mean (i) Executive’s material breach of thisAgreement that is not corrected within a 30 day correction period that begins upon delivery to Executive of a written demand from the Company that describesthe basis for the Company’s belief that Executive has materially breached this Agreement; (ii) any willful act of fraud or dishonesty that causes materialdamage to the Company; (iii) any willful violation of the Company’s insider trading policy; (iv) any willful violation of the Company’s conflict of interest policies;(v) any willful unauthorized use or disclosure of trade secrets or other confidential information; or (vi) Executive’s conviction of a felony.The foregoing shall not be deemed an exclusive list of all acts or omissions that the Company may consider as grounds for the termination ofExecutive’s Employment, but it is an exclusive list of the acts or omissions that shall be considered “Cause” for the termination of Executive’s Employment bythe Company.(h)Good Reason Definition. For all purposes under this Agreement, “Good Reason” shall mean the occurrenceof any of the following, without Executive’s express written consent: (i) a material diminution of Executive’s duties or responsibilities; (ii) a materialdiminution Executive’s Base Salary or Target Amount other than a one-time reduction (not exceeding 10% in the aggregate) that also is applied tosubstantially all other executive officers of the Company on the CEO’s written recommendation or written approval if Executive’s reduction issubstantially proportionate to, or no greater than (on a percentage basis), the reduction applied to substantially all other executive officers; (iii) theCompany’s material breach of this Agreement; or (iv) the Company requiring Executive to relocate his primary place of employment to a facility orlocation that is more than 50 miles from his principal place of employment as of the Effective Date; provided, however, that Executive will only haveGood Reason if (i) he notifies the Board in writing of the existence of the condition which he believes constitutes Good Reason within ninety (90)days of the initial existence of such condition (which notice specifically identifies such condition), (ii) Company fails to remedy such condition withinthirty (30) days after the date on which the Board receives such notice (the “Remedial Period”), and (iii) his resignation is effective within thirty (30)days after the expiration of the Remedial Period.(i)Involuntary Termination Definition. For all purposes under this Agreement, “Involuntary Termination” shall mean any ofthe following that occur without Executive’s prior written consent: (i) termination of Executive’s Employment by the Company without Cause, or (ii) Executive’sresignation of Employment for Good Reason. In the event this Agreement and Executive’s Employment hereunder terminates as a result of this Agreementnot being extended at the end of the Initial Term or a successive term under Section 5(a), such termination of Executive’s Employment shall not constitute anInvoluntary Termination.7.Successors.(a)Company’s Successors. This Agreement shall be binding upon any successor (whether direct or indirect and whetherby purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/or assets. For all purposes underthis Agreement, the term “Company” shall include any successor to the Company’s business and/or assets which becomes bound by this Agreement.(b)Executive’s Successors. This Agreement and all rights of the Executive hereunder shall inure to the benefit of, and beenforceable by, the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.8.Conditions to Receipt of Severance; No Duty to Mitigate.(a)Separation Agreement and Release of Claims. The receipt of any severance benefits pursuant to Section 6 will besubject to Executive signing and not revoking a separation agreement and release of claims in substantially the form attached hereto as Exhibit A, but withany appropriate modifications, reflecting changes in applicable law or other considerations (e.g., number of days to consider such release), as are necessaryor appropriate to provide the Company with the protection it would have if the release were executed as of the Effective Date. No severance benefits will bepaid or provided until the separation agreement and release agreement becomes effective. The separation agreement and release of claims must in allcases be effective by the 60th day following Executive’s termination of Employment (or such earlier date as is provided in the release) or no severancebenefits will be paid or provided under this Agreement. Notwithstanding anything herein to the contrary if the maximum period during which Executive canconsider and revoke the release begins in one calendar year and ends in the subsequent calendar year, payment and provision of severance benefits underthis Agreement shall not be made or commence to be made until the later of the effective date of the release and the first business day of the subsequentcalendar year, regardless of when the release becomes effective.(b)Non-solicitation. The receipt of any severance benefits will be subject to the Executive agreeing that duringEmployment and for the 12 month period after the Termination Date (the “Continuance Period”), the Executive will not (i) solicit any employee of the Companyfor employment other than at the Company, or (ii) solicit any customer, vendor, supplier, independent contractor or others having a business relationship withthe Company that has the effect or purpose of decreasing or taking away the business or relationship with the Company. "Company" in this Section 8 refers tothe Company and its subsidiaries.(c)Non-disparagement. During Employment and the Continuance Period, the Executive will not knowingly publiclydisparage, criticize, or otherwise make any derogatory statements regarding the Company, its directors, or its officers. The Company’s then and futuredirectors will not knowingly publicly disparage, criticize, or otherwise make any derogatory statements regarding the Executive during his Employment or theContinuance Period. The Company will also instruct its officers to not knowingly publicly disparage, criticize, or otherwise make any derogatory statementsregarding the Executive during his Employment or the Continuance Period. Notwithstanding the foregoing, nothing contained in this Agreement will bedeemed to restrict the Executive, the Company or any of the Company’s current or former officers and/or directors from providing information to anygovernmental or regulatory agency (or in any way limit the content of such information) to the extent they are requested or required to provide suchinformation pursuant to any applicable law or regulation.(d)No Duty to Mitigate. No payments or benefits provided to Executive (except as expressly provided in Section 6(b))shall be subject to mitigation or offset.9.Miscellaneous Provisions.(a)Indemnification. The Company shall indemnify Executive to the maximum extent permitted by any applicableindemnification agreement, applicable law and the Company’s bylaws with respect to Executive’s Service (including timely advancing and/or reimbursingcosts as incurred by Executive) and the Executive shall also be covered under a directors and officers liability insurance policy(ies) paid for by the Company.(b)Notice. Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemedto have been duly given when personally delivered or when mailed by overnight courier, U.S. registered or certified mail, return receipt requested andpostage prepaid. In the case of the Executive, mailed notices shall be addressed to him at the home address that he most recently communicated to theCompany in writing. In the case of the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to theattention of its CEO.(c)Arbitration. The Company and Executive agree that any and all disputes arising out of the terms of this Agreement, theExecutive’s Employment, Executive’s Service, or Executive’s compensation and benefits, their interpretation and any of the matters herein released, will besubject to binding arbitration in Portland, Oregon before the American Arbitration Association under its National Rules for the Resolution of EmploymentDisputes. The Company and the Executive agree that the prevailing party in any arbitration will be entitled to injunctive relief in any court of competentjurisdiction to enforce the arbitration award. The Company and the Executive hereby agree to waive their right to have any dispute between themresolved in a court of law by a judge or jury. This Subsection (c) will not prevent either party from seeking injunctive relief (or any other provisional remedy)from any court having jurisdiction over the Company or the Executive and the subject matter of their dispute relating to Executive’s obligations under thisAgreement. Each party shall be responsible for its own out-of-pocket expenses related to the arbitration, including filing fees and arbitrator compensation.Notwithstanding the foregoing, if the arbitrator determines that a party has generally prevailed in the arbitration proceeding, then the arbitrator shall award tothat party its reasonable attorney’s fees.(d)Modifications and Waivers. No provision of this Agreement shall be modified, waived or discharged unless themodification, waiver or discharge is agreed to in writing and signed by the Executive and by an authorized officer of the Company (other than the Executive).No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiverof any other condition or provision or of the same condition or provision at another time.(e)Whole Agreement. This Agreement contains the entire understanding of the parties with respect to the subject matterhereof and supersedes any other agreements, representations or understandings (whether oral or written and whether express or implied) with respect to thesubject matter hereof. In the event of any conflict in terms between this Agreement and/or the Plan and/or any agreement executed by and between Executiveand the Company, the terms of this Agreement shall prevail and govern.(f)Legal Fees. Each party shall pay its own legal fees and expenses incurred in connection with the preparation andexecution of this Agreement.(g)Withholding Taxes. All payments made under this Agreement shall be subject to reduction to reflect taxes or othercharges required to be withheld by law.(h)Choice of Law. The validity, interpretation, construction and performance of this Agreement shall be governed by thelaws of the State of Oregon (except their provisions governing the choice of law).(i)Severability. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect thevalidity or enforceability of any other provision hereof, which shall remain in full force and effect.(j)Code Section 409A. The termination benefits provided by Section 6 of this Agreement are intended to be exempt fromSection 409A of the Code, whether pursuant to the short-term deferral exception provided under Treasury Regulation 1.409A-1(b)(4), the involuntaryseparation pay plan exception provided under Treasury Regulation Section 1.409A-1(b)(9)(iii), or otherwise, such that none of the termination benefits to beprovided hereunder will be subject to the six (6) month delay imposed by Section 409A of the Code, and any ambiguities herein will be interpreted to socomply. The Company and Executive agree to work together in good faith to consider amendments to this Agreement and to take such reasonable actionswhich are necessary, appropriate or desirable to avoid imposition of any additional tax or income recognition prior to actual payment to Executive.Notwithstanding the foregoing, if Executive is a “specified employee” within the meaning of Section 409A of the Code and the final regulations and anyguidance promulgated thereunder (“Section 409A”) at the time of Executive’s termination (other than due to death), and any portion of the termination benefitspayable to Executive pursuant to this Agreement, when considered together with any other severance payments or separation benefits which may beconsidered deferred compensation under Section 409A (together, the “Deferred Compensation Separation Benefits”) could (under any set of circumstances)be paid after March 15of the calendar year following the calendar year containing the date of Executive’s termination, then only that portion of the Deferred CompensationSeparation Benefits which do not exceed the Section 409A Limit (as defined below) may be made within the first six (6) months following Executive’stermination of employment in accordance with the payment schedule applicable to each payment or benefit. For these purposes, each severance payment ishereby designated as a separate and distinct payment (and the right to a series of installment payments will be treated as a right to a series of separate anddistinct payments) and will not collectively be treated as a single payment. Any portion of the Deferred Compensation Separation Benefits in excess of theSection 409A Limit shall accrue and, to the extent such portion of the Deferred Compensation Separation Benefits would otherwise have been payable withinthe first six (6) months following Executive’s termination of employment, will become payable on the first payroll date that occurs on or after the date six (6)months and one (1) day following the date of Executive’s termination. All subsequent Deferred Compensation Separation Benefits, if any, will be payable inaccordance with the payment schedule applicable to each payment or benefit. Notwithstanding anything herein to the contrary, if Executive dies followingExecutive’s termination but prior to the six (6) month anniversary of Executive’s termination, then any payments delayed in accordance with this paragraphwill be payable in a lump sum as soon as administratively practicable after the date of Executive’s death and all other Deferred Compensation SeparationBenefits will be payable in accordance with the payment schedule applicable to each payment or benefit. For purposes of this Agreement, “Section 409ALimit” will mean two (2) times the lesser of: (A) Executive’s annualized compensation based upon the annual rate of pay paid to Executive during theExecutive’s taxable year preceding the Executive’s taxable year of Executive’s termination of employment as determined under Treasury Regulation 1.409A-1(b)(9)(iii)(A)(1) and any Internal Revenue Service guidance issued with respect thereto; or (B) the maximum amount that may be taken into account under aqualified plan pursuant to Section 401(a)(17) of the Code for the year in which Executive’s employment is terminated. Notwithstanding the foregoing, underno circumstances will the Company or its parents, subsidiaries or affiliates (or any of their successors) be liable to Executive or any other person for anyadditional tax or interest imposed on Executive under, or as a result of, Section 409A.(k)No Assignment. This Agreement and all rights and obligations of the Executive hereunder are personal to theExecutive and may not be transferred or assigned by the Executive at any time. The Company may assign its rights under this Agreement to any entity thatexpressly in writing assumes the Company’s obligations hereunder in connection with any sale or transfer of all or substantially all of the Company’s assetsto such entity.(l)Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed anoriginal, but all of which together shall constitute one and the same instrument.IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by its duly authorized officer, as ofthe Effective Date./s/ Max DowningMax DowningLattice Semiconductor CorporationBy: /s/ Byron W. MilsteadName: Byron W. MilsteadTitle: Corporate Vice President and General CounselEXHIBIT AGENERAL RELEASERECITALSThis Separation Agreement and Release (“Agreement”) is made by and between Max Downing (“Employee”) and Lattice Semiconductor Corporation (the“Company”) (jointly referred to as the “Parties”):WHEREAS, Employee is employed by the Company;WHEREAS, the Company and Employee entered into an Employment Agreement dated _______________ (the “Employment Agreement”);WHEREAS, the Parties agree that Employee’s employment with the Company will terminate on ________________ (the “Termination Date”);WHEREAS, the Company and Employee entered into a Proprietary Rights Agreement dated [__________] regarding intellectual property and confidentialinformation (the “Proprietary Rights Agreement”);WHEREAS, the Company and Employee entered into an Indemnification Agreement, dated [_______], regarding Employee’s rights to indemnification (the“Indemnification Agreement”);WHEREAS, Employee is a participant, or is eligible to participate, in the Company’s Executive Deferred Compensation Plan dated [_______], as amended,regarding Employee’s rights to receive deferred compensation (the “Deferred Compensation Plan”);WHEREAS, the Company and Employee entered into Stock Option Agreements dated [____] granting Employee the option to purchase shares of theCompany’s common stock subject to the terms and conditions of the Company’s Stock Option Plan(s) and the Stock Option Agreements and is the grantee ofrestricted stock units representing shares of the Company’s common stock pursuant to the terms of Notice(s) of Grant and related equity incentive plans (the“Equity Agreements”);WHEREAS, the Parties wish to resolve any and all disputes, claims, complaints, grievances, charges, actions, petitions and demands that Employee mayhave against the Company as defined herein, arising out of, or related to, Employee’s employment with, or separation from, the Company;NOW THEREFORE, in consideration of the promises made herein, the Parties hereby agree as follows:COVENANTS1.Consideration.a.Pursuant to Section 8(a) of the Employment Agreement, Employee’s receipt of severance is subject to Employeeexecuting and not revoking this Release. In consideration of Employee executing and not revoking this Release, the Company agrees to pay (or provide, asapplicable) Employee a cash payment of $_________ on the Effective Date and also the benefits specified in the Employment Agreement. Employeeacknowledges that such cash payment and the provision of such benefits will be in full satisfaction of the payments and obligations provided under theEmployment Agreement and ne will not be entitled to any additional salary, wages, bonuses, accrued vacation, housing allowances, relocation costs,interest, severance, stock, stock options, outplacement costs, fees, commissions or any other benefits and compensation, except as provided in any Companyemployee welfare or pension benefit plans as defined by the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) (such plans, the“Benefit Plans”), this Agreement, the Indemnification Agreement, the Deferred Compensation Plan and/or the Equity Agreements.b.Stock. Employee acknowledges that as of the Termination Date, and after taking into account any accelerated vestingprovided by the Employment Agreement or Stock Agreements, he will then hold vested stock options to acquire [______] shares of Company common stockand no more, and will hold vested restricted stock units that will be settled for [______] shares of Company common stock and no more. The exercise of anystock options and the settlement of any restricted stock units shall continue to be subject to the terms and conditions of the Equity Agreements and theEmployment Agreement.c.Benefits. Employee’s health insurance benefits will cease on the last day of the month of the Termination Date, subjectto Employee’s right to continue his health insurance as provided in the Employment Agreement (with such premiums to be paid by the Company as providedin the Employment Agreement). Subject to the Employment Agreement, the Deferred Compensation Plan, the Indemnification Agreement, the EquityAgreements and/or the Benefit Plans, Employee’s participation in all other benefits and incidents of employment (including, but not limited to, the accrual ofvacation and paid time off, and the vesting of stock options and restricted stock units) will cease on the Termination Date.2.Confidential Information. Employee shall continue to comply with the terms and conditions of the Proprietary Rights Agreement,and maintain the confidentiality of all of the Company’s confidential and proprietary information. Employee also shall return to the Company all of theCompany’s property, including all confidential and proprietary information, in Employee’s possession, on or before the Effective Date.3.Release of Claims. Employee agrees that the foregoing consideration represents settlement in full of all outstanding obligationsowed to Employee by the Company. Employee, on his own behalf and on behalf of his respective heirs, family members, executors, agents, and assigns,hereby fully and forever releases the Company and its current and former: officers, directors, employees, agents, investors, attorneys, shareholders,administrators, affiliates, divisions, subsidiaries, predecessor and successor corporations and assigns (the “Releasees”) from, and agrees not to sue any ofthe Releasees concerning, any claim, duty, obligation or cause of action for monetary damages relating to any matters of any kind arising out of or relating tohis employment by the Company (except as provided in the Employment Agreement), or his service as an officer of the Company and/or a director of theCompany, whether presently known or unknown, suspected or unsuspected, that Employee may possess arising from any omissions, acts or facts that haveoccurred up until and including the Effective Date, excluding the “Excluded Claims” (as defined below) and including, without limitation:a.any and all claims relating to or arising from Employee’s employment with the Company, or the termination of thatemployment;b.any and all claims relating to, or arising from, Employee’s right to purchase, or actual purchase of, shares of Companystock, including, but not limited to, any claims for fraud, misrepresentation, breach of fiduciary duty, breach of duty under applicable state corporate law, andsecurities fraud under any state or federal law;c.any and all claims under the law of any jurisdiction, including, but not limited to, wrongful discharge of employment;constructive discharge from employment; termination in violation of public policy; discrimination; breach of contract, both express and implied; breach of acovenant of good faith and fair dealing, both express and implied; promissory estoppel; negligent or intentional infliction of emotional distress; negligent orintentional misrepresentation; negligent or intentional interference with contract or prospective economic advantage; unfair business practices; defamation;libel; slander; negligence; personal injury; assault; battery; invasion of privacy; false imprisonment; and conversion;d.any and all claims for violation of any federal, state or municipal statute, including, but not limited to, Title VII of the CivilRights Act of 1964; the Civil Rights Act of 1991; the Age Discrimination in Employment Act of 1967; the Americans with Disabilities Act of 1990; the Fair LaborStandards Act; ERISA; the Worker Adjustment and Retraining Notification Act; the Older Workers Benefit Protection Act; the Family and Medical Leave Act;and the Fair Credit Reporting Act;e.any and all claims for violation of the federal, or any state, constitution;f.any and all claims arising out of any other laws and regulations relating to employment or employment discrimination;andg.any and all claims for attorney fees and costs.For purposes of this Agreement, the “Excluded Claims” shall include any claims pursuant to the Benefit Plans, the Deferred Compensation Plan, theIndemnification Agreement, the non-disparagement clause of Section 8(c) of the Employment Agreement, the right to indemnification under Section 9(a) ofthe Employment Agreement, and any right to exercise stock options or receive restricted stock units pursuant to the relevant provisions of the EquityAgreements.4.Acknowledgement of Waiver of Claims Under ADEA. Employee acknowledges that he is waiving and releasing anyrights he may have against the Releasees for monetary damages under the Age Discrimination in Employment Act of 1967 (“ADEA”) and that thiswaiver and release is knowing and voluntary. Employee and the Company agree that this waiver and release does not apply to any rights or claimsthat may arise under the ADEA after the Effective Date. Employee acknowledges that the consideration given for this waiver and release Agreementis in addition to anything of value to which Employee was already entitled. Employee further acknowledges that he has been advised by this writingthat:a. he should consult with an attorney prior to executing this Release;b. he has up to twenty-one (21) days within which to consider this Release;c. he has seven (7) days following his execution of this Release to revoke this Release;d.this ADEA waiver shall not be effective until the revocation period has expired; and,e.nothing in this Release prevents or precludes Employee from challenging or seeking a determination in good faith ofthe validity of this waiver under the ADEA, nor does it impose any condition precedent, penalties or costs for doing so, unless specifically authorized byfederal law.5.Unknown Claims. The Parties represent that they are not aware of any claim by either of them other than the claims that arereleased by this Release. Employee acknowledges that he has been advised by legal counsel and are familiar with the principle that a general release doesnot extend to claims which the releasor does not know or suspect to exist in his favor at the time of executing the Release, which if known by him must havematerially affected his settlement with the Releasee. Employee, being aware of said principle, agrees to expressly waive any rights Employee may have tothat effect, as well as under any other statute or common law principles of similar effect.6.Application for Employment. Employee understands and agrees that, as a condition of this Release, he shall not be entitled toany employment with the Company, its subsidiaries, or any successor, and he hereby waives any alleged right of employment or re-employment with theCompany, its subsidiaries or related companies, or any successor.7.No Cooperation. Employee agrees that he will not knowingly counsel or assist any attorneys or their clients in the presentationor prosecution of any disputes, differences, grievances, claims, charges, or complaints by any third party against any of the Releasees for monetary damages,unless requested by a governmental agency or unless under a subpoena or other court order to do so. Employee agrees both to immediately notify theCompany upon receipt of any such subpoena or court order, and to furnish, within three (3) business days of its receipt, a copy of such subpoena or courtorder to the Company. If otherwise approached by anyone for counsel or assistance in the presentation or prosecution of any disputes, differences,grievances, claims, charges, or complaints against any of the Releasees, Employee shall state no more than that he cannot provide such counsel orassistance.8.Costs. The Parties shall each bear their own costs, expert fees, attorney fees and other fees incurred in connection with thepreparation of this Release.9.Arbitration. The Parties agree that any and all disputes arising out of, or relating to, the terms of this Release, their interpretation,and any of the matters herein released, shall be subject to binding arbitration as described in Section 9(c) of the Employment Agreement.10.No Representations. Each Party represents that it has had the opportunity to consult with an attorney, and has carefully readand understands the scope and effect of the provisions of this Release. Neither Party has relied upon any representations or statements made by the otherParty hereto which are not specifically set forth in this Release.11.No Oral Modification. Any modification or amendment of this Release, or additional obligation assumed by either Party inconnection with this Release, shall be effective only if placed in writing and signed by both Parties or their authorized representatives.12.Entire Agreement. This Release, the Employment Agreement, the Indemnification Agreement, the Deferred CompensationPlan, the Benefit Plans, the Proprietary Rights Agreement and the Equity Agreements represent the entire agreement and understanding between theCompany and Employee concerning the subject matter of this Release and Employee’s relationship with the Company, and supersede and replace any andall prior agreements and understandings between the Parties concerning the subject matter of this Release and Employee’s relationship with the Company.13.Governing Law. This Release shall be governed by the laws of the State of Oregon, without regard for choice of law provisions.14.Effective Date. This Release is only effective after it has been signed by both parties and after eight (8) days have passedfollowing the date Employee signed the Agreement without Employee revoking this Agreement (the “Effective Date”).15.Voluntary Execution of Release. This Release is executed voluntarily and with the full intent of releasing all claims, andwithout any duress or undue influence by any of the Parties. The Parties acknowledge that:a.They have read this Release;b.They have been represented in the preparation, negotiation, and execution of this Release by legal counsel of their ownchoice or that they have voluntarily declined to seek such counsel;c.They understand the terms and consequences of this Release and of the releases it contains; andd.They are fully aware of the legal and binding effect of this Release.IN WITNESS WHEREOF, each of the Parties has executed this Release, in the case of the Company by a duly authorized officer, as of the day and yearwritten below.COMPANY:LATTICE SEMICONDUCTOR CORPORATIONBy: _________________________________ Date: __________________________Title: ________________________________EMPLOYEE:_____________________________________ Date: __________________________Max Downing[DO NOT SIGN PRIOR TO THE TERMINATION DATE]Exhibit 21.1LATTICE SEMICONDUCTOR CORPORATIONSUBSIDIARIES OF THE REGISTRANT Name Jurisdiction of Incorporation1.Lattice Semiconductor Limited Bermuda2.Lattice Semiconductor Canada Corporation Canada3.Lattice Semiconductor (Shanghai) Co. Ltd. China4.Silicon Image Electronics Technology (Shanghai) Co. Ltd. China5.Lattice Semiconducteurs SARL France6.Lattice Semiconductor GmbH Germany7.SiliconBlue Technologies (Hong Kong) Ltd. Hong Kong8Lattice Semiconductor Asia Limited Hong Kong9.Lattice Semiconductor (India) Pvt. Ltd. India10.Lattice Semiconductor SRL Italy11.Lattice Semiconductor Japan KK Japan12.Lattice Semiconductor Korea Co. Ltd. Korea13.Silicon Image Cooperatie U.A. Netherlands14.Silicon Image International B.V. Netherlands15.Lattice Semiconductor (PH) Corporation Philippines16.Lattice SG Pte. Ltd. Singapore17.HDMI Licensing, LLC Delaware, USA18.MHL, LLC Delaware, USA19.SiBEAM, Inc. Delaware, USA20.Lattice Connectivity, LLC Delaware, USA21.Lattice Semiconductor International LLC Delaware, USA22.Silicon Image International LLC Delaware, USA23.SPMT, LLC Delaware, USA24.WirelessHD, LLC Delaware, USA25.Lattice Semiconductor UK Limited United Kingdom26.Silicon Image UK Limited United KingdomExhibit 23.1Consent of Independent Registered Public Accounting FirmThe Board of DirectorsLattice Semiconductor Corporation:We consent to the incorporation by reference in the registration statements (No. 333-69467, No. 333-67274, No. 333-143387, No-333-176133, No. 333-182047, No. 333-188455, No. 333-195888, No. 333-202736, and No. 333-220987) on Form S-8 of Lattice Semiconductor Corporation (the Company) of ourreports dated March 13, 2018, with respect to the consolidated balance sheets of Lattice Semiconductor Corporation as of December 30, 2017 andDecember 31, 2016, and the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each of the years inthe three-year period ended December 30, 2017, and the related notes (collectively, the consolidated financial statements), and the effectiveness of internalcontrol over financial reporting as of December 30, 2017, which reports appear in the December 30, 2017 annual report on Form 10-K of LatticeSemiconductor Corporation.Our report dated March 13, 2018, on the effectiveness of internal control over financial reporting as of December 30, 2017, expresses our opinion that LatticeSemiconductor Corporation did not maintain effective internal control over financial reporting as of December 30, 2017 because of the effect of a materialweakness on the achievement of the objectives of the control criteria and contains an explanatory paragraph that states that management concluded there isa material weakness due to ineffective risk assessment over significant unusual transactions and the design and implementation of control activities over theaccounting for those significant unusual transactions./s/ KPMG LLPPortland, OregonMarch 13, 2018Exhibit 31.1CERTIFICATIONI, Darin G. Billerbeck, certify that:1.I have reviewed this Annual Report on Form 10-K of Lattice Semiconductor Corporation;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscalquarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant's internal control over financial reporting; and5.The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likelyto adversely affect the registrant's ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control overfinancial reporting.Date: March 13, 2018/s/ Darin G. Billerbeck Darin G. Billerbeck President and Chief Executive Officer Exhibit 31.2CERTIFICATIONI, Max Downing, certify that:1.I have reviewed this Annual Report on Form 10-K of Lattice Semiconductor Corporation;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscalquarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant's internal control over financial reporting; and5.The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likelyto adversely affect the registrant's ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control overfinancial reporting.Date: March 13, 2018/s/ Max Downing Max Downing Chief Financial Officer Exhibit 32.1CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACTOF 2002In connection with the Annual Report of Lattice Semiconductor Corporation (the Company) on Form 10-K for the year ended December 30, 2017 (the Report),I, Darin G. Billerbeck, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002, that:(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the SEC or its staff uponrequest. /s/ Darin G. Billerbeck Darin G. Billerbeck President and Chief Executive OfficerDate: March 13, 2018Exhibit 32.2CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACTOF 2002In connection with the Annual Report of Lattice Semiconductor Corporation (the Company) on Form 10-K for the year ended December 30, 2017 (the Report),I, Max Downing, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the SEC or its staff uponrequest. /s/ Max Downing Max Downing Chief Financial OfficerDate: March 13, 2018

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