UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended October 31, 2012
OR
¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from to
Commission file number: 000-10761
LTX-CREDENCE CORPORATION
(Exact name of registrant as specified in its charter)
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Massachusetts
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04-2594045
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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825 University Ave,
Norwood, Massachusetts
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02062
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(Address of principal executive offices)
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(Zip Code)
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(781) 461-1000
(Registrants telephone number, including area code)
[None]
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. Yes
x
No
¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and
post such files). Yes
x
No
¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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¨
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Accelerated filer
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x
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Non-accelerated filer
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¨
(Do not check if a smaller reporting company)
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Smaller reporting company
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¨
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes
¨
No
x
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.
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Class
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Outstanding at December 4, 2012
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Common Stock, $0.05 par value per share
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47,361,254 shares
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LTX-CREDENCE CORPORATION
Index
2
LTX-CREDENCE CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
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October 31,
2012
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July 31,
2012
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(Unaudited)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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25,290
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$
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29,446
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Marketable securities
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103,550
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107,728
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Accounts receivabletrade, net of allowances of $39
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34,189
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31,182
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Accounts receivableother
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623
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740
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Inventories
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31,477
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28,850
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Prepaid expenses and other current assets
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3,045
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3,440
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Total current assets
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198,174
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201,386
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Property and equipment, net
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18,236
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18,229
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Intangible assets, net
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2,757
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3,153
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Goodwill
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43,030
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43,030
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Other assets
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1,286
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1,270
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Total assets
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$
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263,483
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$
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267,068
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities:
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Accounts payable
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$
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17,684
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$
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12,734
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Accrued expenses
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20,225
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19,736
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Deferred revenue
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4,259
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5,347
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Total current liabilities
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42,168
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37,817
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Other long-term liabilities
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13,441
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13,547
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Commitments and contingencies (Note 5)
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Stockholders equity:
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Common stock
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2,374
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2,430
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Additional paid-in capital
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742,440
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750,760
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Accumulated other comprehensive income
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227
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230
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Accumulated deficit
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(537,167
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)
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(537,716
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)
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Total stockholders equity
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207,874
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215,704
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Total liabilities and stockholders equity
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$
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263,483
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$
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267,068
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See accompanying Notes to Consolidated Financial Statements.
3
LTX-CREDENCE CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(In thousands, except per share data)
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Three Months Ended
October 31,
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2012
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2011
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Net product sales
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$
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34,326
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$
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23,984
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Net service sales
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8,862
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9,768
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Net sales
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43,188
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33,752
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Cost of sales
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19,684
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15,715
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Gross profit
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23,504
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18,037
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Engineering and product development expenses
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12,392
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12,916
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Selling, general and administrative expenses
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10,006
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9,321
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Amortization of purchased intangible assets
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396
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791
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Restructuring
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231
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46
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Income (loss) from operations
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479
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(5,037
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)
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Other income (expense):
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Interest expense
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(50
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)
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(40
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Investment income
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261
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138
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Other income (expense), net
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(2
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152
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Income (loss) before provision for income taxes
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688
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(4,787
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)
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Provision for income taxes
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139
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122
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Net income (loss)
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$
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549
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$
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(4,909
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)
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Net income (loss) per share:
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Basic
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$
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0.01
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$
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(0.10
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)
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Diluted
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$
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0.01
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$
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(0.10
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)
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Weighted-average common and common equivalent shares used in computing net income (loss) per share:
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Basic
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48,303
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49,487
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Diluted
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48,711
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49,487
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Comprehensive income (loss):
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Net income (loss)
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$
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549
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$
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(4,909
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)
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Unrealized loss on marketable securities
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(3
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)
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(17
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)
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Comprehensive income (loss)
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$
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546
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$
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(4,926
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)
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See accompanying Notes to Consolidated Financial Statements.
4
LTX-CREDENCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
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Three Months Ended
October 31,
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2012
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2011
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CASH FLOWS FROM OPERATING ACTIVITIES:
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Net income (loss)
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$
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549
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$
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(4,909
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)
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Add (deduct) non-cash items:
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Stock-based compensation
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1,138
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1,337
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Depreciation and amortization
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2,296
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2,904
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Other
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399
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342
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Changes in operating assets and liabilities:
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Accounts receivable
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(2,876
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)
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17,853
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Inventories
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(4,115
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)
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(7,389
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)
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Prepaid expenses and other assets
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1,002
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611
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Accounts payable
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4,950
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(7,548
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)
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Accrued expenses
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(206
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)
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(4,892
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)
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Deferred revenue
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(1,089
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)
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(1,242
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)
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Net cash provided by (used in) operating activities
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2,048
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(2,933
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)
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CASH FLOWS FROM INVESTING ACTIVITIES:
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Proceeds from sales and maturities of available-for-sale securities
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13,300
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4,469
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Proceeds from sales and maturities of held-to-maturity securities
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2,800
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3,000
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Purchases of available-for-sale securities
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(9,836
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)
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(56,898
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)
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Purchases of held-to-maturity securities
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(2,445
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)
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(5,491
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)
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Purchases of property and equipment
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(1,038
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)
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(468
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)
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Net cash provided by (used in) investing activities
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2,781
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(55,388
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)
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CASH FLOWS FROM FINANCING ACTIVITIES:
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Repurchases of common stock
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(8,543
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)
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(4,839
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)
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Payments of tax withholdings for vested RSUs
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(599
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)
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(687
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)
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Net cash used in financing activities
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(9,142
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)
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(5,526
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)
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Effect of exchange rate changes on cash and cash equivalents
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157
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(508
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)
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Net decrease in cash and cash equivalents
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(4,156
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)
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(64,355
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)
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Cash and cash equivalents at beginning of period
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29,446
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123,198
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Cash and cash equivalents at end of period
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$
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25,290
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$
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58,843
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See accompanying Notes to Consolidated Financial Statements.
5
LTX-CREDENCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. THE COMPANY
LTX-Credence Corporation (LTX-Credence or the Company) provides market-focused, cost-optimized
automated test equipment (ATE) solutions for the semiconductor industry. We design, manufacture, market and service ATE solutions that address the broad, divergent test requirements of the wireless, computing, automotive and digital consumer market
segments of the semiconductor industry. Semiconductor designers and manufacturers worldwide use our equipment to test their devices during the manufacturing process. After testing, these devices are incorporated in a wide range of products,
including personal and tablet computers, mobile internet equipment such as wireless access points and interfaces, broadband access products such as cable modems and set top boxes, personal communication and entertainment products such as mobile
phones and personal digital music players, consumer products such as televisions, videogame systems and digital cameras, automobile electronics and power management devises used in portable and automotive electronics. We also sell hardware and
software support and maintenance services for our test systems.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared pursuant to the Rules of the Securities and Exchange Commission for quarterly reports on Form 10-Q and, accordingly, these
footnotes condense or omit information and disclosures which substantially duplicate information provided in our latest audited financial statements. These unaudited consolidated financial statements should be read in conjunction with the financial
statements and notes included in our Annual Report on Form 10-K for the year ended July 31, 2012. In the opinion of management, these unaudited consolidated financial statements reflect all adjustments, including normal recurring accruals,
necessary for a fair presentation of the results for the interim periods presented. The operating results for the three months ended October 31, 2012 are not necessarily indicative of future trends or the Companys results of operations
for the entire fiscal year ending July 31, 2013.
These unaudited consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries. All significant inter-company transactions and balances have been eliminated in consolidation.
Foreign Currency Remeasurement
The financial statements of the
Companys foreign subsidiaries are remeasured in accordance with Topic 830,
Foreign Currency Matters,
to the Financial Accounting Standards Board Codification (FASB ASC). The Companys functional currency is the U.S. dollar.
Accordingly, the Companys foreign subsidiaries remeasure monetary assets and liabilities at month-end exchange rates while long-term non-monetary items are remeasured at historical rates. Income and expense accounts are remeasured at the
average exchange rates in effect during the month. Net gains or losses resulting from foreign currency remeasurement and transaction gains or losses are included in the consolidated results of operations as a component of other income, net, and were
not significant for the three months ended October 31, 2012 or 2011.
Revenue Recognition
The Company recognizes revenue based on guidance provided in Topic 605,
Revenue Recognition
to the FASB ASC (ASC 605).
The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the sellers price is fixed or determinable and collectability is reasonably assured.
Revenue related to equipment sales is recognized when: (a) the Company has a written sales agreement; (b) delivery has
occurred; (c) the price is fixed or determinable; (d) collectability is reasonably assured; (e) the product delivered is standard product with historically demonstrated acceptance; and (f) there is no unique customer acceptance
provision or payment tied to acceptance or an undelivered element significant to the functionality of the system. Generally, payment terms are time based after product shipment. When sales to a customer involve multiple elements, revenue is
recognized on the delivered element provided that (1) the undelivered element is a proven technology, (2) there is a history of acceptance on the product with the customer, (3) the undelivered element is not essential to the
customers application, (4) the delivered item(s) has value to the customer on a stand-alone basis, and (5) if the arrangement included a general right of return relative to the delivered item(s), delivery or performance of the
undelivered item(s) is considered probable and substantially in the control of the Company. The arrangement consideration, or the amount of revenue to be recognized on each separate unit of accounting, is allocated at the inception of the
arrangement to all deliverables on the basis of their relative selling price based on the provisions of Accounting Standards Update (ASU) 2009-13, Multiple Deliverable Revenue Arrangements (ASU 2009-13).
Revenue related to spare parts is recognized on shipment.
Revenue related to maintenance and service contracts is recognized ratably over the duration of the contracts.
6
Engineering and Product Development Costs
The Company expenses all engineering, research and development costs as incurred. Expenses subject to capitalization in accordance with
Topic 985,
Software, to
the FASB ASC relating to certain software development costs, were insignificant for the three months ended October 31, 2012 and 2011.
Shipping and Handling Costs
Shipping and handling costs are
included in cost of sales in the consolidated statements of operations. Shipping and handling costs were insignificant for the three months ended October 31, 2012 and 2011.
Income Taxes
Income tax expense relates principally to operating results of foreign entities in jurisdictions primarily in Asia and Europe.
As of October 31, 2012 and July 31, 2012, the total liability for unrecognized income tax benefits was $8.0 million for both periods (of which $4.4 million, if recognized, would impact the
Companys income tax rate). The Company recognizes interest and penalties related to uncertain tax positions as a component of income tax expense. As of October 31, 2012 and July 31, 2012, the Company had accrued approximately $1.0
million for potential payment of accrued interest and penalties.
The Company conducts business globally and, as a result, the
Company and its subsidiaries or branches file income tax returns in the U.S. federal jurisdiction and various U.S. state and foreign jurisdictions. In the normal course of business the Company is subject to examination by taxing authorities
throughout the world, including such major jurisdictions as the United States, Singapore, France and Germany. With few exceptions, the Company is no longer subject to U.S. federal, state and local or non-U.S. income tax examinations for years prior
to 1998.
As a result of completion of the merger with Credence Systems Corporation (Credence) on August 29,
2008, a greater than 50% cumulative ownership change in both entities triggered a significant limitation in net operating loss carryforward utilization. The Companys ability to use operating and acquired net operating loss and credit
carryforwards is subject to annual limitation as defined in sections 382 and 383 of the Internal Revenue Code. The Company currently estimates that the annual limitation on its use of net operating losses generated through August 29, 2008 will
be approximately $10.1 million which, based on currently enacted federal carryforward periods, limits the amount of net operating losses able to be used to approximately $202.0 million. The Company will continue to assess the realizability of these
carryforwards in subsequent periods.
Accounting for Stock-Based Compensation
The Company maintains and has made awards that remain outstanding under various stock-based compensation plans, including the
Companys 2010 Stock Plan, as amended on November 26, 2010 (2010 Plan), the Companys 2004 Stock Plan, the Companys 2001 Stock Plan, the Companys 1999 Stock Plan, and the Companys 1993 Stock Plan. In
addition, the Company assumed and has made awards that remain outstanding under the StepTech, Inc. Stock Option Plan as part of its acquisition of StepTech, Inc. (StepTech) in 2003 and the Credence 2005 Stock Incentive Plan in connection
with its acquisition of Credence. The Company can only grant new awards under the 2010 Plan.
The Company recognizes
stock-based compensation expense for its equity awards in accordance with the provisions of Topic 718,
Compensation Stock Compensation
to the FASB ASC (ASC 718). Under ASC 718, the Company is required to recognize as
expense the estimated fair value as of the grant date of all share-based payments to employees. In accordance with this standard, the Company has elected to recognize the compensation cost of each service based award on a straight-line basis over
the vesting period of such award. The Company recorded stock-based compensation expense of approximately $1.1 million and $1.3 million for the three months ended October 31, 2012 and 2011, respectively, in connection with its share-based
payments.
The Company granted 793,900 and 737,100 restricted stock unit awards during the three months ended October 31,
2012 and 2011, respectively, all of which are service-based and vest over four years, 25% per year.
Product
Warranty Costs
The Companys products are sold with warranty provisions that require it to remedy deficiencies in
quality or performance of products over a specified period of time at no cost to its customers. The Company generally offers a warranty for all of its products, the standard terms and conditions of which are based on the product sold and the
customer. For all tester products sold, the Company accrues a liability for the estimated cost of standard warranty at the time of tester shipment. Factors that impact the expected product warranty liability include the number of installed testers,
historical and anticipated product failure rates, material usage and service labor costs. The Company periodically assesses the adequacy of its recorded product warranty liability and adjusts it as necessary.
7
The following table shows the change in the product warranty liability, as required by Topic
460,
Guarantees
, to the FASB ASC for the three months ended October 31, 2012 and 2011:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
October 31,
|
|
Product Warranty Activity
|
|
2012
|
|
|
2011
|
|
|
|
(in thousands)
|
|
Balance at beginning of period
|
|
$
|
1,672
|
|
|
$
|
2,281
|
|
Warranty expenditures for current period
|
|
|
(966
|
)
|
|
|
(1,069
|
)
|
Changes in liability related to pre-existing warranties
|
|
|
|
|
|
|
20
|
|
Provision for warranty costs in the period
|
|
|
1,011
|
|
|
|
501
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
1,717
|
|
|
$
|
1,733
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
Basic net income (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average
number of common shares outstanding for the period. Diluted net income (loss) per share reflects the maximum dilution that would have resulted from the assumed exercise and share repurchase related to dilutive stock options and restricted stock
units and is computed by dividing net income (loss) by the weighted average number of common shares and the dilutive effect of all securities outstanding. Reconciliation between basic and diluted earnings per share is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
October 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(in thousands, except
per share data)
|
|
Net income (loss)
|
|
$
|
549
|
|
|
$
|
(4,909
|
)
|
Basic EPS
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
48,303
|
|
|
|
49,487
|
|
Basic EPS
|
|
$
|
0.01
|
|
|
$
|
(0.10
|
)
|
Diluted EPS
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
48,303
|
|
|
|
49,487
|
|
Plus: impact of stock options and unvested restricted stock units
|
|
|
408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common and common equivalent shares outstanding
|
|
|
48,711
|
|
|
|
49,487
|
|
Diluted EPS
|
|
$
|
0.01
|
|
|
$
|
(0.10
|
)
|
For the three months ended October 31, 2012 and 2011, options to purchase approximately
0.9 million shares and 1.4 million shares, respectively, of common stock were not included in the calculation of diluted net loss per share because their inclusion would have been anti-dilutive. These options could be dilutive in the
future. The calculation of diluted net income (loss) per share also excludes 1.8 million RSUs for the period ended October 31, 2011, in accordance with the contingently issuable shares guidance of Topic 260,
Earnings Per Share
, to
the FASB ASC.
Cash and Cash Equivalents and Marketable Securities
The Company considers all highly liquid investments that are readily convertible to cash and that have original maturity dates of three
months or less to be cash equivalents. Cash and cash equivalents consist primarily of operating cash. Marketable securities consist primarily of debt securities that are classified as available-for-sale and held-to-maturity, in accordance with Topic
320,
Investments Debt and Equity Securities
, to the FASB ASC. The Company also holds certain investments in commercial paper that it considers to be held-to-maturity, based on their maturity dates. Securities available-for-sale include
corporate and governmental obligations with various contractual maturity dates some of which are greater than one year. The Company considers the securities to be liquid and convertible to cash within 30 days. The Company has the ability and intent
to liquidate any security that the Company holds to fund operations over the next twelve months if necessary and as such has classified these securities as short-term. Governmental obligations include U.S. Government, State, Municipal and Federal
Agency securities. The Company has an overnight sweep investment arrangement with its bank for certain accounts to allow the Company to enter into diversified overnight investments via a money market mutual fund which generally provides a higher
investment yield than a regular operating account.
8
Gross unrealized gains and losses for the three months ended October 31, 2012 and 2011
were not significant. Unrealized gains and losses are reflected as a separate component of comprehensive income (loss) and are included in Stockholders Equity. Realized gains, losses and interest are included in investment income in the
Consolidated Statements of Comprehensive Income (Loss). The Company analyzes its securities portfolio for impairment on a quarterly basis or upon occurrence of a significant change in circumstances. There were no other than temporary impairment
losses recorded in the three months ended October 31, 2012 or 2011.
Inventories
Inventories are stated at the lower of cost or market, determined on the first-in, first-out (FIFO) method, and include
materials, labor and manufacturing overhead. The components of inventories are as follows:
|
|
|
|
|
|
|
|
|
|
|
October 31,
2012
|
|
|
July 31,
2012
|
|
|
|
(in thousands)
|
|
Purchased components and parts
|
|
$
|
16,973
|
|
|
$
|
13,811
|
|
Units-in-progress
|
|
|
3,478
|
|
|
|
3,045
|
|
Finished units
|
|
|
11,026
|
|
|
|
11,994
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
$
|
31,477
|
|
|
$
|
28,850
|
|
|
|
|
|
|
|
|
|
|
The Company establishes inventory reserves when conditions exist that indicate inventory may be in excess
of anticipated demand or is obsolete based upon assumptions about future demand for the Companys products or market conditions. The Company regularly evaluates the ability to realize the value of inventory based on a combination of factors
including forecasted sales or usage, estimated product end of life dates, estimated current and future market value and new product introductions.
Purchasing and usage alternatives are also explored to mitigate inventory exposure. When recorded, reserves are intended to reduce the carrying value of inventory to its net realizable value. As of
October 31, 2012 and July 31, 2012, inventory is stated net of inventory reserves of $42.2 million and $42.4 million, respectively. If actual demand for products deteriorates or market conditions are less favorable than projected,
additional inventory reserves may be required. Such reserves are not reversed until the related inventory is sold or otherwise disposed of. The Company had sales of $0.3 million of previously reserved inventory for the three months ended
October 31, 2012, which represents the gross cash received from the customer. The Company released reserves of $0.1 million for the three months ended October 31, 2012, related to these sales. The Company had sales of $4.2 million of
previously reserved inventory for the three months ended October 31, 2011, which represents the gross cash received from the customer. The Company released reserves of $0.9 million for the three months ended October 31, 2011, related to
these sales.
Property and Equipment
Property and equipment acquired is recorded at cost. The Company provides for depreciation and amortization on the straight-line method. Charges are made to operating expenses in amounts that are
sufficient to amortize the cost of the assets over their estimated useful lives. Equipment spares used for service and internally manufactured test systems used for testing components and engineering projects are recorded at cost and depreciated
over three to seven years. Repair and maintenance costs that do not extend the lives of property and equipment are expensed as incurred. Property and equipment are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
2012
|
|
|
July 31,
2012
|
|
|
Estimated
Useful Lives
|
|
|
(in thousands)
|
|
|
(in years)
|
Equipment spares
|
|
$
|
52,993
|
|
|
$
|
57,841
|
|
|
5 or 7
|
Machinery, equipment and internally manufactured systems
|
|
|
39,341
|
|
|
|
38,067
|
|
|
3-7
|
Office furniture and equipment
|
|
|
3,882
|
|
|
|
3,885
|
|
|
3-7
|
Purchased software
|
|
|
2,869
|
|
|
|
2,870
|
|
|
3
|
Land
|
|
|
2,524
|
|
|
|
2,524
|
|
|
|
Leasehold improvements
|
|
|
6,217
|
|
|
|
6,187
|
|
|
Term of lease or
useful
life, not
to exceed 10 years
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, gross
|
|
|
107,826
|
|
|
|
111,374
|
|
|
|
Less: accumulated depreciation and amortization
|
|
|
(89,590
|
)
|
|
|
(93,145
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
18,236
|
|
|
$
|
18,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
Impairment of Long-Lived Assets Other Than Goodwill
On an on-going basis, management reviews the value and period of amortization or depreciation of long-lived assets. In accordance with
Topic 360,
Property, Plant and Equipment
, to the FASB ASC, the Company reviews whether impairment losses exist on long-lived assets other than goodwill when indicators of impairment are present. During this review, the Company assesses future
cash flows and re-evaluates the significant assumptions used in determining the original cost of long-lived assets other than goodwill. Although the assumptions may vary, they generally include revenue growth, operating results, cash flows and other
indicators of value. Management then determines whether there has been a permanent impairment of the value of long-lived assets based upon events or circumstances that have occurred since acquisition. The extent of the impairment amount recognized
is based upon a determination of the impaired assets fair value compared to its carrying value. As of October 31, 2012 and July 31, 2012 there were no indicators that required the Company to conduct a recoverability test as of those
dates.
Goodwill and Other Intangibles
In accordance with Topic 350,
Intangibles Goodwill and Other,
to the FASB ASC (ASC 350), the Company is required to review goodwill by reporting unit for impairment at least
annually or more often if there are indicators of impairment present. The Company has determined its entire business represents one reporting unit. Historically, the Company has performed its annual impairment analysis during the fourth quarter of
each year. The provisions of ASC 350 require that a two-step impairment test be performed for goodwill. In the first step, the Company compares the implied fair value of each reporting unit to which goodwill has been allocated to its carrying value.
If the implied fair value of the reporting unit exceeds the carrying value of the net assets assigned to that reporting unit, goodwill is considered not impaired and the Company is not required to perform further testing. If the carrying value of
the net assets assigned to the reporting unit exceeds the implied fair value of the reporting unit, then the Company must perform the second step of the impairment test in order to determine the implied fair value of the reporting units
goodwill. If the carrying value of a reporting units goodwill exceeds its implied fair value, then the Company would record an impairment loss equal to the difference. As of October 31, 2012 and July 31, 2012, the implied fair value
of the goodwill of the Companys reporting unit exceeded the Companys carrying value of its net assets and therefore no impairment existed as of those dates.
The Companys goodwill consists of the following:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
October 31,
2012
|
|
|
July 31,
2012
|
|
|
|
(in thousands)
|
|
Merger with Credence Systems Corporation (August 29, 2008)
|
|
$
|
28,662
|
|
|
$
|
28,662
|
|
Acquisition with Step Tech Inc. (June 10, 2003)
|
|
|
14,368
|
|
|
|
14,368
|
|
|
|
|
|
|
|
|
|
|
Total goodwill
|
|
$
|
43,030
|
|
|
$
|
43,030
|
|
|
|
|
|
|
|
|
|
|
There was no change in the goodwill balance for the three months ended October 31, 2012 or 2011.
Intangible assets, all of which relate to the Credence merger, consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of October 31, 2012
|
|
Description
|
|
Estimated
Useful Life
|
|
|
Gross Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net Amount
|
|
|
|
(in years)
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
|
|
|
|
|
Trade names
|
|
|
2.0
|
|
|
$
|
300
|
|
|
$
|
300
|
|
|
$
|
|
|
Distributor relationships
|
|
|
2.0
|
|
|
|
2,800
|
|
|
|
2,800
|
|
|
|
|
|
Key customer relationships
|
|
|
3.0
|
|
|
|
8,500
|
|
|
|
8,500
|
|
|
|
|
|
Developed technologyASL
|
|
|
6.0
|
|
|
|
16,000
|
|
|
|
15,159
|
|
|
|
841
|
|
Developed technologyDiamond
|
|
|
9.0
|
|
|
|
9,400
|
|
|
|
8,501
|
|
|
|
899
|
|
Maintenance agreements
|
|
|
7.0
|
|
|
|
1,900
|
|
|
|
883
|
|
|
|
1,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
|
|
|
|
$
|
38,900
|
|
|
$
|
36,143
|
|
|
$
|
2,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of July 31, 2012
|
|
Description
|
|
Estimated
Useful Life
|
|
|
Gross Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net Amount
|
|
|
|
(in years)
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
|
|
|
|
|
Trade names
|
|
|
2.0
|
|
|
$
|
300
|
|
|
$
|
300
|
|
|
$
|
|
|
Distributor relationships
|
|
|
2.0
|
|
|
|
2,800
|
|
|
|
2,800
|
|
|
|
|
|
Key customer relationships
|
|
|
3.0
|
|
|
|
8,500
|
|
|
|
8,500
|
|
|
|
|
|
Developed technologyASL
|
|
|
6.0
|
|
|
|
16,000
|
|
|
|
14,965
|
|
|
|
1,035
|
|
Developed technologyDiamond
|
|
|
9.0
|
|
|
|
9,400
|
|
|
|
8,367
|
|
|
|
1,033
|
|
Maintenance agreements
|
|
|
7.0
|
|
|
|
1,900
|
|
|
|
815
|
|
|
|
1,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
|
|
|
|
$
|
38,900
|
|
|
$
|
35,747
|
|
|
$
|
3,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
Intangible assets are amortized based upon the pattern of estimated economic use over their
estimated useful lives. The weighted average estimated remaining useful life over which these intangible assets will be amortized is 2.0 years.
The Company expects amortization for these intangible assets to be:
|
|
|
|
|
For the fiscal year ending July 31,
|
|
Amount
|
|
|
|
(in thousands)
|
|
Remainder of 2013
|
|
$
|
1,187
|
|
2014
|
|
|
769
|
|
2015
|
|
|
396
|
|
2016
|
|
|
320
|
|
2017
|
|
|
85
|
|
|
|
|
|
|
Total
|
|
$
|
2,757
|
|
|
|
|
|
|
3. SEGMENT REPORTING
In accordance with the provisions of Topic 280,
Segment Reporting
to the FASB ASC, the Company operates as one
reporting segment, that is, the design, manufacture and marketing of automated test equipment for the semiconductor industry that is used to test system-on-a-chip, digital, analog and mixed signal integrated circuits.
The Companys net sales to geographic area for the three months ended October 31, 2012 and 2011, along with its long-lived
assets at October 31, 2012 and July 31, 2012, are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
October 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(in thousands)
|
|
Net sales:
|
|
|
|
|
|
|
|
|
Taiwan
|
|
$
|
12,207
|
|
|
$
|
6,454
|
|
Philippines
|
|
|
7,614
|
|
|
|
4,028
|
|
United States
|
|
|
7,065
|
|
|
|
9,406
|
|
Malaysia
|
|
|
4,382
|
|
|
|
1,737
|
|
Hong Kong/China
|
|
|
3,648
|
|
|
|
1,567
|
|
Singapore
|
|
|
2,726
|
|
|
|
2,419
|
|
Germany
|
|
|
1,561
|
|
|
|
2,896
|
|
All other countries
|
|
|
3,985
|
|
|
|
5,245
|
|
|
|
|
|
|
|
|
|
|
Total Net Sales
|
|
$
|
43,188
|
|
|
$
|
33,752
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets consist of property and equipment:
|
|
|
|
|
|
|
|
|
|
|
October 31,
2012
|
|
|
July 31,
2012
|
|
|
|
(in thousands)
|
|
Long-lived assets:
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
16,435
|
|
|
$
|
16,386
|
|
Japan
|
|
|
530
|
|
|
|
564
|
|
Singapore
|
|
|
294
|
|
|
|
312
|
|
Philippines
|
|
|
133
|
|
|
|
166
|
|
All other countries
|
|
|
844
|
|
|
|
801
|
|
|
|
|
|
|
|
|
|
|
Total long-lived assets
|
|
$
|
18,236
|
|
|
$
|
18,229
|
|
|
|
|
|
|
|
|
|
|
11
Transfer prices on products sold to foreign subsidiaries are intended to produce profit
margins that correspond to the subsidiarys sales and support efforts.
4. RESTRUCTURING
In accordance with the provisions of Topic 420,
Exit or Disposal Cost Obligation
, to the FASB ASC, the Company
recognizes certain costs associated with headcount reductions, office vacancies and other costs to move or relocate operations or employees as restructuring in the period in which the actions are initiated and approved by management or the
obligations are incurred, as applicable. The following table sets forth the Companys restructuring accrual activity for the three months ended October 31, 2012 and October 31, 2011 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
Costs
|
|
|
Facility
Leases
|
|
|
Total
|
|
Balance July 31, 2012
|
|
$
|
364
|
|
|
$
|
3,704
|
|
|
$
|
4,068
|
|
Additions to expense
|
|
|
231
|
|
|
|
|
|
|
|
231
|
|
Accretion
|
|
|
|
|
|
|
50
|
|
|
|
50
|
|
Stock based compensation
|
|
|
(48
|
)
|
|
|
|
|
|
|
(48
|
)
|
Cash paid
|
|
|
(195
|
)
|
|
|
(399
|
)
|
|
|
(594
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance October 31, 2012
|
|
$
|
352
|
|
|
$
|
3,355
|
|
|
$
|
3,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in the Companys Consolidated Balance Sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
$
|
352
|
|
|
$
|
982
|
|
|
$
|
1,334
|
|
Other long-term liabilities
|
|
|
|
|
|
$
|
2,373
|
|
|
$
|
2,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
Costs
|
|
|
Facility
Leases
|
|
|
Total
|
|
Balance July 31, 2011
|
|
$
|
6
|
|
|
$
|
4,761
|
|
|
$
|
4,767
|
|
Additions to expense
|
|
|
|
|
|
|
46
|
|
|
|
46
|
|
Accretion
|
|
|
|
|
|
|
40
|
|
|
|
40
|
|
Cash paid
|
|
|
(6
|
)
|
|
|
(373
|
)
|
|
|
(379
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance October 31, 2011
|
|
$
|
|
|
|
$
|
4,474
|
|
|
$
|
4,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in the Companys Consolidated Balance Sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
$
|
|
|
|
$
|
1,309
|
|
|
$
|
1,309
|
|
Other long-term liabilities
|
|
|
|
|
|
$
|
3,165
|
|
|
$
|
3,165
|
|
During the quarter ending October 31, 2012, the Company announced changes to its service
organization to move certain board repair functions and other roles from North America locations to subsidiary offices in Singapore and the Philippines. As a result of this decision, certain headcount reductions were made, and the Company recorded
the estimated severance and post-employment obligations related to those headcount reductions during the quarter, the impact of which was $0.2 million.
5. COMMITMENTS AND CONTINGENCIES
From time to time, the Company is subject to certain legal proceedings and other contingencies, the outcomes of which
are subject to significant uncertainty. The Company accrues for estimated losses if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. The Company uses judgment and
evaluates, with the assistance of legal counsel, whether a loss contingency arising from litigation should be disclosed or recorded. The outcome of legal proceedings and other contingencies is inherently uncertain and often difficult to estimate.
Accordingly, if the outcome of legal proceedings and other contingencies is different than is anticipated by the Company, the Company would record the difference between any previously recorded amount and the full amount at which the matter was
resolved, in earnings in the period resolved, which could negatively impact the Companys results of operations and financial position for the period.
We are a defendant in a litigation matter incidental to the business that is related to customer expectations of test system performance for product that was shipped in 2006 by Credence Systems
Corporation. We do not believe the plaintiffs claims have merit and we are vigorously defending our position. An estimate of any potential loss cannot be made, we do not believe a loss is probable, and accordingly we have not accrued any
amounts related to this matter.
12
In the ordinary course of business, the Company agrees from time to time to indemnify
certain customers against certain third party claims for property damage, bodily injury, personal injury or intellectual property infringement arising from the operation or use of the Companys products. Also, from time to time in agreements
with suppliers, licensors and other business partners, the Company agrees to indemnify these partners against certain liabilities arising out of the sale or use of the Companys products. The maximum potential amount of future payments the
Company could be required to make under these indemnification obligations in the aggregate is theoretically unlimited; however, the Company has general and umbrella insurance policies that enable it to recover a portion of any amounts paid and many
of its agreements contain a limit on the maximum amount, as well as limits on the types of damages recoverable. Based on the Companys experience with such indemnification claims, it believes the estimated fair value of these obligations is
minimal. Accordingly, the Company has no liabilities recorded for these agreements as of October 31, 2012 or July 31, 2012.
Subject to certain limitations, the Company indemnifies its current and former officers and directors in certain circumstances in connection with their services as directors and officers of the Company.
Although the maximum potential amount of future payments the Company could be required to make under these agreements is theoretically unlimited, as there were no known or pending claims, the Company has not accrued a liability for these agreements
as of October 31, 2012 or July 31, 2012.
The Company had approximately $14.4 million and $15.1 million of
non-cancelable inventory commitments with an outsourced supplier as of October 31, 2012 and July 31, 2012, respectively. The Company expects to consume the inventory through normal operating activity.
The Company has operating lease commitments for certain facilities and equipment that expire at various dates through 2021. Minimum lease
payment obligations under non-cancelable leases are as follows:
Lease Commitments:
|
|
|
|
|
For the fiscal year ending July 31,
|
|
Amount
|
|
|
|
(in thousands)
|
|
Remainder of 2013
|
|
$
|
4,100
|
|
2014
|
|
|
5,194
|
|
2015
|
|
|
4,439
|
|
2016
|
|
|
4,029
|
|
2017
|
|
|
2,279
|
|
Thereafter
|
|
|
4,469
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
24,510
|
|
|
|
|
|
|
6. ACCRUED EXPENSES
Other accrued expenses consisted of the following at October 31, 2012 and July 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
October 31,
2012
|
|
|
July 31,
2012
|
|
Accrued compensation
|
|
$
|
7,760
|
|
|
$
|
7,059
|
|
Accrued vendor liability
|
|
|
2,314
|
|
|
|
2,373
|
|
Warranty reserve
|
|
|
1,717
|
|
|
|
1,672
|
|
Accrued restructuring
|
|
|
1,334
|
|
|
|
1,502
|
|
Accrued taxes
|
|
|
1,127
|
|
|
|
931
|
|
Accrued commissions
|
|
|
1,385
|
|
|
|
1,301
|
|
Other accrued expenses
|
|
|
4,588
|
|
|
|
4,898
|
|
|
|
|
|
|
|
|
|
|
Total accrued expenses
|
|
$
|
20,225
|
|
|
$
|
19,736
|
|
|
|
|
|
|
|
|
|
|
7. FAIR VALUE MEASUREMENTS
The Company determines its fair value measurements for assets and liabilities based upon the provisions of Topic 820,
Fair Value Measurements and Disclosures
to the FASB ASC.
The Company holds short-term money market investments and
certain other financial instruments which are carried at fair value. The Company determines fair value based upon quoted prices, when available, or through the use of alternative approaches when market quotes are not readily accessible or available.
13
Valuation techniques for fair value are based upon observable and unobservable inputs.
Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Companys best estimate, considering all relevant information. These valuation techniques involve some level of management estimation
and judgment. The valuation process to determine fair value also includes making appropriate adjustments to the valuation model outputs to consider risk factors.
The fair value hierarchy of the Companys inputs used in the determination of fair value for assets and liabilities during the current period consists of three levels. Level 1 inputs are composed of
unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. Level 2 inputs include quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets
that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means. Level 3 inputs incorporate the
Companys own best estimate of what market participants would use in pricing the asset or liability at the measurement date where consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the
model. If inputs used to measure an asset or liability fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the asset or liability. The
Companys assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
The following table presents financial assets and liabilities measured at fair value and their related valuation inputs as of
October 31, 2012 and as of July 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
(in
thousands)
|
|
October 31, 2012
|
|
Total Fair Value of Asset
or Liability
|
|
|
Quoted Prices in Active
Markets for Identical
Assets (Level 1)
|
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable Inputs
(Level 3)
|
|
Cash and cash equivalents (1)
|
|
$
|
25,290
|
|
|
$
|
24,925
|
|
|
$
|
365
|
|
|
$
|
|
|
Marketable securities (2)
|
|
|
100,093
|
|
|
|
8,851
|
|
|
|
91,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
125,383
|
|
|
$
|
33,776
|
|
|
$
|
91,607
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2012
|
|
Total Fair Value of Asset
or Liability
|
|
|
Quoted Prices in Active
Markets for Identical
Assets (Level 1)
|
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable Inputs
(Level 3)
|
|
Cash and cash equivalents (1)
|
|
$
|
29,446
|
|
|
$
|
29,081
|
|
|
$
|
365
|
|
|
$
|
|
|
Marketable securities (2)
|
|
|
104,932
|
|
|
|
7,226
|
|
|
|
97,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
134,378
|
|
|
$
|
36,307
|
|
|
$
|
98,071
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Cash and cash equivalents as of October 31, 2012 and July 31, 2012 includes cash held in operating accounts of approximately $20.1 million and $28.6 million,
respectively, that are not subject to fair value measurements. For purposes of this disclosure they are included as having Level 1 inputs.
|
(2)
|
Marketable securities as of October 31, 2012 and July 31, 2012 excludes approximately $3.5 million and $2.8 million, respectively, of commercial paper which
is held to maturity and not subject to fair value measurements.
|
The carrying value of accounts receivable,
prepaid expenses and accounts payable approximate fair value due to their short-term nature.
There were no assets or
liabilities recorded at fair value on a non-recurring basis requiring valuation disclosures as of October 31, 2012 or as of July 31, 2012.
8. STOCKHOLDERS EQUITY
Stock Repurchases
On September 15, 2011, the Company announced that its Board of Directors had authorized a stock repurchase program for up to $25 million of shares of the Companys common stock. Under this
program, the Company is authorized to repurchase shares of its common stock from time to time in open market transactions. The Company will determine the timing and amount of the transactions based on its evaluation of market conditions and other
factors. The repurchase program may be suspended or discontinued at any time and has no expiration date.
14
During the quarter ending October 31, 2012 the Company repurchased 1,518,043 shares of
common stock for a total purchase price of $8.5 million. Cumulatively, as of October 31, 2012, the Company has repurchased 3,170,437 shares of common stock for a total purchase price of $18.1 million.
2010 Plan
On December 7, 2010, the Companys stockholders approved the Companys 2010 Stock Plan (2010 Plan). Under the
terms of the 2010 Plan, the Company may issue up to 4,800,000 shares of the Companys common stock (subject to adjustment in the event of stock splits and other similar events) pursuant to awards granted under the 2010 Plan. In addition, any
unissued shares of the Companys common stock that were available for issuance but not subject to grants under the Credence 2005 Plan, as amended and restated, and the LTX Corporation 2004 Plan, which are referred to collectively as the Prior
Plans, and any shares of the Companys common stock that were subject to grants made under the Prior Plans but were not issued as a result of termination, surrender, cancellation or forfeiture of outstanding awards will be available for grant
under the 2010 Plan. All future grants of equity awards will be made out of the 2010 Plan and no additional grants will be made under the Prior Plans.
9. RECENT ACCOUNTING PROUNOUNCEMENTS
In July 2012, the FASB issued ASU No. 2012-02,
Intangibles- Goodwill and Other.
This ASU intends to reduce
the cost and complexity of performing an impairment test for indefinite-lived intangible assets by simplifying how an entity tests those assets for impairment and to improve consistency in impairment testing guidance among long-lived asset
categories. The amendments are effective for annual and interim impairment tests performance for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a
date before July 27, 2012, if a public entitys financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. The Company is currently
evaluating the impact of adoption of this amended standard.
10. SUBSEQUENT EVENTS
Since the balance sheet date, the Company has repurchased 124,229 shares of common stock for approximately $0.6
million. Cumulatively, as of the date of this filing, the Company has repurchased approximately 3.3 million shares for a total purchase price of $18.7 million under its board-authorized stock repurchase program.
Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read together with the Consolidated Financial Statements and Notes thereto appearing in
Part I, Item 1 in this quarterly report on Form 10-Q. Certain statements in Managements Discussion and Analysis of Financial Condition and Results of Operations are forward-looking statements that involve risks and
uncertainties. Words such as may, will, could, should, would, anticipates, expects, intends, plans, predicts, projects, believes, seeks, estimates and similar expressions identify such forward-looking statements. The forward-looking statements
contained herein are based on current expectations and entail various risks and uncertainties that could cause actual results to differ materially and adversely from those expressed in such forward-looking statements. Factors that might cause such a
difference include, among other things, those set forth under Risk Factors in the Companys Annual Report filed on Form 10-K with the SEC on October 15, 2012 and those appearing elsewhere in this quarterly report on Form 10-Q.
Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof and reflect managements estimates and analysis only as of the date hereof. We assume no obligations to update these
forward-looking statements to reflect actual results or changes in factors or assumptions affecting forward-looking statements.
15
Overview
We provide market-focused, cost-optimized automated test equipment (ATE) solutions for the semiconductor industry. We design, manufacture,
market and service ATE solutions that address the broad, divergent test requirements of the wireless, computing, automotive and digital consumer markets of the semiconductor industry. Semiconductor designers and manufacturers worldwide use our
equipment to test their devices during the manufacturing process. After testing, these devices are incorporated in a wide range of products, including personal and tablet computers, mobile internet equipment such as wireless access points and
interfaces, broadband access products such as cable modems and set top boxes, personal communication and entertainment products such as mobile phones and personal digital music players, consumer products such as televisions, videogame systems and
digital cameras, automobile electronics and power management devices used in portable and automotive electronics. We also sell hardware and software support and maintenance services for our test systems.
We focus our marketing and sales efforts on integrated device manufacturers (IDMs), outsourced assembly and test providers, (OSATs),
which perform assembly and testing services for the semiconductor industry, and fabless companies, which design integrated circuits but have no manufacturing capability. We offer our customers a comprehensive portfolio of test systems and provide a
global network of strategically deployed applications and support resources.
Industry Conditions and Outlook
We sell capital equipment and services to companies that design, manufacture, assemble or test semiconductor devices.
The semiconductor industry is highly cyclical, causing a cyclical impact on our financial results. As a capital equipment provider, our revenue is driven by the capital expenditure budgets and spending patterns of our customers, who often delay or
accelerate purchases in reaction to variations in their business. The level of capital expenditures by these semiconductor companies depends on the current and anticipated market demand for semiconductor devices and the products that incorporate
them. Therefore, demand for our semiconductor test equipment is dependent on growth in the semiconductor industry. In particular, three primary characteristics of the semiconductor industry drive the demand for semiconductor test equipment:
|
|
|
increases in unit production of semiconductor devices;
|
|
|
|
increases in the complexity of semiconductor devices used in electronic products; and
|
|
|
|
the emergence of next generation device technologies.
|
The following graph shows the cyclicality in semiconductor test equipment orders and shipments from fiscal 1998 through fiscal 2012 (using the three month moving average), as calculated by SEMI, an
industry trade organization:
Consistent with our business strategy, we invest significant amounts in engineering and product
development to design and enhance our tester platforms throughout the semiconductor business cycle. During periods of industry weakness, we implement cost
16
reduction measures, such as the strict oversight and reduction in discretionary travel and other variable overhead expenses. We believe that these reductions in operating costs preserve our
ability to fund critical engineering and product development efforts and continue to provide our customers with the levels of responsiveness and service they require. We believe that our competitive advantage in the semiconductor test industry is
primarily driven by the ability of our combined tester platforms to meet or exceed the cost and technical specifications required for the testing of advanced semiconductor devices. Our current investment in engineering and product development is
focused on enhancements and additions to our product offerings with new options and instruments designed for specific market segments. We believe this will continue to differentiate our tester platforms from the product offerings of our competitors.
We have transitioned the manufacture of certain components and subassemblies to contract manufacturers, thereby reducing our
fixed manufacturing costs associated with direct labor and overhead. We believe that transforming product manufacturing costs into variable costs allows us to improve our performance in the highly cyclical semiconductor equipment industry.
We are exposed to the risks associated with the volatility of the U.S. and global economies. The lack of visibility regarding
whether or when there will be sustained growth periods for the sale of electronic goods and information technology equipment, and uncertainty regarding the amount of sales, underscores the need for caution in predicting growth in the semiconductor
test equipment industry in general and in our revenues and profits specifically. Slow or negative growth in the U.S. and global economies may materially and adversely affect our business, financial condition and results of operations. Our results of
operations would also be adversely affected if we were to experience lower than anticipated order levels, cancellations of orders in backlog, extended customer delivery requirements or pricing pressure as a result of a slowdown. At lower levels of
revenue, there is a higher likelihood that these types of changes in our customers requirements would adversely affect our results of operations because in any particular quarter a limited number of transactions accounts for an even greater
portion of sales for the quarter.
Critical Accounting Policies and the Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base these estimates and assumptions on historical experience and evaluate them on an
on-going basis to ensure they remain reasonable under current conditions. Actual results could differ from those estimates. We believe that our most critical accounting policies upon which our financial reporting depends and which involve the most
complex and subjective decisions or assessments are as follows: revenue recognition, inventory reserves, income taxes, warranty, goodwill and other intangibles, impairment of long-lived assets and allowances for doubtful accounts.
A summary of those accounting policies and estimates that we believe to be most critical to fully understand and evaluate our financial
results is set forth below. The summary should be read in conjunction with our Consolidated Financial Statements and Notes and related disclosures in Part I, Item 1 in this quarterly report on Form 10-Q.
Revenue Recognition
Our revenue recognition policy is described in Note 2, Summary of Significant Accounting Policies, contained in the Notes to Consolidated Financial Statements included in Part 1, Item 1 in this
quarterly report on Form 10-Q. We recognize revenue when persuasive evidence of an arrangement exists, delivery or customer acceptance (if required) has occurred or services have been rendered, the price is fixed or determinable and collectability
is reasonably assured.
Inventory Reserves
We sell capital equipment to companies that design, manufacture, assemble, and test semiconductor devices. We are exposed to a number of
economic and industry factors that could result in portions of our inventory becoming either obsolete or in excess of anticipated usage. These factors include, but are not limited to, changes in our customers capital expenditures,
technological changes in our markets, our ability to meet changing customer requirements, competitive pressures in products and prices, and the availability of key components from our suppliers. Our policy is to establish inventory reserves when
conditions exist that suggest our inventory may be in excess of anticipated demand or is obsolete based upon our assumptions about future demand for our products or market conditions. We regularly evaluate the ability to realize the value of our
inventory based on a combination of factors including the following: historical usage rates, forecasted sales or usage, estimated product end of life dates, estimated current and future market values and new product introductions. Purchasing and
alternative usage options are also explored to mitigate inventory exposure. When recorded, our reserves are intended to reduce the carrying value of our inventory to its net realizable value. Such reserves are not reversed until the related
inventory is sold or otherwise disposed.
For the three months ended October 31, 2012 we recorded sales of $0.3 million
of previously reserved inventory, which represents gross cash received from the customer. We released reserves of $0.1 million for three months ended October 31, 2012, related to these sales. For the three months ended October 31, 2011 we
recorded sales of $4.2 million of previously reserved
17
inventory, which represents gross cash received from the customer. We released reserves of $0.9 million for the three months ended October 31, 2011, related to these sales.
As of October 31, 2012 and July 31, 2012, our inventory of $31.5 million and $28.9 million, respectively, is stated net of
inventory reserves of $42.2 million and $42.4 million, respectively, and primarily consists of X-Series, ASL, and Diamond series products.
Income Taxes
In accordance with FASB ASC Topic 740,
Income
Taxes
(ASC 740), we recognize deferred income taxes based on the expected future tax consequences of differences between the financial statement basis and the tax basis of assets and liabilities calculated using enacted tax rates for
the year in which the differences are expected to be reflected in the tax return. Valuation allowances are established when necessary to reduce deferred taxes to the amount expected to be realized.
We have deferred tax assets resulting from tax credit carryforwards, net operating losses and other deductible temporary differences,
which will reduce taxable income in future periods. ASC 740 requires that a valuation allowance be established when it is more likely than not that all or a portion of deferred tax assets will not be realized. A review of all available
positive and negative evidence needs to be considered, including a companys performance, the market environment in which it operates, the length of carryback and carryforward periods, existing sales backlog and future sales projections. Where
there are cumulative losses in recent years, ASC 740 creates a strong presumption that a valuation allowance is needed. This presumption can be overcome in very limited circumstances. As a result of our cumulative loss position in recent years
and the increased uncertainty relative to the timing of profitability in future periods, we continue to maintain a valuation allowance for our entire net deferred tax assets. The valuation allowance for deferred tax assets increased from $194.5
million at July 31, 2011, to $200.1 million at July 31, 2012. The increase in our valuation allowance compared to the prior year was primarily due to an increase in deferred tax assets associated with taxable loss for the year ended
July 31, 2012 generated in various jurisdictions.
We expect to record a full valuation allowance on future tax benefits
until we can sustain an appropriate level of profitability. Until such time, we would not expect to recognize any significant tax benefits in our future results of operations. We will continue to monitor the recoverability of our deferred tax assets
on a periodic basis. As a result of the merger with Credence in 2008 and Internal Revenue Service Code Section 382 guidance, the future utilization of the combined companys net operating loss deductions will be significantly limited.
Valuation of Goodwill
In accordance with Topic 350,
IntangiblesGoodwill and Other,
to the FASB ASC (ASC 350), we are required to review goodwill by reporting unit for impairment at least annually or
more often if there are indicators of impairment present. We have determined our entire business represents one reporting unit. Historically, we have performed our annual impairment analysis during the fourth quarter of each year. The provisions of
ASC 350 require that a two-step impairment test be performed for goodwill. In the first step, we compare the fair value of each reporting unit to which goodwill has been allocated to its carrying value. If the fair value of the reporting unit
exceeds the carrying value of the net assets assigned to that reporting unit, goodwill is considered not impaired and we are not required to perform further testing. If the carrying value of the net assets assigned to the reporting unit exceeds the
fair value of the reporting unit, then we must perform the second step of the impairment test in order to determine the implied fair value of the reporting units goodwill. If the carrying value of a reporting units goodwill exceeds its
implied fair value, then we would record an impairment loss equal to the difference. As of October 31, 2012 and July 31, 2012, the fair value of our reporting unit exceeded the carrying value of the reporting units net assets and
therefore no impairment existed as of those dates.
Valuation of Identifiable Intangible Assets
Our identifiable intangible assets include existing technology, customer and distributor relationships and trade names. Our existing
technology relates to patents, patent applications and know-how with respect to the technologies embedded in our currently marketed products.
In estimating the useful life of acquired assets, we considered paragraph 11 of ASC 350, which lists the pertinent factors to be considered when estimating the useful life of an intangible asset. These
factors included a review of the expected use by the combined company of the assets acquired, the expected useful life of another asset (or group of assets) related to the acquired assets, legal, regulatory or other contractual provisions that may
limit the useful life of an acquired asset or may enable the extension of the useful life of an acquired asset without substantial cost, the effects of obsolescence, demand, competition and other economic factors, and the level of maintenance
expenditures required to obtain the expected future cash flows from the asset. We expect to amortize these
18
intangible assets over estimated useful lives using a method that is based on estimated future cash flows as we believe this will approximate the pattern in which the economic benefits of the
assets will be derived.
Impairment of Long-Lived Assets Other Than Goodwill
On an on-going basis, management reviews the value and period of amortization or depreciation of long-lived assets. In accordance with
Topic 360,
Property, Plant and Equipment
to the FASB ASC (ASC 360), we review whether impairment losses exist on long-lived assets other than goodwill when indicators of impairment are present. During this review, we assess future
cash flows and reevaluate the significant assumptions used in determining the original cost of long-lived assets other than goodwill. Although the assumptions may vary, they generally include revenue growth, operating results, cash flows and other
indicators of value. Management then determines whether there has been a permanent impairment of the value of long-lived assets based upon events or circumstances that have occurred since acquisition. The extent of the impairment amount recognized
is based upon a determination of the impaired assets fair value compared to its carrying value. As of October 31, 2012 and July 31, 2012, there were no indicators that required us to conduct a recoverability test as of these dates.
Warranty
We provide standard warranty coverage on our systems, providing labor and parts necessary to repair the systems during the warranty period. We account for the estimated warranty cost as a charge to cost
of sales when the revenue is recognized. The estimated warranty cost is based on historical product performance and field expenses. We use actual service hours and parts expense per system and apply the actual labor and overhead rates to estimate
the warranty charge. The actual product performance and/or field expense profiles may differ, and in those cases we adjust the warranty accrual accordingly.
Trade Accounts Receivable and Allowance for Doubtful Accounts
Trade
accounts receivable are recorded at the invoiced amount and do not bear interest, and typically have a contractual maturity of ninety days or less. A majority of our trade receivables are derived from sales to large multinational semiconductor
manufacturers throughout the world. The volatility of the industries that we serve can cause certain of our customers to experience shortages of cash, which can impact their ability to make required payments. In order to monitor potential credit
losses, we perform ongoing credit evaluations of our customers financial condition. We maintain an allowance for doubtful accounts for potential credit losses based upon our assessment of the expected collectability of all accounts receivable.
We review the allowance for doubtful accounts periodically to assess the adequacy of the allowances. In any circumstances in which we are aware of a customers inability to meet its financial obligations, we provide an allowance, which is based
on the age of the receivables, the circumstances surrounding the customers financial situation and our historical experience. If circumstances change, and the financial condition of our customers were adversely affected resulting in their
inability to meet their financial obligations to us, we may need to record additional allowances. Account balances are charged off against the allowance when it is determined the receivable will not be recovered.
Recent Accounting Pronouncements
See Note 9, Recent Accounting Pronouncements, in Notes to the Consolidated Financial Statements included in Part 1, Item 1 in this quarterly report on Form 10-Q, regarding the impact of certain
recent accounting pronouncements on our consolidated financial statements.
Results of Operations
The following tables set forth for the periods indicated the principal items included in the Consolidated Statement of Operations in
dollars and as percentages of net sales.
|
|
|
|
|
|
|
|
|
|
|
Statement of Operations
|
|
|
|
Three Months Ended
October 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(in thousands)
|
|
Net sales
|
|
$
|
43,188
|
|
|
$
|
33,752
|
|
Cost of sales
|
|
|
19,684
|
|
|
|
15,715
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
23,504
|
|
|
|
18,037
|
|
Engineering and product development expenses
|
|
|
12,392
|
|
|
|
12,916
|
|
Selling, general and administrative expenses
|
|
|
10,006
|
|
|
|
9,321
|
|
Amortization of purchased intangible assets
|
|
|
396
|
|
|
|
791
|
|
Restructuring
|
|
|
231
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
479
|
|
|
|
(5,037
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(50
|
)
|
|
|
(40
|
)
|
Investment income
|
|
|
261
|
|
|
|
138
|
|
Other income (expense), net
|
|
|
(2
|
)
|
|
|
152
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income taxes
|
|
|
688
|
|
|
|
(4,787
|
)
|
Provision for income taxes
|
|
|
139
|
|
|
|
122
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
549
|
|
|
$
|
(4,909
|
)
|
|
|
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
Percentage of
Net Sales
|
|
|
|
Three Months Ended
October 31,
|
|
|
|
2012
|
|
|
2011
|
|
Net sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of sales
|
|
|
45.6
|
|
|
|
46.6
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
54.4
|
|
|
|
53.4
|
|
Engineering and product development expenses
|
|
|
28.7
|
|
|
|
38.3
|
|
Selling, general and administrative expenses
|
|
|
23.2
|
|
|
|
27.6
|
|
Amortization of purchased intangible assets
|
|
|
0.9
|
|
|
|
2.3
|
|
Restructuring
|
|
|
0.5
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
1.1
|
|
|
|
(14.9
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
Investment income
|
|
|
0.6
|
|
|
|
0.4
|
|
Other income (expense), net
|
|
|
0.0
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income taxes
|
|
|
1.6
|
|
|
|
(14.2
|
)
|
Provision for income taxes
|
|
|
0.3
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
1.3
|
%
|
|
|
(14.5
|
)%
|
|
|
|
|
|
|
|
|
|
Three Months Ended October 31, 2012 Compared to the Three Months Ended October 31, 2011
Net sales.
Net sales for the three months ended October 31, 2012 increased 27.9% to $43.2 million
as compared to $33.8 million in the same quarter of the prior year. Sales of semiconductor test equipment, or product revenue, was $34.3 million for the three months ended October 31, 2012 as compared to $24.0 million for the same quarter of
the prior year. Net product sales increased due to increased sales of specific product platforms within our portfolio, primarily Diamond Series and X-Series testers.
Service revenue, included in net sales, accounted for $8.9 million, or 20.5% of net sales, and $9.8 million, or 28.9% of net sales, for the three months ended October 31, 2012 and 2011, respectively.
The decrease in service revenue is primarily a result of increased reliability of our products.
Geographically, sales to
customers outside of the United States were 83.6% and 72.1% of net sales for the three months ended October 31, 2012 and 2011, respectively. The increase in sales to customers outside the United States is primarily a result of higher demand in
Taiwan and the Philippines.
Gross profit.
Gross profit was $23.5 million or 54.4% of net sales in the three
months ended October 31, 2012, as compared to $18.0 million or 53.4% of net sales in the same quarter of the prior year. The increase in gross profit for the three months ended October 31, 2012 as compared to October 31, 2011 was
primarily driven by the increase in total revenue of 27.9%.
Engineering and product development expenses.
Engineering and product development expenses were $12.4 million, or 28.7% of net sales, in the three months ended October 31, 2012, which is consistent with $12.9 million, or 38.3% of net sales, in the same quarter of the prior year.
Selling, general and administrative expenses.
Selling, general and administrative expenses were $10.0 million,
or 23.2% of net sales, in the three months ended October 31, 2012, as compared to $9.3 million, or 27.6% of net sales, in the same quarter of the prior year. This increase is due to higher commissions and employee profit share expense
associated with higher sales in the three months ended October 31, 2012.
Amortization of purchased intangible
assets
.
Amortization associated with acquired intangible assets was $0.4 million or 0.9% of net sales, for the three months ended October 31, 2012, as compared to $0.8 million or 2.3% of net sales for the same quarter of the
20
prior year. The decrease is due to certain intangible assets becoming fully amortized. The underlying intangible assets relate to developed technology and customer and distributor relationships.
Restructuring.
Restructuring expense was $0.2 million or 0.5% of net sales for the three months ended
October 31, 2012 as compared to less than $0.1 million or 0.1% of net sales for the same period in the prior year. The restructuring expense recorded in the three months ended October
31, 2012 related to changes in our service
organization, to move certain board repair functions and other roles from North America locations to subsidiary offices in Singapore and the Philippines. As a result of this decision, certain headcount reductions were made, and we recorded the
estimated severance and post-employment obligations related to those headcount reductions during the three months ended October 31, 2012. The restructuring charges for the quarter ended October 31, 2011, related to changes in sublease
assumptions for previously restructured facilities.
Interest expense.
Interest expense was less than $0.1
million for the three months ended October 31, 2012 and 2011, respectively and represents accretion for the difference between the net present value and the estimated future value of our facility-related restructuring liability.
Investment income.
Investment income was $0.3 million for the three months ended October 31, 2012 as compared to $0.1
million for the three months ended October 31, 2011. The increase is due to investment of cash balance in marketable securities.
Other income (expense), net.
Other income (expense) was less than $(0.1) million for the three months ended October 31, 2012 as compared to other income of $0.2 million for the three
months ended October 31, 2011. Other income (expense), net for the three months ended October 31, 2012 includes approximately $0.2 million of a refund related to previous excess medical claims which were recovered from escheat, offset by
net foreign exchange losses.
Provision for income taxes.
We recorded an income tax provision of $0.1 million
for both the three months ended October 31, 2012 and the three months ended October 31, 2011 which were primarily due to foreign tax on earnings generated in foreign jurisdictions.
As of October 31, 2012 and July 31, 2012, the total liability for unrecognized income tax benefits was $8.0 million for both
periods (of which $4.4 million, if recognized, would impact the Companys income tax rate).
We expect to maintain a full
valuation allowance on United States deferred tax assets until we can sustain an appropriate level of profitability to ensure utilization of existing assets. Until such time, we would not expect to recognize any significant tax benefits in our
results of operations.
Net income (loss).
Net income was $0.5 million, or $0.01 per basic and diluted share, in
the three months ended October 31, 2012, as compared to a net loss of $(4.9) million, or $(0.10) per basic and diluted share, in the same quarter of the prior year.
Liquidity and Capital Resources
The following is a summary of
significant items impacting our liquidity and capital resources for the three months ending October 31, 2012 (in millions):
|
|
|
|
|
Cash, cash equivalents and marketable securities at July 31, 2012
|
|
$
|
137.2
|
|
Repurchases of common stock
|
|
|
(8.5
|
)
|
Capital expenditures
|
|
|
(1.0
|
)
|
Other cash sources, net
|
|
|
1.1
|
|
|
|
|
|
|
Cash and cash equivalents and marketable securities at October 31, 2012
|
|
$
|
128.8
|
|
|
|
|
|
|
As of October 31, 2012, we had $128.8 million in cash and cash equivalents and marketable securities
and working capital of $156.0 million, as compared to $137.2 million of cash and cash equivalents and marketable securities and $163.6 million of net working capital at July 31, 2012. The decrease in cash and cash equivalents and marketable
securities was primarily due to stock repurchases of $8.5 million.
Accounts receivable from trade customers, net of
allowances, was $34.2 million at October 31, 2012, as compared to $31.2 million at July 31, 2012. Accounts receivable increased during the quarter despite flat revenue growth due to the back- ended timing of shipments during the quarter
(concentrated in the third month of the quarter). The allowance for doubtful accounts was less than $0.1 million, or 0.2 % of gross accounts receivable, at October 31, 2012 and July 31, 2012.
21
Inventories increased $2.6 million to $31.5 million at October 31, 2012 from $28.9
million at July 31, 2012, as a result of changes in product sales mix during the quarter and an increase in consignment inventory placed at customers.
Prepaid expenses and other current assets decreased by $0.4 million to $3.0 million at October 31, 2012 as compared to $3.4 million at July 31, 2012 primarily due to the timing of prepaid
insurance premiums, rent, and other expenses, including tax receivables.
Capital expenditures totaled approximately $1.0
million for the three months ended October 31, 2012, as compared to $0.5 million for the three months ended October 31, 2011. Capital expenditures for the three months ended October 31, 2012 and October 31, 2011 were composed
primarily of capital related to certain engineering projects and tester spare parts to support a larger installed base of test equipment.
We had $2.0 million in net cash provided by operating activities for the three months ended October 31, 2012, as compared to net cash used in operating activities of $2.9 million for the same quarter
of the prior year. The net cash provided by operating activities for the three months ended October 31, 2012 was primarily related to our net income of $0.5 million, adjusted for non-cash items including depreciation and amortization and stock
based compensation, of approximately $3.8 million, and an increase in working capital of $2.3 million. The net cash used in operating activities for the three months ended October 31, 2011 was primarily related to our net loss of $4.9 million,
adjusted for non-cash items including depreciation and amortization and stock based compensation, of approximately $4.6 million, and an increase in working capital of $2.6 million.
We had $2.8 million in net cash provided by investing activities for the three months ended October 31, 2012 as compared to net cash
used in investing activities of $55.4 million for the three months ended October 31, 2011. The net cash provided by investing activities for the three months ended October 31, 2012 was primarily related to $13.3 million of proceeds from
sales and maturities of available-for-sale securities, $9.8 million of purchases of available-for-sale securities, $2.8 million in proceeds from sales of held-to-maturity securities, and $2.5 million in purchases of held-to-maturity securities,
offset by $1.0 million of purchases of property and equipment. The net cash used in investing activities for the three months ended October 31, 2011 was primarily related to $56.9 million of purchases of available-for-sale securities, $5.5
million in purchases of held-to-maturity securities, and $0.5 million of purchases of property and equipment, offset by $4.5 million of proceeds from sales and maturities of available-for-sale securities and $3.0 million in proceeds from sales of
held-to-maturity securities.
We had $9.1 million in net cash used in financing activities for the three months ended
October 31, 2012 as compared to net cash used in financing activities of $5.5 million for the three months ended October 31, 2011. The net cash used in financing activities for the three months ended October 31, 2012 was primarily
related to stock repurchases of $8.5 million and the remainder was related to payments of tax withholdings for vested restricted stock units. The net cash used in financing activities for the three months ended October 31, 2011 was primarily
related to stock repurchases of $4.8 million and the remainder was related to payments of tax withholdings for vested restricted stock units.
Commitments and Contingencies
Our major outstanding contractual
obligations are related to our rental properties, other operating leases, inventory purchase commitments, and severance payments.
In the ordinary course of business, we agree from time to time to indemnify certain customers against certain third party claims for property damage, bodily injury, personal injury or intellectual
property infringement arising from the operation or use of our products. Also, from time to time in agreements with suppliers, licensors and other business partners, we agree to indemnify these partners against certain liabilities arising out of the
sale or use of our products. The maximum potential amount of future payments we could be required to make under these indemnification obligations is theoretically unlimited; however, we have general and umbrella insurance policies that enable it to
recover a portion of any amounts paid and many of its agreements contain a limit on the maximum amount, as well as limits on the types of damages recoverable. Based on our experience with such indemnification claims, we believe the estimated fair
value of these obligations is minimal. Accordingly, we have no liabilities recorded for these agreements as of October 31, 2012 or July 31, 2012.
Subject to certain limitations, we indemnify our current and former officers and directors for liability or costs they may incur upon certain events or occurrences encountered in the course of performing
their duties to us. Although the maximum potential amount of future payments we could be required to make under these agreements is theoretically unlimited, as there were no known or pending claims, we have not accrued a liability for these
agreements as of October 31, 2012 or July 31, 2012.
The aggregate outstanding amount of our contractual obligations
was $39.3 million as of October 31, 2012. These obligations and commitments represent maximum payments based on current operating forecasts. Certain of the commitments could be reduced if changes to our operating forecasts occur in the future.
22
The following summarizes our contractual obligations as of October 31, 2012 and the
effect such obligations are expected to have on our liquidity and cash flow in future periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2013
|
|
|
2014-2015
|
|
|
2016-2017
|
|
|
Thereafter
|
|
|
|
(in thousands)
|
|
Contractual Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
$
|
24,510
|
|
|
$
|
4,100
|
|
|
$
|
9,633
|
|
|
$
|
6,308
|
|
|
$
|
4,469
|
|
Inventory commitments
|
|
|
14,445
|
|
|
|
14,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
|
352
|
|
|
|
352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Contractual Obligations
|
|
$
|
39,307
|
|
|
$
|
18,897
|
|
|
$
|
9,633
|
|
|
$
|
6,308
|
|
|
$
|
4,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-Balance Sheet Arrangements
As of October 31, 2012 we did not have any off-balance sheet arrangements.
Item 3.
|
Quantitative and Qualitative Disclosures about Market Risk
|
There has been no material change in our Market Risk exposure since the filing of the 2012 Annual Report on Form 10-K.
Item 4.
|
Controls and Procedures
|
Evaluation of Disclosure Controls and Procedures.
Our management, with the participation of our Chief Executive Officer and
Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of October 31, 2012. The term disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e)) under the Exchange Act,
means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported,
within the time period specified in the SECs rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that
it files or submits under the Exchange Act is accumulated and communicated to our management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management
recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of
possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of October 31, 2012, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and
procedures were effective at the reasonable assurance levels.
Changes in Internal Controls.
There was no change
in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)) under the Exchange Act) during the fiscal quarter ended October 31, 2012 that has materially affected, or is reasonably likely to materially affect
our internal control over financial reporting.
Limitations on the Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and
procedures or our internal controls can prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further,
the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. The inherent limitations in all control systems include the realities that judgments
in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons or by collusion of two or more people. Because of the inherent
limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
23
PART IIOTHER INFORMATION
Item 1.
|
Legal Proceedings
|
From
time to time we are party to legal proceedings in the course of our business. We do not, however, expect such legal proceedings to have a material adverse effect on our business, financial condition or results of operations.
There have
been no material changes to the risk factors previously disclosed in our Annual Report that was filed on Form 10-K for the year ended July 31, 2012. For a discussion of such risks refer to Item 1A, Risk Factors, contained in our 2012
Annual Report on Form 10-K as filed with the SEC on October 15, 2012.
24
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
The following table provides information regarding repurchases of common stock made by us since inception of our board-authorized stock repurchase program.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
Total
Number
of
Shares
Purchased
|
|
|
Average
Price
Paid
per
Share
|
|
|
Total
Number of
Shares
Purchased
as
Part of
Publicly
Announced
Plans
or
Programs
(1)
|
|
|
Remaining Dollar
Value that
May Yet
Be Purchased
Under
the Plans
or
Programs (excluding
commissions)
|
|
Inception of program
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
25,000,000
|
|
Fiscal year ended 7/31/2012
|
|
|
1,652,394
|
|
|
$
|
5.84
|
|
|
|
1,652,394
|
|
|
$
|
15,474,033
|
|
8/1/2012 8/31/2012
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
15,474,033
|
|
9/1/2012 9/30/2012
|
|
|
524,017
|
|
|
$
|
5.67
|
|
|
|
524,017
|
|
|
$
|
12,504,003
|
|
10/1/2012 10/31/2012
|
|
|
994,026
|
|
|
$
|
5.57
|
|
|
|
994,026
|
|
|
$
|
6,924,667
|
|
11/1/2012 12/5/2012
|
|
|
124,229
|
|
|
$
|
5.37
|
|
|
|
124,229
|
|
|
$
|
6,265,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,294,666
|
|
|
$
|
5.61
|
|
|
|
3,294,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
On September 15, 2011, the board of directors authorized a stock repurchase program, pursuant to which we are authorized to repurchase up to $25 million of our
common stock from time to time in open market transactions. The repurchase program may be suspended or discontinued at any time and has no expiration date.
|
During the quarter ending October 31, 2012, we repurchased 1,518,043 shares for a total purchase price of $8.5 million. Approximately 124,229 shares of common stock were repurchased for approximately
$0.6 million subsequent to the balance sheet date.
Item 4.
|
Mine Safety Disclosures
|
Not applicable.
The exhibits
filed as part of this Quarterly Report on Form 10-Q are set forth on the Exhibit Index immediately preceding such exhibits, and are incorporated herein by reference.
25
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
|
|
|
|
|
LTX-Credence Corporation
|
|
|
|
|
Date: December 10, 2012
|
|
|
|
By:
|
|
/
S
/ M
ARK
J.
G
ALLENBERGER
|
|
|
|
|
|
|
Mark J. Gallenberger
|
|
|
|
|
|
|
Chief Financial Officer and Treasurer
|
|
|
|
|
|
|
(Principal Financial Officer)
|
26
EXHIBIT INDEX
|
|
|
Exhibit
Number
|
|
Description
|
|
|
31.1 *
|
|
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act
|
|
|
31.2 *
|
|
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act
|
|
|
32 *
|
|
Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350
|
|
|
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
|
|
|
101.LAB**
|
|
XBRL Taxonomy Extension Label Linkbase Document
|
|
|
101.PRE**
|
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
**
|
Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for
purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
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27
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