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.