LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY
LTX Corporation (LTX
or the Company) designs, manufactures, and markets automatic semiconductor test equipment. Semiconductor designers and manufacturers worldwide use semiconductor test equipment to test devices at different stages during the manufacturing
process. These devices are incorporated in a wide range of products, including mobile internet equipment such as wireless access points and interfaces, broadband access products such as cable modems and DSL modems, personal communication products
such as cell phones and personal digital assistants, consumer products such as televisions, videogame systems, digital cameras and automobile electronics, and for power management in portable and automotive electronics. The Company also sells
hardware and software support and maintenance services for its test systems. The Company is headquartered, and has development and manufacturing facilities, in Norwood, Massachusetts, a development facility in San Jose, California, and worldwide
sales and service facilities to support its customer base.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The 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. Certain reclassifications have been made to previously reported
financial data to conform to the 2007 presentation.
Preparation of Financial Statements and Use of Estimates
The accompanying financial statements have been prepared by the Company, and reflect all adjustments, which, in the opinion of management, are necessary
for fair presentation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of income and expenses during the reporting periods.
Foreign Currency Remeasurement
The financial statements of the Companys foreign subsidiaries
are remeasured in accordance with Statement of Financial Accounting Standards (SFAS) No. 52, Foreign Currency Translation. The Companys functional currency is the U.S. dollar. Accordingly, the Companys
foreign subsidiaries remeasure monetary assets and liabilities at year-end exchange rates while non-monetary items are remeasured at historical rates. Income and expense accounts are remeasured at the average rates in effect during the year, except
for sales, cost of sales and depreciation, which are primarily remeasured at historical rates. Net realized gains or losses resulting from foreign currency re-measurement and transaction gains or losses were a loss of $388,000, a loss of $258,000
and a gain of $17,000 in fiscal 2007, 2006 and 2005, respectively, and are included in the consolidated results of operations.
Revenue Recognition
The Company recognizes revenue based on guidance provided in SEC Staff Accounting Bulletin No. 104, (SAB 104),
Revenue Recognition and EITF No. 00-21 Revenue Arrangements with Multiple Deliverables. 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 collectibility is reasonably assured.
Revenue related to equipment sales is
recognized when: (a) we have a written sales agreement; (b) delivery has occurred; (c) the price is fixed or determinable; (d) collectibility is reasonably assured; (e) the product
38
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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. Certain sales include payment terms tied to customer acceptance. If a portion of the payment is
linked to product acceptance, which is 20% or less, the revenue is deferred on only the percentage holdback until payment is received or written evidence of acceptance is delivered to the Company. If the portion of the holdback is greater than 20%,
the full value of the equipment is deferred until payment is received or written evidence of acceptance is delivered to the Company. 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, (5) objective and reliable evidence of the fair value of the undelivered item(s) exists, (6) 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, and (7) if objective and reliable evidence of fair value exists for all units of accounting in the arrangement, the
arrangement consideration is allocated based on the relative fair values of each unit of accounting. If the fair value of a delivered item is unknown, but the fair value of undelivered items are known, the residual method is used for allocating
arrangement consideration which requires discounts in the sales value of the entire arrangement to be recognized in connection with the sale of the delivered items only. 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.
Allowance for Doubtful Accounts
An allowance for doubtful accounts is maintained for potential credit losses based upon assessment of the expected collectibility of all accounts
receivable. The allowance for doubtful accounts is reviewed periodically to assess the adequacy of the allowances. In any circumstances in which the Company is aware of a customers inability to meet its financial obligations, a certain
percentage of the accounts receivable balance is provided for as an allowance, which is based on the age of the receivables, the circumstances surrounding the customers financial situation and historical experience. If circumstances change,
and the financial condition of customers is adversely affected resulting in their inability to meet their financial obligations to the Company additional allowances may be recorded.
Engineering and Product Development Costs
The Company expenses all engineering, research and
development costs as incurred. Expenses subject to capitalization in accordance with the SFAS No. 86, Accounting for the Costs of Computer Software To Be Sold, Leased or Otherwise Marketed, relating to certain software development
costs, were insignificant.
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 $0.8 million, $0.9 million, and $0.8 million for fiscal years July 31,
2007, 2006, and 2005, respectively. These costs, when included in the sales price charged for products, are recognized in net sales.
Deferred Income
Taxes
The Company records income taxes using the asset and liability method. Deferred income tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the financial
39
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
statements carrying amounts of existing assets and liabilities and their respective income tax bases, and operating loss and tax credit carry forwards. The
Companys Consolidated Financial Statements contain certain deferred tax assets which have arisen primarily as a result of operating losses, as well as other temporary differences between financial and tax accounting. SFAS No. 109
Accounting for Income Taxes, requires the Company to establish a valuation allowance if the likelihood of realization of the deferred tax assets is reduced based on an evaluation of objective verifiable evidence. Significant management
judgment is required in determining the Companys provision of income taxes, the Companys deferred tax assets and liabilities and any valuation allowance recorded against those net deferred at assets. The Company revaluates the weight of
all available evidence to determine whether it is more likely than not that some portion or all of the net deferred income tax assets will not be realized.
Accounting for Stock-Based Compensation
The Company has five active stock option plans: the 2004 Stock Plan (2004
Plan), the 2001 Stock Plan (2001 Plan), the 1999 Stock Plan (1999 Plan), the 1995 LTX (Europe) Ltd. Approved Stock Option Plan (U.K. Plan) and, in addition, the Company assumed the StepTech, Inc. Stock
Option Plan (the STI 2000 Plan) as part of its acquisition of StepTech. The Company can only grant options from the 2004 Plan. Under the terms of the 2004 Plan, any unused shares of Common Stock as a result of termination, surrender,
cancellation or forfeiture of options from the 2001 Plan and the 1999 Plan will be available for grant of equity awards under the 2004 Plan. The 2004 Plan provides for the granting of options to employees to purchase shares of common stock at not
less than 100% of the fair market value at the date of grant. The 2004 Plan also provides for the granting of options to an employee, director or consultant of the Company or its subsidiaries to purchase shares of common stock at prices to be
determined by the Board of Directors and also allows both restricted stock awards and stock awards. Options under this plan are exercisable over vesting periods, which typically have been three to four years from the date of grant. The general term
of stock options is ten years. The Company policy of providing shares is to either buy shares in the open market or issue new shares.
Effective August 1, 2005, the Company adopted Statement of Financial Accounting Standard No. 123 (revised 2004), Share Based Payment (SFAS No. 123R). Under SFAS No. 123R, the Company is required
to recognize, as expense, the estimated fair value of all share-based payments to employees. In accordance with this standard, the Company has elected to recognize the compensation cost of all service based awards on a straight-line basis over the
vesting period of the award. Performance based awards are recognized ratably for each vesting tranche. For the year ended July 31, 2007 the Company recorded expense of approximately $4.1 million. As of July 31, 2007, there is approximately
$5.6 million of unrecognized compensation expense related to share-based payments to employees that will be recognized over the next 16 quarters.
The Company adopted SFAS No. 123R under the modified prospective method. Under this method, the Company recognized compensation cost for all share-based payments to employees based on the grant date estimate of fair value for those
awards, beginning on August 1, 2005. Options granted prior to August 1, 2005 were valued using a binomial Black-Scholes model at the date of grant. Options granted subsequent to the adoption of SFAS No. 123R were valued using a
trinomial lattice model.
The Company chose a trinomial lattice model upon adoption of SFAS No. 123R versus the binomial Black-Scholes
method used for the periods prior to the adoptions of SFAS No. 123R for the following reasons: 1) the trinomial lattice supports a changing volatility assumption with little computation complexity and 2) the trinomial lattice accounts for
changing employee behavior as the stock price changes, as behavior is solely represented by a time component. The use of a lattice model captures the observed pattern of increasing rates of exercise as the stock price increases. The Black-Scholes
model does not contain the interaction among economic and behavioral assumptions. The volatility assumption used in our trinomial lattice model uses a term structure of
40
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
expected volatilities reflecting a 1-to-10 year average volatility based on historical stock prices. Our volatility assumption is redeveloped quarterly and
calculated using the stock price history ending on the last day of the prior quarter. The forfeiture assumption is based on our historical employee behavior over the last 15 years, which is largely driven by stock price increase.
Weighted-average assumptions used in determining fair value of option grants for 2006 and 2005. There have been no option grants for the year ended
July 31, 2007.
|
|
|
|
|
|
|
2006 (1)
|
|
2005 (2)
|
Volatility
|
|
54 86%
|
|
80%
|
Dividend yield
|
|
0%
|
|
0%
|
Risk-free interest rate
|
|
3.84 4.75%
|
|
4.11%
|
Expected life of options
|
|
7.11 7.21 years
|
|
7.18 years
|
(1)
|
Assumptions used in trinomial lattice option-pricing model valuation.
|
(2)
|
Assumptions used in Black-Scholes valuation.
|
The
Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option-pricing models require the input of highly subjective
assumptions. Because the Companys employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in
managements opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.
For periods prior to the adoption of SFAS No. 123R, the Company had elected to follow Accounting Principles Board Opinion No. 25 Accounting for Stock Issued to Employees, (APB 25) and
related interpretations in accounting for its employee stock option and stock purchase plans. No stock-based employee compensation is reflected in net income (loss), as all options granted under those plans had an exercise price equal to the market
value of the underlying common stock on the date of grant.
The following table illustrates the effect on net income (loss) and net income
(loss) per share if the Company had applied the fair value recognition provision of SFAS No. 123 to stock-based employee compensation:
|
|
|
|
|
|
|
Year ended July 31, 2005
|
|
|
|
(in thousands except per share)
|
|
Net income (loss):
|
|
|
|
|
As reported
|
|
$
|
(132,726
|
)
|
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects,
pro forma
|
|
|
26,090
|
|
Pro forma
|
|
$
|
(158,816
|
)
|
Net income (loss) per share:
|
|
|
|
|
Basic
|
|
|
|
|
As reported
|
|
$
|
(2.17
|
)
|
Pro forma
|
|
$
|
(2.60
|
)
|
Diluted
|
|
|
|
|
As reported
|
|
$
|
(2.17
|
)
|
Pro forma
|
|
$
|
(2.60
|
)
|
41
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Product Warranty Costs
Our products are sold with warranty provisions that require us to remedy deficiencies in quality or performance of our products over a specified period of time at no cost to our customers. Our policy is to establish
warranty reserves at levels that represent our estimate of the costs that will be incurred to fulfill those warranty requirements at the time that revenue is recognized.
The following table shows the change in the product warranty liability, as required by FASB Interpretation No. (FIN) 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, for the fiscal years ended July 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
Product Warranty Activity
|
|
(in thousands)
|
|
|
2007
|
|
|
2006
|
|
Balance at beginning of period
|
|
$
|
3,543
|
|
|
$
|
2,543
|
|
Warranty expenditures for current period
|
|
|
(3,026
|
)
|
|
|
(3,621
|
)
|
Changes in liability related to pre-existing warranties
|
|
|
(842
|
)
|
|
|
|
|
Provision for warranty costs in the period
|
|
|
2,144
|
|
|
|
4,621
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
1,819
|
|
|
$
|
3,543
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income
Comprehensive income (loss) is comprised of two components, net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) consists of unrealized gains and losses on the Companys
marketable securities and the effects of the minimum pension liability.
The following table shows the cumulative components of other
comprehensive income (loss) for the fiscal years ended July 31, 2007, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Unrealized gain/(loss) on securities
|
|
$
|
(597
|
)
|
|
$
|
(1,574
|
)
|
|
$
|
(1,563
|
)
|
Pension liability gain/(loss)
|
|
|
(243
|
)
|
|
|
(372
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(840
|
)
|
|
$
|
(1,946
|
)
|
|
$
|
(1,563
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) per Share
Basic net income (loss) per common 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 income (loss) per
common share reflects the maximum dilution that would have resulted from the assumed exercise and share repurchase related to dilutive stock options and is computed by dividing net income (loss) by the weighted average number of common shares and
all dilutive securities outstanding.
42
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Reconciliation between basic and diluted earnings (loss) per share is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended July 31,
|
|
|
|
2007
|
|
|
2006
|
|
2005
|
|
|
|
(in thousands, except per share data)
|
|
Net income (loss)
|
|
$
|
(10,666
|
)
|
|
$
|
12,241
|
|
$
|
(132,726
|
)
|
Basic EPS
|
|
|
|
|
|
|
|
|
|
|
|
Basic common shares
|
|
|
62,130
|
|
|
|
61,684
|
|
|
61,144
|
|
Basic EPS
|
|
$
|
(0.17
|
)
|
|
$
|
0.20
|
|
$
|
(2.17
|
)
|
Diluted EPS
|
|
|
|
|
|
|
|
|
|
|
|
Basic common shares
|
|
|
62,130
|
|
|
|
61,684
|
|
|
61,144
|
|
Plus: impact of stock options and warrants
|
|
|
|
|
|
|
523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted common shares
|
|
|
62,130
|
|
|
|
62,207
|
|
|
61,144
|
|
Diluted EPS
|
|
$
|
(0.17
|
)
|
|
$
|
0.20
|
|
$
|
(2.17
|
)
|
Options to purchase 6,669,336, 7,146,337, and 8,077,136 of common stock were outstanding at
July 31, 2007, 2006 and 2005 respectively, but were not included in the calculation of diluted shares because the effect of including the options would have been anti-dilutive. These options could be dilutive in the future. The calculation of
diluted net income (loss) per share excludes 653,000, 721,000 and 0 RSUs at July 31, 2007, 2006 and 2005, respectively, in accordance with the contingently issuable shares guidance of SFAS No. 128, Earnings Per Share.
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 repurchase
agreements and commercial paper. Marketable securities consist primarily of debt securities that are classified as available-for-sale, in accordance with the SFAS No. 115, Accounting for Certain Investments in Debt and Equity
Securities (SFAS No. 115). 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, if necessary, to liquidate any security that the Company holds to fund operations over the next twelve months and as such has classified these securities as
short-term. Governmental obligations include U.S. Government, State, Municipal and Federal Agency securities.
The market value and
maturities of the Companys marketable securities are as follows:
|
|
|
|
|
|
Total Amount
|
|
|
(in thousands)
|
July 31, 2007
|
|
|
|
Due in less than one year
|
|
$
|
12,391
|
Due in 1 to 3 years
|
|
|
19,124
|
Due in 3 to 5 years
|
|
|
3,721
|
Due in 5 to 10 years
|
|
|
|
Due in greater than 10 years
|
|
|
|
|
|
|
|
Total
|
|
$
|
35,236
|
|
|
|
|
43
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The market value and amortized cost of marketable securities are as follows:
|
|
|
|
|
|
|
|
|
Market
Value
|
|
Amortized
Cost
|
|
|
(in thousands)
|
July 31, 2007
|
|
|
|
|
|
|
Corporate
|
|
$
|
29,873
|
|
$
|
30,376
|
Government
|
|
|
5,363
|
|
|
5,457
|
|
|
|
|
|
|
|
|
|
$
|
35,236
|
|
$
|
35,833
|
|
|
|
|
|
|
|
July 31, 2006
|
|
|
|
|
|
|
Corporate
|
|
$
|
57,522
|
|
$
|
58,401
|
Government
|
|
|
30,254
|
|
|
30,947
|
|
|
|
|
|
|
|
|
|
$
|
87,776
|
|
$
|
89,348
|
|
|
|
|
|
|
|
Gross unrealized losses were $0.6 million in fiscal 2007 and $1.6 million in fiscal 2006. The
realized profits, losses and interest are included in the investment income in the Statements of Operations. Unrealized gains and losses are reflected as a separate component of comprehensive income and are included in Stockholders Equity. The
gross unrealized losses were primarily a result of rising interest rates. The Company evaluates its portfolio for impairment based on certain factors including, credit quality, structure of the security and the ability to hold the security to
maturity.
The following table contains marketable securities and related unrealized losses as of July 31, 2007:
|
|
|
|
|
|
|
|
(in thousands)
|
|
Market
Value
|
|
Unrealized
loss
|
|
Securities < 12 months unrealized loss
|
|
$
|
2,381
|
|
$
|
(12
|
)
|
Securities > 12 months unrealized loss
|
|
|
32,770
|
|
|
(585
|
)
|
Securities with unrealized gains
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
35,236
|
|
$
|
(597
|
)
|
|
|
|
|
|
|
|
|
The following interest income and realized gains and losses from sales of marketable securities
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended July 31,
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
(in thousands)
|
Interest income
|
|
$
|
2,617
|
|
|
$
|
5,619
|
|
|
$
|
4,807
|
Realized (loss) gain from sales of available-for-sale securities
|
|
|
(22
|
)
|
|
|
(94
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,595
|
|
|
$
|
5,525
|
|
|
$
|
4,807
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Financial Instruments
SFAS No. 107, Disclosures About Fair Value of Financial Instruments, requires that disclosure be made of estimates of the fair value of
financial instruments. The carrying amounts of certain of the Companys financial instruments, including cash equivalents, accounts receivable, accounts payable and other accrued liabilities approximate fair value due to their short maturities.
In accordance with SFAS No. 115, marketable securities classified as available for sale are all debt securities and are recorded at fair value based upon quoted market prices.
44
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The fair value of the Companys notes payable and long-term liabilities is estimated based on quoted market prices for the same or similar issues or on
current rates offered to the Company for debt of the same remaining maturities.
As of July 31, 2007, the estimated fair value of the
Companys convertible subordinated notes was approximately $27.2 million compared to the carrying value of $27.2 million. The estimated fair value of the convertible subordinated notes is based on the quoted market price of the notes on
July 31, 2007. The $27.2 million was due and paid in full at par value on August 15, 2007.
Concentration of Credit Risk
Revenue from our top ten customers accounted for 79%, 82%, and 77% of total revenues in fiscal 2007, 2006, and 2005, respectively. Accounts receivable
from these customers amounted to approximately $17.6 million and $26.2 million at July 31, 2007 and 2006, respectively. Sales to customers outside the United States were $98.8 million, or 67% of net sales in fiscal 2007, $127.6 million, or 59%
of net sales in fiscal 2006, $93.3 million, or 69% of net sales, in fiscal 2005.
Financial instruments, which potentially subject the
Company to concentrations of credit risk, are cash equivalents, marketable securities and accounts receivable. All of the Companys cash equivalents and marketable securities are maintained by major financial institutions. The Company
periodically reviews these investments to evaluate and minimize credit risk. Concentration of credit risk with respect to accounts receivable is limited to certain customers to whom the Company makes substantial sales. To reduce risk, the Company
routinely assesses the financial strength of its customers. The Company does not require collateral, although the Company does obtain a letter of credit on sales to certain foreign customers. Write-offs related to accounts receivable have been
within managements expectations.
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:
|
|
|
|
|
|
|
|
|
As of July 31,
|
|
|
2007
|
|
2006
|
|
|
(in thousands)
|
Material and purchased components
|
|
$
|
20,317
|
|
$
|
20,597
|
Work-in-process
|
|
|
529
|
|
|
5,132
|
Finished goods
|
|
|
6,256
|
|
|
4,118
|
|
|
|
|
|
|
|
|
|
$
|
27,102
|
|
$
|
29,847
|
|
|
|
|
|
|
|
The Company establishes inventory reserves when conditions exist that suggest inventory may be in
excess of anticipated demand or is obsolete based upon our assumptions about future demand for products or market conditions. The Company regularly evaluates the ability to realize the value of inventory based on a combination of factors including
the following: forecasted sales or usage, estimated product end of life dates, estimated current and future market value and new product introductions. Purchasing and alternative usage options 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 July 31, 2007 and 2006, inventory is stated net of inventory reserves of $41.4 million and $46.5 million, respectively. If actual
demand for products deteriorates or market conditions are less favorable than those that projected additional inventory reserves may be required. Such reserves are not reversed until the related inventory is sold or otherwise disposed. During fiscal
year 2007, the Company utilized $10.8 million of reserves related to the disposal or sale of previously reserved items.
45
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Of the $27.1 million inventory balance at July 31, 2007, $9.2 million consists of last
time buy custom components for Fusion HFi, $12.1 million consists of materials and components to support current requirements for Fusion HFi and X-Series, $5.3 million consists of evaluation inventory at customers and $0.5 million consists of
inventory held in deferred revenue pending product acceptance. If actual demand for products deteriorates or market conditions are less favorable than those that projected additional inventory reserves may be required.
For the quarter ended April 30, 2007, the Company recorded a $4.2 million inventory related provision related to the Fusion HFi product line. The
provision was required as a result of two major factors that materialized during the quarter. First, the Companys assessment of its Fusion HFi customers demand for HFi due to low demand in the markets they serve and second, the projected
impact from customers who have increased adoption of the X-Series platform by transferring test capacity from HFi to a lower cost to test X-Series alternative. The favorable performance/price characteristics of the X-Series testers has enabled
customers to transition certain devices currently being tested on the Fusion HFi platform to the X-Series testers. This is expected to result in increased available HFi capacity at existing customers and will likely reduce HFi purchases in the
future.
There were $4.4 million and $2.5 million in sales of previously written off inventory for the twelve months ended July 31,
2007 and 2006, respectively. The $4.4 million and $2.5 million recorded for the twelve months ended July 31, 2007 and 2006, respectively represents the gross cash received from the customer. The net incremental gross margin and net income
effect for these transactions of $1.0 million and $1.1 million for the twelve months ended July 31, 2007 and 2006, respectively, did not have a significant impact on operating margins.
Property and Equipment
Property and equipment 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.
Machinery, equipment and internally manufactured systems include spare parts used for service and LTX test systems used for testing components, engineering and applications development. Internally manufactured equipment is recorded at cost and
depreciated over 3 to 7 years. Repairs and maintenance costs that do not extend the lives of property and equipment are expensed as incurred. Property and equipment are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of July 31,
|
|
|
Depreciable Life in
Years
|
|
|
2007
|
|
|
2006
|
|
|
|
|
(in thousands)
|
|
|
|
Machinery, equipment and internally manufactured systems
|
|
$
|
98,827
|
|
|
$
|
99,520
|
|
|
3-7
|
Office furniture and equipment
|
|
|
3,035
|
|
|
|
4,531
|
|
|
3-7
|
Leasehold improvements
|
|
|
8,659
|
|
|
|
8,358
|
|
|
10 or term of lease
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110,521
|
|
|
|
112,409
|
|
|
|
Accumulated depreciation and amortization
|
|
|
(78,037
|
)
|
|
|
(74,776
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
32,483
|
|
|
$
|
37,633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 SFAS No. 144,
Accounting for Impairment or Disposal of Long-Lived Assets, the Company reviews whether impairment losses exist on long-lived assets when indicators of impairment are
46
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
present. During this review, the Company reevaluates the significant assumptions used in determining the original cost of long-lived assets. 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.
Goodwill and Other Intangibles
The Company has adopted the provisions of Statement No. 142,
Goodwill and Other Intangible Assets, which requires that goodwill and intangible assets with indefinite useful lives are not amortized. Intangible assets with a definitive useful life are amortized over their estimated useful life.
Assets recorded in these categories are tested for impairment at least annually or when a change in circumstances may result in future impairment. Identified intangible assets are recorded at historical cost. These assets acquired in an acquisition,
including purchased research and development, are recorded under the purchase method of accounting. Assets acquired in an acquisition are recorded at their estimated fair values at the date of acquisition. Management uses a discounted cash flow
analysis which requires that certain assumptions and estimates be made regarding industry economic factors and future profitability of the acquired business to assess the need for an impairment charge. If the carrying value of the asset is in excess
of the present value of the expected future cash flows, the carrying value is written down to fair value in the period identified.
Goodwill totaling $14.8 million at July 31, 2007 and July 31, 2006, represents the excess of acquisition costs over the estimated fair value of the net assets acquired from StepTech, Inc. (StepTech) on
June 10, 2003. Since the Company operates as a single reporting and under SFAS No. 142, goodwill is measured based on the Companys enterprise value, or more frequently annually if indicators of impairment develop.
Other intangible assets consisted of core technology and amounted to the following at:
|
|
|
|
|
|
|
|
|
|
|
|
Core Technology
(In thousands)
|
|
Gross Intangible
|
|
Accumulated
Amortization
|
|
Net
Intangible Asset
|
|
Estimated
Useful Life
|
July 31, 2007
|
|
$
|
2,800
|
|
$
|
2,800
|
|
$
|
|
|
4 years
|
July 31, 2006
|
|
$
|
2,800
|
|
$
|
2,100
|
|
$
|
700
|
|
4 years
|
Amortization expense for each of the years ended July 31, 2007 and 2006 was $700,000. The
aggregate amortization expense for the next year will be $0.
Recent Accounting Pronouncements
In June 2006, the FASB issued FASB Interpretation No. 48 (FIN No. 48), Accounting for Uncertainty in Income Taxesan
Interpretation of FASB Statement No. 109, which clarifies the accounting for uncertainty in income taxes recognized in accordance with SFAS No. 109, Accounting for Income Taxes. FIN No. 48 clarifies the application
of SFAS No. 109 by defining criteria that an individual tax position must meet for any part of the benefit of that position to be recognized in the financial statements. Additionally, FIN No. 48 provides guidance on the measurement,
de-recognition, classification and disclosure of tax positions along with the accounting for the related interest and penalties. The provisions of FIN No. 48 are effective for the fiscal years beginning after December 15, 2006, with the
cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. The Company is required to adopt FIN No. 48 for our fiscal year beginning August 1, 2007. The Company believes that the
adoption of FIN No. 48 will not have a material impact on its Consolidated Financial Statements.
47
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements
(SFAS No. 157). SFAS No. 157 provides guidance for using fair value to measure assets and liabilities. The standard also responds to investors requests for more information about (1) the extent to which companies
measure assets and liabilities at fair value, (2) the information used to measure fair value, and (3) the effect that fair-value measurements have on earnings. SFAS No. 157 will apply whenever another standard requires (or permits)
assets or liabilities to be measured at fair value. The standard does not expand the use of fair value to any new circumstances. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007.
The Company will adopt this requirement for the fiscal year beginning August 1, 2008. The Company is currently evaluating the potential impact that the adoption of SFAS No. 157 will have on its financial statements.
In September 2006, the FASB issued Statement of Financial Accounting Standard No. 158, Employers Accounting for Defined Benefit Pension
and Other Postretirement Plans (SFAS No. 158), an amendment of FASB Statements No. 87, 88, 106 and 132(R). SFAS No. 158 represents the completion of the first phase in the FASBs postretirement benefits
accounting project and requires an entity to recognize in its statement of financial position an asset for a defined benefit postretirement plans over-funded status or a liability for a plans under-funded status, measure a defined
benefit postretirement plans assets and obligations that determine its funded status as of the end of the employers fiscal year, and recognize changes in the funded status of a defined benefit postretirement plan in comprehensive income
in the year in which the changes occur. The requirement to recognize the funded status of a defined benefit postretirement plan and the disclosure requirements are effective for fiscal years ended after December 15, 2006. The requirement to
measure plan assets and benefit obligations as of the date of the employers fiscal year-end statement of financial position is effective for fiscal years ending after December 15, 2008. The Company adopted SFAS No. 158 as of
July 31, 2007. The adoption of SFAS No. 158 impacted the Companys balance sheet at July 31, 2007 as follows: (i) a decrease in other intangible assets of $773,000 and (ii) an increase in accumulated other comprehensive loss
of $773,000. The adoption of SFAS No. 158 had no effect on the Companys Consolidated Statements of Operations and Comprehensive Income for the year ended July 31, 2007 or for any prior period presented. SFAS No. 158 did not have a
material impact to the Companys Consolidated Financial Statements.
In February 2007, the FASB issued Statement of Financial
Accounting Standard No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS No. 159). SFAS No. 159 provides companies with an option to report selected financial assets and
liabilities at fair value. The Standards objective is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. This Statement is effective
as of the beginning of an entitys first fiscal year beginning after November 15, 2007. Early adoption is permitted as of the beginning of the previous fiscal year provided that the entity makes that choice in the first 120 days of that
fiscal year and also elects to apply the provisions of SFAS No. 157. The Company will adopt this requirement for the fiscal year beginning August 1, 2008. The Company is currently evaluating the potential impact that the adoption of SFAS
No. 159 will have on its financial statements.
48
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. OTHER ACCRUED EXPENSES
Other accrued expenses consisted of the following at July 31, 2007 and July 31, 2006:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
2007
|
|
2006
|
Accrued compensation
|
|
$
|
4,823
|
|
$
|
8,450
|
Accrued income and local taxes
|
|
|
5,596
|
|
|
5,177
|
Warranty reserve
|
|
|
1,819
|
|
|
3,543
|
Accrued restructuring
|
|
|
2,223
|
|
|
7,001
|
Accrued interest
|
|
|
2,280
|
|
|
3,664
|
Other accrued expenses
|
|
|
2,864
|
|
|
4,363
|
|
|
|
|
|
|
|
|
|
$
|
19,605
|
|
$
|
32,198
|
|
|
|
|
|
|
|
4. LONG-TERM DEBT
Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
As of July 31,
|
|
|
|
(in thousands)
|
|
|
|
2007
|
|
|
2006
|
|
Convertible subordinated notes
|
|
$
|
27,220
|
|
|
$
|
88,287
|
|
Bank term loan
|
|
|
20,000
|
|
|
|
59,400
|
|
Lease purchase obligations, net of deferred interest
|
|
|
2
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,222
|
|
|
|
147,691
|
|
Less: current portion
|
|
|
(29,322
|
)
|
|
|
(70,071
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
17,900
|
|
|
$
|
77,620
|
|
|
|
|
|
|
|
|
|
|
On August 8, 2001, the Company received net proceeds of $145.2 million from a private
placement of $150 million, 4.25% Convertible Subordinated Notes (the Notes) due 2006. The private placement was effected through a Rule 144A offering to qualified institutional buyers. Interest on the Notes is payable on February 15
and August 15 of each year, commencing February 15, 2002. The Notes are convertible into shares of the Companys common stock at any time prior to the close of business on August 15, 2006, unless previously redeemed, at a
conversion price of $29.04 per share, subject to certain adjustments. Prior to August 19, 2004, the Company could have redeemed any of the Notes at a certain redemption price, plus accrued interest, if the closing price of the common stock
exceeded 150% of the conversion price for at least 20 trading days in any consecutive 30-day trading period and certain other conditions are satisfied. On or after August 19, 2004, the Company could have redeemed any of the Notes at designated
redemption prices, plus accrued interest. The Notes are unsecured and subordinated in right of payment in full to all existing and future senior indebtedness of the Company. Expenses associated with the offering of approximately $4.8 million are
being amortized using the straight-line method, which approximates the effective interest method, over the term of the Notes. The stated interest rate is 4.25% and the effective rate is 4.39% due to the amortization of capitalized costs associated
with the offering. During the fourth fiscal quarter of 2005, the Company repurchased $61.7 million of the outstanding principal balance. On November 14, 2005, the Company refinanced this debt by exchanging $27.2 million in aggregate principal
amount of existing notes plus all accrued and unpaid interest on the outstanding notes for an equal principal amount of new notes due August 2007 with an interest rate of 4.25%. The principle balance of these notes of $27.2 million was paid in full
on August 15, 2007.
49
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On June 3, 2005, the Company closed a $60.0 million term loan with a commercial lender (the
2005 Loan Agreement). The loan had a five year term. Interest was at the lenders variable prime rate and was payable monthly. The Company entered into a new Loan and Security Agreement (the 2006 Loan Agreement), dated
as of December 7, 2006, with Silicon Valley Bank (SVB) to modify the existing $60.0 million term loan. Under the terms of the 2006 Loan Agreement, LTX borrowed $20.0 million under a term loan at an interest rate of prime minus 1.25%
with interest-only payable during the first 12 months. The loan is secured by all assets of the Company located in the United States. Principal of this term loan is repayable over four years as follows:
|
|
|
months 13 to 24: $300,000.00 per month
|
|
|
|
months 25 to 36: $600,000.00 per month
|
|
|
|
months 37 to 48: $766,666.67 per month
|
The financing arrangement under the 2006 Loan Agreement also provides LTX with a $30.0 million revolving credit facility. No amount was outstanding under the revolving credit facility as of July 31, 2007.
In connection with the 2006 Loan Agreement, LTX has terminated the 2005 Loan Agreement and has repaid all outstanding amounts under the 2005 Loan
Agreement. The net effect of this transaction reduced existing cash on hand by approximately $36.0 million in the quarter ended January 31, 2007.
The Company has a second credit facility with another lender for a revolving credit line of $5.0 million. This facility is secured by cash and marketable securities. This line of credit secures obligations of
operating leases and existing stand-by letters of credit. The line has $2.8 million available as of July 31, 2007.
5. INCOME TAXES
Reconciliation of the U.S. federal statutory rate to the Companys effective tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Year ended July 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
U.S. Federal statutory rate
|
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
Change in valuation allowance/utilization of net operating loss carry forwards
|
|
(35.0
|
)
|
|
(35.0
|
)
|
|
(35.0
|
)
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
The temporary differences and carry forwards that created the deferred tax assets and
(liabilities) as of July 31, 2007, and 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
As of July 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(in thousands)
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carry forwards
|
|
$
|
156,473
|
|
|
$
|
153,201
|
|
Tax credits
|
|
|
45,007
|
|
|
|
41,939
|
|
Inventory valuation reserves
|
|
|
15,765
|
|
|
|
17,789
|
|
Deferred revenue
|
|
|
117
|
|
|
|
337
|
|
Other
|
|
|
12,511
|
|
|
|
10,973
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets, net
|
|
|
229,873
|
|
|
|
224,239
|
|
Valuation allowance
|
|
|
(229,873
|
)
|
|
|
(224,239
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
50
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Compliance with SFAS No. 109 requires the Company to periodically evaluate the necessity of
establishing or increasing a valuation allowance for deferred tax assets depending on whether it is more likely than not that a related benefit will be realized in future periods. Because of the cumulative loss position of the Company at
July 31, 2002 and the uncertainty of the timing of profitability in future periods, the Company increased its valuation allowance to 100% of net deferred tax assets in the fourth quarter of fiscal year 2002. At July 31, 2007, the Company
continues to maintain a full valuation allowance against its deferred tax assets. Included in the valuation allowance is approximately $4.1 million related to certain NOL carryovers resulting from the exercise of stock options, the benefit of which,
when recognized, will be accounted for as a credit to additional paid in capital rather than a reduction in income tax.
As of
July 31, 2007, the Company had Federal net operating loss carry forwards of $428,008,000, which expire in 2012 to 2027, and Federal tax credit carry forwards of $25,591,000, which expire from 2016 to 2021. State tax credits and carry forwards
of $19,415,000 at July 31, 2007 expire from 2007 to 2022. The Company also has foreign NOLs of $950,000 in the United Kingdom and $2,500,000 in Japan.
In accordance with SFAS No. 109 and SFAS No. 5,
Accounting For Contingencies,
the Company established reserves for tax contingencies that reflect a best estimate of the transactions and deductions
that may be unable to be sustained or that would be conceded as part of a broader tax settlement. The Company is currently undergoing routine tax examinations by various state and foreign jurisdictions. Tax authorities periodically challenge certain
transactions and deductions we reported on our income tax returns. The Company does not expect the outcome of these examinations, either individually or in the aggregate, to have a material adverse effect on the financial position, results from
operations or cash flows of the Company.
In June 2006, the FASB issued FASB Interpretation No. 48 (FIN No. 48), Accounting
for Uncertainty in Income Taxesan Interpretation of FASB Statement No. 109, which clarifies the accounting for uncertainty in income taxes recognized in accordance with SFAS No. 109, Accounting for Income Taxes. FIN No. 48
clarifies the application of SFAS No. 109 by defining criteria that an individual tax position must meet for any part of the benefit of that position to be recognized in the financial statements. Additionally, FIN No. 48 provides guidance
on the measurement, de-recognition, classification and disclosure of tax positions along with the accounting for the related interest and penalties. The provisions of FIN No. 48 are effective for fiscal years beginning after December 15,
2006, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. The Company will be required to adopt FIN No. 48 for the fiscal year beginning August 1, 2007. The Company
believes that the adoption of FIN No. 48 will not have a material impact on the Companys Consolidated Financial Statements.
6. STOCKHOLDERS EQUITY
Public Offering
In January 2004, the Company filed a shelf registration statement on Form S-3 to register up to $250.0 million of common stock, debt securities and
warrants. On February 19, 2004, an offering was closed pursuant to the registration statement relating to the sale of 8,050,000 shares of common stock at $16.50 per share. The offering included 1,050,000 shares sold as a result of the exercise,
in full, by the underwriters of their option to purchase additional shares of common stock. Gross proceeds from the stock offering totaled approximately $132.8 million. Proceeds to LTX, net of $6.3 million in underwriters commissions and
discounts and other expenses, totaled approximately $126.5 million.
Rights Agreement
The Company has a Rights Agreement whereby each common stock shareholder has one common share purchase right for each share of common stock held. The
rights will become exercisable only if a person or group
51
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
acquires 15% or more of the Companys common stock or announces a tender offer that would result in ownership of 15% or more of the common stock.
Initially, each right will entitle a stockholder to buy one share of common stock of the Company at a purchase price of $45.00 per share, subject to significant adjustment depending on the occurrence thereafter of certain events. Before any person
or group has acquired 15% or more of the common stock of the Company, the rights are redeemable by the Board of Directors at $0.001 per right. The rights expire on April 30, 2009 unless redeemed by the Company prior to that date.
Reserved Unissued Shares
At
July 31, 2007, the Company had reserved 13,420,617 unissued shares of its common stock for possible issuance under stock-based compensation plans and the Companys Employee Stock Purchase Plan. At July 31, 2007, the Company has
reserved 937,328 shares of its common stock for issuance relating to the Companys 4.25% Convertible Subordinated Notes. On August 15, 2007, the Company paid the principle amount of $27.2 million and accrued interest of $1.9 million of the
4.25% Convertible Subordinated Notes, which reduced the amount of shares reserved to zero.
7. EMPLOYEE BENEFIT PLANS
Stock Option Plans
In connection with
the Companys Stock Option Plans, at July 31, 2007, 3,225,824 shares were subject to future grant under the 2004 Plan and no shares were available for future grant under any of the other Company Stock Option Plans.
The following is a summary of activities for the Companys Stock Option Plans:
Stock Option Activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
Number of
Shares (1)
|
|
|
Weighted
Average
Exercise Price
|
|
Number of
Shares (1)
|
|
|
Weighted
Average
Exercise Price
|
|
Number of
Shares (1)
|
|
|
Weighted
Average
Exercise Price
|
Options outstanding, beginning of year
|
|
8,534,284
|
|
|
$
|
9.17
|
|
10,723,005
|
|
|
$
|
10.40
|
|
9,035,317
|
|
|
$
|
11.46
|
Granted
|
|
|
|
|
|
|
|
169,500
|
|
|
|
3.81
|
|
2,151,225
|
|
|
|
5.75
|
Exercised
|
|
(144,350
|
)
|
|
|
5.05
|
|
(188,785
|
)
|
|
|
3.59
|
|
(78,285
|
)
|
|
|
3.13
|
Forfeited
|
|
(184,737
|
)
|
|
|
7.84
|
|
(2,169,436
|
)
|
|
|
10.99
|
|
(385,252
|
)
|
|
|
10.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, end of year
|
|
8,205,197
|
|
|
|
9.27
|
|
8,534,284
|
|
|
|
9.17
|
|
10,723,005
|
|
|
|
10.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable
|
|
7,687,983
|
|
|
|
10.45
|
|
7,147,159
|
|
|
|
10.75
|
|
8,600,755
|
|
|
|
11.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options available for grant
|
|
3,225,824
|
|
|
|
|
|
3,860,839
|
|
|
|
|
|
3,206,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average fair value of options granted during year
|
|
|
|
|
$
|
0.0
|
|
|
|
|
$
|
2.68
|
|
|
|
|
$
|
3.51
|
(1)
|
Does not include 500,512 shares for employee stock purchase plan in 2007, 639,773 shares in 2006, and 761,654 shares in 2005.
|
52
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of July 31, 2007, the status of the Companys outstanding and exercisable options is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
Range of Exercise Price ($)
|
|
Number
Outstanding
|
|
Weighted
Average
Remaining
Contractual Life
|
|
Weighted
Average
Exercise Price ($)
|
|
Number
Exercisable
|
|
Weighted
Average
Exercise Price ($)
|
0.01 4.63
|
|
870,413
|
|
5.2
|
|
$
|
3.58
|
|
743,449
|
|
$
|
3.54
|
4.64 9.25
|
|
3,158,356
|
|
5.3
|
|
|
6.84
|
|
2,768,106
|
|
|
7.04
|
9.26 13.88
|
|
3,198,975
|
|
4.6
|
|
|
12.76
|
|
3,198,975
|
|
|
12.76
|
13.89 18.50
|
|
682,453
|
|
3.5
|
|
|
15.40
|
|
682,453
|
|
|
15.40
|
18.51 23.13
|
|
244,000
|
|
3.6
|
|
|
21.09
|
|
244,000
|
|
|
21.09
|
23.14 27.75
|
|
16,000
|
|
4.6
|
|
|
26.20
|
|
16,000
|
|
|
26.20
|
27.76 32.38
|
|
1,000
|
|
3.9
|
|
|
28.34
|
|
1,000
|
|
|
28.34
|
32.39 37.00
|
|
18,500
|
|
2.4
|
|
|
33.63
|
|
18,500
|
|
|
33.63
|
41.64 46.25
|
|
15,500
|
|
2.6
|
|
|
46.25
|
|
15,500
|
|
|
46.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,205,197
|
|
4.8
|
|
$
|
10.11
|
|
7,687,983
|
|
$
|
10.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our general practice has been to issue new shares. In fiscal 2005, the Company granted 533,750
options tied to certain performance milestones. As of January 31, 2007, 100% of these options have vested as they have met the performance milestones. During the quarter ended January 31, 2006, the Company granted 983,600 restricted stock
units (RSUs). Of the 983,600 RSUs, vesting for 742,600 is tied to certain profit break-even milestones for executives. The first milestone was achieved May 16, 2006, resulting in 185,650 shares vesting on May 16, 2006. The
second vesting occurred on May 16, 2007, resulting in 167,650 vesting. The remaining executive RSUs will vest annually over the next two years unless another performance milestone is achieved. The remaining 241,000 RSUs are service vested for
key employees over a four year period, including 60,250 shares that vested on May 16, 2006, when the Company achieved a profit break-even milestone. The remaining shares will vest annually over the next two years, unless another performance
milestone is achieved. During the quarter ended October 31, 2006, the Company granted 973,000 RSUs. Of the 973,000 RSUs, vesting for 721,000 is tied to certain profit milestones for executives. The remaining 252,000 RSUs are service vested for
key employees and are earned over a four year period. For the quarter ended January 31, 2007, 62,300 RSUs were granted to directors to vest over three years, and 5,000 RSUs were granted to employees to vest over four years. For the quarter
ended April 30, 2007, 15,000 RSUs were granted to employees to vest over four years. For the quarter ended July 31, 2007, 7,000 RSUs were granted to employees to vest over four years.
RSU Activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
Number of
Shares
|
|
|
Weighted Average
Grant-Date
Fair Value
|
|
Number of
Shares
|
|
|
Weighted Average
Grant-Date
Fair Value
|
RSUs outstanding, beginning of year
|
|
759,900
|
|
|
$
|
4.50
|
|
|
|
|
$
|
|
Granted
|
|
1,062,300
|
|
|
|
4.91
|
|
1,011,800
|
|
|
|
4.48
|
Vested
|
|
(154,915
|
)
|
|
|
4.51
|
|
(163,874
|
)
|
|
|
4.44
|
Forfeited
|
|
(139,950
|
)
|
|
|
4.67
|
|
(88,026
|
)
|
|
|
4.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs outstanding, end of year
|
|
1,527,335
|
|
|
$
|
4.77
|
|
759,900
|
|
|
$
|
4.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On June 7, 2005, the Board of Directors, upon recommendation of the Boards Compensation
Committee, approved the accelerated vesting of certain unvested and out-of-the-money stock options held by employees,
53
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
executive officers and non-employee directors with exercise prices greater than $7.50 per share. The closing sale price of LTXs common stock on the
Nasdaq National Market on June 7, 2005 was $5.20. As a result of this vesting acceleration, which became effective on June 7, 2005, options to purchase approximately 2.3 million shares of LTXs common stock that would otherwise
have vested at various times within the next four years became fully vested.
The decision to accelerate these unvested options was made
primarily to reduce compensation expense that might be recorded in future periods following the Companys adoption of SFAS No. 123R on August 1, 2005. Accelerating the vesting of these stock options reduced the Companys
aggregate compensation expense in future periods by a total of approximately $10.4 million, before taxes, based upon value calculations using the Black-Scholes methodology (approximately $6.2 million in fiscal year 2006, $4.1 million in fiscal year
2007, and $0.1 million in fiscal year 2008).
Employees Stock Purchase Plan
The Company instituted an employee stock purchase plan in 1993 (1993 ESPP). Under the 1993 ESPP, eligible employees may contribute up to 15%
of their annual compensation for the purchase of common stock of the Company, subject to an annual limit of $25,000. The price paid for the common stock is equal to 85% of the lower of the fair market value of LTXs common stock on the first
business day or the last business day of a six-month offering period. The 1993 ESPP limits the number of shares that can be issued over the term of the plan to 3,000,000 shares. In December 2003, the 1993 ESPP expired and at the annual meeting on
December 10, 2003 the shareholders approved a new employee stock purchase plan (2004 ESPP). The 2004 ESPP provides the same provisions as the 1993 ESPP and allows for the issuance of 1,200,000 shares of common stock to eligible
employees. In September 2005, the Company amended the 2004 ESPP to provide that the price paid for the common stock is equal to 85% of the fair market value of LTXs common stock on the last business day of a six month offering period. In
fiscal years 2007, 2006, and 2005, shares issued under these employee stock purchase plans were 139,261, 121,881 and 288,486, respectively.
Other
Compensation Plans
The Company has established a Profit Sharing Bonus Plan, wherein a percentage of pretax profits are distributed
quarterly to all non-executive employees. Under the Profit Sharing Bonus Plan, the Company recorded profit sharing expense for all eligible employees of approximately $0.2 million, $1.6 million, and $0.0 million, for fiscal years 2007, 2006, and
2005, respectively.
The Company has an Executive Profit Sharing Plan based on certain profitability milestones. Employees included in this
plan are excluded from the Profit Sharing Bonus Plan. The Company expensed $0.0 million, $1.3 million, and $0.0 million for the fiscal years 2007, 2006, 2005 respectively.
The Company has a 401(k) Growth and Investment Program (401(k) Plan). Eligible employees may make voluntary contributions to the 401(k) Plan
through a salary reduction contract up to the statutory limit or 20% of their annual compensation. The Company matches employees voluntary contributions, up to certain prescribed limits. Company contributions vest at a rate of 20% per
year. The Company suspended the match as of June of fiscal year 2001. The Company match was reinstated beginning August 2005. The Company recorded related expense of $0.8 million and $0.7 million for the fiscal years ended July 31, 2007 and
July 31, 2006, respectively.
The Company has a defined benefit pension plan for its operation in the United Kingdom. The plan was
constituted in October 1981 to provide defined benefit pension and lump sum benefits, payable on retirement, for employees of LTX(Europe) Limited, (UK). The plan has 71 participants of which 2 remain as active employee members and 69 are
non-active former employees but for whom benefits are preserved. The plan has been closed to all new members since December 31, 2000. During fiscal 1998 LTX initiated a significant worldwide headcount
54
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
reduction. This restructuring involved the termination of 28 of the then 71 UK pension plan participants. Additionally, the Company announced the intent to
divest its iPTest business in the UK in August 1998, and disclosed this in the annual report on Form 10-K for fiscal 1998. The Company subsequently sold its iPTest subsidiary in the UK in fiscal 2000. These actions resulted in the termination of 19
of the then 43 active UK pension plan participants. The Company has concluded that these actions met the requirements of paragraph 6 of SFAS No. 88, Employers Accounting for Settlements and Curtailments of Defined Benefit Pension Plans
and Termination Benefits in fiscal 1998 and resulted in a curtailment of this plan at that date. The plan was under-funded as of July 31, 2007 by $3.9 million. The Company has recorded this liability as other long-term liabilities in the amount
of $3.6 million and accrued short-term liabilities of $0.3 million on the consolidated balance sheet as of July 31, 2007. Additionally, the Company has recorded a $0.2 million accumulated other comprehensive gain in stockholders
equity. The Company intends to make contributions over a 9 year period in order to reach fully funded status. The Company does not anticipate significant pension expense going forward from July 31, 2007. Factors that could impact the amount of
expense recorded include but are not limited to: 1) the rate of return on the assets invested or 2) the discount rate used to determine the net present value of the future liabilities. The expected rate of return on assets is 6.0% and the discount
rate is 5.7%. Cash payments are projected to be approximately $0.3 million in fiscal 2008 and actual cash payments were $0.4 million in fiscal 2007.
8. INDUSTRY AND GEOGRAPHIC SEGMENT INFORMATION
The Company operates predominantly in one industry segment: 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.
In fiscal years 2007, 2006, and 2005, Texas Instruments accounted for 38%, 56%, and 47%, of net sales, respectively. Sales to the top ten customers were
79%, 82%, and 77%, of net sales in fiscal 2007, 2006, and 2005, respectively.
The Companys operations by geographic segment for the
three years ended July 31, 2007 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Year ended July 31,
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
(in thousands)
|
Sales to unaffiliated customers:
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
48,830
|
|
$
|
88,896
|
|
$
|
41,253
|
Taiwan
|
|
|
5,496
|
|
|
10,538
|
|
|
11,815
|
Japan
|
|
|
5,241
|
|
|
2,840
|
|
|
5,978
|
Singapore
|
|
|
15,598
|
|
|
45,632
|
|
|
14,765
|
Philippines
|
|
|
37,584
|
|
|
55,176
|
|
|
38,941
|
All other countries
|
|
|
34,890
|
|
|
13,421
|
|
|
21,779
|
|
|
|
|
|
|
|
|
|
|
Total sales to unaffiliated customers
|
|
$
|
147,639
|
|
$
|
216,503
|
|
$
|
134,531
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
43,881
|
|
$
|
49,618
|
|
$
|
58,157
|
Taiwan
|
|
|
65
|
|
|
394
|
|
|
670
|
Japan
|
|
|
232
|
|
|
54
|
|
|
22
|
Singapore
|
|
|
1,845
|
|
|
1,545
|
|
|
1,996
|
All other countries
|
|
|
1,222
|
|
|
784
|
|
|
1,052
|
|
|
|
|
|
|
|
|
|
|
Total long-lived assets
|
|
$
|
47,245
|
|
$
|
52,395
|
|
$
|
61,897
|
|
|
|
|
|
|
|
|
|
|
55
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Transfer prices on products sold to foreign subsidiaries are intended to produce profit margins that
correspond to the subsidiarys sales and support efforts. Sales to customers in North America are 100% within the United States.
9. COMMITMENTS AND LEGAL MATTERS
The Company has operating lease commitments for certain facilities and equipment that
expire at various dates through 2016. The Company has an option to extend the term for its Norwood, Massachusetts facility lease for two (2) additional five (5) year periods provided that the Company notifies its landlord at least four
hundred twenty-five (425) days prior to expiration of the original term. Minimum lease payments under noncancelable leases at July 31, 2007, are as follows:
|
|
|
|
|
|
|
|
|
|
Year ending July 31,
|
|
Real
Estate
|
|
Equipment
|
|
Total
Operating
Leases
|
|
|
(in thousands)
|
2008
|
|
$
|
2,495
|
|
$
|
904
|
|
$
|
3,399
|
2009
|
|
|
1,842
|
|
|
218
|
|
|
2,060
|
2010
|
|
|
1,610
|
|
|
100
|
|
|
1,710
|
2011
|
|
|
1,422
|
|
|
22
|
|
|
1,444
|
2012
|
|
|
1,285
|
|
|
11
|
|
|
1,296
|
Thereafter
|
|
|
3,782
|
|
|
|
|
|
3,782
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
12,436
|
|
$
|
1,255
|
|
$
|
13,691
|
|
|
|
|
|
|
|
|
|
|
Total rental expense for fiscal 2007, 2006, and 2005 was $3,050,489, $3,299,090, and $9,261,863,
respectively.
The Company is, from time to time, subject to legal proceedings, claims and investigations that arise in the ordinary course
of business. There are no such matters that the Company believes are material with respect to its business, financial position or results of operations.
10. REORGANIZATION CHARGES AND INVENTORY PROVISIONS
For the quarter ended April 30, 2007, the Company recorded a
$4.2 million inventory related provision related to the Fusion HFi product line. The provision was required as a result of two major factors that materialized during the quarter. First, the Companys assessment of the Fusion HFi customers
demand for HFi due to the low demand in the markets they serve and second, the projected impact from customers who have increased adoption of the X-Series platform by transferring test capacity from HFi to a lower cost to test X-Series alternative.
The favorable performance/price characteristics of the X-Series testers has enabled customers to transition certain devices currently being tested on the Fusion HFi platform to the X-Series testers. This is expected to result in increased available
HFi capacity at customers and will likely reduce HFi purchases in the future.
For the quarter ended July 31, 2006, the Company
recorded a reorganization charge of approximately $0.2 million, relating primarily to the relocation of the Companys corporate headquarters.
For the quarter ended January 31, 2006, the Company recorded a reorganization charge of approximately $1.9 million, of which $0.6 million consisted of severance and employee benefit costs relating to Europe
56
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
workforce reductions, $1.2 million for future lease obligations and $0.3 million of plant closure expenses and legal costs related to the closure of the
Companys facilities in the United Kingdom. These expenses were partially offset by a $0.2 million reversal of a previously recorded liability for the remaining lease payments of the Companys Westwood, Massachusetts facility. The Company
signed an agreement during the quarter ended January 31, 2006 which reduced the future liability previously recorded in fiscal 2005.
On October 25, 2005, LTX Corporation took actions to reduce its operating expenses, including reducing its worldwide workforce by approximately 15%, eliminating 77 positions. Of the 77 positions, 74% were from engineering, 14% from
administration, 7% from manufacturing and 5% were from sales and marketing. The Company took these actions based on a continuing review of its business plans and operations. The Company has realized annual savings in operating expenses of
approximately $8.0 million as a result of these actions. For the quarter ended October 31, 2005, the Company recorded a reorganization charge relating to workforce reductions and the separation agreement with its Chief Executive Officer of $4.2
million, of which $2.3 million consisted of severance costs relating to a worldwide workforce reduction, which was paid during the fiscal year ended July 31, 2006, and a $1.9 million charge relating to the separation of the Companys Chief
Executive Officer. The separation agreement with the Companys Chief Executive Officer has a $1.2 million cash component, and a non-cash component consisting of the acceleration of stock option expense of $0.7 million. For more information,
please refer to the Companys current reports of Form 8-K filed on October 27, 2005 and November 4, 2005.
During the
quarter ended April 30, 2005, the Company recorded a reorganization charge of $28.6 million as a result of a significant corporate-wide restructuring undertaken to more effectively align the Companys resources with its current business
strategy. Of the $28.6 million, approximately $4.0 million related to headcount reduction and approximately $24.6 million related to property and equipment impairment and facilities consolidation.
The $24.6 million reorganization charge relating to fixed asset impairment and facilities consolidation was undertaken as a result of an asset impairment
review. This review was triggered by the workforce reduction and business unit reorganization. Of the $24.6 million impairment charge, $18.1 million was related to equipment, $4.6 million related to future lease obligations on equipment that will no
longer be used and $1.9 million related to facilities consolidation. The equipment disposed of consisted primarily of older technology and leased equipment with remaining principal payments that the Company cannot dispose of until all lease
obligations have been satisfied.
The Company recorded a reorganization charge in the quarter ended October 31, 2004 of $3.1 million,
of which $1.5 million consisted of severance costs relating to a worldwide workforce reduction and $1.6 million related to consolidation of the Companys facilities in the United Kingdom. The $1.6 million reorganization charge related to the
consolidation of the Companys facilities in the United Kingdom consisted of future lease obligations net of any rental income. In the first quarter of fiscal 2005, the Companys major customers reduced their forecasts for capital
equipment purchases, which resulted in a sudden and substantial drop in revenues and orders for the Company. These conditions continued into the second quarter of fiscal 2005. As a result of the shorter than expected unfavorable development in
business conditions and the completion of the Companys transition to its next generation Fusion tester product series, the Company recognized a $47.5 million excess and obsolete inventory provision, primarily related to Fusion HF, in the
quarter ended October 31, 2004.
57
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table sets forth the Companys restructuring activity and related accrual for the
fiscal years ended 2007, 2006 and 2005 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
Costs
|
|
|
Equipment
leases
|
|
|
Facility
leases
|
|
|
Asset
impairment
|
|
|
Total
|
|
|
|
(in millions)
|
|
Balance July 31, 2004
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Additions to expense
|
|
|
5.5
|
|
|
|
4.6
|
|
|
|
3.5
|
|
|
|
18.1
|
|
|
|
31.7
|
|
Elimination of deferred gain
|
|
|
|
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
2.8
|
|
Non-cash utilization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18.1
|
)
|
|
|
(18.1
|
)
|
Cash paid
|
|
|
(4.8
|
)
|
|
|
(0.8
|
)
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
(6.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance July 31, 2005
|
|
$
|
0.7
|
|
|
$
|
6.6
|
|
|
$
|
2.7
|
|
|
$
|
|
|
|
$
|
10.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions (reductions) to expense
|
|
|
4.9
|
|
|
|
(0.1
|
)
|
|
|
1.4
|
|
|
|
0.1
|
|
|
|
6.3
|
|
Elimination of deferred gain
|
|
|
|
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.7
|
)
|
Non-cash utilization
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
|
|
(0.5
|
)
|
Cash paid
|
|
|
(3.2
|
)
|
|
|
(1.7
|
)
|
|
|
(2.2
|
)
|
|
|
|
|
|
|
(7.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance July 31, 2006
|
|
$
|
2.1
|
|
|
$
|
4.1
|
|
|
$
|
1.8
|
|
|
$
|
|
|
|
$
|
8.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions (reductions) to expense
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.4
|
)
|
Elimination of deferred gain
|
|
|
|
|
|
|
(1.6
|
)
|
|
|
|
|
|
|
|
|
|
|
(1.6
|
)
|
Non-cash utilization
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
(0.2
|
)
|
Cash paid
|
|
|
(0.7
|
)
|
|
|
(1.7
|
)
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
(3.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance July 31, 2007
|
|
$
|
0.6
|
|
|
$
|
0.8
|
|
|
$
|
1.0
|
|
|
$
|
|
|
|
$
|
2.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11. QUARTERLY RESULTS OF OPERATIONS (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended July 31, 2007
|
|
|
|
First
Quarter (1)
|
|
Second
Quarter (1)
|
|
|
Third
Quarter (1) (2)
|
|
|
Fourth
Quarter (1)
|
|
|
|
(In thousands, except per share data)
|
|
Net sales
|
|
$
|
49,840
|
|
$
|
34,671
|
|
|
$
|
33,014
|
|
|
$
|
30,114
|
|
Gross profit
|
|
|
25,136
|
|
|
16,042
|
|
|
|
10,839
|
|
|
|
14,006
|
|
Net income (loss)
|
|
|
4,590
|
|
|
(3,079
|
)
|
|
|
(7,991
|
)
|
|
|
(4,185
|
)
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.07
|
|
$
|
(0.05
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
(0.07
|
)
|
Diluted
|
|
$
|
0.07
|
|
$
|
(0.05
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
(0.07
|
)
|
(1)
|
Includes stock based compensation of $0.9 million, ($0.02 per share), $1.3 million, ($0.02 per share), $0.9 million, ($0.01 per share) and $0.9 million, ($0.01 per share),
respectively.
|
(2)
|
Includes inventory related provisions of $4.2 million.
|
58
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended July 31, 2006
|
|
|
First
Quarter (1) (4)
|
|
|
Second
Quarter (2) (4)
|
|
|
Third
Quarter (4)
|
|
Fourth
Quarter (3) (4)
|
|
|
(In thousands, except per share data)
|
Net sales
|
|
$
|
44,951
|
|
|
$
|
47,803
|
|
|
$
|
56,339
|
|
$
|
67,410
|
Gross profit
|
|
|
18,694
|
|
|
|
22,257
|
|
|
|
29,480
|
|
|
35,876
|
Net income (loss)
|
|
|
(8,383
|
)
|
|
|
(1,446
|
)
|
|
|
8,141
|
|
|
13,929
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.14
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
0.13
|
|
$
|
0.23
|
Diluted
|
|
$
|
(0.14
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
0.13
|
|
$
|
0.22
|
(1)
|
Includes reorganization costs of $4.2 million.
|
(2)
|
Includes reorganization costs of $1.9 million and an inventory related provision of $0.2 million.
|
(3)
|
Includes reorganization costs of $0.2 million.
|
(4)
|
Includes stock based compensation of $0.7 million, ($0.01 per share), $1.2 million, ($0.02 per share), $1.4 million, ($0.02 per share) and $1.3 million, ($0.02 per share),
respectively.
|
12. SUBSEQUENT EVENTS
On August 15, 2007, the Company paid the full amount of the $27.2 million Convertible Subordinated Notes plus accrued interest of $1.9 million that were due on August 15, 2007. The Company utilized existing
operating cash to make the payment. This transaction completes all obligations and payments from the August 8, 2001 private placement of $150.0 million 4.25% Convertible Subordinated Notes.
On September 19, 2007, the Company granted 924,000 service based RSUs from the Companys 2004 Stock Plan to the Companys executive
officers (see Form 8-K filed on September 21, 2007), and other key officers and employees. The annual stock based compensation expense is expected to be approximately $3.6 million amortizable over four years on a straight-line basis.
59