| Summary of Significant Accounting Policies | 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The 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.
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 United States generally
accepted accounting principles (“U.S. GAAP”) 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. Actual results may differ from those
estimates and such differences may be material to the consolidated
financial statements.
Revenue Recognition
The Company recognizes revenue based on guidance provided in Topic
605, Revenue Recognition Multiple-Deliverable
Revenue Arrangements
Revenue related to equipment sales is recognized when: (a) the
Company has a written sales agreement; (b) delivery has
occurred or service has been rendered; (c) the price is fixed
or determinable; (d) collectability is reasonably assured;
(e) the equipment delivered is a 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. From time to time, sales to a customer may involve
multiple elements, in which case 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 equipment with the customer, (3) the undelivered element
is not essential to the customer’s application, (4) the
delivered item(s) has value to the customer on a stand-alone basis,
and (5) if the arrangement includes 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.
Revenue related to maintenance and service contracts is recognized
ratably over the duration of the contracts. Net service sales as
presented in the Company’s Consolidated Statement of
Operations and Comprehensive Income (Loss) includes revenue
associated with LTXC maintenance or service contracts only, and
excludes ECT and Multitest. ECT and Multitest generally do not
provide maintenance and service contracts, but rather sell spare
parts and other components, and as a result these sales are
recognized as net product sales in the Company’s Consolidated
Statement of Operations and Comprehensive Income (Loss). Revenue
related to spare parts and components is recognized when the main
criteria listed above are met. Generally customer acceptance is not
required for spare parts and component sales.
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:
January 31, 2016 July 31, 2015
(in
thousands)
Material and purchased components $ 26,807 $ 27,249
Work-in-process 19,727 15,250
Finished equipment, including inventory consigned to customers 18,640 18,094
Total inventories $ 65,174 $ 60,593
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
Company’s products or market conditions. The Company
regularly evaluates its 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
January 31, 2016 and July 31, 2015, inventory was stated
net of inventory reserves of $47.2 million and $46.9 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.
Goodwill and Other Intangibles
In accordance with FASB ASC Topic
350— Intangibles—Goodwill and Other
The testing of goodwill for impairment is performed at a level
referred to as a reporting unit. As of January 31, 2016, the
Company’s goodwill is allocated to its Semiconductor Test
reporting unit and its Contactors reporting unit. Based on Topic
350-20-35-3A, as of January 31, 2016, there were no triggering
events that required the Company to complete impairment
testing.
The Company’s goodwill consists of the following:
Goodwill January 31, 2016 July 31, 2015
(in
thousands)
Semiconductor Test Reporting Unit
Merger with Credence Systems Corporation (August 29, 2008) $ 28,662 $ 28,662
Acquisition of Step Tech Inc. (June 10, 2003) 14,368 14,368
Contactors Reporting Unit
Acquisition of Titan Semiconductor Tool LLC (February 2, 2015) 820 820
Total goodwill $ 43,850 $ 43,850
Amortizable intangible assets which relate to the acquisition of
Titan Semiconductor Tool LLC (“Titan”), ECT, Multitest,
and atg, and the merger with Credence Systems Corporation
(“Credence”), consist of the following, and are
included in intangible assets, net on the Company’s
Consolidated Balance Sheets:
As of January 31, 2016
Description Estimated Useful Life Gross Carrying Amount Accumulated Amortization Net Amount
(in years)
(in thousands)
(in thousands)
(in thousands)
Developed technology (Credence, ECT, Multitest, atg, and Titan) 6-20 $ 29,882 $ (27,253 ) $ 2,629
Customer Relationships – ECT, Multitest, atg, and Titan 2 1,844 (1,174 ) 670
Maintenance agreements—ASL & Diamond 7 1,900 (1,764 ) 136
Trade Names 10 70 (10 ) 60
Non-compete Agreements 1 8 (8 )
—
Total amortizable intangible assets $ 33,704 $ (30,209 ) $ 3,495
Trademarks 6,427
— 6,427
Total intangible assets $ 40,131 (30,209 ) $ 9,922
As of July 31, 2015
Description Estimated Useful Life Gross Carrying Amount Accumulated Amortization Net Amount
(in years)
(in thousands)
(in thousands)
(in thousands)
Developed technology (Credence, ECT, Multitest, atg, and Titan) 6-20 $ 29,882 $ (26,856 ) $ 3,026
Customer Relationships – ECT, Multitest, atg, and Titan 2 1,844 (992 ) 852
Maintenance agreements—ASL & Diamond 7 1,900 (1,629 ) 271
Trade Names 10 70 (6 ) 64
Non-compete Agreements 1 8 (8 )
—
Total amortizable intangible assets $ 33,704 $ (29,491 ) $ 4,213
Trademarks 6,427
— 6,427
Total intangible assets $ 40,131 $ (29,491 ) $ 10,640
Intangible assets, other than trademarks owned by the Company, 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 4.0 years.
The Company expects amortization for these intangible assets to be
to be:
Year ending July 31, Amount (in thousands)
Remainder of 2016 $ 494
2017 669
2018 472
2019 379
Thereafter 1,481
Total $ 3,495
The identifiable intangible assets associated with the Dover
Acquisition include $6.4 million of trademarks. The Company
believes these trademarks will contribute to the Company’s
cash flows indefinitely. Therefore, in accordance with
Topic 350, the Company has assigned an indefinite useful life
to the trademarks, and will not amortize the trademarks until their
useful lives are no longer indefinite.
Long Lived Assets
On an on-going basis, management reviews the value of and period of
amortization or depreciation of the Company’s long-lived
assets. In accordance with Topic 360, Property, Plant and
Equipment
Foreign Currency Remeasurement
The financial statements of the Company’s foreign
subsidiaries are remeasured in accordance with Topic 830,
Foreign Currency Matters,
Product Warranty Costs
Certain of the Company’s 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 most
of its products, the standard terms and conditions of which are
based on the product sold and the customer. For all products sold,
subject to a warranty, the Company accrues a liability for the
estimated cost of the standard warranty at the time of shipment.
Factors that impact the warranty liability include the number of
installed products, historical and anticipated product failure
rates, material usage and service labor costs. The Company
periodically assesses the adequacy of its recorded liability and
adjusts these amounts as necessary.
The following table shows the change in the Company’s product
warranty liability, as required by Topic 460, Guarantees
Six Months Ended January 31,
Product Warranty Activity 2016 2015
(in
thousands)
Balance at beginning of period $ 2,983 $ 3,240
Warranty expenditures for current period (1,993 ) (2,750 )
Changes in liability related to pre-existing warranties (33 ) (280 )
Provision for warranty costs in the period 1,894 2,843
Balance at end of period $ 2,851 $ 3,053
Trade Accounts Receivable and Allowance for Doubtful
Accounts
Trade accounts receivable are recorded at the invoiced amount, do
not bear interest, and typically have a contractual maturity of
ninety days or less. A majority of the Company’s trade
receivables are derived from sales to large multinational
semiconductor manufacturers throughout the world. The volatility of
the industries that the Company serves can cause certain of its
customers to experience shortages of cash, which can impact their
ability to make required payments. An allowance for doubtful
accounts is maintained for potential credit losses based upon the
Company’s assessment of the expected collectability 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
customer’s inability to meet its financial obligations, an
allowance is provided, which is based on the age of the
receivables, the circumstances surrounding the customer’s
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 Expenses
The Company expenses all engineering and product development costs
as incurred. Expenses relating to certain software development
costs, subject to capitalization in accordance with Topic 985,
Software,
Shipping and Handling Costs
Shipping and handling costs are included in cost of sales in the
Company’s Consolidated Statements of Operations and
Comprehensive Income (Loss). Shipping and handling costs were
insignificant for the three and six months ended January 31,
2016 and 2015.
Income Taxes
The Company recorded an income tax provision of $2.6 million for
the six months ended January 31, 2016, primarily due to
foreign taxes in profitable locations.
As a result of the Company’s sale of the Interface Board
Business to Fastprint (see Note 3 for details), the Company is
reporting all financial activity for that business (including
revenues, direct expenses, gain on sale of discontinued operations,
and the tax impact of the gain on the sale and the related tax
impact of discontinued operations) as discontinued operations. For
details on the tax impact on discontinued operations, see Note 3.
The income tax provision reported in this Note relates to the tax
position of the Company’s continuing operations.
Generally, the amount of tax expense or benefit allocated to
continuing operations is determined without regard to the tax
effects of other categories of income or loss, such as income from
discontinued operations. However, an exception is provided when
there is a pre-tax loss from continuing operations and pre-tax
income from other categories in the current year. The intraperiod
tax allocation rules in Topic 740, Income Taxes
During the second quarter of 2016, because the Company projected a
U.S. loss in continuing operations for 2016 and generated a U.S.
gain on sale on discontinuing operations for the three months ended
January 31, 2016, the intraperiod tax allocation exception
contained in Topic 740 is applied. Specifically, the Company
recorded a tax expense of approximately $4.2 million in its
discontinued operations, related primarily to the gain on sale of
its discontinued operations; however, since the Company projects
further losses on its continuing operations in the U.S. in 2016, it
expects to fully off-set the tax expense from discontinued
operations with additional tax benefits in the third and fourth
quarters of 2016.
The Company’s total liability for unrecognized income tax
benefits was $6.2 million and $6.3 million (of which $2.6
million and $2.7 million, if recognized, would impact the
Company’s income tax rate) as of January 31, 2016 and
July 31, 2015, respectively. The Company recognizes interest
and penalties related to uncertain tax positions as a component of
provision for income taxes. As of January 31, 2016 and
July 31, 2015, the Company had accrued approximately $1.1
million and $1.0 million, respectively, 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,
Malaysia, China, 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 the years prior to 1998.
As a result of the Company’s merger with Credence on
August 29, 2008, a greater than 50% cumulative ownership
change in both entities triggered a significant limitation on net
operating loss carryforward utilization. The Company’s
ability to use acquired U.S. 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 that are available for utilization to approximately $202.0
million. The Company has recorded a valuation allowance against the
full value of U.S. net operating loss and credit carryforwards, and
will continue to assess the realizability of these carryforwards in
subsequent periods.
Accounting for Stock-Based Compensation
The Company has equity awards outstanding under various stock-based
compensation plans, including the 2010 Stock Incentive Plan
(“2010 Plan”) and 2004 Stock Plan. The Company can only
grant awards under the 2010 Plan.
During the three months ended January 31, 2016, the Company
granted 62,000 Restricted Stock Units (“RSUs”) to
certain employees, 60,000 of which are subject to service-based
vesting and vest in full on the twelve month anniversary of the
grant date, and 2,000 of which are subject to service-based vesting
and vest 25% per year for four years. The stock-based
compensation expense related to these awards is recognized over
their vesting periods.
The Company recognizes stock-based compensation expense on its
equity awards in accordance with the provisions of Topic 718,
Compensation—Stock Compensation
Net income (loss) per share
Basic net income (loss) income 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 net 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 RSUs,
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 net income (loss) per
common share is as follows:
Three Months Ended Six Months Ended
2016 2015 2016 2015
(in thousands,
except per share data)
Net income $ 2,548 $ 3,929 $ 883 $ 15,991
Basic EPS:
Weighted average shares outstanding- basic 53,608 54,362 54,049 52,745
Basic income per share $ 0.05 $ 0.07 $ 0.02 $ 0.30
Diluted EPS:
Weighted average shares outstanding- basic 53,608 54,362 54,049 52,745
Plus: impact unvested RSUs
— 305 92 765
Weighted average shares outstanding- diluted 53,608 54,667 54,141 53,510
Diluted income per share $ 0.05 $ 0.07 $ 0.02 $ 0.30
For the six months ended January 31, 2016, there were no
outstanding options to purchase stock of the Company. For the six
months ended January 31, 2015, options to purchase
approximately 0.1 million shares of common stock were not
included in the calculation of diluted net loss per share because
the effect of including the options would have been anti-dilutive.
The calculation of diluted net loss per share also excludes
2.1 million RSUs for the three and six months ended
January 31, 2016 in accordance with the contingently issuable
shares guidance of Topic 260, 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 operating cash, money market
accounts and reverse repurchase agreements. Marketable securities
consist primarily of debt securities that are classified as
available-for-sale, in accordance with Topic 320,
Investments—Debt and Equity Securities,
The market value and maturities of the Company’s marketable
securities are as follows:
Total Amount
(in thousands)
January 31, 2016
Due in less than one year $ 25,571
Due in 1 to 3 years 33,591
Total marketable securities $ 59,162
Total Amount
(in thousands)
July 31, 2015
Due in less than one year $ 36,447
Due in 1 to 3 years 24,146
Total marketable securities $ 60,593
The market value and amortized cost of marketable securities are as
follows:
Market Amortized
(in
thousands)
January 31, 2016
Corporate $ 23,213 $ 23,062
Government 15,330 15,292
Mortgage-Backed 2,237 2,241
Asset-Backed 18,382 18,331
Total $ 59,162 $ 58,926
Market Amortized
(in
thousands)
July 31, 2015
Corporate $ 15,996 $ 15,951
Government 25,567 25,381
Mortgage-Backed 2,670 2,674
Asset-Backed 16,360 16,335
Total $ 60,593 $ 60,341
Unrealized gains and losses on investments held by the Company are
reflected as a separate component of comprehensive income (loss)
within Stockholders’ Equity. Realized gains, losses and
interest on investments held by the Company are included in
interest income in the Consolidated Statements of Operations and
Comprehensive Income (Loss). The Company analyzes its investments
for impairment on a quarterly basis or upon occurrence of
indicators of possible impairment. There were no
other-than-temporary impairment losses recorded in the three and
six months ended January 31, 2016 or 2015.
The following table summarizes marketable securities and related
unrealized gains and losses as of January 31, 2016 and
July 31, 2015:
January 31, 2016 Market Unrealized Gain/(Loss)
(in
thousands)
Securities < 12 months unrealized losses $ 13,227 $ (13 )
Securities > 12 months unrealized losses 20,058 (47 )
Securities < 12 months unrealized gains 12,343 10
Securities > 12 months unrealized gains 13,534 20
Total $ 59,162 $ (30 )
July 31, 2015 Market Unrealized Gain/(Loss)
(in
thousands)
Securities < 12 months unrealized losses $ 17,767 $ (28 )
Securities > 12 months unrealized losses 11,592 (23 )
Securities < 12 months unrealized gains 18,681 12
Securities > 12 months unrealized gains 12,553 20
Total $ 60,593 $ (19 )
Property and Equipment
Property and equipment acquired is recorded at cost. The Company
records depreciation using 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 five to seven years. Repair
and maintenance costs that do not extend the lives of property and
equipment are expensed as incurred. The Company’s property
and equipment as of January 31, 2016 and July 31, 2015
are summarized as follows:
January 31, July 31, Estimated
(in thousands) (in years)
Equipment spares $ 37,604 $ 41,398 5 or 7
Machinery, equipment and internally manufactured systems 32,994 32,068 3-7
Office furniture and equipment 2,498 2,518 3-7
Purchased software 643 506 3
Land 6,106 6,106
—
Buildings 8,689 8,634 5 or 7
Leasehold improvements 10,366 11,029 10-40 years
useful life, not to
Property and equipment, gross 98,900 102,259
Accumulated depreciation and amortization (69,107 ) (70,809 )
Property and equipment, net $ 29,793 $ 31,450 |
