e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period ended March 31, 2008
or
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TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 |
For the transition period from to
Commission File Number 000-31311
PDF SOLUTIONS, INC.
(Exact name of Registrant as Specified in its Charter)
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Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
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25-1701361
(I.R.S. Employer
Identification No.) |
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333 West San Carlos Street, Suite 700
San Jose, California
(Address of Principal Executive Offices)
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95110
(Zip Code) |
(408) 280-7900
(Registrant’s Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in
Rule 12b-2 of the Exchange Act. (Check one):
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| o Large accelerated filer
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þ Accelerated filer
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o Non-accelerated filer
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o Smaller reporting company
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(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
The number of shares outstanding of the Registrant’s Common Stock as of May 2, 2008 was 27,742,509.
Item 1. Financial Statements.
PDF SOLUTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
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March 31, |
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December 31, |
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2008 |
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2007 |
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(In thousands, |
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except par values) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
33,025 |
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$ |
35,315 |
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Short-term investments |
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9,806 |
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9,949 |
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Accounts receivable, net of allowance of $254 in 2008 and 2007 |
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38,507 |
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38,526 |
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Prepaid expenses and other current assets |
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3,863 |
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3,354 |
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Deferred tax assets |
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1,991 |
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1,676 |
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Total current assets |
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87,192 |
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88,820 |
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Property and equipment, net |
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3,487 |
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3,621 |
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Non-current investments |
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1,416 |
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— |
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Goodwill |
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67,132 |
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65,170 |
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Intangible assets, net |
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12,009 |
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12,818 |
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Deferred tax assets and other assets |
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8,814 |
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8,922 |
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Total assets |
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$ |
180,050 |
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$ |
179,351 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Current portion of long-term debt |
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$ |
431 |
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$ |
421 |
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Accounts payable |
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2,209 |
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3,469 |
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Accrued compensation and related benefits |
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5,516 |
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5,950 |
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Other accrued liabilities |
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2,755 |
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2,604 |
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Taxes payable |
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576 |
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208 |
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Deferred revenue |
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4,504 |
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3,159 |
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Billings in excess of recognized revenue |
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354 |
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553 |
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Total current liabilities |
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16,345 |
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16,364 |
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Long-term debt |
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948 |
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907 |
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Long-term taxes payable |
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5,698 |
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5,581 |
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Other liabilities |
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298 |
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29 |
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Total liabilities |
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23,289 |
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22,881 |
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Stockholders’ equity: |
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Preferred stock, $0.00015 par value, 5,000 shares authorized: no shares issued and outstanding |
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— |
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Common stock, $0.00015 par value, 70,000 shares authorized: shares issued 29,129 in 2008 and
29,122 in 2007; shares outstanding 27,743 in 2008 and 27,933 in 2007 |
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4 |
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Additional paid-in-capital |
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183,578 |
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181,566 |
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Treasury stock at cost, 1,386 shares in 2008 and 1,190 shares in 2007 |
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(12,648 |
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(11,524 |
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Accumulated deficit |
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(19,405 |
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(16,892 |
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Accumulated other comprehensive income |
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5,232 |
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3,316 |
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Total stockholders’ equity |
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156,761 |
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156,470 |
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Total liabilities and stockholders’ equity |
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$ |
180,050 |
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$ |
179,351 |
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See notes to unaudited condensed consolidated financial statements
3
PDF SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
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Three Months Ended March 31, |
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2008 |
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2007 |
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(In thousands, except per share |
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amounts) |
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Revenues: |
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Design-to-silicon-yield solutions: |
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Services |
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$ |
13,328 |
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$ |
13,764 |
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Software licenses |
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1,696 |
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3,485 |
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Gainshare performance incentives |
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5,323 |
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4,893 |
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Total revenues |
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20,347 |
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22,142 |
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Cost of design-to-silicon-yield solutions: |
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Services |
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7,682 |
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7,708 |
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Software licenses |
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84 |
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59 |
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Amortization of acquired technology |
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631 |
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1,575 |
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Total cost of design-to silicon-yield solutions |
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8,397 |
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9,342 |
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Gross margin |
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11,950 |
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12,800 |
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Operating expenses: |
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Research and development |
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9,076 |
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8,370 |
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Selling, general and administrative |
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6,299 |
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5,844 |
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Amortization of other acquired intangible assets |
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194 |
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1,013 |
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Total operating expenses |
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15,569 |
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15,227 |
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Loss from operations |
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(3,619 |
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(2,427 |
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Interest and other income, net |
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489 |
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496 |
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Loss before taxes |
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(3,130 |
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(1,931 |
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Income tax provision (benefit) |
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(617 |
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424 |
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Net loss |
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$ |
(2,513 |
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$ |
(2,355 |
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Net loss per share — basic and diluted |
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$ |
(0.09 |
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$ |
(0.08 |
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Weighted average common shares — basic and diluted |
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27,840 |
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27,980 |
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See notes to unaudited condensed consolidated financial statements
4
PDF SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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Three Months Ended |
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March 31, |
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2008 |
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2007 |
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(In thousands) |
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Operating activities: |
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Net loss |
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$ |
(2,513 |
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$ |
(2,355 |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
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524 |
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493 |
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Stock-based compensation expense |
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1,983 |
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1,838 |
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Losses on disposal of property, plant and equipment |
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2 |
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1 |
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Amortization of acquired intangible assets |
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825 |
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2,604 |
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Tax benefit related to stock-based compensation expense |
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(11 |
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(27 |
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Deferred taxes and other assets |
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(1,284 |
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(1,529 |
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Changes in operating assets and liabilities, net of effect of acquisition: |
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Accounts receivable, net of allowances |
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62 |
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(7,525 |
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Prepaid expenses and other assets |
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(418 |
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46 |
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Accounts payable |
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(1,332 |
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(637 |
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Accrued compensation and related benefits |
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(525 |
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607 |
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Other accrued liabilities |
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407 |
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368 |
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Taxes payable |
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442 |
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1,833 |
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Deferred revenues |
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1,280 |
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2,867 |
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Billings in excess of recognized revenue |
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(199 |
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793 |
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Net cash used in operating activities |
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(757 |
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(623 |
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Investing activities: |
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Purchases of available-for-sale securities |
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(8,848 |
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(9,515 |
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Maturities and sales of available-for-sale securities |
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7,585 |
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7,671 |
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Purchases of property and equipment |
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(240 |
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(476 |
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Payments on business acquired, net of cash acquired |
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— |
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(1,945 |
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Net cash used in investing activities |
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(1,503 |
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(4,265 |
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Financing activities: |
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Proceeds from exercise of stock options |
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40 |
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447 |
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Purchases of treasury stock |
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(1,124 |
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— |
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Principal payments on long-term obligations |
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(56 |
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(38 |
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Net cash provided by (used in) financing activities |
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(1,140 |
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409 |
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Effect of exchange rate changes on cash |
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1,110 |
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111 |
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Net decrease in cash and cash equivalents |
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(2,290 |
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(4,368 |
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Cash and cash equivalents, beginning of period |
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35,315 |
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36,451 |
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Cash and cash equivalents, end of period |
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$ |
33,025 |
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$ |
32,083 |
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Supplemental disclosure of cash flow information: |
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Cash paid during the year for: |
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Taxes |
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$ |
244 |
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$ |
184 |
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Interest |
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$ |
11 |
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$ |
12 |
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See notes to unaudited condensed consolidated financial statements
5
PDF SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
Basis of Presentation
The interim unaudited condensed consolidated financial statements included herein have been
prepared by PDF Solutions, Inc., or the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission, or the SEC, including the instructions to
Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally
included in annual financial statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted. The interim unaudited
condensed consolidated financial statements reflect, in the opinion of management, all adjustments
necessary, (consisting only of normal recurring adjustments) to present a fair statement of results
for the interim periods presented. The operating results for any interim period are not necessarily
indicative of the results that may be expected for other interim periods or the full fiscal year.
The accompanying interim unaudited condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements in the Company’s Annual Report on
Form 10-K for the year ended December 31, 2007.
The preparation of the condensed consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses. A significant portion of the Company’s revenues require estimates with respect to
total costs which may be incurred and revenues earned. Actual results could differ from these
estimates.
The condensed consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries after the elimination of all significant intercompany balances and
transactions.
The Company has chosen to replace the term “Integrated Solutions”, under the caption
Design-to-Silicon Solutions in its condensed consolidated statements of operations, with the term
“Services”, and replace the term “Gain Share” with “Gainshare Performance Incentives”, to better
describe the arrangements provided to its customers.
Revenue Recognition
The Company derives revenue from two sources: Design-to-Silicon-Yield Solutions, which
includes Services and Software Licenses, and Gainshare Performance Incentives. The Company
recognizes revenue in accordance with the provisions of American Institute of Certified Public
Accountants Statement of Position, or SOP, No. 81-1, Accounting for Performance of
Construction-Type and Certain Production-Type Contracts and SOP No. 97-2, Software Revenue
Recognition, as amended.
Design-to-Silicon-Yield Solutions — Revenue that is derived from Design-to-Silicon-Yield
solutions comes from services and software licenses. The Company recognizes revenue for each
element of Design-to-Silicon-Yield solutions as follows:
Services — The Company generates a significant portion of its Design-to-Silicon-Yield
revenue from fixed-price solution implementation service contracts delivered over a specific
period of time. These contracts require accurate estimation of cost to perform obligations and
overall scope of each engagement. Revenue under contracts for solution implementation services is
recognized as services are performed using the cost-to-cost percentage of completion method of
contract accounting. Losses on solution implementation contracts are recognized when determined.
Revisions in profit estimates are reflected in the period in which the conditions that require
the revisions become known and can be estimated.
On occasion, the Company has licensed its software products as a component of its
fixed-price services contracts. In such instances, software products are licensed to customers
over a specified term of the agreement with support and maintenance to be provided over the
license term. Under these arrangements, where vendor-specific objective evidence of fair value,
or VSOE, exists for the support and maintenance element, the support and maintenance revenue is
recognized separately over the term of the supporting period. The remaining fee is recognized as
services are performed using the cost-to-cost percentage of completion method of contract
accounting. VSOE for maintenance, in these instances, is generally established based upon a
negotiated renewal rate. Under arrangements where software products are licensed as a component
of its fixed-price service contract and where VSOE does not exist to allocate a portion of the
total fixed-price to the undelivered elements, revenue is recognized for the total fixed-price as
the lesser of either the percentage of completion method of contract accounting or ratably over
the term of the agreement. Costs incurred under these arrangements are deferred and recognized in
proportion to revenue recognized under these arrangements.
6
Revenue from related support and maintenance services is recognized ratably over the term of
the support and maintenance contract, generally one year, while revenue from consulting,
installation and training services is recognized as services are performed. When bundled with
software licenses in multiple element arrangements, support and maintenance, consulting (other
than for our fixed-price solution implementations), installation, and training revenue is
allocated to each element of a transaction based upon its fair value as determined by the
Company’s VSOE. VSOE is generally established for maintenance based upon negotiated renewal rates
while VSOE for consulting, installation, and training is established based upon the Company’s
customary pricing for such services when sold separately. When VSOE does not exist to allocate a
portion of the total fee to the undelivered elements, revenue is recognized ratably over the term
of the underlying element for which VSOE does not exist.
Software Licenses — The Company also licenses its software products separately from its
integrated solution implementations. For software license arrangements that do not require
significant modification or customization of the underlying software, software license revenue is
recognized under the residual method when (1) persuasive evidence of an arrangement exists, (2)
delivery has occurred, (3) the fee is fixed or determinable, (4) collectibility is probable, and
(5) the arrangement does not require services that are essential to the functionality of the
software. When arrangements include multiple elements such as support and maintenance, consulting
(other than for our fixed price solution implementations), installation, and training, revenue is
allocated to each element of a transaction based upon its fair value as determined by the
Company’s VSOE and such services are recorded as services. VSOE is generally established for
maintenance based upon negotiated renewal rates while VSOE for consulting, installation and
training services is established based upon the Company’s customary pricing for such services
when sold separately. When VSOE does not exist to allocate a portion of the total fee to the
undelivered elements, revenue is recognized ratably over the term of the underlying element for
which VSOE does not exist, and such revenue is recorded as services. No revenue has been
recognized for software licenses with extended payment terms in excess of amounts due. For
software license arrangements that require significant modification or customization of the
underlying software, the software license revenue is recognized as services are performed using
the cost-to-cost percentage of completion method of contract accounting, and such revenue is
recorded as services.
Gainshare Performance Incentives — When the Company enters into a contract to provide yield
improvement services, the contract usually includes two components: (1) a fixed fee for performance
by the Company of services delivered over a specific period of time; and (2) a gainshare
performance incentives component where the customer may pay a variable fee, usually after the fixed
fee period has ended. Revenue derived from gainshare performance incentives represents profit
sharing and performance incentives earned based upon the Company’s customers reaching certain
defined operational levels established in related solution implementation services contracts.
Gainshare performance incentives periods are usually subsequent to the delivery of all contractual
services and therefore have no cost to the Company. Due to the uncertainties surrounding attainment
of such operational levels, the Company recognizes gainshare performance incentives revenue (to the
extent of completion of the related solution implementation contract) upon receipt of performance
reports or other related information from the customer supporting the determination of amounts and
probability of collection.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with Statement of Financial
Accounting Standards, or SFAS, No. 123 (revised 2004), Share-Based Payment, or SFAS No. 123R. Under
the provisions of SFAS No. 123R, stock-based compensation cost is estimated at the grant date based
on the award’s fair-value as calculated by the Black-Scholes-Merton option-pricing model, or BSM,
and is recognized as expense ratably over the requisite service period. The BSM model requires
various highly judgmental assumptions including volatility, forfeiture rates, and expected option
life. If any of the assumptions used in the BSM model change significantly, stock-based
compensation expense may differ materially in the future from that recorded in the current period.
2. RECENT ACCOUNTING PRONOUNCEMENTS AND ACCOUNTING CHANGES
In December 2007, the Financial Accounting Standard Board, or FASB, issued SFAS No. 141
(revised 2007), Business Combinations, or SFAS No. 141R. SFAS No. 141R establishes principles and
requirements for how an acquirer of a business recognizes and measures in its financial statements
the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the
acquiree, and the goodwill acquired. SFAS No. 141R also establishes disclosure requirements to
enable the evaluation of the nature and financial effects of the business combination. SFAS No.
141R is effective as of the beginning of an entity’s fiscal year that begins after December 15,
2008, and will be adopted by the Company in the first quarter of fiscal 2009. The Company is
currently evaluating the potential impact, if any, of the adoption of SFAS No. 141R on its
financial statements.
In December 2007, the SEC issued Staff Accounting Bulletin No. 110, or SAB 110, to amend the
SEC’s views discussed in SAB 107 regarding the use of the simplified method in developing an
estimate of expected life of share options in accordance with SFAS No. 123(R). SAB 110 is effective
for the Company beginning in the first quarter of fiscal year 2008. Effective January 1, 2008,
7
the Company adopted the provisions of SAB 110 and determined that it had enough historical data to
determine its expected life, in lieu of using the simplified method.
Effective January 1, 2008, the Company adopted the provisions of the FASB’s SFAS No. 157, Fair
Value Measurement, or SFAS No. 157, for financial assets and liabilities. SFAS No. 157 establishes
a framework for measuring fair value and expands disclosures about fair value measurements.
Additionally, the pronouncement provides guidance on definition, measurement, methodology and use
of assumptions and inputs in determining fair value. The Company applied the provisions of SFAS No.
157 to its financial assets which included its investments accounted for under SFAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities. In February 2008, the FASB issued
FASB Staff Position, or FSP, 157-1, Application of FASB Statement No. 157 to FASB Statement No. 13
and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease
Classification or Measurement under Statement 13, or FSP 157-1, and FSP 157-2, Effective Date of
FASB Statement No. 157, or FSP 157-2. FSP 157-1 removes certain leasing transactions from the scope
of SFAS No. 157. FSP 157-2 delays the effective date of SFAS No. 157 for all nonfinancial assets
and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in
the financial statements on a recurring basis (at least annually) to fiscal years beginning after
November 15, 2008. The Company is currently evaluating the potential impact, if any, of the
adoption of SFAS No. 157 with respect to nonfinancial assets and liabilities on its financial
statements. Nonfinancial assets and liabilities for which the Company has not applied the
provisions of SFAS No. 157 include those measured at fair value in impairment testing and those
initially measured at fair value in a business combination.
Effective January 1, 2008, the Company adopted the provisions of the FASB’s SFAS No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB
Statement No. 115, or SFAS No. 159. SFAS No. 159 permits companies to choose to measure at fair
value many financial instruments and certain other items that are not currently required to be
measured at fair value. Entities choosing the fair value option would be required to recognize
subsequent changes in the fair value of those instruments and other items directly in earnings.
This standard also establishes presentation and disclosure requirements designed to facilitate
comparisons between companies that choose different measurement attributes for similar types of
assets and liabilities. The adoption of SFAS No. 159 did not have an effect on the Company’s
financial statements as the Company did not elect this fair value option, nor is it expected to
have a material impact on future periods as the election of this option for the Company’s financial
instruments is expected to be limited.
3.
INVESTMENTS
The
following tables summarize the Company’s investments (in
thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
March 31, 2008 |
|
|
|
|
| |
|
Amortized |
|
|
Unrealized
Holding |
|
|
Unrealized
Holding |
|
|
Market |
|
| |
|
Costs |
|
|
Gains |
|
|
Losses |
| |
Value |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
paper |
|
$ |
15,425 |
|
|
$ |
12 |
|
|
$ |
(1 |
) |
|
$ |
15,436 |
|
Auction-rate
securities |
|
|
1,500 |
|
|
|
— |
|
|
|
(84 |
) |
|
|
1,416 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
16,925 |
|
|
$ |
12 |
|
|
$ |
(85 |
) |
|
$ |
16,852 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in
cash and cash equivalents |
|
| |
|
|
| |
|
|
| |
|
|
$ |
5,630 |
|
Included in
short-term investments |
|
| |
|
| |
|
|
|
| |
|
|
|
9,806 |
|
Included in
non-current investments |
|
|
|
|
|
|
|
|
|
|
| |
|
|
1,416 |
|
|
|
| |
|
|
| |
|
|
| |
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
16,852 |
|
|
|
| |
|
|
| |
|
|
| |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
December
31, 2007 |
|
|
|
|
| |
|
Amortized |
|
|
Unrealized
Holding |
|
|
Unrealized
Holding |
|
|
Market |
|
| |
|
Costs |
|
|
Gains |
|
|
Losses |
| |
Value |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
paper |
|
$ |
12,500 |
|
|
$ |
3 |
|
|
$ |
— |
|
|
$ |
12,503 |
|
Auction-rate
securities |
|
|
4,450 |
|
|
|
— |
|
|
|
— |
|
|
|
4,450 |
|
Agency
discount notes |
|
|
1,543 |
|
|
|
— |
|
|
|
— |
|
|
|
1,543 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
18,493 |
|
|
$ |
3 |
|
|
$ |
— |
|
|
$ |
18,496 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in
cash and cash equivalents |
|
| |
|
|
| |
|
|
| |
|
|
$ |
8,547 |
|
Included in
short-term investments |
|
| |
|
| |
|
|
|
| |
|
|
|
9,949 |
|
|
|
| |
|
|
| |
|
|
| |
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
18,496 |
|
|
|
| |
|
|
| |
|
|
| |
|
|
|
|
As
of March 31, 2008, all securities other than auction-rate
securities held by the Company had a matrurity of one year or less.
As of December 31, 2007, all securities held by the Company had a
maturity of one year or less. Please refer to Note 11 Fair Value for
further discussion of auction-rate securities.
8
4. ACCOUNTS RECEIVABLE
Accounts receivable include amounts that are unbilled at the end of the period. Unbilled
accounts receivable are determined on an individual contract basis and were approximately $12.3
million and $12.1 million as of March 31, 2008 and December 31, 2007, respectively.
5. NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is computed by dividing net income (loss) by the weighted
average common shares outstanding for the period (excluding outstanding stock options and shares
subject to repurchase). Diluted net income (loss) per share reflects the weighted average common
shares outstanding plus the potential effect of dilutive securities which are convertible into
common shares (using the treasury stock method), except in cases where the effect would be
anti-dilutive. The following is a reconciliation of the numerators and denominators used in
computing basic and diluted net income (loss) per share (in thousands, except per share data):
| |
|
|
|
|
|
|
|
|
| |
|
Three Months |
|
| |
|
Ended March 31, |
|
| |
|
2008 |
|
|
2007 |
|
Net loss |
|
$ |
(2,513 |
) |
|
$ |
(2,355 |
) |
|
|
|
|
|
|
|
Denominator for basic calculation: |
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
27,840 |
|
|
|
27,980 |
|
|
|
|
|
|
|
|
Dilutive items |
|
|
|
|
|
|
|
|
Stock options outstanding |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
Denominator for diluted computation |
|
|
27,840 |
|
|
|
27,980 |
|
|
|
|
|
|
|
|
Net loss per share — basic and diluted |
|
$ |
(0.09 |
) |
|
$ |
(0.08 |
) |
|
|
|
|
|
|
|
The following table sets forth potential shares of common stock that are not included in the
diluted net loss per share calculation above because to do so would be anti-dilutive for the
periods indicated (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
Three Months |
| |
|
Ended March 31, |
| |
|
2008 |
|
2007 |
Outstanding options
|
|
|
8,030 |
|
|
|
6,594 |
|
|
|
|
|
|
|
|
|
|
9
6. COMPREHENSIVE INCOME (LOSS)
The components of comprehensive loss are as follows (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
Three Months |
|
| |
|
Ended March 31, |
|
| |
|
2008 |
|
|
2007 |
|
Net loss |
|
$ |
(2,513 |
) |
|
$ |
(2,355 |
) |
Unrealized
gain (loss) on investments, net of income tax effects |
|
|
(42 |
) |
|
|
2 |
|
Foreign currency translation adjustments, net of income tax effects |
|
|
1,958 |
|
|
|
1,112 |
|
|
|
|
|
|
|
|
Comprehensive loss |
|
$ |
(597 |
) |
|
$ |
(1,241 |
) |
|
|
|
|
|
|
|
7. GOODWILL AND ACQUIRED INTANGIBLE ASSETS
SFAS No. 142, Goodwill and other Intangible Assets, requires goodwill to be tested for
impairment on an annual basis (or more frequently if indicators of impairment exist) and requires
purchased intangible assets other than goodwill to be amortized over their useful lives unless
these lives are determined to be indefinite. The Company completed its annual impairment test on
December 31, 2007 and concluded that goodwill was not impaired.
The following table provides information relating to the intangible assets and goodwill as of
March 31, 2008 and December 31, 2007 (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
| |
|
Amortization |
|
|
2007 |
|
|
|
|
|
|
Purchase |
|
|
|
|
|
|
Foreign |
|
|
2008 |
|
| |
|
Period |
|
|
Net Carrying |
|
|
|
|
|
|
Price |
|
|
|
|
|
|
Currency |
|
|
Net Carrying |
|
| |
|
(Years) |
|
|
Amount |
|
|
Acquisition |
|
|
Adjustments |
|
|
Amortization |
|
|
Translation |
|
|
Amount |
|
Goodwill |
|
|
N/A |
|
|
$ |
65,170 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,962 |
|
|
$ |
67,132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired identifiable
intangibles: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired technology |
|
|
4 - 5 |
|
|
$ |
9,184 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(631 |
) |
|
$ |
— |
|
|
$ |
8,553 |
|
Brand name |
|
|
4 |
|
|
|
361 |
|
|
|
— |
|
|
|
— |
|
|
|
(32 |
) |
|
|
— |
|
|
|
329 |
|
Customer relationships
and backlog |
|
|
1 - 6 |
|
|
|
1,812 |
|
|
|
— |
|
|
|
— |
|
|
|
(94 |
) |
|
|
— |
|
|
|
1,718 |
|
Patent and applications |
|
|
7 |
|
|
|
1,283 |
|
|
|
— |
|
|
|
— |
|
|
|
(50 |
) |
|
|
— |
|
|
|
1,233 |
|
Other acquired intangibles |
|
|
4 |
|
|
|
178 |
|
|
|
— |
|
|
|
— |
|
|
|
(18 |
) |
|
|
16 |
|
|
|
176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
12,818 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(825 |
) |
|
$ |
16 |
|
|
$ |
12,009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
| |
|
Amortization |
|
|
2006 |
|
|
|
|
|
|
Purchase |
|
|
|
|
|
|
Foreign |
|
|
2007 |
|
| |
|
Period |
|
|
Net Carrying |
|
|
|
|
|
|
Price |
|
|
|
|
|
|
Currency |
|
|
Net Carrying |
|
| |
|
(Years) |
|
|
Amount |
|
|
Acquisition |
|
|
Adjustments |
|
|
Amortization |
|
|
Translation |
|
|
Amount |
|
Goodwill |
|
|
N/A |
|
|
$ |
60,034 |
|
|
$ |
2,155 |
|
|
$ |
6 |
|
|
$ |
— |
|
|
$ |
2,975 |
|
|
$ |
65,170 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired identifiable
intangibles: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired technology |
|
|
4 - 5 |
|
|
$ |
7,901 |
|
|
$ |
6,430 |
|
|
$ |
— |
|
|
$ |
(5,147 |
) |
|
$ |
— |
|
|
$ |
9,184 |
|
Brand name |
|
|
4 |
|
|
|
822 |
|
|
|
— |
|
|
|
— |
|
|
|
(461 |
) |
|
|
— |
|
|
|
361 |
|
Customer relationships
and backlog |
|
|
1 - 6 |
|
|
|
4,362 |
|
|
|
— |
|
|
|
— |
|
|
|
(2,550 |
) |
|
|
— |
|
|
|
1,812 |
|
Patent and applications |
|
|
7 |
|
|
|
— |
|
|
|
1,400 |
|
|
|
— |
|
|
|
(117 |
) |
|
|
— |
|
|
|
1,283 |
|
Other acquired intangibles |
|
|
4 |
|
|
|
520 |
|
|
|
— |
|
|
|
— |
|
|
|
(362 |
) |
|
|
20 |
|
|
|
178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
13,605 |
|
|
$ |
7,830 |
|
|
$ |
— |
|
|
$ |
(8,637 |
) |
|
$ |
20 |
|
|
$ |
12,818 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the three months ended March 31, 2008, the Company recorded $2.0 million related to the
effect of changes in exchange rates.
The Company expects the annual amortization of acquired intangible assets to be as follows (in
thousands):
| |
|
|
|
|
| Year Ending December 31, |
|
Amount |
|
2008 (remaining nine-month period) |
|
$ |
2,479 |
|
2009 |
|
|
3,305 |
|
2010 |
|
|
3,033 |
|
2011 |
|
|
1,861 |
|
2012 |
|
|
1,048 |
|
2013 and thereafter |
|
|
283 |
|
|
|
|
|
Total |
|
$ |
12,009 |
|
|
|
|
|
8. INCOME TAXES
The Company includes interest and penalties related to unrecognized tax benefits within the
Company’s income tax provision (benefit). As of March 31, 2008 and December 31, 2007, the Company
had $482,000 and $566,000, respectively, accrued for payment of interest and penalties related to
unrecognized tax benefits.
The Company’s total amounts of unrecognized tax benefits as of March 31, 2008 was $7.8
million, of which $4.3 million, if recognized, would affect the Company’s effective tax rate. As of
December 31, 2007, the Company’s total amount of unrecognized tax benefits was $7.9 million, of
which $4.1 million, if recognized, would affect the Company’s effective tax rate. As of March 31,
2008, the Company has recognized a net amount of $5.7 million in long-term tax payable for
unrecognized tax benefits in its consolidated balance sheets. The Company does not expect the
change in unrecognized tax benefits over the next twelve months to materially impact its results of
operations and financial position.
The Company conducts business globally and, as a result, files numerous consolidated and
separate income tax returns in the U.S. federal, various state and foreign jurisdictions. The
Company is currently under audit by the German tax authority for the years 2002 through 2004,
however, the audit has not been completed as of March 31, 2008. Because the Company used some of
the tax attributes carried forward from previous years to tax years that are still open, statutes
of limitation remain open for all tax years to the extent of the attributes carried forward into
tax year 2001 for federal tax purposes and tax year 2002 for California tax purposes. With few
exceptions, the Company is no longer subject to income tax examinations in its major foreign
subsidiaries’ jurisdictions for years before 2003.
11
9. STOCKHOLDERS’ EQUITY
For the three months ended March 31, 2008 and March 31, 2007, stock-based compensation
expenses before taxes related to the Company’s employee stock purchase plan and stock-option plans
were $2.0 million and $1.8 million, respectively, and were allocated as follows (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
Three Months |
|
| |
|
Ended March 31, |
|
| |
|
2008 |
|
|
2007 |
|
Cost of design-to-silicon yield solutions |
|
$ |
530 |
|
|
$ |
493 |
|
Research and development |
|
|
595 |
|
|
|
563 |
|
Selling, general and administrative |
|
|
858 |
|
|
|
782 |
|
|
|
|
|
|
|
|
Stock-based compensation expenses before income taxes |
|
$ |
1,983 |
|
|
$ |
1,838 |
|
|
|
|
|
|
|
|
The Company estimated the fair value of share-based payments using the Black-Scholes-Merton
option-pricing model with the following weighted average assumptions and weighted average fair
values:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Stock Plans |
|
Employee Stock Purchase Plan |
| |
|
Three Months Ended March 31, |
|
Three Months Ended March 31, |
| |
|
2008 |
|
2007 |
|
2008 |
|
2007 |
Expected life (in years) |
|
|
5.77 |
|
|
|
6.08 |
|
|
|
1.33 |
|
|
|
0.73 |
|
Volatility |
|
|
58.2 |
% |
|
|
60.7 |
% |
|
|
54.9 |
% |
|
|
52.9 |
% |
Risk-free interest rate |
|
|
2.91 |
% |
|
|
4.76 |
% |
|
|
3.10 |
% |
|
|
5.28 |
% |
Expected dividend |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Weighted average fair
value of options
granted during the
period |
|
$ |
3.84 |
|
|
$ |
7.19 |
|
|
|
— |
|
|
|
— |
|
Weighted average fair
value of employee stock
issued during the
period |
|
|
— |
|
|
|
— |
|
|
$ |
3.60 |
|
|
$ |
4.14 |
|
On March 31, 2008, the Company has in effect the following stock-based compensation plans:
Stock Plans — During 2001, the Company terminated the 1996 and 1997 Stock Plans as to future
option grants, and adopted the 2001 Stock Plan. Under the 2001 Stock Plan, on January 1 of each
year, starting with year 2002, the number of shares in the reserve will increase by the lesser of
(1) 3,000,000 shares, (2) 5% of the outstanding common stock on the last day of the immediately
preceding year, or (3) the number of shares determined by the board of directors. Under the 2001
Stock Plan, the Company may grant options to purchase shares of common stock to employees,
directors and consultants at prices not less than the fair market value at the date of grant for
incentive stock options and not less than 85% of fair market value for non-statutory stock options.
These options generally expire ten years from the date of grant and become vested and exercisable
ratably over a four-year period.
Stock option activity under the Company plans as of March 31, 2008 and changes during the
three months ended March 31, 2008 were as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
|
| |
|
|
|
|
|
Weighted Average |
|
|
Remaining |
|
|
Aggregate |
|
| |
|
Number of |
|
|
Exercise Price |
|
|
Contractual |
|
|
Intrinsic Value |
|
| |
|
Options |
|
|
per Share |
|
|
Term (years) |
|
|
(in 000’s) |
|
Outstanding, January 1, 2008 |
|
|
8,014,920 |
|
|
$ |
11.42 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
177,500 |
|
|
|
6.99 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(6,449 |
) |
|
|
6.19 |
|
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
(156,358 |
) |
|
|
11.27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2008 |
|
|
8,029,613 |
|
|
|
11.33 |
|
|
|
7.22 |
|
|
$ |
277 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest |
|
|
7,508,640 |
|
|
|
11.38 |
|
|
|
7.09 |
|
|
$ |
274 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2008 |
|
|
4,395,917 |
|
|
|
11.38 |
|
|
|
5.82 |
|
|
$ |
263 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value in the table above represents the total intrinsic value based on
the Company’s closing stock price of $5.51 as of March 31, 2008, which would have been received by
the option holders had all option holders exercised their options as of that date. The total
intrinsic value of options exercised during the three months ended March 31, 2008 was $16,000.
12
As of March 31, 2008, there was $16.6 million of total unrecognized compensation cost related
to nonvested stock options. That cost is expected to be recognized over a weighted average period
of 2.8 years. The total fair value of shares vested during the three months ended March 31, 2008
was $1.7 million.
Nonvested shares (restricted stock units) as of March 31, 2008 and changes during the three
months ended March 31, 2008 were as follows:
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Weighted Average |
|
| |
|
|
|
|
|
Measurement |
|
| |
|
Shares |
|
|
Date Fair Value |
|
Nonvested, January 1, 2008 |
|
|
133,000 |
|
|
$ |
9.01 |
|
Granted |
|
|
— |
|
|
|
— |
|
Vested |
|
|
— |
|
|
|
— |
|
Forfeited |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
Nonvested, March 31, 2008 |
|
|
133,000 |
|
|
|
5.51 |
|
|
|
|
|
|
|
|
|
As of March 31, 2008, there was $577,000 of total unrecognized compensation cost related to
restricted stock. That cost is expected to be recognized over a weighted average period of 6.2
years. The total compensation expense related to shares expected to vest during the three months
ended March 31, 2008 was ($25,000), due to the decrease in the
measurement date fair value. All restricted stock units were granted
to a non-employee.
Employee Stock Purchase Plan — In July 2001, the Company adopted an Employee Stock Purchase
Plan, or Purchase Plan, under which eligible employees can contribute up to 10% of their
compensation, as defined in the Purchase Plan, towards the purchase of shares of PDF common stock
at a price of 85% of the lower of the fair market value at the beginning of the offering period or
the end of each six-month offering period. For the three months ended March 31, 2008, the Purchase
Plan compensation expense was $154,000.
Stock Repurchase Program — On March 26, 2003, the Company’s Board of Directors approved a
share repurchase program to purchase up to $10.0 million of its outstanding common stock. The
program was completed in August 2007 with 988,000 shares repurchased at the average price of
$10.12. On October 29, 2007, the Board of Directors approved a new program to repurchase up to an
additional $10.0 million of the Company’s common stock on the open market. The right of repurchase
stock under this program will expire on October 29, 2010. As of March 31, 2008, 398,000 shares have
been repurchased at the average price of $6.65 under this program and $7.4 million remained
available for repurchase.
The stock repurchase activity under the stock repurchase program approved in October 2007 for
the three months ended March 31, 2008 is summarized as follows (in thousands, except per share
amounts):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Weighted-Average |
|
|
|
|
| Three Months Ended March 31, 2008 |
|
Shares Repurchased |
|
|
Price per Share |
|
|
Amount Repurchased |
|
Cumulative balance, January 1, 2008 |
|
|
201 |
|
|
$ |
7.57 |
|
|
$ |
1,523 |
|
Repurchase of common stock |
|
|
197 |
|
|
$ |
5.71 |
|
|
|
1,124 |
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative balance, March 31, 2008. |
|
|
398 |
|
|
$ |
6.65 |
|
|
$ |
2,647 |
|
|
|
|
|
|
|
|
|
|
|
|
10. CUSTOMER AND GEOGRAPHIC INFORMATION
SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, establishes
standards for reporting information about operating segments. Operating segments are defined as
components of an enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker, or group, in deciding how to allocate
resources and in assessing performance.
The Company’s chief operating decision maker, the Chief Executive Officer, reviews discrete
financial information presented on a consolidated basis for purposes of making operating decisions
and assessing financial performance. Accordingly the Company considers itself to be in one
operating segment, specifically the licensing and implementation of yield improvement solutions for
integrated circuit manufacturers.
13
The Company had revenues from individual customers in excess of 10% of total revenues as
follows:
| |
|
|
|
|
|
|
|
|
| |
|
Three Months |
| |
|
Ended March 31, |
| Customer |
|
2008 |
|
2007 |
A |
|
|
18 |
% |
|
|
16 |
% |
B |
|
|
16 |
% |
|
|
17 |
% |
The Company had gross accounts receivable from the following individual customers in excess of
10% of gross accounts receivable as follows:
| |
|
|
|
|
|
|
|
|
| Customer |
|
March 31, 2008 |
|
December 31, 2007 |
A |
|
|
30 |
% |
|
|
27 |
% |
B |
|
|
13 |
% |
|
|
15 |
% |
C |
|
|
7 |
% |
|
|
11 |
% |
Revenues from customers by geographic
area are as follows (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
Three Months |
|
| |
|
Ended March 31, |
|
| |
|
2008 |
|
|
2007 |
|
Asia |
|
$ |
10,399 |
|
|
$ |
12,030 |
|
United States |
|
|
5,608 |
|
|
|
7,475 |
|
Europe |
|
|
4,340 |
|
|
|
2,637 |
|
|
|
|
|
|
|
|
Total |
|
$ |
20,347 |
|
|
$ |
22,142 |
|
|
|
|
|
|
|
|
As of March 31, 2008 and December 31, 2007, long-lived assets related to PDF Solutions S.A.S.
(formerly Si Automation S.A.), located in France, totaled $513,000 and $446,000, respectively. As
of March 31, 2008 and December 31, 2007, long-lived assets related to PDF Solutions GmbH (formerly
AISS), located in Germany, totaled $176,000 and $92,000, respectively. The majority of the
Company’s remaining long-lived assets are in the United States.
11. FAIR VALUE
Effective January 1, 2008, the Company adopted SFAS No. 157 (as impacted by FSP 157-1 and FSP
157-2) with respect to fair value measurements of (1) nonfinancial assets and liabilities that are
recognized or disclosed at fair value in the Company’s consolidated financial statements on a
recurring basis (at least annually) and (2) all financial assets and liabilities. The adoption was
limited to financial assets, which primarily relate to cash, cash equivalent, and
available-for-sale securities and did not have material impact on the Company’s financial
condition, results of operations or cash flows.
Under SFAS No. 157, fair value is defined as the exit price, or the amount that would be
received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants as of the measurement date. SFAS No. 157 refers to the multiple assumptions used to
value financial instruments as inputs, and establishes hierarchy for inputs used in measuring fair
value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by
requiring that the most observable inputs be used when available. Observable inputs reflect
assumptions market participants would use in pricing an asset or liability based on market data
obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing
based upon its own market assumptions. These inputs are ranked according to a fair value hierarchy
that prioritizes the inputs to valuation techniques used to measure fair value into three broad
levels.
| |
Level 1 — |
|
Inputs are quoted prices in active markets for identical assets or liabilities. |
| |
| |
Level 2 — |
|
Inputs are quoted prices for similar assets or liabilities in an active market,
quoted prices for identical or similar assets or liabilities in markets that are not active,
inputs other than quoted prices that are observable and market-corroborated inputs which are
derived principally from or corroborated by observable market data. |
| |
| |
Level 3 — |
|
Inputs are derived from valuation techniques in which one or more significant inputs
or value drivers are unobservable. |
The following table represents the Company’s assets measured at fair value on a recurring
basis as of March 31, 2008 and the basis for that measurement (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|
|
| |
|
|
|
|
|
Active Markets for |
|
|
Significant Other |
|
|
Significant |
|
| |
|
|
|
|
|
Identical Assets |
|
|
Observable Inputs |
|
|
Unobservable Inputs |
|
| Assets |
|
Total |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
Money market mutual funds |
|
$ |
4,712 |
|
|
$ |
4,712 |
|
|
$ |
— |
|
|
$ |
— |
|
Commercial paper |
|
|
15,436 |
|
|
|
— |
|
|
|
15,436 |
|
|
|
— |
|
Auction-rate securities |
|
|
1,416 |
|
|
|
— |
|
|
|
— |
|
|
|
1,416 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
21,564 |
|
|
$ |
4,712 |
|
|
$ |
15,436 |
|
|
$ |
1,416 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company holds investments in auction-rate securities, or ARS, which are variable rate debt
instruments whose interest rates are reset through a “dutch” auction process at regular intervals,
typically every 28 days. All ARS are backed by pools of student loans guaranteed by governmental
agencies and private entities, and all were rated AAA/Aaa as of March 31, 2008. The liquidity and
fair value of these securities has been negatively impacted by the uncertainty in the credit
markets and the exposure of these securities to the financial condition of bond insurance
companies, as evidenced by the rating downgrade of MBIA (bond insurer on one of the Company’s ARS)
from AAA to AA, by Fitch on April 4, 2008. In February and March 2008, all ARS failed to sell at
auction, and as a result, their interest rate was reset to the maximum LIBOR + 150 basis points. As
a result of these auction failures, there was no active market with observable prices for these
securities as of March 31, 2008, and therefore the Company computed the fair value of these
securities based on a discounted cash flow model, using significant level 3 inputs, to take into
account the lack of liquidity. After considering the high rating of the underlying assets backing
these ARS and the Company’s ability to hold these securities until the credit markets recover and
these securities resume pricing, the Company recorded a temporary impairment to other comprehensive
income and reclassified these securities as non-current assets. The valuation may be revised in
future periods as market conditions evolve.
The following represents the reconciliation of the beginning and ending balance of assets
measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during
the three months ended March 31, 2008 (in thousands):
| |
|
|
|
|
| |
|
Available-For-Sale |
|
| |
|
Securities |
|
Beginning balance, January 1, 2008 |
|
$ |
— |
|
Total gains and losses (realized / unrealized): |
|
|
|
|
Included in earnings |
|
|
— |
|
Included in other comprehensive income, before income tax effects |
|
|
(84 |
) |
Purchases, issuances, and settlements |
|
|
— |
|
Transfers, in and/or (out) of Level 3 |
|
|
1,500 |
|
|
|
|
|
Ending balance, March 31, 2008 |
|
$ |
1,416 |
|
|
|
|
|
The amount of total gains or losses for the period included in earnings
attributable to the change in unrealized gains or losses relating to
assets still held at March 31, 2008 |
|
$ |
— |
|
|
|
|
|
12. SUBSEQUENT EVENTS
On April 29, 2008, the Company announced a restructuring plan in an effort to better allocate
its resources to improve its operational results in light of the current market conditions. As a
result of this plan, the Company will incur restructuring charges of
approximately $1.7 million primarily related to personnel costs.
The actual amount could be materially different from the estimation.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
The following discussion of our financial condition and results of operations contains
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. In some cases, you can identify forward-looking
statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,”
“believe,” “estimate,” “predict,” “potential” or “continue,” the negative effect of terms like
these or other similar expressions. Any statement concerning future financial performance
(including future revenues, earnings or growth rates), ongoing business strategies or prospects,
and possible actions taken by us or our subsidiaries, which may be provided by us are also
forward-looking statements. These forward-looking statements are only predictions. Forward-looking
statements are based on current expectations and projections about future events and are inherently
subject to a variety of risks and uncertainties, many of which are beyond our control, which could
cause actual results to differ materially from those anticipated or projected. All forward-looking
statements included in this document are based on information available to us on the date of filing
and we further caution investors that our business and financial performance are subject to
substantial risks and uncertainties. We assume no obligation to update any such forward-looking
statements. In evaluating these statements, you should specifically consider various factors,
including the risk factors set forth in Item 1A and set forth at the end of Item 1A in our Annual
Report on Form 10-K for the year ended December 31, 2007.
Overview
Our technologies and services enable semiconductor companies to improve profitability across
the entire “process lifecycle,” which is the term we have coined for the time from the design of an
integrated circuit, or IC, through that IC’s volume manufacturing.
14
Our solutions improve profitability by improving a semiconductor company’s time-to-market,
increasing yield and reducing total design and manufacturing costs. Our solutions combine
proprietary software, physical intellectual property in the form of cell libraries for IC designs,
test chips, an electrical wafer test system, proven methodologies, and professional services. We
analyze yield loss mechanisms to identify, quantify, and correct the issues that cause yield loss.
This drives IC design and manufacturing improvements that enable our customers to optimize the
technology development process, increase the initial yield when an IC design first enters a
manufacturing line, increase the rate at which yield improves, and minimize excursions and process
variability that cause yield loss throughout mass production.
The result of successfully implementing our solutions is the creation of value that can be
measured based on improvements to our customers’ actual yield. Through our gainshare performance
incentives component, we have aligned our financial interests with the yield and performance
improvements realized by our customers, and we receive revenue based on this value. Our
technologies and services have been sold to leading integrated device manufacturers, fabless
semiconductor companies and foundries.
From our incorporation in 1992 through late 1995, we were primarily focused on research and
development of our proprietary manufacturing process simulation and yield and performance modeling
software. From late 1995 through late 1998, we continued to refine and sell our software, while
expanding our offering to include yield and performance improvement consulting services. In late
1998, we began to sell our software and consulting services, together with our newly developed
proprietary technologies, under the term Design-to-Silicon-Yield solutions, reflecting our current
business model. In April 2000, we expanded our research and development team and gained additional
technology by acquiring AISS. AISS now operates as PDF Solutions GmbH, a German company, which
continues to develop software and provide development services to the semiconductor industry. In
July 2001, we completed the initial public offering of our common stock. In 2003, we enhanced our
product and service offerings, including increased software applications, through the acquisitions
of IDS and WaferYield. In 2006, we further complemented our technology offering by acquiring Si
Automation S.A., or SiA, and adding its FDC software capabilities to our integrated solution. In
2007, we added intellectual property building blocks for logic design technology to our solution
portfolio by acquiring Fabbrix, Inc.
Industry Trend
Demand for consumer electronics and communications devices continues to drive technological
innovation in the semiconductor industry as the need for products with greater performance, lower
power consumption, reduced costs and smaller size continues to grow with each new product
generation. In addition, advances in computing systems and mobile devices have fueled demand for
higher capacity memory chips. To meet these demands, IC manufacturers and designers are constantly
challenged to improve the overall performance of their ICs by designing and manufacturing ICs with
more embedded applications to create greater functionality while lowering cost per transistor. As a
result, both logic and memory manufacturers have migrated to more and more advanced manufacturing
nodes, capable of integrating more devices with higher performance, higher density, and lower
power. As this trend continues, companies will continually be challenged to improve process
capabilities to optimally produce ICs with minimal random and systematic yield loss, which is
driven by the lack of compatibility between the design and its respective manufacturing process. We
believe that as volume production of deep submicron ICs continues to grow, the difficulties of
integrating IC designs with their respective processes and ramping new manufacturing processes will
create a greater need for products and services that address the yield loss and escalating cost
issues the semiconductor industry is facing today and will face in the future.
Financial Highlights
Financial highlights for the three months ended March 31, 2008 were as follows:
| |
• |
|
Total revenue for the three months ended March 31, 2008 was $20.3 million, a decrease of
$1.8 million, or 8% compared to the three months ended March 31, 2007. Revenue from
Design-to-Silicon-Yield solutions for the three months ended March 31, 2008 decreased to
$15.0 million compared to $17.2 million for the three months ended March 31, 2007. The
decrease in revenue was a result of decreases in revenues related to both services and
software licenses of $436,000 and $1.8 million, respectively, compared to the three months
ended March 31, 2007. Revenue from gainshare performance incentives for the three months
ended March 31, 2008 increased $430,000 to $5.3 million from the three months ended March
31, 2007. |
| |
| |
• |
|
Net loss for the three months ended March 31, 2008 was $2.5 million, compared to $2.4
million for the three months ended March 31, 2007. The increase in net loss was primarily
attributable to the decrease in revenue, partially offset by an income tax benefit. |
| |
| |
• |
|
Net loss per basic and diluted share was $0.09 for the three months ended March 31, 2008
compared to $0.08 for the three months ended March 31, 2007, an increase in net loss of
$0.01 per basic and diluted share. |
| |
| |
• |
|
Cash, cash equivalents and investments decreased $1.0 million to $44.2 million during the
three months ended March 31, 2008, primarily due to the repurchase of our common stock of
$1.1 million. |
15
Critical Accounting Policies
Financial Reporting Release No. 60 requires all companies to include a discussion of critical
accounting policies or methods used in the preparation of financial statements. Note 1 to the
condensed consolidated financial statements, accompanying this Quarterly Report on Form 10-Q,
includes a summary of the significant accounting policies and methods used in the preparation of
our condensed consolidated financial statements. The following is a brief discussion of the more
significant accounting policies and methods that we use.
General
Our discussion and analysis of our financial condition and results of operations are based on
our condensed consolidated financial statements, which have been prepared in conformity with
generally accepted accounting principles in the United States of America. Our preparation of these
condensed consolidated financial statements requires us to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the dates of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. We based our estimates on historical experience and on
various other assumptions that we believe to be reasonable under the circumstances. The most
significant estimates and assumptions relate to revenue recognition, software development costs,
recoverability of goodwill and acquired intangible assets, estimated useful lives of acquired
intangibles and the realization of deferred tax assets. Actual amounts may differ from such
estimates under different assumptions or conditions.
Revenue Recognition
We derive revenue from two sources: Design-to-Silicon-Yield Solutions, which includes Services
and Software Licenses, and Gainshare Performance Incentives. We recognize revenue in accordance
with the provisions of American Institute of Certified Public Accountants’ Statement of Position,
or SOP, No. 81-1, Accounting for Performance of Construction-Type and Certain Production-Type
Contracts and SOP No. 97-2, Software Revenue Recognition, as amended.
Design-to-Silicon-Yield Solutions — Revenue that is derived from Design-to-Silicon-Yield
solutions comes from services and software licenses. We recognize revenue for each element of
Design-to-Silicon-Yield solutions as follows:
Services — We generate a significant portion of our Design-to-Silicon-Yield revenue from
fixed-price solution implementation service contracts delivered over a specific period of time.
These contracts require accurate estimation of cost to perform obligations and overall scope of
each engagement. Revenue under contracts for solution implementation services is recognized as
services are performed using the cost-to-cost percentage of completion method of contract
accounting. Losses on solution implementation contracts are recognized when determined.
Revisions in profit estimates are reflected in the period in which the conditions that require
the revisions become known and can be estimated. If we do not accurately estimate the resources
required or the scope of work to be performed, or do not manage projects properly within the
planned period of time or satisfy our obligations under contracts, resulting contract margins
could be materially different than those anticipated when the contract was executed. Any such
reductions in contract margin could have a material negative impact on our operating results.
On occasion, we have licensed our software products as a component of our fixed price
services contracts. In such instances, software products are licensed to customers over a
specified term of the agreement with support and maintenance to be provided over the license
term. Under these arrangements, where vendor-specific objective evidence of fair value, or VSOE,
exists for the support and maintenance element, the support and maintenance revenue is
recognized separately over the term of the supporting period. The remaining fee is recognized as
services are performed using the cost-to-cost percentage of completion method of contract
accounting. VSOE for maintenance, in these instances, is generally established based upon a
negotiated renewal rate. Under arrangements where software products are licensed as a component
of its fixed-price service contract and where VSOE does not exist to allocate a portion of the
total fixed-price to the undelivered elements, revenue is recognized for the total fixed-price
as the lesser of either the percentage of completion method of contract accounting or ratably
over the term of the agreement. Costs incurred under these arrangements are deferred and
recognized in proportion to revenue recognized under these arrangements.
Revenue from related support and maintenance services is recognized ratably over the term
of the support and maintenance contract, generally one year, while revenue from consulting,
installation and training services is recognized as services are performed. When bundled with
software licenses in multiple element arrangements, support and maintenance, consulting (other
than for our fixed price solution implementations), installation, and training revenue is
allocated to each element of a transaction based upon its fair value as determined by our VSOE.
VSOE is generally established for maintenance based upon negotiated renewal rates while VSOE for
consulting, installation, and training is established based upon our customary pricing for such
16
services when sold separately. When VSOE does not exist to allocate a portion of the total
fee to the undelivered elements, revenue is recognized ratably over the term of the underlying
element for which VSOE does not exist.
Software Licenses — We also license our software products separately from our integrated
solution implementations. For software license arrangements that do not require significant
modification or customization of the underlying software, software license revenue is recognized
under the residual method when (1) persuasive evidence of an arrangement exists, (2) delivery has
occurred, (3) the fee is fixed or determinable, (4) collectibility is probable, and (5) the
arrangement does not require services that are essential to the functionality of the software.
When arrangements include multiple elements such as support and maintenance, consulting (other
than for our fixed price solution implementations), installation, and training, revenue is
allocated to each element of a transaction based upon its fair value as determined by our VSOE
and such services are recorded as services. VSOE is generally established for maintenance based
upon negotiated renewal rates while VSOE for consulting, installation and training services is
established based upon our customary pricing for such services when sold separately. When VSOE
does not exist to allocate a portion of the total fee to the undelivered elements, revenue is
recognized ratably over the term of the underlying element for which VSOE does not exist. No
revenue has been recognized for software licenses with extended payment terms in excess of
amounts due. For software license arrangements that require significant modification or
customization of the underlying software, the software license revenue is recognized as services
are performed using the cost-to-cost percentage of completion method of contract accounting, and
such revenue is recorded as services.
Gainshare Performance Incentives — When we enter into a contract to provide yield improvement
services, the contract usually includes two components: (1) a fixed fee for performance by us of
services delivered over a specific period of time; and (2) a gainshare performance incentives
component where the customer may pay a variable fee, usually after the fixed fee period has ended.
Revenue derived from gainshare performance incentives represents profit sharing and performance
incentives earned based upon our customers reaching certain defined operational levels established
in related solution implementation service contracts. Gainshare performance incentives periods are
usually subsequent to the delivery of all contractual services and therefore have no cost to us.
Due to the uncertainties surrounding attainment of such operational levels, we recognize gainshare
performance incentives revenue (to the extent of completion of the related solution implementation
contract) upon receipt of performance reports or other related information from our customers
supporting the determination of amounts and probability of collection. Gainshare performance
incentives revenue is dependent on many factors which are outside our control, including among
others, continued production of the related ICs by our customers, sustained yield improvements by
our customers and our ability to enter into new Design-to-Silicon-Yield solutions contracts
containing provisions for gainshare performance incentives.
Software Development Costs
Costs for the development of new software products and substantial enhancements to existing
software products are expensed as incurred until technological feasibility has been established, at
which time any additional costs would be capitalized in accordance with Statement of Financial
Accounting Standards, or SFAS, No. 86, Computer Software to be Sold, Leased or Otherwise Marketed.
Because we believe our current process for developing software is essentially completed
concurrently with the establishment of technological feasibility, no costs have been capitalized to
date.
Goodwill and Acquired Intangible Assets
As of March 31, 2008, we had $67.1 million of goodwill and $12.0 million of intangible assets.
In valuation of our goodwill and intangible assets, we must make assumptions regarding estimated
future cash flows to be derived from the acquired assets. If these estimates or their related
assumptions change in the future, we may be required to record impairment charges for these assets,
which would have a material adverse effect on our operating results. We evaluate goodwill for
impairment pursuant to the provisions of SFAS No. 142, Goodwill and Other Intangible Assets. We
have selected December 31 as the date upon which to perform our annual testing for impairment. As
of December 31, 2007, we completed our annual testing requirements and determined that the carrying
value of goodwill had not been impaired. During the three months ended March 31, 2008, we had a
significant decline in trading price of our common stock; should further decline in the price of
our common stock occur, a further analysis may be required and impairment charges, if any, could be
recorded.
We are currently amortizing our acquired intangible assets over estimated useful lives of one
to seven years, which are based on the estimated period of benefit to be delivered from such
assets. However, a decrease in the estimated useful lives of such assets would cause additional
amortization expense or an impairment of such asset in future periods.
17
Income Taxes
Realization of deferred tax assets is dependent on our ability to generate future taxable
income and utilize tax planning strategies. We have recorded a deferred tax asset in the amount
that is more likely than not to be realized based on current estimations and assumptions. We
evaluate the valuation allowance on a quarterly basis. Any resulting changes to the valuation
allowance will result in an adjustment to income in the period the determination is made.
Stock-Based Compensation
We account for stock-based compensation in accordance with SFAS No. 123 (revised 2004), or
SFAS No. 123R, Share-Based Payment. Under the provisions of SFAS No. 123R, stock-based compensation
cost is estimated at the grant date based on the award’s fair-value as calculated by the
Black-Scholes-Merton, or BSM, option-pricing model and is recognized as expense ratably over the
requisite service period. The BSM model requires various highly judgmental assumptions including
volatility, forfeiture rates, and expected option life. If any of the assumptions used in the BSM
model change significantly, stock-based compensation expense may differ materially in the future
from that recorded in the current period.
Recent Accounting Pronouncements and Accounting Changes
See Note 2 of “Notes to Condensed Consolidated Financial Statements (Unaudited)” of this Form
10-Q for a description of recent accounting pronouncements and accounting changes, including the
expected dates of adoption and estimated effects, if any, on our consolidated financial statements.
Results of Operations
The following table sets forth, for periods indicated, the percentage of total revenue
represented by the line items reflected in our condensed consolidated statements of operations:
| |
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
| |
|
March 31, |
| |
|
2008 |
|
2007 |
Revenues: |
|
|
|
|
|
|
|
|
Design-to-silicon-yield solutions: |
|
|
|
|
|
|
|
|
Services |
|
|
66 |
% |
|
|
62 |
% |
Software licenses |
|
|
8 |
|
|
|
16 |
|
Gainshare performance incentives |
|
|
26 |
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
Cost of design-to-silicon-yield solutions: |
|
|
|
|
|
|
|
|
Services |
|
|
38 |
|
|
|
35 |
|
Software licenses |
|
|
— |
|
|
|
— |
|
Amortization of acquired technology |
|
|
3 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
Total cost of design-to silicon-yield solutions |
|
|
41 |
|
|
|
42 |
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
59 |
|
|
|
58 |
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
Research and development |
|
|
45 |
|
|
|
38 |
|
Selling, general and administrative |
|
|
31 |
|
|
|
26 |
|
Amortization of other acquired intangible assets |
|
|
1 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
77 |
|
|
|
69 |
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(18 |
) |
|
|
(11 |
) |
Interest and other income, net |
|
|
3 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
Loss before taxes |
|
|
(15 |
) |
|
|
(9 |
) |
Income tax provision (benefit) |
|
|
(3 |
) |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
(12 |
)% |
|
|
(11 |
)% |
|
|
|
|
|
|
|
|
|
18
Comparison of the Three Months Ended March 31, 2008 and 2007
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
| |
|
Three Months Ended March 31, |
|
|
$ |
|
|
% |
|
|
% of |
|
|
% of |
|
| Revenue |
|
2008 |
|
|
2007 |
|
|
Change |
|
|
Change |
|
|
Revenue |
|
|
Revenue |
|
(In thousands, except for %’s) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Design-to-silicon-yield solutions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services |
|
$ |
13,328 |
|
|
$ |
13,764 |
|
|
$ |
(436 |
) |
|
|
(3 |
)% |
|
|
66 |
% |
|
|
62 |
% |
Software licenses |
|
|
1,696 |
|
|
|
3,485 |
|
|
|
(1,789 |
) |
|
|
(51 |
)% |
|
|
8 |
% |
|
|
16 |
% |
Gainshare performance incentives |
|
|
5,323 |
|
|
|
4,893 |
|
|
|
430 |
|
|
|
9 |
% |
|
|
26 |
% |
|
|
22 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
20,347 |
|
|
$ |
22,142 |
|
|
$ |
(1,795 |
) |
|
|
(8 |
)% |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Design-to-Silicon-Yield Solutions. Design-to-Silicon-Yield solutions revenue is derived from
services (including solution implementations, software support and maintenance, consulting, and
training) and software licenses, provided during our customer yield improvement engagements and
solution product sales.
Services. The decrease in services revenue of $436,000 for the three months ended March 31,
2008 compared to the three months ended March 31, 2007 was primarily due to a decrease of $1.1
million in software related consulting services, partially offset by a $453,000 increase in
revenues related to software support and maintenance. Our services revenue may fluctuate in the
future and is dependent on a number of factors including our ability to obtain new customers at
emerging technology nodes.
Software licenses. The decrease in software licenses revenue of $1.8 million for the three
months ended March 31, 2008 compared to the three months ended March 31, 2007 was primarily due
to a relative weakness in attracting new customers based on general capital spending constraints.
Software license revenue may fluctuate in the future and is dependent upon a number of factors
including the semiconductor industry’s acceptance of our products, our ability to attract new
customers and further penetration of our current customer base and the degree to which we bundle
software with services where there is no established VSOE for the undelivered services.
Gainshare Performance Incentives. Gainshare performance incentives revenue represents profit
sharing and performance incentives earned based upon our customer reaching certain defined
operational levels. Revenue derived from gainshare performance incentives increased $430,000 for
the three months ended March 31, 2008 compared to the three months ended March 31, 2007, primarily
due to improved yields in relation to our performance targets at our customers’ sites. Our
gainshare performance incentives revenue may continue to fluctuate from period to period. Gainshare
performance incentives revenue is dependent on many factors that are outside our control, including
among others, continued production of ICs by our customers, sustained yield improvements by our
customers and our ability to enter into new Design-to-Silicon-Yield solutions contracts containing
provisions for gainshare performance incentives.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
| |
|
Three Months Ended March 31, |
|
|
$ |
|
|
% |
|
|
% of |
|
|
% of |
|
| Cost of Design-to-Silicon Yield Solution |
|
2008 |
|
|
2007 |
|
|
Change |
|
|
Change |
|
|
Revenue |
|
|
Revenue |
|
(In thousands, except for %’s) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services |
|
$ |
7,682 |
|
|
$ |
7,708 |
|
|
$ |
(26 |
) |
|
|
— |
% |
|
|
38 |
% |
|
|
35 |
% |
Software licenses |
|
|
84 |
|
|
|
59 |
|
|
|
25 |
|
|
|
42 |
% |
|
|
— |
|
|
|
— |
|
Amortization of acquired technology |
|
|
631 |
|
|
|
1,575 |
|
|
|
(944 |
) |
|
|
(60 |
)% |
|
|
3 |
% |
|
|
7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
8,397 |
|
|
$ |
9,342 |
|
|
$ |
(945 |
) |
|
|
(10 |
)% |
|
|
41 |
% |
|
|
42 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of Design-to-Silicon-Yield Solutions. Costs of Design-to-Silicon-Yield solutions consist
of costs incurred to provide and support our services and costs recognized in connection with
licensing our software.
Services. Services costs consist of material, labor, overhead costs, and stock-based
compensation charges associated with solution implementations. Costs include purchased materials,
employee compensation and benefits, travel and facilities-related costs. The costs of
Design-to-Silicon-Yield services decreased slightly by $26,000 for the three months ended March
31, 2008 compared to the three months ended March 31, 2007. If we do not accurately estimate the
resources required or the scope of work to be performed, or we do not manage the projects
properly within the planned period of time or satisfy our obligations under contracts, resulting
contract margins could be materially different than those anticipated when the contract was
executed. Any such reductions in contract margin could have a material negative impact on our
operating results.
19
Software Licenses. Software license costs consist of costs associated with licensing
third-party software sold in conjunction with our software products and expenses incurred to
produce and distribute our product documentation. The costs of Design-to-Silicon-Yield solutions
software licenses increased $25,000 for the three months ended March 31, 2008 compared to the
three months ended March 31, 2007. We expect the cost of software licenses to fluctuate in the
future as a result of royalties and license fees paid for third-party applications incorporated
in our software products.
Amortization of Acquired Technology. Amortization of acquired technology consists of
amortization of intangibles acquired as a result of certain business combinations. Amortization
of acquired technology expense decreased $944,000 for the three months ended March 31, 2008
compared to the three months ended March 31, 2007. The decrease in amortization of acquired
technology was primarily due to certain intangible assets becoming fully amortized, which
resulted in a decrease of $1.3 million. This decrease was partially offset by an increase of
$322,000 in amortization of technology acquired as a result of our acquisition of Fabbrix in May
2007. We anticipate amortization of acquired technology to be $1.9 million for the remaining
nine months in 2008, $2.5 million in 2009, $2.3 million in 2010, $1.3 million in 2011, and
$536,000 in 2012.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
| |
|
Three Months Ended March 31, |
|
|
$ |
|
|
% |
|
|
% of |
|
|
% of |
|
| Research and Development |
|
2008 |
|
|
2007 |
|
|
Change |
|
|
Change |
|
|
Revenue |
|
|
Revenue |
|
(In thousands, except for %’s) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
$ |
9,076 |
|
|
$ |
8,370 |
|
|
$ |
706 |
|
|
|
8 |
% |
|
|
45 |
% |
|
|
38 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and Development. Research and development expenses consist primarily of
personnel-related costs to support product development activities, including compensation and
benefits, outside development services, travel and facilities cost allocations, and stock-based
compensation charges. Research and development expenses increased $706,000 for the three months
ended March 31, 2008 compared to the three months ended March 31, 2007. The increase in research
and development expenses was primarily due to the increased foreign exchange rates associated with
the operations of our foreign subsidiaries which increased our overall expenses by $284,000,
increased personnel expenses of $253,000 as a result of our Fabbrix acquisition, and an increase in
expenses in China of $199,000 as we continue to expand our resources in lower cost regions. We
anticipate our expenses in research and development will fluctuate in absolute dollars from period
to period as a result of cost control initiatives and the timing of when we hire personnel as a
result of the size and the timing of product development projects.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
| |
|
Three Months Ended March 31, |
|
|
$ |
|
|
% |
|
|
% of |
|
|
% of |
|
| Selling, General and Administrative |
|
2008 |
|
|
2007 |
|
|
Change |
|
|
Change |
|
|
Revenue |
|
|
Revenue |
|
(In thousands, except for %’s) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
$ |
6,299 |
|
|
$ |
5,844 |
|
|
$ |
455 |
|
|
|
8 |
% |
|
|
31 |
% |
|
|
26 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, General and Administrative. Selling, general and administrative expenses consist
primarily of compensation and benefits for sales, marketing and general and administrative
personnel in addition to outside sales commissions, legal and accounting services, marketing
communications, travel and facilities cost allocations, and stock-based compensation charges. The
increase in selling, general and administrative expenses of $455,000 for the three months ended
March 31, 2008 compared to the three months ended March 31, 2007 was primarily due to increased
foreign exchange rates associated with the operations of our foreign subsidiaries which increased
our overall expenses by $226,000, increased expenses of $118,000 from our Korean office which
opened in June 2007, and increased legal fees of $281,000 incurred in defending our intellectual
property rights. These increases were partially offset by a decrease of $330,000 in outside
commissions as a result of reduced reliance on third-party distributors. We anticipate our selling,
general and administrative expenses will fluctuate in absolute dollars from period to period as a
result of cost control initiatives and to support increased selling efforts in the future.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
| |
|
Three Months Ended March 31, |
|
|
$ |
|
|
% |
|
|
% of |
|
|
% of |
|
| Amortization of Other Acquired Intangible Assets |
|
2008 |
|
|
2007 |
|
|
Change |
|
|
Change |
|
|
Revenue |
|
|
Revenue |
|
(In thousands, except for %’s) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of other acquired intangible assets |
|
$ |
194 |
|
|
$ |
1,013 |
|
|
$ |
(819 |
) |
|
|
(81 |
)% |
|
|
1 |
% |
|
|
5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of Other Acquired Intangible Assets. Amortization of other acquired intangible
assets consists of amortization of intangibles acquired as a result of certain business
combinations. Amortization of other acquired intangible assets for the three months
ended March 31, 2008 decreased $819,000 compared to the three months ended March 31, 2007,
primarily the result of certain
20
intangible assets becoming fully amortized. We anticipate
amortization of other acquired intangible assets to be $586,000 in the remaining nine months in
2008, $782,000 in 2009, $715,000 in 2010, $575,000 in 2011, and $796,000 in 2012 and thereafter.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
| |
|
Three Months Ended March 31, |
|
|
$ |
|
|
% |
|
|
% of |
|
|
% of |
|
| Interest and Other Income, net |
|
2008 |
|
|
2007 |
|
|
Change |
|
|
Change |
|
|
Revenue |
|
|
Revenue |
|
(In thousands, except for %’s) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income, net |
|
$ |
489 |
|
|
$ |
496 |
|
|
$ |
(7 |
) |
|
|
(1 |
)% |
|
|
3 |
% |
|
|
2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and Other Income, net. The decrease in interest and other income, net of $7,000 for
the three months ended March 31, 2008 compared to the three months ended March 31, 2007 was
primarily due to a decrease in interest income of $297,000 from lower average cash and cash
equivalent balances, only partially offset by foreign currency gains of $314,000. We anticipate
interest and other income will fluctuate in future periods as a result of our projected use of
cash.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
| |
|
Three Months Ended March 31, |
|
|
$ |
|
|
% |
|
|
% of |
|
|
% of |
|
| Income Tax Provision (Benefit) |
|
2008 |
|
|
2007 |
|
|
Change |
|
|
Change |
|
|
Revenue |
|
|
Revenue |
|
(In thousands, except for %’s) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision (benefit) |
|
$ |
(617 |
) |
|
$ |
424 |
|
|
$ |
(1,041 |
) |
|
|
(246 |
)% |
|
|
(3 |
)% |
|
|
2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Tax Provision (Benefit). The income tax benefit reflected a favorable increase of $1.0
million for the three months ended March 31, 2008 when compared to the income tax provision of
$424,000 for the three months ended March 31, 2007. The increase is due to a higher effective tax
rate projected for the fiscal year 2008 as a result of lower projected business research and
development credits for fiscal year 2008 primarily due to those credits not being renewed by
Congress during the three months ended March 31, 2008.
Liquidity and Capital Resources
Operating Activities
Cash flows from operating activities consist of net loss adjusted for certain non-cash items
and changes in assets and liabilities. Net cash used in operating activities was $757,000 for the
three months ended March 31, 2008 compared to $623,000 for the three months ended March 31, 2007.
The decrease in cash flows from operating activities of $134,000 compared to the three months ended
March 31, 2007 was primarily due to decreased cash provided by accrued compensation, taxes payable,
and deferred revenue, and partially offset by increased cash provided by accounts receivable and
decreased amortization of acquired intangible assets of $1.8 million as a result of certain
intangible assets becoming fully amortized.
Accounts receivable decreased $62,000 during the three months ended March 31, 2008 and
increased $7.5 million during the three months ended March 31, 2007. The decrease in accounts
receivable during the three months ended March 31, 2008 was primarily due to decreased revenue. The
increase in accounts receivable during the three months ended March 31, 2007 was primarily due to
increased revenues during the period as well as the timing of billing milestones. Accrued
compensation decreased $525,000 during the three months ended March 31, 2008 as compared to an
increase of $607,000 during the three months ended March 31, 2007. The decrease in accrued
compensation during the three months ended March 31, 2008 was primarily due to increased variable
compensation payments. Taxes payable increased $442,000 during the three months ended March 31,
2008 compared to an increase of $1.8 million during the three months ended March 31, 2007. The
increase in taxes payable during the three months ended March 31, 2008 was primarily due to the
increase in taxes payable associated with foreign operations. The increase in taxes payable during
the three months ended March 31, 2007 was due to the expected taxable income for that year.
Deferred revenue increased $1.3 million during the three months ended March 31, 2008 compared to an
increase of $2.9 million during the three months ended March 31, 2007. The increase in deferred
revenue during the three months ended March 31, 2008 was primarily due to increased software
support and maintenance contracts renewals. The increase in deferred revenue during the three
months ended March 31, 2007 was primarily due to the billing of certain software contracts with
undelivered obligations during the period, which were primarily recognized during the remainder of
2007, and increased billings of software support and maintenance contracts.
21
Investing Activities
Cash flows from investing activities consist of proceeds from investment maturities and sales,
offset by payments for investments acquired, payments for businesses acquired, and payments for
capital expenditures. Net cash used in investing activities was $1.5 million for the three months
ended March 31, 2008 compared to $4.3 million for the three months ended March 31, 2007. The
decrease was primarily due to the final payment to the selling stockholders for the acquisition of
SiA being made during the three months ended March 31, 2007 whereas there was no such payment
during the three months ended March 31, 2008. As of March 31, 2008, we had not invested in
derivative securities.
Financing Activities
Cash flows from financing activities consist primarily of proceeds from sales of shares
through employee equity incentive plans, offset by payments for purchase of treasury stock, and
principal payments on long-term obligations. Net cash used in financing activities was $1.1 million
for three months ended March 31, 2008 compared to cash provided by financing activities of $409,000
for the three months ended March 31, 2007. The increase in cash used in financial activities was
primarily due to the repurchase of 197,000 shares of common stock for $1.1 million during the three
months ended March 31, 2008 whereas we did not repurchase any common stock during the three months
ended March 31 2007.
Liquidity
As of March 31, 2008, our working capital was $70.8 million, compared with $72.5 million as of
December 31, 2007. Cash and cash equivalents, and short-term investments were $42.8 million as of
March 31, 2008 compared to $45.3 million as of December 31, 2007, a decrease of
$2.4 million. The
decrease in cash and short-term investments was primarily attributable to the reclassification of
$1.4 million in auction-rate
securities from short-term investments to non-current investments and
the repurchase of our common stock for $1.1 million during the three months ended March 31, 2008.
We anticipate that our overall expenses, as well as planned capital expenditures, may constitute a
material use of our cash resources. In addition, we may use cash resources to repurchase common
stock, fund potential investments in, or acquisitions of complementary products, technologies or
businesses. We believe that our existing cash resources and anticipated funds from operations will
satisfy our cash requirements to fund our operating activities, capital expenditures and other
obligations for at least the next twelve months. However, in the event that during such period, or
thereafter, we are not successful in generating sufficient cash flows from operations we may need
to raise additional capital through private or public financings, strategic relationships or other
arrangements, which may not be available to us on acceptable terms or at all.
As of March 31, 2008, our investments included auction-rate securities with a par value of
$1.5 million, which are variable rate debt instruments whose interest rates are reset through a
“dutch” auction process at regular intervals, typically every 28 days. See Note 3 to “Notes to
Condensed Consolidated Financial Statements (Unaudited)” and Item 3. “Quantitative and Qualitative
Disclosures About Market Risk” in Part I in this Form 10-Q for further discussion.
We do not have any off-balance sheet arrangements, investments in special purpose entities or
undisclosed borrowings or debt, other than operating leases on our facilities. Additionally, we
have not entered into any derivative contracts. As of March 31, 2008, we had no foreign currency
contracts outstanding.
The following table summarizes our known contractual obligations (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Payments due by period |
|
| |
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
(Nine months |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Contractual obligations |
|
remaining) |
|
|
2009-2010 |
|
|
2011-2012 |
|
|
Thereafter |
|
|
Other |
|
|
Total |
|
Debt principal (1) |
|
$ |
300 |
|
|
$ |
822 |
|
|
$ |
126 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,248 |
|
Debt interest |
|
|
20 |
|
|
|
33 |
|
|
|
5 |
|
|
|
— |
|
|
|
— |
|
|
|
58 |
|
Capital lease obligations (including interest) |
|
|
84 |
|
|
|
55 |
|
|
|
2 |
|
|
|
— |
|
|
|
— |
|
|
|
141 |
|
Operating lease obligations |
|
|
1,314 |
|
|
|
4,669 |
|
|
|
4,265 |
|
|
|
1,526 |
|
|
|
— |
|
|
|
11,774 |
|
Unrecognized tax benefits (2) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5,698 |
|
|
|
5,698 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,718 |
|
|
$ |
5,579 |
|
|
$ |
4,398 |
|
|
$ |
1,526 |
|
|
$ |
5,698 |
|
|
$ |
18,919 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
Amount represents the repayment of an interest free loan of €550,000
and a €400,000 euros loan with a variable interest rate based on the
EURIBOR plus 160 basis points. |
| |
| (2) |
|
Due to the inherent uncertainty of the tax positions, it is not
practicable to assign this liability to any particular years in the
table. |
22
Operating lease amounts include minimum rental payments under our operating leases for our
office facilities, as well as computers, office equipment, and vehicles that we utilize under lease
agreements. These agreements expire at various dates through 2011. Capital lease amounts include
$10,000 of imputed interest. Capital leases were contracted to purchase computer, software, office
equipment, and vehicles in our French subsidiary.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The following discusses our exposure to market risk related to changes in interest rates and
foreign currency exchange rates. We do not currently own any equity investments, nor do we expect
to own any in the foreseeable future. This discussion contains forward-looking statements that are
subject to risks and uncertainties. Actual results could vary materially as a result of a number of
factors.
Interest Rate Risk. As of March 31, 2008, we had cash and cash equivalents and short term
investments of $42.8 million. Cash and cash equivalents consisted of cash, highly liquid money
market instruments and commercial paper with maturities of 90 days or less. Short-term investments
consisted of debt securities with maturities of more than three months but less than twelve months.
Because of the short maturities of those instruments, a sudden change in market interest rates
would not have a material impact on the fair value of the portfolio. We would not expect our
operating results or cash flows to be affected to any significant degree by the effect of a sudden
change in market interest on our portfolio. A hypothetical increase in market interest rates of 100
basis points from the market rates in effect at March 31, 2008 would cause the fair value of these
investments to decrease by an immaterial amount which would not have significantly impacted our
financial position or results of operations. Declines in interest rates over time will result in
lower interest income and increased interest expense.
As of March 31, 2008, we held auction-rate securities with a par value of $1.5 million.
Auction-rate securities are variable rate debt instruments whose interest rates are reset through a
“dutch” auction process at regular intervals, typically every 28 days. A portion of these
securities are insured by third party bond insurers and are collateralized by student loans
guaranteed by governmental agencies and private entities. The liquidity of the securities has been
negatively impacted by the uncertainty in the credit markets and the exposure of these securities
to the financial condition of bond insurance companies. In February and March 2008, all the
auction-rate securities we held failed to sell at auction due to an insufficient number of bidders.
We reviewed the value of these securities for impairment as of March 31, 2008, and concluded that
these securities were temporarily impaired, and recorded an unrealized loss of $84,000 before
income tax effects of $34,000. In future periods, the estimated fair value of our auction-rate
securities could decline further based on market conditions, which could result in additional
impairment.
Foreign Currency and Exchange Risk. Certain of our sales contracts are denominated in a
currency other than the functional currency of the selling entity. Therefore, a portion of our
revenue is subject to foreign currency risks. For example, the effect of an immediate 10% adverse
change in exchange rates on foreign currency denominated receivables as of March 31, 2008 would
result in a loss of approximately $141,000. To date, we have not entered into any hedging
contracts, although we may do so in the future. We intend to monitor our foreign currency exposure.
Future exchange rate fluctuations may have a material negative impact on our business.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures. Our Chief Executive Officer and our Chief
Financial Officer, after evaluating the effectiveness of our “disclosure controls and procedures”
(as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, or
the Exchange Act, as of the end of the period covered by the quarterly report on Form 10-Q, have
concluded that our disclosure controls and procedures are effective and designed to ensure that
information required to be disclosed by us in the reports we file and submit under the Exchange Act
is (1) recorded, processed, summarized and reported within the timeframes specified in the rules
and forms of the Securities and Exchange Commission, and (2) is accumulated and communicated to our
management, including our principal executive and principal financial officers, or persons
performing similar functions, as appropriate to allow timely decisions regarding required
disclosure.
Changes in Internal Controls Over Financial Reporting. There were no changes in the our
internal control over financial reporting identified in connection with the evaluation required by
paragraph (d) of Rule 13a-15 or Rule 15d-15 under the Exchange Act that occurred during the period
covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
23
PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
Currently we are not party to any material legal proceedings.
Item 1A. Risk Factors
If semiconductor designers and manufacturers do not continue to adopt our Design-to-Silicon-Yield
solutions, we may be unable to increase or maintain our revenue.
If semiconductor designers and manufacturers do not continue to adopt our
Design-to-Silicon-Yield solutions, both as currently comprised and as we may offer them in the
future, our revenue could decline. To be successful, we will need to continue to enter into
agreements covering a larger number of IC products and processes with existing customers and new
customers. We need to develop new customer relationships with companies that are integrated device
manufacturers, fabless semiconductor companies, and foundries, as well as system manufacturers so
that we can continue to implement our Design-to-Silicon-Yield solutions and experience greater
market acceptance of our solutions. Factors that may limit adoption of our Design-to-Silicon-Yield
solutions by semiconductor companies include:
| |
• |
|
our customers’ failure to achieve satisfactory yield improvements using our
Design-to-Silicon-Yield solutions; |
| |
| |
• |
|
a decrease in demand for semiconductors generally or the slowing of demand for deep
submicron semiconductors; |
| |
| |
• |
|
our inability to develop, market, or sell effective solutions that are outside of our
traditional MPS logic focus; |
| |
| |
• |
|
our existing and potential customers’ delay in their adoption of the next process
technology; |
| |
| |
• |
|
the development in the industry of alternative methods to enhance the integration between
the semiconductor design and manufacturing processes due to a rapidly evolving market and
the emergence of new technologies; |
| |
| |
• |
|
our existing and potential customers’ reluctance to understand and accept our innovative
gainshare performance incentives fee component; and |
| |
| |
• |
|
our customers’ concern about our ability to keep highly competitive information
confidential. |
We generate a large percentage of our total revenue from a limited number of customers, so the
loss of any one of these customers could significantly reduce our revenue and results of
operations below expectations.
Historically, we have had a small number of large customers for our core
Design-to-Silicon-Yield solutions and we expect this to continue in the near term. In the three
months ended March 31, 2008, two customers accounted for 34% of our total net revenue, with Toshiba
Corporation representing 18% and International Business Machines Corporation representing 16%. In
the three months ended March 31, 2007, two customers accounted for 33% of our total net revenue,
with International Business Machines Corporation representing 17% and Toshiba Corporation
representing 16%. We could lose a customer due to its decision not to engage us on future process
nodes, its decision not to develop its own future process node, or as a result of industry
consolidation. The loss of any of these customers or a decrease in the sales volumes of their
products could significantly reduce our total revenue below expectations. In particular, such a
loss could cause significant fluctuations in results of operations because our expenses are fixed
in the short term and it takes us a long time to replace customers.
If integrated device manufacturers of logic integrated circuits reduce investment in new process
technology as a result of a shift to a fabless manufacturing business model, the pool of
potential logic customers for our yield ramp solutions will shrink and our results of operations
may suffer.
Historically, the majority of our revenue from integrated yield ramps has been derived from
integrated device manufacturers, or IDMs, of logic IC. If IDMs decide to discontinue or
significantly cut back their investment in the development of new process technology as a result of
a shift to a model of outsourcing a larger proportion, or all, of the mass production of their ICs,
there may be fewer IDMs that are potential customers for our solutions that integrate product
designs with in-house manufacturing processes. As a
24
result, the revenue we are able to generate from integrated yield ramps for logic ICs could
fall below levels that are currently expected. Also, because our expenses are fixed in the short
term and it takes a long time for us to replace customers, such a reduction in revenue could cause
significant fluctuations in results of operations.
If we do not effectively manage and support our operations and integrate recent and planned
growth, our business strategy may fail.
We will need to continue to grow in all areas of operation and successfully integrate and
support our existing and new employees into our operations, or we may be unable to implement our
business strategy in the time frame we anticipate, if at all. We have in the past, and may in the
future, experienced interruptions in our information systems on which our global operations depend.
Further, physical damage to, failure of, or digital damage (such as significant viruses or worms)
to, our information systems could disrupt and delay time-sensitive services or computing operations
that we perform for our customers, which could negatively impact our business results and
reputation. In addition, we will need to expand our intranet to support new data centers to enhance
our research and development efforts. Our intranet is expensive to expand and must be highly secure
due to the sensitive nature of our customers’ information that we transmit. Building and managing
the support necessary for our growth places significant demands on our management and resources. In
addition, we may need to switch to a new accounting system in the near future, which could disrupt
our business operations and distract management. These demands may divert these resources from the
continued growth of our business and implementation of our business strategy. Further, we must
adequately train our new personnel, especially our client service and technical support personnel,
to effectively and accurately, respond to and support our customers. If we fail to do this, it
could lead to dissatisfaction among our customers, which could slow our growth.
If we fail to protect our intellectual property rights, customers or potential competitors may be
able to use our technologies to develop their own solutions which could weaken our competitive
position, reduce our revenue, or increase our costs.
Our success depends largely on the proprietary nature of our technologies. We currently rely
primarily on contractual, patent, copyright, trademark, and trade secret protection. Our pending
patent applications may not result in issued patents, and even if issued, they may not be
sufficiently broad to protect our proprietary technologies. Also, patent protection in foreign
countries may be limited or unavailable where we need such protection. Litigation may be necessary
from time to time to enforce our intellectual property rights or to determine the validity and
scope of the proprietary rights of others. As a result of any such litigation, we could lose our
proprietary rights and incur substantial unexpected operating costs. Litigation could also divert
our resources, including our managerial and engineering resources.
Competition in the market for yield improvement solutions and increased integration between IC
design and manufacturing may intensify in the future, which could impede our ability to grow or
execute our strategy.
Competition in our market may intensify in the future, which could slow our ability to grow or
execute our strategy and could lead to increased pricing pressure. Our current and potential
customers may choose to develop their own solutions internally, particularly if we are slow in
deploying our solutions. Many of these companies have the financial and technical capability to
develop their own solutions. Also, competitors could establish non-domestic operations with a lower
cost structure than our engineering organization, which, unless we also establish lower cost
non-domestic operations, would give any such competitor’s products a competitive advantage over our
solutions. There may be other providers of commercial solutions for systematic IC yield and
performance enhancement of which we are not aware. We currently face indirect competition from the
internal groups at IC companies and some direct competition from providers of yield management or
prediction software such as KLA-Tencor, MKS Instruments, inc., or MKS (through its acquisition of
Yield Dynamics, Inc.), Ponte Solutions, Syntricity Inc., TIBCO Software Inc. (through its
acquisition of Spotfire Inc.), and Synopsys, Inc., and process control software, such as Applied
Materials, Inc., Triant Holdings Inc., Straatum Processware Ltd., and MKS. Further, ARM Ltd. and
Virage Logic Corporation provide standard cells in the physical IP space, which could compete with
our pdBRIX solution. Some providers of yield management software or inspection equipment may seek
to broaden their product offerings and compete with us. For example, KLA-Tencor has announced
adding the use of test structures to one of their inspection product lines. In addition, we believe
that the demand for solutions that address the need for better integration between the silicon
design and manufacturing processes may encourage direct competitors to enter into our market. For
example, large integrated organizations, such as IDMs, electronic design automation software
providers, IC design service companies or semiconductor equipment vendors, may decide to spin-off a
business unit that competes with us. Other potential competitors include fabrication facilities
that may decide to offer solutions competitive with ours as part of their value proposition to
their customers. In addition, Synopsys, Inc. now appears to offer directly competing
Design-for-Manufacturability, or DFM, while other Electronic Design Automation suppliers provide
alternative DFM solutions that may compete for the same budgetary funds. If these potential
competitors change the pricing environment or are able to attract industry partners or customers
faster than we can, we may not be
25
able to grow and execute our strategy as quickly or at all. In addition, customer preferences
may shift away from our solutions as a result of the increase in competition.
We face operational and financial risks associated with international operations that could
negatively impact our revenue.
We derive a majority of our revenue from international sales, principally from customers based
in Asia. Revenue generated from customers in Asia accounted for 51% of total revenue in the three
months ended March 31, 2008 and 54% in the three months ended March 31, 2007. We expect that a
significant portion of our total future revenue will continue to be derived from companies based in
Asia. In addition, we have expanded our non-U.S. operations recently and plan to continue such
expansion by establishing overseas subsidiaries, offices, or contractor relationships in locations,
and when, deemed appropriate by our management. The success of our business is subject to risks
inherent in doing business internationally. These risks include:
| |
• |
|
some of our key engineers and other personnel are foreign nationals and they may have
difficulty gaining access to the United States and other countries in which our customers or
our offices may be located and it may be difficult for us to recruit and retain qualified
technical and managerial employees in foreign offices; |
| |
| |
• |
|
greater difficulty in collecting account receivables resulting in longer collection
periods; |
| |
| |
• |
|
language and other cultural differences may inhibit our sales and marketing efforts and
create internal communication problems among our U.S. and foreign research and development
teams, increasing the difficulty of managing multiple, remote locations performing various
development, quality assurance, and yield ramp analysis projects; |
| |
| |
• |
|
compliance with, and unexpected changes in, a wide variety of foreign laws and regulatory
environments with which we are not familiar, including, among other issues, with respect to
protection of our intellectual property, and a wide variety of trade and export controls
under domestic, foreign, and international law; |
| |
| |
• |
|
currency risk due to the fact that expenses for our international offices are denominated
in the local currency, including the Euro, while virtually all of our revenue is denominated
in U.S. dollars; |
| |
| |
• |
|
quarantine, private travel limitation, or business disruption in regions affecting our
operations, stemming from actual, imminent or perceived outbreak of human pandemic or
contagious disease; |
| |
| |
• |
|
in the event a larger portion of our revenue becomes denominated in foreign currencies,
we would be subject to a potentially significant exchange rate risk; and |
| |
| |
• |
|
economic or political instability, including but not limited to armed conflict,
terrorism, and the resulting disruption to economic activity and business operations. |
In Japan, in particular, we face the following additional risks:
| |
• |
|
a downturn in Asian economies which could limit our ability to retain existing customers
and attract new ones in Asia; and |
| |
| |
• |
|
if the U.S. dollar increases in value relative to the Japanese Yen, the cost of our
solutions will be more expensive to existing and potential Japanese customers and therefore
less competitive. |
In the Middle East, we use a third-party service provider, whose operations are not located in
a U.S. embargoed country, to provide certain software quality assurance and other services for
certain of our software products. The political uncertainty surrounding the region could disrupt
our third-party service provider’s operations and thus negatively affect the range of services we
are able to provide.
Our earnings per share and other key operating results may be unusually high in a given quarter,
thereby raising investors’ expectations, and then unusually low in the next quarter, thereby
disappointing investors, which could cause our stock price to drop.
Historically, our quarterly operating results have fluctuated. Our future quarterly operating
results will likely fluctuate from time to time and may not meet the expectations of securities
analysts and investors in some future period. The price of our common stock could decline due to
such fluctuations. The following factors may cause significant fluctuations in our future quarterly
operating results:
26
| |
• |
|
the size and timing of sales volumes achieved by our customers’ products; |
| |
| |
• |
|
the loss of any of our large customers or an adverse change in any of our large
customers’ businesses; |
| |
| |
• |
|
the size of improvements in our customers’ yield and the timing of agreement as to those
improvements; |
| |
| |
• |
|
our long and variable sales cycle; |
| |
| |
• |
|
changes in the mix of our revenue; |
| |
| |
• |
|
changes in the level of our operating expenses needed to support our projected growth;
and |
| |
| |
• |
|
delays in completing solution implementations for our customers. |
Revenue from our gainshare performance incentives is dependent on factors outside of our control,
including the volume of integrated circuits that our customers are able to sell to their
customers.
Our gainshare performance incentives fee component ties the profits of our customers to our
own. Through this component, revenue for a particular product is largely determined by the volume
of that product that our customer is able to sell to its customers, which is outside of our
control. We have limited ability to predict the success or failure of our customers’ IC products.
Further, our customers may decide to implement changes to their manufacturing processes during the
period that is covered by gainshare performance incentives component, which could negatively affect
yield results; a decision which is beyond our control. In addition, we may commit a significant
amount of time and resources to a customer who is ultimately unable to sell as many units as we had
anticipated when contracting with them or who makes unplanned changes to their processes. Since we
currently work on a small number of large projects, any product that does not achieve commercial
viability or a significant increase in yield could significantly reduce our revenue and results of
operations below expectations. In addition, if we work with two directly competitive products,
volume in one may offset volume, and thus any of our related gainshare performance incentives, in
the other product. Further, decreased demand for semiconductor products decreases the volume of
products our customers are able to sell, which may adversely affect our gainshare performance
incentives revenue.
Measurement of our gainshare performance incentives requires data collection and is subject to
customer agreement, which can result in uncertainty and cause quarterly results to fluctuate.
We can only recognize revenue based on gainshare performance incentives once we have reached
agreement with our customers on their level of yield performance improvements. Because measuring
the amount of yield improvement is inherently complicated and dependent on our customers’ internal
information systems, there may be uncertainty as to some components of measurement. This could
result in our recognition of less revenue than expected. In addition, any delay in measuring
revenue attributable to our gainshare performance incentives could cause all of the associated
revenue to be delayed until the next quarter. Since we currently have only a few large customers
and we are relying on gainshare performance incentives as a significant component of our total
revenue, any delay could significantly harm our quarterly results.
Changes in the structure of our customer contracts, including the mix between fixed and variable
revenue and the mix of elements, can adversely affect the size and timing of our total revenue.
Our long-term success is largely dependent upon our ability to structure our future customer
contracts to include a larger gainshare performance incentives component relative to the fixed fee
component. We typically recognize the fixed fee component earlier than gainshare performance
incentives component so if we are successful in increasing the gainshare performance incentives
component of our customer contracts, we will experience an adverse impact on our operating results
in the short term as we reduce the fixed fee component. Due to acquisitions and expanded business
strategies, the mix of elements in some of our contracts has changed recently and the relative
importance of the software component in some of our contracts has increased. We have experienced,
and may in the future experience, delays in the expected recognition of revenue associated with
generally accepted accounting principles regarding the timing of revenue recognition in
multi-element software arrangements, including the effect of acceptance criteria as a result of the
change in our contracts. If we fail to meet contractual acceptance criteria on time or at all, the
total revenue we receive under a contract could be delayed or decline. In addition, by increasing
the gainshare performance incentives or the software component, we may increase the variability or
timing of recognition of our revenue, and therefore increase the risk that our total future revenue
will be lower than expected and fluctuate significantly from period to period.
27
It typically takes us a long time to sell our unique solutions to new customers, which can result
in uncertainty and delays in generating additional revenue.
Because our gainshare performance incentives business model is unique and our
Design-to-Silicon-Yield solutions are unfamiliar to some new customers, our sales cycle is lengthy
and requires a significant amount of our senior management’s time and effort. Furthermore, we need
to target those individuals within a customer’s organization who have overall responsibility for
the profitability of an IC. These individuals tend to be senior management or executive officers.
We may face difficulty identifying and establishing contact with such individuals. Even after
initial acceptance, due to the complexity of structuring the gainshare performance incentives
component, the negotiation and documentation processes can be lengthy. It can take nine months or
more to reach a signed contract with a customer. Unexpected delays in our sales cycle could cause
our revenue to fall short of expectations.
We have a history of losses, we may incur losses in the future and we may be unable to maintain
profitability.
We have experienced losses in the three months ended March 31, 2008, the year ended December
31, 2007, and in the past. We may not achieve and thereafter maintain profitability if our revenue
increases more slowly than we expect or not at all. In addition, virtually all of our operating
expenses are fixed in the short term, so any shortfall in anticipated revenue in a given period
could significantly reduce our operating results below expectations. Our accumulated deficit was
$19.4 million as of March 31, 2008. We expect to continue to incur significant expenses in
connection with:
| |
• |
|
funding for research and development; |
| |
| |
• |
|
expansion of our solution implementation teams; |
| |
| |
• |
|
expansion of our sales and marketing efforts; and |
| |
| |
• |
|
additional non-cash charges relating to amortization of intangibles and stock-based
compensation. |
As a result, we will need to significantly increase revenue to maintain profitability on a
quarterly or annual basis. Any of these factors could cause our stock price to decline.
We may experience significant fluctuations in our operating results due to the cyclical nature of
the semiconductor industry.
Our revenue is highly dependent upon the overall condition of the semiconductor industry,
especially because of our gainshare performance incentives revenue component. The semiconductor
industry is highly cyclical and subject to rapid technological change and has been subject to
significant economic downturns at various times, characterized by diminished product demand,
accelerated erosion of average selling prices, and production overcapacity. The semiconductor
industry also periodically experiences increased demand and production capacity constraints. As a
result, we may experience significant fluctuations in operating results due to general
semiconductor industry conditions and overall economic conditions.
We must continually attract and retain highly talented executives, engineers, and research and
development personnel or we will be unable to expand our business as planned.
In order to stay competitive, we will need to continue to hire highly talented executives,
engineers, and research and development personnel to support our planned growth. We have
experienced, and we expect to continue to experience, delays and limitations in hiring and
retaining highly skilled individuals with appropriate qualifications. We intend to continue to hire
foreign nationals, particularly as we expand our operations internationally. We have had, and
expect to continue to have, difficulty in obtaining visas permitting entry into the United States
for several of our key personnel, which disrupts our ability to strategically locate our personnel.
If we lose the services of any of our key executives or a significant number of our engineers, it
could disrupt our ability to implement our business strategy. Competition for executives and
qualified engineers can be intense, especially in Silicon Valley where we are principally based.
If our products, technologies, services, and integrated solutions fail to keep pace with the
rapid technological changes in the semiconductor industry, we could lose customers and revenue.
We must continually devote significant engineering resources to enable us to keep up with the
rapidly evolving technologies and equipment used in the semiconductor design and manufacturing
processes. These innovations are inherently complex and require long
28
development cycles. Not only do we need the technical expertise to implement the changes
necessary to keep our technologies current, we also rely heavily on the judgment of our advisors
and management to anticipate future market trends. Our customers expect us to stay ahead of the
technology curve and expect that our products, technologies, services, and integrated solutions
will support any new design or manufacturing processes or materials as soon as they are deployed.
If we are not able to timely predict industry changes, or if we are unable to modify our products,
technologies, services, and integrated solutions on a timely basis, our existing solutions will be
rendered obsolete and we may lose customers. If we do not keep pace with technology, our existing
and potential customers may choose to develop their own solutions internally as an alternative to
ours and we could lose market share, which could adversely affect our operating results.
We intend to pursue additional strategic relationships, which are necessary to maximize our
growth, but could substantially divert management attention and resources.
In order to establish and maintain strategic relationships with industry leaders at each stage
of the IC design and manufacturing processes, we may need to expend significant resources and will
need to commit a significant amount of management’s time and attention, with no guarantee of
success. If we are unable to enter into strategic relationships with these companies, we will not
be as effective at modeling existing technologies or at keeping ahead of the technology curve as
new technologies are introduced. In the past, the absence of an established working relationship
with key companies in the industry has meant that we have had to exclude the effect of their
component parts from our modeling analysis, which reduces the overall effectiveness of our analysis
and limits our ability to improve yield. We may be unable to establish key industry strategic
relationships if any of the following occur:
| |
• |
|
potential industry partners become concerned about our ability to protect their
intellectual property; |
| |
| |
• |
|
potential industry partners develop their own solutions to address the need for yield
improvement; |
| |
| |
• |
|
our potential competitors establish relationships with industry partners with which we
seek to establish a relationship; or |
| |
| |
• |
|
potential industry partners attempt to restrict our ability to enter into relationships
with their competitors. |
Our solution implementations may take longer than we anticipate, which could cause us to lose
customers and may result in adjustments to our operating results.
Our solution implementations require a team of engineers to collaborate with our customers to
address complex yield loss issues by using our software and other technologies. We must estimate
the amount of time needed to complete an existing solution implementation in order to estimate when
the engineers will be able to commence a new solution implementation. In addition, our accounting
for solution implementation contracts, which generate fixed fees, sometimes requires adjustments to
profit and loss based on revised estimates during the performance of the contract. These
adjustments may have a material effect on our results of operations in the period in which they are
made. The estimates giving rise to these risks, which are inherent in fixed-price contracts,
include the forecasting of costs and schedules, and contract revenues related to contract
performance.
Key executive officers are critical to our business and we cannot guarantee that they will remain
with us indefinitely.
Our future success will depend to a significant extent on the continued services of our key
executive officers. If we lose the services of any of our key executive officers, it could slow
execution of our business plan, hinder our product development processes and impair our sales
efforts. Searching for replacements could divert our senior management’s time and increase our
operating expenses. In addition, our industry partners and customers could become concerned about
our future operations, which could injure our reputation and cause our stock price to drop. We do
not have long-term employment agreements with our executives and we do not maintain any key person
life insurance policies on their lives.
Inadvertent disclosure of our customers’ confidential information could result in costly
litigation and cause us to lose existing and potential customers.
Our customers consider their product yield information and other confidential information,
which we must gather in the course of our engagement with the customer, to be extremely
competitively sensitive. If we inadvertently disclosed or were required to disclose this
information, we would likely lose existing and potential customers and could be subject to costly
litigation. In addition, to avoid potential disclosure of confidential information to competitors,
some of our customers may, in the future, ask us not to work with key competitive products, which
could limit our revenue opportunities.
29
Our technologies could infringe the intellectual property rights of others causing costly
litigation and the loss of significant rights.
Significant litigation regarding intellectual property rights exists in the semiconductor
industry. It is possible that a third party may claim that our technologies infringe their
intellectual property rights or misappropriate their trade secrets. Any claim, even if without
merit, could be time consuming to defend, result in costly litigation, or require us to enter into
royalty or licensing agreements, which may not be available to us on acceptable terms, or at all. A
successful claim of infringement against us in connection with the use of our technologies could
adversely affect our business.
Defects in our proprietary technologies, hardware and software tools, and the cost of support to
remedy any such defects could decrease our revenue and our competitive market share.
If the software, hardware, or proprietary technologies we provide to a customer contain
defects that increase our customer’s cost of goods sold and time-to-market, these defects could
significantly decrease the market acceptance of our solutions. Further, the cost of support
resources required to remedy any defects in our technologies, hardware, or software tools could
exceed our expectations. Any actual or perceived defects with our software, hardware, or
proprietary technologies may also hinder our ability to attract or retain industry partners or
customers, leading to a decrease in our revenue. These defects are frequently found during the
period following introduction of new software, hardware, or proprietary technologies or
enhancements to existing software, hardware, or proprietary technologies. Our software, hardware,
and proprietary technologies may contain errors not discovered until after customer implementation
of the silicon design and manufacturing process recommended by us. If our software, hardware, or
proprietary technologies contain errors or defects, it could require us to expend significant
resources to alleviate these problems, which could reduce margins and result in the diversion of
technical and other resources from our other development efforts.
Failing to maintain the effectiveness of our internal control over financial reporting could
cause the cost related to remediation to increase and could cause our stock price to decline.
In the future, our management may identify deficiencies regarding the design and effectiveness
of our system of internal control over financial reporting that we engage in pursuant to Section
404 of the Sarbanes-Oxley Act, or Section 404, as part of our Form 10-K. Such deficiencies could
include those arising from turnover of qualified personnel or arising as a result of acquisitions,
which we may not be able to remediate in time to meet the continuing reporting deadlines imposed by
Section 404 and the costs of which may harm our results of operations. In addition, if we fail to
maintain the adequacy of our internal controls, as such standards are modified, supplemented or
amended from time to time, we may not be able to ensure that our management can conclude on an
ongoing basis that we have effective internal controls. We also may not be able to retain our
independent registered public accounting firm with sufficient resources to attest to and report on
our internal controls in a timely manner. Moreover, our registered public accounting firm may not
agree with our management’s future assessments and may deem our controls as ineffective if we are
unable to remediate on a timely basis. If in the future we are unable to assert that we maintain
effective internal controls, our investors could lose confidence in the accuracy and completeness
of our financial reports that in turn could cause our stock price to decline.
We may not be able to expand our business and proprietary technologies if we do not consummate
potential acquisitions or investments or successfully integrate them with our business.
To expand our proprietary technologies, we may acquire or make investments in complementary
businesses, technologies, or products if appropriate opportunities arise. We may be unable to
identify suitable acquisition or investment candidates at reasonable prices or on reasonable terms,
or consummate future acquisitions or investments, each of which could slow our growth strategy. We
may have difficulty integrating the acquired products, personnel or technologies of any
acquisitions we might make. These difficulties could disrupt our ongoing business, distract our
management and employees and increase our expenses.
We may not be able to raise necessary funds to support our growth or execute our strategy.
Unanticipated efforts to support more rapid expansion, develop or enhance our
Design-to-Silicon-Yield solutions, respond to competitive pressures or acquire complementary
businesses or technologies could impact our future capital requirements and the adequacy of our
available funds. In such event, we may need to raise additional funds through public or private
financings, strategic relationships or other arrangements. We may not be able to raise any
necessary funds on terms favorable to us, or at all.
30
Recent acquisitions may adversely affect our business by diverting management’s attention,
increasing our expenses or by being more difficult to integrate than expected.
Our success in realizing the strategic benefits, the timing of this realization, and growth
opportunities to be gained from incorporating into PDF the operations of recently acquired
businesses, including SiA, a French company, acquired in October 2006, and Fabbrix, acquired in May
2007, depend upon our ability to successfully integrate those businesses. The integration of
acquired businesses is a complex, costly and time-consuming process. The difficulties of combining
our existing operations associated with acquired businesses include:
| |
• |
|
consolidating research and development operations; |
| |
| |
• |
|
retaining key employees; |
| |
| |
• |
|
incorporating acquired products and business technology into our existing product lines; |
| |
| |
• |
|
coordinating effective sales and marketing functions; |
| |
| |
• |
|
preserving research and development, marketing, customer and other important
relationships; and |
| |
| |
• |
|
minimizing the diversion of management’s attention from ongoing business concerns. |
If we were required to write down all or part of our goodwill, our net earnings and net worth
could be significantly, negatively affected.
We had $67.1 million of goodwill recorded on our consolidated balance sheet as of March 31,
2008. Goodwill represents the excess of cost over the fair market value of net assets acquired in
business combinations. If our market capitalization drops significantly below the amount of net
equity recorded on our balance sheet, it would indicate a decline in the fair value of the Company
and would require us to further evaluate whether our goodwill has been impaired. We also perform an
annual review, at December 31, of our goodwill to determine if it has become impaired, in which
case we would write down the impaired portion of our goodwill. If we were required to write down
all or a significant part of our goodwill, our net earnings and net worth could be significantly,
negatively affected.
Changes in effective tax rates could negatively affect our operating results.
We conduct our business globally, as a result, are subject to taxation in the United States
and foreign countries. Our future tax rates could be affected by numerous factors, including
changes in tax laws or the interpretation of such tax laws and changes in accounting policies. Our
filings are subject to reviews or audit by the Internal Revenue Service and state, local and
foreign taxing authorities. We cannot be sure that any final determination in an audit would not be
materially different than the treatment reflected in our historical income tax provisions and
accruals. If additional taxes are assessed as a result of an audit, there could be a significant
negative effect on our income tax provision and net income in the period or periods for which that
determination is made.
The uncertainty in the credit markets might impact the value of certain auction-rate securities
we have and we might have to record impairment charges in the future.
Credit concerns in the capital markets have significantly reduced our ability to liquidate
auction-rate securities that we classify as available-for-sale securities on our balance sheet. The
liquidity of the securities has been negatively impacted by the uncertainty in the credit markets
and the exposure of these securities to the financial condition of bond insurance companies. In
February and March 2008, all the auction-rate securities we held failed to sell at auction due to
an insufficient number of bidders. We reviewed the value of these securities for impairment as of
March 31, 2008, and concluded that these securities were temporarily impaired, and recorded an
unrealized loss of $50,000 net of income tax effects. In future periods, the estimated fair value
of our auction-rate securities could decline further based on market conditions, which could result
in additional impairment.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
(b) Use of Proceeds. Our first registration statement, filed on Form S-1 (Registration No.
333-43192), related to our initial public offering and was declared effective by the SEC on July
26, 2001. There has been no change to the disclosure contained in our report on Form 10-Q for the
quarter ended September 30, 2005 with respect to the use of proceeds generated by our initial
public offering.
31
(c) Stock Repurchase. The table below sets forth the information with respect to purchases made by
or on behalf of the Company or any “affiliated purchaser” (as the term is defined in Rule
10b-18(a)(3) under the Securities Exchange Act of 1934) of our common stock during the three months
ended March 31, 2008:
ISSUER PURCHASES OF EQUITY SECURITIES
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Total Number of |
|
|
Maximum Number (or |
|
| |
|
Total |
|
|
|
|
|
|
Shares (or Units) |
|
|
Approximate Dollar |
|
| |
|
Number of |
|
|
Average |
|
|
Purchased as |
|
|
Value) of Shares (or |
|
| |
|
Shares (or |
|
|
Price Paid |
|
|
Part of Publicly |
|
|
Units) that May Yet Be |
|
| |
|
Units) |
|
|
Per Share |
|
|
Announced Plans |
|
|
Purchased Under the |
|
| Period |
|
Purchased |
|
|
(or Unit) |
|
|
or Programs (1) |
|
|
Plans or Programs(1) |
|
Month #1 (January 1, 2008 through January 31, 2008) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
8,477,152 |
|
Month #2 (February 1, 2008 through February 28, 2008) |
|
|
197,000 |
|
|
$ |
5.71 |
|
|
|
197,000 |
|
|
$ |
7,353,005 |
|
Month #3 (March 1, 2008 through March 31, 2008) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
7,353,005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
197,000 |
|
|
$ |
5.71 |
|
|
|
197,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
On March 26. 2003, our Board of Directors approved a share repurchase program to purchase up
to $10.0 million of our outstanding common stock. The program was completed in August 2007
with 988,000 shares repurchased at the average price of $10.12. On October 29, 2007, the Board
of Directors approved a new program to repurchase up to an additional $10.0 million of the
Company’s common stock on the open market. The right of repurchase stock under this program
will expire on October 29, 2010. As of March 31, 2008, 398,000 shares had been repurchased at
the average price of $6.65 under this program and $7.4 million remained available for
repurchase. |
Item 3. Defaults Upon Senior Securities.
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the first quarter of 2008.
Item 5. Other Information.
On February 8, 2008, the Compensation Committee of the Board of the Company, or Compensation
Committee, as subsequently adjusted effective as of an April 21, 2008 action by unanimous written
consent of the Compensation Committee, awarded discretionary bonuses pursuant to the Company’s
previously disclosed discretionary bonus policy, for the year ended December 31, 2007 to certain
employees of the Company as follows: Keith A. Jones, Chief Financial Officer and Vice President,
Finance, $10,000; Cornelius Hartgring, Vice President, Client Services and Sales, $17,000; David A.
Joseph, Chief Strategy Officer, $12,000; and Kimon W. Michaels, Vice President and General Manager,
Design for Manufacturability, $10,000.
32
Item 6. Exhibits.
| |
|
|
| Exhibit |
|
|
| Number |
|
Description |
3.01
|
|
Third Amended and Restated Certificate of Incorporation of PDF Solutions, Inc. dated July 31, 2000. (1) |
|
|
|
3.02
|
|
Amended and Restated Bylaws of PDF Solutions, Inc., effective as of August 1, 2005. (2) |
|
|
|
4.01
|
|
Specimen Stock Certificate. (3) |
|
|
|
4.02
|
|
Second Amended and Restated Rights Agreement dated July 6, 2001. (1) |
|
|
|
10.01
|
|
2001 Stock Plan and related agreements, effective as of July 31, 2001, as amended on October 31, 2006. (4) |
|
|
|
10.02
|
|
2001 Employee Stock Purchase Plan and related agreements, as adopted on June 12, 2001. (1) |
|
|
|
31.01
|
|
Certification of the President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
31.02
|
|
Certification of the Chief Financial Officer and Vice President of Finance pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
32.01
|
|
Certification of the President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002. (5) |
|
|
|
32.02
|
|
Certification the Chief Financial Officer and Vice President of Finance pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (5) |
|
|
|
| (1) |
|
Incorporated by reference to PDF’s Registration Statement on Form S-1, Amendment No. 7 filed
July 9, 2001 (File No. 333-43192). |
| |
| (2) |
|
Incorporated by reference to PDF’s Report on Form 10-Q filed August 9, 2005 (File No.
000-31311). |
| |
| (3) |
|
Incorporated by reference to PDF’s Report on Form 10-Q filed September 6, 2001 (File No.
000-31311). |
| |
| (4) |
|
Incorporated by reference to PDF’s Report on Form 10-Q filed May 10, 2007 (File No.
000-31311). |
| |
| (5) |
|
As contemplated by SEC Release No. 33-8212, these exhibits are furnished with this Quarterly
Report on Form 10-Q and are not deemed filed with the Securities and Exchange Commission and
are not incorporated by reference in any filing of PDF Solutions, Inc. under the Securities
Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date
hereof and irrespective of any general incorporation language in any filings. |
33
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| |
|
|
|
|
| |
|
|
| |
By: |
/s/ JOHN K. KIBARIAN
|
|
| |
|
John K. Kibarian |
|
| |
|
President and Chief Executive Officer |
|
| |
| |
|
|
| |
By: |
/s/ KEITH A. JONES
|
|
| |
|
Keith A. Jones |
|
| |
|
Chief Financial Officer and Vice President of Finance |
|
| |
Date: May 12, 2008
34
INDEX TO EXHIBITS
| |
|
|
| Exhibit |
|
|
| Number |
|
Description |
3.01
|
|
Third Amended and Restated Certificate of Incorporation of PDF Solutions, Inc. dated July 31, 2000. (1) |
|
|
|
3.02
|
|
Amended and Restated Bylaws of PDF Solutions, Inc., effective as of August 1, 2005. (2) |
|
|
|
4.01
|
|
Specimen Stock Certificate. (3) |
|
|
|
4.02
|
|
Second Amended and Restated Rights Agreement dated July 6, 2001. (1) |
|
|
|
10.01
|
|
2001 Stock Plan and related agreements, effective as of July 31, 2001, as amended on October 31, 2006. (4) |
|
|
|
10.02
|
|
2001 Employee Stock Purchase Plan and related agreements, as adopted on June 12, 2001. (1) |
|
|
|
31.01
|
|
Certification of the President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
31.02
|
|
Certification of the Chief Financial Officer and Vice President of Finance pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
32.01
|
|
Certification of the President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002. (5) |
|
|
|
32.02
|
|
Certification the Chief Financial Officer and Vice President of Finance pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (5) |
|
|
|
| (1) |
|
Incorporated by reference to PDF’s Registration Statement on Form S-1, Amendment No. 7 filed
July 9, 2001 (File No. 333-43192). |
| |
| (2) |
|
Incorporated by reference to PDF’s Report on Form 10-Q filed August 9, 2005 (File No.
000-31311). |
| |
| (3) |
|
Incorporated by reference to PDF’s Report on Form 10-Q filed September 6, 2001 (File No.
000-31311). |
| |
| (4) |
|
Incorporated by reference to PDF’s Report on Form 10-Q filed May 10, 2007 (File No.
000-31311). |
| |
| (5) |
|
As contemplated by SEC Release No. 33-8212, these exhibits are furnished with this Quarterly
Report on Form 10-Q and are not deemed filed with the Securities and Exchange Commission and
are not incorporated by reference in any filing of PDF Solutions, Inc. under the Securities
Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date
hereof and irrespective of any general incorporation language in any filings. |
35