PART I
Company Profile
We design, develop, manufacture and market advanced wafer probing solutions for the electrical measurement and testing of high performance
semiconductor devices. Our products enable precision on-wafer measurement of integrated circuits. Our products are typically used in the early phases of the development of semiconductor processes where the accuracy and repeatability of measurements
is critical to achieving yield from advanced process nodes. We design, manufacture and assemble our products in Beaverton, Oregon and Dresden, Germany and maintain global sales, service and support centers in North America, Germany, Japan, Taiwan,
China and Singapore.
We operate in two business segments: Systems and Probes. Sales of our probe stations are included in the Systems segment
and sales of our analytical probes and production probe cards are included in the Probes segment.
Probe stations provide precise and accurate
measurement of semiconductor electrical characteristics during device design or when optimizing the chip fabrication process. Our probe stations are highly configurable and are typically sold with various accessories, including our analytical
probes, as well as accessories from third parties. In addition, we design and build custom probe stations to address the specific requirements of our customers. We also generate revenue through the sales of service contracts for our stations.
Our analytical probes are sold to serve as components of our probe stations, or less often, to serve as components of test equipment
manufactured by third parties. Our production probe cards are designed and sold for high-volume production test applications, ranging from very low current parametric testing to sophisticated, high-speed radio frequency integrated circuit
(RFIC) testing. These probe cards are used in conjunction with third party equipment from manufacturers such as Advantest, Agilent and Teradyne.
We were incorporated in Oregon in 1984. Our principal executive offices are located at 9100 S.W. Gemini Drive, Beaverton, Oregon 97008.
Industry Background
The convergence of mobile, computer and consumer devices is
accelerating, which provides new opportunities for testing complex devices. Global macroeconomic uncertainty from lower global gross domestic product (GDP) growth contributed to a year of slow growth in 2012 worldwide semiconductor
sales, according to International Data Corporation (IDC). Total worldwide sales reached $304 billion, up only 1% over 2011. Other factors impacting the growth of the market included a slowdown in China, the Eurozone debt crisis and
on-going fear of the fiscal cliff in the United States; all of these factors had an impact on information technology (IT) spending in 2012. Weakness in personal computer demand, memory price deterioration, and semiconductor
inventory rationalization were partially off-set by ongoing demand for smartphones, tablets, set-top boxes and automotive electronics. Worldwide spending for semiconductor capital equipment fell to $59.0 billion in 2012 after reaching a record high
of $61.9 billion in 2011. Over the next decade, we anticipate four major trends occurring in the semiconductor market: the continued drive to smaller geometries, the drive for more compactness using 3D/TSV (Through Silicon Vias) technology, the
continued integration of the physical interfaces into the semiconductor device package and the shift to 450 mm diameter wafers. This last trend was significantly accelerated during 2012 as Intel, TSMC and Samsung all invested in ASML to accelerate
extreme ultra-violet (EUV) lithography and 450 mm diameter wafer development. We believe we are well positioned to take advantage of these trends.
Advancements in manufacturing technologies, such as smaller semiconductor device elements, new materials and larger wafer sizes have permitted semiconductor manufacturers to achieve greater levels of
functionality at a lower cost. These advancements in semiconductor manufacturing technologies have also led to increasing challenges in the design, manufacturing and testing of devices.
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Chips are measured and tested multiple times throughout the design and manufacturing process to ensure the
integrity of the chip design and the quality of the manufacturing process. Our products test chips during design, where precision and accuracy are required in performing diagnosis to improve the design and manufacturing of new products, and during
production to monitor the quality of the manufacturing process, where rapid testing at high volumes requires reliability and repeatability to screen out defective parts prior to incurring further costs in packaging and shipping the parts. Our strong
presence in engineering test segments also gives us high visibility of new chip processes and applications, thus aiding our planning and development of production tools.
We sell our solutions to most segments of the semiconductor industry, including manufacturers of wireless, communications, microprocessors and other logic and memory devices. A substantial portion of our
revenue is generated from sales of our probe stations and analytical probes to research and development laboratories of semiconductor manufacturers, as well as to fabless semiconductor companies and academic institutions. As a result, we sell to a
geographically diversified customer base, with more than 70% of our annual revenues in each of the last three years generated from customers outside of North America, primarily in Taiwan, Japan, China, Singapore, Germany, France, the United Kingdom
and other countries in Asia and Europe.
Sales of our probe stations and our overall operating results depend, in significant part, on the
level of capital expenditures related to semiconductor research and development, which in turn depends upon current and anticipated market demand for semiconductor devices. While our financial results are impacted by cycles within the semiconductor
industry, we believe our business cycles are typically less pronounced than those of other semiconductor equipment companies. We believe this is due to our greater reliance on our customers research and development capital spending and usage
of test consumables rather than on our customers spending purely to increase production capacity.
Products
We design, manufacture and sell multiple product lines, including probe stations, analytical probes, production probe cards and various services and
accessories. A probe station is used in conjunction with our analytical probes to test chips in wafer form, together forming a probing system. Analytical probes and production probe cards electrically connect test equipment to the devices under test
and are sold as consumable test tooling, which are mounted into probe stations.
Probe Stations.
Probing systems are
required in the development of new generations of semiconductor processes and designs, and we expect that the demand for systems will continue to grow with the increasing complexity of new processes and designs. The process development complexities
and costs have continually increased as each generation of semiconductor processes has required the integration of more layers of smaller chip elements incorporating a longer list of new materials. Probing systems are a basic tool for characterizing
and verifying the electrical performance and reliability of the new chip elements.
We offer probe stations for 300 mm, 200 mm and 150 mm or
smaller wafer sizes. Probe stations are highly configurable depending upon the size and type of wafer, the particular characteristics of the device design that the customer is testing, the required measurements, the temperatures at which the device
is tested and the test equipment that the customer is using. Our probe stations are available in manual, semi- and fully-automated configurations. Our CM300 probe station, introduced in January, 2013, represents the first time the flexibility and
accuracy of an analytical prober is combined with the automation required to handle full cassettes of 300 mm wafers. Additionally, the CM300 is scalable from semi-automated to a cluster configuration (two fully- automated probers served by a shared
FOUP and thermal control) in the field. This delivers new levels of investment protection to our traditional engineering market. Our APS200TESLA probe station, which was introduced in June 2012, combines our BlueRay production automation technology
with the capabilities of our Tesla on-wafer power device measurement technology to deliver a complete on-wafer production solution to address
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the test challenges of discrete power devices. This market is growing rapidly based on demand for hybrid and electric cars and other green technologies such as high speed trains and
wind turbines. The APS200TESLA expands our footprint in the production test market, which is substantially larger than the engineering markets we have traditionally served.
We believe that we have significant market share by revenue in probing tools worldwide. We typically offer the widest product options and the best electrical measurement performance for most engineering
test requirements.
Analytical Probes.
We offer over 50 different analytical probe models for engineering and
production testing. Our Infinity series probes are designed with unique probe tips derived from our proprietary lithographic manufacturing technology, enabling superior electrical contacts on aluminum and copper pads. Our QuadCard probe card is the
industrys first configurable, multi-quadrant probe adapter that employs innovative fine probe aligners permitting our customers to mount up to four probes on a single probe card. QuadCard accommodates a combination of probes such as Infinity
Probes, InfinityQuad probes, ACP probes, |Z| Probes and Multi-|Z| Probes, which are configurable for mixed-signal and RF/mmW testing. While our analytical probes are used primarily for engineering testing, several of our analytical probes are also
used in production testing of some high-frequency devices. We continue to add new models of analytical probes that address measurements with higher complexities and at higher frequencies up to 500 GHz. We believe we are the only company to offer a
comprehensive probe repair program aimed at servicing our large installed base, and customers are able to order probes direct from the factory.
Production Probe Cards.
A production probe card temporarily connects one or more die or integrated circuits (ICs) on a wafer under test to a high-volume production tester. Probe cards
are customized for each new chip type and physically wear out during usage in production testing; thus, probe cards are a consumable in the semiconductor test process. Depending upon the test environment, production probe cards can last for several
hundred thousand to roughly 1 million contact cycles. Production card sales are driven by production unit volumes and the various test steps of the ICs being produced.
Our Pyramid Probe
®
card product line offers high electrical speed performance and is commonly used in wireless chip applications. Factors driving wireless and radio frequency
(RF) device probing include the growth of wireless consumer devices such as smartphones and tablets, the trend to more thoroughly test these designs at the wafer level due to increasing use of advanced packaging, and the trend to test
more devices in parallel with one probe card, thus more efficiently employing the components of the test cell.
Services
and Support.
In addition to routine installation services at the time of sale, we offer services to enable our customers to maintain and more effectively utilize our products and to enhance our customer relationships. In addition to
traditional maintenance services, our applications engineers assist our customers in test methodologies to make advanced measurements on-wafer in both the lab and in fabrication.
Customers and Geographic Information
Our products are used by semiconductor manufacturers,
test subcontractors, research organizations and designers. Fabless semiconductor suppliers do not manufacture their own semiconductors but they purchase our analytical probes and probe stations for research and development and purchase, or direct
their foundries to purchase, our Pyramid Probe cards to test wafers manufactured for them. We have built strong relationships with our customers through frequent interactions over the past 25 years. To foster stronger customer relationships, we
conduct analyses for the needs of our customers new labs or products, host seminars on topics such as measurement techniques and make proactive service calls. This close interaction has helped us build what we believe is a consistently loyal
customer base. More than 1,000 companies purchased our products in 2012.
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We believe our customers consider timely customer service and support to be an important aspect of our
relationship. Our probe stations are installed at customer sites either by us, our manufacturers representatives or our distributors, depending on the complexity of the installation and the customers geographic location. We assist our
customers in the selection, integration and use of our products through engineering support. We also provide worldwide on-site training, seminars and telephone support. Our manufacturers representatives and distributors provide additional
service and support.
In 2012, 2011 and 2010, no single customer accounted for 10% or more of our total revenues. Our top 10 customers
accounted for approximately 29%, 32% and 26% of our total revenue in 2012, 2011 and 2010, respectively.
International sales accounted for
more than 70% of our total revenue in each of 2012, 2011 and 2010. Geographic revenues are as follows:
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Year Ended December 31,
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2012
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2011
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2010
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United States
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29.6%
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26.1%
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24.6%
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Asia Pacific
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45.4%
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47.7%
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45.7%
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Europe
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22.8%
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23.5%
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26.8%
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Other
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2.2%
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2.7%
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2.9%
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Long-lived assets, exclusive of long-term marketable securities and deferred income taxes, by geographic area were as
follows (in thousands):
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December 31,
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2012
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2011
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2010
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United States
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$
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9,156
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$
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11,156
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$
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13,403
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Asia Pacific
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223
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304
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480
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Europe
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1,034
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801
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616
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$
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10,413
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$
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12,261
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$
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14,499
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Segments
The segment data below is presented in the same manner that management currently organizes the segments for assessing certain performance trends. Our
Chief Operating Decision Maker monitors the revenue streams and the operating income of our Systems sales and our Probes sales. We do not track our assets on a segment level, and, accordingly, that information is not provided. The sale of our
Sockets operations in September 2011 was accounted for as discontinued operations and, accordingly, the results of operations related to the Sockets operations have been eliminated from the segment financial data below and prior period amounts have
been revised to conform to this presentation.
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Revenue, gross profit and operating income information from continuing operations by segment was as follows
(dollars in thousands):
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Systems
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Probes
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Corporate
Unallocated
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Total
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Year Ended December 31, 2012
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Revenue
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$
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74,368
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$
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38,595
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$
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$
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112,963
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Gross profit
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$
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29,391
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$
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20,560
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$
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$
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49,951
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Gross margin
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39.5%
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53.3%
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44.2%
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Income (loss) from operations
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$
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10,370
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$
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10,158
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$
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(12,971
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)
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$
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7,557
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Year Ended December 31, 2011
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Revenue
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$
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75,837
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$
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28,773
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$
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$
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104,610
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Gross profit
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$
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27,985
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$
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13,431
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$
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$
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41,416
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Gross margin
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36.9%
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46.7%
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39.6%
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Income (loss) from operations
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$
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11,002
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$
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484
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$
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(15,676
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)
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$
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(4,190
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)
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Year Ended December 31, 2010
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Revenue
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$
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65,422
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$
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27,175
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$
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$
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92,597
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Gross profit
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$
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23,336
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$
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12,110
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$
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$
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35,446
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Gross margin
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35.7%
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44.6%
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38.3%
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Income (loss) from operations
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$
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5,096
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$
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(546
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)
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$
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(12,658
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)
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$
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(8,108
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)
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Technology
We are a leading innovator in developing electrical measurement and production tools for on-wafer test. One of our stated growth strategies is to continue to develop next-generation technologies and to
increase our value to our customers through providing Integrated Measurement Solutions. We have focused our research and development efforts on enabling our customers to take more precise electrical measurements in less time, on smaller and more
densely packed devices, and with greater reliability over temperature.
Our core technologies include:
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Broadband/High-Frequency/High Speed Interconnects and Probing.
In 1983, our founders created the first microwave analytical probes that
enabled the first on-wafer 18 GHz measurements and accelerated the commercialization of gallium arsenide chips. Since then, we have continued to innovate. We use and maintain a wide variety of design, verification, fabrication and calibration
technologies for high-frequency probes and interconnections. For example, we have developed a complete library of high-frequency circuit elements for our Pyramid Probe layouts, similar to passive element libraries for chip foundries. We believe that
these technologies provide a competitive advantage by allowing us to more effectively design and commercialize production probe cards and analytical probes.
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Precision On-Wafer Measurements.
In 1993, we were first to commercialize a shielded probe station utilizing our patented MicroChamber
technology that increased thermal measurement productivity by 10 times and current measurement resolutions by 1,000 times. Many of our engineering probe stations feature MicroChamber technology, which ensure a dark, electrically noise-free
measurement environment to enable low-current measurements over a wide thermal range. Our engineering probe stations also incorporate our proprietary low-noise thermal chuck technologies that increase measurement integrity and reduce the time
required to take precise measurements. In 2008, we introduced our Elite 300 probe station which improved low-current and low-voltage measurements. With our acquisition of SUSS MicroTec Test Systems GmbH (SUSS Test) in 2010, we further
enhanced our technology capabilities to enable precise measurements at cryogenic temperatures and at various pressure levels.
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Microfabrication.
Since 1990, we have shipped products that utilize our proprietary lithographic manufacturing processes for depositing,
lithographic patterning, etching and plating probe structures on flexible substrates that are similar to the processes used in making chips. Our proprietary Pyramid technology has been under development since 1992 and continues to evolve and
improve. We continue to develop this technology and introduce new probe card and analytical probe designs using these proprietary technologies. At the
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center of a Pyramid Probe card, tester connections converge on the chips under test through our unique, lithographically defined microscopic probe tips and electrical interconnection wiring. Our
processing continues to mature and evolve, enabling faster delivery times, larger probe areas, smaller tip dimensions and interconnects, and a wider range of test temperatures. As chip elements continue to shrink, we expect to be able to scale and
evolve our lithographic processes to continue to meet our customers requirements.
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Sales, Marketing, Service and
Support
We sell our probe stations, analytical probes and production probe cards through a combination of manufacturers
representatives, distributors and direct sales people. Manufacturers representatives are independent third parties that agree to sell our products at our prices and on terms set by us, in return for a commission based on sales. We typically
use manufacturers representatives in areas where we believe require greater levels of customer support than we can deliver from our own sales offices and where local language capabilities offer our customers an advantage. Distributors purchase
our products and resell them at prices and upon terms set by the particular distributor. We typically use distributors where local regulations or business customs require local stocking of service parts, more immediate service support or other local
services. Finally, our direct sales force is made up of our salaried and commissioned employees.
We work closely with our customers to select
the most appropriate product or solution which best fits their applications. Sales of our engineering test solutions require significant interaction with our customers engineering labs and knowledge of their product development schedules and
systems, as well as on-site demonstration capability. We also may assist our customers in the design requirements for their products to enhance testability. Sales of our production test solutions require significant interaction with customer
production test managers, knowledge of their specific product details and hands-on support, particularly for new customers. Our production customers generally undertake an extensive evaluation of new probe technology before adoption. Our sales
managers are experienced sales professionals with in-depth technical training, customer knowledge and industry expertise. The technical sophistication of our products requires substantial training for our manufacturers representatives,
distributors and sales staff. We devote considerable effort and resources to developing a highly trained sales force that is responsive to our customers changing needs.
We focus our marketing efforts on developing a deep understanding of our customers processes and use cases such that our products and offerings are closely aligned with the emerging needs of
advanced designers and manufacturers of semiconductor devices. Additionally we focus on building awareness of our products among these customers. We market our products and capabilities by participating in trade shows, providing product and
technical information in print and on our website, hosting technical and product seminars, advertising in trade publications and using direct mailings. In addition, our marketing staff performs market research and product planning. We also
participate in joint sales and marketing activities with the leading complementary equipment and software suppliers to offer our customers complete test solutions. These relationships benefit us because they can lead to broader awareness and
increased sales of our products.
Our products are sold generally with a 12-month warranty. Customers may purchase an extended warranty of one
to five years at the time a probe station is purchased. The extended warranty starts when the 12-month warranty ends. We also offer service contracts for our products of one year or more in duration which can be purchased at any time after
expiration of any warranty. We employ service engineers in each of the four regions (Americas, Pacific Rim, Japan, Europe) in which we have sales and service divisions. We also contract with independent service representatives for product service in
some foreign countries. Our Applications Engineers work in close collaboration with our customers to achieve optimized use of our products in advanced applications. This collaboration serves to enhance our early comprehension of emerging needs and
affects our ability to address these needs with product features.
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Research and Development
Our industry is subject to rapid technological change and new product introductions and improvements. Our continued investment in research and development (R&D) and timely introduction of
new products and services is critical to maintaining and improving our competitive position. Our growth depends upon our ability to rapidly develop new products that enable customers to improve their electrical, optical and mechanical measurements
and increase their productivity. As a result, we expect to continue to devote substantial resources to research and development. Our research and development expense was $11.0 million in 2012, $11.8 million in 2011 and $11.8 million in 2010. We are
currently devoting substantial resources to enhancing the functionality of our probe stations and developing new products to expand our served markets. We are also devoting substantial resources to production probe cards that address non-RF
applications. Our product development is conducted against a Product Life Cycle process that requires rigor in achievement of observable milestones for phase gate exits; this process permits us to explore new product concepts quickly and to make
efficient use of both R&D and marketing resources.
At December 31, 2012, we employed 54 research and development engineers. We
conduct research and development for all of our product lines at our facilities in Beaverton, Oregon and Dresden, Germany.
Manufacturing
and Assembly
Our manufacturing and assembly operations consist of the production of highly complex and sophisticated components and
assemblies, some of which are customized to meet customers needs and specifications. We perform nearly all of our manufacturing and assembly at our facilities in Beaverton, Oregon and Dresden, Germany. We outsource the manufacturing and
assembly of some products and components to the extent we can purchase them at a cost that is lower than our cost to produce them, and still meet the expectations and requirements of our customers. We depend on limited source suppliers for some
materials, components and subassemblies used in our products.
Our product design and manufacturing process activities emphasize accurate
electrical measurements, precise and reliable mechanical components and assemblies and compliance with industry and governmental safety requirements. We prototype and test our new standard product designs and components to ensure high electrical
signal integrity, mechanical accuracy and safety. In our manufacturing operations, we perform electrical, mechanical and chemical tests and use statistical process control methods, internally-developed manufacturing information systems and
inspections of purchased components and products to monitor our product quality throughout the various stages of our manufacturing process.
Competition
The markets for engineering
probe stations, analytical probes and production probe cards are highly competitive. We anticipate that the markets for our products will continually evolve and be subject to rapid technological change.
Probe Stations.
Our primary competitors are Vector Semiconductor Co. Ltd., Signatone Corporation, MPI Corporation, Accretech,
Tokyo Electron (TEL), The Micromanipulator Company Inc. and Wentworth Laboratories Inc., among others. We believe that the primary competitive factors in the probe station market are measurement accuracy and versatility, measurement
speed, automation features, knowledge of measurement techniques, completeness of the measurement solutions, delivery time and price. We believe that we compete favorably with respect to these factors. Our primary competitor in the probes station
market was SUSS Microtech AG until we acquired their test division (SUSS Test) in January 2010.
Analytical
Probes.
Our primary competitor in the analytical probe market is GGB Industries Inc. We believe that the primary competitive factors in this market are breadth of probe types, probe frequency and electrical signal integrity, contact
integrity and the related cleaning required, knowledge of measurement techniques, calibration support, delivery time and price. We believe that we compete favorably with respect to these factors.
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Production Probe Cards.
Competition in the non-memory production probe card
market is fragmented and characterized by many suppliers offering products based on differing technologies. Our Pyramid Probe cards compete in the advanced probe card segment with product offerings of other probe card vendors, including
Feinmetall GmbH, FormFactor Inc., Japan Electronic Materials Corporation, Micronics Japan Company, Ltd., Micro Square Technology Inc., PHICOM Corporation, SV Probe Inc., Technoprobe S.r.l., Tokyo Cathode Laboratory Company Ltd., Wentworth
Laboratories Inc. and others. At least four probe card vendors, FormFactor Inc., Japan Electronic Materials Corporation, Micronics Japan Company, Ltd. and PHICOM Corporation, are also offering probe cards built using types of lithographic
patterning. The high capital investment and other costs associated with the development of lithographically defined probe cards and the time and high cost of customer evaluation, represent a significant barrier to entry for this type of technology.
We believe that the primary competitive factors in the production probe market depend upon the type of chip being tested, but include customer service, knowledge of measurement techniques, delivery time, price, probe card lifetime, chip damage,
probe tip touch-down accuracy, speed and frequency of the probe card, number of chips contacted in parallel, number of probe tips and their layout, signal integrity, and frequency and effectiveness of cleaning required. We believe that we compete
favorably in the advanced probe card segment, and in probe cards for parallel testing of chips with densely-packed bond pads. We generally do not compete in applications that require very large probe areas, such as memory test.
Intellectual Property
Our success in
large part depends on our proprietary technology. We do not depend on any one individual patent, instead relying on intellectual property, including patents and trade secrets, covering electrical measurement reliability and integrity, electrical
shielding and the Pyramid Probe contact structure and production process. As of December 31, 2012, we had over 190 active U.S. and foreign patents and over 90 pending applications. In addition, we regard certain of our processes, information
and know-how that we have developed and used to design and manufacture our products as proprietary trade secrets.
One important group of our
patents claims technology relating to electrical shielding and other inventions required to measure extremely small signals on wafers. Most of these U.S. patents will expire by 2015. Another important group of our patents claims designs and
construction methods for probe tips on Pyramid Probes. These patents expire beginning in 2016.
Our policy is to seek patents when we believe
we can achieve a significant business advantage from inventions involving new products and improvements to existing products as part of our ongoing engineering and research and development activities. We cannot ensue that any of our pending patent
applications will be approved, that we will develop additional proprietary technology that is patentable, that any patents owned by or issued to us will provide us with competitive advantages or that these patents will not be challenged by third
parties. In addition, there can be no assurance that third parties will not design around our patents.
We also use certain patented
technology of third parties in the manufacture of our products pursuant to license agreements. Pursuant to an agreement with Micronics Japan Company Ltd. and Hewlett-Packard Japan Ltd. (now Agilent Technologies), our subsidiary, Cascade
Microtech Japan, Inc., and its affiliates have been granted a non-exclusive worldwide license to make, have made, use, lease, sell or otherwise transfer certain products that make use of patented technology relating to electric circuit
measurement equipment. In exchange for the rights granted under the license, we pay royalties to Micronics Japan Company Ltd. and Agilent Technologies based on the number of products sold or leased. These royalties were insignificant in 2012.
Our license will expire upon the expiration of the patent covering the licensed technology, which will occur in June 2013.
Seasonality
Typically, our revenue is lower in our fiscal first quarter than in our fiscal fourth quarter preceding it. In addition, as is typical in
our industry, we recognize a large percentage of our quarterly revenue in the last month of the quarter. However, our seasonality can be affected by general economic trends and it should not be expected that historical revenue patterns will
continue.
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Employees
As of December 31, 2012, we had a total of 383 employees. Of these employees, 218 were located in the United States, 121 were in located in Germany, 15 were located in Singapore, 14 were located in
Japan, 9 were located in Taiwan and 6 were located in other counties. Many of our employees are highly skilled and our future performance depends largely on our ability to continue to attract, train and retain qualified technical, sales, service,
marketing and managerial personnel. None of our employees are subject to a collective bargaining agreement. However, certain employees at our manufacturing facility near Dresden, Germany, are represented by a works council. We have not experienced
any work stoppages and consider our relations with our employees to be good.
Environmental Matters
As part of our manufacturing operations, we have handled and continue to handle materials that are considered hazardous or toxic under federal, state and
local laws and regulations, and we are subject to environmental laws and regulations related to the sale, use, storage, discharge, disposal and human exposure to such materials. We believe we are in compliance with the environmental laws and
regulations applicable to the conduct of our business and operations. However, there can be no assurance that violations of environmental laws or regulations will not occur in the future as a result of human error, equipment failure or other causes.
The risk of a release of hazardous or toxic materials cannot be completely eliminated, and if such a release occurs, we could be held financially responsible for the cleanup or other consequences of the release. We are not aware of any releases at
any of our facilities that could reasonably be expected to result in any material liabilities to us.
We are subject to potentially
conflicting and changing regulatory agendas of political, business and environmental groups and governmental priorities concerning environmental laws and regulations. We may be required to incur substantial costs to comply with current or future
environmental laws or regulations, and our operations, business or financial condition could be adversely affected by such requirements.
Backlog
Our backlog consists of
purchase orders we have received for products and services with scheduled delivery dates that we expect to ship and deliver or perform in the future. At December 31, 2012, our backlog was $28.8 million compared with $31.2 million at
December 31, 2011. We typically ship our products within two months of receipt of a customers purchase order. Accordingly, we expect to deliver nearly our entire December 31, 2012 backlog in 2013. Customers may cancel or delay
delivery on previously placed orders, although our standard terms and conditions include penalties for cancellations made close to the scheduled delivery date. As a result, the timing of the receipt of orders or the shipment of products could have a
significant impact on our backlog at any date. In addition, a significant portion of our revenue is generated from orders received and products shipped within a quarter. For this and other reasons, the amount of backlog at any date is not
necessarily indicative of revenue in future periods.
Forward-Looking Statements
This Annual Report on Form 10-K and the documents incorporated herein by reference contain both historical information and forward-looking statements. In
some cases, you can identify forward-looking statements by terminology, including intend, could, may, will, should, expect, plan, anticipate,
believe, estimate, predict, potential, future, or continue, the negative of these terms or other comparable terminology. These statements are only predictions. All statements
other than statements of historical fact made in this Annual Report on Form 10-K are forward-looking, including, among others, statements regarding:
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industry prospects and trends;
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our growth strategies and prospects;
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increasing demand for smartphones, tablets, set-top boxes and automotive electronics;
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the future capabilities, functionality and competitive advantages of our products and services;
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our accounting and tax policies;
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our share repurchase program;
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our future capital requirements;
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the comparability of our business cycles compared to the industry;
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the significance of our probing tools market share and product offering, and the results of our electrical measurement performance;
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the continued strength of our relationships with customers;
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our anticipated spending on research and development;
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the seasonal fluctuations in our business;
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the timing of product delivery and delivery of backlog;
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our expectations regarding sublease income;
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our anticipated fixed asset additions in 2013; and
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our ability to meet cash requirements;
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A number of factors affect our operating results and could cause our actual future results to differ materially from those expressed or implied in such forward-looking statements, including, among others,
cyclicality of the semiconductor industry; technological developments and competition in the semiconductor industry; potential customer concentration risks; our reliance on certain suppliers; risks associated with our international sales and
operations; transactions affecting liquidity; and the risks discussed in Part I of this report entitled Risk Factors. These forward-looking statements are only predictions. Actual events or results may differ materially. In addition,
historical information should not be considered an indicator of future performance. Please see Item 1A, Risk Factors, for a discussion of some of the uncertainties, risks and assumptions associated with these statements.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we do not guarantee future results, levels of
activity, performance or achievements. In addition, we are under no duty to update any of the forward-looking statements after the date of this Annual Report on Form 10-K to conform these statements to actual results. These forward-looking
statements are made in reliance upon the safe harbor provision of The Private Securities Litigation Reform Act of 1995.
Where You Can Find
More Information
We file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange
Commission (SEC) under the Securities Exchange Act of 1934 as amended (the Exchange Act). You can inspect and copy our reports, proxy statements, and other information filed with the SEC at the SECs Public Reference
Room at 100 F Street, NE, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the Public Reference Room. The SEC maintains a website at http://www.sec.gov where you can obtain some of our SEC filings. We also
make available free of charge on our website at www.cascademicrotech.com our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to the Exchange Act as
soon as reasonably practicable after they are filed electronically with the SEC. You can also obtain copies of these reports by contacting Investor Relations at 503-601-1000.
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Our operating results
have fluctuated in the past and are likely to fluctuate in the future, which could cause us to miss our guidance or analyst expectations and cause the trading price of our common stock to decline.
Our operating results have fluctuated in the past and are likely to continue to fluctuate. As a result, you should not rely on period-to-period
comparisons of our financial results as an indication of our future performance. Factors that are likely to cause our revenue and operating results to fluctuate include:
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customer demand, which is influenced, in part, by conditions in the electronics and semiconductor industry, demand for products that use semiconductors
and market acceptance of our products and those of our customers;
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our geographic sales mix, product sales mix and average selling prices;
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timing, cancellation or delay of customer orders;
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seasonality of customer orders based on their purchasing cycles;
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fluctuations in foreign currency exchange rates;
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competition, such as competitive pressures on the price, performance and reliability of our products, the introduction or announcement of new products
by us or our competitors and our competitors intellectual property rights, which could prevent us from introducing products that compete effectively with their products;
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our production capacity and availability and cost of materials, components and subassemblies;
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our ability to deliver reliable products in a timely manner, including as a result of fluctuations in yield on some of our product lines;
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the amount and timing of operating expenses and capital expenditures related to the expansion of our operations and infrastructure;
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the timing of revenue and expenses related to any acquisitions of technologies, products or businesses; and
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our product development costs, including research and development and sales and marketing expenses associated with new products or product enhancements
and the costs of transitioning to new or enhanced products.
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In particular, many of our more technically advanced probing
stations can have selling prices from $0.2 million to over $1.0 million. If there are unforeseen delays in shipment or customer acceptance of these more expensive and advanced systems, or of any other significant orders near the end of a quarter,
the recognition of revenue on these orders could be delayed into the following period, significantly affecting both revenue and earnings for the quarter.
If our revenue or operating results fall below the expectations of analysts or investors, the market price of our common stock could decline substantially.
Our operating results and financial condition may be adversely affected by volatile economic conditions.
Though the semiconductor industrys cycle can be independent of the general economy, global economic conditions affect demand for semiconductor
products and investment. The global economy and financial markets experienced disruption in 2009 and 2008, including, among other things, extreme volatility in security prices, severely diminished liquidity and credit availability and business
failures. We are unable to predict the likely duration and severity of any future disruptions in financial markets, credit availability and adverse economic conditions throughout the world or in regions or countries that affect our business. These
economic developments affect businesses such as ours and those of our customers, suppliers and business partners in a number of ways that could result in unfavorable consequences to us. Disruption and deterioration in economic conditions may reduce
customer purchases of our products or the viability of our business partners, which could adversely affect our operating results and business.
The cyclicality of the semiconductor industry affects our operating results, and, as a result, we may experience reduced sales or operating losses in
a semiconductor industry downturn.
The semiconductor industry is highly cyclical with recurring periods of wide fluctuations in product
supply and demand. From time to time, this industry has experienced significant downturns, often in
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connection with, or in anticipation of, periods of oversupply, maturing product and technology cycles, excess inventories, geo-political changes and declines in general economic conditions. Our
customers purchasing behavior in response to these cycles has been generally unpredictable. In the past, our operating results have been adversely affected by the cyclical downturns in the semiconductor industry.
Our business is heavily dependent on the level of research and development spending of our customers, the volume of semiconductor production by
semiconductor manufacturers, particularly by wireless chip manufacturers, the development of new semiconductors and semiconductor designs and the overall financial strength of our customers. These factors in turn depend upon the current and
anticipated market demand for semiconductors and the products incorporating them. Semiconductor manufacturers in particular are known to sharply curtail their capital expenditures when confronted with an industry downturn. Since we sell our systems
to virtually all chip segments, our revenue may be affected by any significant segment weakness. We may not achieve or maintain our current or prior levels of revenue growth. Any factor adversely affecting the semiconductor industry in general, or
the particular segments, regions or major customers of the industry that our products target, will adversely affect our ability to generate revenue and could cause us to experience operating losses.
Because we generally do not have a sufficient backlog of unfilled orders to meet our quarterly revenue targets, revenue in any quarter is
substantially dependent upon customer orders received and fulfilled in that quarter.
Our revenue is difficult to forecast because we
generally do not have a sufficient backlog of unfilled orders for our engineering probe stations, analytical probes and production probe cards to meet our quarterly revenue targets at the beginning of a quarter. Historically, a significant portion
of our revenue in any quarter depends upon customer orders that we receive and fulfill in that quarter, which is typically weighted in the last month of the quarter. In addition, because our expense levels are based in part on our expectations as to
future revenue and, to a large extent, are fixed in the short term, we might be unable to adjust spending in time to compensate for any unexpected shortfall in revenue. Accordingly, any significant shortfall in revenue in relation to our
expectations and the expectations of analysts or investors could hurt our operating results and result in a decline in the price of our common stock.
If we do not keep pace with technological developments in the semiconductor industry, especially the trend toward faster, smaller and lower-cost chips, our revenue and operating results could suffer as
potential customers decide to adopt our competitors products.
We must continue to invest in research and development and certain
manufacturing capabilities to maintain and improve our competitive position and to meet the testing needs of our customers. Our future growth depends, in significant part, on our ability to work effectively with and anticipate the testing needs of
our customers and on our ability to develop and support new products and product enhancements to meet these needs on a timely and cost-effective basis. Our customers testing needs are becoming more challenging as the semiconductor industry
continues to experience rapid technological change driven by the demand for complex chips that have smaller element sizes and at the same time are increasing in speed and functionality and becoming less expensive to produce. Our customers expect
that they will be able to integrate our wafer probing products into their design and production processes as soon as they are deployed. To meet these expectations and remain competitive, we must continually design, develop and introduce on a timely
basis new products and product enhancements with improved features. Successful product development and introduction on a timely basis require that we:
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design innovative and performance-enhancing features that differentiate our products from those of our competitors;
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identify emerging technological trends in our target markets, including new engineering and production test strategies;
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respond effectively to technological changes or product announcements by others; and
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adjust to changing market conditions quickly and cost-effectively.
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If we are unable to timely predict industry changes, or if we are unable to modify our products on a timely
basis, we might lose customers or market share, and our operating results could suffer. We cannot assure you that we will successfully develop and bring new products to market in a timely and cost-effective manner, that any product enhancement or
new product developed by us will gain market acceptance or that products or technologies developed by others will not render our products or technologies obsolete or uncompetitive.
Intense competition in the semiconductor wafer probing business may reduce demand for our products and reduce our sales.
The markets for our products are highly competitive, and we expect competition to continue in the future. Our existing competitors or other potential competitors may have developed or may be developing
technology of which we are unaware that may render our products uncompetitive. Some of our competitors have significantly greater financial, technical and marketing resources than we do. As a result, these competitors may be able to respond more
quickly to new or emerging technologies and changes in customer requirements, to devote greater resources to the development, promotion and sale of their products or to deliver competitive products at lower prices. Increased competition could result
in pricing pressures, reduced sales, margins or competitive position or failure to achieve or maintain widespread market acceptance for our products, any of which could prevent us from growing our business and adversely affect our operating results.
Some of these competitors may use a strategy of intense discounting to help maintain, or even increase, their revenue and customer base.
Consolidation of our customer base could adversely affect our revenues and results of operations.
Customers could be purchased by other companies or simply dissolve. This may mean that fewer customers could have greater leverage to obtain price
concessions, thereby reducing margins. In addition, leading-edge chip technology development in the semiconductor industry has become so expensive that our customers are often teaming up to perform the development work, effectively shrinking our
customer base or slowing their purchases of engineering tools.
Some of our customers may experience adverse changes in their financial
condition, resulting in decreased sales and bad debts.
Adverse economic changes globally or in a given region or country, or other events
specific to our customers could lead to their insolvency or bankruptcy or otherwise negatively affect their financial condition. Any such changes could have a negative impact on our sales, make it more difficult to collect on receivables and result
in bad debts.
We rely on a small number of customers for a significant portion of our revenue and to grow our business, and the
deterioration or termination of any of these relationships would adversely affect our business.
Our top four customers accounted for a
total of 14% and 20%, respectively, of our revenue in 2012 and 2011. Our customer base is less diversified in probes than in probe stations. Typically, our customers are not obligated by long-term contracts to purchase our products and may
discontinue purchasing our products at any time. The semiconductor industry is highly concentrated and a small number of semiconductor manufacturers generally account for a substantial portion of the purchases of semiconductor test equipment,
including our products. Consequently, our business and operating results would be materially, adversely affected by the loss of, or a material reduction in purchases by, any of our significant customers.
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In addition, our ability to increase our revenue will depend in part upon our ability to obtain orders from
new customers, Obtaining orders from new customers is difficult because semiconductor manufacturers typically select one vendors products for testing a particular new generation of chips. Once a manufacturer has selected a vendor, that
manufacturer is more likely to continue to purchase products from that vendor for that generation of chips, as well as subsequent generations of chips. We therefore place great emphasis on relationships with our current customers because these
customers are difficult to replace. In addition, we focus on leveraging our relationships with current customers to sell into additional engineering labs and production lines in the same company and similar groups in other companies. If we are
unable to maintain our relationships with our existing significant customers or to obtain new customers that adopt and implement our products and technology, we will not be able to meet our revenue and growth targets, which could result in a decline
in the price of our common stock.
If our relationships with our customers deteriorate, our product development activities could be harmed.
The success of our product development efforts depends in part upon our ability to anticipate market trends and to collaborate closely
with our customers. Our relationships with our customers provide us with access to valuable information regarding manufacturing and process technology trends in the semiconductor industry, which enables us to better plan our product development
activities. These relationships also provide us with opportunities to understand the performance and functionality requirements of our customers, which improve our ability to customize our products to fulfill their needs. If our relationships with
our customers deteriorate, or if we are unable to develop similar collaborative relationships with important customers in the future, our long-term ability to produce commercially successful products could be adversely affected.
We obtain some of the materials, components and subassemblies used in our products from a single source or a limited group of suppliers. If these
suppliers are unable to provide us with these items on a timely basis, we may be unable to manufacture our products or meet our customers needs.
We obtain some of the materials, components and subassemblies used in our products from a single source or a limited group of suppliers. From time to time, we may experience difficulties in obtaining
these materials, components and subassemblies from some suppliers. In the future, one or more of our suppliers may declare bankruptcy or go out of business due to unusually weak business conditions or other factors or may otherwise be unable to
adequately meet our needs, which could force us to source our products from different suppliers. The manufacture of some of the materials, components and subassemblies that we use in our products is a complex process, and in the event that we cannot
obtain an adequate supply of these components it would be difficult and time-consuming to identify and qualify new suppliers. In addition, many of these suppliers are small companies that may be more susceptible to downturns in general economic
conditions, thereby increasing the risks of product and shipment delays, increased costs or loss of suppliers.
The delay in shipments from,
or complete loss of, any one of these suppliers could prevent us from producing and shipping our products, resulting in delayed or lost orders for our products and damage to our customer relationships, which would harm our business and results of
operations. In addition, a significant increase in the price of one or more of these materials, components or subassemblies could materially adversely affect our results of operations.
Any disruption in the operations of our manufacturing facilities could harm our business.
We manufacture most of our products in our facilities located in Beaverton, Oregon and Dresden, Germany. Our manufacturing processes are complex and
require sophisticated and costly equipment and specially designed facilities. As a result, any prolonged disruption in the operations of our facilities, whether due to technical or labor difficulties, relocation or destruction of or damage to the
facilities as a result of an earthquake, fire or any other reason, could materially and adversely affect our business, financial condition and results of operations.
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We rely on suppliers and contract manufacturers for the products we sell.
Reliance on suppliers and contract manufacturers raises several risks, including the possibility of defective parts, lack of
availability and the possibility of increases in component costs. Manufacturing efficiencies and our profitability can be adversely affected by each of these risks. For instance, during October 2011, heavy rain in Thailand resulted in
flooding at the manufacturing facility of a key supplier for one of our probing stations. If we had not been able to obtain the necessary materials and resources to build those stations at our facility in Beaverton, Oregon, our revenues and results
of operations for the fourth quarter of 2011 and beyond could have been adversely impacted.
In the future we may be required to record
non-cash asset impairment charges related to our leased facilities and certain long-lived assets if their fair value is reduced below their carrying value on our balance sheet.
As of December 31, 2012, we had fixed assets, goodwill and intangible assets of $11.4 million recorded on our balance sheet. We assess our goodwill annually and we test other long-lived assets when
an event occurs indicating the potential for impairment. We have recorded asset impairment charges in the past, and if we record an impairment charge as a result of these analyses in the future, it could have a material adverse impact on our results
of operations.
In addition, we recorded restructuring charges during 2011 in connection with excess leased facilities, net of estimated
sublease income that we believe could be reasonably obtained. If the real estate markets worsen and we are not able to sublease the properties as expected, additional charges will be recognized in the period such determination is made.
Our growth could strain our personnel and infrastructure resources, and, if we are unable to implement appropriate controls and procedures to manage
our growth, we may not be able to successfully implement our business plan.
Our growth has increased the complexity of our business and
placed significant demands on our management, personnel, operational, financial and technical resources and on our internal control, management information and reporting systems, and any future growth will continue to do so. Our success will depend,
in part, upon the ability of our senior management to manage this growth effectively. To manage the expected growth of our operations and personnel, we will need to:
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continue to improve our operational, financial and management controls and our reporting systems and procedures;
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manage the growth of different product lines with different cost structures; and
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recruit, train, manage and motivate our employees to support our expanded operations.
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Any inability to manage our growth effectively could adversely affect our revenue and profitability, the quality of our products and services, the
timeliness and effectiveness of our product development efforts and our ability to retain key personnel. These factors could harm our business, operating results and financial condition.
We may make business acquisitions, or other investments in technologies and products, that could be unsuccessful, costly and dilute shareholder value.
Our growth strategy includes our potential acquisition of, or making investments in, complementary technologies, products or businesses. We have limited
experience negotiating or completing acquisitions or investments or managing the integration of acquisitions. Accordingly, we may be unable to successfully complete or integrate any such transactions we may pursue, and our failure to
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do so could harm our business, operating results and financial condition. The success of any future acquisitions or investments will depend upon our ability to identify, negotiate, complete and
integrate these transactions and, if necessary, to obtain satisfactory debt or equity financing to fund them. Any acquisitions or investments we undertake will involve numerous risks, which may include any of the following:
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disruption of our ongoing business, including diversion of managements attention during negotiation of the transaction and during
post-transaction integration;
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costs, delays and difficulties of integrating any acquired companys operations, products, technologies and personnel into our existing operations
and organization;
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difficulties in maintaining uniform and applicable standards, controls, procedures and policies;
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adverse impact on earnings as a result of amortizing the acquired companys intangible assets or impairment charges related to write-downs of
goodwill related to acquisition;
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issuances of equity securities or the incurrence of debt to pay for acquisitions or investments, which may be dilutive to existing shareholders or
increase our financial leverage and interest expense;
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potential loss of customers, suppliers, partners or key employees;
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impact on our operating results or financial condition due to the timing of the acquisition or investment or failure to meet operating expectations for
acquired businesses or investments;
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assumption of unknown liabilities of the acquired company or becoming subject to adverse tax consequences; and
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the entry into geographic or business markets in which we have little or no prior experience.
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Any acquisitions of or investments in technologies, products or businesses may not generate sufficient revenue to offset the associated costs of the
acquisition or may result in other adverse effects that would harm our business, operating results and financial condition.
A
reorganization could result in significant disruption of our business and our relationships with our employees, suppliers and customers could be adversely affected.
Subsequent to the acquisition of SUSS Test in January 2010, we began to restructure and integrate the combined businesses, which resulted in severance charges and inventory write-offs. In the second
quarter of 2010, we restructured our Sockets business in Minnesota, which resulted in severance charges, inventory write-offs and shorter useful lives of certain equipment. In the fourth quarter of 2010, in connection with our ongoing integration of
the operations of SUSS Test, we announced plans to restructure and consolidate our sales organization and manufacturing operations. Manufacturing operations for most of our Systems business were consolidated at our Dresden, Germany facility and
manufacturing operations for our Probes business and our corporate headquarters were consolidated at one of our Beaverton, Oregon facilities. Our sales offices in Vermont and Arizona were closed in the fourth quarter of 2010. In the third quarter of
2011, we sold our Sockets business, which resulted in a loss on disposal activities of $1.5 million.
Total restructuring charges in 2011 were
$3.4 million, primarily for lease abandonment, and were $2.7 million in 2010, primarily for severance and inventory write-offs.
We may, in
the future, undertake additional restructuring or reorganization activities in order to improve operating efficiencies and reduce operating costs. Such activities may require significant efforts, including the integration of product manufacturing,
research and development, sales and marketing efforts and general and administration activities, and any additional charges and write-offs, which could adversely affect our operating results. There can be no assurance that such activities would be
successful or reduce operating costs.
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We face economic, political and other risks associated with our international sales and operations, which
could materially harm our operating results.
Over the past three fiscal years, we have derived more than 70% of our annual revenue from
sales outside the United States, primarily in Taiwan, Japan and other Asian countries and, to a lesser extent, Europe. We expect international sales to continue to represent a substantial portion of our revenue for the foreseeable future. In the
past, the economic climate in some foreign markets, particularly in Asia, has at times quickly and dramatically changed, resulting in a negative effect on our operating results.
Currently, we maintain six international offices in Europe and Asia, and we may establish new international offices in the future. Risks we face in conducting business internationally include:
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difficulties and costs of staffing and managing international operations across different geographic areas as a result of distance, language and
cultural differences;
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the possible lack of financial, social and political stability in foreign countries, preventing overseas sales growth;
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changes in the value of foreign currencies in relation to the U.S. dollar, our reporting currency;
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changes in domestic or foreign law or policy resulting in the need to comply with potentially burdensome government controls, regulations, tariffs,
embargoes or export and import license requirements;
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shipping delays or disruptions;
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restrictions on foreign ownership;
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cash held at foreign bank accounts;
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dependence on certain third parties to increase customer acquisition and sales, including dependence on channel partners with which we may not have
extensive experience;
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reduced protection for intellectual property rights in some countries;
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overlapping of different tax regimes, and potentially adverse tax consequences, including the complexities of foreign value added or other tax systems
and restrictions on the repatriation of cash and the investment of funds;
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increased financial accounting and reporting burdens and complexities;
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Shorter payable and longer receivable cycles and potential difficulties in enforcing contracts and collecting accounts receivable;
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differing and more burdensome labor regulations and practices, including in Europe;
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the effects of sudden outbreaks of epidemics in Asia and other parts of the world; and
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the effects of terrorist attacks in the U.S. or elsewhere and any related conflicts or similar events worldwide.
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There have been significant fluctuations in the exchange rates between the dollar and the currencies of countries in which we do business. While most of
our international sales have been denominated in U.S. dollars, over 20% of our sales in 2012 were denominated in foreign currencies, In addition, most of our international operating expenses have been denominated in foreign currencies. As a result,
a decrease in the value of the U.S. dollar relative to the foreign currencies could increase the relative costs of our overseas operations, which could reduce our operating margins. Significant unfavorable fluctuations in the exchange rates between
the U.S. dollar and foreign currencies could cause us to lower our prices and thus reduce our profitability. In addition, fluctuations in exchange rates could cause customers to delay or cancel orders because of the increased cost of our products
relative to those of our competitors who manufacture in other countries.
We may be exposed to uninsured risks if the type and amount of
coverage we carry are not adequate, or if the insurance company is unable to honor claims.
We carry insurance in various types and amounts
to insure against a range of business related risks. If the types of insurance or the insurance limits are not adequate to protect us against all claims, or the insurance company is not able to honor our claims, our results of operations and
financial condition could be negatively affected.
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Failure to retain key managerial, technical, sales and marketing personnel, independent
manufacturers representatives and distributors or to attract new key personnel could harm our business.
Our success depends on the
continued services of our executive officers and other key management, technical, and sales and marketing personnel and on our ability to continue to attract, retain and motivate qualified personnel. The loss of key personnel could limit our ability
to develop new products and adapt existing products to our customers evolving requirements and may result in lost sales and a diversion of management resources. In addition, much of our competitive advantage and intellectual property is based
on the expertise, experience and know-how of our key personnel. To support our future growth, we will need to attract and retain additional qualified management, technical and sales and marketing employees. Competition for such personnel in our
industry can be intense, and we cannot assure you that we will be successful in attracting and retaining such personnel.
Over half of our
revenues are typically generated through independent manufacturers representatives and distributors, whose activities are not within our direct control. In addition, in some locations, our manufacturers representatives and distributors
provide field service to our customers. A reduction in the sales or service efforts or financial viability of these manufacturers representatives or distributors, or a termination of our relationship with these representatives or distributors,
would have a material adverse effect on our operating results and ability to support our customers.
Our customers evaluation
processes can lead to lengthy sales cycles, during which we may incur significant costs that may not result in sales.
Our customers
typically expend significant efforts in evaluating and qualifying our products prior to placing an order, particularly for orders of probe stations and production probe cards. This evaluation and qualification process frequently results in a lengthy
sales cycle, typically ranging from three to 12 months and sometimes longer. During the period in which our customers are evaluating our products, we incur substantial sales, marketing, research and development expenses and expend significant
management efforts. After completing this evaluation process, a potential customer may elect not to purchase our products. In addition, customer purchases are frequently subject to unplanned processing delays, particularly at our larger customers
for which our products represent a very small percentage of their overall purchase activity.
Additional factors, some of which are partially
or completely outside our control, that affect the length of time it takes us to complete a sale, include:
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the efforts of our sales force;
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the history of previous sales to the customer;
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the timing of final customer acceptance, particularly on new or custom products;
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the complexity of the customers engineering or production processes;
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the internal technical capabilities and sophistication of the customer; and
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the capital expenditure budgets of the customer.
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The lengthy and unpredictable nature of our sales cycle could result in fluctuations in our operating results, which could fall below the expectations of analysts and investors for any particular period
of time, and result in a decline in the price of our common stock.
If our products contain defects, our reputation would be damaged, and
we could lose customers and revenue and incur warranty expenses.
The complexity and ongoing development of our products, as well as the
inclusion in our products of components purchased from third parties, could lead to design, manufacturing or performance problems. Our products may contain defects which could cause our sales to decline, our reputation to be significantly damaged
and our customers to be reluctant to buy our products, any or all of which could result in a decline in revenue, an increase in product returns, higher field service costs, the loss
19
of existing customers or the failure to attract new customers. Our warranty charges totaled $0.9 million, $1.1 million and $0.6 million in 2012, 2011 and 2010, respectively. We may be
unsuccessful in seeking reimbursement of a portion of our warranty expense from applicable vendors arising from purchased components, which could adversely affect our operating results.
If we fail to protect our proprietary technology and rights, competitors may be able to use our technologies, which would weaken our competitive position and could reduce our sales.
Our success and competitive position depend in significant part on the technically innovative features of our products, and, if we fail to protect our
proprietary rights, our competitors might gain access to our technology. Although we rely in part on patent and trademark laws and on trade secrets to protect the proprietary technology used in our products, our patents may be challenged by third
parties and held invalid, and any of our pending patent applications may not be approved. Additionally, we may not be able to develop additional proprietary technology that is patentable. Policing unauthorized use of our products is difficult, and
we may not be able to prevent the misappropriation and unauthorized use of our technologies. In addition, our existing and future patents may not be sufficiently broad to protect our proprietary technologies, may not provide us with competitive
advantages and may be circumvented by the designs of third parties. Certain of our patents will expire in the near future and such expirations will reduce our ability to assert claims against competitors or others who use similar technology.
Unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary. Others may
independently develop or otherwise acquire similar or competing technologies or methods or design around our patents. Additionally, some of our proprietary technology cannot be effectively protected by patents. In these cases, we rely on trade
secret laws and confidentiality agreements to protect our confidential and proprietary information, processes and technology. However, our confidential and proprietary information, processes and technology could be independently developed by, or
otherwise become known to, third parties, which would weaken our competitive position and might reduce our sales.
Over the past three fiscal
years, we have derived more than 70% of our annual revenue from products sold to customers outside of North America. The laws of some foreign countries do not protect our proprietary rights to the same extent as the laws of the U.S., and many
companies have encountered substantial problems in protecting their proprietary rights against infringement in such countries. The manner in which we protect our proprietary rights may not be adequate in some foreign countries. Our failure to
adequately protect our intellectual property in foreign countries would make it easier for competitors to copy or circumvent our product designs and sell competing products in those countries, which could adversely affect our revenue and cause us to
lose customers.
Intellectual property infringement claims by or against us may result in litigation, the cost of which could be
substantial and could prevent us from selling our products.
The semiconductor industry is characterized by uncertain and conflicting
intellectual property claims, frequent litigation regarding patent and other intellectual property rights and vigorous protection and pursuit of these rights. Questions of infringement in the semiconductor industry involve highly technical and
subjective analyses. Litigation may be necessary to determine the validity and scope of our proprietary rights or to defend against claims of infringement or invalidity by third parties, and we may not prevail in any litigation. Any such litigation,
whether or not determined in our favor or settled, might be costly, could harm our reputation, could cause product shipment delays and could divert the efforts and attention of our management and technical personnel from our normal business
operations.
An adverse outcome in any intellectual property litigation might result in the loss of our proprietary rights, subject us to
significant liabilities, require us to spend significant resources to develop non-infringing technology, require us to seek licenses from third parties, prevent us from manufacturing and selling our products or require us to discontinue the use of
certain technology in our products,
20
any of which could have an adverse effect on our business, financial condition and results of operations. License agreements, if required, might not be available on terms acceptable to us or at
all.
Our success depends on our continued investment in research and development, the level and effectiveness of which could reduce our
profitability.
We intend to continue to make investments in research and development in seeking to sustain and improve our competitive
position and meet our customers needs. These investments currently include enhancing our probe stations, refining probe fabrication processes and developing higher performance probe cards and analytical probes. To maintain our competitive
position, we may need to increase our research and development investment, which could reduce our profitability. In addition, we cannot assure you that we will achieve a return on these investments, nor can we assure you that these investments will
improve our competitive position or meet our customers needs.
We are subject to significant environmental regulations, which are
costly to comply with and if we fail to comply with may result in significant costs and harm our business.
We are subject to a variety of
federal, state and local laws, rules and regulations relating to the storage, use, discharge, disposal and human exposure to hazardous and toxic materials used in our thin-film fabrication facility and other manufacturing operations. The risk of a
release of hazardous or toxic materials cannot be completely eliminated, and if such a release occurs, we could be held financially responsible for the cleanup or other consequences of the release. Failure to comply with environmental laws and
regulations could result in enforcement actions, substantial liabilities and suspension of production or cessation of operations in extreme situations. Compliance with current or future environmental laws and regulations could restrict our ability
to expand our facilities or build new facilities or require us to acquire additional expensive equipment, modify our manufacturing processes, or incur other substantial expenses which could harm our business, financial condition and results of
operation.
In addition, many countries including the United States and those in the European Union and China have implemented directives that
restrict the sale of new electrical and electronic equipment containing hazardous substance, require that certain metals used in products be from a conflict free source, or make producers of electrical and electronic equipment financially
responsible for specified collection, recycling, treatment and disposal of past and future covered products. If it is determined that we do not comply with certain environmental or other regulations, we may suffer a loss of revenue, be unable to
sell in certain markets or countries and suffer competitive disadvantage, and be required to take reserves for costs associated with compliance with these regulations
Environmental laws and regulations could become more stringent over time, imposing even greater compliance costs and increasing risks and penalties associated with violations, which could harm our
business, financial condition and results of operation. There can be no assurance that violations of environmental laws or regulations will not occur in the future as a result of the inability to obtain permits, human error, equipment failure or
other causes.
New regulations related to conflict minerals may force us to incur additional expenses, may make our supply
chain more complex and may result in damage to our reputation with customers.
On August 22, 2012, under the Dodd-Frank Wall Street
Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, the SEC adopted new requirements for companies that use certain minerals and metals, known as conflict minerals, in their products, whether or not these products are manufactured by
third parties. These requirements will require companies to conduct due diligence and disclose whether or not such minerals originate from the Democratic Republic of Congo and adjoining countries. The implementation of these new requirements could
adversely affect the sourcing, availability and pricing of minerals used in the manufacture of semiconductor devices,
21
including our products. In addition, we will incur additional costs to comply with the disclosure requirements, including costs related to determining the source of any of the relevant minerals
and metals used in our products. Since our supply chain is complex, we may not be able to sufficiently verify the origins for these minerals and metals used in our products through the due diligence procedures that we implement, which may harm our
reputation. In such event, we may also face difficulties in satisfying customers who require that all of the components of our products are certified as conflict mineral free.
Product liability claims may be asserted against us, resulting in costly litigation for which we may not have sufficient liability insurance.
Our customers may use our products in the testing of high-reliability semiconductors for critical applications such as telecommunications infrastructure,
military, medical and aerospace equipment. Defects or other problems with the performance of our products could result in financial or other damages to our customers. In addition, some of our probe stations that use high-powered lasers or operate at
high voltage or extreme temperatures may cause death or injury to persons utilizing such equipment due to undetected design or manufacturing defects or due to improper use or maintenance by our customers. Although our product invoices and sales
contracts generally contain provisions designed to limit our exposure to product liability claims, existing or future laws or unfavorable judicial decisions could negate these provisions. Product liability litigation against us, even if it were
unsuccessful, could be time consuming and costly to defend. Additionally, although we carry product liability insurance, in some circumstances it may not cover certain claims or be adequate to cover all claims.
Unanticipated changes in our tax rates or exposure to additional income tax liabilities could affect our profitability.
We are subject to income taxes in both the U.S. and various foreign jurisdictions, and our domestic and international tax liabilities are subject to the
allocation of expenses in different jurisdictions. Our effective tax rate could be adversely affected by changes in the mix of earnings in countries with different statutory tax rates, changes in the valuation of deferred tax assets and changes in
tax laws. In particular, the recoverability of deferred tax assets, which are predominantly in the U.S., is dependent on our ability to generate future taxable income in the U.S. In addition, the amount of income taxes we pay could be subject to
ongoing audits in various jurisdictions and a material assessment by a governing tax authority could affect our profitability.
Our
officers and directors and their affiliates may control the outcome of matters requiring shareholder approval.
As of December 31,
2012, our executive officers and directors and their affiliates beneficially owned greater than 35% of our outstanding shares of common stock. Consequently, these shareholders have substantial influence over the election of our directors and the
outcome of corporate actions requiring shareholder approval, such as a merger or a sale of our company or a sale of all or substantially all of our assets. This concentration of voting power and control could have a significant effect in delaying,
deferring or preventing an action that might otherwise be beneficial to our other shareholders and be disadvantageous to our shareholders with interests different from those of our officers, directors and affiliates. These shareholders will also
have significant control over our business, policies and affairs. Additionally, this significant concentration of share ownership may adversely affect the trading price for our common stock because investors may perceive disadvantages in owning
stock in companies with controlling shareholders.
22
Change in control severance agreements with certain executive officers and the anti-takeover provisions
of our charter documents and Oregon law may inhibit a takeover or change in our control that shareholders may consider beneficial.
Change
in control severance agreements with certain executive officers and provisions of our articles of incorporation and bylaws and provisions of Oregon law may have the effect of delaying or preventing a merger or acquisition of us, making a merger or
acquisition of us less desirable to a potential acquirer or preventing a change in our management, even if the shareholders consider the merger or acquisition favorable or if doing so would benefit our shareholders. In addition, these agreements and
provisions could limit the price that investors would be willing to pay in the future for shares of our common stock. The following are examples of such provisions:
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We have typically staggered our board of directors, which makes it more difficult for a group of shareholders to quickly change the composition of our
board;
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Our board of directors is authorized, without prior shareholder approval, to create and issue preferred stock with voting or other rights or
preferences that could impede the success of any attempt to acquire us or change our control;
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Members of our board of directors can only be removed for cause;
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The board of directors may alter our bylaws without obtaining shareholder approval;
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Shareholders are required to provide advance notice for nominations for election to the board of directors or for proposing matters to be acted upon at
a shareholder meeting; and
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Any action that is taken by written consent of shareholders must be unanimous.
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We are also subject to the provisions of the Oregon Control Share Act and the Oregon Business Combination Act, each of which may have certain
anti-takeover effects.
We rely on the security and integrity of our electronic data systems and our business could be damaged by a
disruption, security breach or other compromise of these systems.
We rely on electronic data systems to operate and manage our business
and to process, maintain, and safeguard information, including information belonging to our customers, partners, and personnel. These systems may be subject to failures or disruptions as a result of, among other things, natural disasters, accidents,
power disruptions, telecommunications failures, new system implementations, acts of terrorism or war, physical security breaches, computer viruses, or other cyber security attacks. Such system failures or disruptions could subject us to downtimes
and delays, compromise or loss of sensitive or confidential information or intellectual property, destruction or corruption of data, financial losses from remedial actions, liabilities to customers or other third parties, or damage to our reputation
or customer relationships. Any of the foregoing could have a material adverse effect on our business, operating results and financial condition.
Internal control deficiencies or weaknesses that are not yet identified could emerge.
Over
time we may identify and correct deficiencies or weaknesses in our internal controls and, where and when appropriate, report on the identification and correction of these deficiencies or weaknesses. Internal control procedures can provide only
reasonable, and not absolute, assurance that deficiencies or weaknesses are identified. Deficiencies or weaknesses that have not been identified by us could emerge and the identification and correction of these deficiencies or weaknesses could
adversely affect our operating results. If our internal controls over financial reporting are not considered adequate, we may experience a loss of public confidence, which could adversely affect our business and stock price.
23
We may become subject to litigation that could have an adverse effect on our business.
From time to time, we may be subject to litigation or other administrative and governmental proceedings that could require significant management time and
resources and cause us to incur expenses and, in the event of an adverse decision, pay damages in an amount or become subject to business limitations that could have a material adverse effect on our business, operating results and financial
condition.
ITEM 1B.
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UNRESOLVED STAFF COMMENTS
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None
We maintain our corporate
headquarters and our Probes manufacturing at a 59,000 square foot leased facility that includes a clean room at a site in Beaverton, Oregon. Our lease of this facility expires December 31, 2014. Our Systems manufacturing is primarily performed
at a 42,000 square foot leased facility near Dresden, Germany. Our lease of that facility expires December 31, 2017. We lease small sales and service offices in Japan, Germany, China, Taiwan and Singapore. In addition, we have 58,000 square
feet of unused leased space in Beaverton, Oregon that we are attempting to sublease. The lease on the unused space expires December 31, 2015.
ITEM 3.
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LEGAL PROCEEDINGS
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As of the date of
filing this Form 10-K, we are not a party to any material legal proceedings. However, the semiconductor test industry is characterized by vigorous protection and pursuit of intellectual property rights and positions. To protect our intellectual
property from infringement, we have, from time to time, initiated litigation against third parties and may be required to do so in the future. We cannot assure you that we shall be successful in future intellectual property litigation and this
litigation often is protracted and expensive.
ITEM 4.
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MINE SAFETY DISCLOSURES
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Not applicable
24
Notes to Consolidated Financial Statements
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
We design, develop, manufacture and market advanced wafer probing solutions for the electrical measurement and testing of high-performance chips. We design, manufacture and assemble our products in Oregon
and Dresden, Germany, and maintain global sales, service and support centers in North America, Germany, Japan, Taiwan, China and Singapore.
Principles of Consolidation
The
consolidated financial statements include the accounts of Cascade Microtech, Inc. and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated.
Use of Estimates in Financial Reporting
The preparation of financial statements in
conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements, as well as revenues and expenses reported for the periods presented. On an on-going basis, we evaluate our estimates, including those related to revenue recognition, allowance for doubtful accounts, valuation of excess and
obsolete inventory, lives and recoverability of equipment and other long-lived assets, warranty liabilities, deferred tax asset valuation allowance, unrecognized tax benefits, stock-based compensation, lease abandonment costs, contingencies and
litigation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Cash and Cash Equivalents
We consider all highly liquid investments with an
original maturity of three months or less to be cash equivalents. Our cash balances with financial institutions may exceed the deposit insurance limits. Included in cash and cash equivalents were cash equivalents of $8.8 million and $2.6 million at
December 31, 2012 and 2011, respectively, which consisted of money market funds, and are stated at cost, which approximates market value.
Marketable Securities
We
classify our marketable securities as available-for-sale and, accordingly, record them at fair value. Unrealized holding gains and losses are excluded from earnings and are reported as a separate component of Shareholders equity until
realized. Dividend and interest income is recognized when earned. Realized gains and losses are included in earnings and are derived using the specific identification method for determining the cost of securities sold.
We periodically evaluate whether declines in fair values of our investments below their cost are other-than-temporary. This evaluation
consists of qualitative and quantitative factors regarding the severity and duration of the unrealized loss, as well as our ability and intent to hold the investment until a forecasted recovery occurs.
Restricted Cash
Our restricted
cash is held in accounts with banks that have issued guarantees to our customers for advance deposits on goods and services. The guarantees allow the banks to withdraw the restricted cash from our accounts and return the advanced deposit to the
customer if goods are not delivered or services are not properly performed. All of the guarantees expire within 12 months of the balance sheet date and, accordingly, are recorded as a current asset on our consolidated balance sheets.
F-7
Trade Accounts Receivable
Trade accounts receivable are recorded at their invoiced amount and do not bear interest. The allowance for doubtful accounts is our best estimate of the amount of probable credit losses in our existing
accounts receivable. We determine our allowance for doubtful accounts utilizing historical collection percentages considering the aging of the accounts and known trends with current customers, including recent significant changes in their financial
position.
Charges (credits) to the allowance for doubtful accounts totaled $0.1 million, $(0.1) million and $(0.1) million, respectively, in
2012, 2011 and 2010. Bad debt recoveries were $101,000 in 2012, $56,000 in 2011 and $242,000 in 2010. The allowance for doubtful accounts totaled $0.3 million at both December 31, 2012 and 2011.
Inventories
Inventories are
stated at the lower of standard cost, which approximates cost computed on a first-in, first-out basis, or market, and include materials, labor and manufacturing overhead. Demonstration goods, which are included as a component of finished goods,
represent inventory that is used for customer demonstration purposes. This inventory is typically sold after 12 to 18 months. We analyze the carrying value of our inventory quarterly, considering a combination of factors including, but not limited
to, the following: forecasted sales or usage, historical usage rates, estimated service period, product end-of-life dates, estimated current and future market values, service inventory requirements and new product introductions. We estimate market
value based on factors including, but not limited to, replacement cost and estimated resale value. Inventory reserve charges totaled $1.4 million, $1.1 million and $1.7 million, respectively, in 2012, 2011 and 2010. Inventory reserve charges are
recorded quarterly as a component of cost of sales and establish a new cost basis for the inventory.
Fixed Assets
Equipment and leasehold improvements are stated at cost. Equipment under capital lease is recorded at the net present value of the future minimum lease
payments at the inception of the lease. Maintenance and repairs are expensed as incurred. We do not accrue for the future cost of periodic major overhauls and planned maintenance of plant and equipment in annual or interim periods. Depreciation of
owned equipment is provided using the straight-line method over the estimated useful lives of the assets, ranging from two to seven years. Amortization of equipment under capital leases and leasehold improvements is provided using the straight-line
method over the life of the lease or the useful life of the asset, whichever is shorter. Fixed assets are reviewed for impairment as discussed below under Accounting for the Impairment of Long-Lived Assets. We did not capitalize any
interest during 2012, 2011 or 2010.
Goodwill
Goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in a purchase business combination. Goodwill is not amortized but rather is reviewed for
impairment at least annually, or more frequently if a triggering event occurs. We first make a qualitative assessment of whether it is more likely than not that a reporting units fair value is less than its carrying amount before applying the
two-step goodwill impairment test. If the conclusion is that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we then perform a two-step goodwill impairment test. Under the first step, the fair
value of the reporting unit is compared with its carrying value, and, if an indication of goodwill impairment exists for the reporting unit, the enterprise must perform step two of the impairment test (measurement). Under step two, an impairment
loss is recognized for any excess of the carrying amount of the reporting units goodwill as determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation. The residual fair value after this
allocation is the implied fair value of the reporting unit goodwill. If the fair value of the reporting unit exceeds its carrying value, step two does not need to be performed.
Goodwill of $1.0 million at December 31, 2012 and 2011 relates to our acquisition of SUSS MicroTec Test Systems GmbH (SUSS Test) in January 2010. See Notes 3 and 8. This goodwill relates
to our Systems segment and represents the value of assembled workforce and other intangible assets that do not qualify for separate recognition. Our assessments performed in the fourth quarters of 2012, 2011 and 2010 did not indicate any impairment
of goodwill.
F-8
Purchased Intangible Assets
Purchased intangible assets include various intangible assets acquired through business acquisitions. These assets are amortized using the straight-line method over their estimated useful lives of one to
ten years. Purchased intangible assets are reviewed for impairment as discussed below under Accounting for the Impairment of Long-Lived Assets.
Other Assets
Other long-term assets at December 31, 2012 and 2011 included
$0.6 million and $0.9 million, respectively, of internally developed patents, net. These assets are amortized using the straight-line method over estimated useful lives of one to eight years and have no significant residual value. Patent
amortization totaled $0.4 million, $0.5 million and $0.4 million, respectively, in 2012, 2011 and 2010 and was included as a component of Selling, general and administrative expense. Patents are reviewed for impairment as discussed below under
Accounting for the Impairment of Long-Lived Assets.
Accounting for the Impairment of Long-Lived Assets
Long-lived assets held and used by us, including fixed assets, patents and intangible assets with determinable lives, are reviewed for impairment whenever
events or circumstances indicate that the carrying amount of assets may not be recoverable. We evaluate recoverability of assets to be held and used by comparing the carrying amount of an asset to future net undiscounted cash flows to be generated
by the asset. If such assets are considered not to be recoverable, an impairment charge is recognized for the amount by which the carrying value of the assets exceeds the fair value of the assets. Such reviews assess the fair value of the assets
based upon estimates of discounted future cash flows that the assets are expected to generate.
In 2010, we recorded a $0.2 million charge for
the write-down of certain equipment in connection with our restructuring activities. See Note 17. We did not record any impairment charges related to long-lived assets during 2012 or 2011.
Revenue Recognition
Revenue from product sales to customers and distributors that
do not have special acceptance criteria is recognized when a written purchase order has been obtained, the price is fixed and determinable, the product is shipped, title has transferred and collectability is reasonably assured. Generally, we ship
our products with origin terms. For any shipments with destination terms, we defer revenue until delivery to the customer. Revenue from customers who have special acceptance criteria beyond our standard terms and conditions is not recognized until
all acceptance criteria are satisfied. Revenue for installation services, consisting of assembly and testing, is recognized when the services are performed.
We sell our products to end-users through a combination of manufacturers representatives, distributors and direct sales people:
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manufacturers representatives are independent companies that agree to sell our products at our prices and on our terms and they are paid a
commission based on a percentage of their sales of our products;
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distributors purchase our products directly from us and pay us directly according to our standard terms and conditions; they then resell the products
to end users at prices and terms set by them; and
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the direct sales force consists of our salaried and commissioned employees.
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Our transactions may involve the sale of systems and services under multiple element arrangements. Revenue under multiple element arrangements is allocated based on the fair value of each element. A
typical multiple element arrangement may include some or all of the following components: products, accessories, installation services and extended warranty contracts. The total sales price is allocated based on the relative fair value of each
component. We record deferred revenue for service contracts and customer deposits. Deferred revenue related to service contracts is recognized over the life of the contract, typically one to two years.
F-9
Sales Returns
Customers may return standard products for any reason within 30 days after delivery, provided that the return is received in its original condition, including all packing materials, for a refund, less a
stocking charge. Custom products are non-refundable unless agreed to in writing by us. For certain products, we also provide for a credit against the purchase of future products. We recognize revenue for products with a right of return in accordance
with the revenue recognition policies discussed above. Historically, sales returns have not been significant.
Taxes Collected from
Customers and Remitted to Governmental Authorities
We account for tax assessed by a governmental authority that is directly imposed on
a revenue-producing transaction (i.e., sales, use, value added) on a net (excluded from revenue) basis.
Shipping and Handling Costs
Shipping and handling costs are included as a component of Cost of sales.
Significant Customers
No customer in 2012, 2011 or 2010 accounted for 10% or more
of our total revenues. At December 31, 2012 and 2011, no customers represented 10% or more of our gross accounts receivable balance.
Product Warranty
We estimate a
liability for costs to repair or replace products under warranty for periods ranging from 90 days to one year when the related product revenue is recognized. The liability for product warranties is calculated as a percentage of sales. The percentage
is based on historical product repair costs. The liability for product warranties is included in Accrued liabilities on our Consolidated Balance Sheets. Product warranty activity was as follows (in thousands):
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Warranty accrual, December 31, 2009
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$
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277
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Reductions for warranty charges
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(634
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)
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Additions to warranty reserve
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1,058
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Warranty accrual, December 31, 2010
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701
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Reductions for warranty charges
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(1,123
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)
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Additions to warranty reserve
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1,151
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Warranty accrual, December 31, 2011
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729
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Reductions for warranty charges
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(888
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)
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Additions to warranty reserve
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875
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Warranty accrual, December 31, 2012
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$
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716
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Additions to the warranty reserve in 2010 included accrued warranty costs of $0.5 million assumed with the acquisition of
SUSS Test as discussed in Note 3.
Advertising
Advertising costs, which are included as a component of Selling, general and administrative expense, are expensed as incurred and have been insignificant.
Research and Development
Research and development costs are expensed as incurred.
Legal Costs
We are a party to legal proceedings arising in the normal course of
business. We accrue for certain legal costs, including attorney fees, and potential settlement claims related to various legal proceedings that are estimable and probable. If not estimable and probable, legal costs are expensed as incurred as a
component of Selling, general and administrative expense.
Forward Exchange Contracts
At times, we enter into forward foreign currency exchange contracts, which typically expire within six months, to manage our exposure against foreign
currency fluctuations on purchases and sales denominated in either the euro or Japanese yen. These foreign exchange contracts are not considered hedges and, as such, are recorded at fair value on the balance sheet with any changes in fair value
included as Other income
F-10
(expense), net on our Consolidated Statements of Operations. At December 31, 2012 and 2011, we had $2.8 million and $1.0 million, respectively, of forward exchange contracts outstanding. The
unrealized gain (loss) on contracts outstanding at December 31, 2012 and 2011 was $153,000 and $7,000, respectively.
Income Taxes
Deferred income taxes are established for the difference between the financial reporting and income tax basis of assets and
liabilities as well as operating loss and tax credit carryforwards. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred taxes of a
change in tax rates is recognized in income in the period that includes the enactment date.
We recognize the benefits of tax return positions
if we determine that the positions are more-likely-than-not to be sustained by the taxing authority. Interest and penalties accrued on unrecognized tax benefits are recorded as tax expense in the period incurred.
Net Income (Loss) Per Share
Basic net income (loss) per share is computed by dividing the net income or loss attributed to common shareholders for the period by the weighted average
number of shares of common stock outstanding during the period. Diluted net income (loss) per share incorporates the incremental shares issuable upon the assumed exercise of stock options and vesting of restricted stock units using the treasury
stock method, if dilutive.
The following table reconciles the shares used in calculating basic net income (loss) per share and diluted net
income (loss) per share (in thousands):
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Year Ended December 31,
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2012
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2011
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2010
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Shares used to calculate basic net income (loss) per share
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14,182
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14,583
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14,286
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Dilutive effect of outstanding options and restricted stock units (RSUs)
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208
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Shares used to calculate diluted net income (loss) per share
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14,390
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14,583
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14,286
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Securities not considered as they would have been antidilutive
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1,271
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1,458
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1,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-Based Compensation
We calculate stock-based compensation expense utilizing fair value-based methodologies and recognize the expense on a straight-line basis over the vesting period of such awards. Compensation expense
recorded for awards that do not vest is reversed in the period that it is determined that the award will not vest.
Certain Risks and
Uncertainties
Our future operating results and financial condition are subject to influences driven by rapid technological changes, a
highly competitive industry, a lengthy sales cycle, and the cyclical nature of general economic conditions. Future operating results will depend on many factors, including demand for our products, the introduction and industry acceptance of new
products and the level and timing of available shippable orders and backlog.
In addition, we rely on several suppliers to provide certain key
components used in our products. Some of these items are available from only one supplier or a limited group of suppliers. Any disruption in the availability and delivery of these items could adversely affect our revenues and results of operations.
Segment Reporting
We
operate in two business segments: Systems and Probes. Sales of our engineering probe stations are included in the Systems segment and sales of our analytical probes and production probe cards are included in the Probes segment.
F-11
Foreign Currency Translation
The euro is the functional currency of our manufacturing subsidiary in Germany. Assets and liabilities are translated into U.S. dollars at current exchange rates, and sales and expenses are translated
using average rates. Gains and losses from translation of assets and liabilities are included in accumulated other comprehensive loss.
The
functional currency of all other foreign subsidiaries is the U.S. dollar. Nonmonetary balance sheet items are remeasured at historical rates and monetary balance sheet items are remeasured at current rates. Exchange gains and losses from
remeasurement of monetary assets and liabilities are recognized currently in our Consolidated Statements of Operations.
NOTE 2. RECENT ACCOUNTING GUIDANCE
ASU 2012-02
In
July 2012, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2012-02, Intangibles Goodwill and Other: Testing Indefinite-Lived Intangible Assets for Impairment,
which permits an entity to make a qualitative assessment to determine whether it is more likely than not that an indefinite-lived intangible asset, other than goodwill, is impaired. Entities are required to test indefinite-lived intangible assets
for impairment at least annually and more frequently if indicators of impairment exist. If an entity concludes, based on an evaluation of all relevant qualitative factors, that it is not more likely than not that the fair value of an
indefinite-lived intangible asset is less than its carrying amount, it is not required to perform the quantitative impairment test for that asset. Because the qualitative assessment is optional, an entity is permitted to bypass it for any
indefinite-lived intangible asset in any period and apply the quantitative test. ASU 2012-02 also permits the entity to resume performing the qualitative assessment in any subsequent period. ASU 2012-02 is effective for impairment tests performed
for fiscal years beginning after September 15, 2012 and early adoption is permitted. We do not expect the adoption of ASU 2012-02 to have any impact on our financial position, results of operations or cash flows.
ASU 2013-02
In February 2013,
the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. Under ASU 2013-02, an entity is required to provide information about the amounts reclassified out of Accumulated
Other Comprehensive Income (AOCI) by component. In addition, an entity is required to present, either on the face of the financial statements or in the notes, significant amounts reclassified out of AOCI by the respective line items of
net income, but only if the amount reclassified is required to be reclassified in its entirety in the same reporting period. For amounts that are not required to be reclassified in their entirety to net income, an entity is required to
cross-reference to other disclosures that provide additional details about those amounts. ASU 2013-02 does not change the current requirements for reporting net income or other comprehensive income in the financial statements. ASU 2013-02 is
effective for us on January 1, 2013.
NOTE 3. ACQUISITIONS
On January 27, 2010, we acquired the assets of SUSS Test, a wholly-owned subsidiary of SUSS MicroTec AG, for $15.6 million
including 747,530 shares of our common stock valued at $3.2 million. SUSS Test was a long-time competitor in the market for engineering probe stations. The purchase price included intangible assets valued at $2.2 million and goodwill
valued at $1.0 million. The overall weighted-average amortization period for the purchased intangible assets as of the date of acquisition was 7.8 years. Goodwill is not amortized, but is periodically evaluated for potential impairment,
and none of the goodwill is deductible for income tax purposes. The operations of SUSS Test are included in our Systems segment. Due to restructuring and integration of the combined businesses, factories and product lines since the date of
acquisition, it is impractical to determine the revenue and net income or loss related to the results of operations of SUSS Test for 2012, 2011 and 2010. Pro forma results of operations were not required as the acquisition was not significant.
F-12
NOTE 4. MARKETABLE SECURITIES
Certain information regarding our marketable securities was as follows (in thousands):
|
|
|
|
|
|
|
|
|
December 31,
|
|
2012
|
|
|
2011
|
|
Fair value:
|
|
|
|
|
|
|
|
|
Corporate obligations
|
|
$
|
3,818
|
|
|
$
|
1,651
|
|
Corporate equities
|
|
|
2
|
|
|
|
11
|
|
U.S. treasury and agency securities
|
|
|
1,502
|
|
|
|
2,828
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,322
|
|
|
$
|
4,490
|
|
|
|
|
|
|
|
|
|
|
Cost:
|
|
|
|
|
|
|
|
|
Corporate obligations
|
|
$
|
3,817
|
|
|
$
|
1,649
|
|
Corporate equities
|
|
|
2
|
|
|
|
11
|
|
U.S. treasury and agency securities
|
|
|
1,501
|
|
|
|
2,817
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,320
|
|
|
$
|
4,477
|
|
|
|
|
|
|
|
|
|
|
Fair value by maturity:
|
|
|
|
|
|
|
|
|
Within one year
|
|
$
|
5,320
|
|
|
$
|
2,645
|
|
One to two years
|
|
|
|
|
|
|
1,834
|
|
Corporate equities
|
|
|
2
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,322
|
|
|
$
|
4,490
|
|
|
|
|
|
|
|
|
|
|
Gross unrealized holding gains:
|
|
|
|
|
|
|
|
|
Corporate obligations
|
|
$
|
1
|
|
|
$
|
2
|
|
U.S. treasury and agency securities
|
|
|
1
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2
|
|
|
$
|
13
|
|
|
|
|
|
|
|
|
|
|
Gross unrealized holding losses:
|
|
|
|
|
|
|
|
|
Corporate obligations
|
|
$
|
|
|
|
$
|
|
|
U.S. treasury and agency securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Realized gains and losses on marketable securities were immaterial during 2012, 2011 and 2010.
NOTE 5. FAIR VALUE MEASUREMENTS
Various inputs are used in determining the fair value of our financial assets and liabilities and are summarized into three broad
categories:
|
|
|
Level 1 quoted prices in active markets for identical securities;
|
|
|
|
Level 2 other significant observable inputs, including quoted prices for similar securities, interest rates, credit risk, etc.; and
|
|
|
|
Level 3 significant unobservable inputs, including our own assumptions in determining fair value.
|
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The disclosures related to our financial assets that are reported at fair value on a recurring basis are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
|
|
Fair Value
|
|
|
Input Level
|
|
|
Fair Value
|
|
|
Input Level
|
|
Marketable securities corporate obligations
|
|
$
|
3,818
|
|
|
|
Level 2
|
|
|
$
|
1,651
|
|
|
|
Level 2
|
|
Marketable securities corporate equities
|
|
$
|
2
|
|
|
|
Level 1
|
|
|
$
|
11
|
|
|
|
Level 1
|
|
Marketable securities U.S. treasury and agency securities
|
|
$
|
1,502
|
|
|
|
Level 2
|
|
|
$
|
2,828
|
|
|
|
Level 2
|
|
Forward sale contracts for Japanese yen
|
|
$
|
1,385
|
|
|
|
Level 2
|
|
|
$
|
1,028
|
|
|
|
Level 2
|
|
Forward purchase contracts for euro
|
|
$
|
1,451
|
|
|
|
Level 2
|
|
|
$
|
|
|
|
|
Level 2
|
|
The fair value of our marketable securities is determined based on quoted market prices for similar or identical
securities. The fair value of our forward contracts is based on quoted market prices for similar securities and is used for the purpose of determining any gain or loss on our foreign currency positions.
F-13
We do not record the full value of the forward contracts on our Consolidated Balance Sheets. We record the
net unrealized gain or loss in our Consolidated Balance Sheet and as a component of Other income (expense). The carrying values of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair value due to
their short maturities.
No changes were made to our valuation techniques during 2012.
NOTE 6. INVENTORIES
Inventories consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
December 31,
|
|
2012
|
|
|
2011
|
|
Raw materials
|
|
$
|
14,783
|
|
|
$
|
14,827
|
|
Work-in-process
|
|
|
2,684
|
|
|
|
3,034
|
|
Finished goods
|
|
|
6,810
|
|
|
|
5,746
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
24,277
|
|
|
$
|
23,607
|
|
|
|
|
|
|
|
|
|
|
NOTE 7. FIXED ASSETS
Fixed assets consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
December 31,
|
|
2012
|
|
|
2011
|
|
Equipment
|
|
$
|
24,055
|
|
|
$
|
22,589
|
|
Leasehold improvements
|
|
|
8,164
|
|
|
|
8,033
|
|
Construction in progress
|
|
|
627
|
|
|
|
138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,846
|
|
|
|
30,760
|
|
Less accumulated depreciation
|
|
|
(24,575
|
)
|
|
|
(21,757
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,271
|
|
|
$
|
9,003
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense was $3.5 million, $3.6 million and $3.7 million, respectively, in 2012, 2011 and 2010.
NOTE 8. GOODWILL AND PURCHASED INTANGIBLE ASSETS
Goodwill
The
change in goodwill was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Balance, beginning of period
|
|
$
|
971
|
|
|
$
|
985
|
|
|
$
|
|
|
Acquisition of SUSS Test
|
|
|
|
|
|
|
|
|
|
|
1,058
|
|
Effect of exchange rate changes
|
|
|
19
|
|
|
|
(14
|
)
|
|
|
(73
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
990
|
|
|
$
|
971
|
|
|
$
|
985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased Intangible Assets
Purchased intangible assets, net, included the following (in thousands):
|
|
|
|
|
|
|
|
|
December 31,
|
|
2012
|
|
|
2011
|
|
Customer relationships
|
|
$
|
3,265
|
|
|
$
|
3,265
|
|
Other
|
|
|
2,331
|
|
|
|
2,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,596
|
|
|
|
5,596
|
|
Less accumulated amortization
|
|
|
(3,986
|
)
|
|
|
(3,267
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,610
|
|
|
$
|
2,329
|
|
|
|
|
|
|
|
|
|
|
Purchased intangible asset amortization totaled $0.7 million, $0.8 million and $0.8 million, respectively, in 2012, 2011
and 2010 and was included as a component of Selling, general and administrative expense.
F-14
The estimated amortization of purchased intangible assets is as follows over the next five years and
thereafter (in thousands):
|
|
|
|
|
2013
|
|
$
|
572
|
|
2014
|
|
|
378
|
|
2015
|
|
|
288
|
|
2016
|
|
|
88
|
|
2017
|
|
|
69
|
|
Thereafter
|
|
|
215
|
|
|
|
|
|
|
|
|
$
|
1,610
|
|
|
|
|
|
|
NOTE 9. ACCRUED LIABILITIES
Accrued liabilities consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
December 31,
|
|
2012
|
|
|
2011
|
|
Accrued compensation and benefits
|
|
$
|
2,750
|
|
|
$
|
2,378
|
|
Accrued sales taxes and VAT
|
|
|
540
|
|
|
|
1,285
|
|
Accrued income taxes
|
|
|
260
|
|
|
|
907
|
|
Accrued warranty
|
|
|
716
|
|
|
|
729
|
|
Accrued commissions
|
|
|
374
|
|
|
|
433
|
|
Accrued restructuring costs
|
|
|
1,144
|
|
|
|
1,112
|
|
Other
|
|
|
856
|
|
|
|
901
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,640
|
|
|
$
|
7,745
|
|
|
|
|
|
|
|
|
|
|
NOTE 10. INCOME TAXES
Domestic and foreign pre-tax income (loss) from continuing operations was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Domestic
|
|
$
|
4,933
|
|
|
$
|
(5,006
|
)
|
|
$
|
(9,011
|
)
|
Foreign
|
|
|
1,875
|
|
|
|
1,388
|
|
|
|
913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,808
|
|
|
$
|
(3,618
|
)
|
|
$
|
(8,098
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The income tax expense from continuing operations consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
13
|
|
|
$
|
(129
|
)
|
|
$
|
|
|
State
|
|
|
32
|
|
|
|
12
|
|
|
|
43
|
|
Foreign
|
|
|
752
|
|
|
|
(5
|
)
|
|
|
1,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
797
|
|
|
|
(122
|
)
|
|
|
1,564
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
|
|
|
|
|
|
|
|
|
|
State
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
(88
|
)
|
|
|
302
|
|
|
|
(1,528
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
(88
|
)
|
|
|
302
|
|
|
|
(1,528
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
709
|
|
|
$
|
180
|
|
|
$
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-15
The income tax provision varies from the amounts computed by applying the Federal statutory rate of 34% to
income (loss) before income taxes as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Federal income tax benefit computed at statutory rates
|
|
$
|
2,281
|
|
|
$
|
(1,859
|
)
|
|
$
|
(3,517
|
)
|
Difference in foreign tax rate
|
|
|
(141
|
)
|
|
|
(38
|
)
|
|
|
(34
|
)
|
State income taxes, net of federal benefit
|
|
|
27
|
|
|
|
(31
|
)
|
|
|
(36
|
)
|
Stock-based compensation
|
|
|
96
|
|
|
|
71
|
|
|
|
99
|
|
Tax credits (R&D and foreign tax credit)
|
|
|
(80
|
)
|
|
|
(285
|
)
|
|
|
(211
|
)
|
Expiration of tax credits
|
|
|
200
|
|
|
|
580
|
|
|
|
324
|
|
Change in valuation allowance
|
|
|
(1,877
|
)
|
|
|
2,471
|
|
|
|
1,917
|
|
Tax exempt interest income
|
|
|
|
|
|
|
|
|
|
|
(11
|
)
|
Unrecognized tax benefits
|
|
|
9
|
|
|
|
(136
|
)
|
|
|
163
|
|
AMT credit
|
|
|
|
|
|
|
|
|
|
|
65
|
|
Foreign earnings not permanently reinvested
|
|
|
(58
|
)
|
|
|
10
|
|
|
|
822
|
|
Other
|
|
|
252
|
|
|
|
(603
|
)
|
|
|
455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
709
|
|
|
$
|
180
|
|
|
$
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant components of deferred income tax assets and liabilities were as follows (in thousands):
|
|
|
|
|
|
|
|
|
December 31,
|
|
2012
|
|
|
2011
|
|
Current deferred tax assets:
|
|
|
|
|
|
|
|
|
Reserves and allowances
|
|
$
|
514
|
|
|
$
|
355
|
|
Inventory
|
|
|
1,106
|
|
|
|
1,070
|
|
Accrued vacation
|
|
|
97
|
|
|
|
95
|
|
Other current deferred tax assets
|
|
|
286
|
|
|
|
205
|
|
|
|
|
|
|
|
|
|
|
Gross current deferred tax assets
|
|
|
2,003
|
|
|
|
1,725
|
|
Valuation allowance
|
|
|
(1,724
|
)
|
|
|
(1,700
|
)
|
|
|
|
|
|
|
|
|
|
Net current deferred tax assets
|
|
|
279
|
|
|
|
25
|
|
|
|
|
Current deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Unrealized gain on forward contracts
|
|
|
(60
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
Current deferred tax assets, net
|
|
|
219
|
|
|
|
15
|
|
|
|
|
Non-current deferred tax assets:
|
|
|
|
|
|
|
|
|
Reserves and allowances
|
|
|
169
|
|
|
|
143
|
|
Federal and state net operating loss (NOL) carryforwards
|
|
|
3,540
|
|
|
|
5,789
|
|
Federal and state tax credits
|
|
|
2,692
|
|
|
|
2,816
|
|
Stock-based compensation
|
|
|
1,108
|
|
|
|
1,128
|
|
Other non-current deferred tax assets
|
|
|
2,176
|
|
|
|
2,629
|
|
|
|
|
|
|
|
|
|
|
Gross non-current deferred tax assets
|
|
|
9,685
|
|
|
|
12,505
|
|
Valuation allowance
|
|
|
(8,090
|
)
|
|
|
(9,991
|
)
|
|
|
|
|
|
|
|
|
|
Net non-current deferred tax assets
|
|
|
1,595
|
|
|
|
2,514
|
|
|
|
|
Non-current deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Patents
|
|
|
(223
|
)
|
|
|
(369
|
)
|
Foreign earnings
|
|
|
(772
|
)
|
|
|
(831
|
)
|
Other non-current deferred tax liabilities
|
|
|
(204
|
)
|
|
|
(833
|
)
|
|
|
|
|
|
|
|
|
|
Total non-current deferred tax liabilities
|
|
|
(1,199
|
)
|
|
|
(2,033
|
)
|
|
|
|
|
|
|
|
|
|
Non-current deferred tax assets, net
|
|
|
396
|
|
|
|
481
|
|
|
|
|
|
|
|
|
|
|
Net total deferred tax assets
|
|
$
|
615
|
|
|
$
|
496
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets arise from the tax benefit of amounts expensed for financial reporting purposes but not yet
realized for tax purposes and from unutilized tax credits and NOL carry forwards. We evaluate our deferred tax assets on a regular basis to determine if a valuation allowance is required. To the extent it is determined that it is more likely than
not that we will not realize the benefit of our deferred tax assets, we record a valuation allowance against deferred tax assets.
F-16
The net increase (decrease) in the total valuation allowance was $(1.9) million, $2.5 million and $1.9
million, respectively, in 2012, 2011 and 2010. The valuation allowance as of December 31, 2012 and 2011 was $9.8 million and $11.7 million, respectively. The decrease in valuation allowance in 2012 was primarily related to utilization of NOL
carryforwards. The increases in our valuation allowance in 2011 and 2010 were primarily related to increases in NOL carryforwards.
Net
deferred tax assets of $0.6 million at December 31, 2012 primarily related to temporary differences in our foreign subsidiaries. Net current deferred tax assets are included as a component of Prepaid expenses and other and net non-current
deferred tax assets are included as a component of Other assets, net on our Consolidated Balance Sheets.
In 2012, 2011 and 2010, there was no
income tax benefit for employee stock option transactions.
We had tax credit carryforwards as of December 31, 2012 as follows:
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Expiration
Date
|
|
Federal and state research and experimentation credit carryforwards
|
|
$
|
3.2 million
|
|
|
|
2013-2032
|
|
Federal NOL carryforwards
|
|
|
10.2 million
|
|
|
|
2013-2032
|
|
State NOL carryforwards
|
|
|
7.0 million
|
|
|
|
2015-2027
|
|
A reconciliation of unrecognized tax benefits was as follows (in thousands):
|
|
|
|
|
Balance, December 31, 2009
|
|
$
|
135
|
|
Increases due to tax positions taken during the current year
|
|
|
145
|
|
Decreases due to tax positions taken during a prior year
|
|
|
(3
|
)
|
|
|
|
|
|
Balance, December 31, 2010
|
|
|
277
|
|
Increases due to tax positions taken during the current year
|
|
|
|
|
Decreases due to tax positions taken during a prior year
|
|
|
(136
|
)
|
|
|
|
|
|
Balance, December 31, 2011
|
|
|
141
|
|
Increases due to tax positions taken during the current year
|
|
|
|
|
Increases due to tax positions taken during a prior year
|
|
|
9
|
|
|
|
|
|
|
Balance, December 31, 2012
|
|
$
|
150
|
|
|
|
|
|
|
All of the unrecognized tax benefits at December 31, 2012 would have an impact on the effective tax rate if
recognized. The $9,000 increase in unrecognized tax benefits in 2012 was related to remeasurement of unrecognized tax benefits recorded in a foreign currency. The $136,000 decrease in unrecognized tax benefits in 2011 was related to a statute of
limitation in a foreign jurisdiction that expired. Interest and penalties in 2012, 2011 and 2010 were insignificant. Interest and penalties accrued on unrecognized tax benefits as of December 31, 2012 were also insignificant.
The tax years that remained open to examination in our major taxing jurisdictions as of December 31, 2012 were as follows:
|
|
|
|
|
Jurisdiction
|
|
Open Tax Years
|
|
U.S.
|
|
|
2008-2012
|
|
Japan
|
|
|
2006-2012
|
|
United Kingdom
|
|
|
2010-2012
|
|
Taiwan
|
|
|
2011-2012
|
|
China
|
|
|
2011-2012
|
|
Germany
|
|
|
2011-2012
|
|
F-17
We provided for deferred taxes on a portion of the non-repatriated earnings of our subsidiary in Japan as of
December 31, 2012. We did not provide for U.S. income taxes on the remaining undistributed earnings of foreign subsidiaries because they were considered permanently invested outside of the U.S. Upon repatriation, some of these earnings would
generate foreign tax credits, which may reduce the U.S. tax liability associated with any future foreign dividend. At December 31, 2012, the cumulative amount of earnings upon which U.S. income taxes have not been provided is approximately $1.9
million. The determination of the amount of unrecognized deferred U.S. income tax liability and foreign tax credit, if any, is not practicable to calculate.
NOTE 11. OTHER, NET
Other income (expense), net consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Interest income, net
|
|
$
|
52
|
|
|
$
|
92
|
|
|
$
|
70
|
|
Foreign currency gains (losses)
|
|
|
(950
|
)
|
|
|
595
|
|
|
|
(26
|
)
|
Gains (losses) on foreign currency forward contracts
|
|
|
166
|
|
|
|
(144
|
)
|
|
|
(73
|
)
|
Other
|
|
|
(17
|
)
|
|
|
29
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(749
|
)
|
|
$
|
572
|
|
|
$
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 12. STOCK-BASED COMPENSATION AND STOCK-BASED PLANS
Certain information regarding our stock-based compensation was as follows (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Weighted average grant-date per share fair value of stock options granted
|
|
$
|
2.56
|
|
|
$
|
2.18
|
|
|
$
|
2.42
|
|
Total intrinsic value of stock options exercised
|
|
|
4
|
|
|
|
18
|
|
|
|
23
|
|
Fair value of restricted shares vested
|
|
|
1,236
|
|
|
|
1,737
|
|
|
|
777
|
|
Our stock-based compensation was included in our Consolidated Statements of Operations as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Cost of sales
|
|
$
|
165
|
|
|
$
|
194
|
|
|
$
|
204
|
|
Research and development
|
|
|
242
|
|
|
|
406
|
|
|
|
318
|
|
Selling, general and administrative
|
|
|
1,052
|
|
|
|
1,253
|
|
|
|
1,315
|
|
Discontinued operations
|
|
|
|
|
|
|
75
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,459
|
|
|
$
|
1,928
|
|
|
$
|
1,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To determine the fair value of stock-based awards granted, we used the Black-Scholes option pricing model and the
following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Stock Option Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free interest rate
|
|
|
0.8% - 1.2%
|
|
|
|
1.5% - 2.7%
|
|
|
|
1.9% - 2.8%
|
|
Expected dividend yield
|
|
|
0.0%
|
|
|
|
0.0%
|
|
|
|
0.0%
|
|
Expected term
|
|
|
6.5 years
|
|
|
|
6.5 years
|
|
|
|
6.5 years
|
|
Expected volatility
|
|
|
58.2% - 59.4%
|
|
|
|
58.4% - 60.2%
|
|
|
|
60.2% - 62.0%
|
|
|
|
|
|
Employee Stock Purchase Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free interest rate
|
|
|
0.1% - 0.2%
|
|
|
|
0.1%
|
|
|
|
0.2% - 0.3%
|
|
Expected dividend yield
|
|
|
0.0%
|
|
|
|
0.0%
|
|
|
|
0.0%
|
|
Expected term
|
|
|
6 months
|
|
|
|
6 months
|
|
|
|
6 months
|
|
Expected volatility
|
|
|
40.1% - 54.3%
|
|
|
|
40.1% - 51.9%
|
|
|
|
49.3% - 53.2%
|
|
F-18
The risk-free rate used is based on the U.S. Treasury yield over the expected term of the options granted.
Our option pricing model utilizes the simplified method to estimate the expected term. The expected volatility for options granted pursuant to our stock incentive plans and for our employee stock purchase plan is calculated based on our historic
volatility. We have not paid dividends in the past and we do not expect to pay dividends in the future and, therefore, the expected dividend yield is 0%.
We amortize stock-based compensation on a straight-line basis over the vesting period of the individual awards, which is the requisite service period, with estimated forfeitures considered. Shares to be
issued upon the exercise of stock options will come from newly issued shares.
Stock Incentive Plans
Our stock incentive plans include our 1993 Stock Incentive Plan (the 1993 Plan), our 2000 Stock Incentive Plan (the 2000 Plan) and
our 2010 Stock Incentive Plan (the 2010 Plan) (together, the Plans) and provide for the granting of incentive stock options, nonqualified stock options and restricted stock units (RSUs). Incentive stock options
must be granted at an exercise price not less than 100% of the fair market value per share at the grant date. Nonqualified stock options granted or shares sold under the Plans cannot be granted or sold at a price less than 85% of the fair market
value per share at the date of grant or sale. The contractual term of options granted under the Plans is ten years, and the right to exercise options granted generally vests 25% each year over four years. Grants of restricted stock units generally
vest 25% each year over four years, or 50% each year over two years. The 1993 Plan expired during 2003 and any remaining unissued options were canceled. We have authorized a total of 3.0 million shares of common stock for issuance under the
2000 Plan and 1.9 million shares under the 2010 Plan.
At December 31, 2012, 596,757 shares were available for future grants, and we
had 2,075,500 shares of our common stock reserved for future issuance under the Plans.
Stock option activity for the year ended
December 31, 2012 and other Plan information was as follows:
|
|
|
|
|
|
|
|
|
|
|
Options
Outstanding
|
|
|
Weighted
Average
Exercise Price
|
|
Outstanding at December 31, 2011
|
|
|
960,228
|
|
|
$
|
6.01
|
|
Granted
|
|
|
254,000
|
|
|
|
4.55
|
|
Exercised
|
|
|
(14,317
|
)
|
|
|
4.10
|
|
Forfeited
|
|
|
(71,834
|
)
|
|
|
5.06
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2012
|
|
|
1,128,077
|
|
|
|
5.77
|
|
|
|
|
|
|
|
|
|
|
Certain information regarding options outstanding as of December 31, 2012 was as follows:
|
|
|
|
|
|
|
|
|
|
|
Options
Outstanding
|
|
|
Options
Exercisable
|
|
Number
|
|
|
1,128,077
|
|
|
|
560,292
|
|
Weighted-average exercise price
|
|
$
|
5.77
|
|
|
$
|
7.35
|
|
Aggregate intrinsic value
|
|
$
|
1,290,432
|
|
|
$
|
461,846
|
|
Weighted-average remaining contractual term
|
|
|
6.5 years
|
|
|
|
4.2 years
|
|
F-19
RSU activity for the year ended December 31, 2012 was as follows:
|
|
|
|
|
|
|
|
|
|
|
Restricted
Stock
Units
|
|
|
Weighted
Average
Grant
Date
Per Share
Fair Value
|
|
Outstanding at December 31, 2011
|
|
|
497,827
|
|
|
$
|
4.70
|
|
Granted
|
|
|
135,525
|
|
|
|
5.04
|
|
Vested
|
|
|
(263,914
|
)
|
|
|
4.58
|
|
Forfeited
|
|
|
(18,783
|
)
|
|
|
4.83
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2012
|
|
|
350,655
|
|
|
|
4.91
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2012, total unrecognized stock-based compensation related to outstanding, but unvested stock
options and RSUs was $2.5 million, which will be recognized over the weighted average remaining vesting period of 2.5 years.
Employee
Stock Purchase Plan
The terms of our 2004 Employee Share Purchase Plan (the 2004 ESPP) provide for an annual increase in
available shares of up to 100,000, upon board approval. In accordance with these terms, in January 2013, the number of shares of our common stock available for purchase under the 2004 ESPP was increased from 850,000 to 950,000.
Any eligible employee may participate in the 2004 ESPP by completing a subscription agreement which allows participants to have between 2% and 15% of
their compensation withheld to purchase shares of common stock at 85% of the fair market value of a share of common stock on the enrollment date or on the exercise date, whichever is lower. No more than $12,500 can be withheld to purchase shares of
common stock in each offering period. The exercise date is the last trading day of each offering period and participating employees are automatically enrolled in the new offering period.
The following information relates to our 2004 ESPP for activity during 2012:
|
|
|
|
|
Shares issued pursuant to the 2004 ESPP
|
|
|
102,470
|
|
|
|
|
|
|
Weighted average price of shares issued
|
|
$
|
3.31
|
|
|
|
|
|
|
Discount per share from the fair market value on the dates of purchase
|
|
$
|
1.73
|
|
|
|
|
|
|
Shares remaining available for purchase as of December 31, 2012
|
|
|
25
|
|
|
|
|
|
|
NOTE 13. RELATED PARTY TRANSACTIONS
FEI Company
One of the members of our Board of Directors, Mr. Raymond A. Link, is the Executive Vice President and Chief Financial Officer of FEI Company
(FEI). During 2012, 2011 and 2010, we purchased certain equipment and services for $37,000, $38,000 and $31,000, respectively, from FEI. We had outstanding payables to FEI of $8,000 and $0, respectively at December 31, 2012 and
2011. In addition, FEI purchased certain equipment from us for a total of $1,100 in 2010. We had no sales to FEI during 2012 or 2011. At December 31, 2012 and 2011, we had no outstanding receivables from FEI.
Raytheon, Inc.
One of the
members of our Board of Directors, Dr. William R. Spivey, is a member of the Board of Directors of Raytheon, Inc. (Raytheon). During 2012, 2011 and 2010, we did not purchase any equipment or services from Raytheon. However,
Raytheon purchased certain equipment from us for a total of $267,000, $184,000 and $571,000, respectively, during 2012, 2011 and 2010. At December 31, 2012 and 2011, we had receivables from Raytheon of $45,000 and $8,000, respectively.
F-20
Lam Research Corporation
One of the members of our Board of Directors, Dr. William R. Spivey, is a member of the Board of Directors of Lam Research Corporation (Lam). Dr. Spivey formerly served on the Board of
Novellus Systems Inc. (Novellus), which was acquired by Lam in June 2012. During 2012, 2011 and 2010, we did not purchase any equipment or services from Lam. However, Lam purchased certain equipment from us for a total of $21,000, $4,000
and $2,000, respectively, during 2012, 2011 and 2010. Also in 2012, we entered into a joint marketing arrangement with Lam related to the development of 450mm probing stations. At December 31, 2012 and 2011, we had no receivables from Lam.
NVIDIA Corporation
One of the members of our Board of Directors, Dr. John Y. Chen, is the Vice President of Technology and Foundry Operations at NVIDIA Corporation
(NVIDIA). During 2012, 2011 and 2010, we did not purchase any equipment or services from NVIDIA. However, NVIDIA purchased certain equipment from us for a total of $13,000, $80,000 and $1,000, respectively, during 2012, 2011 and 2010. At
December 31, 2012 and 2011, we had no outstanding receivables from NVIDIA.
NOTE 14. EMPLOYEE BENEFIT PLAN
We sponsor a 401(k) savings plan that allows eligible employees to contribute a certain percentage of their salary. We match 50% of
each eligible employees contributions, up to a maximum of 3% of the employees earnings. The 401(k) match was suspended during the first quarter of 2009 and reinstated during the first quarter of 2011. Our matching contributions for the
savings plan totaled $362,000 and $335,000, respectively, in 2012 and 2011. There were no contributions to the savings plan in 2010.
NOTE 15. COMMITMENTS AND CONTINGENCIES
Leases and Subleases
We lease automobiles, office space and manufacturing space under operating leases that expire at various dates through 2017. In addition to lease expense, we pay real property taxes, insurance and repair
and maintenance expenses for our corporate office and manufacturing facilities. We recognize rent expense related to our operating leases based on a straight-line basis over the life of the lease, including any periods of free rent.
Future minimum lease payments under non-cancelable operating leases with initial or remaining terms in excess of one year are as follows (in thousands):
|
|
|
|
|
Year Ending December 31,
|
|
|
|
2013
|
|
$
|
3,340
|
|
2014
|
|
|
3,288
|
|
2015
|
|
|
1,818
|
|
2016
|
|
|
344
|
|
2017
|
|
|
342
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
9,132
|
|
|
|
|
|
|
Lease expense was $2.6 million, $2.5 million and $3.0 million, respectively, in 2012, 2011 and 2010.
Legal Proceedings
We are
involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of existing matters will not have a material adverse effect on our financial position, results of
operations or liquidity.
F-21
NOTE 16. DISCONTINUED OPERATIONS
On September 22, 2011, we sold to R&D Sockets, Inc. (Buyer) substantially all of the assets and liabilities
related to our Sockets operations for $525,000 in cash and a note receivable from the Buyer for $25,000, which was paid in December 2012. In connection with the transaction, the Buyer assumed our obligations under the lease agreement covering
administrative offices and a manufacturing facility related to our Sockets business.
Certain financial information related to discontinued
operations was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Revenue
|
|
$
|
|
|
|
$
|
2,686
|
|
|
$
|
3,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax loss from discontinued operations
|
|
$
|
|
|
|
$
|
(495
|
)
|
|
$
|
(2,226
|
)
|
Loss on disposal activities
|
|
|
|
|
|
|
(1,509
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,004
|
)
|
|
|
(2,226
|
)
|
Income tax benefit
|
|
|
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of income tax benefit
|
|
$
|
|
|
|
$
|
(2,004
|
)
|
|
$
|
(2,205
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash generated from disposal activities
|
|
$
|
25
|
|
|
$
|
525
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 17. RESTRUCTURING
2011 Restructuring
Restructuring charges in 2011 related to the integration and consolidation of our manufacturing operations, sales organization and corporate headquarters. Manufacturing operations for our Systems business
were consolidated at our Dresden, Germany facility, and manufacturing operations for our Probes business, as well as our corporate headquarters, were consolidated at one of our Beaverton, Oregon facilities. As of December 31, 2011, these
restructuring and consolidation activities were substantially complete and we did not incur additional restructuring charges in 2012 related to these activities. However, if the real estate markets worsen and we are not able to sublease the
properties as expected, additional charges will be recognized in the period such determination is made. Likewise, if the real estate market strengthens and we are able to sublease the properties earlier or at more favorable rates than projected, a
benefit will be recognized.
2010 Restructuring
Subsequent to the acquisition of SUSS Test in January 2010, we began to restructure and integrate the combined businesses, which resulted in severance charges and inventory write-offs. In the second
quarter of 2010, we restructured our sockets business in Minnesota, which resulted in severance charges, inventory write-offs and shorter useful lives of certain equipment. Our sales offices in Vermont and Arizona were closed in the fourth quarter
of 2010.
F-22
Summary
Restructuring charges were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Termination and severance related
|
|
$
|
|
|
|
$
|
(70
|
)
|
|
$
|
1,307
|
|
Inventory charges on discontinued products
|
|
|
|
|
|
|
|
|
|
|
1,076
|
|
Equipment write-downs
|
|
|
|
|
|
|
|
|
|
|
224
|
|
Lease abandonment and termination
|
|
|
|
|
|
|
3,488
|
|
|
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
3,418
|
|
|
$
|
2,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring costs were included in our Consolidated Statements of Operations as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Cost of sales
|
|
$
|
|
|
|
$
|
140
|
|
|
$
|
1,359
|
|
Research and development
|
|
|
|
|
|
|
|
|
|
|
127
|
|
Selling, general and administrative
|
|
|
|
|
|
|
3,278
|
|
|
|
1,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
3,418
|
|
|
$
|
2,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables summarize the charges, expenditures and write-offs and adjustments related to our restructuring
accruals (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2012
|
|
Beginning
Accrued
Liability
|
|
|
Charged to
Expense,
Net
|
|
|
Expend-
itures
|
|
|
Write-Offs
and
Adjust-
ments
|
|
|
Ending
Accrued
Liability
|
|
Termination and severance related
|
|
$
|
10
|
|
|
$
|
|
|
|
$
|
(10
|
)
|
|
$
|
|
|
|
$
|
|
|
Lease abandonment
|
|
|
4,137
|
|
|
|
|
|
|
|
(1,103
|
)
|
|
|
|
|
|
|
3,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,147
|
|
|
$
|
|
|
|
$
|
(1,113
|
)
|
|
$
|
|
|
|
$
|
3,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2011
|
|
Beginning
Accrued
Liability
|
|
|
Charged to
(Reversed
from)
Expense,
Net
|
|
|
Expend-
itures
|
|
|
Write-Offs
and
Adjust-
ments
|
|
|
Ending
Accrued
Liability
|
|
Termination and severance related
|
|
$
|
276
|
|
|
$
|
(70
|
)
|
|
$
|
(207
|
)
|
|
$
|
11
|
|
|
$
|
10
|
|
Lease abandonment
|
|
|
34
|
|
|
|
3,488
|
|
|
|
(420
|
)
|
|
|
1,035
|
|
|
|
4,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
310
|
|
|
$
|
3,418
|
|
|
$
|
(627
|
)
|
|
$
|
1,046
|
|
|
$
|
4,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2010
|
|
Beginning
Accrued
Liability
|
|
|
Charged to
Expense,
Net
|
|
|
Expend-
itures
|
|
|
Write-Offs
and
Adjust-
ments
|
|
|
Ending
Accrued
Liability
|
|
Termination and severance related
|
|
$
|
|
|
|
$
|
1,307
|
|
|
$
|
(1,222
|
)
|
|
$
|
191
|
|
|
$
|
276
|
|
Inventory related to discontinued products
|
|
|
|
|
|
|
1,076
|
|
|
|
|
|
|
|
(1,076
|
)
|
|
|
|
|
Equipment write-downs
|
|
|
|
|
|
|
224
|
|
|
|
|
|
|
|
(224
|
)
|
|
|
|
|
Lease abandonment and termination
|
|
|
|
|
|
|
77
|
|
|
|
(43
|
)
|
|
|
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
2,684
|
|
|
$
|
(1,265
|
)
|
|
$
|
(1,109
|
)
|
|
$
|
310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2012, approximately $1.9 million of total accrued restructuring costs are included in other
long-term liabilities. The remainder is classified as a current liability. We expect the lease abandonment costs will be paid by the end of 2015.
F-23
NOTE 18. SEGMENT REPORTING AND ENTERPRISE-WIDE DISCLOSURES
The segment data below is presented in the same manner that management currently organizes the segments for assessing certain
performance trends. Our Chief Operating Decision Maker monitors the revenue streams and the operating income of our Systems sales and our Probes sales. We do not track our assets on a segment level, and, accordingly, that information is not
provided. As discussed above, the sale our Sockets operations in September 2011 was accounted for as discontinued operations and, accordingly, the results of operations related to the Sockets operations have been eliminated from the segment
financial data below and prior period amounts have been revised to conform to this presentation.
Revenue and operating income information
from continuing operations by segment was as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2012
|
|
Systems
|
|
|
Probes
|
|
|
Corporate
Unallocated
|
|
|
Total
|
|
Revenue
|
|
$
|
74,368
|
|
|
$
|
38,595
|
|
|
$
|
|
|
|
$
|
112,963
|
|
Gross profit
|
|
$
|
29,391
|
|
|
$
|
20,560
|
|
|
$
|
|
|
|
$
|
49,951
|
|
Gross margin
|
|
|
39.5%
|
|
|
|
53.3%
|
|
|
|
|
|
|
|
44.2%
|
|
Income (loss) from operations
|
|
$
|
10,370
|
|
|
$
|
10,158
|
|
|
$
|
(12,971
|
)
|
|
$
|
7,557
|
|
|
|
|
|
|
Year Ended December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
75,837
|
|
|
$
|
28,773
|
|
|
$
|
|
|
|
$
|
104,610
|
|
Gross profit
|
|
$
|
27,985
|
|
|
$
|
13,431
|
|
|
$
|
|
|
|
$
|
41,416
|
|
Gross margin
|
|
|
36.9%
|
|
|
|
46.7%
|
|
|
|
|
|
|
|
39.6%
|
|
Income (loss) from operations
|
|
$
|
11,002
|
|
|
$
|
484
|
|
|
$
|
(15,676
|
)
|
|
$
|
(4,190
|
)
|
|
|
|
|
|
Year Ended December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
65,422
|
|
|
$
|
27,175
|
|
|
$
|
|
|
|
$
|
92,597
|
|
Gross profit
|
|
$
|
23,336
|
|
|
$
|
12,110
|
|
|
$
|
|
|
|
$
|
35,446
|
|
Gross margin
|
|
|
35.7%
|
|
|
|
44.6%
|
|
|
|
|
|
|
|
38.3%
|
|
Income (loss) from operations
|
|
$
|
5,096
|
|
|
$
|
(546
|
)
|
|
$
|
(12,658
|
)
|
|
$
|
(8,108
|
)
|
No customer accounted for 10% or more of our total revenue in 2012, 2011 or 2010.
Our revenues by geographic area were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
United States
|
|
$
|
33,445
|
|
|
$
|
27,251
|
|
|
$
|
22,750
|
|
Asia Pacific
|
|
|
51,290
|
|
|
|
49,906
|
|
|
|
42,351
|
|
Europe
|
|
|
25,718
|
|
|
|
24,634
|
|
|
|
24,784
|
|
Other
|
|
|
2,510
|
|
|
|
2,819
|
|
|
|
2,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
112,963
|
|
|
$
|
104,610
|
|
|
$
|
92,597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets, exclusive of long-term investments and deferred income taxes, by geographic area were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
December 31,
|
|
2012
|
|
|
2011
|
|
United States
|
|
$
|
9,156
|
|
|
$
|
11,156
|
|
Asia Pacific
|
|
|
223
|
|
|
|
304
|
|
Europe
|
|
|
1,034
|
|
|
|
801
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,413
|
|
|
$
|
12,261
|
|
|
|
|
|
|
|
|
|
|
F-24
NOTE 19. STOCK REPURCHASE PLANS
In September 2011, our board of directors authorized a stock repurchase program under which up to $2.0 million of our common stock
could be repurchased from time to time in the open market or in privately negotiated transactions. In November 2011, we repurchased $2.0 million, or 714,285 shares, of our common stock for a weighted-average price of $2.80 per share. Following this
repurchase, no amounts remained available under this program.
In February 2012, our board of directors authorized a stock repurchase program
under which up to $1.0 million of our common stock could be repurchased from time to time in the open market or in privately negotiated transactions during the period through June 30, 2012. As of June 30, 2012, a total of 214,087 shares
had been repurchased at a weighted-average price of $4.67 per share, for a total purchase price of $1.0 million. The program was terminated by its terms on June 30, 2012.
In November 2012, our board of directors authorized a stock repurchase program under which up to $2.0 million of our common stock could be repurchased from time to time in the open market or in privately
negotiated transactions. In the fourth quarter of 2012, we repurchased $0.3 million, or 59,006 shares, of our common stock for a weighted-average price of $5.60 per share. Following this repurchase, $1.7 million remained available under this
program.
NOTE 20. SUBSEQUENT EVENTS
2004 ESPP
In
January 2013, pursuant to the terms of the 2004 ESPP, and upon approval by our Board of Directors, the number of shares of our common stock available for purchase under the 2004 ESPP was increased from 850,000 to 950,000.
F-25