e10vk
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
FOR ANNUAL AND TRANSITION
REPORTS
PURSUANT TO SECTIONS 13 OR
15(d) OF THE
SECURITIES EXCHANGE ACT OF
1934
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
September 30, 2006
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission File Number:
000-51828
EAGLE TEST SYSTEMS,
INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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36-2917389
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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2200 Millbrook Drive,
Buffalo Grove, IL
(Address of principal
executive offices)
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60089
(Zip code)
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(847) 367-8282
(Registrants telephone
number, including area code)
Securities to be registered pursuant to Section 12(b) of
the Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, $0.01 Par Value
Per Share
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The Nasdaq Global Market
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act Yes o
No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act Yes o No þ
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days. Yes þ
No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer (as defined in Exchange Act
Rule 12b-2.)
Large Accelerated
Filer o Accelerated
Filer o Non-Accelerated
Filer þ
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act) Yes o No þ
The aggregate market value of the common stock held by
non-affiliates of the registrant as of March 31, 2006, the
last business day of the registrants most recently
completed second fiscal quarter, was approximately
$100.2 million (based on the closing price for the
registrants common stock on the Nasdaq Global Market of
$15.40 per share).
At November 30, 2006, 22,858,824 shares of the
registrants common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant intends to file a proxy statement pursuant to
Regulation 14A within 120 days of the end of the
fiscal year ended September 30, 2006. Portions of such
proxy statement are incorporated by reference into Part III
of this Annual Report on
Form 10-K.
PART I
Certain statements in this Annual Report on
Form 10-K
are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the
Securities Act), and Section 21E of the
Securities Exchange Act of 1934, as amended (the Exchange
Act). These statements involve a number of risks,
uncertainties and other factors that could cause our actual
results, performance or achievements to be materially different
from any future results, performance or achievements expressed
or implied by these forward-looking statements. Factors which
could materially affect such forward-looking statements can be
found in the section entitled Risk Factors in
Part 1, Item 1A. in this Annual Report on
Form 10-K.
Investors are urged to consider these factors carefully in
evaluating the forward-looking statements and are cautioned not
to place undue reliance on such forward-looking statements. The
forward-looking statements made herein are only made as of the
date hereof and we will undertake no obligation to publicly
update such forward-looking statements to reflect subsequent
events or circumstances.
References in this Annual Report on
Form 10-K
to Eagle Test, the Company,
we, us or our are to Eagle
Test Systems, Inc., a Delaware corporation, and its
subsidiaries.
Overview
We design, manufacture, sell and service high-performance
automated test equipment, or ATE, for the semiconductor
industry. Our test equipment is designed to address our
customers volume production needs and to enable them to
achieve low
cost-of-test
per device. Our customers, including semiconductor manufacturers
and assembly and test subcontractors, use our products to test
analog, a combination of digital and analog, known as
mixed-signal, and radio frequency, or RF, semiconductors. Our
proprietary
SmartPintm
technology enables multiple semiconductor devices to be tested
simultaneously, or in parallel, on an individual test system,
permitting greater test throughput. We believe that our
technology and ATE architecture offer significant test speed and
precision, leading to high production yields and repeatable
results. Our modular and scalable test systems are designed to
provide our customers with cost-efficient, customized solutions.
Semiconductors tested by our systems are incorporated into a
wide range of products in high-growth markets, including digital
cameras, MP3 players, cellular telephones, video/multimedia
products, automotive electronics, computer peripherals, and
notebook and desktop computers.
Semiconductor manufacturers continuously strive for
manufacturing and process improvements in order to satisfy the
demand for smaller, better performing and lower cost
semiconductors. Semiconductor manufacturers are aggressively
pursuing strategies to reduce their overall
cost-of-test
by increasing the throughput of their test systems.
Cost-of-test
includes the initial ATE and ancillary equipment purchase price,
as well as
set-up and
operating costs, and is often the most significant manufacturing
cost, particularly for high-volume, low-cost devices. For these
types of devices, ATE throughput, or the number of devices that
can be tested in a given unit of time on a single test system,
is a key determinant of
cost-of-test
per device and of a manufacturers ability to compete
profitably.
We were founded and began providing test solutions in 1976.
Since October 1, 2003, we have delivered over 600 test
systems to more than 60 customers worldwide including Allegro
MicroSystems, Inc., Fairchild Semiconductor International, Inc.,
Guidant Corporation, Intersil Corporation, National
Semiconductor Corporation, ON Semiconductor Corporation and
Texas Instruments Incorporated. Our global headquarters is
located at our new manufacturing facility in Buffalo Grove,
Illinois. We operate sales, services and engineering support
facilities in the United States through regional offices and
globally through our offices in Korea, Singapore, Taiwan, Italy,
Germany, China, Malaysia and the Philippines. We completed our
initial public offering on March 14, 2006.
Industry
Background
Semiconductor devices are the foundation of the modern
electronic world. Semiconductors are typically divided into two
broad categories, digital and analog. Digital semiconductors,
such as microprocessors, digital
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signal processors, or DSPs, and memory devices, are used to
process and store data in a binary format using electrical
signals to represent the binary digits, 1 and
0. In contrast, analog semiconductors, such as
amplifiers, RF devices, voltage regulators and other power
management devices, are used to measure, control and transform
physical properties, such as light, sound and movement, into a
digital format by producing electrical signals that have a
continuous range of values. Mixed-signal semiconductors contain
both analog and digital elements on a single device but are
generally classified as analog semiconductors.
Semiconductor prices typically decline as new devices are
introduced and as devices advance through their product life
cycles. This price compression takes place against a backdrop of
increasing device complexity. Consequently, semiconductor device
manufacturers, especially those serving high-volume markets,
must continually seek cost reductions in all aspects of their
manufacturing process.
The
Importance of Testing in Semiconductor Production; The ATE
Market
The process of designing and manufacturing semiconductors is
complex and capital intensive. The wafer fabrication process, or
front-end process, involves numerous and repetitive
processing steps during which hundreds or even thousands of
copies of a device are formed simultaneously on a single wafer.
The subsequent testing and assembly of devices into packaged
products ready for sale is commonly referred to as the
back-end process.
Device testing is a critical part of the semiconductor
production process and is a significant component of the cost of
manufacturing semiconductors. Test equipment is typically used
in the back-end process where each device is often tested
several times to validate functional and electrical performance
prior to shipment. ATE is generally used in two steps in the
back-end semiconductor production process:
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Wafer Probe Test. After wafer fabrication, a
test system performs electrical testing of individual devices
while still in wafer form for initial pass/fail verification by
moving the wafer into contact with a wafer probe card.
Semiconductors are tested at this stage to avoid the additional
costs associated with assembling, packaging and further testing
of defective semiconductors.
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Final Test. After the individual semiconductor
devices, called die, that fail the wafer probe test are
discarded, the remaining die are assembled into packages.
Manufacturers then test the packaged devices over a range of
potential operating conditions to measure their functionality
against precise performance specifications. Final test works to
ensure that a device meets the manufacturers quality
standards prior to shipping.
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In addition to identifying devices that do not function properly
in the back-end process, ATE also generates information that
semiconductor manufacturers use to improve the yield of their
overall production process and to assist in the semiconductor
design and development phase. Demand for ATE is driven by
increases in semiconductor unit production, increases in the
complexity of semiconductor devices and the need to improve the
overall cost-effectiveness of the semiconductor manufacturing
process.
Current
Test Challenges
Device manufacturers have continually focused on manufacturing
and process improvements to satisfy the demand for smaller,
better performing and lower cost semiconductors. Technological
advances, such as smaller device geometries, higher transistor
density and the introduction of larger, 300 mm wafers, have led
to significant economies of scale in the front-end process and a
general decline in overall manufacturing cost per device.
However, as front-end costs have been decreasing, back-end
costs, of which testing costs can be the most significant
component, have not enjoyed the same rate of improvement. As a
result, test cost has become a growing percentage of overall
manufacturing cost and can be the most significant cost
associated with manufacturing a semiconductor, especially in the
case of high-volume devices. Consequently, semiconductor
manufacturers are aggressively pursuing strategies to reduce
their overall cost-of-test.
In analyzing total cost-of-test, semiconductor manufacturers
focus on the initial ATE purchase price, equipment throughput,
the range of products that can be effectively tested, costs
associated with test application development, ability to
upgrade, on-going maintenance and training requirements, and the
need for
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ancillary equipment and floor space. Reducing the total cost-of
-test is an important consideration for all device
manufacturers, but is of particular significance to vendors of
high-volume, low-cost devices for whom overall manufacturing
cost is a critical factor in the ability to compete profitably.
Significant challenges for device manufacturers in achieving
lower overall cost-of-test include:
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Need for High Throughput Testing. A test
systems throughput, or the number of devices that can be
tested on a single test system in a given period of time, is a
principal driver of cost-of-test. Improving throughput allows
semiconductor manufacturers to meet increased capacity demands
with fewer test systems, and consequently less ancillary
equipment. The most effective method of increasing test
throughput is to test multiple devices simultaneously on the
same test system, or in parallel, on multiple test sites. The
benefits are lower overall capital expenditures and less
required floor space for a given increment of capacity. Although
this multi-site, parallel test approach is widely employed for
high volume production of digital and memory devices, it has
proved challenging for analog and mixed-signal device testing
due to the nature of the electrical properties of analog devices
and the current architecture of many analog and mixed-signal
test systems.
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Need for Greater Testing Accuracy and
Repeatability. The percentage of functioning
devices per production run, known as yield, is a key measurement
in determining the cost of semiconductor manufacturing. While
yield losses can occur at multiple points during the
manufacturing process, yield can be particularly affected during
the testing process when functioning, or good,
devices are deemed bad by test equipment incapable
of making high precision measurements. Since lower yields have a
direct impact on profitability, semiconductor manufacturers seek
test equipment capable of highly accurate, repeatable results.
Greater precision increases the likelihood that good devices
will pass and defective devices will fail. In multi-site
testing, test accuracy and repeatability can be compromised when
electrical signals from a device failure from one site influence
the test results at another site. This occurs in conventional
test systems because the test instrumentation connected to each
device under test, or DUT, is electrically linked by a common
signal and power pathway, known as a common ground pathway, in
the test system. For this reason, semiconductor manufacturers
seek test solutions capable of producing precise, repeatable
results and that minimize undesired interaction between devices
undergoing simultaneous multi-site test.
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Demand for Scalable, Flexible Solutions. ATE
providers have traditionally offered test systems that emphasize
solutions for the most advanced semiconductors, such as those
with high digital pin counts and high operating frequencies. The
challenges associated with testing these complex devices have
resulted in test systems that are increasingly expensive to
acquire, operate and maintain. Often, the functionality of these
test systems greatly exceeds the test requirements for many
low-priced, high-volume devices and cannot be scaled down in a
cost-effective manner to address the specific requirements of
these particular devices. In other cases, the test equipment
offered at lower prices has proven incapable of providing the
multi-site, parallel test capability required to achieve high
throughput. Due to the lack of flexibility in traditional ATE
architecture, semiconductor manufacturers require test equipment
with the capability to cost-effectively scale functionality to
meet the test requirements of a wide range of devices.
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High Cost of Changing Test Platforms. Although
more cost-effective test platforms may be available for testing
many devices, the costs associated with migrating, or switching,
to a new platform are often significant enough to cause
semiconductor manufacturers to stay with their current, less
efficient, test platforms. The switching costs associated with
replacing an existing test solution include the capital expense
of the new test system, the cost of developing and integrating
new test programs and associated hardware, the expense
associated with investment in ancillary hardware and other
accessories, and the re-training and facility improvements
necessary to support the new ATE environment. In addition,
switching costs decrease the overall efficiency of the test
process due to the increased time required for engineering and
production staff to evaluate and validate new test systems.
These high switching costs often make semiconductor
manufacturers reluctant to switch to a new test platform,
despite the new platforms ability to provide higher
throughput and lower cost-of-test.
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Our
Solution
Our products are designed to enable our customers to achieve low
overall cost-of-test per device. We believe our test systems
deliver increased test throughput for high-volume,
price-sensitive semiconductors in the analog, mixed-signal and
RF markets. We offer test systems that enable our customers to
achieve a high level of test accuracy and repeatability, and our
flexible system architecture can be easily reconfigured and
adapted to meet our customers current and evolving testing
needs. By focusing on low cost-of-test per device and based on
informal feedback from customers, we believe that our test
systems offer customers a competitive overall test solution that
enables them to lower their semiconductor production costs and
improve their profit opportunity. The aspects of our solution
that facilitate low cost-of-test include:
Increased Throughput. Our test systems are
designed to enable our customers to improve throughput, which
lowers total cost-of-test. We improve throughput in the
following manner:
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Our proprietary
SmartPintm
technology shortens the time required to complete the test
routine for each individual device.
SmartPintm
technology enables high-speed, sequential subtests in which the
test instrumentation completes an entire range of test
parameters without software intervention or the time consuming
task of opening and closing relays. In addition, with onboard
DSP processing technology,
SmartPintm
eliminates the need for data and test results to cross long
signal paths in order to be collected and analyzed.
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Our test systems optimize simultaneous, or parallel, testing
across multiple sites on the same test system. We refer to this
capability as
SimulTesttm.
Our architecture enables test routine replication across
multiple sites by dedicating signal sourcing and measurement
resources, for current and voltage, and local signal processing
to each pin on the DUT. This permits one test system to
effectively test multiple devices simultaneously, which is
critical for cost-efficient, multi-site, parallel testing.
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Improved Yield with Precision and
Repeatability. Our proprietary technology and
product architecture are designed to achieve test precision and
repeatable results in order to deliver higher yields. We believe
our solution improves yield in the following ways:
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Our equipment allows customers to perform tests with a high
degree of precision by narrowing the range of test tolerances,
or guard bands. Reduced guard bands improve yield by allowing
device manufacturers to measure closer to the established
performance limits of the device.
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The analog resource boards in our test systems are designed with
independent computer interfaces, power supplies and independent
ground connections that eliminate the need for a shared
communication and electrical pathway. By avoiding the use of a
common ground pathway, the test results from one device are
isolated and avoid undesirable interactions with devices
undergoing simultaneous test within the same test system.
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Scalable and Flexible Architecture. Our test
system architecture is designed to enable our customers to
quickly and cost-effectively upgrade or reconfigure their test
systems as their testing needs evolve. Our architecture offers
the following benefits:
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Our test instruments, or resource boards, provide dedicated
functionality and capability, which allow customers to tailor
their test system capabilities to the specific testing needs of
their devices. Our ATE is designed utilizing modular hardware
and off-the-shelf electrical components that allow us to develop
new features at the resource board level in a short time period.
Our architecture also enables customers to upgrade their test
system capability by simply adding another board or replacing an
existing board within an existing test system. This is a more
cost efficient and less time consuming approach than replacing
the entire test system, as is required by many competing
systems.
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A majority of our analog resource boards can be employed in any
of the test platforms we offer, allowing our customers to
utilize identical hardware across our entire product line. This
approach offers compatibility across a wide range of products,
as well as easy replacement and support of individual resource
boards. In addition, our entire test system product line
operates under a uniform software environment, allowing
customers to move seamlessly to different test system types by
utilizing a common operating environment.
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Lower Switching Costs. We have developed a
proprietary, adaptable interface that enables our test systems
to operate using other vendors DUT boards, as well as
earlier generations of our DUT boards, which is a significant
advantage to us as our customers testing needs change.
This proprietary architecture, which we call
Chameleontm
technology enables customers to easily migrate from some
competing test platforms or earlier generations of our own
product line, to a newer and more cost-effective Eagle Test
solution. Our test systems are designed to offer customers a
low-cost and time-saving option for migrating test platforms.
During the sales process, prospective and existing customers
generally engage in an evaluation process in which they compare
the costs and test results, such as yield and repeatability, of
their current test solution against our proposed test solution.
The customers current test solution may consist of a test
system provided by one of our competitors, such as Credence
Systems Corporation, LTX Corporation or Teradyne, Inc., a test
system internally developed by the customer, or one of our
previous generation test systems. An important consideration in
the comparative evaluation process is the overall cost-of-test,
which includes factors such as the number of devices to be
tested, the total test system acquisition cost, the amount of
required floor space, test time and the number of test systems
required, and also considers system flexibility, upgradeability
and maintenance costs. Customers often share with us their
conclusions from their comparative evaluation of the
cost-of-test of their current test solution versus our proposed
test solution. This feedback, together with our experience with
customers selecting our test solution after employing this
evaluation process, supports our belief that our test systems
often provide a low cost-of-test, as compared to the
customers current test solution. We believe that in most
cases in which a customer decides to switch to our proposed test
solution, the customer has concluded that the cost of switching
to a new test platform is outweighed by the reduction in the
overall cost-of-test. In addition, customers also consider other
relevant factors, such as service and technical support
capabilities, brand awareness, financial viability and
production capacity.
Our test systems are currently not designed to address the test
requirements of semiconductors with large digital content, such
as memory devices or microprocessors, which are typically tested
by more costly test systems with different capabilities.
Products
Test
Systems
We design, manufacture, sell and service a family of
high-performance test systems that test analog, mixed-signal and
RF semiconductors. Our current products are designed to provide
our customers with the optimal level of test performance and
functionality for their particular testing needs. The following
table sets forth our current product offerings, their features
and the devices tested by each product.
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Data
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Conversion
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Analog
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Digital
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RF
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Multi-Site
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Power
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RF and
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and Video
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Complex
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Precision
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Test Systems
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Channels
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Pins
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Ports
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Capability
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Management
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Wireless
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Processing
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Automotive
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Mixed-Signal
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Linear
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Discretes
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ETS-600
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480
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256
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32
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64
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ü
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ü
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ü
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ü
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ü
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ü
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ETS-364
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240
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128
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16
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64
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ü
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ü
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ü
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ü
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ü
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ü
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ETS-300
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240
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32
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32
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ü
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ü
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ü
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ETS-200
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120
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16
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16
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ü
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ü
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ü
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ETS-200T
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48
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16
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ü
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ETS-600 and
ETS-364. Introduced
in 2001, the ETS-600 and
ETS-364
offer our highest performance analog, mixed-signal and RF test
platforms across a broad range of semiconductors. The systems
were designed to maximize throughput capability by enabling
SimulTesttm
multi-site testing for up to 64 sites, through our
SmartPintm
technology, our highest digital capabilities, and our custom
designed RF6000 architecture. The RF6000 is a resource board and
accessory to the ETS-600 or
ETS-364 that
enables the tester to simultaneously source and measure RF
signals across multiple RF devices in a fully calibrated
environment through the use of a proprietary RF Source
Distribution Module. This functionality allows users to
distribute RF source signals simultaneously to multiple device
ports and calibrate each port to ensure that each port receives
the precise desired RF signal to each device. The RF6000s
unique measurement capabilities are achieved through the use of
RF signal down converters per port, which allow
users to simultaneously
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measure the RF signal output of each RF device under test. These
key features minimize RF device test times in multi-site
applications by avoiding unnecessary switching between RF signal
source and measurement functions while maintaining the signal
integrity needed in an RF test environment.
The ETS-600 delivers our highest level of performance and
functionality with up to 256 digital pins, over 480 analog
channels, and up to 32 RF ports. The
ETS-364
delivers up to 128 digital pins, over 240 analog channels, and
up to 16 RF ports. The
ETS-364 was
designed to be fully compatible with the ETS-600 test system.
Utilizing a common DUT interface and software command structure,
the ETS-600 and
ETS-364
offer customers a natural migration path between medium and
large-scale, multi-site testing.
ETS-300
and ETS-200. We introduced the
ETS-300 and
ETS-200 in 1998 as low-cost, high-performance analog and
mixed-signal test systems. The
ETS-300
delivers up to 32 digital pins and over 240 analog channels.
This system offers
SimulTesttm
multi-site testing with up to 32 site capability. The
ETS-300 is
an attractive solution for analog applications and applications
requiring less significant digital capabilities for testing
devices such as switching regulators, power factor controllers,
and various automotive devices.
The ETS-200 serves a similar market, but delivers up to 16
digital pins and up to 120 analog channels of throughput. The
ETS-200 offers
SimulTesttm
multi-site testing with up to 16 site capability. The ETS-200 is
intended for targeted applications such as operational
amplifiers, low dropout regulators, and other analog
applications,
and/or
applications requiring limited digital capabilities. The ETS-200
was designed to be fully compatible with the
ETS-300 test
system. Utilizing a common DUT interface and software command
structure, the
ETS-300 and
ETS-200 offer customers a scalable migration path for
multi-site, analog applications.
ETS-200T. We introduced the ETS-200T in 2003
to test specific types of semiconductors known as a Field Effect
Transistors, or FETs. The ETS-200T delivers high throughput with
up to 16 site testing capability and a custom designed software
environment to make FET program development easy and effective.
Since its introduction, the 200T has received positive early
customer acceptance for its unique ability to test these devices
in highly parallel applications.
Software
Products
ATE operating software is required to design and run test
routines, and to record and analyze the results of such test
routines. Our Eagle Vision software is a feature-rich,
user-friendly software platform, designed to help our customers
rapidly develop test programs on our platforms. For example, our
plotting tools facilitate quick and easy graphing of response
data. Our automatic code generation tools help programmers avoid
incorrect entries and our
point-and-click
status screens allow easy monitoring and adjustment of test
system settings. The production environment offers numerous data
aggregation options and supports multiple data output formats.
Our software includes user-friendly tools for generation and
analysis of test data that are enabled by simple
point-and-click
operations.
We have developed our Eagle Vision software as the uniform
operating environment for all of our various test platforms.
This approach reduces our customers overall cost of ATE
ownership by reducing the employee training and platform
set-up time
usually associated with bringing new test platforms on line.
Eagle Vision, when combined with our
Chameleontm
device interface hardware, provides our customers with a
compatible test system upgrade path, allowing our customers to
migrate devices to our new platforms without abandoning their
investment in their existing Eagle Test systems and associated
software and device interface hardware.
Technology
SmartPintm. Our
patented
SmartPintm
technology enables our products to generate and measure both
current and voltage signals at each device pin. Furthermore, our
SmartPintm
technology enables digital signal processing to be performed
locally at each pin, which eliminates the need to move test data
through a common signal bus for processing, thereby decreasing
processing time, reducing interference and improving accuracy
and yield. In addition to these features,
SmartPintm
technology provides the capability to generate multiple signals
of various ranges, which allows our customers to execute a full
set of test routines with a single starting signal, eliminating
the time required for additional software programming commands.
In this way,
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SmartPintm
technology optimizes simultaneous, or parallel, testing across
multiple sites on the same test system. We refer to this
capability as
SimulTesttm.
Chameleontm. Our
Chameleontm
technology provides interoperability among different test
platforms by allowing test application hardware from one test
system to be used on another test system.
Chameleontm
provides hardware compatibility among our various test
platforms, as well as with test hardware from some of our
competitors test platforms.
Pattern-Based
Testingtm. Our
Pattern-Based
Testingtm
is enabled by our
SmartPintm
technology in conjunction with our Eagle Vision software. In
Pattern-Based
Testingtm,
predetermined digital and analog waveforms are presented to a
DUT in a time synchronized sequence. Pattern-Based
Testingtm
technology provides the capability to simultaneously capture and
analyze both analog and digital waveforms that are emitted from
the DUT, thus reducing device test times and permitting
increased throughput and lower
cost-of-test.
Floating Resources. Our test platform
architecture provides electrical separation between disparate
test sites on the same piece of test equipment by eliminating
the need for our test instrumentation resources to access power
or move signals across a common electrical pathway. Because our
floating resources have independent ground connections,
interference normally associated with a common ground pathway is
minimized, allowing each devices results to remain
isolated from the results of other adjacent sites. This leads to
better test accuracies and fewer devices failing due to
device-to-device errors.
Sales and
Marketing
With the exception of the United Kingdom and Japan, we market
and sell our products exclusively through our direct sales
organization, which consists of sales professionals, application
engineers (technical sales support), technical marketing and
sales personnel. In the United Kingdom, we utilize a combination
of direct sales representatives and distributors while in Japan
we use direct distributors. Our account managers oversee and
manage our worldwide sales activity. As of September 30,
2006, we had 81 people in sales, marketing and applications,
including 17 direct sales representatives, who provide account
management, sales administration and technical sales support.
Because we focus on the development of long-term relationships
with major customers, the large majority of our sales and
technical sales support personnel is located in close proximity
to key customer sites. For foreign customers, this support is
typically provided through one of our foreign subsidiaries. As
of September 30, 2006 we had 54 foreign personnel providing
sales, service and applications support to our foreign customers.
Our customers generally undertake an extensive evaluation of new
test technology prior to adopting such technology. We work with
potential customers with the goal of offering them a superior
solution for their test requirements. In typical situations, our
applications engineers are required to develop a custom test
program designed to demonstrate our equipments performance
and capability to address the customers specific needs. In
cases involving existing customers, we typically work closely
with their respective product development and production groups
to help maximize the utility of our test systems throughout
their organization and to align our product development efforts
with their anticipated test requirements.
We employ a sales model that emphasizes reducing the
customers total cost-of-test per device rather than the
acquisition cost of the individual test system. We demonstrate
how a customers test costs can be reduced by utilizing our
products in lieu of competitors test systems.
We believe that strong service and support are critical to
providing an overall lower cost-of-test solution. In addition to
our applications engineering support staff, we maintain a global
network of service personnel who seek to maximize test system
up-time. We also offer services to enable our customers to
maintain and effectively use our test systems, and to enhance
our customer relationships. Our standard product warranty
includes coverage of hardware products for one year from the
date of purchase and warrants against defects in design,
materials and workmanship. In order to minimize system down-time
in the event of a service requirement, we typically ship a
replacement product for any non-functional standard equipment
within
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24 hours of the service request. We also offer our
customers additional support after the warranty period in the
form of maintenance contracts or extended warranties.
Customers
We target analog, mixed-signal and RF semiconductor
manufacturers and related companies that serve a broad range of
market segments. Since October 1, 2003, we have delivered
over 600 test systems to more than 60 customers. Our customers
include many of the worlds leading semiconductor
manufacturers, IDMs, fabless design companies, and assembly and
test subcontractors. Companies that use our systems include:
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Agape Packaging Mfg. Co. Ltd.
Allegro MicroSystems, Inc.
AMI Semiconductor, Inc.
Amkor Technology, Inc.
ASE Electronics (M) Sdn. Bhd.
Carsem Sdn. Bhd
EM Microelectronic-Marin SA
Fairchild Semiconductor
International, Inc.
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Guidant Corporation
HANA Semiconductor
(Ayutthaya) Co., Ltd.
Hewlett-Packard Company
Infineon Technologies AG
International Rectifier Corporation
Intersil Corporation
Jiangsu Changjiang Electronics
Technology Co., Ltd.
Microchip Technology Incorporated
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Microsemi Integrated Products
Myson Century Inc.
National Semiconductor Corporation
NS Electronics Bangkok Ltd
O2MICRO, Inc.
ON Semiconductor Corporation
PDF Solutions, Inc.
STATS ChipPAC Ltd.
Test-Serv Inc.
Texas Instruments Incorporated Unitive Electronics, Inc.
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Our customers have historically been semiconductor device
manufacturers, but our customer base has expanded to include
assembly and test subcontractors, such as STATS ChipPAC Ltd. and
ASE Electronics (M) Sdn. Bhd. Semiconductor manufacturers
and fabless semiconductor companies utilize these subcontractors
to provide incremental capacity and to lower their fixed
production costs.
For the fiscal year ended September 30, 2006, sales to
Texas Instruments Incorporated accounted for 52.9% of our net
revenue. For the fiscal year ended September 30, 2005,
Texas Instruments Incorporated accounted for 44.3% of our net
revenue. For the fiscal year ended September 30, 2004, two
customers, National Semiconductor Corporation and Texas
Instruments Incorporated, accounted for 36.1% and 31.9%,
respectively, of our net revenue. These customers are the only
customers who have accounted for 10% or more of our net revenue
during these periods. We expect that a small number of customers
will continue to represent a significant portion of our net
revenue for the foreseeable future. Sales to customers in the
United States accounted for approximately 30.6%, 46.2% and 21.6%
of net revenue for the years ended September 30, 2006, 2005
and 2004, respectively. Sales to customers in Malaysia accounted
for approximately 38.8%, 21.4% and 51.0% of net revenue for the
fiscal years ended September 30, 2006, 2005 and 2004,
respectively. Sales to customers in other locations accounted
for approximately 30.6%, 32.4% and 27.4% of net revenue for the
fiscal years ended September 30, 2006, 2005 and 2004,
respectively.
Manufacturing
and Assembly
Our test platforms consist of standard products that we custom
configure based on each customers specific needs. A large
portion of our subassembly manufacturing is outsourced to
contract manufacturers for printed circuit board fabrication,
automated assembly and the supply of machine parts. Our major
contract manufacturers include Millennium Electronics, Inc. and
Universal Electronics, Inc., both of which manufacture our
printed circuit board assemblies, including surface mount and
through-hole technologies, and Sentral Assemblies &
Components, which manufactures our cable assemblies and power
supplies. We contract with these manufacturers on an individual
purchase order basis and do not have long term contracts with
them. We believe this selected outsourcing strategy provides us
with the flexibility to respond more rapidly to changes in
industry conditions or demand for our test systems. We perform
mechanical assembly, subassembly testing operations and final
systems integration at our Illinois manufacturing facility in
order to ensure quality. We focus on quality assurance by
monitoring the various stages of the manufacturing process to
identify areas for improvement and manage potential
manufacturing issues.
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Although our products consist mainly of standard components and
prefabricated parts manufactured to our specifications, some
components and subassemblies are purchased from a limited number
of suppliers or sole source suppliers. Our major suppliers
include Arrow Electronics, Inc. and Future Electronics, both of
which provide us with electronic components and integrated
circuits, as well as Pickering Electronics Limited, which
provides us with relays, switches and integrated circuits, and
Marcel Electronics International, which provides us with printed
circuit boards. We work closely with our suppliers to plan our
inventory procurement in quantities that will minimize our
inventory risks; however, we cannot be certain that shortages
will not develop in the future. We purchase components and
subassemblies through separate purchase orders and do not
currently have long-term purchase contracts with our suppliers.
We believe our ability to procure components and subassemblies
is a key determinant of our ability to provide our customers
with quality products on a timely basis and we continue to
evaluate alternative sources for the supply of our inventory.
Research
and Development
Our continued commitment to research and development and the
timely introduction of new products, features and upgrades are
integral to maintaining our competitive position. Our research
and development efforts seek to address new opportunities and
demands within our customer base. Our efforts are focused on the
design of test systems that lower the overall cost-of-test for
semiconductor companies. We concentrate on advancements in
electrical performance, software tools, parallel test efficiency
and test system resource density. We also focus on the design of
modular hardware for rapid implementation of new features and a
uniform software platform for operating compatibility across our
entire line of test systems. This strategy reduces our overall
product development cycles and development costs and maximizes
our research and development resources. Our research and
development activities are directed by individuals with
significant expertise and industry experience. As of
September 30, 2006, we had 55 employees dedicated to
research and development.
Our research and development organization is segmented into
specific product development groups, including mixed-signal,
high performance data converters and automotive products,
discrete components and RF products, which provides highly
dedicated focus for the investigation of new technical
opportunities in our target markets, and the development of
solutions specifically targeted at those opportunities.
We leverage our engineering efforts by utilizing standard
components whenever possible. We generally avoid the use of
customized components, such as Application-Specific Integrated
Circuits, or ASICs, when implementing functionality because it
is easier to adapt standard semiconductor designs to changing
requirements. This also eliminates high engineering risks and
costs associated with ASIC design. We use standard PCs with
Microsoft Windows as the main control computer of our test
systems. The strategy of using industry standard products has
proven successful, allowing us to leverage the significant
investments made by the largest companies in the technology
field, with minimal cost to us.
Our historical research and development expenditures for the
fiscal years ended September 30, 2006, 2005 and 2004 were
$8.9 million, $7.9 million and $6.1 million,
respectively, representing 7.2%, 12.4% and 5.4% of net revenue
in each of the respective fiscal years.
Competition
We face substantial competition in the ATE market throughout the
world. Our principal competitors include Credence Systems
Corporation, LTX Corporation and Teradyne, Inc., all of which
are major manufacturers of ATE for the analog, mixed-signal and
RF markets, in addition to other markets in which we do not
compete. Some of our competitors products that test
analog, mixed-signal and RF semiconductors have higher digital
pin counts than our products, and accordingly may be considered
to have a greater functional testing range and the ability to
test types of devices that our products do not test.
Accordingly, a customer that manufactures high-end digital
semiconductors, for example, as well as analog, mixed-signal or
RF devices, may be more inclined to purchase a test system from
one of our competitors. We believe, based on the published
report of an independent industry research organization, that
our competitors named above each have a larger share of our
addressable market than we do. Additionally, some of our
competitors, including
9
those named above, have greater brand recognition and greater
financial, engineering, manufacturing and marketing resources
than we do. As a result, our competitors may be able to respond
more quickly to new or emerging technologies or market
developments by devoting greater resources to the development,
promotion and sale of products. Some of our competitors also
have broader product offerings, larger installed customer bases
and more extensive customer support capabilities than we do. We
expect our competitors to continue to improve the performance of
and support for their current products and to introduce new
products, technologies or services that could adversely affect
sales of our current and future products. In addition, other
test companies that do not currently focus on our target markets
could choose to do so.
We believe the primary competitive factors in the analog,
mixed-signal, discrete and RF ATE markets are the overall
cost-of-test, test accuracy, throughput, yield and support
infrastructure. We believe we compete favorably with respect to
each of these factors in the markets that we address. Based on
our experience in marketing our products in competition against
those of our competitors, we believe we are a very strong
competitor within the analog, mixed-signal markets and discrete,
and also an effective competitor in the RF market. However, in
contrast to a number of our competitors, we do not compete for
opportunities to test primarily digital semiconductors, such as
memory devices or microprocessors, where more costly test
systems with different capabilities are required to compete
effectively.
Intellectual
Property
Our success depends in large part on our proprietary technology.
We rely on a combination of patents, copyrights, trademarks,
service marks, trade secrets, confidentiality provisions and
licensing arrangements to establish and protect our proprietary
rights. We own two U.S. patents. These patents will expire
in approximately 16 years. While these patents are
important and relate to some of our distinct technology, we have
relied primarily on our trade secrets and copyright protection
as well as confidentiality provisions to protect our
intellectual property.
There are always risks that third parties may claim that we are
infringing upon their intellectual property rights and we could
be prevented from selling our products or services, or suffer
significant litigation or licensing expenses as a result of
these claims. In addition, third parties may infringe or design
around our intellectual property rights, and we may expend
significant resources enforcing our rights or suffer competitive
injury with adverse effects on our results of operations. Our
efforts to protect our intellectual property rights may be less
effective in some foreign countries where intellectual property
rights are not as well protected as in the U.S. For
additional, important information, review the information set
forth in Risk Factors Risks Related to
Intellectual Property.
Employees
As of September 30, 2006, we had 302 full time employees.
Of our total employees, 55 were dedicated to research and
development and 81 were dedicated to sales, marketing and
applications. None of our employees located in the United States
is represented by a union. Our employees in Europe are
represented by workers councils. We believe our
relationships with our employees are good.
Backlog
Our backlog, calculated on the basis of unfilled purchase orders
with a firm delivery date for all products and services, was
$13.2 million at September 30, 2006, compared with
$4.7 million at September 30, 2005. Since customers
may cancel or delay their orders with little regard for
potential penalties, and since new order volume may decrease
very rapidly, our backlog at any particular date is not
necessarily indicative of our future backlog or actual sales
that may be generated for any succeeding period. In the past,
our test systems have generally shipped within six to eight
weeks from the time we receive a customers purchase order,
and we expect at least 85% of our backlog as of
September 30, 2006 to ship prior to the end of December
2006. Any change in our manufacturing capacity and the time it
takes to ship our products will affect our level of backlog.
Historically, our backlog levels have also fluctuated based on
our customers ordering patterns and their inability to
predict order trends in the semiconductor industry with any
certainty.
10
Set forth below are certain risk factors that could harm our
business, results of operations and financial condition. You
should carefully read the following risk factors, together with
the financial statements, related notes and other information
contained in this Annual Report on
Form 10-K.
This Annual Report on
Form 10-K
contains forward-looking statements that contain risks and
uncertainties. Please refer to the discussion of
Forward-Looking Statements on page one of this
Annual Report on
Form 10-K
in connection with your consideration of the risk factors and
other important factors that may affect future results described
below.
Risks
Related to Our Business and Industry
The
highly cyclical nature of the semiconductor industry could
adversely affect our operating results.
Our business and operating results depend to a significant
extent on capital expenditures by companies in the semiconductor
industry that purchase our ATE. Historically, the semiconductor
industry has been highly cyclical with recurring periods of
over-supply. These cycles typically have a disproportionately
negative impact on capital equipment manufacturers, including
providers of test systems like Eagle Test. In most cases, the
decrease in capital expenditures for test systems by our
customers is more pronounced than the downturn in the overall
semiconductor industry.
We believe that semiconductor industry downturns will likely
recur, and because they often occur very rapidly, we cannot
adequately foresee their timing and extent, or their effect on
customer orders and revenues. If we do not accurately predict
the timing or extent of a downturn, we may not adequately reduce
our operating expenses in light of decreased revenue, which will
adversely affect our financial performance, and potentially our
stock price. During downturns we experienced, and in the future
we may experience:
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decreased customer orders, test systems shipments and revenue;
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decreases in backlog;
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decreases in the average selling prices, or ASPs, of our test
systems;
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delays in order commitments;
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lower operating margins;
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increases in order cancellations and customer-requested shipment
delays;
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excess production capacity;
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delays in collecting accounts receivable; and
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excessive inventory levels.
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As a result of these and other factors, industry downturns are
expected to negatively impact our business and financial
performance. Moreover, such downturns, or the speculation about
such downturns by investors or industry analysts, may have a
material adverse effect on our stock price.
Our
quarterly operating results may fluctuate significantly from
period to period and this may cause our stock price to
decline.
In the past we have experienced, and in the future we expect to
experience, fluctuations in revenues and results of operations
from quarter to quarter. These fluctuations can be caused by a
variety of factors including:
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rapid shifts in demand for, or acceptance of, our products as a
result of the cyclical nature of the semiconductor equipment
industry or otherwise, often resulting in sharp reductions in
equipment sales during industry downturns and increased
equipment sales during periods of industry recovery;
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the loss of a significant customer or reduced capital spending
by a customer;
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delays, cancellations or reschedulings, or other changes in the
timing or terms of product shipments;
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acceleration or postponement of existing customer order delivery
dates;
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delays in acceptance of products as a result of our failure to
meet customers specifications;
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the timing of our new product introductions, and market
acceptance of our new products and enhanced versions of our
existing products;
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our competitors announcements of new products, services or
technological innovations, which can, among other things, render
our products less competitive;
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competitive pressures resulting in lower ASPs for our test
systems;
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lower gross margins in any period due to changes in our product
mix or increased prices for components;
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our inability to quickly reduce our fixed costs or
managements decision to maintain headcount notwithstanding
decreased demand for our products;
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disruptions in our manufacturing or in our supply of components,
causing us to delay shipment of our products; and
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write-offs of excess or obsolete inventory and accounts
receivable that are not collectible.
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A significant portion of our revenue is derived from the sale of
a relatively small number of test systems. Accordingly, a
decline in the number, or change in the timing or terms, of the
test systems we sell from quarter-to-quarter may also cause
significant changes in our results of operations. This, in turn,
would likely cause a decline in the market price of our common
stock.
We believe that
quarter-to-quarter
comparisons of our revenue and operating results are not
necessarily meaningful or an accurate indicator of our future
performance. Because of this difficulty in predicting future
performance, our results of operations may fall below the
expectations of securities analysts or investors in future
quarters. Our failure to meet these expectations would likely
cause a decline in the market price of our common stock.
We
depend on a small number of customers for a significant portion
of our sales, and the loss of any of these customers will
adversely affect our revenue.
A small number of customers has accounted for a significant
portion of our revenue in any particular period. We expect that
we will continue to depend on a small number of customers to
account for a significant percentage of our revenue for the
foreseeable future. Our customers, including our most
significant customers, are not obligated by long-term contracts
to purchase our test systems, and may cancel orders with little
regard for potential penalties. If any of our large customers
reduces or cancels its purchases from us for any reason, it
could have an adverse effect on our revenue and results of
operations. For additional information, see the section entitled
Business Customers in Part I,
Item 1. in this Annual Report on
Form 10-K.
We
face difficulty in obtaining new customers because of the high
cost of switching test equipment vendors in our
markets.
Semiconductor companies typically select one vendors
systems for testing an entire product family of semiconductors,
and make substantial investments to obtain test systems and
ancillary equipment, and to develop related test program
software. Once a semiconductor company has implemented a test
system for a product family of semiconductors, it is often
difficult and costly to switch to another vendors test
system because the test system is often part of the product
specifications for a newly developed device. Accordingly, unless
our test systems offer substantial performance or cost
advantages that materially outweigh a customers expense of
switching to our test systems, it will be difficult for us to
achieve significant sales to that customer once it has selected
another vendors test system for an application.
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Our
sales cycle is long, requires significant investment, and may
not result in additional sales.
Our customers generally take considerable time to evaluate our
test systems, and many people are involved in the evaluation and
decision-making process. Our product sales cycle typically
ranges from six to nine months. Sometimes our sales cycle can be
much longer, particularly when the sales process involves
developing new test programs for our customers or the
introduction of new products. During the sales process, we
commit substantial time and financial resources to our sales
efforts prior to receiving any revenue. Despite these efforts,
we may never receive any revenue from such potential customers.
The length of time it takes for us to complete a sale and the
extent of our investment depends on many factors, including:
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the capital expenditure budgets and capital equipment needs of
our customers;
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the willingness and ability of customers to incur the expense of
adopting new product platforms;
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the internal technical capabilities and sophistication of our
customers;
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the efforts and effectiveness of our sales force; and
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the need for and our success in demonstrating our technical and
manufacturing capabilities to meet our customers
requirements.
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In addition, if we do make a sale to a new customer, the
customer may purchase only one of our test systems, or may
evaluate a test systems performance for a lengthy period
of time before considering whether to purchase any additional
test systems from us. Variations in the length of the period
between purchases by new customers can cause our revenue and
results of operations to vary widely from period to period.
We
face substantial competition that, among other things, may
adversely affect our sales and may lead to price
pressure.
We face substantial competition in the ATE market throughout the
world. Our principal competitors include Credence Systems
Corporation, LTX Corporation and Teradyne, Inc. Some of these
competitors have greater financial, engineering, manufacturing
and marketing resources than we do. As a result, our competitors
may be able to respond more quickly to new or emerging
technologies or market developments by devoting greater
resources to the development, promotion and sale of products,
which could impair our revenue. Some of these competitors also
have broader product offerings, larger installed customer bases
and more extensive customer support capabilities than we do. We
expect our competitors to continue to improve the performance of
and support for their current products and to introduce new
products, technologies or services that could adversely affect
sales of our current and future products. In addition, other
test equipment companies that do not currently focus on our
target markets could choose to do so. We may not be able to
compete effectively with any new or current competitors, which
would have an adverse effect on our revenue and results of
operations.
Our competitors may also elect to reduce the prices of their
products in order to increase their market share or obtain new
customers, leading to a reduction in test system ASPs throughout
our industry. We may be required to react to these and other
competitive dynamics. Any decrease in the prices of our test
systems or any increase in the discounts granted to our
customers could adversely impact our growth, revenue and results
of operations.
We
rely on a few key employees and our success depends on our
ability to hire and retain key personnel.
Our future success depends in large part on the continued
service of our key executive officers, including Leonard Foxman,
our founder and Chief Executive Officer, Theodore Foxman, our
Chief Operating Officer, and Stephen J. Hawrysz, our Chief
Financial Officer. Leonard Foxman has managed us since our
inception and would be extremely difficult to replace. We are
also dependent on the continued service of our key research,
engineering, manufacturing, marketing and sales personnel, each
of whom possesses unique skills and experience. Although we have
employment and non-competition agreements with each of our
executive officers, these individuals or other key employees may
nevertheless leave us. Because these employees would be
difficult to replace, the loss of any of our key employees could
have an adverse effect on our business,
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financial condition and results of operations. Also, to support
our current operations and future growth, we will need to
attract and retain additional qualified employees. Competition
for qualified personnel in the technology area is intense, and
we operate in several geographic locations where labor markets
are particularly competitive.
Our future success depends to a significant extent on the
ability of our executive officers and other members of our
management team to operate effectively, both individually and as
a group. Our business may be harmed if we do not successfully
allocate responsibilities among our management team or if some
members of our management team do not succeed in their roles.
If we
fail to maintain adequate internal control over financial
reporting, if we are unable to timely complete our assessment of
the effectiveness of our internal control over financial
reporting, or if our independent registered public accounting
firm cannot attest to our assessment of our internal control
over financial reporting, we may be subject to regulatory
sanctions and a loss of public confidence and the trading price
of our stock could be negatively impacted.
Effective internal controls are necessary for us to provide
reliable financial reports and effectively detect and prevent
fraud. Pursuant to Section 404 of the Sarbanes-Oxley Act of
2002, under currently published SEC rules, we will be required
beginning with our fiscal year ending September 30, 2007 to
include in our annual report our assessment of the effectiveness
of our internal control over financial reporting. Furthermore,
our registered independent public accounting firm will be
required to report on our assessment of the effectiveness of our
internal control over financial reporting and separately report
on the effectiveness of our internal control over financial
reporting. Under rules recently proposed by the SEC, we may not
be required to complete this assessment until our fiscal year
ending September 30, 2008. We have begun but have not yet
completed our assessment of the effectiveness of our internal
control over financial reporting. If we fail to timely complete
this assessment, or if our independent registered public
accounting firm cannot attest to our assessment when required,
we may be subject to regulatory sanctions and a loss of public
confidence. Also, the lack of effective internal control over
financial reporting may adversely impact our ability to prepare
timely and accurate financial statements.
We
have grown rapidly and if we fail to manage our growth, our
business will suffer.
Although we commenced operations in 1976, over the past five
years we have experienced, and continue to experience, rapid
growth in our operations. This growth has included hiring key
personnel, relocating our manufacturing facility, entering
foreign markets and developing new customer relationships. We
anticipate that further expansion of our operations will be
required to address potential growth in our customer base and
market opportunities. This expansion has placed, and is expected
to continue to place, a substantial strain on our management,
operational and financial resources. In order to manage future
growth, we will be required to improve existing, and implement
new, operating and management systems, procedures and controls.
We also need to hire, train and manage additional qualified
personnel. A significant factor in our growth has been a
substantial increase in customer demand for our products. If we
do not effectively manage our growth, including the addition and
training of new personnel, we will not adequately satisfy such
demand. In addition, the quality of our test systems or our
ability to manufacture and ship our test systems on a timely
basis could suffer. This could negatively impact our reputation,
revenue and results of operations and lead to order
cancellations or a decrease in order volume.
If we
are not successful in developing new and enhanced products, we
will lose market share to our competitors and our operating
results will suffer.
We operate in an industry that is characterized by evolving
industry standards and rapid technological advancements. To
remain competitive, we must design, develop and introduce in a
timely manner new test systems or improve our existing test
systems in order to meet the performance and price demands of
our
14
customers and prospective customers. Our success in this regard
will depend on many factors, including our ability to:
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successfully develop and commercialize innovative products that
are differentiated from our competitors offerings;
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properly and quickly identify customer needs and anticipate
technological advances and industry trends;
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quickly adjust to changing industry conditions and product
announcements by competitors; and
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establish manufacturing processes that will enable us to build
and timely deliver new or enhanced products to specification in
sufficient volumes.
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We must devote resources to research and development to remain
innovative and competitive with rapidly evolving industry
technologies and emerging trends. In light of the long product
development cycles inherent in our industry, development of new
products generally requires a substantial investment well before
commercial viability or the prospect of deriving any revenue
from new products. The future success of our new technologies,
products and services also depends on broad acceptance among our
customers. In addition, new methods of testing semiconductors
may be developed. These developments may render our products
uncompetitive or obsolete. If we fail to adequately predict our
customers needs and technological advances, we may invest
heavily in the research and development of products and services
that do not lead to significant revenue, or we may fail to
invest in research and development necessary to satisfy evolving
customer demands.
Products
that do not meet customer specifications or that contain defects
could cause us to lose customers and revenue.
We must develop and deliver reliable customized hardware and
software to meet our customers specific ATE requirements.
The complexity and ongoing development of our products could
lead to design or manufacturing problems. If any of our products
fails to meet specifications, the customer may delay or reject
acceptance of the test system and the recognition of revenue
from these sales will be delayed or forfeited. Moreover, if any
of our products has reliability or quality problems, we may be
required to replace the test system or issue the customer an
equipment credit in accordance with the customers warranty
terms. If these quality problems occur, our reputation could be
damaged significantly and customers might be reluctant to buy
our products, which could result in a decline in revenue, an
increase in product returns, the loss of existing customers
and/or the
failure to attract new customers.
You
should not rely on our level of backlog as an indication of our
future revenues.
Since customers typically cancel or delay their orders with
little regard for potential penalties, and since new order
volume may decrease very rapidly, our backlog, if any, at any
particular date is not necessarily indicative of our future
backlog or actual sales that may be generated for any succeeding
period. Any change in our manufacturing capacity and the time it
takes to ship our products will affect our level of backlog.
Historically, our backlog levels have also fluctuated based on
our customers ordering patterns and our inability to
predict order trends in the semiconductor industry with any
certainty. During an industry downturn, our backlog could be
substantially reduced or eliminated. Accordingly, you should not
rely on our level of backlog as an indication of our future
revenues. For additional information, see the section entitled
Business Backlog in Part I,
Item 1. in this Annual Report on
Form 10-K.
We
obtain some of the components and subassemblies included in our
test systems from a limited number of suppliers and
subcontractors, which may result in production delays, loss of
revenue or increased costs.
We obtain some of the components and subassemblies included in
our test systems from a limited number of, or in some cases sole
source, suppliers and subcontractors with whom we do not have
long-term contracts. These suppliers and subcontractors are
under no obligation to supply our requirements. This reliance
gives us less control over the manufacturing process and exposes
us to significant risks. Identifying and qualifying new
15
or alternative sources of these materials can be a lengthy and
difficult process. From time to time, we may be unable to obtain
an adequate supply of components or subassemblies. In addition,
the lead time required for shipments of some of our components
or subassemblies can be lengthy and such lead time may increase
in periods of heightened demand. We may also experience
increases in the prices of these components or subassemblies,
delays in delivery and poor component or subassembly quality. If
we are unable to accurately predict our component and
subassembly needs, if our supply is disrupted or delayed, if any
of the components or subassemblies on which we rely are
discontinued due to obsolescence or otherwise, or if we
otherwise experience any other adverse change in our
relationships with these suppliers or subcontractors, we would
experience a delay in shipments of our test systems, damage to
our customer relationships, an increase in our production costs
and/or a
reduction in our sales, any of which could have an adverse
effect on our revenue and results of operations.
If we
cannot accurately plan the production of products to meet our
customers demands, we could incur excess inventory or miss
sales opportunities.
Due to the volatile nature of our industry, we cannot predict
with certainty future levels of purchase orders. In anticipation
of future orders, we typically order components and
subassemblies and build some inventory in advance of the receipt
of actual purchase orders. If we do not obtain orders as we
anticipate, or if orders are cancelled, we could have excess
inventory for a specific product that we would not be able to
return to our suppliers, potentially resulting in inventory
write-offs, which could have an adverse effect on our results of
operations. Alternatively, if we underestimate our component and
subassembly needs, we may not be able to meet the demand for our
test systems on a timely basis and we may miss opportunities for
additional sales of our test systems, which could have an
adverse effect on our results of operations and customer
relationships.
Our
manufacturing activities are conducted at a single facility, and
any prolonged disruption in the operations of that facility
could have a material adverse effect on our
revenue.
Once we receive subassemblies and other components from our
subcontractors and suppliers, we complete the production of all
of our test systems in our manufacturing facility located in
Buffalo Grove, Illinois. Any prolonged disruption in the
operations of our manufacturing facility, whether due to
technical or labor difficulties, destruction or damage as a
result of a fire or extreme weather conditions or any other
reason, could seriously harm our ability to satisfy our
customers order deadlines. If we cannot deliver our test
systems in a timely manner, our reputation, revenue and results
of operations could be adversely affected.
We
have no experience with acquiring other companies and our future
efforts to do so may subject us to significant costs without the
realization of the anticipated benefits of those
acquisitions.
As a public company, we believe we have greater opportunities to
make acquisitions of, or significant investments in,
complementary companies, products or technologies, although no
acquisitions or investments are currently pending or planned.
This is due to the fact that we have additional available
capital for these purposes, as well as a market-determined value
for our common stock. To date, our management has had very
little experience completing acquisitions or managing the
integration of acquisitions. Accordingly, we cannot guarantee
that we will be able to successfully complete or integrate any
business, products, technologies or personnel that we might
acquire or seek to acquire in the future, and our failure to do
so could harm our business. Furthermore, any future
acquisitions, if completed, would subject us to many risks,
including:
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difficulties in integrating the products, operations or
personnel of acquired companies into our business;
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diversion of our managements attention from our ongoing
operations;
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additional expenses associated with amortization of acquired
assets or impairment of acquired goodwill;
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difficulties in maintaining uniform standards, controls,
procedures and policies;
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potential impairment of existing relationships with employees,
suppliers and customers as a result of the difficulties in
integration of new management personnel; and
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dilution to our stockholders in the event we issue stock to
finance an acquisition or increased leverage if we incur debt to
finance an acquisition.
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16
Economic,
political and other risks associated with international sales
and operations, particularly in Asia, could adversely affect our
revenue.
Because our products and services are sold worldwide, we are
subject to the risks associated with conducting business
internationally. We anticipate that international sales will
continue to account for a significant portion of our revenue for
the foreseeable future. Our international operations subject us
to many risks, including:
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economic and political instability;
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compliance with foreign and domestic laws and regulations;
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changes in foreign and domestic legal and regulatory
requirements or policies resulting in burdensome government
controls, tariffs, restrictions, embargoes or export license
requirements;
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longer payment cycles common in foreign markets;
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difficulties in staffing and managing our international
operations;
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less favorable foreign intellectual property laws making it more
difficult to protect our technology from appropriation by
competitors;
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potentially adverse tax treatment;
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difficulties with distributors;
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difficulties collecting our accounts receivable; and
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natural disasters.
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In particular, the economies of Asia have been highly volatile
in the past, resulting in significant fluctuations in local
currencies and other instabilities. In recent years, many
countries in Asia have experienced weakness in their currency,
banking and equity markets as a result of certain events,
including the occurrence of severe acute respiratory syndrome,
or SARS. These instabilities continue and may recur. Our
exposure to the business risks presented by the economies of
Asia will increase to the extent that we and our customers
continue to expand operations in that region. Any instability in
Malaysia or elsewhere in the Asia Pacific region, including
those resulting from any additional outbreak of SARS or a
potential outbreak of avian influenza, could delay customer
acceptance of our products or prevent us from installing or
servicing our products sold in the affected region.
We
could experience a decline in international sales due to
currency fluctuations.
All of our international sales are denominated in
U.S. dollars. As a result, if the U.S. dollar rises in
relation to foreign currencies, our test systems will become
more expensive to customers outside the U.S. and less
competitive with systems produced by local competitors. These
conditions could adversely impact our international sales volume
or force us to lower our prices internationally. In the past,
there have been, and in the future there may be, significant
fluctuations in the exchange rates between the U.S. dollar
and the currencies of countries in which we do business. In
addition, competitive conditions in the future may require us to
enter into purchase orders denominated in foreign currencies.
While we have not entered into foreign currency hedging
arrangements in the past, we may do so in the future. We cannot
assure you that any hedging transactions we may enter into will
be effective or will not result in foreign exchange hedging
losses.
Accounting
for employee stock options using the fair value method could
significantly reduce our net income.
We have adopted Statement of Financial Accounting Standards
(SFAS) No. 123R Share-Based Payment
effective October 1, 2005, which requires us to expense
stock options in the income statement based on option grant date
fair value. We are using the Black-Scholes Option Pricing Model
to determine the fair value of stock options granted and will
amortize this amount to compensation expense as options vest and
have adopted the prospective method of transition as of the date
of adoption. See Notes 2 and 12 of Notes to
17
Consolidated Financial Statements included elsewhere in this
Annual Report on
Form 10-K
for a more detailed presentation of accounting for stock-based
compensation plans. If we issue a significant option grant, or
series of option grants, the stock-based compensation expense
related to these grants may have a materially adverse effect on
our results of operations.
Risks
Related to Intellectual Property
Third
parties may claim we are infringing their intellectual property
rights, and we could be prevented from selling our products or
services, or suffer significant litigation or licensing
expenses, even if these claims have no merit.
Our competitive position is driven in large part by our
proprietary products, processes and services, such as
SmartPintm
and our floating resource architecture. Third parties, however,
may claim that we or our products, systems or operations are
infringing their intellectual property rights, and we may be
unaware of intellectual property rights of others that may cover
some of our assets, technology, products and services. Any
litigation regarding patents, trademarks, copyrights or other
intellectual property rights, even those without merit, could be
costly and time consuming, and divert our management and key
personnel from operating our business. The complexity of the
technology involved and inherent uncertainty and cost of
intellectual property litigation increases our risks. If any
third party has a meritorious or successful claim that we are
infringing its intellectual property rights, we may be forced to
change our products, services or manufacturing processes, which
may be costly or impractical. If we are unable to make such
changes to avoid infringing third party intellectual property
rights, we may be forced to enter into royalty or license
agreements. However, we may not be able to obtain royalty or
license agreements on terms acceptable to us, or at all, and we
may therefore be required to cease the infringing aspect of our
operations. This may require us to stop selling our products as
currently engineered, which could harm our competitive position.
We also may be subject to significant damages or injunctions
that prevent the further development of certain of our products
or services.
Third
parties may infringe or design around our intellectual property
rights, and we may expend significant resources enforcing our
rights or suffer competitive injury.
Our success and competitive position depend in large part on our
ability to obtain and maintain intellectual property rights
protecting our products and services. We rely on a combination
of patents, copyrights, trademarks, service marks, trade
secrets, confidentiality provisions and licensing arrangements
to establish and protect our intellectual property and
proprietary rights. We may be required to spend significant
resources to establish, monitor and protect our intellectual
property rights. We may not be able to detect infringement and
we may lose our competitive position in the market before we do
so. If we fail to successfully protect our intellectual property
rights, or competitors design around our technology or develop
competing technologies, our competitive position could suffer,
which could harm our results of operations.
We own two patents. These patents or any new patents may not be
sufficient in scope or strength to provide us with a significant
competitive advantage, and the validity or scope of the patents
may be challenged by third parties. We may not be able to
develop additional proprietary technology that is patentable. If
we do file patent applications on additional technology, the
applications may not be allowed. Moreover, the scope of our
patents is limited, which could allow competitors to design
around the scope of our patents.
In addition to patent protection, we rely on trade secret
protection for our confidential and proprietary information and
technology. We routinely enter into confidentiality agreements
with our employees and other third parties. However, in the
event these agreements may be breached, we may not have adequate
available remedies. Our confidential and proprietary information
and technology might also be independently developed by or
otherwise become known by third parties, which may damage our
competitive position.
We have filed federal trademark applications to help protect
certain trademarks that we use in conjunction with our business,
including EAGLE TEST SYSTEMS, EAGLE TEST SYSTEMS (& design),
SMARTPIN, SIMULTEST, CHAMELEON, EAGLE VISION, PATTERN-BASED
TESTING and our Eagle logo. Our pending applications may not be
registered by the U.S. Patent and Trademark Office, and
third parties may challenge the validity or scope of the
trademark applications or registrations.
18
Despite our proprietary rights, there can be no assurance that
others will not develop similar products, duplicate our products
or design around our products.
Our
efforts to protect our intellectual property may be less
effective in some foreign countries where intellectual property
rights are not as well protected as in the United
States.
We have not sought patent protection or registered our
trademarks outside the U.S., which may impair our ability to use
or protect our technology and brand in foreign jurisdictions.
Furthermore, the laws of some foreign countries do not protect
proprietary rights to as great an extent as do the laws of the
U.S. Many U.S. companies have encountered substantial
problems in protecting their proprietary rights against copying
or infringement in such countries, some of which are countries
in which we have sold and continue to sell our systems. There is
a risk that our means of protecting our proprietary rights may
not be adequate in these countries. Our competitors in these
countries may independently develop similar technology or
duplicate our test systems, even if unauthorized, thus likely
reducing our sales in these countries.
Risks
Related to our Common Stock and our Capital Structure
There
is a limited history of a trading market for our common stock,
and the market price of our common stock may be highly volatile
or may decline regardless of our operating
performance.
There has only been a public market for our common stock since
the completion of our initial public offering in March 2006. The
trading market in our common stock may be volatile. The market
prices of the securities of newly public companies have been
volatile, and have been known to decline rapidly. Broad market
and industry conditions and trends may cause fluctuations in the
market price of our common stock, regardless of our actual
operating performance.
Future
sales of our shares could adversely affect the market price of
our common stock.
We have only been a public company since March 2006. For the
quarterly period ended September 30, 2006, the average
daily trading volume of our common stock on the Nasdaq Global
Market has been less than 194,000 shares. On
October 3, 2006, we completed a public offering of
5,500,000 shares of common stock, 2,000,000 of which were
sold by us and 3,500,000 of which were sold by certain of our
stockholders. In connection with this public offering, all
directors, executive officers, and certain significant
stockholders other than the Employee Stock Ownership Plan,
entered into
lock-up
agreements with the underwriters of that offering. As a result
of these
lock-up
agreements, 9,824,308 shares of our common stock are
subject to contractual restrictions on resale, through
December 26, 2006.
The Employee Stock Ownership Plan is able to sell or distribute
its shares of our common stock under certain circumstances. We
currently anticipate that the Employee Stock Ownership Plan will
distribute 834,565 shares of our common stock to employees,
to be held in individual self-directed accounts. Other than this
anticipated distribution, we have agreed not to cause the
disposition of any shares of our common stock currently held by
the Employee Stock Ownership Plan prior to December 26,
2006, without the prior written consent of the underwriters of
our recent public offering. In addition, we have agreed not to
cause the Employee Stock Ownership Plan to transfer investment
control over 834,565 shares of our common stock to
employees, or otherwise take any action that would result in a
transfer of investment control to employees, until after
December 1, 2006, thus preventing the sale of these shares
prior to such date. After the date of such transfer of
investment control to employees, and after the effective date of
a registration statement on
Form S-8
under the Securities Act which we expect to file prior to such
date to register these shares, such shares will be generally
available for resale in the public market, except for
73,009 shares of common stock held by executive officers
that will be subject to the
lock-up
agreements described above.
19
After the expiration of the
lock-up
period described above, we will not be contractually prohibited
from issuing and selling additional shares of our common stock.
Any future sale by us or our current stockholders of our common
stock in the public market, or the perception that sales could
occur, could adversely affect the prevailing market price for
our common stock.
Our
directors and certain significant stockholders exercise
significant control over Eagle Test.
Our directors, and significant stockholders and their
affiliates, including TA Associates, collectively control
approximately 47.0% of our outstanding common stock. Investment
funds affiliated with TA Associates hold an aggregate of 29.2%
of our outstanding common stock. As a result, these
stockholders, if they act together, are able to influence our
management and affairs and all matters requiring stockholder
approval, including the election of directors and approval of
significant corporate transactions. This concentration of
ownership may have the effect of delaying or preventing a change
in control of Eagle Test and might affect the market price of
our common stock.
Provisions
in our certificate of incorporation and by-laws may deter third
parties from acquiring us.
Our certificate of incorporation and by-laws contain provisions
that may make the acquisition of our company more difficult
without the approval of our board of directors, including the
following:
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our board of directors is divided into three classes serving
staggered three-year terms;
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only our board of directors may call special meetings of our
stockholders;
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our stockholders may take action only at a meeting of our
stockholders and not by written consent;
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we have authorized undesignated preferred stock, the terms of
which may be established and shares of which may be issued
without stockholder approval and may be used in connection with
the adoption of a stockholder rights plan;
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stockholder approval of amendments of our certificate of
incorporation or by-laws require a vote of 75% of our
outstanding shares;
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vacancies on the board of directors may be filled only by the
directors;
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our directors may be removed only for cause by the affirmative
vote of the holders of 75% of the votes that all stockholders
would be entitled to cast in the election of directors; and
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we require advance notice for stockholder proposals.
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These anti-takeover defenses could discourage, delay or prevent
a transaction involving a change in control of our company.
These provisions could also discourage proxy contests and make
it more difficult for you and other stockholders to elect
directors of your choosing and cause us to take other corporate
actions that you desire.
Section 203
of the Delaware General Corporation Law may delay, defer or
prevent a change in control that our stockholders might consider
to be in their best interests.
We are subject to Section 203 of the Delaware General
Corporation Law which, subject to certain exceptions, prohibits
business combinations between a Delaware corporation
and an interested stockholder, which is generally
defined as a stockholder who becomes a beneficial owner of 15%
or more of a Delaware corporations voting stock, for a
three-year period following the date that such stockholder
became an interested stockholder absent prior approval of our
board of directors. Section 203 could have the effect of
delaying, deferring or preventing a change in control that our
stockholders might consider to be in their best interests.
20
Our
Website
Our web site is www.eagletest.com. We make available, free of
charge through our website, our Annual Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K,
including exhibits, and any amendments to those reports filed or
furnished with the Securities and Exchange Commission pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended. We make these reports available through our
web site as soon as reasonably practicable after our electronic
filing of such materials with, or the furnishing of them to, the
Securities and Exchange Commission. The information contained or
incorporated on our web site is not a part of this Annual Report
on
Form 10-K.
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Item 1B.
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Unresolved
Staff Comments
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Not applicable.
Our corporate headquarters are currently located in Buffalo
Grove, Illinois, which we relocated to in January 2005, and
where we lease approximately 96,000 square feet of
commercial space under a lease that expires in 2015. We use this
space for our principal sales, engineering, customer service and
administrative purposes. The facility was designed by us
specifically to maximize our engineering, system design and
manufacturing capabilities and to accommodate future growth. The
facility provides substantially increased production capability
from our previous headquarters facility, and has dedicated
laboratory environments for research and development.
We also lease additional offices in Santa Clara,
California; Tempe and Tucson, Arizona; Bedford,
New Hampshire; Dallas, Texas; Singapore; Gyeonggi-Do,
Korea; Hsinchu City, Taiwan; Munich, Germany; Basiano, Italy;
Melaka, Malaysia; Alabang, The Philippines; and Suzhou, China.
We perform various activities, including sales, customer
service, training, research and development and applications
engineering in some or all of these offices. We do not
anticipate significant difficulty in obtaining lease renewals or
alternate space as needed, although obtaining renewals or
alternate space on acceptable terms cannot be assured. We also,
in addition, own a residence in Vernon Hills, Illinois
principally used for travel purposes by out-of-town employees.
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Item 3.
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Legal
Proceedings
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From time to time, we may be a party to various claims, suits
and complaints. Currently, there are no such claims, suits or
complaints that, in our opinion, would have a material adverse
effect on our business, results of operations and financial
condition.
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Item 4.
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Submission
of Matters to a Vote of Security Holders
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No matters were submitted to a vote of our security holders
through a solicitation of proxies or otherwise during the
quarterly period ended September 30, 2006.
21
PART II
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Item 5.
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Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
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Market
Information
Our common stock is listed and has been traded on the Nasdaq
Global Market under the symbol EGLT since our
initial public offering on March 8, 2006. Prior to that
time there was no public market for our common stock. The
following table sets forth the high and low closing prices of
our common stock, as reported by the Nasdaq Global Market, for
each of the periods listed.
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High
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Low
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2006
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Second Quarter (commencing
March 8, 2006)
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$
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15.50
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$
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13.88
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Third Quarter
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$
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17.77
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$
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14.00
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Fourth Quarter
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$
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19.47
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$
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12.33
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2007
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First Quarter (through
November 30, 2006)
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$
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18.64
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$
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14.45
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Holders
As of November 30, 2006, there were 12 holders of record of
our common stock.
Dividends
We currently anticipate that we will retain future earnings for
the development, operation and expansion of our business.
Accordingly, we do not anticipate declaring or paying any cash
dividends for the foreseeable future. Our board of directors
will have discretion in determining whether to pay dividends,
which will depend upon our financial condition, results of
operations, capital requirements and such other factors as the
board of directors deems relevant.
Securities
Authorized For Issuance Under Equity Compensation
Plans
The following table sets forth information regarding securities
authorized for issuance under our equity compensation plans as
of September 30, 2006.
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Number of Securities
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Remaining Available for
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Number of Securities
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Weighted Average
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Future Issuance under
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to be Issued Upon Exercise
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Exercise Price of
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Equity Compensation Plans
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of Outstanding Options,
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Outstanding Options,
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(Excluding Securities
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Plan Category
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Warrants and Rights
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Warrants and Rights
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Reflected in Column (a))
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(a)
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(b)
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(c)
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Equity compensation plans approved
by security holders(1)
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679,500
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$
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9.09
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2,520,000
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(2)
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Equity compensation plans not
approved by security holders(3)
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Total
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679,500
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$
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9.09
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2,520,000
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(1) |
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Includes our 2003 Stock Option and Grant Plan and our 2006 Stock
Option and Incentive Plan. |
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(2) |
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Includes shares remaining available for future issuance under
our 2006 Stock Option and Incentive Plan. |
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(3) |
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There are no equity compensation plans in place not approved by
shareholders. |
22
Recent
Sales of Unregistered Securities
We did not sell any unregistered securities during the fiscal
year ended September 30, 2006.
Use of
Proceeds from Registered Securities
On March 8, 2006, our registration statement on
Form S-1
(Registration
No. 333-130521)
was declared effective for our initial public offering, pursuant
to which we offered and sold 6,130,000 shares of common
stock and received net proceeds of approximately
$88.7 million. We used these proceeds to repurchase all of
our senior subordinated notes and to redeem all outstanding
shares of our redeemable preferred stock, and to pay offering
related expenses. As of September 30, 2006, we retained
approximately $23.6 million of these net proceeds, none of
which were used during the three month period ended
September 30, 2006. We intend to use the remaining
$23.6 million of the net proceeds from our initial public
offering for general corporate purposes, including working
capital and possible acquisitions and investments. We currently
have no agreements or commitments with respect to any
acquisitions or investments and we do not currently have any
acquisitions or investments planned. Pending specific
application of our net proceeds, we plan to invest our net
proceeds in government securities and other short-term,
investment-grade, marketable securities.
Issuer
Purchases of Equity Securities
None.
|
|
Item 6.
|
Selected
Consolidated Financial Data
|
The following selected consolidated financial data should be
read in conjunction with the section entitled
Managements Discussion and Analysis of Financial
Condition and Results of Operations in Part II,
Item 7. of this Annual Report on
Form 10-K
and the section entitled Financial Statements and
Supplementary Data in Part II, Item 8. of this
Annual Report on
Form 10-K.
The data for and as of the end of each of the five fiscal years
in the period ended September 30, 2006 is derived from our
audited consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
|
(In thousands, except per share data)
|
|
|
Consolidated Statement of Net
Income Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
124,738
|
|
|
$
|
63,477
|
|
|
$
|
111,210
|
|
|
$
|
55,766
|
|
|
$
|
25,918
|
|
Cost of goods sold
|
|
|
42,320
|
|
|
|
26,596
|
|
|
|
37,337
|
|
|
|
20,457
|
|
|
|
8,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
82,418
|
|
|
|
36,881
|
|
|
|
73,873
|
|
|
|
35,309
|
|
|
|
17,362
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
28,974
|
|
|
|
21,066
|
|
|
|
23,932
|
|
|
|
16,491
|
|
|
|
10,949
|
|
Research and development
|
|
|
8,939
|
|
|
|
7,883
|
|
|
|
6,051
|
|
|
|
3,113
|
|
|
|
3,240
|
|
Write-off of offering expenses
|
|
|
|
|
|
|
|
|
|
|
1,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
44,505
|
|
|
|
7,932
|
|
|
|
42,032
|
|
|
|
15,705
|
|
|
|
3,173
|
|
Interest expense
|
|
|
3,496
|
|
|
|
3,910
|
|
|
|
3,887
|
|
|
|
31
|
|
|
|
30
|
|
Increase (decrease) in value of
warrants
|
|
|
5,466
|
|
|
|
(599
|
)
|
|
|
1,548
|
|
|
|
|
|
|
|
|
|
Other (income) and expense, net
|
|
|
(1,866
|
)
|
|
|
(2,274
|
)
|
|
|
(408
|
)
|
|
|
(636
|
)
|
|
|
633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
37,409
|
|
|
|
6,895
|
|
|
|
37,005
|
|
|
|
16,310
|
|
|
|
2,510
|
|
Provision (benefit) for income
taxes
|
|
|
14,836
|
|
|
|
(524
|
)
|
|
|
14,952
|
|
|
|
6,706
|
|
|
|
864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
22,573
|
|
|
$
|
7,419
|
|
|
$
|
22,053
|
|
|
$
|
9,604
|
|
|
$
|
1,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
|
(In thousands, except per share data)
|
|
|
Earnings Per Share
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share, basic(1)
|
|
$
|
0.79
|
|
|
$
|
0.53
|
|
|
$
|
1.58
|
|
|
$
|
0.67
|
|
|
$
|
0.11
|
|
Net income per share, diluted(1)
|
|
|
0.60
|
|
|
|
0.36
|
|
|
|
1.46
|
|
|
|
0.67
|
|
|
|
0.11
|
|
Weighted average shares
outstanding, basic
|
|
|
14,016,988
|
|
|
|
5,396,248
|
|
|
|
5,396,248
|
|
|
|
14,365,017
|
|
|
|
14,390,000
|
|
Weighted average shares
outstanding, diluted
|
|
|
17,980,235
|
|
|
|
14,513,227
|
|
|
|
14,009,533
|
|
|
|
14,390,337
|
|
|
|
14,390,000
|
|
Selected Operating
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
66.1
|
%
|
|
|
58.1
|
%
|
|
|
66.4
|
%
|
|
|
63.3
|
%
|
|
|
67.0
|
%
|
Operating margin
|
|
|
35.7
|
%
|
|
|
12.5
|
%
|
|
|
37.8
|
%
|
|
|
28.2
|
%
|
|
|
12.2
|
%
|
|
|
|
(1) |
|
The difference between the fair market value of our previously
outstanding Redeemable Preferred Stock at date of issue of
$21.1 million and the redemption price of
$32.5 million paid on March 14, 2006 with proceeds
from our initial public offering was charged to retained
earnings in March 2006 when the redemption occurred. This
$11.4 million adjustment is used to reduce net income to
arrive at income available to common stockholders for purposes
of calculating earnings per common basic and diluted
shares for the fiscal year ended September 30, 2006 in
accordance with EITF Topic D-42 The Effect on
the Calculation of Earnings per Share for the Redemption or
Induced Conversion of Preferred Stock. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
Consolidated Balance Sheet
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and
marketable securities
|
|
$
|
75,946
|
|
|
$
|
22,676
|
|
|
$
|
23,733
|
|
|
$
|
21,961
|
|
|
$
|
20,573
|
|
Receivable from sale of common
stock
|
|
|
31,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
|
125,738
|
|
|
|
41,617
|
|
|
|
39,276
|
|
|
|
18,919
|
|
|
|
25,375
|
|
Total assets
|
|
|
165,886
|
|
|
|
66,171
|
|
|
|
91,752
|
|
|
|
50,852
|
|
|
|
43,505
|
|
Capital lease obligations
|
|
|
640
|
|
|
|
890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable warrants
|
|
|
|
|
|
|
2,667
|
|
|
|
3,266
|
|
|
|
1,718
|
|
|
|
|
|
Senior subordinated convertible
notes
|
|
|
|
|
|
|
28,843
|
|
|
|
28,561
|
|
|
|
28,282
|
|
|
|
|
|
Series A convertible
preferred stock
|
|
|
|
|
|
|
65,000
|
|
|
|
65,000
|
|
|
|
65,000
|
|
|
|
|
|
Total stockholders equity
(deficit)
|
|
|
136,414
|
|
|
|
(44,587
|
)
|
|
|
(51,433
|
)
|
|
|
(73,620
|
)
|
|
|
27,043
|
|
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
You should read the following discussion in conjunction with
our consolidated financial statements and related notes thereto.
In addition to historical information, this discussion contains
forward-looking statements that involve risks, uncertainties and
assumptions that could cause actual results to differ materially
from managements expectations. Factors that could cause
such differences include those described in Risk
Factors in Part 1, Item 1A. in this Annual
Report on
Form 10-K.
Overview
We design, manufacture, sell and service high-performance ATE
for the semiconductor industry. Our test equipment addresses our
customers volume production needs and is designed to
enable our customers to achieve low overall
cost-of-test
per device. Our innovative products test analog, mixed-signal
and RF semiconductors. Semiconductors tested by our systems are
incorporated into a wide range of products in high-growth
markets, including digital cameras, MP3 players, cellular
telephones, video/multimedia products, automotive electronics,
computer peripherals, and notebook and desktop computers.
24
We were founded and began providing test solutions in 1976. Our
customers include semiconductor manufacturers, integrated device
manufacturers, or IDMs, fabless design companies, and assembly
and test subcontractors, including Allegro MicroSystems, Inc.,
Fairchild Semiconductor International, Inc., Guidant
Corporation, Intersil Corporation, National Semiconductor
Corporation, ON Semiconductor Corporation and Texas Instruments
Incorporated. Since October 1, 2003, we have delivered over
600 test systems to more than 60 customers worldwide. We
completed our initial public offering in March 2006.
Our business and operating results depend significantly on the
level of capital expenditures by companies in the semiconductor
industry. Historically, the semiconductor industry has been
highly cyclical with recurring periods of over-supply and
under-supply, which has resulted in wide fluctuations in demand
for our products and services. These demand fluctuations have
resulted in significant variations in our revenue, expenses and
results of operations in the periods presented. Fluctuations are
likely to continue in future periods.
Our business experienced significant growth in fiscal 2006 as
our net revenue increased to $124.7 million from
$63.5 million in fiscal 2005, an increase of
$61.3 million, or 96.5%, and our net income increased to
$22.6 million from $7.4 million in fiscal 2005, an
increase of $15.2 million, or 204.3%. In fiscal 2005, our
business experienced a slowdown during the downturn in the
semiconductor industry. Our net revenue decreased significantly
during fiscal 2005, to $63.5 million from
$111.2 million during fiscal 2004, a decrease of
$47.7 million, or 42.9%, and our net income in this period
decreased to $7.4 million from $22.1 million, a
decrease of $14.6 million, or 66.4%. Revenues in the fourth
quarter of fiscal 2005 increased sharply, and amounted to 44.9%
of the total revenue for the year, as the industry and our
business experienced a rebound.
Changes in industry conditions often occur very rapidly and can
be very difficult to predict. Thus, we cannot foresee the timing
and extent of such changes or their effect on our customer
orders and revenue with significant accuracy. In addition, these
cycles typically have a disproportionately negative impact on
capital equipment manufacturers, including providers of test
systems. As part of our strategy to address this volatility and
lack of visibility, we outsource a substantial portion of our
manufacturing functions to third party subcontractors. The
purpose of this strategic outsourcing model is to reduce our
fixed costs and working capital requirements, making our expense
structure more flexible during downturns. Outsourcing also
allows us to increase production rapidly to capitalize on market
opportunities during upturns. We believe our outsourcing
strategy provides us with the flexibility to respond more
rapidly to changes in industry conditions and demand for our
test systems.
Historically, a significant portion of our revenue in each
quarter and year has been derived from sales to relatively few
customers. While we seek to expand and diversify our customer
base, we expect our revenue to continue to be derived from a
small number of customers. In fiscal 2006, sales to Texas
Instruments Incorporated accounted for 52.9% of our net revenue,
and sales to our five largest customers accounted for an
aggregate of 76.7% of our net revenue. In fiscal 2005, sales to
Texas Instruments Incorporated accounted for 44.3% of our net
revenue, and sales to our five largest customers accounted for
an aggregate of 66.9% of our net revenue. In fiscal 2004, sales
to National Semiconductor Corporation and Texas Instruments
Incorporated accounted for 36.1% and 31.9% of our net revenue,
respectively, and sales to our five largest customers accounted
for an aggregate of 79.2% of our net revenue.
With the exception of the United Kingdom and Japan, we market
and sell our products exclusively through our direct sales
organization, which consists of sales professionals, application
engineers (technical sales support), technical marketing and
sales personnel. In the United Kingdom, we utilize a combination
of direct sales representatives and independent distributors
while in Japan we use independent distributors. Our direct sales
force earns commissions based on the sales they generate. Our
distributors earn commissions based on sales of equipment
shipped into their regions or in some cases, we offer our
distributors discounts on our products for resale. A significant
majority of our sales is generated by our direct sales
organization and we expect to continue to expand our sales
organization in the future.
We do not have purchase contracts that require any of our
customers or distributors to continue to purchase our products,
and our customers or distributors could cease purchasing
products from us at any time. A delay in product orders or
acceptances or a cancellation by any of our large customers
could cause quarterly revenue to vary significantly. Our backlog
of orders is subject to order cancellations, accelerations,
changes and delays, and is not necessarily indicative of future
customer purchases or revenue streams.
25
During a given quarter, a significant portion of our revenue may
be derived from the sale of a relatively small number of test
systems. Our test systems range widely in average selling price,
depending upon many factors such as model, configuration and
level of testing resources sold with the system. Consequently, a
small change in the number or product mix of systems sold may
cause significant changes in our operating results. Thus, we do
not believe that
period-to-period
comparisons of our financial results are necessarily meaningful,
and they should not be relied upon as an indication of our
future performance.
In connection with recently becoming a public company, we expect
that we will incur significant additional expenses such as audit
fees, professional fees, increased directors and officers
insurance, board compensation, and expenses related to hiring
additional personnel and expanding our administrative functions.
Some of these expenses were not incurred by us as a private
company and are not included in our results of operations
through fiscal 2005. We began to incur certain of these expenses
during fiscal 2005 and 2004, and we expect that these expenses
will continue to increase.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002,
under currently published SEC rules, we will be required
beginning with our fiscal year ending September 30, 2007 to
include in our annual report our assessment of the effectiveness
of our internal control over financial reporting. Furthermore,
our registered independent public accounting firm will be
required to report on our assessment of the effectiveness of our
internal control over financial reporting and separately report
on the effectiveness of our internal control over financial
reporting. Under rules recently proposed by the SEC, we may not
be required to complete this assessment until our fiscal year
ending September 30, 2008. We have begun but have not yet
completed our assessment of the effectiveness of our internal
control over financial reporting. If we fail to timely complete
this assessment, which we do not anticipate at this time, or if
our independent registered public accounting firm cannot attest
to our assessment when required, we may be subject to regulatory
sanctions and a loss of public confidence.
Net Revenue. Net revenue consists of sales of
test systems and individual test instrumentation boards,
otherwise known as resource boards, net of returns and
allowances. Substantially all of our net revenue is derived from
sales of our test systems. Net revenue from sales of individual
resource boards has historically not been significant. We expect
that this mix of net revenue will continue for the foreseeable
future. Net revenue is subject to both quarterly and annual
fluctuations as a result of the cyclical nature of the
semiconductor industry, as well as product mix and system
configuration.
Cost of Goods Sold. Cost of goods sold
consists primarily of manufacturing materials, outsourced
manufacturing costs, salaries and manufacturing-related
overhead, which includes provisions for excess and obsolete
inventory reserves. We rely on a limited number of
subcontractors and suppliers to provide key components of our
products, some of which are sole-sourced. We build products
based on forecasts and customer backlog, and purchase materials
and supplies to support that demand. We are subject to
variations in the cost of raw materials, components and
subsystems. Because we do not have long-term fixed-price
contracts with our suppliers, our costs could fluctuate from
period-to-period.
Gross Profit. Our gross profit has varied from
period-to-period.
Factors that have affected and will continue to affect gross
profit in the future include product configuration, product
sales mix, manufacturing volume, manufacturing efficiencies,
excess and obsolete inventory reserves, pricing by competitors,
subcontractors and suppliers, and new product introductions.
Selling, General and Administrative. Selling,
general and administrative, or SG&A, expenses relate to
compensation and associated expenses for sales, marketing and
applications engineering personnel, sales commissions paid to
sales representatives and distributors, outside contractor
expenses and other sales and marketing program expenses. In
addition, SG&A expenses include travel and professional
service expenses, as well as salaries and related expenses for
administrative, finance, human resources and executive
personnel. SG&A expenses will increase as a result of
becoming a public company. We believe the incremental costs of
items such as directors and officers insurance, investor
relations services, professional fees and other legal and
accounting compliance costs could exceed $1.5 million
annually, and we will also incur additional SG&A expenses
associated with improvements to our internal controls. SG&A
expenses may also increase in absolute dollars as we continue to
develop our sales and marketing efforts and expand our
administrative functions, and as a result of increased option
expenses related to adoption of changes in generally accepted
accounting
26
principles. In addition, commission and variable compensation
expenses included in SG&A can fluctuate with changes in
sales volume and profitability.
Research and Development. Research and
development, or R&D, expenses consist primarily of
compensation and related expenses for personnel engaged in
product development, as well as expenses related to materials,
outside contractors, depreciation of equipment used in R&D,
and other engineering overhead expenses. R&D costs are
expensed as incurred. We believe our R&D expenses will
generally increase in absolute dollars as we continue to develop
and improve our hardware and software technologies.
Interest Expense. Interest expense consists of
interest on our debt and loans. The increase in interest expense
beginning in fiscal 2004 resulted from the issuance on
September 30, 2003 to TA Associates of $30.0 million
in principal amount of 12% senior subordinated convertible
notes due September 30, 2009. The senior subordinated
convertible notes held by TA Associates converted into
12% senior subordinated notes due September 30, 2009
and warrants to purchase 525,040 shares of our common stock
just prior to our initial public offering. These senior
subordinated notes were repurchased with proceeds from our
initial public offering which was completed on March 14,
2006 for an aggregate amount equal to approximately
$30.6 million.
Increase (Decrease) in Value of
Warrants. Increase (decrease) in value of
warrants is a non-cash charge (benefit) related to recording the
increase (decrease) in the fair market value of the common stock
warrants issuable upon conversion of the 12% senior
subordinated convertible notes due September 30, 2009. The
warrants enabled the holders to put the warrants to us at any
time after September 30, 2008 at fair value, and thus the
warrants were considered liability instruments that were
required to be accounted for at fair value. This determination
historically has been based upon independent valuations. The
holders of the warrants exercised the warrants for common stock
in connection with our initial public offering which was
completed on March 14, 2006, thus the warrants no longer
exist.
Other (Income) and Expense. Other (income) and
expense consists of income from cash, cash equivalents and
marketable securities, realized investment gains, losses and
impairments, and miscellaneous other income and expense.
Provision for Income Taxes. We account for
income taxes under the asset and liability method whereby the
expected future tax consequences of temporary differences
between the book value and the tax basis of assets and
liabilities are recognized as deferred tax assets and
liabilities, using enacted tax rates in effect for the year in
which the differences are expected to be recognized. A valuation
allowance is provided if it is more likely than not that some or
all of the entire deferred tax asset will not be realized.
Critical
Accounting Policies and Estimates
The preparation of financial statements in accordance with
accounting principles generally accepted in the United States
requires us to make estimates, assumptions and judgments that
affect the amounts reported in our financial statements and the
accompanying notes. We base our estimates on historical
experience and various other assumptions that we believe to be
reasonable. Although these estimates are based on our present
best knowledge of the future impact on us of current events and
actions, actual results may differ from these estimates,
assumptions and judgments.
We consider critical those accounting policies that
require our most subjective or complex judgments, which often
result from a need to make estimates about the effect of matters
that are inherently uncertain, and that are among the most
important of our accounting policies in the portrayal of our
financial condition and results of operations. These critical
accounting policies are: revenue recognition, valuation of
excess and obsolete inventory, accounting for warranty reserves,
determination of our allowance for sales returns and
uncollectibles, and stock-based compensation.
Revenue Recognition. We derive revenue
primarily from sales of test systems and individual resource
boards. Substantially all of our revenue to date has been
denominated in United States dollars. Revenue related to test
system sales is recognized when:
|
|
|
|
|
we have a written sales agreement;
|
|
|
|
delivery has occurred or services have been rendered;
|
27
|
|
|
|
|
the price is fixed or determinable; and
|
|
|
|
collectibility is reasonably assured.
|
Installation services are generally part of the test system
sale. Revenue from test system sales is deferred until the test
system is delivered, installed and accepted at the customer
location.
When sales to a customer involve multiple elements, revenue is
recognized on the delivered element, provided that the
undelivered element is a standard product with evidence of fair
value, there is a history of acceptance of the product with the
customer, and the undelivered element is not essential to the
customers application. When a sale of a test system
includes post contract customer support, or PCS, revenue for the
PCS is recognized ratably over the PCS period. Revenue related
to individual resource boards is recognized upon shipment.
In a few instances we have entered into short-term rental
agreements with customers for the use of our test systems. We
recognize rental revenue ratably over the applicable rental
period. Rental revenue is included as a component of test system
sales and has been immaterial to date.
Inventory Reserves. We state our inventories
at the lower of cost or estimated market value, determined on a
first-in,
first-out method. We establish inventory reserves when
conditions exist that suggest inventory may be in excess of
anticipated demand or is obsolete based upon assumptions about
future demand for test systems or market conditions. We evaluate
the ability to realize the value of our inventory based on a
combination of factors, including forecasted sales or usage,
estimated product
end-of-life
dates, estimated current and future market value and new product
introductions. Purchasing and alternative usage options are also
explored to mitigate obsolete inventory exposure. If actual
demand for test systems deteriorates or market conditions are
less favorable than those we project, additional inventory
reserves may be required.
We determine the valuation of excess and obsolete inventory by
making our best estimate considering the current quantities of
inventory on hand and our forecast of the need for this
inventory to support future sales of our test systems. We often
have limited information on which to base our forecasts. If
future sales differ from these forecasts, the valuation of
excess and obsolete inventory may change.
Warranty Reserves. Our test systems are sold
with warranty provisions that require us to remedy deficiencies
in quality or performance of our test systems. We are also
subject to laws and regulations in the various countries in
which we sell regarding vendor obligations to ensure product
performance. At the time we recognize revenue from a test
systems sale, we determine the reserve for the future cost
of meeting our obligations under the standard warranties and
product performance laws and regulations by considering our
historical experience with the costs of meeting these
obligations. If the future costs of meeting these obligations
differ from our historical experience, additional reserves for
warranty obligations may be required.
Allowance for Sales Returns and
Uncollectibles. We determine our allowance for
sales returns and uncollectibles by making our best estimate
considering our historical accounts receivable collection
experience, current economic trends, changes in customer payment
terms and recent information that we have about the current
status of our accounts receivable balances. If future conditions
cause our collections experience to change or if we later obtain
different information about the status of any or all of our
accounts receivable, additional allowances for sales returns and
uncollectibles may be required.
Stock-Based Compensation. Effective
October 1, 2005, we have adopted Statement of Financial
Accounting Standard No. 123R Share Based
Payment (SFAS 123R) which amends SFAS 123
Accounting for Stock Based Compensation,
(SFAS 123), which requires us to expense stock options
based upon the fair market value on the date of grant. We are
amortizing the fair market value of options granted over the
vesting period of the options and we are using the prospective
method of adoption as defined under SFAS 123R. Expense
associated with stock options issued to
nonemployees/nondirectors is recorded in accordance with
SFAS 123.
For options issued prior to October 1, 2005, we accounted
for these options using the intrinsic value method in accordance
with Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, APB
No. 25. We had adopted the disclosure only provision of
SFAS 123 for options issued to employees and directors.
28
For all options issued after October 1, 2005, we are
recording compensation expense under the provisions of
SFAS 123R using the fair value of the options granted
amortized over the vesting service period. Expense recognized
for the fiscal year ended September 30, 2006 was $354,000.
Results
of Operations
The following sets forth certain operating data as a percentage
of net revenue for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Net revenue
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of goods sold
|
|
|
33.9
|
|
|
|
41.9
|
|
|
|
33.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
66.1
|
|
|
|
58.1
|
|
|
|
66.4
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
23.2
|
|
|
|
33.2
|
|
|
|
21.5
|
|
Research and development
|
|
|
7.2
|
|
|
|
12.4
|
|
|
|
5.4
|
|
Write-off of offering expenses
|
|
|
|
|
|
|
|
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
35.7
|
|
|
|
12.5
|
|
|
|
37.8
|
|
Interest expense
|
|
|
2.8
|
|
|
|
6.1
|
|
|
|
3.5
|
|
Increase (decrease) in value of
warrants
|
|
|
4.4
|
|
|
|
(0.9
|
)
|
|
|
1.4
|
|
Other (income) and expense, net
|
|
|
(1.5
|
)
|
|
|
(3.6
|
)
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
30.0
|
|
|
|
10.9
|
|
|
|
33.3
|
|
Provision (benefit) for income
taxes
|
|
|
11.9
|
|
|
|
(0.8
|
)
|
|
|
13.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
18.1
|
%
|
|
|
11.7
|
%
|
|
|
19.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following sets forth our net revenue breakdown by geographic
region, in thousands and as a percentage of net revenue, during
the periods presented. Substantially all of our revenue to date
has been denominated in United States dollars in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
United States
|
|
$
|
38,177
|
|
|
|
30.6
|
%
|
|
$
|
29,295
|
|
|
|
46.2
|
%
|
|
$
|
24,031
|
|
|
|
21.6
|
%
|
Malaysia
|
|
|
48,377
|
|
|
|
38.8
|
|
|
|
13,602
|
|
|
|
21.4
|
|
|
|
56,720
|
|
|
|
51.0
|
|
Other
|
|
|
38,184
|
|
|
|
30.6
|
|
|
|
20,580
|
|
|
|
32.4
|
|
|
|
30,459
|
|
|
|
27.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
124,738
|
|
|
|
100.0
|
%
|
|
$
|
63,477
|
|
|
|
100.0
|
%
|
|
$
|
111,210
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In fiscal 2004 and fiscal 2006, our product sales had a
significantly greater concentration of customers in Malaysia
than in other periods. This is primarily due to the fact that
our major customers had increased their production in Malaysia,
and as a result require additional
and/or
replacement ATE in their Malaysian manufacturing facilities. We
believe that this concentration in Malaysia may continue as our
customers continue to focus operations and facilities in the
Asia Pacific Rim area, particularly Malaysia. However, this will
vary from year to year and from period to period based upon our
global customers needs at various locations.
The following customers accounted for 10% or more of our net
revenue in one or more of the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
National Semiconductor Corporation
|
|
|
*
|
%
|
|
|
*
|
%
|
|
|
36.1
|
%
|
Texas Instruments Incorporated
|
|
|
52.9
|
|
|
|
44.3
|
|
|
|
31.9
|
|
29
Year
Ended September 30, 2006 Compared to Year Ended
September 30, 2005
Net Revenue. Net revenue was
$124.7 million in fiscal 2006 and $63.5 million in
fiscal 2005, an increase of $61.3 million or 96.5%. This
increase was primarily due to a $37.8 million increase in
test system sales to Texas Instruments Incorporated and a
general increase in tester shipments to semiconductor
manufacturers who use our automated test equipment.
Gross Profit. Gross profit was
$82.4 million, or 66.1% of net revenue, in fiscal 2006 and
$36.9 million, or 58.1% of net revenue, in fiscal 2005.
Gross profit increased as a percentage of net revenue due to
increased sales and better utilization of overhead costs and
manufacturing personnel due to higher volume production as
compared to fiscal 2005. Additionally, gross profit percentage
of net revenue for fiscal 2005 was adversely impacted by
additional inventory reserves of $2.3 million. The
additional reserves established in fiscal 2005 were a result of
lower visibility of demand for our products going into fiscal
2006.
Selling, General and Administrative. SG&A
expenses were $29.0 million, or 23.2% of net revenue, in
fiscal 2006 and $21.1 million, or 33.2% of net revenue, in
fiscal 2005. This increase of $7.9 million, or 37.5%, was
primarily due to $4.4 million of additional commission,
incentive compensation and warranty accruals as a result of
increased system sales and better operating performance,
$2.0 million in increased personnel costs related to sales
and service offices opened in Asia and Europe in fiscal 2006,
and $0.9 million of additional expenses in connection with
becoming a public company.
Research and Development. R&D expenses
were $8.9 million, or 7.2% of net revenue, in fiscal 2006
and $7.9 million, or 12.4% of net revenue, in fiscal 2005,
an increase of $1.1 million or 13.4%. This increase was
primarily due to $1.7 million in additional personnel and
related facility costs for headcount, and additional
depreciation expense on increased equipment used in the
development process, offset in part by a $0.7 million
decrease in materials used in the product development process,
resulting primarily from the timing of prototype expenditures.
Interest Expense. Interest expense was
$3.5 million and $3.9 million for fiscal 2006 and
2005, respectively. The decrease is due to a reduction in
interest expense of $2.0 million due to repayment of the
senior subordinated convertible notes on March 14, 2006,
offset by a $1.0 million writeoff of unamortized debt
discount and a $0.6 million redemption premium recorded on
the senior subordinated convertible notes which were repaid with
the proceeds of our initial public offering.
Increase (Decrease) in Value of Warrants. The
increase in value of warrants was $5.5 million in fiscal
2006, compared to a decrease in value of warrants of
$0.6 million in fiscal 2005. The warrant valuation
adjustment was due to the change in the fair market value of the
common stock warrants because under certain circumstances we
could be required to purchase these after September 30,
2008 at fair market value. These warrants were exercised and
redeemed at the time of completion of our initial public
offering in the March 2006 quarter. Since the warrants are no
longer outstanding at September 30, 2006, there will be no
further charges for changes in the value of this instrument in
future periods.
Other (Income) and Expense, Net. Other
(income) expense, net was income of $1.9 million and
$2.3 million in fiscal 2006 and 2005, respectively. The
decrease of $0.4 million is due to an increase of
$1.5 million in interest income from increased cash
equivalents and marketable securities balances from cash
generated by operations and cash of $23.6 million retained
from our initial public offering completed March 14, 2006,
offset by gains in fiscal 2005 of $1.6 million realized
upon the liquidation of the marketable securities portfolio, in
accordance with our new investment policy, and $0.4 million
realized in the March 2005 quarter upon the sale of our former
corporate headquarters facility.
Provision (Benefit) for Income Taxes. Income
tax expense was $14.8 million, a 39.7% effective tax rate,
in fiscal 2006 and an income tax benefit of $0.5 million, a
(7.6)% effective tax rate, in fiscal 2005. The increase in tax
provision of $15.4 million was due to an increase in pretax
income of $30.5 million and an increase in value of
warrants of $6.1 million, which is not includable as a
deduction in computing taxable income. In addition, in fiscal
2005, the Company filed its prior year tax returns and adjusted
the current year tax provision for actual deductions taken in
those returns. The tax effect of the deductions amounted to a
$1.6 million tax benefit and primarily related to
additional extraterritorial income exclusion and state income
30
taxes different from the amounts originally estimated.
Furthermore, in fiscal 2005 we filed for tax method changes with
the Internal Revenue Service relating to inventory valuation.
Accrued taxes were adjusted to reflect the actual tax liability
based upon these tax method change filings and to reverse the
liability for tax positions of closed tax years. The net
reduction in the current year tax provision for accrued taxes in
fiscal 2005 was an additional benefit of 13.8%, or
$1.0 million. We believe our effective tax rate will be
closer to 36% in future periods since the warrants are no longer
outstanding.
Year
Ended September 30, 2005 Compared to Year Ended
September 30, 2004
Net Revenue. Net revenue was
$63.5 million in fiscal 2005 and $111.2 million in
fiscal 2004, a decrease of $47.7 million, or 42.9%. The
significant decrease in net revenue was due to reduced demand by
our customers for our test systems. In fiscal 2005, as compared
to fiscal 2004, we experienced $35.0 million and
$7.3 million decreases in net revenue from two of our
largest customers, National Semiconductor Corporation and Texas
Instruments Incorporated, respectively.
Cost of Goods Sold. Cost of goods sold was
$26.6 million in fiscal 2005 and $37.3 million in
fiscal 2004, a decrease of $10.7 million. The decrease was
primarily the result of decreased sales of our test systems.
Gross Profit. Gross profit was
$36.9 million, or 58.1% of net revenue, in fiscal 2005 and
$73.9 million, or 66.4% of net revenue, in fiscal 2004. The
decrease in gross profit as a percentage of net revenue was
primarily due to decreased sales and lower utilization of
overhead costs and manufacturing personnel due to lower volume
production as compared to fiscal 2004. Additionally, increased
reserves of $2.3 million, or 3.8% of net revenue, were
recorded to account for excess inventory on hand above our
projected usage based upon our forecasts.
Selling, General and Administrative. SG&A
expenses were $21.1 million, or 33.2% of net revenue, in
fiscal 2005 and $23.9 million, or 21.5% of net revenue, in
fiscal 2004. SG&A expenses decreased $2.9 million, or
12.0%, primarily due to $2.7 million in decreased sales
commissions as a result of decreased sales, and lower warranty
reserves also as a result of lower sales. These decreases were
offset in part by increased personnel cost of sales and service
offices opened in Suzhou, China; Basiano, Italy and Munich,
Germany.
Research and Development. R&D expenses
were $7.9 million, or 12.4% of net revenue, in fiscal 2005
and $6.1 million, or 5.4% of net revenue, in fiscal 2004.
R&D expenses increased $1.8 million, or 30.3%,
primarily due to a $1.1 million increase in product
development materials. The remaining increase was due to
additional personnel and related facility costs for headcount
added in fiscal 2005, and additional depreciation expense on
equipment used in the development process.
Write-off of Offering Expenses. During fiscal
2004, significant expenses were incurred related to preparing
documents and filings in preparation for a planned initial
public offering of common stock. These offering costs were being
deferred and were going to be offset against the proceeds of the
offering when completed. Due primarily to market conditions, our
initial public offering was delayed, resulting in
$1.9 million of expense of these deferred costs.
Interest Expense. Interest expense was
$3.9 million in fiscal 2005 and 2004 due to interest on the
senior subordinated convertible notes issued on
September 30, 2003.
Increase (Decrease) in Value of
Warrants. Decrease in value of warrants was
$0.6 million in fiscal 2005. Increase in value of warrants
was $1.5 million in fiscal 2004. These amounts were due to
recording the (decrease) increase in fair market value of the
common stock warrants that, under certain circumstances, require
us to purchase these warrants after September 30, 2008.
Because of this put feature, we are required to account for the
change in warrant value as a liability.
Other (Income) and Expense, Net. Other
(income) and expense, net increased to income of
$2.3 million for fiscal 2005 from $0.4 million in
fiscal 2004, primarily due to gains realized upon the
liquidation of the marketable securities portfolio, in
accordance with our new investment policy. Our new investment
policy required us to liquidate our equity securities and
position our investment portfolio in investment grade
31
securities focused on preservation of principal. In addition, in
fiscal 2005, we realized a gain of $0.4 million upon the
sale of our former corporate headquarters facility.
Provision (Benefit) for Income Taxes. Our
income tax provision was a benefit of $0.5 million, or a
(7.6)% effective tax rate, in fiscal 2005 and tax expense of
$15.0 million, or a 40.4% effective tax rate, in fiscal
2004. The decrease in tax provision of $15.5 million was
primarily a result of a decrease in pretax income of
$30.1 million. In addition, during fiscal 2005 we filed our
prior year tax returns and adjusted the current year tax
provision for actual deductions taken in those returns. The net
impact on the effective tax rate for 2005 was an additional
benefit of 23.0%, or $1.6 million, and primarily related to
additional extraterritorial income exclusion deduction and state
income taxes above the amounts originally estimated.
Furthermore, in fiscal 2005 we filed for tax method changes with
the Internal Revenue Service relating to inventory valuation.
Accrued taxes were adjusted to reflect the actual tax liability
based upon these tax method change filings and to reverse the
liability for tax positions of closed tax years. The net
reduction in the current year tax provision for accrued taxes in
fiscal 2005 was an additional benefit of 13.8%, or
$1.0 million.
Liquidity
and Capital Resources
Since our inception we have financed our operations primarily
through cash generated from operations and our existing cash
balances. On March 14, 2006, we completed our initial
public offering, generating net proceeds to us of
$86.7 million, of which $63.1 million was used to
redeem our senior subordinated notes and redeemable preferred
stock. As of September 30, 2006, we had $75.9 million
in cash, cash equivalents and marketable securities.
Subsequent to September 30, 2006, on October 3, 2006,
we completed a public offering to sell an additional
2,000,000 shares of common stock, generating net proceeds
of $30.7 million. Since the shares were sold on
September 27, 2006, the transaction was included in
stockholders equity and recorded as a receivable from sale
of common stock as of September 30, 2006. On
October 11, 2006, the underwriters exercised their option
to purchase an additional 200,000 shares, generating net
proceeds of $3.1 million.
Our balance in cash, cash equivalents and marketable securities
increased from $22.7 million as of September 30, 2005
to $75.9 million as of September 30, 2006. Operating
activities during fiscal 2006 provided cash of
$32.7 million, due to income of $22.6 million
resulting primarily from sales of test systems, an increase in
value of warrants of $5.5 million that did not require
cash, and an increase in accounts payable and accrued expenses
of $9.8 million due to a standard lag in payment on
purchases used to support increased sales activity. These
increases in working capital were offset in part by increased
accounts receivables (net of deferred revenue) of
$2.1 million due to increased sales activity, and an
increase in inventory of $4.7 million due to additional
component purchases,
work-in-process,
and finished goods to support anticipated increasing sales
activity. Investing activities used cash to purchase capital
equipment of $2.8 million, which primarily represented test
and computer equipment, as well as new research and development
equipment for use in product and application development.
Financing activities generated cash of $86.7 million from
our initial public offering completed March 14, 2006, of
which $63.1 million was used to redeem $30.6 million
of senior subordinated notes and $32.5 million of
redeemable preferred stock.
Our balance in cash, cash equivalents and marketable securities
decreased slightly from $23.7 million as of
September 30, 2004, to $22.7 million as of
September 30, 2005. Operating activities during the twelve
months ended September 30, 2005 provided cash of
$5.0 million, due to income of $7.4 million resulting
primarily from sales of test systems, depreciation expense of
$2.2 million that did not require cash, and
$10.0 million of inventory reductions due to purchasing
less material than that used in product shipments. These
increases in working capital were offset in part by working
capital used for increased accounts receivables (net of deferred
revenue) of $1.1 million and a decrease in accounts
payable, accrued expenses and accrued compensation of
$10.9 million due to payments made to vendors and for
accrued expenses which were not as significant at
September 30, 2005 due to lower operating levels than
existed a year ago. Investing activities used cash to purchase
capital equipment of $7.1 million, which primarily
represented test and computer equipment, office furniture and
leasehold improvements purchased for new headquarter facilities
to
32
which we relocated in January 2005, as well as new research and
development equipment for use in product and application
development.
Our balance in cash, cash equivalents and marketable securities
increased from $22.0 million as of September 30, 2003
to $23.7 million as of September 30, 2004. Operating
activities during fiscal 2004 provided cash of $8.4 million
primarily from net income of $22.1 million and from an
increase of $6.2 million in accounts payable and accrued
expenses due to a standard lag in payment on purchases used to
support increased sales activity. During this period there was
also an increase of $2.2 million in accrued compensation
due to increases in employee incentive plan accruals as a result
of improved operating performance that were not paid out until
December 2004. These items were offset by an increase in
inventory of $16.1 million due to additional component
purchases made to support anticipated increased sales activity
experienced in the fourth quarter of fiscal 2004 and an increase
in accounts receivable (net of deferred revenue) of
$4.3 million due to increased test system sales. Investing
activities used cash to purchase capital equipment of
$4.6 million, which primarily represented test and computer
equipment, and software purchased during the period for human
resources, CRM and customer service applications. Financing
activities used cash of $2.3 million primarily as a result
of a dividend of $2.0 million paid to our common
stockholders that was accrued at September 30, 2003.
Contractual
Obligations
The following table describes our cash commitments, in
thousands, to settle contractual obligations as of
September 30, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due in
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
More Than
|
|
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
4-5 Years
|
|
|
5 Years
|
|
|
Operating lease obligations
|
|
$
|
12,436
|
|
|
$
|
1,994
|
|
|
$
|
3,170
|
|
|
$
|
2,856
|
|
|
$
|
4,416
|
|
Capital lease obligations
|
|
|
680
|
|
|
|
286
|
|
|
|
392
|
|
|
|
2
|
|
|
|
|
|
Purchase commitments(1)
|
|
|
8,271
|
|
|
|
8,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
21,387
|
|
|
$
|
10,551
|
|
|
$
|
3,562
|
|
|
$
|
2,858
|
|
|
$
|
4,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The purchase commitments primarily represent the value of
purchase orders issued for raw materials and purchased services
that have been scheduled for fulfillment in the next six to
eight months. |
We believe our existing cash balance and marketable securities
will be sufficient to meet our anticipated cash needs for at
least the next twelve months. Our future capital requirements
will depend on many factors, including our rate of revenue
growth, the timing and extent of spending to support product
development efforts, the expansion of sales and marketing
activities, the timing of introductions of new products and
enhancements to existing products, the costs to ensure access to
adequate manufacturing capacity, and the continuing market
acceptance of our products. To the extent that our existing
cash, cash equivalents and short-term investments balances and
any cash from operations, are insufficient to fund our future
activities, we may need to raise additional funds through bank
lines of credit or public or private equity or debt financing.
Although we are currently not a party to any agreement or letter
of intent with respect to potential investments in, or
acquisitions of, complementary businesses, products or
technologies, we may enter into these types of arrangements in
the future, which could also require us to seek additional
equity or debt financing. Additional funds may not be available
on terms favorable to us, or at all.
Recently
Issued Accounting Pronouncements
In November 2004, FASB issued SFAS No. 151,
Inventory Costs, an amendment of ARB No. 43,
Chapter 4. SFAS 151 clarifies that abnormal inventory
costs such as costs of idle facilities, excess freight and
handling costs, and wasted materials (spoilage) are required to
be recognized as current period costs. The provisions of
SFAS 151 are effective for fiscal year 2006. Adoption of
SFAS 151 did not have a material impact on our financial
position, results of operations or cash flows.
33
In December 2004, FASB issued FASB Staff Position
No. SFAS 109-a,
Application of FAS 109 for the Tax Deduction Provided
to U.S. Based Manufacturers by the American Job Creation
Act of 2004, and FASB Staff Position
No. SFAS 109-b,
Accounting and Disclosure Guidance for the Foreign
Earnings Repatriation Provision within the American Jobs
Creation Act of 2004. The American Jobs Creation Act of
2004 (Act) repeals export tax benefits, transitions
in a new tax deduction for qualifying U.S. manufacturing
activities and provides for the repatriation of earnings from
foreign subsidiaries at reduced federal income tax rates. These
two staff positions provide accounting and disclosure guidance
related to the American Job Creation Act of 2004. The adoption
of FASB Staff Position
No. SFAS 109-a
and 109-b did not have a material impact on the Companys
financial position and results of operations.
In May 2005, FASB issued SFAS No. 154,
Accounting Changes and Error Corrections, which
requires the direct effects of voluntary accounting principle
changes to be retrospectively applied to prior periods
financial statements. SFAS 154 does not change the
transition provisions of any existing accounting pronouncements,
but would apply in the unusual instance that a pronouncement
does not include specific transition provisions. SFAS 154
maintains existing guidance with respect to accounting estimate
changes and corrections of errors, and is effective for us
beginning with fiscal year 2007. Adoption is not expected to
have a material impact on our financial position, results of
operation or cash flows.
In December 2004, FASB finalized SFAS No. 123R,
Share Based Payment, amending
SFAS No. 123. SFAS 123R requires us to expense
stock options based on grant date fair value in the income
statement. Further, SFAS 123R requires additional
accounting related to the income tax effects and additional
disclosure regarding the cash flow effects resulting from
share-based payment arrangements. We adopted SFAS 123R
effective October 1, 2005. Under SFAS 123R, we are
using the Black-Scholes Option Pricing Model to determine the
fair value of stock options granted. This model uses such
factors as the price of the underlying shares at date of
issuance, exercise price of the option, the expected term of the
option utilizing the simplified method as set forth in
SAB No. 107, a risk-free interest rate and an expected
volatility rate based upon a peer group of companies given no
historical data for our own stock. The resulting fair value will
be amortized to expense as vesting occurs. Since we used the
minimum value method of measuring equity share options for pro
forma disclosure purposes under SFAS 123, implementation of
SFAS 123R will apply prospectively to new awards after
October 1, 2005. Expense recognized as a result of adoption
in fiscal 2006 was $354,000.
In June 2006, the FASB issued FIN 48, Accounting for
Uncertainty in Income Taxes an interpretation of
FASB Statement No. 109, which prescribes a recognition
threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected
to be taken in a tax return. This Interpretation also provides
guidance on de-recognition, classification, interest and
penalties, accounting in interim periods, disclosure and
transition. This Interpretation will become effective for the
Company during the first fiscal quarter of 2008. The Company is
still evaluating the impact of this Interpretation but does not
expect it to have a material impact on its financial condition
or results of operations.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
In fiscal 2005 we adopted an investment strategy that has
eliminated investments in equity securities that we have held in
the past and limits our investments to government securities and
other short-term, investment-grade, marketable securities. This
revised investment policy is substantially more conservative
than prior practices and focuses on preservation of principal.
As of September 30, 2006, most of our investments represent
investment-grade securities focused on preservation of
principal, with interest rates that are reset every 7 to
28 days, and have a put option to convert to cash within 2
to 5 days.
Our revenues and expenses are denominated in U.S. dollars.
In addition, our sales contracts are also denominated in
U.S. dollars. As a result, we have little exposure to
currency exchange risks. We do not currently enter into forward
exchange contracts to hedge exposure denominated in foreign
currencies or any other derivative financial instruments for
trading or speculative purposes. In the future, if we feel our
foreign currency exposure has increased, we may consider
entering into hedging transactions to help mitigate that risk.
34
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
INDEX TO
FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
|
|
|
|
|
|
|
Page
|
|
EAGLE TEST SYSTEMS,
INC.:
|
|
|
|
|
|
|
|
36
|
|
|
|
|
37
|
|
|
|
|
38
|
|
|
|
|
39
|
|
|
|
|
40
|
|
|
|
|
41
|
|
|
|
|
60
|
|
35
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
Eagle Test Systems, Inc.
We have audited the accompanying consolidated balance sheets of
Eagle Test Systems, Inc. and subsidiaries as of
September 30, 2006 and 2005, and the related consolidated
statements of net income and comprehensive income,
stockholders equity (deficit), and cash flows for each of
the three years in the period ended September 30, 2006. Our
audits also included the financial statement schedule listed in
the Index at Item 15. These financial statements and
schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. We were not engaged to perform an
audit of the Companys internal control over financial
reporting. Our audit included consideration of internal control
over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Eagle Test Systems, Inc. and subsidiaries
at September 30, 2006 and 2005, and the consolidated
results of their operations and their cash flows for each of the
three years in the period ended September 30, 2006 in
conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
As described in Note 2, the Company adopted Statement of
Financial Accounting Standard No. 123(R), Share Based
Payment effective October 1, 2005 using the
prospective transition method.
Chicago, Illinois
November 14, 2006
36
EAGLE
TEST SYSTEMS, INC.
(In
thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2006
|
|
|
2005
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
51,071
|
|
|
$
|
9,976
|
|
Marketable securities
|
|
|
24,875
|
|
|
|
12,700
|
|
Accounts receivable, net of
allowances of $616 and $1,240
|
|
|
17,338
|
|
|
|
9,202
|
|
Receivable from sale of common
stock
|
|
|
31,185
|
|
|
|
|
|
Inventories
|
|
|
22,378
|
|
|
|
17,707
|
|
Deferred income taxes
|
|
|
4,512
|
|
|
|
3,426
|
|
Prepaid expenses and other current
assets
|
|
|
2,143
|
|
|
|
548
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
153,502
|
|
|
|
53,559
|
|
Property, plant and equipment, net
|
|
|
11,745
|
|
|
|
12,135
|
|
Other assets
|
|
|
639
|
|
|
|
477
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
165,886
|
|
|
$
|
66,171
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY (DEFICIT)
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
5,941
|
|
|
$
|
1,523
|
|
Current portion of long-term debt
|
|
|
261
|
|
|
|
249
|
|
Deferred revenue
|
|
|
9,409
|
|
|
|
3,419
|
|
Accrued compensation and related
liabilities
|
|
|
5,734
|
|
|
|
3,103
|
|
Accrued income taxes
|
|
|
2,949
|
|
|
|
767
|
|
Other accrued expenses
|
|
|
3,470
|
|
|
|
2,881
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
27,764
|
|
|
|
11,942
|
|
Long-term liabilities:
|
|
|
|
|
|
|
|
|
Long-term debt, less current
portion
|
|
|
379
|
|
|
|
29,484
|
|
Redeemable warrants
|
|
|
|
|
|
|
2,667
|
|
Deferred income taxes
|
|
|
941
|
|
|
|
1,272
|
|
Other long-term liabilities
|
|
|
388
|
|
|
|
393
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
1,708
|
|
|
|
33,816
|
|
|
|
|
|
|
|
|
|
|
Series A convertible
preferred stock, par value $0.01 per share, no shares
authorized, issued, or outstanding as of September 30,
2006, 3,437 shares authorized and 3,436 shares issued
as of September 30, 2005
|
|
|
|
|
|
|
65,000
|
|
Stockholders equity
(deficit):
|
|
|
|
|
|
|
|
|
Preferred stock, par value
$0.01 per share, 10,000,000 shares authorized, no
shares issued or outstanding as of September 30, 2006, no
shares authorized, issued or outstanding as of
September 30, 2005
|
|
|
|
|
|
|
|
|
Common stock, par value
$0.01 per share, 90,000,000 and 15,495,325 shares
authorized as of September 30, 2006 and 2005, respectively;
22,655,283 and 5,396,248 shares issued and outstanding as
of September 30, 2006 and 2005, respectively
|
|
|
227
|
|
|
|
54
|
|
Additional paid in capital
|
|
|
169,709
|
|
|
|
156
|
|
Accumulated deficit
|
|
|
(33,522
|
)
|
|
|
(44,665
|
)
|
Deferred stock compensation expense
|
|
|
|
|
|
|
(132
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
(deficit)
|
|
|
136,414
|
|
|
|
(44,587
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity (deficit)
|
|
$
|
165,886
|
|
|
$
|
66,171
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
37
EAGLE
TEST SYSTEMS, INC.
(In
thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Net revenue
|
|
$
|
124,738
|
|
|
$
|
63,477
|
|
|
$
|
111,210
|
|
Cost of goods sold
|
|
|
42,320
|
|
|
|
26,596
|
|
|
|
37,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
82,418
|
|
|
|
36,881
|
|
|
|
73,873
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
28,974
|
|
|
|
21,066
|
|
|
|
23,932
|
|
Research and development
|
|
|
8,939
|
|
|
|
7,883
|
|
|
|
6,051
|
|
Write-off of offering expenses
|
|
|
|
|
|
|
|
|
|
|
1,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
44,505
|
|
|
|
7,932
|
|
|
|
42,032
|
|
Interest expense
|
|
|
3,496
|
|
|
|
3,910
|
|
|
|
3,887
|
|
Other (income) and expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from marketable securities
|
|
|
(1,863
|
)
|
|
|
(2,017
|
)
|
|
|
(438
|
)
|
Investment impairments
|
|
|
25
|
|
|
|
18
|
|
|
|
9
|
|
Increase (decrease) in value of
warrants
|
|
|
5,466
|
|
|
|
(599
|
)
|
|
|
1,548
|
|
Other (income) and expense, net
|
|
|
(28
|
)
|
|
|
(275
|
)
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
37,409
|
|
|
|
6,895
|
|
|
|
37,005
|
|
Provision (benefit) for income
taxes
|
|
|
14,836
|
|
|
|
(524
|
)
|
|
|
14,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
22,573
|
|
|
$
|
7,419
|
|
|
$
|
22,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share, basic
|
|
$
|
0.79
|
|
|
$
|
0.53
|
|
|
$
|
1.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share, diluted
|
|
$
|
0.60
|
|
|
$
|
0.36
|
|
|
$
|
1.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares
outstanding, basic
|
|
|
14,016,988
|
|
|
|
5,396,248
|
|
|
|
5,396,248
|
|
Weighted average shares
outstanding, diluted
|
|
|
17,980,235
|
|
|
|
14,513,227
|
|
|
|
14,009,533
|
|
Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
22,573
|
|
|
$
|
7,419
|
|
|
$
|
22,053
|
|
Unrealized gain on marketable
securities, net of taxes
|
|
|
|
|
|
|
|
|
|
|
104
|
|
Realized net gain on marketable
securities, net of taxes
|
|
|
|
|
|
|
(621
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
22,573
|
|
|
$
|
6,798
|
|
|
$
|
22,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
38
EAGLE
TEST SYSTEMS, INC.
(In
thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
Accumulated
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Retained
|
|
|
Stock
|
|
|
Other
|
|
|
Stockholders
|
|
|
|
Common Stock
|
|
|
Paid In
|
|
|
Earnings
|
|
|
Compensation
|
|
|
Comprehensive
|
|
|
Equity
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
(Deficit)
|
|
|
Expense
|
|
|
Income
|
|
|
(Deficit)
|
|
|
Balance at September 30, 2003
|
|
|
5,396,248
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(74,137
|
)
|
|
$
|
|
|
|
$
|
517
|
|
|
$
|
(73,620
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,053
|
|
|
|
|
|
|
|
|
|
|
|
22,053
|
|
Recapitalization
|
|
|
|
|
|
|
54
|
|
|
|
(54
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation expense
related to issuance of stock options
|
|
|
|
|
|
|
|
|
|
|
210
|
|
|
|
|
|
|
|
(210
|
)
|
|
|
|
|
|
|
|
|
Compensation expense related to
stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
30
|
|
Unrealized gain on marketable
securities, net of taxes of $69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104
|
|
|
|
104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2004
|
|
|
5,396,248
|
|
|
$
|
54
|
|
|
$
|
156
|
|
|
$
|
(52,084
|
)
|
|
$
|
(180
|
)
|
|
$
|
621
|
|
|
$
|
(51,433
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,419
|
|
|
|
|
|
|
|
|
|
|
|
7,419
|
|
Compensation expense related to
stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
|
|
|
|
|
|
|
|
48
|
|
Reclassification adjustment for
realized gain on marketable securities, net of taxes $(450)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(621
|
)
|
|
|
(621
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2005
|
|
|
5,396,248
|
|
|
$
|
54
|
|
|
$
|
156
|
|
|
$
|
(44,665
|
)
|
|
$
|
(132
|
)
|
|
$
|
|
|
|
$
|
(44,587
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,573
|
|
|
|
|
|
|
|
|
|
|
|
22,573
|
|
Reclassification for adoption of
SFAS 123R
|
|
|
|
|
|
|
|
|
|
|
(132
|
)
|
|
|
|
|
|
|
132
|
|
|
|
|
|
|
|
|
|
Compensation expense related to
stock options
|
|
|
|
|
|
|
|
|
|
|
354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
354
|
|
Issuance of common stock upon
exercise of stock options
|
|
|
13,750
|
|
|
|
1
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92
|
|
Issuance of common stock upon
conversion of series A convertible preferred stock
|
|
|
8,590,245
|
|
|
|
86
|
|
|
|
43,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,930
|
|
Adjustment for redemption of
redeemable preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,430
|
)
|
|
|
|
|
|
|
|
|
|
|
(11,430
|
)
|
Issuance of common stock upon
exercise of warrants
|
|
|
525,040
|
|
|
|
5
|
|
|
|
8,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,138
|
|
Issuance of common stock, net of
issuance costs
|
|
|
8,130,000
|
|
|
|
81
|
|
|
|
117,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
117,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2006
|
|
|
22,655,283
|
|
|
$
|
227
|
|
|
$
|
169,709
|
|
|
$
|
(33,522
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
136,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
39
EAGLE
TEST SYSTEMS, INC.
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
22,573
|
|
|
$
|
7,419
|
|
|
$
|
22,053
|
|
Adjustments to reconcile net income
to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
3,193
|
|
|
|
2,169
|
|
|
|
1,270
|
|
Investment impairments
|
|
|
25
|
|
|
|
18
|
|
|
|
9
|
|
Realized (gain) loss on sale of
marketable securities
|
|
|
|
|
|
|
(1,616
|
)
|
|
|
(227
|
)
|
Gain on sale of property and
equipment
|
|
|
|
|
|
|
(247
|
)
|
|
|
|
|
Accretion of discount on long-term
debt
|
|
|
1,752
|
|
|
|
282
|
|
|
|
279
|
|
Increase (decrease) in value of
warrants
|
|
|
5,466
|
|
|
|
(599
|
)
|
|
|
1,548
|
|
Non cash compensation related to
stock options
|
|
|
354
|
|
|
|
48
|
|
|
|
30
|
|
Deferred income taxes
|
|
|
(1,418
|
)
|
|
|
7,246
|
|
|
|
(4,194
|
)
|
Changes in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(8,136
|
)
|
|
|
14,333
|
|
|
|
(15,556
|
)
|
Inventories
|
|
|
(4,671
|
)
|
|
|
9,959
|
|
|
|
(16,133
|
)
|
Prepaid expenses and other current
assets
|
|
|
(1,595
|
)
|
|
|
(390
|
)
|
|
|
92
|
|
Other assets
|
|
|
(187
|
)
|
|
|
(153
|
)
|
|
|
(29
|
)
|
Accounts payable
|
|
|
4,418
|
|
|
|
(5,354
|
)
|
|
|
2,746
|
|
Deferred revenue
|
|
|
5,990
|
|
|
|
(15,465
|
)
|
|
|
11,233
|
|
Accrued compensation and related
liabilities
|
|
|
2,631
|
|
|
|
(3,258
|
)
|
|
|
2,190
|
|
Accrued income taxes
|
|
|
2,182
|
|
|
|
(7,439
|
)
|
|
|
(421
|
)
|
Other accrued expenses
|
|
|
166
|
|
|
|
(2,310
|
)
|
|
|
3,486
|
|
Other liabilities
|
|
|
(5
|
)
|
|
|
310
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities
|
|
|
32,738
|
|
|
|
4,953
|
|
|
|
8,403
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of marketable securities
|
|
|
(13,000
|
)
|
|
|
(12,700
|
)
|
|
|
(1,131
|
)
|
Proceeds from the sales of
investments
|
|
|
825
|
|
|
|
6,957
|
|
|
|
10,835
|
|
Sale of property and equipment
|
|
|
|
|
|
|
659
|
|
|
|
|
|
Capital expenditures
|
|
|
(2,803
|
)
|
|
|
(7,055
|
)
|
|
|
(4,614
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
investing activities
|
|
|
(14,978
|
)
|
|
|
(12,139
|
)
|
|
|
5,090
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments of long-term debt
|
|
|
(30,595
|
)
|
|
|
|
|
|
|
(294
|
)
|
Payments of capital lease
obligations
|
|
|
(250
|
)
|
|
|
(141
|
)
|
|
|
|
|
Redemption of redeemable preferred
stock
|
|
|
(32,500
|
)
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common
stock, net of issuance costs
|
|
|
86,680
|
|
|
|
|
|
|
|
|
|
Dividends paid
|
|
|
|
|
|
|
|
|
|
|
(2,045
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
financing activities
|
|
|
23,335
|
|
|
|
(141
|
)
|
|
|
(2,339
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and
cash equivalents
|
|
|
41,095
|
|
|
|
(7,327
|
)
|
|
|
11,154
|
|
Cash and cash equivalents at
beginning of period
|
|
|
9,976
|
|
|
|
17,303
|
|
|
|
6,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of
period
|
|
$
|
51,071
|
|
|
$
|
9,976
|
|
|
$
|
17,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
3,350
|
|
|
$
|
3,628
|
|
|
$
|
2,700
|
|
Income tax refunds
|
|
|
(2,871
|
)
|
|
|
(3,266
|
)
|
|
|
|
|
Income taxes paid
|
|
|
16,947
|
|
|
|
2,932
|
|
|
|
19,673
|
|
Capital lease obligations
|
|
|
|
|
|
|
1,031
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
40
EAGLE
TEST SYSTEMS, INC.
(In
thousands, except share and per share data)
Eagle Test Systems, Inc. (the Company) designs, manufactures,
sells, and services automated test equipment (ATE) for the
semiconductor industry. The Companys test systems test
analog, mixed-signal, and RF (Radio Frequency) semiconductor
devices. Semiconductor designers and manufacturers worldwide use
semiconductor test systems to test devices at different stages
during the manufacturing process. These tested devices are
incorporated into a wide range of products, including digital
cameras, MP3 players, cellular telephones, video/multimedia
products, automotive electronics, computer peripherals, and
notebook and desktop computers. The Company is headquartered in
Buffalo Grove, Illinois, where the Company develops and
manufactures its test systems. The Company operates in one
industry segment: the design, manufacture and marketing of
automated test equipment. The Company also maintains various
offices worldwide for sales, service and research to support its
customer base directly. The operations of, and net investment
in, foreign subsidiaries are not material.
|
|
2.
|
Summary
of Significant Accounting Policies
|
Basis
of Presentation
The consolidated financial statements include the accounts of
the Company and its wholly owned foreign subsidiaries. All
significant intercompany transactions and balances have been
eliminated in consolidation.
Preparation
of Financial Statements and Use of Estimates
The accompanying consolidated financial statements have been
prepared by the Company and reflect all adjustments, which, in
the opinion of management, are necessary for the fair
presentation of the results. The preparation of consolidated
financial statements in conformity with accounting principles
generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures of contingent assets
and liabilities as of the date of the financial statements and
the reported amounts of income and expenses during the reporting
periods. Actual results can differ from those estimates.
Revenue
Recognition
Revenue is recognized by the Company when persuasive evidence of
an arrangement exists, delivery has occurred or services have
been rendered, the sellers price is fixed or determinable,
and collectibility is reasonably assured.
The Company derives revenue primarily from test system sales.
Revenue related to systems sales is recognized when:
(i) the Company has a written sales agreement;
(ii) delivery has occurred or services have been rendered;
(iii) the price is fixed or determinable; and
(iv) collectibility is reasonably assured. If installation
services are part of a system sale, test system revenue is
deferred until the system is delivered, installed, and accepted
by the customer.
When a sale to a customer involves multiple elements, such as a
test system and extra system components or spare parts that are
standard product and not essential to the function of the test
system configuration, revenue is recognized on the extra system
components or spare parts when title passes to the customer upon
shipment. When a sale of a test system includes postcontract
customer support (PCS), revenue for the PCS is recognized
ratably over the PCS period.
In a few instances, the Company has entered into short-term
rental agreements with customers for the use of its systems. The
Company recognizes rental revenue ratably over the applicable
rental period. Rental revenues are included as a component of
product sales and have been immaterial to date.
41
EAGLE
TEST SYSTEMS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(In
thousands, except share and per share data)
Shipping
and Handling Costs
Shipping and handling costs related to the delivery of systems
are expensed as incurred and classified as cost of goods sold in
the consolidated statements of net income and comprehensive
income.
Product
Warranty Costs
The Companys systems are sold with warranty provisions
that require the Company to remedy deficiencies in quality or
performance of its products over a period ranging from 12 to
24 months. The policy of the Company is to establish
warranty reserves at the time revenue is recognized at levels
that represent the estimate of costs that will be incurred to
fulfill those warranty requirements.
Research
and Development Costs
Research and development costs consist primarily of compensation
and related costs for personnel as well as costs related to
materials, outside contractors, equipment depreciation, and
other engineering overhead costs. All research and development
costs are expensed as incurred.
Income
Taxes
The Company recognizes deferred income taxes based on the
expected future tax consequences of differences between the
financial statement basis and the tax basis of assets and
liabilities, calculated using enacted tax rates in effect for
the year in which the differences are expected to be reflected
in the tax return. Research and development tax credits are
recognized for financial reporting purposes to the extent that
they can be utilized in the tax return.
Cash,
Cash Equivalents and Marketable Securities
The Company considers all highly liquid investments that are
readily convertible to cash and that have remaining maturities
of three months or less when purchased to be cash and cash
equivalents. Marketable securities consist of debt and equity
securities that are classified as
available-for-sale.
Securities available for sale include corporate common stocks
trading on a major exchange, corporate and governmental
obligations with various contractual maturity dates, variable
rate demand notes (VRDNs) and auction rate securities.
Governmental obligations include U.S. government, state,
municipal, and federal agency securities. Market fluctuations in
marketable securities are reflected in other comprehensive
income unless a market decline is considered to be other than
temporary. The Company records unrealized impairment losses of
other-than-temporary
impairments in investments if the market value of an investment
remains significantly below cost for more than six consecutive
months and the decline is considered permanent. Realized gains
and losses on sales of marketable securities are determined
based on average cost.
Inventories
Inventories are stated at the lower of cost or market, with cost
determined on the first in, first out method, and include
materials, labor, and manufacturing overhead.
Inventories at customers under purchase orders represents
systems that have been shipped under the terms of a customer
purchase order, but have not yet qualified for revenue
recognition as the systems had not been accepted as of the
balance sheet date.
42
EAGLE
TEST SYSTEMS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(In
thousands, except share and per share data)
Property
and Equipment
Property and equipment are recorded at cost. The Company
provides for depreciation and amortization on the straight-line
method over the estimated useful lives of the related assets.
Equipment includes internally manufactured systems used for
testing components and engineering and applications development
equipment. Repairs and maintenance costs that do not extend the
lives of property and equipment are expensed as incurred.
Stock
Options
Effective October 1, 2005, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 123R Share
Based Payment which was finalized in December 2004 and
amended SFAS No. 123 Accounting for Stock Based
Compensation. Accordingly, the Company records
compensation expense using the fair value of options granted
over the vesting service period on a straight-line basis
including those options that are subject to graded vesting.
Under SFAS 123R the Company uses the Black Scholes Option
Pricing Model to determine the fair value of the options
granted. This model uses such factors as the market price of the
underlying shares at date of issuance, exercise price of the
option, the expected term of the option, which is approximately
six years, utilizing the simplified method as set forth in Staff
Accounting Bulletin (SAB) No. 107, a risk free interest
rate range of approximately 4.5% to 4.9% and an expected
volatility rate range of approximately 54% to 63% based upon a
peer group of companies given no historical data for the
Companys own stock. The resulting fair value of $1,350 for
options granted, net of forfeitures, in fiscal 2006 will be
amortized to expense as vesting occurs, which is over
approximately four years. Since we used the minimum value method
of measuring equity share options for pro forma disclosure
purposes under SFAS No. 123, implementation of 123R
applies prospectively to new awards after October 1, 2005.
Expense recognized as a result of adoption for fiscal 2006 was
$354 ($312 net of taxes) or $0.02 per basic and
diluted share.
Prior to October 1, 2005, the Company accounted for stock
options issued to employees under the Companys stock
option plan using the intrinsic value method in accordance with
Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees and the related
expense recognized was immaterial. The Company adopted the
disclosure-only provision of SFAS No. 123, for options
issued to employees and directors for periods prior to
October 1, 2005.
Fair
Value of Financial Instruments
As of September 30, 2006 and 2005, certain of the
Companys financial instruments, which include cash and
cash equivalents, marketable securities, accounts receivable and
accounts payable, approximate their fair values due to their
short maturities or other factors. As of September 30,
2005, the Senior Subordinated Convertible Notes had an
approximate fair value of $33,200, which value was based upon an
independent valuation obtained by the Company.
Recent
Accounting Pronouncements
In November 2004, the Financial Accounting Standards Board
(FASB) issued SFAS No. 151,
Inventory Costs, an amendment of ARB No. 43,
Chapter 4. SFAS 151 clarifies that abnormal inventory
costs such as costs of idle facilities, excess freight and
handling costs, and wasted materials (spoilage) are required to
be recognized as current period costs. The provisions of
SFAS 151 are effective for fiscal year 2006, and did not
have a material impact on the Companys financial position,
results of operations or cash flows.
In December 2004, FASB issued FASB Staff Position
No. SFAS 109-a,
Application of FAS 109 for the Tax Deduction Provided
to U.S. Based Manufacturers by the American Job Creation
Act of 2004, and FASB Staff Position
No. SFAS 109-b,
Accounting and Disclosure Guidance for the Foreign
Earnings Repatriation
43
EAGLE
TEST SYSTEMS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(In
thousands, except share and per share data)
Provision within the American Jobs Creation Act of 2004.
The American Jobs Creation Act of 2004 (Act) repeals
export tax benefits, transitions in a new tax deduction for
qualifying U.S. manufacturing activities and provides for
the repatriation of earnings from foreign subsidiaries at
reduced federal income tax rates. These two staff positions
provide accounting and disclosure guidance related to the
American Job Creation Act of 2004. The adoption of FASB Staff
Position
No. SFAS 109-a
and 109-b did not have a material impact on the Companys
financial position and results of operations.
In May 2005, the FASB issued SFAS No. 154,
Accounting Changes and Error Corrections, which requires
the direct effects of voluntary accounting principle changes to
be retrospectively applied to prior periods financial
statements. SFAS 154 does not change the transition
provisions of any existing accounting pronouncements, but would
apply in the unusual instance that a pronouncement does not
include specific transition provisions. SFAS 154 maintains
existing guidance with respect to accounting estimate changes
and corrections of errors, and is effective for the Company
beginning with fiscal year 2007. Adoption is not expected to
have a material impact on our financial position, results of
operation or cash flows.
In June 2006, the FASB issued FIN 48, Accounting for
Uncertainty in Income Taxes an interpretation of
FASB Statement No. 109, which prescribes a recognition
threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected
to be taken in a tax return. This Interpretation also provides
guidance on de-recognition, classification, interest and
penalties, accounting in interim periods, disclosure and
transition. This Interpretation will become effective for the
Company during the first fiscal quarter of 2008. The Company is
still evaluating the impact of this Interpretation but does not
expect it to have a material impact on its financial condition
or results of operations.
During fiscal 2005, the Company liquidated its portfolio of
marketable securities and invested the proceeds in highly liquid
investments to implement a new investment policy approved by the
Board of Directors. The new investment policy institutes more
conservative liquidity and preservation of capital focus to
protect investments from severe economic conditions and drastic
shifts in interest rates. At September 30, 2006, the
Companys marketable securities were invested in VRDNs and
auction rate securities issued with a major agency with ratings
of AA/AAA and interest rates reset every 7 to 28 days. The
VRDNs have a put option back to the financial institution
remarketing agent that provides for liquidity within 2 to
5 days and these instruments trade at par value. Since the
put option is not with the original issuer, the VRDNs are
classified as marketable securities available for sale. The
auction rate securities trade at a par value of one dollar and
can be liquidated at par with no more than 5 days notice.
Since the securities that back these securities have maturities
in excess of 90 days from balance sheet date, they are
classified as marketable securities available for sale.
The carrying value of marketable securities as of the dates
indicated are as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2006
|
|
|
2005
|
|
|
Auction rate securities
|
|
$
|
1,700
|
|
|
$
|
1,700
|
|
Variable rate demand notes (VRDNs)
|
|
|
23,175
|
|
|
|
11,000
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
24,875
|
|
|
$
|
12,700
|
|
|
|
|
|
|
|
|
|
|
Auction rate securities have maturities of over ten years.
The realized gains, losses, and interest are included in income
from marketable securities in the consolidated statements of net
income and comprehensive income.
44
EAGLE
TEST SYSTEMS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(In
thousands, except share and per share data)
Interest and dividend income and realized gains from sales of
marketable securities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
September 30,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Interest income
|
|
$
|
827
|
|
|
$
|
331
|
|
|
$
|
141
|
|
Dividend income
|
|
|
1,036
|
|
|
|
70
|
|
|
|
70
|
|
Net realized gains from sales of
marketable securities
|
|
|
|
|
|
|
1,616
|
|
|
|
227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from marketable securities
|
|
$
|
1,863
|
|
|
$
|
2,017
|
|
|
$
|
438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company recognized impairment losses on marketable
securities of $25, $18, and $9 in fiscal 2006, 2005, and 2004,
respectively.
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2006
|
|
|
2005
|
|
|
Raw materials
|
|
$
|
7,185
|
|
|
$
|
7,683
|
|
Work-in-process
|
|
|
6,741
|
|
|
|
1,865
|
|
Finished goods
|
|
|
6,086
|
|
|
|
7,434
|
|
Inventory at customers under
purchase orders
|
|
|
2,366
|
|
|
|
725
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
22,378
|
|
|
$
|
17,707
|
|
|
|
|
|
|
|
|
|
|
The Companys policy is to establish inventory reserves
when conditions exist that suggest inventory may be in excess of
anticipated demand or is obsolete based upon assumptions about
future demand for products or market conditions. The Company
regularly evaluates the ability to realize the value of its
inventory based on a combination of factors including the
following: forecasted sales or usage, estimated product
end-of-life
dates, estimated current and future market value and new product
introductions. Purchasing and alternative usage options are also
explored to mitigate obsolete inventory exposure. When recorded,
reserves are intended to reduce the carrying value of inventory
to its net realizable value. Inventory of $22,378 is stated net
of inventory reserves of $9,088 as of September 30, 2006.
Inventory of $17,707 is stated net of inventory reserves of
$9,082 as of September 30, 2005. If actual demand for
products deteriorates or market conditions are less favorable
than those the Company projects, additional inventory reserves
may be required.
45
EAGLE
TEST SYSTEMS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(In
thousands, except share and per share data)
|
|
5.
|
Property
and Equipment
|
Property and equipment are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Depreciable
|
|
|
|
2006
|
|
|
2005
|
|
|
Life
|
|
|
|
|
|
|
|
|
|
(In years)
|
|
|
Buildings
|
|
$
|
161
|
|
|
$
|
161
|
|
|
|
30
|
|
Building improvements
|
|
|
29
|
|
|
|
127
|
|
|
|
10
|
|
Leasehold improvements
|
|
|
3,679
|
|
|
|
3,575
|
|
|
|
10
|
*
|
Equipment
|
|
|
13,247
|
|
|
|
10,672
|
|
|
|
3-5
|
|
Office furniture
|
|
|
1,724
|
|
|
|
1,636
|
|
|
|
5-7
|
|
Software
|
|
|
1,059
|
|
|
|
952
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,899
|
|
|
|
17,123
|
|
|
|
|
|
Less accumulated depreciation
|
|
|
(8,154
|
)
|
|
|
(4,988
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,745
|
|
|
$
|
12,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
or lease term if less |
The Company reviews property and equipment for impairment
whenever events or changes in circumstances indicate that the
carrying amount of assets may not be recoverable. Recoverability
is measured by comparison of the carrying amount to the future
undiscounted net cash flows the assets are expected to generate.
If such assets are considered to be impaired, the impairment to
be recognized is measured by the amount by which the carrying
amount of these assets exceeds the fair value of the assets.
There have been no impairments of long-lived assets in the years
ended 2006, 2005, or 2004.
During the year ended September 30, 2005, the Company
purchased certain office furniture under a capital lease. The
cost of such office furniture and related accumulated
depreciation was $1,031 and $318 respectively as of
September 30, 2006, and $1,031 and $106 respectively as of
September 30, 2005.
Depreciation expense was $3,193, $2,169, and $1,270, for the
years ended September 30, 2006, 2005, and 2004,
respectively. Depreciation expense includes amortization of
office furniture under capital lease of $212 and $106 for the
years ended September 30, 2006 and 2005, respectively.
Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2006
|
|
|
2005
|
|
|
Senior Subordinated Convertible
Notes, net of discount of $1,157 at September 30, 2005
|
|
$
|
|
|
|
$
|
28,843
|
|
Capital lease obligations
|
|
|
640
|
|
|
|
890
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
640
|
|
|
$
|
29,733
|
|
Less current portion of capital
lease obligations
|
|
|
(261
|
)
|
|
|
(249
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
379
|
|
|
$
|
29,484
|
|
|
|
|
|
|
|
|
|
|
In connection with the completion of the Companys initial
public offering on March 14, 2006, the 12% Senior
Subordinated Convertible Notes were converted into $29,995 in
12% Senior Subordinated Notes
46
EAGLE
TEST SYSTEMS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(In
thousands, except share and per share data)
and 525,040 of $0.01 common stock warrants. As discussed in
Note 7, the common stock warrants were exercised by the
Investors. The Senior Subordinated Notes were repurchased from
the Investors with a portion of the proceeds from the initial
public offering for $29,995, along with the payment of a 2%
early redemption premium of $600. The unamortized debt discount
of $1,033 from the original issue of the 12% Senior
Subordinated Convertible Notes was charged to interest expense
in March 2006 in connection with recording the note conversion
and redemption.
|
|
7.
|
Stockholders
Equity and Preferred Stock
|
Equity
Offerings
On March 14, 2006, the Company completed an initial public
offering to sell 6,130,000 shares of common stock to the
public at an offering price of $15.50 per share. The
initial public offering resulted in net proceeds of $86,680. Of
the net proceeds, $30,595 was used to redeem the Companys
senior subordinated debt outstanding and $32,500 was used to
redeem the Companys redeemable preferred stock outstanding
just prior to the offering. The Company retained the remaining
$23,585 in net proceeds for working capital and general
corporate purposes.
On October 3, 2006, we completed a public offering to sell
an additional 2,000,000 shares of common stock at an
offering price of $16.50 per share, generating net proceeds
of $30,742. Because the shares were sold on September 27,
2006, the transaction was included in stockholders equity
and recorded as a receivable from the sale of common stock in
the consolidated balance sheet as of September 30, 2006. On
October 11, 2006, the underwriters exercised their option
to purchase an additional 200,000 shares of common stock at
an offering price of $16.50 per share, generating net
proceeds of $3,119.
Recapitalization
On March 14, 2006, in connection with the Companys
initial public offering, a Second Amended and Restated
Certificate of Incorporation was filed with the State of
Delaware that was adopted by the stockholders prior to the
initial public offering that implemented the following changes
to the Companys capital stock:
Change in Authorized Shares The
Companys Articles of Incorporation were amended to
increase the authorized capital stock of the Company from
15,502,199 shares of capital stock consisting of:
(i) 15,495,325 shares of common stock, par value
$0.01 per share; (ii) 3,437 shares of
Series A Convertible Preferred Stock, par value
$0.01 per share (Series A Convertible Preferred
Stock); and (iii) 3,437 shares of Redeemable Preferred
Stock, par value $0.01 per share (Redeemable Preferred
Stock) to 100,000,000 shares of capital stock consisting of
(i) 90,000,000 shares of common stock, par value
$0.01 per share, and (ii) 10,000,000 shares of
undesignated preferred stock, par value $0.01 per share.
In May 2005, the Company amended the Articles of Incorporation
to increase the authorized capital stock of the Company from
15,202,199 shares to 15,502,199 shares consisting of:
(i) 15,495,325 shares of common stock, par value
$0.01 per share; (ii) 3,437 shares of
Series A Convertible Preferred Stock, par value
$0.01 per share(Convertible Preferred Stock); and
(iii) 3,437 shares of Redeemable Preferred Stock, par
value $0.01 per share (Redeemable Preferred Stock).
Common
Stock
In connection with the initial public offering,
3,436 shares of Series A Convertible Preferred Stock
held by investment funds managed by TA Associates (collectively,
the Investors) were converted into 8,590,247 shares of
common stock and 3,436 shares of Redeemable Preferred
Stock. The conversion resulted in $43,930 being reclassified to
the capital accounts of the Company based upon a valuation
performed at the
47
EAGLE
TEST SYSTEMS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(In
thousands, except share and per share data)
time of issuance of the Series A Convertible Preferred
Stock. As discussed below, the Redeemable Preferred Stock was
redeemed with a portion of the proceeds from the initial public
offering.
In addition, prior to the initial public offering, the Investors
exercised $0.01 per share common stock warrants for
525,040 shares of common stock resulting from the
conversion of the Senior Subordinated Convertible Notes.
At September 30, 2006, the Company has reserved 3,419,500
unissued shares of its common stock for possible issuance under
the Companys 2003 Stock Option and Grant Plan and 2006
Stock Option and Incentive Plan.
The rights, preferences, and privileges of the common stock are:
Dividends No dividend may be paid with
respect to common stock until payment of preferential dividends
is made to holders of Redeemable Preferred Stock should any
Redeemable Preferred Stock be issued and outstanding.
Additionally, any Convertible Preferred Stock shall be entitled
to any common stock dividend on an as converted basis.
Voting rights The holders of common stock are
entitled to one vote per share and as long as any shares of
Convertible Preferred Stock are issued and outstanding, shall
vote together with the holders of Convertible Preferred Stock as
a single class.
Preferred
Stock
Our board of directors is authorized, without action by the
stockholders, to designate and issue up to
10,000,000 shares of preferred stock in one or more series.
The board of directors can fix the rights, preferences and
privileges of the shares of each series and any of its
qualifications, limitations or restrictions. Our board of
directors may authorize the issuance of preferred stock with
voting or conversion rights that could adversely affect the
voting power or other rights of the holders of common stock. Our
board of directors will make any determination to issue such
shares based on its judgment as to our companys best
interests and the best interests of our stockholders. We have no
current plans to issue any shares of preferred stock.
Series A
Convertible Preferred Stock (Redeemed in Initial Public
Offering)
Upon the conversion of all of the Series A Convertible
Preferred Stock into Redeemable Preferred Stock and Common
Stock, a portion of the proceeds from the initial public
offering was used to redeem all of the shares of the Redeemable
Preferred Stock for $32,500. The difference between the fair
market value of the Redeemable Preferred Stock at date of
issuance of $21,070 and the redemption price of $32,500, or
$11,430, was charged to retained earnings in accordance with
EITF 98-5
Accounting for Convertible Securities with Beneficial
Conversion Features or Contingently Adjustable Conversion
Ratios.
Prior to the initial public offering, the Company had designated
3,437 of its shares of authorized Preferred Stock as Convertible
Preferred Stock. The rights, preferences and privileges were as
follows:
Voting Generally, the Convertible Preferred
Stock will be entitled to one vote per share on an as converted
basis and will vote together with the common stockholders except
related to the following items where the Convertible Preferred
Stock will vote as a separate class: (i) election of three
board members of the Company, (ii) declaration or payment
of dividends on any shares other than the Convertible Preferred
Stock, (iii) alteration of the designations, preferences,
or powers of the Convertible Preferred Stock, (iv) issuance
of equity or equity-related securities ranking senior to or on
parity with the Convertible Preferred Stock, (v) amendment,
modification, or repeal of any provisions of the Companys
Articles of Incorporation or bylaws, and (vi) effectuation
of any merger, acquisition, liquidating event, or asset sale or
incurrence of indebtedness over $500,000.
48
EAGLE
TEST SYSTEMS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(In
thousands, except share and per share data)
Dividends The holders of Convertible
Preferred Stock are entitled to any common stock dividends on an
as converted basis.
Preference The holders of Convertible
Preferred Stock are entitled to a preference of $18,925 per
share outstanding plus any declared and unpaid dividends prior
to any payments to common stockholders in any liquidation or
sale of the Company.
Redemption The holders of Convertible
Preferred Stock at any time after September 30, 2009, may
elect to cause redemption of up to 50% of the then-outstanding
shares of the Convertible Preferred Stock by a majority vote.
After September 30, 2010, the holders of Convertible
Preferred Stock may elect to cause redemption of up to 100% of
the then-outstanding shares of Convertible Preferred Stock by a
majority vote.
Conversion Rights At any time after issuance
upon written election of a majority of the holders of
Convertible Preferred Stock, these holders can elect to convert
each share of Convertible Preferred Stock into 2,500 shares
of common stock and one share of Redeemable Preferred Stock,
subject to certain adjustments as defined. In addition, all
shares of Convertible Preferred Stock shall automatically be
converted into an aggregate of 8,590,248 shares of common
stock and an aggregate of 3,436 shares of Redeemable
Preferred Stock, subject to certain adjustments as defined, upon
the effectiveness of an underwritten public offering in which
the aggregate proceeds to the Company are in excess of $60,000
and the initial public offering price is at least two times the
initial purchase price of the Convertible Preferred Stock shares
(as adjusted to reflect any stock splits or similar
adjustments). Additionally, such proceeds from the offering must
be used or designated to redeem all shares of the Redeemable
Preferred Stock at an aggregate value of $32,500.
Redeemable
Preferred Stock (Redeemed in Initial Public Offering)
As noted above, upon the conversion of all of the Series A
Convertible Preferred Stock into Redeemable Preferred Stock and
Common Stock, a portion of the proceeds from the initial public
offering was used to redeem all of the shares of the Redeemable
Preferred Stock for $32,500.
Prior to the initial public offering, the Company had designated
3,437 shares of its authorized Preferred Stock as
Redeemable Preferred Stock. As of September 30, 2006 and
2005, no shares of Redeemable Preferred Stock were outstanding.
The rights, preferences and privileges prior to the initial
public offering were as follows:
Voting The Redeemable Preferred Stock holders
will be entitled to only vote as a separate class to elect 1
(one) board member to the Companys Board of Directors. The
Redeemable Preferred Stock holders will have no other voting
rights except as required by law.
Dividends The holders of Redeemable Preferred
Stock shall be entitled to a 5% cumulative annual dividend,
compounded quarterly for amounts unpaid from issuance.
Preference The holders of Redeemable
Preferred Stock shall be entitled to a preference of
$9,459 per share outstanding plus any accumulated and
unpaid dividends prior to any payments to common stockholders in
any liquidation or sale of the Company.
Redemption The holders of Redeemable
Preferred Stock at any time after September 30, 2009, may
elect to cause redemption of up to 50% of the then-outstanding
shares of the Redeemable Preferred Stock by a majority vote.
After September 30, 2010, the Redeemable Preferred
Stock-holders may elect to cause redemption of up to 100% of the
then-outstanding shares of the Redeemable Preferred Stock by a
majority vote. The Redeemable Preferred Stock is also required
to be redeemed in conjunction with any initial public offering
meeting the conditions discussed above.
49
EAGLE
TEST SYSTEMS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(In
thousands, except share and per share data)
Warrants
(Exercised Prior to Initial Public Offering)
Prior to the exercise of the common stock warrants in connection
with the initial public offering, the warrants enabled the
Investors to put the warrants to the Company at fair value at
any time after September 30, 2008. The warrants were
thereby considered liability instruments and recorded at fair
value based upon independent valuations. The change in the value
of the warrants was a decrease of $599 for fiscal 2005, and an
increase of $5,466 for fiscal 2006, and the changes in the fair
value were recorded in the income statement as other (income)
expense. The warrants were exercised by the Investors on
March 14, 2006 in connection with the Companys
initial public offering and the carrying value of $8,133 was
reclassified to stockholders equity.
|
|
8.
|
Investment
by TA Associates
|
On September 30, 2003, investment funds managed by TA
Associates (collectively referred to as the Investors) purchased
3,436 shares of Convertible Preferred Stock for $65,000.
The Company also issued Notes to the Investors aggregating
$30,000, bearing annual interest of 12%, which mature
September 30, 2009. From the date of issuance, at the
option of the holders, the Notes were convertible into:
(i) Senior Subordinated Notes aggregating $29,995 (plus
accrued and unpaid interest), bearing annual interest of 12%,
and maturing September 30, 2009, and (ii) redeemable
warrants to purchase 525,040 shares of common stock at a
price of $0.01 per share. The allocated fair value of the
warrants was accounted for as a discount of $1,718 on the Notes
and was being amortized to interest expense over the term of the
notes. As the warrants enabled the holders to put the warrants
to the Company at fair value at any time after
September 30, 2008, the warrants were considered liability
instruments and recorded at fair value based on independent
valuations. As of September 30, 2004 and 2005, the common
stock warrants were revalued based upon independent valuations.
The change in the value of the warrants was an increase of
$1,548 for 2004, a decrease of $599 for 2005 and an increase of
$5,466 through the date of exercise, (total value of $3,266 and
$2,667 at September 30, 2004 and 2005, respectively), and a
corresponding expense or income for the increase or decrease in
fair market value was recorded in the financial statements as
other (income) expense.
The entire proceeds from the Convertible Preferred Stock and
Notes were used to redeem 8,993,752 shares of common stock
on September 30, 2003, for $95,000.
After the above transaction was completed on September 30,
2003, all of the remaining 5,396,248 shares of
$0.0004 par value common stock were redesignated as common
stock with no par value. The transaction with the Investors did
not result in new basis accounting pushed down to the Company.
The Company adopted EITF Issue
No. 03-6,
Participating Securities and the Two
Class Method under FASB Statement No. 128, Earnings
Per Share from October 1, 2004. The EITF is
applicable for all fiscal periods commencing on or after
March 31, 2004 and requires the use of the two-class method
to compute basic EPS for companies with participating
convertible securities. Accordingly, basic earnings per share
for the comparative period of fiscal 2004 has been restated to
conform to the guidance in EITF Issue
No. 03-6.
The Series A Convertible Preferred Stock was converted and
the Redeemable Preferred Stock was redeemed in connection with
the Companys initial public offering and therefore, for
periods ended after March 14, 2006, the two-class
computation method is no longer applicable.
Basic net income per common share is computed by dividing net
income (loss) available to common stockholders by the
weighted-average number of common shares outstanding for the
period. Diluted income per common share reflects the maximum
dilution that would have resulted from the assumed exercise of
Series A Convertible Preferred Stock, warrants, and stock
options, as applicable, and is computed by dividing
50
EAGLE
TEST SYSTEMS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(In
thousands, except share and per share data)
net income (loss) available to common stockholders by the
weighted-average number of common shares and all dilutive
securities outstanding unless the computation is anti-dilutive.
A reconciliation between basic and diluted earnings per share
(EPS) is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Net income
|
|
$
|
22,573
|
|
|
$
|
7,419
|
|
|
$
|
22,053
|
|
Basic EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings adjustment for
conversion of redeemable preferred stock
|
|
|
(11,430
|
)*
|
|
|
|
|
|
|
|
|
Net income allocated to
convertible preferred shares
|
|
|
|
|
|
|
(4,557
|
)
|
|
|
(13,544
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common
shareholders
|
|
|
11,143
|
|
|
|
2,862
|
|
|
|
8,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common share
outstanding
|
|
|
14,016,988
|
|
|
|
5,396,248
|
|
|
|
5,396,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share
|
|
$
|
0.79
|
|
|
$
|
0.53
|
|
|
$
|
1.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend on Redeemable Preferred
stock as converted 5% cumulative
|
|
$
|
(406
|
)
|
|
$
|
(1,656
|
)
|
|
$
|
(1,656
|
)
|
Warrant value adjustment
|
|
|
|
**
|
|
|
(599
|
)
|
|
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common
shareholders
|
|
$
|
10,737
|
|
|
$
|
5,164
|
|
|
$
|
20,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares
outstanding
|
|
|
14,016,988
|
|
|
|
5,396,248
|
|
|
|
5,396,248
|
|
Plus impact of convertible
preferred stock and warrants and stock options, as applicable
|
|
|
3,963,247
|
|
|
|
9,116,979
|
|
|
|
8,613,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted common shares
|
|
|
17,980,235
|
|
|
|
14,513,227
|
|
|
|
14,009,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
$
|
0.60
|
|
|
$
|
0.36
|
|
|
$
|
1.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
The difference between the fair market value of the Redeemable
Preferred Stock at date of issue of $21,070 and the redemption
price of $32,500 was charged to retained earnings in March 2006,
when the redemption occurred. This adjustment is used to reduce
net income to arrive at income available to common stockholders
for purposes of calculating earnings per common share in
accordance with EITF Topic D-42 The Effect on
the Calculation of Earnings per Share for the Redemption or
Induced Conversion of Preferred Stock. |
|
** |
|
This element of the diluted EPS computation is not applicable
since the impact on the computation would be anti-dilutive. |
51
EAGLE
TEST SYSTEMS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(In
thousands, except share and per share data)
The components of the provision (benefit) for income taxes
consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
September 30,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
13,257
|
|
|
$
|
(5,400
|
)
|
|
$
|
15,433
|
|
State
|
|
|
2,997
|
|
|
|
(1,920
|
)
|
|
|
3,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
16,254
|
|
|
|
(7,320
|
)
|
|
|
19,299
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(1,169
|
)
|
|
|
5,013
|
|
|
|
(3,476
|
)
|
State
|
|
|
(249
|
)
|
|
|
1,783
|
|
|
|
(871
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
(1,418
|
)
|
|
|
6,796
|
|
|
|
(4,347
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense
|
|
$
|
14,836
|
|
|
$
|
(524
|
)
|
|
$
|
14,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliations of the U.S. federal statutory rate to the
Companys effective tax rates are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Federal statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State income taxes, net of federal
income tax effect
|
|
|
4.7
|
|
|
|
3.7
|
|
|
|
5.2
|
|
Capital loss carryover
|
|
|
|
|
|
|
(2.0
|
)
|
|
|
|
|
Research and development tax
credits
|
|
|
(0.1
|
)
|
|
|
(1.8
|
)
|
|
|
(0.3
|
)
|
Nondeductible increase (decrease)
in value of warrants
|
|
|
5.1
|
|
|
|
(3.4
|
)
|
|
|
1.7
|
|
Extraterritorial income exclusion
|
|
|
(2.5
|
)
|
|
|
(3.0
|
)
|
|
|
(1.1
|
)
|
Domestic production deduction
|
|
|
(1.2
|
)
|
|
|
|
|
|
|
|
|
Provision to return adjustments
|
|
|
(1.2
|
)
|
|
|
(23.0
|
)
|
|
|
|
|
Reduction in tax accrual
|
|
|
|
|
|
|
(13.8
|
)
|
|
|
|
|
Other
|
|
|
(0.2
|
)
|
|
|
0.7
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
39.6
|
%
|
|
|
(7.6
|
)%
|
|
|
40.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the years ended September 30, 2006 and 2005, the
Company filed its prior year tax returns including amended
returns and adjusted the current year tax provision for actual
deductions taken in those returns. The net impact on the
effective tax rate for 2006 and 2005 was a benefit of 1.2% and
23.0%, respectively. The tax effect of the deductions amounted
to $455 and $1,577 in 2006 and 2005, respectively, and primarily
related to additional extraterritorial income exclusion and
state income taxes above the amounts originally estimated.
Additionally, the Company filed for tax method changes with the
Internal Revenue Service during the year ended
September 30, 2005. Accrued taxes were adjusted to reflect
the actual tax liability based on these filings and to reverse
the liability relating to tax positions of closed tax years. The
net reduction in accrued taxes amounted to $968.
52
EAGLE
TEST SYSTEMS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(In
thousands, except share and per share data)
The temporary differences that created the deferred tax assets
and (liabilities) are as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2006
|
|
|
2005
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Allowance for accounts receivable
|
|
$
|
243
|
|
|
$
|
491
|
|
Inventory valuation reserves
|
|
|
2,751
|
|
|
|
2,027
|
|
Deferred revenue
|
|
|
759
|
|
|
|
494
|
|
Other accrued expenses
|
|
|
711
|
|
|
|
406
|
|
Stock option compensation expense
|
|
|
38
|
|
|
|
|
|
Other
|
|
|
48
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
4,550
|
|
|
|
3,426
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
(979
|
)
|
|
|
(1,272
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(979
|
)
|
|
|
(1,272
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
3,571
|
|
|
$
|
2,154
|
|
|
|
|
|
|
|
|
|
|
|
|
11.
|
Employee
Benefit Plans
|
Employee
Stock Ownership Plan
The Company has an Employee Stock Ownership Plan (ESOP) which
covers substantially all employees of the Company and is subject
to the provisions of the Employee Retirement Income Security Act
of 1974 (ERISA). The Companys annual contribution to the
ESOP is discretionary. The Companys contributions to the
ESOP are allocated to individual participant accounts which vest
on completion of an employees fifth year of qualifying
service. For the years ended September 30, 2006, 2005, and
2004, no amount was expensed for the ESOP contribution.
Distributions from the ESOP are made in accordance with the
terms of the ESOP Trust Agreement and may be in the form of
cash or shares of Company common stock. The ESOP owned
834,565 shares of common stock at September 30, 2006,
2005, and 2004.
Other
Compensation Plans
The Company has established a profit-sharing plan, which is a
discretionary, defined-contribution plan. Under the
profit-sharing plan, the Company expensed approximately $490,
$287, and $520 for the years ended September 30, 2006,
2005, and 2004, respectively. Eligible employees are defined as
those who have completed one year of service and have attained
the age of 21. Employees are fully vested after achieving five
years of service.
The Company also has a pension plan which is a
defined-contribution plan, which also allows for additional
discretionary contributions. Under the pension plan, the Company
expensed approximately $163, $170, and $520 for the years ended
September 30, 2006, 2005, and 2004, respectively. Eligible
employees are defined as those who have completed one year of
service and have attained the age of 21. Employees are fully
vested after achieving five years of service.
The Company adopted the 2003 Stock Option and Grant Plan and the
2006 Stock Option and Incentive Plan (the Plans), which provide
for the issuance of incentive and nonqualified common stock
options to
53
EAGLE
TEST SYSTEMS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(In
thousands, except share and per share data)
employees, directors, and consultants of the Company. The Board
of Directors has reserved 3,199,500 shares of common stock
to be issued in conjunction with these Plans. The term of the
options shall be no more than 10 years from the date of
grant. Options granted under the Plans generally vest in periods
between one and four years, as determined by the Board of
Directors.
During the years ended September 30, 2006, 2005, and 2004,
the Company issued stock options under the Plans. Prior to
October 1, 2005, the Company accounted for stock options
issued to employees under the Companys stock option plan
using the intrinsic value method in accordance with APB
No. 25. The Company recorded the difference between the
exercise price and the fair value as determined by an
independent valuation of the common stock on the date of grant
as deferred compensation totaling $210 and amortized such
deferred compensation on a straight-line basis over the vesting
periods of the options until September 30, 2005. Expense
recognized during the years ended September 30, 2005 and
2004, totaled $48 and $30, respectively. The remaining amount of
$132 was reclassified to Additional Paid In Capital in
connection with adoption of SFAS No. 123(R) in fiscal
2006. If the minimum value method had been applied, the Company
would have recognized compensation costs of $188 and $121 for
the years ended September 30, 2005 and 2004, respectively.
The Companys stock option activity for the years ended
September 30, 2006, 2005, and 2004 under the Plans is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Outstanding
|
|
|
Average
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Outstanding at September 30,
2003
|
|
|
|
|
|
|
|
|
Granted
|
|
|
664,500
|
|
|
$
|
8.37
|
|
Exercised
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30,
2004
|
|
|
664,500
|
|
|
$
|
8.37
|
|
Granted
|
|
|
45,000
|
|
|
|
7.33
|
|
Exercised
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(6,389
|
)
|
|
|
10.00
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30,
2005
|
|
|
703,111
|
|
|
$
|
8.29
|
|
Granted
|
|
|
405,000
|
|
|
|
11.62
|
|
Exercised
|
|
|
(13,750
|
)
|
|
|
6.73
|
|
Forfeited
|
|
|
(414,861
|
)
|
|
|
10.28
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30,
2006
|
|
|
679,500
|
|
|
$
|
9.09
|
|
|
|
|
|
|
|
|
|
|
54
EAGLE
TEST SYSTEMS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(In
thousands, except share and per share data)
The Company adopted SFAS No. 123R effective
October 1, 2005. A summary of the status of the
Companys non-vested stock options issued
post-SFAS 123R implementation, as of September 30,
2006, and changes for fiscal 2006, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant-Date
|
|
Non-Vested Options
|
|
Options
|
|
|
Fair Value
|
|
|
Non-vested at September 30,
2005
|
|
|
|
|
|
$
|
|
|
Granted
|
|
|
405,000
|
|
|
|
5.88
|
|
Vested
|
|
|
(56,180
|
)
|
|
|
3.60
|
|
Forfeited
|
|
|
(140,000
|
)
|
|
|
7.37
|
|
|
|
|
|
|
|
|
|
|
Non-vested at September 30,
2006
|
|
|
208,820
|
|
|
$
|
5.50
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2006, there was $997 of total
unrecognized compensation costs related to the stock-based
compensation granted under the Plans. This cost is expected to
be amortized over a weighted-average service period of
3.1 years. The fair value of the related stock-based
compensation expense recorded for fiscal 2006 was $354. The
following table summarizes information about all stock options
outstanding for the Company as of September 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Vested
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Number
|
|
|
Remaining
|
|
|
Exercise
|
|
|
Number
|
|
|
Exercise
|
|
Exercise Price
|
|
Outstanding
|
|
|
Life
|
|
|
Price
|
|
|
Exercisable
|
|
|
Price
|
|
|
$ 6.00 - $ 7.00
|
|
|
309,500
|
|
|
|
7.83
|
|
|
$
|
6.56
|
|
|
|
169,500
|
|
|
$
|
6.45
|
|
$ 8.00 - $10.00
|
|
|
240,000
|
|
|
|
8.08
|
|
|
$
|
9.46
|
|
|
|
113,854
|
|
|
$
|
9.84
|
|
$11.00 - $13.00
|
|
|
50,000
|
|
|
|
9.33
|
|
|
$
|
11.40
|
|
|
|
27,014
|
|
|
$
|
11.40
|
|
$14.00 - $16.00
|
|
|
25,000
|
|
|
|
9.58
|
|
|
$
|
15.80
|
|
|
|
|
|
|
$
|
|
|
$16.01 - $16.56
|
|
|
55,000
|
|
|
|
9.83
|
|
|
$
|
16.56
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
679,500
|
|
|
|
|
|
|
|
|
|
|
|
310,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value of options outstanding and total
options vested as of September 30, 2006 was $5,052 and
$2,605, respectively.
|
|
13.
|
Concentration
of Credit Risk
|
The Company has a concentration of sales with certain major
semiconductor manufacturers that individually represent more
than 10% of total revenue. Sales to these major semiconductor
manufacturers were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
National Semiconductor Corporation
|
|
|
*
|
%
|
|
|
*
|
%
|
|
|
36.1
|
%
|
Texas Instruments Incorporated
|
|
|
52.9
|
|
|
|
44.3
|
|
|
|
31.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52.9
|
%
|
|
|
44.3
|
%
|
|
|
68.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55
EAGLE
TEST SYSTEMS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(In
thousands, except share and per share data)
Major semiconductor manufacturer companies comprise a
significant portion of the Companys trade receivables. As
of September 30, 2006, two customers (Infineon Technologies
and Texas Instruments Incorporated) comprised approximately 46%
of the Companys trade receivables balance. As of
September 30, 2005, two customers (Intersil Corporation and
Texas Instruments Incorporated) comprised approximately 49% of
the Companys trade receivables balance.
Financial instruments, which potentially subject the Company to
concentrations of credit risk, are cash equivalents, marketable
securities, and accounts receivable. All of the Companys
cash equivalents and marketable securities are held by major
financial institutions. Deposits held with financial
institutions may exceed the amount of insurance provided on such
deposits. Concentration of credit risk with respect to accounts
receivable is limited to certain customers to whom the Company
makes substantial sales. To reduce its credit risk, the Company
routinely assesses the financial strength of its customers. The
Company does not require collateral although the Company obtains
letters of credit on sales to certain foreign customers. An
allowance for doubtful accounts is maintained at a level
management believes is sufficient to cover potential credit
losses based on past collection history and specific risks
identified among uncollectible accounts. Accounts receivable are
charged off against the allowance for doubtful accounts when it
determines that the receivable will not be collected.
|
|
14.
|
Other
Comprehensive Income
|
Comprehensive income is comprised of two components, net income
and other comprehensive income. The components of other
comprehensive income, and related tax effects were as follows
for the fiscal year ended September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Change in net unrealized holdings
gains (losses) on marketable securities, net of tax of $0, $0,
and $160 in 2006, 2005, and 2004, respectively
|
|
$
|
|
|
|
$
|
|
|
|
$
|
240
|
|
Less adjustment for net gain
(loss) on investments included in net income, net of tax of $0,
$450, and $91 in 2006, 2005, and 2004, respectively
|
|
|
|
|
|
|
621
|
|
|
|
136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income, net of
taxes
|
|
$
|
|
|
|
$
|
(621
|
)
|
|
$
|
104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15.
|
Industry
and Geographic Segment Information
|
Operating
Segments
The Company operates in one industry segment: the design,
manufacture, and marketing of automated test equipment for the
semiconductor industry that is used to test analog,
mixed-signal, and radio frequency devices.
Geographic
Information
The Company markets its products and related services to
customers mainly through a direct sales force. Revenues are
attributed to geographic areas based on the country in which the
customer is domiciled.
56
EAGLE
TEST SYSTEMS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(In
thousands, except share and per share data)
The Companys revenues are generated from sales into the
following geographic regions (denominated in United States
dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
United States
|
|
$
|
38,177
|
|
|
$
|
29,295
|
|
|
$
|
24,031
|
|
Malaysia
|
|
|
48,377
|
|
|
|
13,602
|
|
|
|
56,720
|
|
Other
|
|
|
38,184
|
|
|
|
20,580
|
|
|
|
30,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
124,738
|
|
|
$
|
63,477
|
|
|
$
|
111,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Substantially all of the Companys long-lived assets are
located in the United States.
|
|
16.
|
Commitments
and Contingencies
|
Lease
Commitments
The Company has operating and capital lease commitments for
certain facilities and equipment. Minimum lease payments under
noncancelable leases are as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2006
|
|
|
|
Operating
|
|
|
Capital
|
|
|
|
Leases
|
|
|
Leases
|
|
|
2007
|
|
$
|
1,994
|
|
|
$
|
286
|
|
2008
|
|
|
1,690
|
|
|
|
276
|
|
2009
|
|
|
1,480
|
|
|
|
116
|
|
2010
|
|
|
1,512
|
|
|
|
2
|
|
2011
|
|
|
1,344
|
|
|
|
|
|
Thereafter
|
|
|
4,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
12,436
|
|
|
|
680
|
|
Less amount representing interest
|
|
|
|
|
|
|
(40
|
)
|
|
|
|
|
|
|
|
|
|
Present value of capital lease
obligations
|
|
|
|
|
|
$
|
640
|
|
|
|
|
|
|
|
|
|
|
Total rental expense for fiscal 2006, 2005, and 2004 was $2,126,
$1,840, and $780, respectively.
Contingencies
The Companys sales agreements indemnify its customers for
any expenses or liabilities resulting from claimed infringements
of patents, trademarks, or copyrights of third parties. The
terms of these indemnification agreements are generally
indefinite after execution of the agreement. The maximum amount
of potential future indemnification is unlimited. However, to
date, the Company has not paid any claims or been required to
defend any lawsuits with respect to any claim.
From time to time, the Company may have certain contingent
liabilities that arise in the ordinary course of its business
activities. The Company accrues contingent liabilities when it
is probable that future expenditures will be made and such
expenditures can be reasonably estimated. In the opinion of
management, there are no pending claims of which the outcome is
expected to result in a material adverse effect on the financial
position, results of operations, or cash flows of the Company.
57
EAGLE
TEST SYSTEMS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(In
thousands, except share and per share data)
Product
Warranty
The following table shows the details of the product warranty
accrual:
|
|
|
|
|
Product Warranty Activity
|
|
|
|
|
Balance at September 30, 2003
|
|
$
|
500
|
|
Warranty expenditures
|
|
|
(862
|
)
|
Provision for warranty
|
|
|
1,633
|
|
|
|
|
|
|
Balance at September 30, 2004
|
|
|
1,271
|
|
Warranty expenditures
|
|
|
(1,416
|
)
|
Provision for warranty
|
|
|
708
|
|
|
|
|
|
|
Balance at September 30, 2005
|
|
|
563
|
|
Warranty expenditures
|
|
|
(1,193
|
)
|
Provision for warranty
|
|
|
1,698
|
|
|
|
|
|
|
Balance at September 30, 2006
|
|
$
|
1,068
|
|
|
|
|
|
|
|
|
17.
|
Write-off
of Offering Expenses
|
During fiscal 2004, the Company incurred significant expenses
related to preparing documents and filings in preparation for a
planned initial public offering of its common stock. These
offering costs, which primarily include legal, accounting,
consulting, and printing fees, were being deferred and were
going to be offset against the proceeds of the offering when
completed. Due primarily to market conditions, the Company
experienced delays in moving forward with an initial public
offering and ultimately terminated the original filing of its
S-1 due to
on-going unfavorable conditions. Accordingly, due to the delays
in the process, the Company expensed the deferred costs of the
offering in fiscal 2004. As discussed above in Note 7, the
initial public offering was successfully completed on
March 14, 2006.
|
|
18.
|
Quarterly
Results of Operations (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, 2006
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter(1)
|
|
|
Quarter(2)
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
(In thousands, except per share data)
|
|
|
Net sales
|
|
$
|
22,447
|
|
|
$
|
28,565
|
|
|
$
|
36,779
|
|
|
$
|
36,947
|
|
Gross profit
|
|
|
15,418
|
|
|
|
19,246
|
|
|
|
24,523
|
|
|
|
23,232
|
|
Net income
|
|
|
1,875
|
|
|
|
1,773
|
|
|
|
9,672
|
|
|
|
9,254
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.13
|
|
|
$
|
(1.04
|
)
|
|
$
|
0.47
|
|
|
$
|
0.45
|
|
Diluted
|
|
$
|
0.10
|
|
|
$
|
(1.04
|
)
|
|
$
|
0.46
|
|
|
$
|
0.44
|
|
|
|
|
(1) |
|
Includes increase in value of warrants of $2,191. |
|
(2) |
|
Includes increase in value of warrants of $3,275, and retained
earnings adjustment of $11,430 used to reduce net income
available to common shareholders for purposes of computing
earnings per share. |
58
EAGLE
TEST SYSTEMS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(In
thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, 2005
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter(1)
|
|
|
Quarter(2)
|
|
|
|
(In thousands, except per share data)
|
|
|
Net sales
|
|
$
|
20,191
|
|
|
$
|
8,600
|
|
|
$
|
6,163
|
|
|
$
|
28,523
|
|
Gross profit
|
|
|
12,511
|
|
|
|
3,573
|
|
|
|
2,870
|
|
|
|
17,927
|
|
Net income (loss)
|
|
|
3,055
|
|
|
|
(2,049
|
)
|
|
|
(930
|
)
|
|
|
7,343
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.22
|
|
|
$
|
(0.38
|
)
|
|
$
|
(0.17
|
)
|
|
$
|
0.53
|
|
Diluted
|
|
$
|
0.18
|
|
|
$
|
(0.42
|
)
|
|
$
|
(0.17
|
)
|
|
$
|
0.36
|
|
|
|
|
(1) |
|
Includes tax benefit of provision to return adjustments of
$1,577. |
|
(2) |
|
Includes realized gain on sale of marketable securities of
$1,544. |
59
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
EAGLE TEST SYSTEMS, INC.
SEPTEMBER 30, 2006
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Col. A
|
|
Col. B
|
|
|
Col. C
|
|
|
Col. D
|
|
|
Col. E
|
|
|
|
|
|
|
|
|
|
Charged to
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Charged to
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Beginning of
|
|
|
Costs and
|
|
|
Accounts
|
|
|
Deductions
|
|
|
Balance at
|
|
Description
|
|
Period
|
|
|
Expenses
|
|
|
Describe
|
|
|
Describe
|
|
|
End of Period
|
|
|
|
(In thousands)
|
|
|
Allowance for Doubtful Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, 2006
|
|
$
|
1,240
|
|
|
$
|
155
|
|
|
|
|
|
|
$
|
779
|
(1)
|
|
$
|
616
|
|
Year Ended September 30, 2005
|
|
$
|
1,220
|
|
|
$
|
605
|
|
|
|
|
|
|
$
|
585
|
(1)
|
|
$
|
1,240
|
|
Year Ended September 30, 2004
|
|
$
|
791
|
|
|
$
|
510
|
|
|
|
|
|
|
$
|
81
|
(1)
|
|
$
|
1,220
|
|
|
|
|
(1) |
|
Sales returns and uncollectible accounts written off and
recoveries |
60
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
None.
|
|
Item 9A.
|
Controls
and Procedures
|
Disclosure
Controls and Procedures
As required by
Rule 13a-15
under the Securities Exchange Act of 1934, as of the end of the
period covered by this report, we carried out an evaluation
under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures (as defined
in
Rule 13a-15(e)
under the Securities Exchange Act of 1934). In designing and
evaluating our disclosure controls and procedures, we and our
management recognize that any controls and procedures, no matter
how well designed and operated, can provide only reasonable
assurance of achieving the desired control objectives, and our
management necessarily was required to apply its judgment in
evaluating and implementing possible controls and procedures.
Based upon that evaluation, our Chief Executive Officer and
Chief Financial Officer have concluded that they believe that as
of the end of the period covered by this report, our disclosure
controls and procedures were effective at the reasonable
assurance level. We will continue to review and document our
disclosure controls and procedures, including our internal
controls and procedures for financial reporting, on an ongoing
basis, and may from time to time make changes aimed at enhancing
their effectiveness and to ensure that our systems evolve with
our business.
Changes
in Internal Control Over Financial Reporting
There have been no changes in our internal control over
financial reporting during the quarterly period ended
September 30, 2006 that have materially affected, or are
reasonably likely to materially affect, our internal control
over financial reporting.
|
|
Item 9B.
|
Other
Information
|
None.
PART III
Anything herein to the contrary notwithstanding, in no event
whatsoever are the sections entitled Stock Performance
Graph, Nominating and Compensation Committee Report
on Executive Compensation and Audit Committee
Report, nor the Audit Committee Charter attached as an
appendix thereto, to be incorporated by reference herein from
our proxy statement in connection with our 2007 annual meeting
of stockholders.
|
|
Item 10.
|
Directors
and Executive Officers of the Registrant
|
Certain information required by this Item 10 relating to
our directors and executive officers is incorporated by
reference herein from our proxy statement in connection with our
2007 annual meeting of stockholders, which proxy statement will
be filed with the SEC not later than 120 days after the
close of our fiscal year ended September 30, 2006.
Audit
Committee Financial Expert
Our board of directors has determined that each of
Messrs. Manire, Gibbs and Mullen qualifies as an
audit committee financial expert as defined in
Item 401(h) of
Regulation S-K,
and that each of Messrs. Manire, Gibbs and Mullen are
independent as the term is used in
Item 7(d)(3)(iv) of Schedule 14A under the Exchange
Act.
61
Code of
Ethics
We have adopted a code of ethics that applies to all employees,
including its principal executive officer, principal financial
officer, and principal accounting officer. A copy of our Code of
Business Conduct and Ethics is provided on Exhibit 14.1
hereto. A copy of our Code of Business Conduct and Ethics is
also available on our website at www.eagletest.com and we
will send a paper copy to any stockholder who submits a request
in writing to our Secretary.
|
|
Item 11.
|
Executive
Compensation
|
Certain information required by this Item 11 relating to
remuneration of directors and executive officers and other
transactions involving management is incorporated by reference
herein from our proxy statement in connection with our 2007
annual meeting of stockholders, which proxy statement will be
filed with the SEC not later than 120 days after the close
of our fiscal year ended September 30, 2006.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
Certain information required by this Item 12 relating to
security ownership of certain beneficial owners and management
is incorporated by reference herein from our proxy statement in
connection with our 2007 annual meeting of stockholders, which
proxy statement will be filed with the SEC not later than
120 days after the close of our fiscal year ended
September 30, 2006. For information on securities
authorized for issuance under equity compensation plans, see the
section entitled Market for Registrants Common
Equity and Related Stockholders Matters in Part II,
Item 5. in this Annual Report on
Form 10-K.
|
|
Item 13.
|
Certain
Relationships and Related Transactions
|
Certain information required by this Item 13 relating to
certain relationships and related transactions is incorporated
by reference herein from our proxy statement in connection with
our 2007 annual meeting of stockholders, which proxy statement
will be filed with the SEC not later than 120 days after
the close of our fiscal year ended September 30, 2006.
|
|
Item 14.
|
Principal
Accounting Fees and Services
|
Certain information required by this Item 14 regarding
principal accounting fees and services is set forth under
Matters Concerning Our Independent Registered Public
Accounting Firm in our proxy statement in connection with
our 2007 annual meeting of stockholders, which proxy statement
will be filed with the SEC not later than 120 days after
the close of our fiscal year ended September 30, 2006.
PART IV
|
|
Item 15.
|
Exhibits,
Financial Statement Schedules
|
(a) (1) Financial
Statements: Reference is made to the Index to
Financial Statements and Financial Statement Schedule in the
section entitled Financial Statements and Supplementary
Data in Part II, Item 8. of this Annual Report
on
Form 10-K.
(2) Financial Statement
Schedule: Reference is made to the Index to
Financial Statements and Financial Statement Schedule in the
section entitled Financial Statements and Supplementary
Data in Part II, Item 8. of this Annual Report
on
Form 10-K.
Schedules not listed above are omitted because they are not
required or because the required information is given in the
consolidated financial statements or notes thereto.
(3) Exhibits: Exhibits are as set forth
in the section entitled Exhibit Index which
follows the section entitled Signatures in this
Annual Report on
Form 10-K.
Exhibits which are incorporated herein by reference can be
inspected and copied at the public reference rooms maintained by
the SEC in Washington, D.C., New York, New York, and
Chicago, Illinois. Please call the SEC at
1-800-SEC-0330
for further information on the public reference rooms. SEC
filings are also available to the public from commercial
document retrieval services and at the Web site maintained by
the SEC at http://www.sec.gov.
62
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the Registrant has
duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Eagle Test Systems, Inc.
(Registrant)
|
|
|
|
By:
|
/s/ Stephen
J. Hawrysz
|
Stephen J. Hawrysz,
Chief Financial Officer
(Duly Authorized Officer and Principal Financial Officer)
Date: December 8, 2006
KNOWN ALL MEN BY THESE PRESENTS that each individual whose
signature appears below constitutes and appoints each of Leonard
A. Foxman and Stephen J. Hawrysz such persons true and
lawful
attorney-in-fact
and agent with full power of substitution and resubstitution,
for such person and in such persons name, place and stead,
in any and all capacities, to sign any and all amendments to
this Annual Report on
Form 10-K,
and to file the same, with all exhibits thereto, and all
documents in connection therewith, with the Securities and
Exchange Commission, granting unto each said
attorney-in-fact
and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as such
person might or could do in person, hereby ratifying and
confirming all that any said
attorney-in-fact
and agent, or any substitute or substitutes of any of them, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities and Exchange Act
of 1934, as amended, this report has been signed below by the
following persons on behalf of the registrant and in the
capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/ Leonard
A. Foxman
Leonard
A. Foxman
|
|
Chief Executive Officer, President
and Director (Principal Executive Officer)
|
|
December 8, 2006
|
|
|
|
|
|
/s/ Stephen
J. Hawrysz
Stephen
J. Hawrysz
|
|
Chief Financial Officer (Principal
Financial and Accounting Officer)
|
|
December 8, 2006
|
|
|
|
|
|
/s/ Theodore
D. Foxman
Theodore
D. Foxman
|
|
Chief Operating Officer, Executive
Vice President and Director
|
|
December 8, 2006
|
|
|
|
|
|
/s/ Michael
C. Child
Michael
C. Child
|
|
Director
|
|
December 8, 2006
|
|
|
|
|
|
/s/ Ross
W. Manire
Ross
W. Manire
|
|
Director
|
|
December 8, 2006
|
|
|
|
|
|
/s/ William
H. Gibbs
William
H. Gibbs
|
|
Director
|
|
December 8, 2006
|
|
|
|
|
|
/s/ David
B. Mullen
David
B. Mullen
|
|
Director
|
|
December 8, 2006
|
63
EXHIBIT INDEX
|
|
|
|
|
|
|
Number
|
|
|
Description
|
|
Method of Filing
|
|
|
3.1
|
|
|
Form of Amended and Restated
Certificate of Incorporation of the Registrant, to be effective
at the effectiveness of this Registration Statement
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|
Incorporated by reference to
Exhibit 3.1 to Amendment No. 4 to our Registration
Statement on
Form S-1
(File
No. 333-130521)
filed with the Securities and Exchange Commission on
February 21, 2006
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3.2
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Form of Second Amended and
Restated Certificate of Incorporation of the Registrant, to be
effective at the completion of this offering
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Incorporated by reference to
Exhibit 3.2 to Amendment No. 4 to our Registration
Statement on
Form S-1
(File
No. 333-130521)
filed with the Securities and Exchange Commission on
February 21, 2006
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3.3
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Form of Amended and Restated
By-laws of the Registrant
|
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Incorporated by reference to
Exhibit 3.3 to Amendment No. 4 to our Registration
Statement on
Form S-1
(File
No. 333-130521)
filed with the Securities and Exchange Commission on
February 21, 2006
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4.1
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Specimen Stock Certificate
|
|
Incorporated by reference to
Exhibit 4.1 to Amendment No. 5 to our Registration
Statement on
Form S-1
(File
No. 333-130521)
filed with the Securities and Exchange Commission on
March 3, 2006
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4.2
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Registration Rights Agreement by
and among the Registrant, the Investors and the Stockholders
named therein, dated as of September 30, 2003
|
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Incorporated by reference to
Exhibit 4.2 to our Registration Statement on
Form S-1
(File
No. 333-117274)
filed with the Securities and Exchange Commission on
July 9, 2004
|
|
4.3
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Amendment No. 1 to the
Registration Rights Agreement dated September 1, 2006
|
|
Incorporated by reference to
Exhibit 4.3 to our Registration Statement on
Form S-1
(File
No. 333-137121)
filed with the Securities and Exchange Commission on
September 5, 2006
|
|
10.1
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2003 Stock Option and Grant Plan
|
|
Incorporated by reference to
Exhibit 10.1 to our Registration Statement on
Form S-1
(File
No. 333-117274)
filed with the Securities and Exchange Commission on
July 9, 2004
|
|
10.2
|
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2006 Stock Option and Incentive
Plan
|
|
Incorporated by reference to
Exhibit 10.2 to Amendment No. 4 to our Registration
Statement on
Form S-1
(File
No. 333-130521)
filed with the Securities and Exchange Commission on
February 21, 2006
|
|
10.3
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Employee Stock Ownership Plan
|
|
Incorporated by reference to
Exhibit 10.4 to our Registration Statement on
Form S-1
(File
No. 333-117274)
filed with the Securities and Exchange Commission on
July 9, 2004
|
|
10.4
|
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Profit Sharing Plan and Trust
|
|
Incorporated by reference to
Exhibit 10.5 to our Registration Statement on
Form S-1
(File
No. 333-117274)
filed with the Securities and Exchange Commission on
July 9, 2004
|
|
10.5
|
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|
Stock Purchase Agreement by and
among the Registrant, the Stockholders and the Investors named
therein, dated as of September 30, 2003
|
|
Incorporated by reference to
Exhibit 10.6 to Amendment No. 1 to our Registration
Statement on
Form S-1
(File
No. 333-117274)
filed with the Securities and Exchange Commission on
August 12, 2004
|
64
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|
|
Number
|
|
|
Description
|
|
Method of Filing
|
|
|
10.6
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Stockholders Agreement by and
among the Registrant, the Existing Stockholders and the
Investors named therein, dated as of September 30, 2003
|
|
Incorporated by reference to
Exhibit 10.7 to Amendment No. 1 to our Registration
Statement on
Form S-1
(File
No. 333-117274)
filed with the Securities and Exchange Commission on
August 12, 2004
|
|
10.7
|
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Note Purchase Agreement by and
among the Registrant, TA Subordinated Debt Fund, L.P. and TA
Investors LLC, dated as of September 30, 2003
|
|
Incorporated by reference to
Exhibit 10.8 to Amendment No. 1 to our Registration
Statement on
Form S-1
(File
No. 333-117274)
filed with the Securities and Exchange Commission on
August 12, 2004
|
|
10.8
|
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|
Senior Subordinated Convertible
Note of the Registrant issued in favor of TA Investors, LLC,
dated as of September 30, 2003
|
|
Incorporated by reference to
Exhibit 10.9 to our Registration Statement on
Form S-1
(File
No. 333-117274)
filed with the Securities and Exchange Commission on
July 9, 2004
|
|
10.9
|
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|
Form of Warrant to Purchase Common
Stock of the Registrant
|
|
Incorporated by reference to
Exhibit 10.10 to our Registration Statement on
Form S-1
(File
No. 333-117274)
filed with the Securities and Exchange Commission on
July 9, 2004
|
|
10.10
|
|
|
Senior Subordinated Convertible
Note of the Registrant issued in favor of TA Subordinated Debt
Fund, L.P., dated as of September 30, 2003
|
|
Incorporated by reference to
Exhibit 10.11 to our Registration Statement on
Form S-1
(File
No. 333-117274)
filed with the Securities and Exchange Commission on
July 9, 2004
|
|
10.11
|
|
|
Non-Competition Agreement, dated
as of September 30, 2003, by and among the Registrant,
Leonard A. Foxman and the Investors named therein
|
|
Incorporated by reference to
Exhibit 10.12 to our Registration Statement on
Form S-1
(File
No. 333-117274)
filed with the Securities and Exchange Commission on
July 9, 2004
|
|
10.12
|
|
|
Non-Competition Agreement, dated
as of September 30, 2003, by and among the Registrant,
Foxman Family LLC and the Investors named therein
|
|
Incorporated by reference to
Exhibit 10.13 to our Registration Statement on
Form S-1
(File
No. 333-117274)
filed with the Securities and Exchange Commission on
July 9, 2004
|
|
10.13
|
|
|
Employment Agreement by and
between the Registrant and Leonard Foxman, dated as of
September 30, 2003
|
|
Incorporated by reference to
Exhibit 10.14 to our Registration Statement on
Form S-1
(File
No. 333-117274)
filed with the Securities and Exchange Commission on
July 9, 2004
|
|
10.14
|
|
|
Employment Agreement by and
between the Registrant and Theodore Foxman, dated as of
September 30, 2003
|
|
Incorporated by reference to
Exhibit 10.15 to our Registration Statement on
Form S-1
(File
No. 333-117274)
filed with the Securities and Exchange Commission on
July 9, 2004
|
|
10.15
|
|
|
Employment Agreement by and
between the Registrant and Stephen J. Hawrysz, dated as of
March 1, 2004
|
|
Incorporated by reference to
Exhibit 10.16 to our Registration Statement on
Form S-1
(File
No. 333-117274)
filed with the Securities and Exchange Commission on
July 9, 2004
|
|
10.16
|
|
|
Employment Agreement by and
between the Registrant and Jack Weimer, dated as of
September 30, 2003
|
|
Incorporated by reference to
Exhibit 10.17 to our Registration Statement on
Form S-1
(File
No. 333-117274)
filed with the Securities and Exchange Commission on
July 9, 2004
|
|
10.17
|
|
|
Form of Indemnification Agreement
between the Registrant and each of its Directors and Executive
Officers
|
|
Incorporated by reference to
Exhibit 10.17 to Amendment No. 4 to our Registration
Statement on
Form S-1
(File
No. 333-130521)
filed with the Securities and Exchange Commission on
February 21, 2006
|
65
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|
|
|
|
|
|
Number
|
|
|
Description
|
|
Method of Filing
|
|
|
10.18
|
|
|
Lease, dated as of
December 1, 2003, between Millbrook VI LLC and the
Registrant
|
|
Incorporated by reference to
Exhibit 10.23 to our Registration Statement on
Form S-1
(File
No. 333-117274)
filed with the Securities and Exchange Commission on
July 9, 2004
|
|
10.19
|
|
|
Form of Incentive Stock Option
Agreement under the 2006 Stock Option and Incentive Plan
|
|
Incorporated by reference to
Exhibit 10.19 to Amendment No. 4 to our Registration
Statement on
Form S-1
(File
No. 333-130521)
filed with the Securities and Exchange Commission on
February 21, 2006
|
|
10.20
|
|
|
Form of Non-Qualified Stock Option
Agreement under the 2006 Stock Option and Incentive Plan
|
|
Incorporated by reference to
Exhibit 10.20 to Amendment No. 4 to our Registration
Statement on
Form S-1
(File
No. 333-130521)
filed with the Securities and Exchange Commission on
February 21, 2006
|
|
10.21
|
|
|
Form of Restricted Stock Award
Agreement under the 2006 Stock Option and Incentive Plan
|
|
Incorporated by reference to
Exhibit 10.21 to Amendment No. 4 to our Registration
Statement on
Form S-1
(File
No. 333-130521)
filed with the Securities and Exchange Commission on
February 21, 2006
|
|
10.22
|
|
|
Form of Non-Qualified Stock Option
Agreement for Non-Employee Directors under the 2006 Stock Option
and Incentive Plan
|
|
Incorporated by reference to
Exhibit 10.22 to Amendment No. 4 to our Registration
Statement on
Form S-1
(File
No. 333-130521)
filed with the Securities and Exchange Commission on
February 21, 2006
|
|
10.23
|
|
|
Employment Agreement by and
between the Registrant and Steven R. Dollens, dated as of
May 25, 2004
|
|
Incorporated by reference to
Exhibit 10.18 to Amendment No. 1 to our Registration
Statement on
Form S-1
(File
No. 333-117274)
filed with the Securities and Exchange Commission on
August 12, 2004
|
|
10.24
|
|
|
Employment Agreement by and
between the Registrant and Derek Abramovitch, dated as of
September 30, 2003
|
|
Incorporated by reference to
Exhibit 10.19 to our Registration Statement on
Form S-1
(File
No. 333-117274)
filed with the Securities and Exchange Commission on
July 9, 2004
|
|
10.25
|
|
|
Form of Management Rights Letter
Agreement as signed by the Registrant and each of TA
Subordinated Debt Fund, L.P., TA Investors LLC, TA IX L.P., TA/
Atlantic and Pacific IV L.P., TA Strategic Partners Fund A
L.P. and T.A. Strategic Partners Fund B L.P.
|
|
Incorporated by reference to
Exhibit 10.25 to Amendment No. 2 to our Registration
Statement on
Form S-1
(File
No. 333-130521)
filed with the Securities and Exchange Commission on
February 7, 2006
|
|
10.26
|
|
|
Amendment No. 1 to Management
Rights Letter Agreements dated February 6, 2005
|
|
Incorporated by reference to
Exhibit 10.25 to Amendment No. 2 to our Registration
Statement on
Form S-1
(File
No. 333-130521)
filed with the Securities and Exchange Commission on
February 7, 2006
|
|
10.27
|
|
|
Amendment No. 1 to
Stockholders Agreement dated February 6, 2005
|
|
Incorporated by reference to
Exhibit 10.25 to Amendment No. 2 to our Registration
Statement on
Form S-1
(File
No. 333-130521)
filed with the Securities and Exchange Commission on
February 7, 2006
|
|
10.28
|
|
|
Letter Agreement between the
Registrant and Leonard A. Foxman dated August 31, 2006
|
|
Incorporated by reference to
Exhibit 10.28 to our Registration Statement on
Form S-1
(File
No. 333-137121)
filed with the Securities and Exchange Commission on
September 5, 2006
|
66
|
|
|
|
|
|
|
Number
|
|
|
Description
|
|
Method of Filing
|
|
|
10.29
|
|
|
Letter Agreement between the
Registrant and Theodore D. Foxman dated August 31, 2006
|
|
Incorporated by reference to
Exhibit 10.29 to our Registration Statement on
Form S-1
(File
No. 333-137121)
filed with the Securities and Exchange Commission on
September 5, 2006
|
|
14.1
|
|
|
Code of Business Conduct and Ethics
|
|
Filed herewith
|
|
21.1
|
|
|
Subsidiaries of Eagle Test
Systems, Inc.
|
|
Filed herewith
|
|
24.1
|
|
|
Powers of Attorney
|
|
Included on signature page hereto
|
|
31.1
|
|
|
Rule 13a-14(a)/15d-14(a)
Certification, executed by Leonard A. Foxman, Chief Executive
Officer, President and Director
|
|
Filed herewith
|
|
31.2
|
|
|
Rule 13a-14(a)/15d-14(a)
Certification, executed by Stephen J. Hawrysz, Chief Financial
Officer
|
|
Filed herewith
|
|
32.1
|
|
|
Section 1350 Certifications,
executed by Leonard A. Foxman, Chief Executive Officer,
President and Director, and Stephen J. Hawrysz, Chief Financial
Officer
|
|
Filed herewith
|
67