LTXCredence Corp. (LTXC, Financial) filed Quarterly Report for the period ended 2009-04-30.
Formed by the 2008 merger of LTX Corporation and Credence Systems Corporation LTX-Credence is a global provider of focused cost-optimized ATE solutions designed to enable customers to implement best-in-class test strategies to maximize their profitability. LTX-Credence addresses the broad divergent test requirements of the wireless computing automotive and entertainment market segments offering a comprehensive portfolio of technologies the largest installed base in the Asia-Pacific region and a global network of strategically deployed applications and support resources. LTXCredence Corp. has a market cap of $83.9 million; its shares were traded at around $0.66 with and P/S ratio of 0.6.
Inventory-related provision. For the nine months ended April 30, 2009, we recorded an inventory-related provision of $19.3 million, or 18.9% of net sales, which consisted of $0.8 million related to the implementation of product roadmap decisions related to the ASL 3KMS line and $4.8 million related to future requirements of last time buy components related to the implementation of the product roadmap decisions. In addition to the $5.6 million noted above, the inventory-related provision of $19.3 million also included excess and obsolete inventory as a result of the determination of the current combined company product roadmap, as well as declining customer demand due to the current industry environment. Product roadmap decisions to eliminate the ASL 3KRF and the Diamond D-40 products accounted for $5.9 million of the total inventory related provision. In addition, $6.6 million of the inventory related provision was a result of a significant reduction in the demand for the Sapphire products which have been negatively impacted by the current business conditions. The balance of the inventory related provision of approximately $1.2 million was related to our Fusion CX product line which is being phased out in favor of our Fusion MXc product line.
Gross profit margin. The gross profit margin was $7.0 million or 28.3% of net sales in the three months ended April 30, 2009, as compared to $20.4 million or 51.9% of net sales in the same quarter of the prior year. For the nine months ended April, 2009, the gross profit margin was $15.1 million or 14.8 % of net sales as compared to $49.7 million or 49.7% of net sales for the nine months ended April 30, 2008. The decrease in the gross profit margin for the three months ended April 30, 2009 as compared to April 30, 2008 was primarily a result of the deterioration of the overall economic environment. The decrease in the gross profit margin for the nine months ended April 30, 2009 as compared to the nine months ended April 30, 2008 was primarily the result of the inventory-related provision of $19.3 million, increased manufacturing overhead as a result of the merger with Credence which were partially offset by added gross margin on additional revenue related to the merger and overall lower levels of sales revenue. Excluding the inventory-related provision, gross profit margin was $34.5 million or 33.7% of net sales for the nine months ended April 30, 2009.
Engineering and product development expenses. Engineering and product development expenses were $16.6 million, or 67.1% of net sales, in the three months ended April 30, 2009, as compared to $11.8 million, or 30.0% of net sales, in the same quarter of the prior year. For the nine months ended April 30, 2009, engineering and product development expenses were $58.7 million or 57.5% of net sales, compared to $34.8 million or 34.8% of net sales for the nine months ended April 30, 2008. The increase in engineering and product development expenses for the three and nine months ended April 30, 2009 as compared to the three and nine months ended April 30, 2008 is principally a result of increased engineering and product development expense associated with the inclusion of Credences operations.
Restructuring. Restructuring expense was $3.3 million or 13.4% of net sales and $21.8 million or 21.4 % of net sales for the three and nine months ended April 30, 2009, respectively. The restructuring expense includes employee termination-related severance and outplacement costs, post-employment benefits associated with the merger, as well as costs associated with closing certain facilities. On September 9, 2008, we announced and initiated a restructuring plan. The total cost of the severance related cash charges was $16.5 million of which $12.6 million was recorded as a component of the merger cost in the August 29, 2008 opening balance sheet of Credence and $3.9 million related to the LTX workforce reductions which were recorded through the statement of operations as a restructuring charge. On January 20, 2009, we announced additional restructuring actions that resulted in a total cash charge of $8.8 million. The additional restructuring expense of $5.9 million recorded during the three months ended January 31, 2009 was related to costs associated with vacating several facilities that are no longer being utilized by us. On April 23, 2009, we announced additional employee-related restructuring actions that resulted in a total cash charge of $3.3 million. There were no restructuring costs recorded for the three and nine months ended April 30, 2008.
Interest expense. Interest expense was $1.7 million for the three months ended April 30, 2009 as compared to $0.2 million for the three months ended April 30, 2008. For the nine months ended April 30, 2009, interest expense was $3.8 million compared to $1.0 million for the same period in 2008. The increase in interest expense is a result of the long-term debt acquired from Credence. Interest expense for the three and nine months ended April 30, 2009 relates to our Convertible Senior Subordinated Notes due 2010, which bear an interest rate of 3.5%. We also incur interest expense associated with our bank term loan which bore an interest rate of the prime rate minus 1.25%, until we refinanced our bank debt in February 2009, after which the term loan began bearing interest at a variable rate of between 4.0% and 4.5%.
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Formed by the 2008 merger of LTX Corporation and Credence Systems Corporation LTX-Credence is a global provider of focused cost-optimized ATE solutions designed to enable customers to implement best-in-class test strategies to maximize their profitability. LTX-Credence addresses the broad divergent test requirements of the wireless computing automotive and entertainment market segments offering a comprehensive portfolio of technologies the largest installed base in the Asia-Pacific region and a global network of strategically deployed applications and support resources. LTXCredence Corp. has a market cap of $83.9 million; its shares were traded at around $0.66 with and P/S ratio of 0.6.
Highlight of Business Operations:
In connection with the recent merger with Credence, during the quarter ended October 31, 2008, we developed a product roadmap for the combined company which led to the phase out of approximately $3.7 million of certain consignment testers and property and equipment related to the ASL 3KRF, Diamond D40, and Sapphire product lines. In light of market conditions, we also wrote down $0.4 million of certain consignment testers for which we do not believe we will recover the cost. Accordingly, we recorded an impairment loss for the three months ended October 31, 2008 of $5.0 million. In the quarter ended January 31, 2009, we recorded additional impairment charges of $0.8 million related to the reduction in the fair value of the land that we own adjacent to our Hillsboro, Oregon facility. There were no significant impairment losses for the prior year nine months ended April 30, 2008.Inventory-related provision. For the nine months ended April 30, 2009, we recorded an inventory-related provision of $19.3 million, or 18.9% of net sales, which consisted of $0.8 million related to the implementation of product roadmap decisions related to the ASL 3KMS line and $4.8 million related to future requirements of last time buy components related to the implementation of the product roadmap decisions. In addition to the $5.6 million noted above, the inventory-related provision of $19.3 million also included excess and obsolete inventory as a result of the determination of the current combined company product roadmap, as well as declining customer demand due to the current industry environment. Product roadmap decisions to eliminate the ASL 3KRF and the Diamond D-40 products accounted for $5.9 million of the total inventory related provision. In addition, $6.6 million of the inventory related provision was a result of a significant reduction in the demand for the Sapphire products which have been negatively impacted by the current business conditions. The balance of the inventory related provision of approximately $1.2 million was related to our Fusion CX product line which is being phased out in favor of our Fusion MXc product line.
Gross profit margin. The gross profit margin was $7.0 million or 28.3% of net sales in the three months ended April 30, 2009, as compared to $20.4 million or 51.9% of net sales in the same quarter of the prior year. For the nine months ended April, 2009, the gross profit margin was $15.1 million or 14.8 % of net sales as compared to $49.7 million or 49.7% of net sales for the nine months ended April 30, 2008. The decrease in the gross profit margin for the three months ended April 30, 2009 as compared to April 30, 2008 was primarily a result of the deterioration of the overall economic environment. The decrease in the gross profit margin for the nine months ended April 30, 2009 as compared to the nine months ended April 30, 2008 was primarily the result of the inventory-related provision of $19.3 million, increased manufacturing overhead as a result of the merger with Credence which were partially offset by added gross margin on additional revenue related to the merger and overall lower levels of sales revenue. Excluding the inventory-related provision, gross profit margin was $34.5 million or 33.7% of net sales for the nine months ended April 30, 2009.
Engineering and product development expenses. Engineering and product development expenses were $16.6 million, or 67.1% of net sales, in the three months ended April 30, 2009, as compared to $11.8 million, or 30.0% of net sales, in the same quarter of the prior year. For the nine months ended April 30, 2009, engineering and product development expenses were $58.7 million or 57.5% of net sales, compared to $34.8 million or 34.8% of net sales for the nine months ended April 30, 2008. The increase in engineering and product development expenses for the three and nine months ended April 30, 2009 as compared to the three and nine months ended April 30, 2008 is principally a result of increased engineering and product development expense associated with the inclusion of Credences operations.
Restructuring. Restructuring expense was $3.3 million or 13.4% of net sales and $21.8 million or 21.4 % of net sales for the three and nine months ended April 30, 2009, respectively. The restructuring expense includes employee termination-related severance and outplacement costs, post-employment benefits associated with the merger, as well as costs associated with closing certain facilities. On September 9, 2008, we announced and initiated a restructuring plan. The total cost of the severance related cash charges was $16.5 million of which $12.6 million was recorded as a component of the merger cost in the August 29, 2008 opening balance sheet of Credence and $3.9 million related to the LTX workforce reductions which were recorded through the statement of operations as a restructuring charge. On January 20, 2009, we announced additional restructuring actions that resulted in a total cash charge of $8.8 million. The additional restructuring expense of $5.9 million recorded during the three months ended January 31, 2009 was related to costs associated with vacating several facilities that are no longer being utilized by us. On April 23, 2009, we announced additional employee-related restructuring actions that resulted in a total cash charge of $3.3 million. There were no restructuring costs recorded for the three and nine months ended April 30, 2008.
Interest expense. Interest expense was $1.7 million for the three months ended April 30, 2009 as compared to $0.2 million for the three months ended April 30, 2008. For the nine months ended April 30, 2009, interest expense was $3.8 million compared to $1.0 million for the same period in 2008. The increase in interest expense is a result of the long-term debt acquired from Credence. Interest expense for the three and nine months ended April 30, 2009 relates to our Convertible Senior Subordinated Notes due 2010, which bear an interest rate of 3.5%. We also incur interest expense associated with our bank term loan which bore an interest rate of the prime rate minus 1.25%, until we refinanced our bank debt in February 2009, after which the term loan began bearing interest at a variable rate of between 4.0% and 4.5%.
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