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| LCRY > SEC Filings for LCRY > Form 10-Q on 7-May-2009 | All Recent SEC Filings |
7-May-2009
Quarterly Report
This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with the audited Consolidated Financial Statements, Notes and MD&A included in our Annual Report filed on Form 10-K for the fiscal year ended June 28, 2008. Our discussion and analysis is an integral part of understanding our financial results. Also refer to "Basis of Presentation and Use of Estimates" in the Notes to the Consolidated Financial Statements.
Our Critical Accounting Policies and Estimates
The preparation of our Consolidated Financial Statements in conformity with U.S. Generally Accepted Accounting Principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities in the Consolidated Financial Statements and accompanying notes. These estimates and assumptions are based on management's judgment and available information and, consequently, actual results could differ from these estimates.
The accounting policies that we believe are the most critical to understanding and evaluating our reported financial results include: revenue recognition; reserves on accounts receivable; allowance for excess and obsolete inventory; uncertain tax positions; valuation of deferred tax assets; valuation of long-lived and intangible assets; valuation of goodwill; estimation of warranty liabilities and share-based compensation expense.
Impairment of Goodwill
As a result of the current economic environment and sustained decline in our stock price since September 27, 2008, which affected our market capitalization, we updated the first step of our goodwill impairment test as of December 27, 2008 and determined that the carrying value exceeded the fair value, indicating that goodwill was impaired. We then performed the second step of the goodwill impairment test which calculated the implied fair value of the goodwill by allocating the fair value of the Company to all assets and liabilities other than goodwill, including both recognized and unrecognized intangible assets, and compared it to the carrying amount of goodwill in order to determine the amount of the goodwill impairment. The determination as to whether a write-down of goodwill is necessary and the amount of the impairment charge involves significant judgment around the assumptions used to determine the impairment charge.
In the second quarter, we recorded an approximate $105.8 million goodwill impairment charge, resulting in a carrying value of goodwill as of March 28, 2009 of zero. We will not be required to make any current or future cash expenditures as a result of this impairment.
Business Realignment Initiatives
As a result of the economic downturn, the Company developed an extensive cost-reduction program that consisted of reductions in programs, work force, compensation and certain employee benefits. Execution of this plan began in the second quarter of fiscal 2009 as the Company began to reduce staff and eliminate certain product developments programs, resulting in the streamlining of related product lines. Our cost-reduction program continued into the third quarter of fiscal 2009 with further reductions in staff, compensation and discretionary expenses. We expect these reductions will generate savings of approximately $6.0 million per quarter.
In the third quarter of fiscal 2009, we recorded severance of approximately $2.6 million, of which approximately $0.6 million was expensed to Cost of revenues, $1.1 million was expensed to Selling, general and administrative and $0.9 million was expensed to Research and development. This resulted from headcount reductions of sixty-two employees or approximately 13.6% of the workforce as compared to June 28, 2008. As of March 28, 2009, approximately $0.6 million has been paid in cash and approximately $1.7 million remains in Accrued expenses and other current liabilities and $0.3 million remains in Deferred revenue and other non-current liabilities on the Consolidated Balance Sheet. Severance is estimated to be paid by the end of the third quarter of fiscal 2012.
In the second quarter of fiscal 2009, we recorded severance of approximately $1.5 million, of which approximately $0.1 million was expensed to Cost of revenues, $0.8 million was expensed to Selling, general and administrative and $0.6 million was expensed to Research and development. This resulted from headcount reductions of ten employees or 2.2% of the workforce as compared to June 28, 2008. As of March 28, 2009, approximately $0.6 million has been paid in cash and approximately $0.9 million remains in Accrued expenses and other current liabilities on the Consolidated Balance Sheet. Severance is estimated to be paid by the end of the third quarter of fiscal 2010. Additionally, we recorded an approximate $2.7 million inventory write-down as a result of these realignment initiatives and change in product strategy, which was expensed to Cost of revenues in the Consolidated Statement of Operations.
Our Business Risks
Our results of operations and financial position are affected by a variety of factors. We believe the most significant recurring factors are the economic strength of the technology markets into which we sell our products, our ability to identify market demands and develop competitive products to meet those demands, the announcements and actions of our competitors and our ability to enter into new markets and broaden our presence in existing markets. Our sales are largely dependent on the health and growth of technology companies whose operations tend to be cyclical. Consequently, demand for our products tends to coincide with the increase or decrease in capital spending in the technology industry.
Recent Accounting Pronouncements
The following recent accounting pronouncements are not yet adopted:
• Statement of Financial Accounting Standards No. 141 (revised 2007), "Business Combinations" ("SFAS 141R").
• Financial Accounting Standards Board Staff Position No. 142-3, "Determination of the Useful Life of Intangible Assets" ("FSP 142-3").
• Financial Accounting Standards Board Staff Position Accounting Principles Board Opinion No. 14-1, "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)" ("FSP APB 14-1").
• Statement of Financial Accounting Standards No. 157, "Fair Value Measurements", ("SFAS 157"), as it relates to non-financial assets and liabilities.
See Note 19 "New Accounting Pronouncements" and Note 5 - "Derivatives and Fair Value" for additional information on recent pronouncements adopted and not yet adopted.
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