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News & Events > 2002 News Releases > February 21 |
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2002 News Releases "FOR IMMEDIATE RELEASE" MOSAID Announces Third Quarter Financial Results OTTAWA, Ontario, Canada – February 21, 2002 – MOSAID Technologies Inc. (TSE: MSD) today reported financial results for the third quarter and for the nine months ended January 25, 2002. Revenues for the third quarter of fiscal 2002 were $9,196,000, representing a 57 percent decline from revenues of $21,572,000 reported for the same period last year. Net loss for the third quarter was $4,545,000 ($0.45 per fully diluted share), compared to net earnings of $1,833,000 ($0.19 per fully diluted share) reported for the third quarter of fiscal 2001. Revenues for fiscal 2002 year to date were $42,099,000, representing a 28 percent decline from revenues of $58,633,000 reported for the same period last year. Net loss for the year to date was $21,500,000 ($2.14 per fully diluted share), compared to net earnings of $4,827,000 ($0.49 per fully diluted share) for the same period of fiscal 2001. The year to date loss includes a charge of $11,162,000 related to restructuring initiatives announced in the second quarter, and an income tax expense of $3,093,000 related to the writedown of future income tax assets in that same quarter. Fully diluted per share amounts for fiscal 2001 have been restated to conform to the treasury method for calculating earnings per share, which the Company began at the start of fiscal 2002. At the end of the third quarter, the Company's cash and short-term marketable securities were $56,984,000, compared with $61,317,000 at the end of the second quarter of fiscal 2002. "While our financial results reflect the continued industry downturn, they also reflect the measures we have taken to contain costs while preserving key research and development activities," said Richard Boadway, MOSAID's Chief Financial Officer. "Expenses have been reduced across the board. This reduction, combined with solid management of receivables, inventory and capital expenditures, has resulted in higher than anticipated cash balances, despite lower intellectual property licensing revenue." Financial and Operating Highlights Revenue in the Semiconductor Division was negligible for both the quarter and year to date, as products currently in development have not yet entered production. On January 28, 2002, MOSAID announced sampling of its first commercial networking chip, the Class-IC DC9288. The DC9288 is a high performance network search engine, based on the industry's smallest ternary content addressable memory (CAM) cell. It is also the first 9-Mbit CAM based on dynamic random access memory (DRAM) technology, which offers lower power consumption than competing static random access memory (SRAM) based solutions. Production of this chip is scheduled to commence in the second half of 2002. Revenue in the Intellectual Property (IP) Division was down for both the quarter and year to date relative to fiscal 2001. These results reflect the timing and amount of licensing fees paid by current licensees to the Company's patent portfolio. MOSAID remains in discussion with several memory manufacturers already on notice for patent infringement, and the Company's patent portfolio continues to grow. At the end of the third quarter, this portfolio included 114 patents issued and 207 patents pending, for a total of 321 patents issued or pending worldwide, an increase of 19 over the second quarter. MOSAID's current litigation against Samsung Electronics Co., Ltd. and several of its U.S.-based affiliates for patent infringement proceeds. On January 3, 2002, MOSAID received notice that a U.S. magistrate judge had denied Samsung's "Motion for a More Definite Statement of the Complaint". As a result, Samsung filed its answer to MOSAID's original Complaint on January 17, 2002. This was followed by a court order on January 23, 2002 for a scheduling conference between counsel for both MOSAID and Samsung in mid February. On February 13, 2002, a further court order was issued with timelines for fact discovery, which is scheduled to be completed by October 31, 2002. Revenue in the Systems Division was down for both the third quarter and year to date relative to fiscal 2001. However, third quarter revenue increased 34 percent over the second quarter of fiscal 2002, despite the continued downturn that has limited capital expenditures by memory manufacturers for automatic test equipment. The increased revenues reflect the sale of several MS4205 test systems and the sale of a refurbished previous generation test system. During the third quarter, the Company recorded a $700,000 writedown in the value of its portfolio investment in Chrysalis-ITS Incorporated (Chrysalis), a network security solutions provider. The writedown reflects MOSAID's view that the carrying value of this investment has been impaired by the industry downturn and has resulted in a revised value of $782,000 for the Chrysalis investment. On December 31, 2001, MOSAID Chairman Richard C. Foss formally stepped down from the Company's Board of Directors, following the announcement of his retirement at the Company's last annual general meeting. He has been succeeded by Vice Chairman Thomas Csathy, who has been a director and consultant to MOSAID since June 1992. In addition, Richard Boadway, MOSAID's Chief Financial Officer since 1997, was appointed to the Board of Directors. Outlook "In the near term, our ability to increase tester sales in our Systems Division is highly dependent upon a recovery in the worldwide memory market. The continued downturn in this market has also affected our ability to negotiate new patent licensing agreements in a timely fashion," said George Cwynar, MOSAID's President and Chief Executive Officer. "However, our balance sheet remains strong, our workforce is focused and we have the strategies in place to ensure that we are well positioned to benefit from the market recovery when it occurs. Longer term, we expect our Semiconductor Division to begin realizing initial revenue from the Class-IC DC9288 chip in late fiscal 2003, with ramping revenue in fiscal 2004." Interim Reporting Requirements In accordance with Rule 51-501 from the Ontario Securities Commission (OSC), MOSAID is providing interim Management's Discussion and Analysis (MD&A), as well as relevant notes to financial statements, as part of this news release. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION The following discussion and analysis should be read in conjunction with the unaudited Consolidated Financial Statements of MOSAID Technologies Incorporated ("MOSAID" or "the Company") for the period ended January 25, 2002 appearing elsewhere in this report and with the audited annual Consolidated Financial Statements and the Management's Discussion and Analysis (MD&A) included in the Company's most recent Annual Report for the fiscal year ended April 27, 2001. All dollar amounts are in Canadian dollars, except where otherwise indicated. Overview The Company reported revenues of $9,196,000 for the 13 weeks ended January 25, 2002 ("Q3 fiscal 2002"), representing a decrease of 57% from revenues of $21,572,000 for the 13 weeks ended January 26, 2001 ("Q3 fiscal 2001"). The net loss for Q3 fiscal 2002 was $4,545,000 or $0.45 per share on a fully diluted basis, compared to net earnings of $1,833,000 or $0.19 per share on a fully diluted basis for Q3 fiscal 2001. Revenues of $42,099,000 for the 39 weeks ended January 25, 2002 represent a decrease of 28% from revenues of $58,633,000 for the same period a year ago. The net loss for the 39 weeks ended January 25, 2002 was $21,500,000 or $2.14 per share on a fully diluted basis, compared to net earnings of $4,827,000 or $0.49 per share on a fully diluted basis for the same period a year ago. Without the $11,162,000 restructuring charge discussed below, the loss for the 39 weeks ended January 25, 2002 would have been $10,338,000. Results of Operations The following table shows the percentage of revenues represented by certain items in the Company's consolidated statement of earnings for the fiscal periods indicated. About MOSAID
Founded in 1975, MOSAID is based in Ottawa, Ontario, Canada, with offices in Santa Clara, California; Newcastle upon Tyne, U.K; and Tokyo, Japan. For more information, visit the Company’s web site at www.mosaid.com. Forward Looking Information For more information, please contact:
FINANCIAL STATEMENTS AND NOTES FOLLOW
The Semiconductor Division showed a net loss of $4,293,000 for Q3 fiscal 2002, compared to a net loss of $7,976,000 for the same period last year. For the 39 weeks ended January 25, 2002, the net loss was $27,689,000, compared to $18,094,000 for the same period last year. The net loss has increased due to the decrease in revenue combined with the restructuring charge. Without the effect of the $10,469,000 restructuring charge, the loss would have been $17,220,000 for the 39 weeks ended January 25, 2002. The Intellectual Property ("IP") Division?s net profit of $3,025,000 for Q3 fiscal 2002 compares to a $11,043,000 net profit for the same quarter in the previous year. The net profit of $18,348,000 for the 39 weeks ended January 25, 2002 was $5,767,000 lower than the net profit of $24,115,000 for the same period last year. In both cases, the decline is mainly due to the decrease in license revenues. A net loss of $2,552,000 for the Systems Division for the 13 weeks ended January 25, 2002 compares to a net loss of $193,000 for the same period last year. The increase in the loss is mainly due to the decrease in revenue quarter over quarter. For the 39 weeks ended January 25, 2002, the net loss was $8,209,000, compared to a net profit of $186,000 for the same period a year ago. The change is the result of a decrease in revenue, lower margins associated with the MS4205 product line and the $454,000 Systems Division portion of the restructuring charge. Revenues
For Q3 fiscal 2002 and for the three quarters ended January 25, 2002, revenues from the Semiconductor Division decreased 100%, compared to revenues for Q3 fiscal 2001 and almost 100% for the three quarters ended January 26, 2001. In the previous year, the Company recognized financial contributions associated with its networking chips under development. In pre-production mode, revenues in this division may vary significantly from period to period, depending on availability of financial contributions from lead customers and others. In the IP Division, Q3 fiscal 2002 patent licensing revenue was 61% or $8,320,000 less than the same quarter last year. For the three quarters ended January 25, 2002, patent licensing revenue decreased 14% from the same period last year. Revenues from the IP Division can vary significantly from period to period depending on licensing fees, contracted payment schedules and contributions from customer-funded development. Systems Division revenues for Q3 fiscal 2002 are 52% lower than revenues for the same quarter in the previous year. Revenues for the 39 weeks ended January 25, 2002 were 41% lower than revenues for the same period last year. In both cases, this is due mainly to deteriorating overall market conditions. For Q3 fiscal 2002, revenues from operations are broken down between each division as follows: Semiconductor 0%, IP 59.1% and Systems 40.9% while for Q3 fiscal 2001, revenues were broken down as Semiconductor 0.8%, IP 63.9% and Systems 35.3%. For the 39 weeks ended January 25, 2002, the split was Semiconductor 0%, IP 68.3% and Systems 31.7% while, for the same period last year, the split was Semiconductor 6.1%, IP 55.8% and Systems 38.1%. Interest income in Q3 fiscal 2002 has decreased 3% from interest income in Q3 fiscal 2001. Interest income during the three quarters ended January 25, 2002 increased 36%, compared to interest income for the same period last year. Significant interest income was earned early in fiscal 2002 on proceeds from the sale of common shares while in Q3 fiscal 2002 lower cash balances and lower interest rates resulted in lower interest income. The Company markets its products and services globally. The approximate geographic breakdown of Q3 fiscal 2002 operating revenues was: Japan 59.5%, United States 30.0%, Korea 4.7%, and other 5.8%. For Q3 fiscal 2001, the breakdown was: Japan 62.7%, United States 28.2%, Taiwan 6.4% and other 2.7%. Quarter over quarter there has not been a significant change in the distribution. The breakdown for the 39 weeks ended January 25, 2002 is Japan 68.4%, United States 16.5%, Taiwan 6.1%, Korea 3.5% and other 5.5%, while the breakdown for the same period in the previous year was Japan 54.6%, United States 24.9%, Taiwan 7.4%, Canada 5.4%, Korea 5.3% and other 2.4%. The percentage breakdown reflects a major increase in the Japanese market, driven by patent licensing revenues. Labour and Materials
This category comprises the labour, materials and subcontracting costs of assembling, integrating, testing and servicing the memory test systems. The decrease in labour and materials in absolute amounts, from Q3 fiscal 2001 to Q3 fiscal 2002 and from the first three quarters of fiscal 2001 to the first three quarters of fiscal 2002, is mainly due to the decrease in the number of test systems produced and sold in fiscal 2002 as a result of the downturn in the memory market. For the 13 weeks ended January 25, 2002, labour and materials as a percentage of Systems Division revenues have decreased compared to the same period last year due to cost savings on material purchases and the sale of refurbished testers with higher margins. For the 39 weeks ended January 25, 2002, labour and materials have increased as a percentage of Systems Division revenues as well as total revenues as compared to the same period last year. Prior to the third quarter of fiscal 2002, there had been an increase in the provision for obsolete inventory and lower margins on the MS4205 product line. Research and Development
Although R&D costs in absolute dollars have decreased as a result of cost management in Q3 fiscal 2002 compared to Q3 fiscal 2001, there has been increased spending on Systems Division R&D as the Company remains committed to new product development. For the 39 weeks ended January 25, 2002, R&D expenditures were approximately the same as for the same period in the previous year. The increase in research and development ("R&D") expenditures as a percentage of revenue for Q3 fiscal 2002 over Q3 fiscal 2001 is mainly due to the decrease in revenue from the Systems and IP Divisions. The increase in R&D expenditures as a percentage of revenue for the 39 weeks ended January 25, 2002 compared to the same period last year is mainly due to the increase in the operating costs associated with the purchase of additional Electronic Design Automation (EDA) tools since Q3 fiscal 2001. Some of these tools have been written off as a result of the restructuring; therefore, there will be an associated reduction in future amortization and maintenance costs. Investment tax credits of $569,000 in Q3 fiscal 2002 compared to $970,000 in Q3 fiscal 2001 were applied to reduce current R&D expenses. The decline in investment tax credits results from reduced labour costs due to decreased R&D effort since the third quarter of fiscal 2001. Selling and Marketing
Sales and marketing ("S&M") expenses have decreased in absolute terms for both Q3 fiscal 2002 and the 39 weeks ended January 25, 2002 as compared to the same periods last year. This is primarily due to a decrease in S&M expenses in the Semiconductor Division due to efforts to contain costs as well as a decrease in commissions in the IP Division and in the Systems Division, resulting from decreased revenues. These decreases are offset by an increase in litigation costs incurred in the IP Division as the Company commenced litigation against Samsung Electronics Co., Ltd. ("Samsung") for patent infringement in Q2 fiscal 2002. The increase in S&M expenses as a percentage of revenues is mainly due to lower revenues in each of the Company?s three divisions. General and Administration
The increase in G&A expenses as a percentage of revenues and in absolute amounts for the 39 weeks ended January 25, 2002 has occurred mainly due to increases in professional fees and subcontract expenses for programs that were initiated prior to the decline in revenues from the IP and Systems Divisions. Bad Debt The Company reported a bad debt expense of $136,000 during Q3 fiscal 2002, compared with no bad debts in Q3 fiscal 2001. For the 39 weeks ended January 25, 2002, the Company had a bad debt expense of $88,000, compared with no bad debts in the same period last year. The majority of the bad debts result from sales of products in business lines in which the Company no longer operates. Unusual Item For the 13 and 39 weeks ended January 26, 2001, the Company reported an unusual item in the amount of $(328,000) and $694,000, respectively. In Q2 fiscal 2001, a $1,022,000 write down was recorded to bring inventory to its net realizable value, as part of the transition to a new generation of tester products. The subsequent adjustment reduced the write down by $328,000 for written-down inventory that was later sold. Income Taxes No adjustment was made to deferred tax assets in Q3 fiscal 2002 as there was no change in their net realizable value from the previous quarter. The year to date income tax expense of $4,395,000 results mainly from the Q2 fiscal 2002 write down of future income tax assets due to announced reductions in corporate tax rates and deferred profitability. The tax rate applied in Q3 fiscal 2001 was 35%, consistent with the rate of 35% applied in the first half of fiscal 2001. Restructuring Costs On September 11, 2001, the Company announced a reduction of its workforce by 17% as necessitated by poor overall market conditions. At the same time, the Company announced that it would stop development of Crypt-IC, an encryption chip designed for Chrysalis-ITS, which had closed its semiconductor division. Also, the Company announced that it has exited the module test business and focused efforts on the MS4205 product line. On October 30, 2001, MOSAID announced a further reduction in its workforce as a result of the cancellation of its network switch-on-a-chip program after discussions with a third party regarding the sale of the program were terminated. The combined layoffs resulted in a 28% reduction in MOSAID?s workforce. During the second quarter of fiscal 2002, the Company recorded a one-time restructuring charge of $11,017,000, which included the following:
At the end of Q2 fiscal 2002, the Company prepared a revised operating budget for the second half of fiscal 2002. Loss on writedown of long-term investment During the quarter ended January 25, 2002, the Company recorded a $700,000 writedown in the value of its portfolio investment in Chrysalis-ITS Incorporated ("Chrysalis"). The writedown reflects the Company?s assessment that an other than temporary decline in the carrying value of the investment has occurred as a result of the continued significant decline in both the industry and economic environments. The Company used a variety of valuation techniques, including an analysis of comparable valuations for publicly traded companies, as its methodology for determining the market value of its investment in Chrysalis. The residual value of the investment is $782,000. Liquidity and Capital Resources During the 39 weeks ended January 25, 2002, the Company generated a positive cashflow of $4,459,000 from operations, as compared to a net cash inflow from operations of $7,433,000 in the same period last year. The decrease is mainly due to the losses incurred in the first three quarters of fiscal 2002 offset by the decrease in accounts receivable. As of January 25, 2002, the Company had cash and short-term marketable securities of $56,984,000, compared to $19,239,000 as of the end of fiscal 2001 primarily due to the approximately $40,000,000 received from the shares issued in early fiscal 2002. Working capital increased to $56,081,000 at the end of Q3 fiscal 2002 from $35,558,000 at the end of fiscal 2001. The increase is mainly due to the improved cash balance offset by the decrease in accounts receivable. Management believes that the Company is well capitalized with sufficient working capital to fund ongoing operations. During Q2 fiscal 2002, the Company began a normal course issuer bid, as approved by the Toronto Stock Exchange. During Q3 fiscal 2002, the Company did not repurchase any common shares under the normal course issuer bid in an effort to maintain cash balances. To date, the Company has repurchased 100,800 common shares in accordance with the normal course issuer bid for a total cost of $1,160,000. Of this amount paid, $328,000 was charged directly to retained earnings, representing a premium paid on redemption of common shares, with the balance charged to share capital. A $10,000,000 bank credit facility is available to cover the fluctuations in cash requirements but was not used during the quarter. The available operating line is calculated using a formula based on accounts receivable. A mortgage of $6,000,000, at a fixed rate of 8.24% per annum and for a ten-year term, has been put in place to finance the Company?s principal physical facility, which went into service in December 1997. The remaining principal amount at the end of Q3 fiscal 2002 was $5,432,000, of which $173,000 is due within 12 months. The cost of the land and building was $7,934,000, less amortization of $1,120,000, at the end of the quarter. Accounts receivable and revenues recognized in excess of amounts billed decreased to $6,410,000 at the end of Q3 fiscal 2002, from $23,190,000 at the end of fiscal 2001, due to a reduction in revenues in the first three quarters of fiscal 2002 and the timing of collections. The Company employs financial instruments (principally forward exchange contracts) in the management of its foreign currency exposures, and has committed to sell, by April 30, 2002, US $2,500,000 at an average rate of 1.5423. Deferred revenue increased to $3,257,000 at the end of Q3 fiscal 2002, from $1,030,000 at the end of fiscal 2001. The Q3 fiscal 2002 balance consists of revenue deferred on the sale of a system for which there are extended payment terms as well as revenue deferred on funds received for a joint development project for which all deliverables have not yet been completed. The January 25, 2002 balance for Future Income Taxes Recoverable is $9,880,000, compared with $8,462,000 at April 27, 2001, reflecting an increase in payments withheld in foreign countries, offset by the Q2 fiscal 2002 writedown of the amount due to reduced tax rates. The intellectual property licensing revenues generated from companies in foreign countries results in additional withholdings when payments are received from those countries. Inventory levels increased to $6,676,000 at the end of Q3 fiscal 2002, from $6,144,000 at the end of fiscal 2001, due to the purchase of long lead items and lower than expected sales volumes. In Q3 fiscal 2002, inventory levels have decreased due to improved inventory management. Accounts payable and accrued liabilities decreased to $11,779,000 at January 25, 2002, from $13,897,000 at April 27, 2001. This is due to the decrease in accounts payable and accrued liabilities as the Company contains costs offset by accrued liabilities for restructuring costs. During Q3 fiscal 2002, the Company purchased $603,000 (net) in capital assets, which is down significantly from the same period last year due to cash containment efforts. During the 39 weeks ended January 25, 2002, the Company expended $6,488,000 (net) for capital purchases, compared to $8,491,000 (net) during the same period in the previous year. The capital purchases in the current fiscal year included $5.2 million for EDA tools and $0.8 million in capital assets required for a Semiconductor Division project. Risks and Uncertainties The Company expects that its future operating results may be subject to quarterly and annual fluctuations resulting from a variety of factors, including market conditions, changes in customer and geographic distribution, potential schedule slippages, and the possibility that its patents might be declared invalid. Sales to a relatively small number of customers account for a substantial portion of the Company?s total revenues. In the IP Division, revenues are primarily derived from a small number of large contracts, principally related to patent licensing agreements, each with finite payment terms. In the Systems Division, a portion of revenues in any fiscal quarter may result from customer orders received in the same quarter. Delays in booking patent licensing agreements, Systems orders, and schedule slippages in one or more Semiconductor contracts or in networking chip product development projects, may lead to significant volatility in financial performance, particularly in terms of quarterly results. The semiconductor industry is characterized by rapid technological change and evolving industry and customer requirements, specifications and standards. The Company?s success will depend on its ability to enhance its existing designs, chips and test systems and to develop new designs, new intellectual property, patent licensing agreements, chips and test systems on a timely and cost-effective basis. Furthermore, the Company?s current orientation to the semiconductor memory and networking equipment markets exposes its quarterly operating results to the influence of the business cycles in these markets.
MOSAID TECHNOLOGIES INCORPORATED
See accompanying Notes to the Consolidated Financial Statements. MOSAID TECHNOLOGIES INCORPORATED
See accompanying Notes to the Consolidated Financial Statements. MOSAID TECHNOLOGIES INCORPORATED
See accompanying Notes to the Consolidated Financial Statements. MOSAID TECHNOLOGIES INCORPORATED 1. Basis of Presentation The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in Canada for interim financial information. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for annual financial statements. In the opinion of management, all adjustments consisting of normal recurring adjustments, considered necessary for a fair presentation of the Company?s financial position, results of operations and cash flows have been included. Operating results for the interim period presented are not necessarily indicative of the results to be expected for any subsequent quarter or for the full fiscal year ending April 26, 2002. The accounting policies used in preparing these interim financial statements are consistent with those used in preparing the annual financial statements, except for earnings per share as disclosed in Note 2. These statements should be read in conjunction with the Company?s audited consolidated financial statements prepared for the fiscal year ended April 27, 2001. 2. Earnings per Share The Company has adopted the Canadian Institute of Chartered Accountants revised Handbook Section 3500, Earnings Per Share. The revised section requires the use of the treasury method to compute the dilutive effect of options and warrants as opposed to the former imputed earnings approach. Accordingly, the prior year dilutive earnings per share figures have been restated, which resulted in a reduction in fully diluted earnings per share for the 13 weeks ended January 26, 2001 of $0.01 and for the 39 weeks ended January 26, 2001 of $0.04. The following is a reconciliation of the numerator and denominator of the basic and fully diluted per share computations.
3. Share Capital In June 2001, the Company issued 1,100,000 shares at a subscription price of $37.00 per share. Share issue costs related to the offering were approximately $1,778,000, including commissions of approximately $1,628,000. During the second quarter of fiscal 2002, the Company began a normal course issuer bid, as approved by the Toronto Stock Exchange. Under the terms of the normal course issuer bid, the Company has the right to purchase up to a maximum of 300,000 common shares (representing 2.9% of the issued and outstanding common shares of the Company as at August 28, 2001). During the 13 weeks ended January 25, 2002, the Company did not repurchase any common shares under the normal course issuer bid. To date, the Company has repurchased 100,800 common shares in accordance with the normal course issuer bid for a total cost of $1,160,000. Of this amount paid, $328,000 has been charged directly to retained earnings, representing a premium paid on redemption of common shares, with the balance charged to share capital. All repurchased shares have been cancelled. During the third quarter of fiscal 2002, MOSAID's Board of Directors approved a voluntary stock option cancellation and new issue program, whereby employees could exchange their options on a two-for-one basis. The purpose of this program was to provide incentives to non-management employees, as well as to increase the number of options available to the Company for future incentive and recruiting purposes. As a result of this program, 153,000 options were cancelled and 76,500 new options were issued at a price of $13.70 on January 25, 2002. The issue price of the newly issued options represents the closing price of MOSAID common shares on January 24, 2002. 4. Restructuring During the second quarter of fiscal 2002, the Company undertook a restructuring of its operational and administrative activities. The restructuring charge represents severance and other related payments to terminated employees, the write down of capital assets and other costs related to the downsizing, costs related to the cancellation of the development of a Semiconductor Division product, costs associated with the termination of a product line in the Systems division, and other costs. During the third quarter of fiscal 2002, several of the capital assets that had been written down in the previous quarter as part of the restructuring charge were sold, which generated $305,000 to offset the restructuring expense. A breakdown of the restructuring costs is as follows:
5. Loss on Write Down of Long-Term Investment During the quarter ended January 25, 2002, the Company recorded a $700,000 writedown in the value of its portfolio investment in Chrysalis-ITS Incorporated ("Chrysalis"). The writedown reflects the Company?s assessment that an other than temporary decline in the carrying value of the investment has occurred as a result of the continued significant decline in both the industry and economic environments. The Company used a variety of valuation techniques, including an analysis of comparable valuations for publicly traded companies, as its methodology for determining the market value of its investment in Chrysalis. The residual value of the investment is $782,000. 6. Business Segment InformationBased upon the Company?s internal reporting structure, the following operating segments have been assigned: Semiconductor: The development and sale of networking chips based on a fabless semiconductor model. Intellectual Property (IP): Design and licensing of advanced, standard memory chips, application-specific memories, macrocells and systems-on-a-chip; licensing of the Company?s patent portfolio. Systems: Design, manufacture, marketing and servicing of automatic test equipment and related products and services. The Company announced on April 26, 2001 that the Semiconductor Division had been split into two divisions, IP and Semiconductor. As a result, the segmented results for the 13 weeks and for the 26 weeks ended October 27, 2000 have been restated to conform to the new internal reporting structure. The significant accounting policies of the above segments are the same as those described in Note 1. Intersegment sales are recorded at cost. General and administrative costs are allocated to the operating segments based upon estimates of usage. The Company has not included interest revenue, foreign exchange gains or losses, bad debts, unusual items, gains or losses of long-term assets or income tax (expense) in the determination of operating segment profit. During the first quarter of fiscal 2002, a change in the method used to allocate corporate expenditures between segments was made. As a result, the segmented results for the 13 weeks and for the 39 weeks ended January 26, 2001 have been restated to conform to the presentation for the 13 weeks and for the 39 weeks ended January 25, 2002.
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