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OCZ TECHNOLOGY GROUP INC - 10-Q - Management's Discussion And Analysis Of Financial Condition And Results Of Operations(Edgar Glimpses Via Acquire Media NewsEdge) Cautionary Statement The following is a discussion of the financial condition and results of operations for our fiscal quarter ended May 31, 2011, herein referred to as "the first quarter of fiscal year 2012" or "the first quarter of 2012". Unless the context indicates otherwise, as used herein, the terms "we," "us," "OCZ," the "Company" and "our" refer to OCZ Technology Group, Inc. on a consolidated basis. References to "$" are to United States dollars. You should read this discussion in conjunction with financial information and related notes included elsewhere in this report. We operate and report financial results on a fiscal year ending on the last day of February. Except as noted, references to any fiscal year mean the twelve-month period ending on February 28/29 of that year. Some of the statements and assumptions included in this Quarterly Report on Form 10-Q are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 or Section 21E of the Securities Exchange Act of 1934, each as amended, including, in particular, statements about our plans, strategies and prospects and estimates of industry growth for the fiscal quarter ending May 31, 2011 and beyond. These statements identify prospective information and include words such as "expects," "plans," "anticipates," "believes," "estimates," "predicts," "projects" and similar expressions. These forward-looking statements are based on information available to us as of the date of this report. Current expectations, forecasts and assumptions involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those anticipated by these forward-looking statements. Such risks, uncertainties and other factors may be beyond our control. In particular, the decline in global economic conditions poses a risk to our operating and financial performance as consumers and businesses have, and may continue to, defer purchases in response to tighter credit and negative financial conditions. Such risks and uncertainties also include the impact of the variable demand, particularly in view of current business and economic conditions; dependence on our ability to successfully qualify, manufacture and sell our disk drive products in increasing volumes on a cost-effective basis and with acceptable quality, particularly our new disk drive products with lower cost structures; the impact of competitive product announcements; our ability to achieve projected cost savings; and our ability to rapidly increase our manufacturing capacity in pace with our competitors if demand for disk drives increases. We also encourage you to read our Annual Report on Form 10-K as filed with the U.S. Securities and Exchange Commission ("SEC") on May 17, 2011, and amended on May 31, 2011, and statements made in other subsequent filings, as they contain information concerning risk, uncertainties and other factors that could cause results to differ materially from those projected in the forward-looking statements. These forward-looking statements should not be relied upon as representing our views as of any subsequent date and we undertake no obligation to update forward-looking statements to reflect events or circumstances after the date they were made. Overview We are a leading provider of high performance Solid State Drives ("SSDs") and Power Supplies for computing devices and systems. Founded in 2002, we are incorporated in Delaware and have our headquarters in San Jose, California and offices in Canada, the Netherlands, Korea and Taiwan. Our fiscal year ends on the last day of February. Historically, we primarily focused on developing, manufacturing and selling high-performance DRAM memory modules to individual computing enthusiasts through catalog and online retail channels. As the market for SSDs began to develop over the last several years, we have shifted our focus to serve this emerging market as our primary focus. We believe that our strong R&D foundation in memory has provided a solid R&D platform and natural transition to develop our SSD capabilities, given the technological similarities between product categories. We began to implement a strategy to shift our focus towards the emerging SSD market in early 2009, which has resulted in our revenue mix shifting heavily towards SSDs, which became a majority of our business in 2010. As a result, our target customers are increasingly enterprises and original equipment manufacturers (or "OEMs"). In August 2010, we announced that we planned to deemphasize our legacy memory products by discontinuing certain low margin commodity DRAM module products. By February 28, 2011, the end of our fiscal year, we had discontinued our legacy memory products to focus on SSDs in accordance with our previously announced plans in January 2011. 20 -------------------------------------------------------------------------------- In addition to our SSD product line, we design, develop, manufacture and distribute other high performance components for computing devices and systems, including thermal management solutions, AC/DC switching PSUs and computer gaming solutions. We are also continuing to sell our remaining inventory of DRAM modules, but sales of these products is not expected to be material going forward. We offer our customers flexibility and customization by providing a broad array of solutions which are interoperable and can be configured alone or in combination to make computers run faster, more reliably, efficiently and cost effectively. Through our diversified and global distribution channel, we offer approximately 250 products to more than 400 customers, including leading retailers, etailers, OEMs and computer distributors. Sales to our ten largest customers in the fiscal quarter ended May 31, 2011 accounted for approximately 41% of our net revenue. No customer was responsible for 10% or more of our net revenue. We develop flexible and customizable component solutions quickly and efficiently to meet the ever changing market needs and provide superior customer service. We believe our high performance computer components offer the speed, density, size and reliability necessary to meet the special demands of: § industrial equipment and computer systems; § computer and computer gaming and enthusiasts; § mission critical servers and high end workstations; § personal computer ("PC") upgrades to extend the useable life of existing PCs; § high performance computing and scientific computing; § video and music editing; § home theatre PCs and digital home convergence products; and § digital photography and digital image manipulation computers. We perform the majority of our research and development efforts in-house, which increases communication and collaboration between design teams, streamlines the development process and reduces time-to-market. On March 25, 2011, we completed the acquisition of 100% of the equity interests of Indilinx Co., Ltd., ("Indilinx") a privately-held company organized under the laws of the Republic of Korea. Indilinx's products and solutions comprise advanced SSD controllers, SSD reference designs, and software, which enable the rapid development and deployment of high performance solid state drives. The technology powers a wide range of storage solutions from cost-sensitive consumer devices to performance-optimized systems demanded by mission-critical enterprise applications. Results of Operations The following table sets forth our financial results, as a percentage of net revenue for the periods indicated. Quarter Ended May 31, 2011 2010 Net revenue 100% 100% Cost of revenue 80 88 Gross profit 20 12 Operating expenses: Research and development 6 5 Sales and marketing 6 8 General, administrative and operations 8 9 Acquisition Related Costs 2 - Special inventory charge 4 - Total operating expenses 26 22 Operating (loss) (6) (10) Other income - net - - Interest and financing costs - (1) Change in fair value of derivative liability (6) (3) (Loss) before income taxes (12) (14) Income tax expense - - Net (loss) (12)% (14)% 21--------------------------------------------------------------------------------Net Revenue - Product Group OCZ's consolidated net revenue by product group in the first quarter of fiscal year 2012, compared with the corresponding period in 2011, is presented in the table below. Also presented are the related dollar and percentage changes in consolidated net revenue in the first quarter of fiscal year 2012, compared with the corresponding period in 2011. Three months ended May 31, 2011 May 31, 2010 (In thousands, except percentages) Revenue by type: SSD $ 69,122 $ 13,349 Power supplies/memory and other 4,672 20,934 Net revenue $ 73,794 $ 34,283 Increase (decrease): SSD $ 55,773 Power supplies/memory and other (16,262 ) Total increase $ 39,511 Percent change: SSD 418 % Power supplies/memory and other (78 )% Total percent change 115 % The increase in net revenue in the first quarter of fiscal year 2012, compared to the same period of 2011, was due to stronger worldwide demand for SSD products. In the first quarter of 2012, SSD product sales represented approximately 94% of net revenue compared to 39% in the first quarter of fiscal 2011. The decrease in net revenue of power supplies / memory products in the first quarter of 2012, compared to the same period in 2011, was primarily due to our decision to discontinue sales of our legacy memory products, which had amounted to approximately $15 million in the prior period. Net Revenue - Geographic OCZ's domestic and international net revenue in the first quarter of fiscal year 2012, compared with the corresponding period in 2011, is presented in the table below. Also presented are the related dollar and percentage change in domestic and international net revenue in the first quarter of fiscal year 2012, compared with the corresponding period in 2011. 22 -------------------------------------------------------------------------------- Three months ended May 31, 2011 May 31, 2010 (In thousands, except percentages) Net revenue: United States $ 17,541 $ 16,623 International 56,253 17,660 Total $ 73,794 $ 34,283 Increase: United States $ 918 International 38,593 Total increase $ 39,511 Percent change: United States 6 % International 219 % Total percent change 115 % The increase in U.S. net revenue in the first quarter of 2012, compared to the corresponding period in 2011, was principally due to a 187% growth in SSD product net revenue from our domestic customers, which was partially offset by lower revenue from the sale of memory products. International net revenue in the first quarter of 2012 increased, compared to the corresponding period in 2011 primarily due to increased worldwide demand for SSDs within the EMEA Markets which realized growth of approximately 630% from the first quarter of 2011 to the first quarter of 2012 primarily in Germany. SSD product net revenue within the EMEA Markets was approximately 40% and 56% of total SSD product net revenue for the quarters ending May 31, 2010 and 2011 respectively. Gross Profit OCZ's gross profit and gross profit as a percentage of consolidated net revenue in the first quarter of fiscal year 2012, as compared with the corresponding period of 2011, are presented in the table below. Also presented are the related dollar and percentage change in gross profit in the first quarter of fiscal year 2012, as compared with the corresponding period in 2011. Three months ended May 31, 2011 May 31, 2010 (In thousands, except percentages) Gross profit $ 14,744 $ 4,164 As a percentage of net revenue 20 % 12 % Increase $ 10,580 Percent change 254 % The increase in gross profit in the first quarter of 2012, as compared to the corresponding period in 2011, was primarily due to increased net revenue in 2012. The gross profit percentage of 20% in the first quarter of 2012, compared to 12% in the first quarter of 2011, was higher primarily due to the shift in product mix to our SSD product line from our memory products as our SSD products have higher gross profit margins and represented 94% of net sales in the first quarter of 2012. In the first quarter of 2012, $11,000 of amortization of intangibles was included in cost of revenue compared to zero in the first quarter of 2011. The higher amortization of intangible expense in the first quarter of 2012 was due to the amortization of intangibles arising from the Indilinx acquisition, which was completed in March 2011. We expect to record approximately $48,000 in amortization of intangibles expenses in cost of revenue in the remaining nine months of 2012, related to intangible assets acquired in connection with the acquisition of Indilinx. Research and development OCZ's research and development expense and the expense as a percentage of consolidated net revenue in the first quarter of fiscal year 2012, as compared with the corresponding period of 2011, are presented in the table below. Also presented are the related dollar and percentage change in research and development expense in the first quarter of fiscal year 2012, as compared with the corresponding period of 2011. 23 -------------------------------------------------------------------------------- Three months ended May 31, 2011 May 31, 2010 (In thousands, except percentages) Research and development $ 4,267 $ 1,564 As a percentage of net revenue 6 % 5 % Increase $ 2,703 Percent change 173 % The increase in research and development expense in the first quarter of 2012, compared to the corresponding period in 2011, was primarily the result of increased compensation expense of $1.3 million, increased engineering project costs of $0.6 million, increased contract labor expense of $0.2 million, increased stock-based compensation expense of $0.2 million and general overhead expenses of $0.2 million. The increased compensation expense was primarily due to increased engineering headcount and activities related to the Indilinx acquisition, as well as additional hiring of employees engaged in the continued development of our SSD products. The increased engineering project costs were primarily due to material costs and lab equipment related to increased research and development efforts. Sales and marketing OCZ's sales and marketing expense and the expense as a percentage of consolidated net revenue in the first quarter of fiscal year 2012, as compared with the corresponding period of 2011, are presented in the table below. Also presented are the related dollar and percentage change in sales and marketing expense in the first quarter of 2012, as compared with the corresponding period of 2011. Three months ended May 31, 2011 May 31, 2010 (In thousands, except percentages) Sales and marketing $ 4,494 $ 2,735 As a percentage of net revenue 6 % 8 % Increase $ 1,759 Percent change 64 % The increase in sales and marketing expense in the first quarter of 2012, compared to the corresponding period in 2011, was primarily a result of increased marketing costs of $0.9 million, increased compensation expense of $0.7 million and stock based compensation of $0.1 million. The increased marketing costs are primarily due to customer incentive programs which consist of advertising and promotional programs and increased outside advertising. The increased compensation expense is primarily due to higher incentive compensation expense primarily due to increased revenue in the three months ended May 31, 2011 and increased headcount related to increased sales and marketing efforts to support new products, along with the Indilinx acquisition. General, administrative and operations OCZ's general, administrative and operations expense and the expense as a percentage of consolidated net revenue in the first quarter of fiscal year 2012, as compared with the corresponding period of 2011, are presented in the table below. Also presented are the related dollar and percentage change in general, administrative and operations expense in the first quarter of fiscal year 2012, as compared with the corresponding period of 2011. 24 -------------------------------------------------------------------------------- Three months ended May 31, 2011 May 31, 2010 (In thousands, except percentages) General, administrative and operations $ 5,645 $ 3,269 As a percentage of net revenue 8 % 10 % Increase $ 2,376 Percent change 73 % The increase in general, administrative and operations expense in the first quarter of 2012, compared to the corresponding period in 2011, was primarily a result of increased compensation expense of $1.0 million, increased shipping expense of $0.4 million, increased legal and accounting expenses of $0.4 million and increased stock-based compensation expense of $0.2 million. The increased compensation expense is primarily due to increased headcount related to the Indilinx acquisition. The increase in shipping expense is primarily due to higher freight activity resulting from the increase in sales for the three months ended May 31, 2011. The increase in legal and accounting expense is related to increased consulting and professional services in Korea as well as in our San Jose Corporate Headquarters and the closure of previous legal proceedings. Acquisition related costs OCZ's acquisition related costs expense and the expense as a percentage of consolidated net revenue in the first quarter of fiscal year 2012, as compared with the corresponding period of 2011, are presented in the table below. Also presented are the related dollar and percentage change in acquisition related costs expense in the first quarter of fiscal year 2012, as compared with the corresponding period of 2011. Three months ended May 31, 2011 May 31, 2010 (In thousands, except percentages) Acquisition related charges $ 1,702 $ - As a percentage of net revenue 2 % - % Increase $ 1,702 Percent change 100 % The increase in acquisition related charges in the first quarter of 2012, compared to the corresponding period in 2011, was due to the acquisition of Indilinx on March 25, 2011. These acquisition costs were primarily advisory, legal and accounting services. Special inventory charge During the three months ended May 31, 2011, the Company recorded a special inventory charge of approximately $3 million and increased the inventory reserves accordingly. This adjustment was to write-off prior generation SSD products and related components which were part of SSD bill of materials targeted toward the low margin consumer markets rather than the higher margin enterprise markets which the Company is now targeting, particularly as a result of the equity funding completed in April. This strategy change was adopted late in May and was the result of various product roadmap collaboration meetings with Indilinx beginning after the acquisition closed on March 25, 2011. The key business requirement was to have the newly combined R&D teams focus on future product development for the enterprise markets. Three months ended May 31, 2011 May 31, 2010 (In thousands, except percentages) Special inventory charge $ 2,975 $ - As a percentage of net revenue 4 % - % Increase $ 2,975 Percent change 100 % Other expense, net OCZ's other expense, net, as a percentage of consolidated net revenue in the first quarter of fiscal year 2012, as compared with the corresponding period of 2011, are presented in the table below. Also presented are the related dollar and percentage change in other expense, net, in the first quarter of fiscal year 2012, as compared with the corresponding period of 2011. Three months ended May 31, 2011 May 31, 2010 (In thousands, except percentages) Other expense, net $ 75 $ 3 As a percentage of net revenue - % - % Increase $ 72 Percent change 2,400 % The increase in other expense, net, in the first quarter of 2012, compared to the corresponding period of 2011, was primarily due to foreign currency transaction losses related to the New Taiwan dollar. 25 --------------------------------------------------------------------------------Interest and financing costs OCZ's interest and financing costs, and the expense as a percentage of consolidated net revenue in the first quarter of fiscal year 2012, as compared with the corresponding period of 2011, are presented in the table below. Also presented are the related dollar and percentage change in interest and financing costs in the first quarter of fiscal year 2012, as compared with the corresponding period of 2011. Three months ended May 31, 2011 May 31, 2010 (In thousands, except percentages) Interest and financing costs $ 438 $ 542 As a percentage of net revenue - % 2 % Decrease $ (104 ) Percent change (19 )% The decrease in interest and financing costs in the first quarter of 2012, compared to the first quarter of 2011, was primarily due to decreased borrowings during the quarter primarily from the repayment of the bank loan in April 2011. Adjustment to the fair value of common stock warrants OCZ's adjustment to the fair value of common stock warrant expense, and the expense as a percentage of consolidated net revenue in the first quarter of fiscal year 2012, as compared with the corresponding period of 2011, are presented in the table below. Also presented are the related dollar and percentage change in adjustment to the fair value of common stock warrant expense in the first quarter of fiscal year 2012, as compared with the corresponding period of 2011. Three months ended May 31, 2011 May 31, 2010 (In thousands, except percentages) Adjustment to the fair value of common stock warrants $ 4,241 $ 899 As a percentage of net revenue 6 % 3 % Increase $ 3,342 Percent change 372 % The increase in the adjustment to the fair value of common stock warrants in the first quarter of 2012, compared to the first quarter of 2011, was primarily due to the higher stock price and an increased volatility factor used in the Black-Scholes valuation model. Income Taxes OCZ's provision for income taxes, as a percentage of consolidated net revenue, in the first quarter of fiscal year 2012, as compared with the corresponding period of 2011, are presented in the table below. Also presented are the related dollar and percentage changes in income taxes in the first quarter of fiscal year 2012, as compared with the corresponding period of 2011. Three months ended May 31, 2011 May 31, 2010 (In thousands, except percentages) Provision for income taxes $ - $ - As a percentage of loss before income taxes - % - % Increase $ - Percent change - % There was no provision for income taxes in the first quarter of 2012 or in the first quarter of 2011 as a result of the net losses incurred in each period. 26 -------------------------------------------------------------------------------- All tax periods after December 31, 2005 remain open and subject to audit by various Federal, State and Foreign taxing jurisdictions. The company changed its tax reporting period from December 31st to the end of fiscal February with the filing of the Company's 2008 Federal and State Corporate Income Tax Returns. Liquidity and Capital Resources Three months ended May 31, 2011 May 31, 2010 (In thousands) Net cash used in operating activities $ (22,637 ) $ (10,357 ) Net cash used in investing activities (291 ) (341 ) Net cash provided by financing activities 69,758 13,785 As of May 31, 2011, cash and cash equivalents totaled $64.4 million, compared to $17.5 million as of February 28, 2011. Operating Activities. Cash used in operations in the first three months of fiscal year 2012 was $22.6 million, resulting from a net loss of $9.1 million, decreased by an aggregate of $9.5 million in non-cash charges and increased by an aggregate of $23.0 million in net change in assets and liabilities. The significant non-cash charges included fair value adjustments of common stock warrants and an inventory reserve provision. The net change in assets and liabilities resulted primarily from an increase in accounts receivable and inventories, and a decrease in accounts payable. The increase in accounts receivable is due to higher revenue which was non-linear during the first quarter of fiscal 2012. The increase in inventory is primarily due to higher sales volumes and new product introductions. The decrease in accounts payable is primarily due to the timing of payments to our vendors. Cash used in operations for three months ended May 31, 2010 was $10.4 million, resulting from a net loss of $4.8 million, decreased by an aggregate of $1.6 million in non-cash charges and increased by an aggregate of $7.2 million net change in assets and liabilities. The significant non-cash charges included fair value adjustments of common stock warrants, bad debt expenses, depreciation and stock-based compensation expense. The net change in assets and liabilities included an increase in inventory for future sales, an increase in accounts receivable due to higher shipments in the first quarter of fiscal year 2010, an increase in prepaid expenses and a decrease in accounts payable primarily from the payment of inventory purchases in order to open up additional vendor credit limits. Investing Activities. Net cash used in investing activities was $0.3 million in the three months ended May 31, 2011, resulting from the purchase of capital equipment primarily to expand our manufacturing facility in Taiwan. Net cash used in investing activities was $0.3 million in the three months ended May 31, 2010, resulting from capital expenditures of $0.2 million primarily to support our growth and establish our warehouse and manufacturing facility in Taiwan and $0.1 million related to the earn out payments for the 2007 acquisition of PC Power and Cooling. Financing activities. Net cash provided by financing activities of $69.8 million for the three months ended May 31, 2011 was primarily the result of net proceeds of $93.7 million from the issuance of common stock related to a stock offering, which was partially offset by the repayment of bank loans of $24.0 million. Net cash provided by financing activities was $13.8 million for the three months ended May 31, 2010 was primarily from the issuance of common stock of $14.0 million, net of issuance costs. 27--------------------------------------------------------------------------------Other factors affecting liquidity and capital resources. We have historically not generated sufficient cash from operations and have relied upon equity offerings and debt financing such as receivable factoring, increased trade terms from vendors, and bank lines of credit as we have grown. In July 2009, we entered into a Loan and Security Agreement with Silicon Valley Bank (as amended, the "SVB Agreement" and collectively with the FGI Agreement, the "Factoring Loan Agreements") to factor all our domestic receivables up to $10 million in the aggregate. The SVB Loan Agreement capped the aggregate debt under both Factoring Loan Agreements to $17.5 million. Under the Factoring Loan Agreements we had guaranteed our obligations thereunder and had pledged substantially all of our assets as security. In February 2011 we signed an agreement with SVB for asset-based financing of up to $25 million (the "New SVB Agreement"). This new agreement, which expires in February 2012, expands the $17.5 million debt capability available under the prior joint factoring arrangements with SVB and FGI. At that time, we also terminated our FGI Agreement. As part of the termination of FGI, a contractual penalty of $170,000 was paid to FGI and was included in the "Interest and financing costs" caption on the statement of operations for the fiscal year ended February 28, 2011. The New SVB Agreement contains financial covenants for quarterly EBITDA, as defined in the agreement, and a monthly quick ratio computation (our cash and accounts receivable divided by current liabilities). Interest rates range between prime +1.5% to prime +2.5%. There are also provisions for letter of credit sub-limits and various operational, reporting, restriction of cash dividends, negative and affirmative covenants with which we must comply. On April 14, 2011 all borrowings under the New SVB Agreement were repaid in full. As a result of the Indilinx acquisition, we executed four amendments to the New SVB Agreement to provide formal waivers on deal approval, subsidiary stock pledges, EBITDA levels and reporting timetables. As of July 14, 2011, we were in compliance with all covenants of the New SVB Agreement. As of May 31, 2011 and June 30, 2011, there were no outstanding loan balances under the New SVB Agreement, and the applicable interest rate is prime + 2.0%. The bank's prime rate was 4.0% at May 31, 2011. There is no assurance that we will maintain compliance with all covenants of our Factoring Loan Agreements in the future. If we are in violation of covenants in the Factoring Loan Agreements and do not receive a waiver, the lender could choose to accelerate payment effectively causing all loan balances to become due. We anticipate increasing working capital as we continue to expand our business. We intend to fund this continued expansion through the combination of cash generated by operations, increased debt facilities, and potential future equity offerings. We anticipate that working capital will constitute a material use of our cash resources. We believe that our current cash and cash equivalents will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least 12 months. Our long-term future capital requirements and financing needs will depend on many factors, including our level of revenue, the timing and extent of spending to support our product development efforts, the expansion of sales and marketing activities, the timing of our introductions of new products, the costs to ensure access to adequate manufacturing capacity and associated infrastructure and the continuing market acceptance of our products. If the sources of cash and cash equivalents are insufficient to satisfy our liquidity requirements, we could be required, or could elect, to seek additional funding through public or private equity or debt financing and additional funds may not be available on terms acceptable to us or at all. Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements. Inflation Inflation was not a material factor in either revenue or operating expenses during the three months ended May 31, 2011 or May 31, 2010. Critical Accounting Policies and Estimates The preparation of financial statements and related disclosures requires OCZ to make judgments, assumptions and estimates that affect the reported amounts of assets and liabilities, the disclosure of contingencies and the reported amounts of revenue and expenses in the financial statements and accompanying notes. Material differences may result in the amount and timing of revenue and expenses if different judgments or different estimates were made. 28 -------------------------------------------------------------------------------- Our significant accounting policies are described in Note 2 to the annual consolidated financial statements as of and for the year ended February 28, 2011, included in our Annual Report on Form 10-K filed with the SEC on May 17, 2011, and amended on May 31, 2011 and the notes to the condensed consolidated financial statements as of and for the three month period ended May 31, 2011, included herein. Our most critical accounting policies have not changed since February 28, 2011 and include the following: • Revenue recognition; • Marketing cooperative agreements; • Product warranties; • Inventory; • Income taxes; • Goodwill and other intangibles; and • Stock-based compensation. New Accounting Pronouncements In May 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2011-04, "Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS." The amendments in this ASU generally represent clarification of Topic 820, but also include instances where a particular principle or requirement for measuring fair value or disclosing information about fair value measurements has changed. This update results in common principles and requirements for measuring fair value and for disclosing information about fair value measurements in accordance with GAAP and IFRS. The amendments are effective for interim and annual periods beginning after December 15, 2011 and are to be applied prospectively. Early application is not permitted. We do not expect the adoption of ASU 2011-04 will have a material impact on our Condensed Consolidated Financial Statements. 29-------------------------------------------------------------------------------- |