UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended July 31, 2015
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from
to
Commission File No. 000-10761
Xcerra
Corporation
(Exact name of registrant as specified in its charter)
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MASSACHUSETTS |
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04-2594045 |
(State or other jurisdiction of
incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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825 University Ave Norwood, Massachusetts |
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02062 |
(Address of principal executive offices) |
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(Zip code) |
Registrants telephone number, including area code: (781) 461-1000
Securities 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 |
Common Stock, par value $0.05 per share |
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NASDAQ Global Market |
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 ¨ No x
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 ¨ No x
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 x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes x No ¨
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. x
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ¨
Accelerated Filer x
Non-Accelerated Filer ¨
Smaller Reporting Company Filer ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act.): Yes ¨ No x
The aggregate market value of the Common Stock held by non-affiliates of the registrant on January 31, 2015, the last business day of
the registrants most recently completed second fiscal quarter was $407,370,601
Number of outstanding shares of Common
Stock as of October 7, 2015: 53,847,648
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the Registrants Proxy Statement in connection with its 2015 Annual Meeting of
Stockholders are incorporated by reference into Part III of this Form 10-K.
XCERRA CORPORATION
TABLE OF CONTENTS
PART I
Item 1.
Business Introduction
Xcerra Corporation (Xcerra or the Company), formerly known as LTX-Credence Corporation, is a global provider of test and handling capital
equipment, interface products, test fixtures and related services to the semiconductor and electronics manufacturing industries. We design, manufacture and market products and services that address the broad, divergent requirements of the mobility,
industrial, medical, automotive and consumer end markets, offering a comprehensive portfolio of solutions and technologies, and a global network of strategically deployed applications and support resources. We operate in the semiconductor and
electronics manufacturing test markets through our atg-Luther & Maelzer, Everett Charles Technologies (ECT), LTX-Credence and Multitest businesses. We have a broad spectrum of semiconductor and printed circuit board (PCB) test expertise
that drives innovative new products and services and our ability to deliver fully integrated semiconductor test solutions.
On
June 12, 2015, we announced that we had executed a non-binding letter of intent to sell our semiconductor test interface board business based in Santa Clara, CA (Interface Board Business) to Fastprint Hong Kong Co., Ltd., a wholly owned
subsidiary of Shenzhen Fastprint Circuit Tech Co., Ltd, and its affiliates (collectively, Fastprint), and on September 8, 2015, we entered into a definitive and binding Asset Purchase Agreement with Fastprint for the sale of the Interface Board
Business (the Purchase Agreement).
Pursuant to the Purchase Agreement, we will sell and transfer to Fastprint certain assets
used in or primarily related to the Interface Board Business, and will assign, and Fastprint will assume, certain specified liabilities associated with the Interface Board Business, along with the transfer of the employees associated with that
business. The purchase price for the Interface Board Business is $23.0 million. $20.7 million is due at closing, with $2.3 million payable upon the first anniversary of the closing of the transaction, subject to claims for indemnification by
Fastprint, if any, prior to that time. The deal is expected to close by October 30, 2015, pending the satisfaction of customary closing conditions, including applicable governmental approvals.
On December 1, 2013, we acquired the Multitest and ECT businesses from Dover Printing & Identification, Inc. (Dover
Corporation or Dover) for $93.5 million, of which $73.5 million was paid in cash through a combination of existing cash-on-hand and bank debt, and $20.0 million was paid by the issuance of promissory notes. Pursuant to the Master Sale and Purchase
Agreement entered into with Dover Corporation on September 6, 2013, the cash purchase price was increased by $12.5 million to reflect, among other required adjustments, specified cash balances held by the acquired businesses, acquired
indebtedness, certain transaction costs, employee-related liabilities, working capital adjustments and reductions in the principal amount of the promissory notes payable to Dover Corporation in connection with the satisfaction of certain conditions.
Our Multitest business designs and manufactures products used in the testing of integrated circuits, including test handlers,
and test contactors. Our ECT business designs and manufactures equipment and consumables that are used in the testing of bare and loaded printed circuit boards. ECT, which operates under the brand names atg-Luther & Maelzer and Everett
Charles Technologies, offers a complete line of PCB testing solutions, including flying probe and universal grid testers, test fixtures and probes.
The acquisition of Multitest and ECT has enabled us to address a greater portion of the semiconductor test industry and has provided access to the broader electronics manufacturing industry. We believe
this acquisition has several strategic benefits, including: (i) broadening our semiconductor test product portfolio and uniquely positioning us as a total test cell solutions provider, (ii) enabling us to cross-sell across multiple product
lines, (iii) doubling our total addressable market from our estimate of approximately $2.3 billion to more than $5.1 billion, (iv) adding consumable and service-based, recurring revenue components to our business and (v) broadening
our customer base to include companies such as Cisco, HP, IBM, Microsoft, SanDisk and TTM Technologies, among others.
1
Semiconductor designers and manufacturers worldwide use our test and handling equipment and
interface products (test contactors and probe pins) to test their devices during the manufacturing process. The devices our products test are incorporated into a wide range of products, including personal computers; mobile internet equipment such as
wireless access points and interfaces; broadband access products such as cable modems and set top boxes; personal communication and entertainment products such as mobile phones and tablets; consumer products such as televisions, videogame systems
and digital cameras; automobile electronics; and power management devices used in portable and automotive electronics.
Our
PCB test systems are used to verify the quality of the pre-assembled PCB before individual components, including integrated circuits, are installed onto the PCB. Our test fixture products are consumable components used by PCB test systems to test
assembled PCBs. The types of PCBs that are tested using our systems are incorporated into a diverse set of electronic products including network servers, personal computers, tablets and mobile phones.
The chart below displays the semiconductor and PCB manufacturing processes and identifies the product and service offerings at the
various steps where our systems or products are used:
Image of semiconductor wafer courtesy of Taiwan Semiconductor Manufacturing Co., Ltd.
For our semiconductor test-related businesses we focus our marketing and sales efforts on integrated device manufacturers (IDMs);
outsourced semiconductor assembly and test providers (OSATs), which perform assembly and testing services for the semiconductor industry; and fabless semiconductor companies, which design integrated circuits but have no manufacturing capability. We
offer our customers a comprehensive portfolio of semiconductor test systems, test handlers and interface products and provide a global network of strategically deployed applications and support resources. Representative customers include Bosch,
HiSilicon, MediaTek, Microchip Technology, Novatek, NXP, Skyworks, ST Microelectronics, and Texas Instruments. For our PCB test systems and PCB assembly test fixtures and design services, we focus our marketing and sales efforts on the manufacturers
of PCBs, as well as the companies into whose products the PCBs are incorporated. Representative customers for these businesses include AT&S, Continental, Microsoft, Samsung, TTM Technologies and Wurth.
2
Our objective is to be the leading supplier of market-focused, cost-optimized test solutions
for the semiconductor and electronics manufacturing test markets. Key elements of our growth strategy include:
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Continue to introduce new, innovative products. We intend to continue to invest in the development of new test solutions designed to meet
evolving customer demands such as achieving the lowest cost of test and reducing the time to high volume production on new products. We intend to leverage our existing technical expertise and continue to invest significant resources both in our
current solutions and in developing solutions that address new markets as well as new segments of existing markets. |
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Leverage total test cell capabilities. We believe we are the only supplier capable of providing a total test cell solution and will continue to
leverage this unique capability with our customers. Our customers historically have had to source disparate test products from multiple third-party providers to create their own solutions, which can lead to inefficiencies and increased costs. By
offering a total test cell solution, we are able to help customers better fulfill their testing requirements and improve their overall manufacturing and testing process. |
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Generate cross-selling opportunities between our leading brands. Our acquisition of Multitest and ECT offers significant cross-selling
opportunities across our brands and product portfolio. We will continue to build and strengthen our relationships with existing customers, as we believe there are significant opportunities to cross-sell load boards, test contactors and test handlers
to our existing semiconductor ATE customers. |
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Increase additional sales of test handlers and consumables through our existing distribution relationships. We have expanded our relationship
with our largest distributor to include test handlers and consumables, which will enable us to better serve customers in fast-growing geographies, including China and Taiwan. |
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Opportunistically pursue strategic acquisitions. We may pursue acquisitions that complement our strengths and help us execute our strategies.
Our acquisition strategy is designed to accelerate our revenue growth, expand our technology portfolio and grow our addressable market. |
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Continue to improve operational efficiency. In order to focus our resources, improve our responsiveness to customer needs, reduce fixed costs
and working capital requirements and manage the cyclicality of our industry more effectively, we have implemented a lean, flexible business model. We intend to continue to identify and implement programs which enhance our ability to meet
customers needs while reducing fixed costs. |
We are headquartered and have a development facility in
Norwood, Massachusetts. We also have manufacturing and other development facilities located in Milpitas, Santa Clara and Fontana, California; Rosenheim, Germany; Wertheim, Germany; Shenzhen, China; Singapore; Yerevan, Armenia and Penang, Malaysia
and sales and service facilities located across the world to support our customer base. Following the sale of our Interface Board Business to Fastprint, we will no longer operate a facility in Santa Clara, California.
We were incorporated in Massachusetts in 1976 as LTX Corporation. In connection with our August 2008 merger with Credence Systems
Corporation, we changed our name to LTX-Credence Corporation and, following the acquisition of our Multitest and ECT businesses, we changed our name to Xcerra Corporation in May 2014. Our principal executive offices and global headquarters are
located at 825 University Avenue, Norwood, Massachusetts 02062, and our telephone number is 781-461-1000. Our common stock trades on the NASDAQ Global Market under the symbol XCRA. The terms Xcerra, the Company,
we, our, and us refer to Xcerra Corporation and its wholly-owned subsidiaries unless the context otherwise indicates. We make available our annual reports on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K and all amendments to those reports, free of charge, in the Investors section of our website at www.xcerra.com as soon as reasonably practicable after such material is electronically filed with, or furnished
to, the U.S. Securities and Exchange Commission. We are not, however, including the information contained on our website, or information that may be accessed through links on our website, as part of, or incorporating such information by reference
into, this Annual Report on Form 10-K.
3
Industry Overview
We provide test solutions to the large and growing electronics manufacturing industry, of which semiconductors and PCBs are key components.
Sales of capital equipment products are driven by the expansion of manufacturing and test capacity, or when customers replace existing
equipment with new equipment. Sales of consumable products, which include service, are driven by the level of manufacturing and test activity, and need to be replaced based on usage levels or to accommodate new designs or test techniques. Therefore,
overall demand for our capital equipment and consumable products and services is generally dependent on growth in the semiconductor and electronics industry.
In particular, three primary characteristics of the industry in which we operate drive the demand for our products and services:
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i) |
Increases in unit production of semiconductor devices and PCBs. The proliferation of sophisticated electronic devices including tablets, consumer electronics,
the growth of the telecommunications industry and mobile devices capable of accessing the internet, the increased use of digital signal processing (DSP) devices, and the expansion of semiconductor devices in automotive and power management
applications are driving a corresponding need for semiconductor and PCB test solutions. |
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ii) |
Increases in the complexity of semiconductor devices and PCBs used in electronic products. Increasing demand continues worldwide for smaller, more highly
integrated electronic products. This has led to higher performance and increasing complexity of the semiconductor devices that operate and power these electronic products. To the extent a customers existing test equipment is not able to meet
the requirements of these new devices, there is a corresponding increase in demand for equally sophisticated semiconductor and PCB test solutions. |
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iii) |
Emergence of next generation electronic products requiring new semiconductor and PCB technologies. The introduction of new generations of end-user electronics
products requires the development of new semiconductor device and PCB technologies. The increase in complexity of leading edge end-user devices, and, ultimately, the emergence of new semiconductor device and PCB technologies have mandated changes in
the design, architecture and complexity of semiconductor and PCB test solutions. Semiconductor and PCB manufacturers must be able to test the increasing volume and complexity of their devices in a reliable, cost-effective, efficient and flexible
manner. |
Products and Services
We offer a wide range of products and services to the semiconductor and electronics manufacturing industries, including semiconductor
automated test equipment (ATE), test handlers, bare board PCB test equipment, test contactors, probe pins and loaded PCB test fixtures. In accordance with the provisions of Financial Accounting Standards Board (FASB) Topic 280, Segment
Reporting to the FASB ASC (ASC 280), for the fiscal year ended July 31, 2015 (fiscal 2015), we determined that we have six operating segments (Semiconductor Test, Semiconductor Handlers, Contactors, PCB Test, Probes / Pins, and Fixtures).
Based on the aggregation criteria of ASC 280, we determined that several of the operating segments can be aggregated due to these segments having similar economic characteristics and meeting all of the other aggregation criteria in ASC 280.
Consequently, we have two reportable segments: the Semiconductor Test Solutions (STS) reportable segment, which is comprised of the Semiconductor Test, Semiconductor Handlers, and Contactors operating segments, and the Electronic Manufacturing
Solutions (EMS) reportable segment, which is comprised of the PCB Test, Probes / Pins, and Fixtures operating segments. This financial reporting structure was implemented effective as of December 1, 2013, the acquisition date of Multitest and
ECT. Refer to Note 10, Segment, Industry and Geographic and Significant Customer Segment Information, contained in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, for more
information on our reportable segments.
4
Our revenue from our capital equipment products is driven by the capital expenditure budgets
and spending patterns of our customers, who often delay or accelerate purchases in reaction to variations in their business. The level of capital expenditures by these companies depends on the current and anticipated market demand for semiconductor
devices and PCBs and the products that incorporate them.
Our consumable products are driven by an increase in the number of
printed circuit boards and semiconductor devices that are tested. As a result, our consumable products provide a more stable recurring source of revenue and do not have the same degree of cyclicality as our capital equipment products.
Listed below is a summary of our various product offerings:
Semiconductor ATE Solutions. Semiconductor automated test equipment is used to test a device at two different points in the manufacturing process; first after it has been fabricated but before it
has been packaged and then again after it has been packaged, in both cases to eliminate non-functioning parts. Our semiconductor ATE solutions consist of three scalable platforms focused primarily on the system on a chip (SoC) market. Our Diamond
series platform offers high-density packaging for low-cost testing of microcontrollers and cost sensitive consumer and digital-based ASSP and ASIC devices. Our X-Series platform offers configurations for optimal testing of analog-based ASSP and
ASIC, power, automotive, mixed signal and RF applications. Our ASL platform is a market leader for testing linear, low-end mixed signal, precision analog and power management devices.
Test Handlers. Test handlers are used in conjunction with automated test equipment and are used to automate the testing of
packaged semiconductor devices. Our test handlers support a variety of package sizes and device types, including automotive, mobile, power, microelectromechanical systems (MEMS) and microcontrollers, among others. We offer a broad range of test
handlers, including pick-and-place, gravity, strip and MEMS.
Bare Board PCB Test Systems. Bare board PCB test systems
are used to test pre-assembled printed circuit boards. Our PCB test systems include flying probe testers, which are used to test low-volume, highly complex circuit boards and do not require the use of a separate test fixture, as well as universal
grid testers, which require the use of a separate test fixture and are well-suited to test circuit boards that are produced in high volumes.
Semiconductor Load Boards. Semiconductor load boards are circuit boards that are specifically designed to serve as an interface between the tester and the semiconductor device, or the semiconductor
wafer, that is being tested. We are focused on the high-end segment of the market and design and manufacture high pin count, high aspect ratio and fine pitch products. Typically, each new semiconductor device design requires the use of a specific
semiconductor load board. On September 8, 2015, we agreed to sell this Interface Board Business to Fastprint pursuant to the Purchase Agreement. As a result, certain assets, including this product line, are included as assets held for sale in
our consolidated balance sheets at July 31, 2015 and 2014.
Test Contactors. Test contactors are used in the final
test of semiconductor devices and serve as the interface between the test handler and the semiconductor device under test. Test contactors are specific to individual semiconductor device designs, need to be replaced frequently and grow with the
number of devices tested in parallel. We offer a wide range of test contactors for standard, power and RF markets.
Probe
Pins. Probe pins are physical devices that are used to connect electronic test equipment to the device under test. We offer probes that are incorporated into bare board test systems, loaded PCB test fixtures and semiconductor test contactors. We
address a wide range of applications with our spring probes, voltage probes, current probes, near-field probes, temperature probes, demodulator probes and logic probes.
Loaded PCB Test Fixtures. Test fixtures enable the transmission of test signals from the loaded PCB to the tester. We offer a wide range of in-circuit and functional test fixtures that can be
optimized based on the complexity of the loaded PCB and production volume requirements. Our solutions address highly complex and low-to-medium technology applications.
5
Services. Our worldwide service organization is capable of performing installations
and necessary maintenance of test and handling systems sold by us, including routine servicing of spare parts manufactured by third parties. We provide various parts and labor warranties on test and handling systems and instruments designed and
manufactured by us and warranties on certain components that have been purchased from other manufacturers and incorporated into our test and handling systems. We also provide training on the maintenance and operation of test and handling systems we
sell. Service revenues from our LTX-Credence maintenance and service contracts were $28.6 million, or 8% of net sales, in fiscal 2015; $33.3 million, or 10% of net sales, in the fiscal year ended July 31, 2014 (fiscal 2014); and $34.0 million,
or 22.4% of net sales, in the fiscal year ended July 31, 2013 (fiscal 2013).
Engineering and Product
Development
The markets in which we compete are characterized by rapid technological change and new product introductions,
as well as advancing industry standards. Our competitive position depends upon our ability to successfully enhance our products, develop new instrumentation, and introduce these new products on a timely and cost-effective basis. We seek to maintain
close relationships with our customers to better enable us to be responsive to their product development and production needs.
Our engineering strategy is to continue to develop new and innovative products in the markets in which we compete, as well as leveraging
those technologies into providing an efficient and effective total test cell solution.
Our engineering
strategy for our test products includes continued development of our Diamond, X-Series and ASL platforms. Leveraging both hardware and software technologies across platforms is a key objective moving forward as we convert our knowledge and expertise
into cost-effective solutions. The development and release of the Diamondx, ASLx and
PAx products are examples of our technology leveraged focus
on the tester side. For our handler products, we are focused on continued development of our MT2168 and InCarrier solutions. For our printed circuit board test equipment we are focused on continued development of flying probe test technology and
enhancements to our grid array test products.
Sales and Distribution
We sell our products through a combination of a worldwide internal direct sales organization and external distributors for each of our
reportable segments. Our direct sales organization is structured around key accounts, with a sales force of 139 people as of July 31, 2015. We also use third party distributors to sell our products in certain markets such as in Taiwan, China,
Japan, South Korea, and other countries in Southeast Asia.
Our sales to customers outside the United States are primarily
denominated in United States dollars. Our sales outside the United States composed 79%, 78%, and 83% of total net sales in fiscal 2015, 2014, and 2013, respectively. See Note 10 to our Consolidated Financial Statements for additional information
relating to revenues derived from sales to customers outside the United States.
Customers
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For the fiscal years ended July 31, |
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2015 |
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2014 |
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2013 |
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The following customers had net sales in excess of 10% of our total net sales for the periods indicated: |
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Spirox (1) |
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13 |
% |
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17 |
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27 |
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Texas Instruments |
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<10 |
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<10 |
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12 |
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Net sales to the top ten customers were 54%, 51%, and 70% of net sales in fiscal 2015, 2014,
and 2013, respectively.
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(1) |
Spirox is our third-party sales distributor for Taiwan and China. There are no end customers sold through Spirox that represent greater than 10% of our net sales for
any period presented. |
A representative list of our customers includes:
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Amkor |
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Intersil |
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Renesas |
Anadigics |
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KYEC |
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RichTek |
Analog Devices |
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Linear Technology Corporation |
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Samsung |
AT&S |
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Maxim Integrated Products |
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Sigurd |
Atmel |
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Mediatek |
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Skyworks Solutions |
ams AG |
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Melexis |
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Spirox |
ASE |
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Microchip Technology |
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STATSChipPac |
Robert Bosch GmbH |
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Microsoft |
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STMicroelectronics |
Carsem |
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Murata |
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Texas Instruments |
Continental |
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Nordic Semiconductor |
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TTM Technologies |
Elmos |
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NXP |
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Unisem |
Giga Solution |
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OnSemiconductor |
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UTAC |
HiSilicon |
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Qorvo |
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Wurth |
Infineon Technologies |
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We have concentrated our sales and support efforts on those semiconductor companies from which we believe
we will receive the most return for our efforts. We believe that sales to a limited number of customers will continue to account for a high percentage of our net sales for the foreseeable future.
Manufacturing and Supply
We manufacture our products using a combination of internal and outsourced manufacturing solutions. We use Jabil Circuit as our outsourced partner for the manufacturing of our X-Series, ASL and Diamond
products, and internal resources for the majority of our other products. During late fiscal 2015 we began moving the manufacturing of certain of our fixtures products to Jabil.
We outsource certain components and subassemblies for our test equipment to contract manufacturers other than Jabil Circuit. Our products
incorporate standard components and prefabricated parts manufactured to our specifications. These components and subassemblies are used to produce testers in configurations specified by our customers. Some of the standard components for our products
are available from a number of different suppliers; however, many such standard components are purchased from a single supplier or a limited group of suppliers. Although we believe that all single sourced components currently are available in
adequate amounts, shortages or delivery delays may develop in the future. We are dependent on certain semiconductor device manufacturers, who are sole source suppliers of custom components for our products. We have no written supply agreements with
these sole source suppliers and purchase our custom components through individual purchase orders. We continuously evaluate alternative sources for the manufacture of our custom components and the supply of our standard components; however, such
alternative sources may not meet our required qualifications or have capacity that is available to us.
Competition
There are other domestic and foreign companies that participate in the markets for each of our products and the industry for each of our reportable segments is highly competitive. We compete principally
on the basis of product performance, cost of test, reliability, customer service, applications support, price and ability to deliver
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products and service on a timely basis. In addition, to increase our market share, we will also need to demonstrate an ability to overcome customer risks and costs associated with switching
vendors, including training on unfamiliar hardware and software.
Our primary competitors in the market for semiconductor test
systems include Advantest Corporation and Teradyne Inc. These companies have a substantially larger share of the ATE market, greater financial and other resources, and have a larger installed base of equipment than we do. Our primary competitor in
the handler and contactor markets is Cohu, Inc. We expect our competitors to enhance their current products, introduce new products which may have comparable or better price and performance than ours, diligently defend their existing customer
accounts, and attempt to grow their market share. In addition, new competitors, including semiconductor manufacturers themselves, may offer new testing technologies, which may compete with or otherwise reduce the value of our product lines.
We believe our key competitive strengths include:
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Technologically advanced products well suited for industrys most challenging applications. Our breadth of capital equipment, including
semiconductor ATE, test handlers and PCB testers, and consumables, including electronic interconnect and interface products, enable us to design solutions that lower the cost of testing, improve operating effectiveness of the test cell and reduce
time to high volume production for our customers. |
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Uniquely positioned as total test cell solutions provider. The combination of our semiconductor ATE, test handlers, load boards and test
contactors products enables us to provide customers with a complete solution that optimizes performance for selected test cell configurations. |
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Focused on fast growing segments within the semiconductor and PCB markets. We believe, based on management estimates, that we have more than
doubled our addressable market to over $5 billion through the acquisition of Multitest and ECT and through strategic internal product development. We believe that our core end-markets, which include analog/mixed-signal, microcontroller, RF, power
management and automotive, should grow in excess of broader semiconductor and electronics test markets. |
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Long-standing customer relationships with limited concentration. Our acquisition of Multitest and ECT has further diversified our blue chip
customer base beyond semiconductor device suppliers to leading mobile, industrial, medical, automotive and printed circuit board companies. Our close customer relationships with leading innovators in the electronics industry have been built based on
years of collaborative product development, which provides us with deep system-level knowledge and key insights into our customers needs. |
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Highly leveraged operating model drives significant earnings growth in up cycle. We have a history of reducing costs and driving increased
profitability. Our capital equipment products and fixed cost structure enable us to generate significant profitability during cycle upturns. |
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Strong recurring revenue model enables through-cycle profitability. Our acquisition of Multitest and ECT more than doubled our recurring revenue
base, which now comprises approximately 50% of our total revenue. Our consumables products are unit driven, recurring in nature, and less volatile during cycle downturns compared with our capital equipment products. |
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Experienced management and engineering team with demonstrated ability to integrate accretive acquisitions. Our chief executive officer and chief
financial officer/chief operating officer have over 35 years of combined experience with us and have successfully identified, executed, and integrated multiple accretive acquisitions. The acquisition of Credence Systems Corporation in 2008
broadened our semiconductor test capabilities and offered substantial cost savings opportunities. The acquisition of Multitest and ECT in 2013 has enabled us to become a diversified electronics test solutions provider with a larger base of recurring
revenue. |
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Backlog
At July 31, 2015, our backlog of unfilled orders for all products and services was $56.7 million, compared with $97.3 million at
July 31, 2014. The $40.6 million, or 42%, decrease was primarily due to lower bookings during fiscal 2015. Historically, our test systems generally ship within twelve weeks of receipt of a customers purchase order. Our probes and
contactors generally ship within one to three weeks of a customers purchase order. While backlog is calculated on the basis of firm orders, orders may be subject to cancellation or delay by the customer with limited or no penalty. Our backlog
at any particular date, therefore, is not necessarily indicative of actual sales which may be generated for any succeeding period.
The backlog as of July 31, 2015 for our reportable segments was as follows (in millions):
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Semiconductor Test Solutions |
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$ |
47.4 |
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Electronic Manufacturing Solutions |
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$ |
9.3 |
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Total |
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$ |
56.7 |
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Proprietary Rights
The development of our products is largely based on proprietary information. We rely upon a combination of contract provisions,
intellectual property registration and copyright, trademark and trade secret laws to protect our proprietary rights in products. We also have a policy of seeking patents on technology considered to be of particular strategic importance. Our patents
cover various technologies, including technology relating to proprietary instrumentation and pin electronics. Although we believe that the copyrights, trademarks and patents we own are of value, we also believe that they alone have not and will not
determine our success. We believe that our overall success depends principally upon our management, engineering, applications, manufacturing, marketing and service skills. Regardless, we intend to protect our rights when, in our view, these rights
are infringed upon.
We have at times been notified of claims that we may be infringing patents issued to others. Although
there are no pending actions against us regarding any patents, claims of infringement by third parties could negatively impact our business and results of operations. As to any claims asserted against us, we may seek or be required to obtain a
license under the third partys intellectual property rights. However, a license may not be available under reasonable terms or at all. In addition, we could decide to engage in litigation to challenge such claims or a third party could engage
in litigation to enforce such claims. Such litigation could be expensive and time consuming and could negatively impact our business and results of operations.
Employees
At July 31, 2015, we had 1,722
employees and temporary workers. None of our employees is represented by a labor union, and we have experienced no work stoppages during our history. Many of our employees are highly skilled, and we believe our future success will depend in large
part on our ability to retain these employees and attract new, highly-skilled employees. We consider relations with our employees to be good.
Environmental Affairs
Our facilities are subject to numerous laws and regulations designed to protect the environment. We do not anticipate that compliance with these laws and regulations will have a material effect on our
capital expenditures, results of operations, or financial condition.
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This Annual
Report includes or incorporates forward-looking statements that involve substantial risks and uncertainties and fall within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. You can identify these forward-looking statements by our use of the words believes, anticipates, plans, expects, may, will, would,
should, intends, estimates, seeks or similar expressions, whether in the negative or affirmative. We cannot guarantee that we actually will achieve these plans, intentions or expectations. Actual
results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included below important factors that we believe could cause our actual results to differ materially
from the forward-looking statements that we make. If any of these risks were to occur, our business, financial condition, results of operations or prospects, could be materially and adversely affected. These risks and uncertainties may be
interrelated or co-related, and as a result, the occurrence of one risk might directly affect other risks described below, make them more likely to occur or magnify their impact. Moreover, the risks and uncertainties described below are not the only
ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business. We do not assume any obligation to update any forward-looking statement we make.
Our mergers and acquisitions may be costly, be difficult to integrate, disrupt our business, dilute stockholder value, and divert
management attention, which may limit our ability to realize the anticipated benefits of such transactions.
We have in
the past, and may in the future, seek to acquire or invest in businesses, products, technologies or engineers which could put a strain on our resources, result in one-time charges (such as acquisition-related expenses, write-offs or restructuring
charges) or in the future, impairment of goodwill, cause ownership dilution to our stockholders and adversely affect our financial results. Additionally, we may fund future acquisitions by utilizing our cash, raising debt, issuing shares of our
common stock, or by other means, which could subject us to the risks described below in We may need financing, which could be difficult to obtain. We have also incurred and may continue to incur certain liabilities or other expenses in
connection with acquisitions, which could materially adversely affect our business, financial condition and results of operations.
Mergers and acquisitions of high-technology companies are inherently risky, and future mergers or acquisitions may not be successful and could materially adversely affect our business, operating results
or financial condition. Integrating newly acquired businesses, products or technologies into our company could put a strain on our resources, could be expensive and time consuming, may cause delays in product delivery and might not be successful.
Future acquisitions and investments could divert managements attention from other business concerns and expose our business to unforeseen liabilities (including liabilities related to acquired intellectual property and other assets),
unanticipated costs associated with transactions, and risks associated with entering new markets. In addition, we might lose key employees while integrating new organizations. We might not be successful in integrating any acquired businesses,
products and product development projects, technologies, personnel, operations, or systems, and might not achieve anticipated revenues and cost benefits. Investments that we make may not result in a return consistent with our projections upon which
such investments are made, or may require additional investment that we did not originally anticipate. In addition, future acquisitions could result in customer dissatisfaction, performance problems with an acquired company, potentially dilutive
issuances of equity securities or the incurrence of debt, contingent liabilities, possible impairment charges related to goodwill or other intangible assets or other unanticipated events or circumstances, any of which could harm our business,
financial condition, results of operations, and could cause the price of our common stock to decline.
Our primary
market is the highly volatile semiconductor industry, which causes significant fluctuations in our financial results.
We sell capital equipment and peripheral connectivity products to companies that design, manufacture, assemble, and test semiconductor
devices. The semiconductor industry is highly volatile, causing significant
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fluctuations on our financial results. Our business typically is negatively impacted in the second quarter of each fiscal year due to weak seasonality that occurs at this time of the year. The
ability to forecast the business outlook for our industry is typically limited to three months. Regardless of our outlook and forecasts, any failure to expand in cycle upturns to meet customer demand and delivery requirements or contract in cycle
downturns at a pace consistent with the industry could have an adverse effect on our business.
Any significant downturn in
the markets for our customers semiconductor devices or in general economic conditions would likely result in a reduction in demand for our products and would negatively impact our business. Downturns in the semiconductor test equipment and
electronics manufacturing industries have been characterized by diminished product demand, excess production capacity, accelerated erosion of selling prices and excessive inventory levels. We believe the markets for newer generations of
semiconductor devices and electronic products will also have similar characteristics. Our market is also characterized by rapid technological change and changes in customer demand. In the past, we have experienced delays in purchase commitments,
delays in collecting accounts receivable and significant declines in demand for our products during these downturns, and we may not be able to maintain or exceed our current level of sales.
Additionally, as a capital equipment provider, our revenue is driven by the capital expenditure budgets and spending patterns of our
customers who often delay or accelerate purchases in reaction to variations in their businesses. Because a high portion of our costs are fixed, we are limited in our ability to reduce expenses and inventory purchases quickly in response to decreases
in orders and revenues. In an economic contraction, we may not be able to reduce our significant fixed costs, such as continued investment in research and development, capital equipment requirements and materials purchased from our suppliers.
The market for capital equipment is highly concentrated, and we have limited opportunities to sell our products.
The semiconductor and electronics manufacturing industries are highly concentrated, and a small number of
semiconductor device manufacturers, contract assemblers, and electronics manufacturers account for a substantial portion of the purchases of capital equipment generally, including our equipment. Our top customer in fiscal 2015 and 2014 was Spirox,
which accounted for 13% and 17%, respectively, of our net sales in those years. In fiscal 2013, our top customers were Spirox and Texas Instruments, which accounted for 27% and 12% of our net sales, respectively. Sales to the top ten customers were
54%, 51%, and 70%, of net sales in fiscal 2015, 2014, and 2013, respectively. Our customers may cancel orders with few or no penalties. If a major customer reduces orders for any reason, our revenues, operating results, and financial condition may
be negatively affected.
Our ability to increase our sales will depend, in part, on our ability to obtain orders from new
customers. Semiconductor and electronics manufacturers typically select a particular vendors product for testing and handling its new generations of a device and make substantial investments to develop related test program applications and
interfaces. Once a manufacturer has selected a test and/or handling system vendor for a new generation of a device, that manufacturer is more likely to purchase systems from that vendor for that generation of the device, and, possibly, subsequent
generations of that device as well. Therefore, the opportunities to obtain orders from new customers may be limited, which may impair our ability to grow our revenue.
Our debt and financial obligations could adversely affect our financial condition and ability to operate our business, we may not be able to pay our debt and other obligations, and we may incur
additional debt.
As of July 31, 2015, our outstanding indebtedness was approximately $27.5 million. During fiscal
2015 we repaid $40.7 million of our outstanding indebtedness. Although we repaid a portion of our outstanding indebtedness, we may incur additional indebtedness in the future. Our existing indebtedness and any additional indebtedness that we may
incur in the future could have important consequences, including:
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making it more difficult for us to satisfy our obligations under our debt agreements, including financial and operational restrictions;
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making it difficult for us to obtain any necessary future financing for working capital, capital expenditures, debt service requirements or other
purposes; |
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limiting our future ability to refinance our indebtedness on terms acceptable to us or at all; |
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requiring us to dedicate a substantial portion of any cash flow from operations to pay principal and interest on our indebtedness, thereby reducing the
amount of cash flow available for other purposes, including capital expenditures; |
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limiting our flexibility in planning for, or reacting to changes in, our business and the industries in which we compete; |
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placing us at a possible competitive disadvantage with respect to less leveraged competitors and competitors that have better access to capital
resource; and |
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making us more vulnerable in the event of a downturn in our business. |
Our debt level and the terms of our financing arrangements could adversely affect our financial condition and limit our ability to
successfully implement our growth strategy.
We may not be able to meet our debt service obligations, including our
obligations under a Credit Agreement (the Credit Agreement) with ECT (together with us, the Borrowers), Silicon Valley Bank, as lender, administrative agent and issuing lender (SVB), and the several lenders from time to time part thereto (the
Lenders) dated December 15, 2014. The Credit Agreement provides for a senior secured credit facility, consisting of a term loan facility, in favor of the Borrowers in the aggregate principal amount of $25.0 million which was advanced to us on
December 15, 2014 (Facility). If we are unable to maintain certain financial covenants, we would be in default under the Facility, which could permit the Lenders to accelerate the maturity of the Facility. Any such default could have material
adverse effect on our business, prospects, financial position and operating results, and could force us to refinance all or part of our existing debt, sell our assets, borrow more money or raise equity. There is no guarantee that we would be able to
take any of these actions on a timely basis, on terms satisfactory to us, or at all. In addition, we may not be able to repay amounts due in respect of our obligations, if payment of those obligations were to be accelerated following the occurrence
of any other event of default as defined in the instruments creating those obligations.
We may need additional
financing, which could be difficult to obtain or limit our operational flexibility.
We believe our cash, cash
equivalents, and marketable securities balance of $138.5 million as of July 31, 2015 will be sufficient to fund our ongoing operations for at least the next twelve months. However, we may need to raise additional funds in the future and, in
such event, we may not be able to obtain such financing on favorable terms, if at all. Further, if we issue additional equity or equity-linked securities to obtain financing, stockholders may experience dilution. If we incur substantial additional
indebtedness in the future, the risks described above under Our substantial debt and financial obligations could adversely affect our financial condition and ability to operate our business, we may not be able to pay our debt and other
obligations, and we may incur additional debt would intensify.
Our sales and operating results have
fluctuated significantly from period to period, including from one quarter to another, and they may continue to do so.
Our quarterly and annual operating results are affected by a wide variety of factors that have had and could continue to have material and
adverse effects on our financial condition and stock price or lead to significant variability in our operating results or our stock price, including the following:
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the fact that sales of a limited number of test systems may account for a substantial portion of our net sales in any particular fiscal quarter,
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order cancellations by customers; |
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lower gross margins in any particular period due to changes in: |
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the configurations of test systems sold, |
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the customers to whom we sell our test systems, or |
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a long sales cycle due to the significant investment made by our customers in installing our test systems and the time required to incorporate our
systems into our customers design or manufacturing process; and |
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changes in the timing of product orders due to: |
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unexpected delays in the introduction of products by our customers, |
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excess production capacity by our customers, |
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shorter than expected lifecycles of our customers semiconductor devices, |
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uncertain market acceptance of products developed by our customers, or |
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our own research and development. |
We cannot predict the impact of these and other factors on our sales and operating results in any future period. Results of operations in any period, therefore, should not be considered indicative of the
results to be expected for any future period. Because of this difficulty in predicting future performance, our operating results may fall below expectations of securities analysts or investors in some future quarter or quarters. Our failure to meet
these expectations would likely adversely affect the market price of our common stock.
A substantial amount of the shipments
of our systems for a particular quarter may occur late in the quarter. Our shipment pattern may expose us to significant risks of not meeting our expected financial results for each quarter in the event of problems during the complex process of
final, test and acceptance prior to revenue recognition. If we were to experience problems of this type late in our quarter, shipments could be delayed and our operating results could fall below expectations.
Our dependence on subcontractors and sole source suppliers may prevent us from delivering an acceptable product on a timely basis.
We rely on one subcontractor to manufacture our test systems and multiple other subcontractors for the manufacture of
the components and subassemblies used to produce our test systems. Certain of the suppliers for certain components and subassemblies are sole source suppliers. We have no long term supply agreements with our test system contract manufacturers and
purchase products through individual purchase orders. For all of our products, we may be required to qualify new or additional subcontractors and suppliers due to capacity constraints, competitive or quality concerns or other risks that may arise,
including as a result of a change in control of, or deterioration in the financial condition of, a supplier or subcontractor. The process of qualifying subcontractors and suppliers is lengthy. Our reliance on subcontractors gives us less control
over the manufacturing process and exposes us to significant risks, especially inadequate capacity, late delivery, substandard quality, and high costs. In addition, the manufacture of certain of these components and subassemblies is an extremely
complex process. If a supplier became unable to provide parts in the volumes needed, at the required standards of quality or at an acceptable price, we would have to identify and qualify acceptable replacement parts from alternative sources of
supply or manufacture such components or subassemblies internally. The failure to qualify acceptable replacement subcontractors or suppliers quickly would delay the manufacturing and delivery of our products, which could cause us to lose
revenues and customers.
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We also may be unable to engage alternative sources for the production of our products on a
timely basis or upon terms favorable to us, if at all. If we are required for any reason to seek a new manufacturer of our products, an alternate manufacturer may not be available and, in any event, transitioning to a new manufacturer would require
a significant lead time of nine months or more and would involve substantial expense and disruption of our business. Our test systems are highly sophisticated and complex capital equipment, with many custom components, and final assembly requires
specific technical know-how and expertise. These factors could make it more difficult for us to find a new manufacturer of our systems if our relationship with our outsource suppliers is terminated for any reason, which would cause us to lose
revenues and customers.
We are dependent on certain semiconductor device manufacturers as sole source suppliers of certain
sub-assemblies and components used in our test systems which are manufactured in accordance with our proprietary design and specifications. We have no written supply agreement with these sole source suppliers and purchase our custom components
through individual purchase orders. If one of our sole source suppliers were to fail to produce or provide the parts they agreed to build for us at the specifications, price or volume required, we would face a significant delay in the final
production of our products because we do not have redundant capacity available, and our revenue and results of operations would be materially and adversely affected.
Compliance with current and future environmental regulations may be costly and disruptive to our operations.
We may be subject to environmental and other regulations due to our production and marketing of products in certain states and countries that limit or restrict the amount of hazardous material in certain
electronic components such as PCBs. One such regulation is Directive 2002/95/EC of the European Parliament and of the Council of 27 January 2003 that restricts the use of certain hazardous substances in electrical and electronic equipment.
RoHS is short for restriction of hazardous substances. The RoHS Directive banned the placing on the European Union market of new electrical and electronic equipment containing more than agreed levels of lead, cadmium, mercury, hexavalent
chromium, polybrominated biphenyl (PBB) and polybrominated diphenyl ether (PBDE), except where exemptions apply, from July 1, 2006. Manufacturers are required to ensure that their products, including their constituent materials and components,
do not contain more than the minimum levels of the nine restricted materials in order to be allowed to export goods into the Single Market (i.e. of the European Communitys 28 Member States). Any interruption in supply due to the unavailability
of restriction free products could have a significant impact on the manufacturing and delivery of our products. If a supplier became unable to provide parts in the volumes needed or at an acceptable price, we would have to identify and qualify
acceptable replacements from alternative sources of supply or manufacture such components internally. As previously discussed, the failure to qualify acceptable replacements quickly would delay the manufacturing and delivery of our products, which
could cause us to lose revenues and customers.
Regulations related to conflict minerals may adversely affect us.
The U.S. Securities and Exchange Commission has adopted disclosure rules for companies that use conflict minerals in
their products, with substantial supply chain verification requirements in the event that the materials come from, or could have come from, the Democratic Republic of the Congo or adjoining countries. These rules and verification requirements, which
have applied to our activities since 2013 and will apply to our activities going forward, impose additional costs on us and on our suppliers, and may limit the sources or increase the prices of materials used in our products. Further, if we are
unable to certify that our products are conflict free, we may face challenges with our customers, which could place us at a competitive disadvantage, and our reputation may be harmed.
We may not be able to deliver custom hardware options and related applications to satisfy specific customer needs in a timely
manner.
The success of our business relies in substantial part on our ability to develop and deliver customized
hardware and applications to meet our customers specific requirements. Our equipment may fail to meet our
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customers technical or cost requirements and may be replaced by competitive equipment or an alternative technology solution. Our inability to provide a test system that meets requested
performance criteria when required by a device manufacturer would severely damage our reputation with that customer. This loss of reputation together with the risks discussed above under, The market for capital equipment is highly
concentrated, and we have limited opportunities to sell our products may make it substantially more difficult for us to sell systems to that manufacturer for a number of years. We have, in the past, experienced delays in introducing some
of our products and enhancements.
Our dependence on international sales and non-U.S. suppliers involves significant
risk.
International sales have constituted a significant portion of our revenues in recent years, and we expect that
to continue. International sales accounted for 79% of our revenues for fiscal 2015, 78% of our revenues for fiscal 2014 and 83% of our revenues for fiscal 2013. In addition, we rely on non-U.S. suppliers for several components of the equipment we
sell. As a result, a major part of our revenues and the ability to manufacture our products are subject to the risks associated with international commerce. These international relationships make us particularly sensitive to economic, political,
regulatory and environmental changes in the countries from which we derive sales and obtain supplies. Our sole source final assembly manufacturing supplier for our test systems in Malaysia increases our exposure to these types of international
risks. International sales and our relationships with suppliers may be hurt by many factors, including:
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changes in law or policy resulting in burdensome government controls, tariffs, restrictions, embargoes or export license requirements;
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political and economic instability in our target international markets; |
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longer payment cycles common in foreign markets; |
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difficulties of staffing and managing our international operations; |
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less favorable foreign intellectual property laws making it harder to protect our technology from appropriation by competitors;
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difficulties collecting our accounts receivable; |
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the impact of the Foreign Corrupt Practices Act of 1977 and similar laws; and |
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adverse weather and climate events. |
In the past, we have incurred expenses to meet new regulatory requirements in Europe, experienced periodic difficulties in obtaining timely payment from non-U.S. customers, and been affected by economic
conditions in several Asian countries. Our foreign sales are typically invoiced and collected in U.S. dollars. A strengthening in the U.S. dollar relative to the currencies of those countries where we do business would increase the prices of our
products as stated in those currencies and could hurt our sales in those countries. Significant fluctuations in the exchange rates between the U.S. dollar and foreign currencies could cause us to lower our prices and thus reduce our profitability.
These fluctuations could also cause prospective customers to push out or delay orders because of the increased relative cost of our products. In the past, there have been significant fluctuations in the exchange rates between the U.S. dollar and the
currencies of countries in which we do business. From time to time we may enter into foreign currency hedging arrangements.
Our market is highly competitive, and we have limited resources to compete.
The semiconductor equipment and electronics manufacturing industries are highly competitive in all areas of the world. There are other
domestic and foreign companies that participate in the markets for each of our products. Our competitors include Advantest Corporation and Teradyne Inc., Johnstech, MicroCraft, Cohu, Inc., SPEA, Shenzhen Mason Electronics Co., Ltd., Bojay, OXO,
Sanmina, Interconnect Devices, Inc., QA Technology, and Ingun. Some of these competitors have substantially greater financial resources and more extensive engineering, manufacturing, marketing, and customer support capabilities than we have.
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We expect our competitors to enhance their current products and to introduce new products
that may have comparable or better price and performance. The introduction of competing products could hurt sales of our current and future products. In addition, new competitors, including semiconductor and electronics manufacturers themselves, may
offer new technologies, which may in turn reduce the value of our products. Increased competition could lead to intensified price-based competition, which would hurt our business and results of operations. Unless we are able to invest significant
financial resources in developing products and maintaining customer support centers worldwide, we may not be able to compete effectively.
We are exposed to the risks associated with the volatility of the U.S. and global economies.
Slow or negative growth in the domestic or global economies may continue to materially and adversely affect our business, financial condition and results of operations for the foreseeable future. The
strength of the domestic and global economies impact business capital spending and the sale of electronic goods and information technology equipment, which impacts our sales, revenues, and profits. The lack of visibility regarding whether there will
be sustained growth in domestic and global economies creates uncertainty regarding the amount of our sales, and underscores the need for caution in predicting growth in the semiconductor test equipment industry in general and in our revenues and
profits specifically. Our results of operations would be further adversely affected if we were to experience lower than anticipated order levels, cancellations of orders in backlog, extended customer delivery requirements or pricing pressure as a
result of a slowdown. At lower levels of revenue, there is a higher likelihood that these types of changes in our customers requirements would adversely affect our results of operations because in any particular quarter a limited number of
transactions accounts for an even greater portion of sales for the quarter.
Development of our products requires
significant lead-time and expenditures, and we may fail to correctly anticipate the technical needs of our customers.
Our systems are used by our customers to develop, test and manufacture their new semiconductor and electronics devices. We therefore must
anticipate industry trends and develop products in advance of the commercialization of our customers semiconductor and electronics devices, requiring us to make significant capital investments to develop new equipment for our customers well
before their devices are introduced. If our customers fail to introduce their devices in a timely manner or the market does not accept their devices, we may not recover our capital investment, in whole or in part. In addition, even if we are able to
successfully develop enhancements or new generations of our products, these enhancements or new generations of products may not generate revenue in excess of the costs of development, and they may be quickly rendered obsolete by changing customer
preferences or the introduction of products embodying new technologies or features by our competitors. Furthermore, if we were to make announcements of product delays, or if our competitors were to make announcements of new systems, these
announcements could cause our customers to defer or forego purchases of our systems, which would also hurt our business.
We may not be able to recover capital expenditures.
We continue to make capital expenditures in the ordinary course of our business. We may not be able to recover the expenditures for
capital projects within the assumed timeframe, or at all, which may have an adverse impact on our profitability.
We
have significant guarantees, indemnification and customer confidentiality obligations.
From time to time, we make
guarantees to customers regarding the delivery and performance of our products and guarantee certain indebtedness, performance obligations or lease commitments of our subsidiary and affiliate companies. We also have agreed to provide indemnification
to our officers, directors, employees and agents, to the extent permitted by law, arising from certain events or occurrences while the officer, director, employee or agent, is or was serving at our request in such capacity. Additionally, we have
confidentiality obligations to certain customers. If we become liable under any of these obligations, it could materially and adversely affect our business, financial condition or operating results.
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Our success depends on attracting and retaining key personnel.
Our success depends substantially upon the continued service of our executive officers and key personnel, none of whom is bound by an
employment or non-competition agreement. Our success also depends on our ability to attract and retain highly qualified managers and technical, engineering, marketing, sales and support personnel. Competition for such specialized personnel is
intense, and it may become more difficult for us to hire or retain them. Our volatile business cycles only aggravate this problem. If we implement layoffs during an industry downturn, our ability to hire or retain qualified personnel may be
diminished. Our business, financial condition and results of operations could be materially adversely affected by the loss of any of our key employees, by the failure of any key employee to perform in his or her current position, or by our inability
to attract additional skilled employees.
We may not be able to protect our intellectual property rights.
Our success depends in part on our ability to obtain intellectual property rights and licenses and to preserve other
intellectual property rights covering our products and development and testing tools. To that end, we have obtained certain domestic and international patents and may continue to seek patents on our inventions when appropriate. We have also obtained
certain trademark registrations. The process of seeking intellectual property protection can be time consuming and expensive. We cannot ensure that:
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patents will issue from currently pending or future applications; |
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our existing patents or any new patents will be sufficient in scope or strength to provide meaningful protection or any commercial advantage to us;
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foreign intellectual property laws will protect our intellectual property rights; or |
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others will not independently develop similar products, duplicate our products or design around our technology. |
If we do not successfully enforce our intellectual property rights, our competitive position could suffer, which could harm our operating
results. We also rely on trade secrets, proprietary know-how and confidentiality provisions in agreements with employees and consultants to protect our intellectual property. Other parties may not comply with the terms of their agreements with us,
and we may not be able to adequately enforce our rights against these parties.
Third parties may claim we are
infringing their intellectual property, and we could incur significant litigation costs and licensing expenses or be prevented from selling our products.
Intellectual property rights are uncertain and involve complex legal and factual questions. We may be unknowingly infringing on the intellectual property rights of others and may be liable for that
infringement, which could result in a significant liability for us. If we do infringe the intellectual property rights of others, we could be forced to either seek a license to intellectual property rights of others or alter our products so that
they no longer infringe the intellectual property rights of others. A license could be very expensive to obtain or may not be available at all. Similarly, changing our products or processes to avoid infringing the rights of others may be costly or
impractical.
If we were to become involved in a dispute regarding intellectual property, whether ours or that of another
company, we may have to participate in legal proceedings. These types of proceedings may be costly and time consuming for us, even if we eventually prevail. If we do not prevail, we might be forced to pay significant damages, obtain licenses, modify
our products or processes, stop making products or stop using processes.
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In the future we may be subject to litigation that could have an adverse effect on our
business.
From time to time, we may be subject to litigation or other administrative and governmental proceedings that
could require significant management time and resources and cause us to incur expenses and, in the event of an adverse decision, pay damages in an amount that could have a material adverse effect on our financial position or results of operations.
Product defects and any damages stemming from product liability could harm our reputation among existing and potential
customers and could have a material adverse effect upon our business results and financial condition
We cannot
guarantee that there are no defects in the products we manufacture or that our product liability insurance will sufficiently cover the ultimate amount of any damages caused by such defects. Large scale accidents due to product defects or any
discovery of defects in our products could harm our reputation, result in claims for damages, and have a material adverse effect upon our business results and financial condition.
Our operations and the operations of our customers and suppliers are subject to risks of natural catastrophic events, widespread
health epidemics, acts of war, and the threat of domestic and international terrorist attacks, any one of which could result in cancellation of orders, delays in deliveries or other business activities, or loss of customers and could negatively
affect our business and results of operations.
Our operations and those of our customers and suppliers are subject to
disruption for a variety of reasons, including work stoppages, acts of war, terrorism, health epidemics, fires, earthquakes, hurricanes, volcanic eruptions, energy shortages, telecommunication failures, tsunamis, flooding or other natural disasters.
Such disruption could materially increase our costs and expenses as well as cause delays in, among other things, shipments of products to our customers, our ability to perform services requested by our customers, or the installation and acceptance
of our products at customer sites. Any of these conditions could have a material adverse effect on our business, financial condition or results of operations.
Damage, interference or interruption to our information technology networks and systems could hinder business continuity and lead to substantial costs or harm to our reputation
We rely on various information technology networks and systems, some of which are managed by third parties, to process, transmit and store
electronic information, including confidential data, and to carry out and support a variety of business activities, including manufacturing, research and development, supply chain management, sales and accounting. Attacks by hackers or computer
viruses, wrongful use of the information security system, careless use, accidents or disasters could undermine the defenses we have established for these systems and disrupt business continuity, which could not only risk leakage or tampering of
information but could also result in a legal claim, litigation, damages liability or an obligation to pay fines. If this were to occur, our reputation could be harmed, we could incur substantial costs, and it may have a material adverse effect upon
our financial condition and results of operation.
Our stock price is volatile.
In the twelve months ended July 31, 2015, our stock price ranged from a low of $6.10 to a high of $10.92. The price of our common
stock has been and likely will continue to be subject to wide fluctuations in response to a number of events and factors, such as:
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quarterly variations in operating results; |
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variances of our quarterly results of operations from securities analysts estimates; |
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changes in financial estimates and recommendations by securities analysts; |
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announcements of technological innovations, new products, acquisitions or strategic alliances; and |
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news reports relating to trends in our markets. |
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In addition, the stock market in general, and the market prices for semiconductor-related
and electronics manufacturing companies in particular, have experienced significant price and volume fluctuations that often have been unrelated to the operating performance of the companies affected by these fluctuations. These broad market
fluctuations may adversely affect the market price of our common stock, regardless of our operating performance.
We may
record impairment charges, which would adversely impact our results of operations.
We review our goodwill and
indefinite-lived intangible assets for impairment at least annually, or whenever events or changes in circumstances indicate that the carrying amounts of these assets may not be recoverable, in accordance with FASB Topic 350,
IntangiblesGoodwill and Other to the FASB ASC. We also review our other long lived assets for impairment whenever events or changes in circumstances indicate that the carrying amounts of these assets may not be recoverable.
One potential indicator of goodwill impairment is whether our fair value, as measured by our market capitalization, has remained below
our net book value for a significant period of time. Whether our market capitalization triggers an impairment charge in any future period will depend on the underlying reasons for the decline in stock price, the significance of the decline, and the
length of time the stock price has been trading at such prices.
In the event that we determine in a future period that
impairment exists for any reason, we would record an impairment charge, which would reduce the underlying assets value in the period such determination is made, which would adversely impact our financial position and results of operations.
Internal control deficiencies or weaknesses that are not yet identified could emerge.
Over time we may identify and correct deficiencies or weaknesses in our internal controls and, where and when appropriate, report on the
identification and correction of these deficiencies or weaknesses. However, our internal control procedures can provide only reasonable, and not absolute, assurance that deficiencies or weaknesses are identified. Deficiencies or weaknesses that have
not been identified by us could emerge and the identification and correction of these deficiencies or weaknesses could have a material impact on our results of operations. If our internal control over financial reporting are not considered adequate,
we may experience a loss of public confidence, which could have an adverse effect on our business and stock price.
Fluctuation in foreign currency exchange rates may adversely affect our results of operations and financial position.
Our results of operations and financial position could be adversely affected as a result of adverse
fluctuations in foreign currency exchange rates that reduce the purchasing power of the U.S. dollar, increase our costs and expenses and otherwise harm our business. Although our financial statements are denominated in U.S. dollars, a sizable
portion of our revenues and costs are denominated in other currencies, primarily the Euro. Any hedging strategies that we may use in an effort to reduce the adverse impact of fluctuations in foreign currency exchange rates may not be successful. In
addition, our foreign currency exposure on assets and liabilities for which we do not hedge could have a material impact on our results of operations in periods when the U.S. dollar significantly fluctuates in relation to unhedged non-U.S.
currencies in which we transact business.
Item 1B. |
Unresolved Staff Comments |
None.
19
The following
table provides information about our principal facilities:
|
|
|
|
|
|
|
|
|
Location |
|
Reportable Segment |
|
Major Activities |
|
Approximate Square Feet of Floor Space |
|
Properties Owned (1): |
|
|
|
|
|
|
|
|
Rosenheim, Germany |
|
Semiconductor Test Solutions |
|
2, 4, 5 |
|
|
216,500 |
|
Wunstorf, Germany |
|
Electronic Manufacturing Solutions |
|
4 |
|
|
42,000 |
|
Penang, Malaysia |
|
Semiconductor Test Solutions |
|
2, 3, 4 |
|
|
18,000 |
|
|
|
|
|
Properties Leased: |
|
|
|
|
|
|
|
|
Milpitas, California |
|
Semiconductor Test Solutions |
|
2, 4, 5 |
|
|
178,000 |
|
Norwood, Massachusetts |
|
Semiconductor Test Solutions |
|
1, 2, 4, 5 |
|
|
56,400 |
|
Fontana, California |
|
Electronic Manufacturing Solutions |
|
2, 3, 4, 5 |
|
|
33,700 |
|
|
|
|
|
Other Properties Leased: |
|
|
|
|
|
|
|
|
North America (1) |
|
Semiconductor Test Solutions |
|
2, 4 |
|
|
25,100 |
|
|
|
Electronic Manufacturing Solutions |
|
2, 3, 4 |
|
|
43,500 |
|
Europe (1) |
|
Semiconductor Test Solutions |
|
2, 4 |
|
|
117,500 |
|
|
|
Electronic Manufacturing Solutions |
|
2, 3, 4, 5 |
|
|
31,800 |
|
Asia |
|
Semiconductor Test Solutions |
|
2, 4, 5 |
|
|
57,900 |
|
|
|
Electronic Manufacturing Solutions |
|
2, 3, 4, 5 |
|
|
81,900 |
|
(1) |
On September 8, 2015, we signed the Purchase Agreement, pursuant to which we agreed to sell the Interface Boards Business based in Santa Clara, to Fastprint. As a
result, certain properties and leases, including our Santa Clara, California property, are included as assets Held for Sale in our accompanying balance sheet and have been removed from this table. |
Major activities have been separated into the following categories: 1. Corporate Administration/Principal Executive Offices and Global
Headquarters, 2. Sales, Service and Customer Support, 3. Manufacturing, 4. Engineering and Product Development, and 5. Marketing, Finance and General Administration
We also own 9.4 acres of land in Hillsboro, Oregon as a result of our merger with Credence in 2008.
We have achieved worldwide ISO 9001:2008 certification at the following facilities: Norwood, Massachusetts; Milpitas, California; Santa Clara, California; Rosenheim, Germany; and Penang, Malaysia.
We believe that our existing facilities are adequate to meet our current and foreseeable future requirements.
Item 3. |
Legal Proceedings |
We are
subject to various legal proceedings, claims and litigation which arise in the ordinary course of operations. We believe we have meritorious defenses against all pending claims and intend to vigorously pursue them. While it is not possible to
predict or determine the outcomes of any pending actions, we believe the amount of liability, if any, with respect to such actions, would not materially affect our financial position, results of operations or cash flows.
Item 4. |
Mine Safety Disclosures. |
Not applicable.
20
PART II
Item 5. |
Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
Our common stock trades on the NASDAQ Global Market under the symbol XCRA. The following table shows the high and low sale prices per
share of our common stock, as reported on the NASDAQ Global Market, for the periods indicated:
|
|
|
|
|
|
|
|
|
Period |
|
High |
|
|
Low |
|
Fiscal Year Ended July 31, 2015 |
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
10.92 |
|
|
$ |
7.46 |
|
Second Quarter |
|
|
9.34 |
|
|
|
7.66 |
|
Third Quarter |
|
|
10.63 |
|
|
|
7.39 |
|
Fourth Quarter |
|
|
10.43 |
|
|
|
6.10 |
|
Fiscal Year Ended July 31, 2014 |
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
7.30 |
|
|
$ |
4.05 |
|
Second Quarter |
|
|
8.99 |
|
|
|
6.04 |
|
Third Quarter |
|
|
10.54 |
|
|
|
8.18 |
|
Fourth Quarter |
|
|
10.95 |
|
|
|
8.40 |
|
We have never declared or paid any dividends on our common stock. We currently intend to retain future
earnings to fund the development and growth of our business and, therefore, we do not anticipate paying any cash dividends in the foreseeable future.
As of September 15, 2015, we had approximately 230 stockholders of record of our common stock.
Stock Repurchases
The following table provides information regarding
repurchases of common stock made by us from the inception of our stock repurchase program on September 15, 2011 through July 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period |
|
Total Number of Shares Purchased |
|
|
Average Price Paid per Share |
|
|
Total Number of Shares Purchased as Part of Publicly Announced Plans
or Programs (1)(2) |
|
|
Remaining Dollar Value that May Yet Be Purchased Under the Plans
or Programs (excluding commissions) |
|
Inception of 2011 program-9/15/2011 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
25,000,000 |
|
Fiscal year ended 7/31/2012 |
|
|
1,652,394 |
|
|
$ |
5.84 |
|
|
|
1,652,394 |
|
|
$ |
15,474,033 |
|
Fiscal year ended 7/31/2013 |
|
|
1,642,272 |
|
|
$ |
5.50 |
|
|
|
1,642,272 |
|
|
$ |
6,265,866 |
|
Fiscal year ended 7/31/2014 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
6,265,866 |
|
Fiscal year ended 7/31/2015 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
6,265,866 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
3,294,666 |
|
|
$ |
5.67 |
|
|
|
3,294,666 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
On September 15, 2011, our Board of Directors authorized a stock repurchase program, pursuant to which we were authorized to repurchase up to $25 million of our
common stock from time to time in open market transactions. The repurchase program could be suspended or discontinued at any time and had no expiration date. |
(2) |
On September 3, 2015, our Board of Directors authorized a stock repurchase program, pursuant to which we are authorized to repurchase up to $30
million of our common stock from time to time in open market |
21
|
transactions (the 2015 Repurchase Plan). This repurchase program supersedes the 2011 repurchase program, and as a result there are no shares available for repurchase under the 2011
plan. As of the October 7, 2015, we have repurchased 1,206,605 shares for $7.4 million under the 2015 Repurchase Plan. |
Securities Authorized for Issuance under Equity Compensation Plans
Under our equity compensation plans, we can issue stock options and restricted stock units (RSUs). The following table shows information relating to our equity compensation plans as of July 31, 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Compensation Plan Information |
|
Plan Category |
|
Number of securities to be issued upon exercise
of outstanding options, warrants and rights |
|
|
Weighted average exercise price of outstanding options, warrants and
rights |
|
|
Number of securities remaining available for future issuance under equity
compensation plans (excluding securities in first column) |
|
Equity compensation plans approved by security holders |
|
|
2,199,214 |
|
|
$ |
8.16 |
|
|
|
4,632,441 |
* |
Equity compensation plans not approved by security holders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
2,199,214 |
|
|
$ |
8.16 |
|
|
|
4,632,441 |
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
Includes 428,916 shares available for issuance under an employee stock purchase plan which is intended to qualify as such under Section 423 of the Internal Revenue
Code (IRC). |
22
Item 6. |
Selected Financial Data |
The following table contains our selected consolidated financial data and is qualified by the more detailed consolidated financial
statements and notes thereto included elsewhere in this report. The selected consolidated financial data for and as of the end of each of the five fiscal years in the period ended July 31, 2015 are derived from our audited consolidated
financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended July 31, (In thousands except per share data) |
|
|
|
2015 (1) |
|
|
2014 (1) |
|
|
2013 |
|
|
2012 |
|
|
2011 |
|
Consolidated Statements of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
397,978 |
|
|
$ |
305,106 |
|
|
$ |
151,982 |
|
|
$ |
132,134 |
|
|
$ |
249,530 |
|
Cost of sales |
|
|
218,064 |
|
|
|
165,248 |
|
|
|
71,223 |
|
|
|
63,637 |
|
|
|
95,290 |
|
Engineering and product development expenses |
|
|
64,157 |
|
|
|
60,733 |
|
|
|
52,314 |
|
|
|
49,864 |
|
|
|
52,697 |
|
Selling, general and administrative expenses |
|
|
82,124 |
|
|
|
77,017 |
|
|
|
39,253 |
|
|
|
36,348 |
|
|
|
48,968 |
|
Amortization of purchased intangible assets |
|
|
1,834 |
|
|
|
1,936 |
|
|
|
1,582 |
|
|
|
3,163 |
|
|
|
5,961 |
|
Restructuring |
|
|
2,206 |
|
|
|
3,943 |
|
|
|
476 |
|
|
|
1,104 |
|
|
|
363 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
29,593 |
|
|
|
(3,771 |
) |
|
|
(12,866 |
) |
|
|
(21,982 |
) |
|
|
46,251 |
|
Bargain purchase gain |
|
|
|
|
|
|
8,621 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net |
|
|
4,513 |
|
|
|
(1,992 |
) |
|
|
464 |
|
|
|
1,175 |
|
|
|
13,512 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before provision for income taxes |
|
|
34,106 |
|
|
|
2,858 |
|
|
|
(12,402 |
) |
|
|
(20,807 |
) |
|
|
59,763 |
|
Provision for (benefit from) income taxes |
|
|
2,588 |
|
|
|
767 |
|
|
|
(275 |
) |
|
|
(938 |
) |
|
|
(315 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
31,518 |
|
|
|
2,091 |
|
|
|
(12,127 |
) |
|
|
(19,869 |
) |
|
|
60,078 |
|
Loss from discontinued operations, net of tax |
|
|
(3,292 |
) |
|
|
(1,258 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
28,226 |
|
|
$ |
833 |
|
|
$ |
(12,127 |
) |
|
$ |
(19,869 |
) |
|
$ |
60,078 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations |
|
$ |
0.59 |
|
|
$ |
0.04 |
|
|
$ |
(0.25 |
) |
|
$ |
(0.40 |
) |
|
$ |
1.22 |
|
Net loss from discontinued operations, net of tax |
|
|
(0.06 |
) |
|
|
(0.02 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share |
|
$ |
0.53 |
|
|
$ |
0.02 |
|
|
$ |
(0.25 |
) |
|
$ |
(0.40 |
) |
|
$ |
1.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations |
|
$ |
0.58 |
|
|
$ |
0.04 |
|
|
$ |
(0.25 |
) |
|
$ |
(0.40 |
) |
|
$ |
1.19 |
|
Net loss from discontinued operations, net of tax |
|
|
(0.06 |
) |
|
|
(0.02 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share |
|
$ |
0.52 |
|
|
$ |
0.02 |
|
|
$ |
(0.25 |
) |
|
$ |
(0.40 |
) |
|
$ |
1.19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares used in computing net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
53,658 |
|
|
|
48,214 |
|
|
|
47,719 |
|
|
|
49,080 |
|
|
|
49,398 |
|
Diluted |
|
|
54,531 |
|
|
|
49,150 |
|
|
|
47,719 |
|
|
|
49,080 |
|
|
|
50,415 |
|
Consolidated Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital |
|
$ |
225,337 |
|
|
$ |
192,109 |
|
|
$ |
147,393 |
|
|
$ |
163,569 |
|
|
$ |
185,684 |
|
Property and equipment, net |
|
|
31,450 |
|
|
|
32,153 |
|
|
|
16,647 |
|
|
|
18,229 |
|
|
|
20,827 |
|
Total assets |
|
|
387,475 |
|
|
|
364,143 |
|
|
|
247,601 |
|
|
|
267,068 |
|
|
|
302,115 |
|
Total debt |
|
|
26,447 |
|
|
|
68,748 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
278,468 |
|
|
|
204,619 |
|
|
|
198,497 |
|
|
|
215,704 |
|
|
|
240,720 |
|
Other Information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current ratio |
|
|
4.04 |
|
|
|
3.31 |
|
|
|
4.91 |
|
|
|
5.33 |
|
|
|
5.08 |
|
Asset turnover |
|
|
1.02 |
|
|
|
0.84 |
|
|
|
0.61 |
|
|
|
0.49 |
|
|
|
0.83 |
|
Debt as a percentage of total capitalization |
|
|
8.7 |
% |
|
|
25 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
$ |
4,389 |
|
|
$ |
7,743 |
|
|
$ |
2,769 |
|
|
$ |
3,328 |
|
|
$ |
6,769 |
|
Depreciation and amortization |
|
$ |
8,084 |
|
|
$ |
8,060 |
|
|
$ |
8,044 |
|
|
$ |
10,917 |
|
|
$ |
17,655 |
|
(1) |
The selected consolidated financial data for the fiscal years ended July 31, 2015 and July 31, 2014 includes the results of our Multitest, ECT and
atg-Luther & Maelzer businesses, which we acquired from Dover Corporation on December 1, 2013. |
23
Item 7. |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion should be read together with the Consolidated Financial Statements and Notes thereto appearing elsewhere in this
Annual Report on Form 10-K. Certain statements in Managements Discussion and Analysis of Financial Condition and Results of Operations are forward-looking statements that involve risks and uncertainties. Words such as may, will,
should, could, would, anticipates, expects, intends, plans, predicts, projects, believes, seeks, estimates and similar expressions identify such forward-looking statements. The forward-looking statements contained herein are based on current
expectations and entail various risks and uncertainties that could cause actual results to differ materially and adversely from those expressed in such forward-looking statements. Factors that might cause such a difference include, among other
things, those set forth under Risk Factors and those appearing elsewhere in this Annual Report on Form 10-K. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof
and reflect managements estimates and analysis only as of the date hereof. We assume no obligations to update any forward-looking statements to reflect actual results or changes in factors or assumptions affecting forward-looking statements.
Overview
We are a global provider of test and handling capital equipment, interface products, test fixtures and related services to the semiconductor and electronics manufacturing industries. We design,
manufacture and market products and services that address the broad, divergent requirements of the mobility, industrial, medical, automotive and consumer end markets, offering a comprehensive portfolio of solutions and technologies, and a global
network of strategically deployed applications and support resources. We operate in the semiconductor and electronics manufacturing test markets through our atg-Luther & Maelzer, Everett Charles Technologies (ECT), LTX-Credence and
Multitest businesses. We have a broad spectrum of semiconductor and printed circuit board (PCB) test expertise that drives innovative new products and services and our ability to deliver fully integrated semiconductor test solutions. For more
information on our business and industry, please refer to Part 1, Item I of this Form 10-K, Business Introduction and Industry Overview.
On September 17, 2014, we closed an underwritten public offering of 4,682,927 shares of our common stock at $10.25 per share. We also granted to the underwriters a 30-day option to purchase up to an
aggregate of 702,439 additional shares of common stock to cover over-allotments which they exercised on September 22, 2014. All of the shares were sold by us pursuant to an effective shelf registration statement previously filed with the SEC.
The offering, and the follow-on option to sell additional shares, resulted in net proceeds to Xcerra, after deducting
underwriting discounts and commissions and offering expenses, of approximately $52.1 million. We used approximately $20 million of the net proceeds from the offering to repay a portion of the outstanding principal of our bank term loan with SVB and
syndicate. We also used approximately $16 million to repay subordinated debt issued in connection with the Dover acquisition.
On February 2, 2015, we completed an acquisition of substantially all of the assets and certain specified liabilities of Titan
Semiconductor LLC (Titan). The purchase price of Titan was approximately $2.4 million, which was paid in cash from our available cash-on-hand. Titan develops, manufactures and sells products for semiconductor test serving the automotive,
RF/Wireless, and mixed signal test markets. The acquired products will be developed, supported, and marketed by our Contactors operating segment which is part of the Semiconductor Test Solutions reportable segment. We have recorded
approximately $1.4 million and $0.8 million of intangible assets and goodwill, respectively, from this transaction.
On June 12, 2015 we announced that we had executed a non-binding letter of intent to sell our semiconductor test interface board
business based in Santa Clara, CA (Interface Board Business) to Fastprint Hong Kong Co., Ltd., a wholly owned subsidiary of Shenzhen Fastprint Circuit Tech Co., Ltd, and its affiliates (collectively, Fastprint), and on
September 8, 2015, we entered into a definitive and binding Asset Purchase Agreement with Fastprint for the sale of the Interface Board Business (the Purchase Agreement).
24
Pursuant to the Purchase Agreement, we will sell and transfer to Fastprint certain assets
used or primarily related to the Interface Board Business, and will assign, and Fastprint will assume, certain specified liabilities associated with the Interface Board Business, along with the transfer of the employees associated with that
business. The purchase price for the Interface Board Business is $23.0 million. $20.7 million is due at closing with $2.3 million payable upon the first anniversary of the closing of the transaction, subject to claims for indemnification by
Fastprint, if any, prior to that time. The deal is expected to close by October 30, 2015, pending the satisfaction of customary closing conditions, including applicable governmental approvals. Following the closing, we plan to enhance our
integrated test cell solutions by offering expanded services on a global basis to our customers through a preferred supplier agreement with Fastprint.
On December 1, 2013, we acquired the Multitest and ECT businesses of Dover Printing & Identification, Inc. (Dover) for $93.5 million, of which $73.5 million was paid in cash through a
combination of existing cash-on-hand and bank debt, and $20.0 million was paid by the issuance of promissory notes. Pursuant to the Master Sale and Purchase Agreement entered into with Dover and, solely for the limited purposes set forth in the
Dover Purchase Agreement, Dover Corporation (Dover Parent), on September 6, 2013 (the Dover Purchase Agreement), the cash purchase price was increased by $12.5 million to reflect, among other required adjustments, specified cash balances
held by the acquired businesses, acquired indebtedness, certain transaction costs, employee-related liabilities, working capital adjustments and reductions in the principal amount of the promissory notes payable to Dover Corporation in connection
with the satisfaction of certain conditions. See The Dover Acquisition below for more information on this transaction.
Our Multitest business designs and manufactures products used in the testing of integrated circuits, including test handlers, and test
contactors. Our ECT business designs and manufactures equipment and consumables that are used in the testing of bare and loaded printed circuit boards. ECT, which operates under the brand names atg-Luther & Maelzer and Everett Charles
Technologies, offers a complete line of PCB testing solutions, including flying probe and universal grid testers, test fixtures and probes.
The Dover Acquisition
On September 6, 2013, we entered into
the Dover Purchase Agreement. Pursuant to the Purchase Agreement, we purchased from Dover or its specified affiliates (collectively, the Sellers) all assets of the Sellers used exclusively or primarily in connection with the research and
development, design, manufacture, assembly, production, marketing, distribution, sale and repair of probes, assembled board and bare board test equipment, and fixturing products and the provision of services related thereto (the ECT Business, and
such assets and intellectual property, the ECT Assets) and all assets of the Sellers used exclusively or primarily in connection with the research and development, design, manufacture, assembly, production, marketing, distribution, sale and repair
of semiconductor test handlers, and semiconductor test contactors and sockets, and the provision of services related thereto (the MT Business, and such assets and intellectual property, the MT Assets). We also assumed certain specified liabilities
of the Sellers related primarily or exclusively to the ECT Business and MT Business (together, the Acquired Businesses) or the Acquired Assets (as defined below). Under the Dover Purchase Agreement, we also acquired all of the issued and outstanding
capital stock and other equity interests of specified indirect subsidiaries of Dover Parent and its affiliates that are engaged in the Acquired Businesses, including Everett Charles Technologies LLC (such capital stock and other equity interests,
the Acquired Shares). The ECT Business and the MT Business are collectively referred to as the Acquired Businesses and the ECT Assets, the MT Assets and the Acquired Shares are collectively referred to as the Acquired Assets. The asset and share
purchase transactions effected pursuant to the Dover Purchase Agreement are collectively referred to as the Dover Acquisition. On December 1, 2013, we completed the Dover Acquisition pursuant to the Dover Purchase Agreement.
On November 27, 2013, in anticipation of the completion of the Dover Acquisition and to fund the purchase price
therefore we entered into a credit agreement (the Original Credit Agreement) with ECT (together with us, the Borrowers), Silicon Valley Bank, as lender, administrative agent and issuing lender (SVB), and the several
25
lenders from time to time party thereto (the Lenders). The Original Credit Agreement provided for a senior secured credit facility in favor of the Borrowers in the aggregate principal amount of
up to $55.0 million.
On December 15, 2014, the Borrowers entered into a credit agreement (Credit Agreement) with SVB.
The Credit Agreement provides for a senior secured credit facility, consisting of a term loan facility (Term Loan), in favor of the Borrowers in the aggregate principal amount of $25.0 million which was advanced to us on December 15, 2014
(Facility).
The proceeds of the Term Loan were used to pay off $25.0 million of the outstanding indebtedness under our
previous credit facility that was advanced to us pursuant to the Original Credit Agreement. As of December 15, 2014, no amounts remained outstanding under the Original Credit Agreement.
See Liquidity and Capital Resources for more information regarding our obligations and expected impact to our liquidity from the
Credit Agreement.
Pursuant to the Dover Purchase Agreement, in connection with the closing of the Dover Acquisition, we paid
the Sellers an aggregate purchase price of $93.5 million, of which $73.5 million was paid in cash through a combination of existing cash-on-hand and bank debt and $20.0 million was paid by the issuance of promissory notes by us to the certain
Sellers in the original principal amount of $20.0 million. Pursuant to the Dover Purchase Agreement entered into with Dover Corporation on September 6, 2014, the cash purchase price was increased by $12.5 million, to reflect, among other
required adjustments, specified cash balances held by the Acquired Businesses as of the closing of the Dover Acquisition, acquired indebtedness, certain transaction costs, employee-related liabilities, working capital adjustments and reductions in
the principal amount of the promissory notes payable to Dover Corporation in connection with the satisfaction of certain conditions. After giving effect to the post-closing purchase price adjustments described above, and including the reduction in
the promissory notes, the aggregate purchase price paid to the Sellers was $106.0 million.
Subject to certain conditions, the
original principal amount of the promissory notes was subject to reduction upon written certification from us to Dover prior to January 1, 2015 of certain specified events related to our relocation from or refurbishment of certain properties of
the Acquired Businesses, or the prepayment of the promissory notes in full prior to such date. In January 2014, we executed leases for two new facilities, and in February 2014, we provided Dover with written certification of a planned relocation
from certain properties of the Acquired Businesses. Consequently, the original principal amount of the promissory notes issued to Dover was reduced by $2.0 million. The promissory notes were to accrue interest on the unpaid balance for each day that
they remain outstanding after December 1, 2014 at a per annum rate equal to the LIBOR plus 10%, and could be prepaid by us at any time without penalty prior to May 1, 2019. The promissory notes were subject to payments of $1.3 million due
on December 1 and June 1 of each year, until the notes were paid in full.
In November 2014, we prepaid the
outstanding amounts under the promissory notes. The $16.3 million payoff amount reflected the principal amount of $18.0 million that was outstanding under the original promissory notes, less a $1.8 million reduction triggered by the prepayment in
full of the notes prior to January 1, 2015. As a result of this prepayment during the interest-free period, we reversed approximately $0.9 million of accrued interest. Both items were recorded as a component of other income in our Consolidated
Statement of Operations and Comprehensive Income (Loss) for fiscal year ended July 31, 2015.
On or prior to
December 1, 2013, we and Dover, or their affiliates, respectively, also entered into a transition services agreement, an intellectual property termination agreement and a license agreement which govern certain on-going relationships between us
and Dover and their respective affiliates following the closing. Pursuant to the Dover Purchase Agreement, we also assumed certain liabilities related to the Acquired Businesses. See Liquidity and Capital Resources section for more
information regarding our obligations and expected impact to our liquidity pursuant to the Dover Purchase Agreement.
During
the year ending July 31, 2014 we incurred an aggregate of approximately $4.2 million in expenses in connection with the Dover Acquisition, all of which were recognized in selling, general and administrative
26
expenses in our Consolidated Statement of Operations and Comprehensive Income (Loss). See Note 4 to the Consolidated Financial Statements included in this Annual Report on Form 10-K for
additional information related to the Dover Acquisition.
Industry Conditions and Outlook
We provide test solutions to the large and growing electronics manufacturing industry, of which semiconductors and PCBs are key
components. Sales of capital equipment products are driven by the expansion of manufacturing and test capacity, or when customers replace existing equipment with new equipment. Sales of consumable products, which include service, are driven by the
level of manufacturing and test activity, and need to be replaced based on usage levels or to accommodate new designs or test techniques. Therefore, overall demand for our capital equipment and consumable products and services is generally dependent
on growth in the semiconductor and electronics industry.
Critical Accounting Policies and the Use of Estimates
The preparation of financial statements in conformity with United States generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amount of assets, liabilities, revenues, and expenses, and related disclosure of contingent assets and liabilities. We base these estimates and assumptions on historical experience and evaluate
them on an on-going basis to ensure they remain reasonable under current conditions. Actual results could differ from those estimates. We believe that our most critical accounting policies upon which our financial reporting depends and which involve
the most complex and subjective judgments or assessments are as follows: revenue recognition, inventory reserves, income taxes, product warranty costs, goodwill and other identifiable intangible assets, impairment of long-lived assets, and
allowances for doubtful accounts.
A summary of those accounting policies and estimates that we believe to be most critical to
fully understand and evaluate our financial results is set forth below. The summary should be read in conjunction with our Consolidated Financial Statements and Notes and related disclosures elsewhere in this Annual Report on Form 10-K.
Revenue Recognition
We recognize revenue when persuasive evidence of an arrangement exists, delivery or customer acceptance (if required) has occurred or services have been rendered, the price is fixed or determinable and
collectability is reasonably assured. Our revenue recognition policy is described in Note 2, Summary of Significant Accounting Policies, contained in the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K and is
incorporated herein by reference.
Inventory Reserves
We are exposed to a number of economic and industry factors that could result in portions of our inventory becoming either obsolete or in
excess of anticipated customer demand. These factors include changes in our customers capital expenditures, technological changes in our markets, our ability to meet changing customer requirements, competitive pressures in products and prices,
and the availability of key components from our suppliers. Our policy is to establish inventory reserves when conditions exist that suggest our inventory may be in excess of anticipated demand or is obsolete based upon our assumptions about future
demand for our products or market conditions. We regularly evaluate the ability to realize the value of our inventory based on a combination of factors including the following: historical usage rates, forecasted sales or usage, estimated product end
of life dates, estimated current and future market values and new product introductions. Purchasing and alternative usage options are also explored to mitigate inventory exposure. When recorded, our reserves are intended to reduce the carrying value
of our inventory to its net realizable value. Such reserves are not reversed until the related inventory is sold or otherwise disposed. Our inventory reserves policy is described in Note 2, Summary of Significant Accounting Policies, contained in
the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K and is incorporated herein by reference.
27
Foreign Currency Remeasurement
The financial statements of our foreign subsidiaries are remeasured in accordance with Topic 830, Foreign Currency Matters, to
the Financial Accounting Standards Board Certification, or FASB ASC. The functional currency of our tester group is the U.S. dollar. Accordingly, our foreign subsidiaries that are included in this group remeasure monetary assets and liabilities at
month-end exchange rates while long-term non-monetary items are remeasured at historical rates. Income and expense accounts are remeasured at the average rates in effect during the month. Net gains (losses) resulting from foreign currency
remeasurement and transaction gains (losses) are included in our Consolidated Statements of Operations and Comprehensive Income (Loss) as a component of other income (expense), net, and were $2.1 million, $0.1 million and $0 million,
respectively, for the fiscal years ended July 31, 2015, 2014 and 2013. The functional currency of each of our acquired businesses is local currency, predominantly Euro, Malaysian Ringgit and Singapore dollars, and net gains or losses resulting
from foreign currency remeasurement and translation gains or losses are recorded in stockholders equity as accumulated other comprehensive income (loss).
Income Taxes
In accordance with Topic 740, Income Taxes to
the FASB ASC (Topic 740), we recognize 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 for the
year in which the differences are expected to be reflected in the tax return. Valuation allowances are established when necessary to reduce deferred taxes to the amount expected to be realized. We have deferred tax assets resulting from tax credit
carryforwards, net operating losses and other deductible temporary differences, which are available to reduce taxable income in future periods. Topic 740 requires that a valuation allowance be established when it is more likely than not
that all or a portion of deferred tax assets will not be realized. A review of all available positive and negative evidence needs to be considered, including a companys performance, the market environment in which it operates, the length of
carryback and carryforward periods, existing sales backlog and future sales projections. Where there have been cumulative losses in recent years, Topic 740 creates a strong presumption that a valuation allowance is needed. This presumption can
be overcome in very limited circumstances. As a result of our cumulative loss position in recent years and the increased uncertainty relative to the timing of profitability in future periods, we continue to maintain a valuation allowance for our
entire U.S. net deferred tax assets, and full valuation allowance against the net deferred tax assets of foreign jurisdictions without a history of profitability. The valuation allowance for deferred tax assets decreased from $211.9 million at
July 31, 2014 to $209.7 million at July 31, 2015. The decrease in our valuation allowance compared to the prior year was primarily due to a decrease in U.S. deferred tax assets associated with sources of income in the current year. We
expect to record a full valuation allowance on future U.S. tax benefits and in certain foreign tax jurisdictions until we sustain an appropriate level of profitability. We will continue to monitor the recoverability of our deferred tax assets on a
periodic basis. As a result of our merger with Credence in 2008 and Internal Revenue Code Section 382 guidance, the future utilization of our net operating losses will be subject to annual limitation. See Note 7 to our Consolidated Financial
Statements for more information on Income Taxes.
Business Combinations
We account for acquired businesses using the purchase method of accounting which requires that the assets acquired and liabilities assumed
be recorded at the date of the acquisition at their respective estimated fair values. The judgments made in determining the estimated fair value assigned to each class of assets acquired, as well as the estimated life of each asset, can materially
impact the net income of the periods subsequent to the acquisition through depreciation and amortization, and in certain instances through impairment charges, if the asset becomes impaired in the future. In determining the estimated fair value for
intangible assets, we typically utilize the income approach, which discounts the projected future net cash flow using an appropriate discount rate that reflects the risks associated with such projected future cash flow.
Determining the useful life of an intangible asset also requires judgment, as different types of intangible assets will have different
useful lives and certain assets may even be considered to have indefinite useful lives.
28
Intangible assets determined to have an indefinite useful life are reassessed periodically based on the expected use of the asset by us, legal or contractual provisions that may affect the useful
life or renewal or extension of the assets contractual life without substantial cost, and the effects of demand, competition and other economic factors.
Valuation of Goodwill and other Indefinite-Lived Intangible Assets
We perform our annual goodwill impairment test as required under the provisions of Topic 350-10, IntangiblesGoodwill and
Other, to the FASB ASC (Topic 350) as of July 31 of each fiscal year or more often if there are interim indicators of impairment. Goodwill is considered to be impaired when the net book value of a reporting unit exceeds its estimated fair
value. Our goodwill represents the excess of acquisition costs over estimated fair value of net assets acquired from StepTech, Inc on June 10, 2003, from our merger with Credence Systems Corporation (Credence) on August 29, 2008, and from
our purchase of Titan on February 2, 2015.
There was no goodwill associated with the acquisition of the ECT, Multitest
or atg-Luther & Maelzer businesses in the Dover Acquisition on December 1, 2013. As of July 31, 2015, our goodwill is allocated to our Semiconductor Test reporting unit and our Contactors reporting unit.
Goodwill impairment testing is a two-step process. The first step of the goodwill impairment test, used to identify potential impairment,
compares the fair value of each reporting unit to its respective carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered impaired. If the reporting
units carrying amount exceeds the fair value, the second step of the goodwill impairment test must be completed to measure the amount of the impairment loss, if any. The second step compares the implied fair value of goodwill with the carrying
value of goodwill. The implied fair value is determined by allocating the fair value of the reporting unit to all of the assets and liabilities of that unit, the excess of the fair value over amounts assigned to its assets and liabilities is the
implied fair value of goodwill. The implied fair value of goodwill determined in this step is compared to the carrying value of goodwill. If the implied fair value of goodwill is less than the carrying value of goodwill, an impairment loss is
recognized equal to the difference.
In accordance with ASC 350, we performed our goodwill impairment test as of July 31,
2015 and 2014, and determined that no adjustment to goodwill was necessary. As of July 31, 2015, the fair value of the reporting units to which goodwill is allocated substantially exceeded the carrying values of those reporting units. The
observable inputs used in our Discounted Cash Flow (DCF) method for estimating the fair value of the reporting units include discount rates at our weighted-average cost of capital. We derive discount rates that are commensurate with the risks and
uncertainties inherent in its respective businesses and its internally developed projections of future cash flows. In addition, we determined the projected future cash flows of the reporting units for the residual period using the Gordon growth
method which assumes that the reporting unit will grow and generate free cash flow at a constant rate. We believe that the Gordon growth method is the most appropriate method for determining the residual value because the residual value is
calculated at the point at which we have assumed that the reporting units have reached stable growth rates
The identifiable
intangible assets associated with the Dover Acquisition include $6.4 million of trademarks. We believe these trademarks will contribute to our cash flows indefinitely. Therefore, in accordance with ASC 350, we have assigned an indefinite useful life
to the trademarks, and will not amortize the trademarks until their useful lives are no longer indefinite. These assets are subject to an annual impairment test or more frequently if triggering events occur. For the fiscal year ended July 31,
2015, we assessed qualitative factors to determine if a two-step quantitative impairment test was necessary. We determined, based on qualitative assessment, that it was more likely than not that the trademarks fair value was greater than their
carrying amount, therefore no quantitative assessment was required, and there was no adjustment to the carrying value of the trademarks.
Valuation of Identifiable Intangible Assets
Our identifiable
intangible assets include developed technology, distributor and key customer relationships, and trademarks.
29
We primarily used the income approach to value the existing technology and other intangible
assets as of the date of acquisition. This approach calculates fair value by estimating future cash flows attributable to each intangible asset and discounting them to present value at a risk-adjusted discount rate.
In estimating the useful life of the acquired intangible assets, we considered paragraph 11 of Topic 350, which lists the pertinent
factors to be considered when estimating the useful life of an intangible asset. These factors include a review of the expected use by the combined company of the assets acquired, the expected useful life of another asset (or group of assets)
related to the acquired assets, legal, regulatory or other contractual provisions that may limit the useful life of an acquired asset or may enable the extension of the useful life of an acquired asset without substantial cost, the effects of
obsolescence, demand, competition and other economic factors, and the level of maintenance expenditures required to obtain the expected future cash flows from the asset. We have amortized these intangible assets over their estimated useful lives
using a method that is based on estimated future cash flows as we believe this amortization methodology approximates the pattern in which the economic benefits of the intangible assets will be derived.
Impairment of Long-Lived Assets Other Than Goodwill
On an ongoing basis, our management reviews the carrying value and period of amortization or depreciation of long-lived assets. In
accordance with Topic 360, Property, Plant and Equipment, to the FASB ASC, we review whether impairment losses exist on long-lived assets when indicators of impairment are present. During this review, we re-evaluate the significant
assumptions used in determining the original cost and estimated useful life of long-lived assets. Although the assumptions may vary, they generally include revenue growth, operating results, cash flows and other indicators of value. Management then
determines whether there has been a permanent impairment of the value of long-lived assets based upon events or circumstances that have occurred since acquisition. The extent of the impairment amount recognized is based upon the difference of the
impaired assets estimated fair value and its carrying value. As of July 31, 2015, there were no indicators that required us to conduct a recoverability test of long-lived assets other than goodwill, as of that date.
Product Warranty Costs
We provide standard warranty coverage on our tester, handler and PCB test systems, providing labor and parts necessary to repair the systems during the warranty period. We account for the estimated
warranty cost as a charge to cost of sales when the revenue is recognized. Our product warranty cost policy is described in Note 2, Summary of Significant Accounting Policies, contained in the Notes to Consolidated Financial Statements included in
this Annual Report on Form 10-K and is incorporated herein by reference.
Trade Accounts Receivable and Allowance for
Doubtful Accounts
Trade accounts receivable are recorded at the invoiced amount, do not bear interest, and typically
have a contractual maturity of ninety days or less. A majority of our trade receivables are derived from sales to large multinational semiconductor manufacturers throughout the world. The volatility of the industries that we serve can cause certain
of our customers to experience shortages of cash, which can impact their ability to make required payments. In order to monitor potential credit losses, we perform ongoing credit evaluations of our customers financial condition. An allowance
for doubtful accounts is maintained for potential credit losses based upon our assessment of the expected collectability of all accounts receivable. The allowance for doubtful accounts is reviewed periodically to assess the adequacy of the
allowances. In any circumstances in which we are aware of a customers inability to meet its financial obligations, we provide an allowance, which is based on the age of the receivables, the circumstances surrounding the customers
financial situation and our historical experience. If circumstances change, and the financial condition of our customers were adversely affected, resulting in their inability to meet their financial obligations to us, we may need to record
additional allowances. Account balances are charged off against the allowance when it is determined the receivable will not be recovered.
30
Results of Operations
The following table sets forth for the periods indicated the principal items included in the Consolidated Statements of Operations and Comprehensive Income (Loss) (in thousands, except for percentage
changes and per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year End July 31, |
|
|
% Change |
|
|
Year End July 31, |
|
|
% Change |
|
|
|
2015 |
|
|
2014 |
|
|
|
2014 |
|
|
2013 |
|
|
Net product sales |
|
$ |
369,347 |
|
|
$ |
271,797 |
|
|
|
36 |
% |
|
$ |
271,797 |
|
|
$ |
117,997 |
|
|
|
130 |
% |
Net service sales |
|
|
28,631 |
|
|
|
33,309 |
|
|
|
(14 |
) |
|
|
33,309 |
|
|
|
33,985 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
|
397,978 |
|
|
|
305,106 |
|
|
|
30 |
|
|
|
305,106 |
|
|
|
151,982 |
|
|
|
101 |
|
Cost of sales |
|
|
218,064 |
|
|
|
165,248 |
|
|
|
32 |
|
|
|
165,248 |
|
|
|
71,223 |
|
|
|
132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
179,914 |
|
|
|
139,858 |
|
|
|
29 |
|
|
|
139,858 |
|
|
|
80,759 |
|
|
|
73 |
|
Engineering and product development expenses |
|
|
64,157 |
|
|
|
60,733 |
|
|
|
6 |
|
|
|
60,733 |
|
|
|
52,314 |
|
|
|
16 |
|
Selling, general and administrative expenses |
|
|
82,124 |
|
|
|
77,017 |
|
|
|
7 |
|
|
|
77,017 |
|
|
|
39,253 |
|
|
|
96 |
|
Amortization of purchased intangible assets |
|
|
1,834 |
|
|
|
1,936 |
|
|
|
(5 |
) |
|
|
1,936 |
|
|
|
1,582 |
|
|
|
22 |
|
Restructuring |
|
|
2,206 |
|
|
|
3,943 |
|
|
|
(44 |
) |
|
|
3,943 |
|
|
|
476 |
|
|
|
728 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
29,593 |
|
|
|
(3,771 |
) |
|
|
885 |
|
|
|
(3,771 |
) |
|
|
(12,866 |
) |
|
|
71 |
|
Other (expense) income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(995 |
) |
|
|
(2,210 |
) |
|
|
(55 |
) |
|
|
(2,210 |
) |
|
|
(233 |
) |
|
|
(848 |
) |
Interest income |
|
|
452 |
|
|
|
494 |
|
|
|
(8 |
) |
|
|
494 |
|
|
|
883 |
|
|
|
(44 |
) |
Bargain purchase gain |
|
|
|
|
|
|
8,621 |
|
|
|
(100 |
) |
|
|
8,621 |
|
|
|
|
|
|
|
100 |
|
Other (expense) income, net |
|
|
5,056 |
|
|
|
(276 |
) |
|
|
1,931 |
|
|
|
(276 |
) |
|
|
(186 |
) |
|
|
48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes |
|
|
34,106 |
|
|
|
2,858 |
|
|
|
1,093 |
|
|
|
2,858 |
|
|
|
(12,402 |
) |
|
|
123 |
|
Provision for (benefit from) income taxes |
|
|
2,588 |
|
|
|
767 |
|
|
|
243 |
|
|
|
767 |
|
|
|
(275 |
) |
|
|
379 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
31,518 |
|
|
|
2,091 |
|
|
|
1,407 |
|
|
|
2,091 |
|
|
|
(12,127 |
) |
|
|
117 |
|
Loss from discontinued operations, net of tax |
|
|
(3,292 |
) |
|
|
(1,258 |
) |
|
|
(162 |
) |
|
|
(1,258 |
) |
|
|
|
|
|
|
(100 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
28,226 |
|
|
$ |
833 |
|
|
|
3,288 |
% |
|
$ |
833 |
|
|
$ |
(12,127 |
) |
|
|
107 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations |
|
$ |
0.59 |
|
|
$ |
0.04 |
|
|
|
|
|
|
$ |
0.04 |
|
|
$ |
(0.25 |
) |
|
|
|
|
Loss from discontinued operations, net of tax |
|
$ |
(0.06 |
) |
|
$ |
(0.02 |
) |
|
|
|
|
|
$ |
(0.02 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share |
|
$ |
0.53 |
|
|
$ |
0.02 |
|
|
|
|
|
|
$ |
0.02 |
|
|
$ |
(0.25 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations |
|
$ |
0.58 |
|
|
$ |
0.04 |
|
|
|
|
|
|
$ |
0.04 |
|
|
$ |
(0.25 |
) |
|
|
|
|
Loss from discontinued operations, net of tax |
|
$ |
(0.06 |
) |
|
$ |
(0.02 |
) |
|
|
|
|
|
$ |
(0.02 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share |
|
$ |
0.52 |
|
|
$ |
0.02 |
|
|
|
|
|
|
$ |
0.02 |
|
|
$ |
(0.25 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares used in computing net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
53,658 |
|
|
|
48,214 |
|
|
|
|
|
|
|
48,214 |
|
|
|
47,719 |
|
|
|
|
|
Diluted |
|
|
54,531 |
|
|
|
49,150 |
|
|
|
|
|
|
|
49,150 |
|
|
|
47,719 |
|
|
|
|
|
31
The following table sets forth for the periods indicated the principal items included in the
Consolidated Statements of Operations and Comprehensive Income (Loss) expressed in each case as percentages of net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Net Sales Year Ended July 31, |
|
|
|
2015 |
|
|
2014 |
|
|
2013 |
|
Net sales |
|
|
100 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of sales |
|
|
54.8 |
|
|
|
54.2 |
|
|
|
46.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
45.2 |
|
|
|
45.8 |
|
|
|
53.1 |
|
Engineering and product development expenses |
|
|
16.1 |
|
|
|
19.9 |
|
|
|
34.5 |
|
Selling, general and administrative expenses |
|
|
20.6 |
|
|
|
25.2 |
|
|
|
25.8 |
|
Amortization of purchased intangible assets |
|
|
0.5 |
|
|
|
0.6 |
|
|
|
1.0 |
|
Restructuring |
|
|
0.6 |
|
|
|
1.3 |
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
7.4 |
|
|
|
(1.2 |
) |
|
|
(8.5 |
) |
Other (expense) income: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(0.2 |
) |
|
|
(0.7 |
) |
|
|
(0.2 |
) |
Interest income |
|
|
0.1 |
|
|
|
0.2 |
|
|
|
0.6 |
|
Bargain purchase gain |
|
|
|
|
|
|
2.8 |
|
|
|
|
|
Other income (expense), net |
|
|
1.3 |
|
|
|
(0.1 |
) |
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
8.6 |
|
|
|
1.0 |
|
|
|
(8.2 |
) |
Provision for (benefit from) income taxes |
|
|
0.7 |
|
|
|
0.3 |
|
|
|
(0.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
7.9 |
|
|
|
0.7 |
|
|
|
(8.0 |
) |
Loss from discontinued operations, net of tax |
|
|
(0.8 |
) |
|
|
(0.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
7.1 |
% |
|
|
0.3 |
% |
|
|
(8.0 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2015 Compared to Fiscal 2014
The results of our Interface Board Business are being presented as discontinued operations in the consolidated statement of income for all periods presented. See Note 3Discontinued Operations
in the notes to the consolidated financial statements for additional information regarding these discontinued operations. Unless otherwise indicated, any reference to income statement items in this Managements Discussion and Analysis of
Financial Condition and Results of Operations refers to results from continuing operations.
Net sales. The
increase in net sales for fiscal 2015 compared to the fiscal year ended July 31, 2014 (fiscal 2014) was due principally to the completion of the Dover Acquisition in December 2013. During fiscal 2015, $178.5 million of net sales were generated
by the LTX-Credence business and $219.5 million of net sales resulted from the operations of the atg-Luther & Maelzer, Multitest and ECT newly acquired businesses, for total net sales of $398.0 million. Excluding net sales from the newly
acquired businesses, our net sales of $178.5 million increased 15% as compared to net sales of $154.6 million for fiscal 2014, driven by slightly increased net sales in all product lines due to higher customer demand for our test equipment,
resulting from higher demand in our customers end markets.
Service revenue from the LTX-Credence business decreased by
14% in fiscal 2015 as compared to fiscal 2014 primarily due to increased reliability of our test equipment which reduces the demand for post-warranty service contracts and due to lower value service contracts based on the lower average selling price
of the underlying testers.
Our Semiconductor Test Solutions segment reported net sales of $313.9 million for fiscal 2015 as
compared to $246.9 million for fiscal 2014. The primary growth driver for this segment was our Tester Group, which had an increase of 15%, or $23.7 million, during fiscal 2015 due largely from higher sales of PAx and Diamond
32
products. The Handler Group and Interface Products Group also had increases of 44% and 59%, respectively; however this growth was largely due to the fact that fiscal 2014 included only 8 months
of net sales, as compared to a full year for fiscal 2015.
Our Electronic Manufacturing Solutions segment reported net sales
of $84.1 million in fiscal 2015 as compared to $58.2 million for fiscal 2014. This segment is comprised of our PCB Test Group, our Probes/Pins Group and our Fixtures Services Group. The increase in net sales of 45% from fiscal 2014 to fiscal 2015 is
largely driven by the fact that fiscal 2014 included only 8 months of net sales, as compared to a full year for fiscal 2015.
Gross profit. The increase in gross profit for fiscal 2015 as compared to fiscal 2014 was due principally to the completion
of the Dover Acquisition in December 2013. During fiscal 2015, gross profit for the former LTX-Credence business was $98.0 million and $82.0 million resulted from the operations of the newly acquired business, for a total gross profit of $180
million. For fiscal 2014, gross profit for the former LTX-Credence business was $84.2 million and $55.7 million resulted from the operations of the newly acquired businesses, for a total gross profit of $139.9 million. Excluding the gross profit of
the newly acquired businesses, our gross profit of $98.0 million for fiscal 2015 increased 16.4% over gross profit of $84.2 million for fiscal 2014. This increase was driven by higher net sales from the former LTX-Credence business of $178.5 million
for fiscal 2015 as compared to $154.6 million for fiscal 2014, as well as more profitable configuration mix on the testers sold during 2015 that influenced product margin.
Gross profit percentage decreased slightly from 45.8% for the twelve months ended July 31, 2014 to 45.2% for the twelve months ended July 31, 2015, largely driven by product mix.
For fiscal 2015, we recorded $1.7 million in sales of previously reserved inventory, as compared to $0.8 million in the prior fiscal
year. We released reserves of $0.6 million and $0.5 million related to these sales for fiscal years 2015 and 2014, respectively.
Engineering and product development expenses. The increase in engineering and product development expenses for fiscal 2015 compared to fiscal 2014 was due primarily to a full year of product
development expenses incurred by the Acquired Businesses. Excluding expenses associated with the newly acquired businesses, engineering and product development expenses for LTX-Credence was $47.5 million for fiscal 2015, as compared to $50.6 million
for fiscal 2014. This decrease was due to lower personnel related expenses in the comparable periods resulting from headcount reductions completed at the end of January 2014.
Selling, general and administrative expenses. The increase in selling, general, and administrative expenses for fiscal 2015 compared to fiscal 2014 was due primarily to the completion of the
Dover Acquisition in December 2013. During fiscal 2015, the LTX-Credence business had selling, general and administrative expenses of $42.3 million and $39.8 million was driven by the Acquired Businesses. During fiscal 2014, the LTX-Credence
business had selling, general and administrative expenses of $44.4 million and the newly acquired businesses had selling, general and administrative expenses of $32.6 million for 8 months. The decrease in selling general and administrative expenses
in fiscal 2015 compared to fiscal 2014 for the LTX-Credence business was due to costs incurred in 2014 associated with integration activities related to the Dover Acquisition.
Amortization of purchased intangible assets. The decrease in amortization for the periods shown is a result of the decreasing amortization from the intangibles from the Credence merger as
some of the underlying intangibles have become fully amortized. This decrease is slightly offset by the addition of intangible assets from the Dover Acquisition, which are being amortized over their expected useful lives.
Restructuring. During fiscal 2015, we incurred $2.2 million of restructuring expense, primarily related to headcount
reductions, post-employment obligations and facility costs associated with a plan to reorganize our Fixtures Services Group that was announced in March 2015. Also included in restructuring is the impact of
33
changing our sublease assumptions for our Milpitas, CA facility. The restructuring expense recorded in fiscal 2014 included $3.5 million of estimated severance and post-employment obligations
related to headcount reductions during the period that were part of the plan announced on January 31, 2014. The remainder of the expense recognized in fiscal 2014, or $0.4 million, was associated with costs to vacate our Beaverton, Oregon
facility. These expenses were partially offset by sublease income assumptions, as well as costs associated with updating sublease assumptions for our Milpitas, California facility.
Income (loss) from continuing operations. We reported income from continuing operations of $29.6 million for fiscal 2015,
as compared to a loss from continuing operations for fiscal 2014 of $3.8 million. This increase year over year was primarily driven by stronger gross profit partially offset by higher operating expenses. Fiscal 2015 results included a full year of
net sales, costs of sales and operating expenses, as compared to fiscal 2014 which only included 8 months of net sales, cost of sales and operating expenses, from the acquired companies.
Our Semiconductor Test Segment reported income from continuing operations of $26.3 million for fiscal 2015, as compared to loss from
continuing operations of $4.4 million for fiscal 2014. This increase year over year is largely driven by the Contactor business, which had significant growth in fiscal 2015, buoyed by the acquisition of Titan Semiconductor in February 2015. Also
contributing to the growth in income was our Tester Group, which generated income from continuing operations of $5.2 million in fiscal 2015 as compared to a loss from continuing operations of $14.6 million in fiscal 2014. This growth was primarily
driven by higher net sales in fiscal 2015.
Our Electronic Manufacturing Solutions segment reported income from continuing
operations of $5.5 million in fiscal 2015, as compared to income from continuing operations of $4.5 million in fiscal 2014. This increase was driven by our PCB Test Group, which generated $4.2 million higher income from continuing operations in
fiscal 2015 as compared to fiscal 2014 due to a 49% increase in revenues in fiscal 2015 as compared to fiscal 2014.
Interest expense. The decrease in interest expense for fiscal 2015 compared to fiscal 2014 was driven by the reversal of
$0.9 million of interest accrued since December 1, 2013 on seller promissory notes associated with the Dover Acquisition. Since the seller promissory notes were repaid prior to the one year anniversary of the Dover Acquisition, we had no
obligation to pay interest on the notes. Also driving the reduction in interest expense year over year was a repayment of $24.1 principal of our Term Loan with Silicon Valley Bank, and a refinancing of that loan in December 2014.
Interest income. Interest income remained flat in fiscal 2015 as compared to fiscal 2014 due to limited changes in the core
composition of marketable securities held within our portfolio.
Other (expense) income, net. Other
(expense) income, net for the year ended July 31, 2015 was $5.1 million of other income and $0.2 million of other expense for the year ended July 31, 2014. The increase in other income was primarily related to a $1.8 million gain pursuant
to a reduction in principal to which we were entitled under the original seller promissory notes due to prepayment of the promissory notes before January 1, 2015, a $1.5 million gain due to reversal of an indemnification accrual due to the
passing of the statute of limitations, as well as net foreign exchange gains of $2.1 million associated with the weakening of the Euro compared to the U.S. Dollar during the year ended July 31, 2015.
Provision for (benefit from) income taxes. We recorded an income tax provision of $2.6 million for fiscal 2015 primarily
due to foreign tax expense in profitable locations.
We recorded an income tax provision of $0.8 million for fiscal 2014
primarily due to $1.3 million of foreign tax expense in profitable locations, partially offset by $0.5 million of tax benefit relating to the Dover Acquisition. Purchase accounting for the Dover Acquisition required the establishment of a deferred
tax liability related to the book-tax basis differences of identifiable intangible assets. The deferred tax liability created an
34
additional source of U.S. future taxable income which resulted in a release of $0.5 million of our U.S. valuation allowance recorded in our Statement of Operations.
As of July 31, 2015 and July 31, 2014, our liability for unrecognized income tax benefits was $6.3 million and $6.6 million,
respectively. As of July 31, 2015 and July 31, 2014, unrecognized tax benefits of $2.7 million and $3.0 million, respectively, if recognized, would impact the effective income tax rate.
We expect to record a full valuation allowance on future U.S. deferred tax benefits and in certain foreign jurisdictions until we sustain
an appropriate level of profitability. We will continue to monitor the recovery of our deferred tax assets on a periodic basis.
Discontinued Operations. Our Interface Board Business generated a loss of $3.3 million for fiscal 2015 as compared to a
$1.3 million loss for fiscal 2014. Despite an increase in revenue of $9.0 million, or 36%, costs for the same periods increased $11.0 million or 41%. These costs are largely fixed manufacturing costs that could not be avoided despite the decrease in
revenue.
Comprehensive income (loss). During fiscal 2015 and fiscal 2014, we recognized $13.2 million and $0.3
million, respectively, of unrealized losses from currency translation, largely driven by the weakening of the Euro to the U.S. dollar in the year ended July 31, 2015. The impact of foreign currency translation adjustment in the comparative periods
was minimal.
Fiscal 2014 Compared to Fiscal 2013
Net sales. The increase in net sales for fiscal 2014 compared to the prior year period was due principally to the completion of the Dover Acquisition in December 2013. During fiscal 2014,
$154.6 million of net sales were generated by the former LTX-Credence business and $150.5 million of net sales resulted from the operations of the newly acquired atg-Luther & Maelzer, Multitest and ECT businesses, for total net sales of
$305.1 million. Excluding net sales from the newly acquired businesses, our net sales revenue of $154.6 million increased 2% as compared to net sales of $152.0 million for fiscal 2014, driven by slightly increased net sales in all product lines due
to higher customer demand for our test equipment, resulting from higher demand in our customers end markets.
Service
revenue from the LTX-Credence business remained flat in fiscal 2014 as compared to the fiscal year ended July 31, 2013 (fiscal 2013) primarily due to the continued reliability of our test equipment which reduces the demand for post-warranty
service contracts and lower value service contracts based on the lower average selling price of the underlying testers.
Gross profit. The increase in gross profit for fiscal 2014 as compared to fiscal 2013 was due principally to the completion
of the Dover Acquisition in December 2013. During fiscal 2014, gross profit for the former LTX-Credence business was $84.2 million and $55.7 million resulted from the operations of the newly acquired businesses, for a total gross profit of $139.9
million. Excluding the gross profit of the newly acquired businesses, our gross profit of $84.2 million for fiscal 2014 increased 4% as compared to gross profit of $80.8 million for fiscal 2013. This increase was driven by slightly higher net sales
from the former LTX-Credence business of $154.6 million for fiscal 2014 as compared to $152.0 million for fiscal 2013, as well as more profitable configuration mix on the testers sold during 2014 that influenced product margin.
For fiscal 2014, we recorded $0.8 million in sales of previously reserved inventory, as compared to $0.9 million in the prior fiscal
year. We released reserves of $0.5 million and $0.3 million related to these sales for fiscal years 2014 and 2013, respectively.
Engineering and product development expenses. The increase in engineering and product development expenses for fiscal 2014 compared to fiscal 2013 was due primarily to product development
expenses incurred by
35
the Acquired Businesses from December 1, 2013 to July 31, 2014. Excluding expenses associated with the newly acquired businesses, engineering and product development expenses for
LTX-Credence were $50.6 million for fiscal 2014, as compared to $52.3 million for fiscal 2013. This decrease was due to lower personnel related expenses in the comparable periods resulting from headcount reductions completed at the end of January
2014.
Selling, general and administrative expenses. The increase in selling, general, and administrative
expenses for fiscal 2014 compared to fiscal 2013 was due primarily to the completion of the Dover Acquisition in December 2013. During fiscal 2014, the LTX-Credence business had selling, general and administrative expenses of $44.4 million and the
newly acquired businesses had selling, general and administrative expenses of $32.6 million. Excluding the selling, general and administrative expenses of the newly acquired businesses, our selling, general and administrative expenses of $44.4
million for fiscal 2014 increased 13% as compared to selling, general and administrative expenses of $39.3 million for fiscal 2013. This increase in LTX-Credence selling, general and administrative expenses was due to Dover Acquisition-related
professional fees of $4.1 million recognized in fiscal 2014, as well as higher variable commissions on higher revenue, higher insurance premiums and other corporate-related expenses associated with the newly acquired businesses. These expenses were
slightly offset by lower personnel related expenses in the comparable periods resulting from headcount reductions completed at the end of January 2014.
Amortization of purchased intangible assets. The increase in amortization for the periods shown is a result of the addition of intangible assets from the Dover Acquisition, which are being
amortized over their expected useful lives.
Restructuring. The restructuring expense recorded in fiscal 2014
included $3.5 million of estimated severance and post-employment obligations related to headcount reductions during the period that were part of the plan announced January 31, 2014. The remainder of the expense recognized in fiscal 2014, or
$0.4 million, was associated with costs to vacate our Beaverton, Oregon facility. These expenses were partially offset by sublease income assumptions, as well as costs associated with updating sublease assumptions for our Milpitas, California
facility.
Interest expense. The increase in interest expense for fiscal 2014 compared to fiscal 2013 was driven
by interest incurred on the bank term loan and the seller financing promissory notes, which we entered into on November 27, 2013, the proceeds of which were used to fund the Dover Acquisition.
Interest income. Interest income decreased in fiscal 2014 as compared to fiscal 2013 due to a decrease in marketable
securities held within our portfolio. We used approximately $35.0 million of marketable securities to fund a portion of the purchase price for the Dover Acquisition.
Bargain purchase gain. During fiscal 2014, we recorded a bargain purchase gain of $8.6 million associated with the Dover Acquisition, which represents the excess of the fair value of the net
assets acquired as compared to the acquisition price.
Other (expense) income, net. Other (expense)
income, net primarily includes the net impact of changes in foreign exchange gains and losses.
Provision for (benefit
from) income taxes. We recorded an income tax provision of $0.8 million for fiscal 2014 primarily due to $1.3 million of foreign tax expense in profitable locations partially offset by $0.5 million of tax benefit relating to the Dover
Acquisition. Purchase accounting for the Dover Acquisition required the establishment of a deferred tax liability related to the book-tax basis differences of identifiable intangible assets. The deferred tax liability created an additional source of
U.S. future taxable income which resulted in a release of $0.5 million of our U.S. valuation allowance recorded in our Statement of Operations.
We recorded an income tax benefit of $0.3 million for fiscal 2013 primarily due to the release of reserves due to statute of limitation expirations partially offset by foreign taxes in profitable
locations.
36
As of July 31, 2014 and July 31, 2013, our liability for unrecognized income tax
benefits was $6.6 million and $6.8 million, respectively. As of July 31, 2014 and July 31, 2013, unrecognized tax benefits of $3.0 million and $3.2 million, respectively, if recognized, would impact the effective income tax rate.
We expect to record a full valuation allowance on future U.S. deferred tax benefits and in certain foreign jurisdictions
until we sustain an appropriate level of profitability. We will continue to monitor the recovery of our deferred tax assets on a periodic basis.
Liquidity and Capital Resources
The following is a summary of significant
items impacting our liquidity and capital resources for fiscal 2015 and fiscal 2014:
|
|
|
|
|
|
|
|
|
|
|
2015 |
|
|
2014 |
|
|
|
(in millions) |
|
Cash and cash equivalents and marketable securities at July 31, 2015 and 2014 |
|
$ |
98.9 |
|
|
$ |
124.4 |
|
Proceeds from Equity Offering, net of commissions paid |
|
|
52.1 |
|
|
|
|
|
Proceeds from bank term loan, net of fees |
|
|
|
|
|
|
52.5 |
|
Principal payments of bank term loan |
|
|
(24.5 |
) |
|
|
(1.9 |
) |
Payment of subordinated debt |
|
|
(16.3 |
) |
|
|
|
|
Cash paid for Acquired Businesses, net of cash acquired |
|
|
(2.4 |
) |
|
|
(70.0 |
) |
Capital expenditures |
|
|
(4.4 |
) |
|
|
(7.7 |
) |
Effect of exchange rate changes in cash |
|
|
(5.7 |
) |
|
|
|
|
Other cash provided, primarily by operating activities, net |
|
|
40.8 |
|
|
|
1.6 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents and marketable securities at July 31, 2015 and 2014 |
|
$ |
138.5 |
|
|
$ |
98.9 |
|
|
|
|
|
|
|
|
|
|
Fiscal 2015 Compared to Fiscal 2014
As of July 31, 2015, we had $138.5 million in cash and cash equivalents and marketable securities and working capital of $225.3
million, as compared to $98.9 million of cash and cash equivalents and marketable securities and $192.1 million net working capital at July 31, 2014. The increase in cash and cash equivalents and marketable securities was primarily due to
proceeds from our equity offering in September 2014, less $24.5 million paid on our bank loans, and $16.3 million used to repay the promissory notes issued to Dover.
Accounts receivable from trade customers, net of allowances, was $81.3 million at July 31, 2015, as compared to $88.1 million at July 31, 2014. This decrease was driven by lower revenue in the
three months ended July 31, 2015 as compared to the three months ended July 31, 2014.
Purchases of property and
equipment totaled $4.4 million for fiscal 2015, as compared to $7.7 million for fiscal 2014. Expenditures for fiscal 2015 and fiscal 2014 related to costs associated with the relocation of two newly acquired facilities which included the purchase of
our Rosenheim, Germany facility in 2014 for approximately $5.0 million.
Net cash provided by operating activities for fiscal
2015 was $42.3 million as compared to net cash provided by operating activities of $1.0 million for fiscal 2014. The net cash provided by operating activities for fiscal 2015 was primarily related to our net income of $28.2 million, adjusted for
non-cash items, principally depreciation and amortization, and stock-based compensation, of $15.8 million, offset in part by an increase in net working capital of $1.7 million. The net cash provided by operating activities for fiscal 2014 was
primarily related to our net income of $0.8 million, adjusted for non-cash items, principally depreciation and amortization, bargain purchase gain and stock-based compensation, of $6.1 million, offset in part by an increase in net working capital of
$5.9 million.
37
Net cash used in investing activities for fiscal 2015 was $28.6 million as compared to net
cash used in investing activities of $22.1 million for fiscal 2014. The net cash used in investing activities for fiscal 2015 was primarily related to $76.6 million in purchases of available-for-sale securities, $4.4 million in purchases of property
and equipment, and $2.4 million in cash paid for acquired businesses, offset in part by $54.8 million of proceeds from sales and maturities of available-for-sale securities. The net cash used in investing activities for fiscal 2014 was primarily
related to $55.4 million in purchases of available-for-sale securities, $70.0 million paid for acquired businesses, and $7.7 million in purchases of property and equipment, offset by $111.0 million of proceeds from sales and maturities of
available-for-sale securities.
Net cash provided by financing activities for fiscal 2015 was $10.5 million as compared to net
cash provided by financing activities of $52.1 million for fiscal 2014. The net cash provided by financing activities for fiscal 2015 was primarily related to net proceeds from our underwritten public offering that closed on September 17, 2014
of $52.1 million and proceeds from the employee stock purchase plan of $0.9 million, offset by principal payments of bank term loan of $24.4 million, repayment of subordinated debt of $16.3 million, and by payments of tax withholdings for vested
RSUs of $1.9 million. The net cash provided by financing activities for fiscal 2014 was primarily related to proceeds from bank term loans of $53.8 million and proceeds from the employee stock purchase plan of $0.8 million offset in part by
principal payments of bank term loan of $1.9 million and by payments of tax withholdings for vested RSUs of $0.8 million.
We
believe our cash, cash equivalents and marketable securities balance of $138.5 million as of July 31, 2015 will be sufficient to meet our working capital and expenditures needs for at least the next twelve months. In addition, the amount of
cash, cash equivalents and marketable securities in the U.S. and our results of operations in the U.S. provide sufficient liquidity to fund our business activities in the U.S. Inflation has not had a significant long-term impact on our revenue or
earnings.
Fiscal 2014 Compared to Fiscal 2013
As of July 31, 2014, we had $98.9 million in cash and cash equivalents and marketable securities and working capital of $192.1
million, as compared to $124.4 million of cash and cash equivalents and marketable securities and $147.4 million of net working capital at July 31, 2013. The decrease in cash and cash equivalents and marketable securities was primarily due to
costs incurred related to the Dover Acquisition in fiscal 2014.
Accounts receivable from trade customers, net of allowances,
was $88.1 million at July 31, 2014, as compared to $28.1 million at July 31, 2013. Of the $60.0 million increase in accounts receivable, $56.3 million was acquired in connection with the Dover Acquisition, and the balance of the
increase was due to an increase in net sales.
Purchases of property and equipment totaled $7.7 million for fiscal 2014, as
compared to $2.8 million for fiscal 2013. Expenditures for fiscal 2014 and fiscal 2013 were composed primarily of testers for use in engineering and product development and tester spare parts to support post-warranty support contracts and the
purchase of our Rosenheim, Germany facility in 2014 for approximately $5.0 million.
Net cash provided by operating activities
for fiscal 2014 was $1.0 million as compared to net cash provided by operating activities of $1.5 million for fiscal 2013. The net cash provided by operating activities for fiscal 2014 was primarily related to our net income of $0.8 million,
adjusted for non-cash items, principally depreciation and amortization, bargain purchase gain and stock-based compensation of $6.1 million, offset by an increase in net working capital of $5.9 million. The net cash provided by operating activities
for the year ended July 31, 2013 was primarily related to our net loss of $12.1 million, adjusted for non-cash items, principally depreciation and amortization, restructuring, and stock-based compensation, of $13.8 million, offset by an
increase in net working capital of $0.2 million.
Net cash used in investing activities for fiscal 2014 was $22.1 million as
compared to net cash provided by investing activities of $6.7 million for fiscal 2013. The net cash used in investing activities for fiscal 2014 was
38
primarily related to $55.4 million in purchases of available-for-sale securities, $70.0 million paid for acquired businesses, and $7.7 million in purchases of property and equipment offset by
$111.0 million of proceeds from sales and maturities of available-for-sale securities. The net cash provided by investing activities for fiscal 2013 related to $75.2 million of proceeds from sales and maturities of available-for-sale securities and
$5.8 million of proceeds from sales and maturities of held-to-maturity securities, offset by $66.7 million in purchases of available-for-sale securities, $4.8 million in purchases of held-to-maturity securities, and $2.8 million in purchases of
property and equipment.
Net cash provided by financing activities for fiscal 2014 was $52.1 million as compared to net cash
used in financing activities of $9.6 million for fiscal 2013. The net cash provided by financing activities for fiscal 2014 was primarily related to proceeds from bank term loans of $53.8 million and proceeds from the employee stock purchase plan of
$0.8 million offset in part by principal payments of bank term loan of $1.9 million and by payments of tax withholdings for vested RSUs of $0.8 million. The net cash used in financing activities for fiscal 2013 was primarily related to stock
repurchases of $9.2 million and payments of tax withholdings for vested RSUs of $1.1 million, offset in part by proceeds from the employee stock purchase plan of $0.8 million.
Credit Agreement and Seller Financing
On December 15, 2014, we
and ECT (the Borrowers) entered into an amended Credit Agreement with SVB, and the Lenders. The Credit Agreement provides for a Facility, consisting of a Term Loan, in favor of the Borrowers in the aggregate principal amount of $25.0 million which
was advanced to us on December 15, 2014.
All obligations under the Facility are secured by a first priority security
interest in substantially all of the Borrowers existing and future assets, including a pledge of the stock or other equity interests of the Borrowers domestic subsidiaries and of any first tier foreign subsidiaries, provided that not
more than 66% of the voting stock of any such foreign subsidiaries shall be required to be pledged.
The Credit Agreement
requires that the Term Loan be repaid in quarterly installments, with 5% of the principal due the first year, 10% of principal due in each of the second and third years, 15% of principal due the fourth year, and a final payment of $15 million due on
December 14, 2018. The outstanding balance of the Term Loan may, at the Borrowers option, be prepaid at any time in whole or in part without premium or penalty, other than customary breakage costs, if any, subject to the terms and
conditions of the Credit Agreement.
Borrowings made under the Facility bear interest, at a base rate plus a margin (such
margin not to exceed a per annum rate of 1.75%) based on the Leverage Ratio, or at a LIBOR rate plus a margin (such margin not to exceed a per annum rate of 2.75%) based on the Leverage Ratio. The interest rate otherwise payable under the Facility
will be subject to increase by 2.0% per annum during the continuance of a payment default and may be subject to increase by 2.0% per annum during the continuance of any other event of default. As of July 31, 2015, the interest rate in
effect on the Facility was 2.63%.
The proceeds of the Term Loan were used to pay off $25.0 million of the outstanding
indebtedness under our previous credit facility that was advanced to us pursuant to that certain credit agreement entered into on November 27, 2013 with ECT, SVB, as lender, administrative agent and issuing lender, and the lenders from time to
time party thereto. The balance of outstanding indebtedness of approximately $2.5 million was funded through our cash flow from operations. As of December 15, 2014, the previous facility had been terminated.
The Credit Agreement contains customary affirmative and negative covenants, subject in certain cases to baskets and exceptions, including
negative covenants with respect to indebtedness, liens, fundamental changes, dispositions, restricted payments, investments, ERISA matters, matters relating to subordinated debt, affiliate transactions, sale and leaseback transactions, swap
agreements, accounting changes, negative pledge clauses, clauses restricting subsidiary distributions, lines of business, amendments to certain documents and use of proceeds. The Credit Agreement also contains customary reporting and other
affirmative covenants.
39
Our obligations under the Facility may be accelerated upon the occurrence of an event of
default under the Credit Agreement, which includes customary events of default, including payment defaults, the inaccuracy of representations or warranties, the failure to comply with covenants, ERISA defaults, judgment defaults, bankruptcy and
insolvency defaults and cross defaults to material indebtedness.
As of July 31, 2015, we were in compliance with all
covenants under the Credit Agreement.
On September 16, 2015 we and ECT (the Borrowers) entered into the First Amendment
to the Credit Agreement and Waiver with SVB and the Lenders, pursuant to which SVB and the Lenders waived the delivery of monthly financial statements for the month ending June 30, 2015, and the parties agreed to amend the Credit Agreement to
provide that the delivery of financial statements would occur on a quarterly basis as opposed to monthly, and that we may repurchase up to $30 million of its capital stock provided that it comply with certain financial covenants.
Seller Financing
As
described above, pursuant to the Dover Purchase Agreement, in connection with the closing of the Dover Acquisition, we issued promissory notes having an aggregate principal amount of $20.0 million to Dover. On November 26, 2014, we repaid in
full all outstanding amounts under the promissory notes. The $16.3 million payoff amount reflected the principal amount of $18.0 million that was outstanding under the original promissory notes, less a $1.8 million reduction triggered by the
prepayment in full of the notes prior to January 1, 2015, and was recorded as a gain on repayment of subordinated debt as a component of other income in the fiscal year ended July 31, 2015 in our Consolidated Statements of Operations and
Comprehensive Income (Loss).
We expect that the outstanding debt obligations under the Credit Agreement to have a material
impact on our liquidity and capital resources in the near future.
Bank Term LoanCommerzbank
In May 2014, we entered into a loan agreement with Commerzbank to finance the purchase of our leased facility in Rosenheim, Germany. The
principal amount of the term loan is 2.9 million Euros, payable over 10 years in Euro at an annual interest rate of 2.35%. Principal plus accrued interest is due quarterly over the duration of the term loan.
Follow-On Public Offering
On September 17, 2014, we closed an underwritten public offering of 4,682,927 shares of our common stock at $10.25 per share. We granted to the underwriters a 30-day option to purchase up to an
aggregate of 702,439 additional shares of common stock to cover over-allotments which they exercised on September 22, 2014. All of the shares were sold pursuant to an effective shelf registration statement previously filed with the SEC.
The offering resulted in net proceeds to us, after deducting underwriting discounts and commissions and offering expenses, of
approximately $52.1 million. We used approximately $20 million of the net proceeds from the offering to repay a portion of the outstanding principal of our previous credit facility that was advanced to us pursuant to that certain credit
agreement entered into on November 27, 2013 with ECT, SVB, as lender, administrative agent and issuing lender, and the lenders from time to time party thereto, and approximately $16 million to repay the outstanding principal balance of the
promissory notes issued to Dover Corporation. The balance of the proceeds was used for general corporate purposes, including capital expenditures and potential strategic acquisitions.
Stock Repurchases
On September 15, 2011, we announced that our Board of Directors authorized a stock repurchase program for up to $25 million (2011 Plan). Under this program, our board of directors authorized us to
repurchase shares
40
of our common stock from time to time in open market transactions. We determine the timing and amount of the transaction based on our evaluation of market conditions and other factors. We were
able to suspend or discontinue the repurchase program at any time and the program had no expiration date.
As of July 31,
2015, we had repurchased 3,294,666 shares of common stock for a total purchase price of $18.7 million, since the inception of the program on September 15, 2011. During the year ended July 31, 2015, we did not repurchase any shares under
this program.
On September 3, 2015, we announced that our Board of Directors authorized a stock repurchase program,
pursuant to which we are authorized to repurchase up to $30 million of our common stock from time to time in open market transactions (2015 Plan). This repurchase program supersedes the 2011 Plan and as a result there were no shares available for
repurchase under the 2011 Plan following approval of this plan. We may suspend or discontinue the repurchase program at any time and the program has no expiration date. As of October 7, 2015, we have repurchased 1,206,605 shares for $7.4
million.
Commitments and Contingencies
As of July 31, 2015, our major outstanding contractual obligations are related to our bank term loan and promissory notes, operating leases for our rental properties and other equipment, inventory
purchase commitments and severance obligations.
In the ordinary course of business, we agree from time to time to indemnify
some of our customers against certain third party claims for property damage, bodily injury, personal injury or intellectual property infringement arising from the operation or use of our products. Also, from time to time in agreements with
suppliers, licensors and other business partners, we agree to indemnify these partners against certain liabilities arising out of the sale or use of our products. The maximum potential amount of future payments we could be required to make under
these indemnification obligations is theoretically unlimited; however, we have general and umbrella insurance policies that enable it to recover a portion of any amounts paid and many of these agreements contain a limit on the maximum amount, as
well as limits on the types of damages recoverable. Based on our experience with such indemnification claims, we believe the estimated fair value of these obligations is minimal. Accordingly, we had no liabilities recorded for these agreements as of
July 31, 2015 or July 31, 2014.
We are a defendant in a litigation matter incidental to our business that is
related to customer expectations of test system performance for a product that was shipped in 2006 by Credence. We do not believe the plaintiffs claims have merit and we are vigorously defending our position. An estimate of any potential loss
cannot be made; we do not believe a loss is probable, and accordingly we have not accrued any amounts related to this matter.
Subject to certain limitations, we indemnify our current and former officers and directors for liability or costs they may incur upon
certain events or occurrences encountered in the course of performing their duties. Although the maximum potential amount of future payments we could be required to make under these agreements is theoretically unlimited, as there were no known or
pending claims, we had not accrued a liability for these agreements as of July 31, 2015 or July 31, 2014.
In April
2015 we had a fire in our Santa Clara manufacturing facility. Certain machinery used for our lamination process was damaged, and there was a delay in production for a short amount of time. This event did not have a material impact on our results of
operations or financial condition and we did not suffer any customer losses.
The aggregate outstanding amount of our
contractual obligations was $93.0 million as of July 31, 2015. These obligations and commitments represent maximum payments based on current operating forecasts. Certain of the commitments could be reduced if changes to our operating forecasts
occur in the future.
41
The following summarizes our contractual obligations as of July 31, 2015, and the
effect such obligations are expected to have on our liquidity and cash flows in the future periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year-end |
|
|
|
Total |
|
|
2016 |
|
|
2017 2018 |
|
|
2019 2020 |
|
|
Thereafter |
|
|
|
(in thousands) |
|
Contractual Obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases |
|
$ |
22,643 |
|
|
$ |
7,545 |
|
|
$ |
8,476 |
|
|
$ |
3,587 |
|
|
$ |
3,035 |
|
Inventory commitments |
|
|
40,223 |
|
|
|
33,282 |
|
|
|
4,245 |
|
|
|
2,486 |
|
|
|
210 |
|
Severance |
|
|
684 |
|
|
|
684 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank Term Loansprincipal and interest |
|
|
29,472 |
|
|
|
3,177 |
|
|
|
7,751 |
|
|
|
16,818 |
|
|
|
1,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Contractual Obligations |
|
$ |
93,022 |
|
|
$ |
44,688 |
|
|
$ |
20,472 |
|
|
$ |
22,891 |
|
|
$ |
4,971 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We also expect to invest approximately $6.0 million in capital expenditures in fiscal 2016.
Off-Balance Sheet Arrangements
As of July 31, 2015 and July 31, 2014, we did not have any off-balance sheet arrangements.
Recent Accounting Pronouncements
See Note 2 to the consolidated financial
statements included in this Annual Report on Form 10-K regarding the impact of certain recently issued accounting pronouncements on our consolidated financial statements.
Item 7A. |
Quantitative and Qualitative Disclosures About Market Risk |
Financial instruments that potentially subject us to concentrations of credit-risk consist principally of investments in cash equivalents, marketable securities and trade receivables. We place our
marketable securities with high-quality financial institutions, limit the amount of credit exposure to any one institution and have established investment guidelines relative to diversification and maturities designed to maintain capital
preservation and liquidity.
Our primary exposure to market risks is fluctuations in foreign currency exchange rates and
interest rates.
Foreign Currency Exchange Risk
Operating in international markets involves exposure to movements in currency exchange rates. Currency exchange rate movements typically also reflect economic growth, inflation, interest rates, government
actions and other factors. We transact business in various foreign currencies and, accordingly, we are subject to exposure from adverse movements in currency exchange rates. As currency exchange rates fluctuate, translation of the statements of
financial condition and statements of operations of our international businesses into U.S. dollars may affect year-over-year comparability and could cause us to adjust our financing and operating strategies. To date, the effect of changes in
currency exchange rates on our statements of financial condition and results of operations has not been material. However with the addition of ECT, Multitest and atg-Luther & Maelzer, we expect this may change as these operations expose the
Company to more business denominated in the local currencies in which these businesses operate. Our trade receivables result primarily from sales to companies located in North America, Asia, and Europe. In fiscal 2015, our revenues derived from
sales outside the United States constituted 79% of our total revenues. Accounts receivable in currencies other than U.S. dollars composed 48% of the trade accounts receivable at July 31, 2015. Receivables generally are from major corporations
or are supported by letters of credit. We maintain reserves for potential credit losses and such losses have been immaterial. Accounts payable in currencies other than U.S. dollars composed 34% of accounts payable at July 31, 2015.
42
Based on a hypothetical 10% adverse movement in foreign currency exchange rates, the
potential losses in future earnings, fair value of risk-sensitive financial instruments and cash flows are immaterial due to entities from which payments are received in currencies other than the U.S. Dollar being naturally hedged, although the
actual effects may differ materially from the hypothetical analysis.
Interest Rate Risk
As of the date of this filing, we have approximately $24.1 million of long-term debt due under a credit facility with Silicon Valley Bank
and other lenders that is subject to quarterly interest payments that are based on either a base rate plus a margin of up to 2.50% per annum, or the London Interbank Offered Rate (LIBOR) plus a margin of up to 3.50% per annum, in either
case based on our ratio of consolidated senior debt to consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) (the Leverage Ratio), or at a LIBOR rate plus a margin (such margin not to exceed a per annum rate of 3.50%)
based on the Leverage Ratio. The selection of the interest rate formula is at our discretion. The interest rate otherwise payable under the credit facility will be subject to increase by 2.0% per annum during the continuance of a payment
default and may be subject to increase by 2.0% per annum during the continuance of any other event of default under the credit agreement. At July 31, 2015, the interest rate in effect on these borrowings was 2.63%.
We may from time to time have other outstanding short-term and long-term borrowings with variable interest rates.
43
Item 8. |
Financial Statements and Supplementary Data |
XCERRA CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
July 31, |
|
|
|
2015 |
|
|
2014 |
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
77,858 |
|
|
$ |
59,269 |
|
Marketable securities |
|
|
60,593 |
|
|
|
39,659 |
|
Accounts receivabletrade, net of allowances of $110 and $139, respectively |
|
|
81,313 |
|
|
|
88,120 |
|
Accounts receivableother |
|
|
326 |
|
|
|
99 |
|
Inventories, net |
|
|
60,593 |
|
|
|
67,684 |
|
Prepaid expenses and other current assets |
|
|
8,393 |
|
|
|
9,004 |
|
Assets held for sale |
|
|
10,454 |
|
|
|
11,441 |
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
299,530 |
|
|
|
275,276 |
|
Property and equipment, net |
|
|
31,450 |
|
|
|
32,153 |
|
Intangible assets, net |
|
|
10,640 |
|
|
|
11,105 |
|
Goodwill |
|
|
43,850 |
|
|
|
43,030 |
|
Other assets |
|
|
2,005 |
|
|
|
2,579 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
387,475 |
|
|
$ |
364,143 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Current portion of long term debt |
|
$ |
2,509 |
|
|
$ |
3,831 |
|
Accounts payable |
|
|
27,492 |
|
|
|
29,617 |
|
Deferred revenues |
|
|
7,466 |
|
|
|
8,927 |
|
Other accrued expenses |
|
|
35,579 |
|
|
|
39,439 |
|
Liabilities held for sale |
|
|
1,147 |
|
|
|
1,353 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
74,193 |
|
|
|
83,167 |
|
Other long-term liabilities |
|
|
10,876 |
|
|
|
11,440 |
|
Term loans |
|
|
23,938 |
|
|
|
46,917 |
|
Subordinated debt |
|
|
|
|
|
|
18,000 |
|
Commitments and contingencies (Note 11) |
|
|
|
|
|
|
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
Common stock, $0.05 par value: |
|
|
|
|
|
|
|
|
150,000,000 shares authorized; 54,693,446 and 48,448,608 shares issued and outstanding on July 31, 2015 and 2014,
respectively |
|
|
2,732 |
|
|
|
2,422 |
|
Additional paid-in capital |
|
|
809,944 |
|
|
|
751,511 |
|
Accumulated other comprehensive loss |
|
|
(13,424 |
) |
|
|
(304 |
) |
Accumulated deficit |
|
|
(520,784 |
) |
|
|
(549,010 |
) |
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
278,468 |
|
|
|
204,619 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
387,475 |
|
|
$ |
364,143 |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of
these consolidated financial statements.
44
XCERRA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended July 31, |
|
|
|
2015 |
|
|
2014 |
|
|
2013 |
|
Net product sales |
|
$ |
369,347 |
|
|
$ |
271,797 |
|
|
$ |
117,997 |
|
Net service sales |
|
|
28,631 |
|
|
|
33,309 |
|
|
|
33,985 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
|
397,978 |
|
|
|
305,106 |
|
|
|
151,982 |
|
Cost of sales |
|
|
218,064 |
|
|
|
165,248 |
|
|
|
71,223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
179,914 |
|
|
|
139,858 |
|
|
|
80,759 |
|
Engineering and product development expenses |
|
|
64,157 |
|
|
|
60,733 |
|
|
|
52,314 |
|
Selling, general and administrative expenses |
|
|
82,124 |
|
|
|
77,017 |
|
|
|
39,253 |
|
Amortization of purchased intangible assets |
|
|
1,834 |
|
|
|
1,936 |
|
|
|
1,582 |
|
Restructuring |
|
|
2,206 |
|
|
|
3,943 |
|
|
|
476 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
29,593 |
|
|
|
(3,771 |
) |
|
|
(12,866 |
) |
Other (expense) income: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(995 |
) |
|
|
(2,210 |
) |
|
|
(233 |
) |
Interest income |
|
|
452 |
|
|
|
494 |
|
|
|
883 |
|
Bargain purchase gain |
|
|
|
|
|
|
8,621 |
|
|
|
|
|
Other income (expense), net |
|
|
5,056 |
|
|
|
(276 |
) |
|
|
(186 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes |
|
|
34,106 |
|
|
|
2,858 |
|
|
|
(12,402 |
) |
Provision for (benefit from) income taxes |
|
|
2,588 |
|
|
|
767 |
|
|
|
(275 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
31,518 |
|
|
|
2,091 |
|
|
|
(12,127 |
) |
Loss from discontinued operations, net of tax |
|
|
(3,292 |
) |
|
|
(1,258 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
28,226 |
|
|
$ |
833 |
|
|
$ |
(12,127 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations |
|
$ |
0.59 |
|
|
$ |
0.04 |
|
|
$ |
(0.25 |
) |
Net loss discontinued operations, net of tax |
|
$ |
(0.06 |
) |
|
$ |
(0.02 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share |
|
$ |
0.53 |
|
|
$ |
0.02 |
|
|
$ |
(0.25 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations |
|
$ |
0.58 |
|
|
$ |
0.04 |
|
|
$ |
(0.25 |
) |
Net loss discontinued operations, net of tax |
|
$ |
(0.06 |
) |
|
$ |
(0.02 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share |
|
$ |
0.52 |
|
|
$ |
0.02 |
|
|
$ |
(0.25 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares used in computing net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
53,658 |
|
|
|
48,214 |
|
|
|
47,719 |
|
Diluted |
|
|
54,531 |
|
|
|
49,150 |
|
|
|
47,719 |
|
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
28,226 |
|
|
$ |
833 |
|
|
$ |
(12,127 |
) |
Unrealized (loss) gain on marketable securities |
|
|
(19 |
) |
|
|
63 |
|
|
|
(294 |
) |
Change in pension liability |
|
|
81 |
|
|
|
(15 |
) |
|
|
|
|
Unrealized (loss) on currency translation |
|
|
(13,182 |
) |
|
|
(288 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
$ |
15,106 |
|
|
$ |
593 |
|
|
$ |
(12,421 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of
these consolidated financial statements.
45
XCERRA CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
Additional PaidIn Capital |
|
|
Accumulated Other Comprehensive Income (Loss) |
|
|
Accumulated Deficit |
|
|
Total Stockholders Equity |
|
|
|
Shares (#) |
|
|
Amount ($) |
|
|
|
|
|
Balance at July 31, 2012 |
|
|
48,607,228 |
|
|
$ |
2,430 |
|
|
$ |
750,760 |
|
|
$ |
230 |
|
|
$ |
(537,716 |
) |
|
$ |
215,704 |
|
Vesting of stock based awards, net of shares withheld for taxes |
|
|
555,433 |
|
|
|
28 |
|
|
|
3,577 |
|
|
|
|
|
|
|
|
|
|
|
3,605 |
|
Stock option exercises |
|
|
2,449 |
|
|
|
|
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
13 |
|
Repurchases of common stock |
|
|
(1,642,272 |
) |
|
|
(82 |
) |
|
|
(9,126 |
) |
|
|
|
|
|
|
|
|
|
|
(9,208 |
) |
Issuance of shares under employees stock purchase plan |
|
|
165,572 |
|
|
|
8 |
|
|
|
796 |
|
|
|
|
|
|
|
|
|
|
|
804 |
|
Unrealized loss on marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(294 |
) |
|
|
|
|
|
|
(294 |
) |
Net Loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,127 |
) |
|
|
(12,127 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 31, 2013 |
|
|
47,688,410 |
|
|
|
2,384 |
|
|
|
746,020 |
|
|
|
(64 |
) |
|
|
(549,843 |
) |
|
|
198,497 |
|
Vesting of stock based awards, net of shares withheld for taxes |
|
|
577,164 |
|
|
|
29 |
|
|
|
4,229 |
|
|
|
|
|
|
|
|
|
|
|
4,258 |
|
Stock option exercises |
|
|
68,688 |
|
|
|
3 |
|
|
|
398 |
|
|
|
|
|
|
|
|
|
|
|
401 |
|
Issuance of shares under employees stock purchase plan |
|
|
114,346 |
|
|
|
6 |
|
|
|
864 |
|
|
|
|
|
|
|
|
|
|
|
870 |
|
Unrealized gain on marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63 |
|
|
|
|
|
|
|
63 |
|
Change in pension liability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15 |
) |
|
|
|
|
|
|
(15 |
) |
Accumulated currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(288 |
) |
|
|
|
|
|
|
(288 |
) |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
833 |
|
|
|
833 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 31, 2014 |
|
|
48,448,608 |
|
|
|
2,422 |
|
|
|
751,511 |
|
|
|
(304 |
) |
|
|
(549,010 |
) |
|
|
204,619 |
|
Vesting of stock based awards, net of shares withheld for taxes |
|
|
641,208 |
|
|
|
30 |
|
|
|
5,302 |
|
|
|
|
|
|
|
|
|
|
|
5,332 |
|
Stock option exercises |
|
|
48,640 |
|
|
|
2 |
|
|
|
279 |
|
|
|
|
|
|
|
|
|
|
|
281 |
|
Issuance of shares under employees stock purchase plan |
|
|
169,624 |
|
|
|
9 |
|
|
|
985 |
|
|
|
|
|
|
|
|
|
|
|
994 |
|
Unrealized loss on marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19 |
) |
|
|
|
|
|
|
(19 |
) |
Change in pension liability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81 |
|
|
|
|
|
|
|
81 |
|
Accumulated currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,182 |
) |
|
|
|
|
|
|
(13,182 |
) |
Sale of common stock, net of issuance costs of $3.1 million |
|
|
5,385,366 |
|
|
|
269 |
|
|
|
51,867 |
|
|
|
|
|
|
|
|
|
|
|
52,136 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,226 |
|
|
|
28,226 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 31, 2015 |
|
|
54,693,446 |
|
|
$ |
2,732 |
|
|
$ |
809,944 |
|
|
$ |
(13,424 |
) |
|
$ |
(520,784 |
) |
|
$ |
278,468 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
46
XCERRA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended July 31, |
|
|
|
2015 |
|
|
2014 |
|
|
2013 |
|
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
28,226 |
|
|
$ |
833 |
|
|
$ |
(12,127 |
) |
Add (deduct) non-cash items: |
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
|
7,551 |
|
|
|
5,419 |
|
|
|
4,717 |
|
Depreciation and amortization |
|
|
8,989 |
|
|
|
8,786 |
|
|
|
8,044 |
|
Gain on reduction of promissory note |
|
|
(1,750 |
) |
|
|
|
|
|
|
|
|
Bargain purchase gain |
|
|
|
|
|
|
(8,621 |
) |
|
|
|
|
Other non-cash items |
|
|
1,032 |
|
|
|
542 |
|
|
|
585 |
|
Changes in operating assets and liabilities, net of purchase accounting: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
216 |
|
|
|
(9,884 |
) |
|
|
2,906 |
|
Inventories |
|
|
1,470 |
|
|
|
(656 |
) |
|
|
(3,046 |
) |
Prepaid expenses |
|
|
1,280 |
|
|
|
621 |
|
|
|
1,245 |
|
Accounts payable |
|
|
(594 |
) |
|
|
5,965 |
|
|
|
532 |
|
Accrued expenses |
|
|
(2,812 |
) |
|
|
(4,782 |
) |
|
|
(1,064 |
) |
Deferred revenues |
|
|
(1,266 |
) |
|
|
2,817 |
|
|
|
(264 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
42,342 |
|
|
|
1,040 |
|
|
|
1,528 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(4,389 |
) |
|
|
(7,743 |
) |
|
|
(2,769 |
) |
Purchases of held-to-maturity securities |
|
|
|
|
|
|
|
|
|
|
(4,842 |
) |
Purchases of available-for-sale securities |
|
|
(76,659 |
) |
|
|
(55,385 |
) |
|
|
(66,725 |
) |
Proceeds from sales and maturities of held-to-maturity securities |
|
|
|
|
|
|
|
|
|
|
5,800 |
|
Proceeds from sales and maturities of available-for-sale securities |
|
|
54,827 |
|
|
|
110,972 |
|
|
|
75,220 |
|
Cash paid for acquired businesses, net of cash acquired |
|
|
(2,360 |
) |
|
|
(69,985 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities |
|
|
(28,581 |
) |
|
|
(22,141 |
) |
|
|
6,684 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Repurchases of common stock |
|
|
|
|
|
|
|
|
|
|
(9,208 |
) |
Proceeds from sale of common stock, net of issuance costs |
|
|
52,136 |
|
|
|
|
|
|
|
|
|
Proceeds from employees stock purchase plan |
|
|
994 |
|
|
|
870 |
|
|
|
804 |
|
Payments of tax withholdings for vested RSUs, net of proceeds from stock option exercises |
|
|
(1,935 |
) |
|
|
(759 |
) |
|
|
(1,146 |
) |
Proceeds from borrowing of bank term loan, net of fees |
|
|
|
|
|
|
53,841 |
|
|
|
|
|
Repayment of promissory notes |
|
|
(16,250 |
) |
|
|
|
|
|
|
|
|
Payments of bank term loan |
|
|
(24,456 |
) |
|
|
(1,875 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
10,489 |
|
|
|
52,077 |
|
|
|
(9,550 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
(5,661 |
) |
|
|
58 |
|
|
|
127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
18,589 |
|
|
|
31,034 |
|
|
|
(1,211 |
) |
Cash and cash equivalents at beginning of year |
|
|
59,269 |
|
|
|
28,235 |
|
|
|
29,446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
77,858 |
|
|
$ |
59,269 |
|
|
$ |
28,235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Cash Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Acquisition: |
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of tangible assets acquired |
|
|
|
|
|
|
(122,160 |
) |
|
|
|
|
Fair value of liabilities assumed |
|
|
|
|
|
|
37,554 |
|
|
|
|
|
Fair value of intangible assets acquired |
|
|
|
|
|
|
(12,000 |
) |
|
|
|
|
Non-cash promissory notes |
|
|
|
|
|
|
18,000 |
|
|
|
|
|
Bargain gain |
|
|
|
|
|
|
8,621 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for acquired businesses, net of cash acquired |
|
|
|
|
|
$ |
69,985 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended July 31, |
|
|
|
2015 |
|
|
2014 |
|
|
2013 |
|
Supplemental Disclosures of Cash Flow Information: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for interest |
|
$ |
1,090 |
|
|
$ |
1,173 |
|
|
$ |
|
|
Cash paid during the year for taxes |
|
$ |
2,919 |
|
|
$ |
1,136 |
|
|
$ |
200 |
|
The accompanying notes are an integral part of these consolidated financial statements.
47
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY
Xcerra Corporation (Xcerra or the Company), formerly known as LTX-Credence Corporation, is a
global provider of test and handling capital equipment, interface products, test fixtures, and services to the semiconductor, industrial, and electronics manufacturing industries. The Company designs, manufactures, markets and services systems and
products that address the broad, divergent requirements of the mobility, industrial, medical, automotive and consumer end markets, offering a comprehensive portfolio of solutions and technologies, and a global network of strategically deployed
applications and support resources. Xcerra operates in the semiconductor and electronics manufacturing test markets and is the parent company to the atg-Luther & Maelzer, Everett Charles Technologies, LTX-Credence and Multitest businesses.
Semiconductor designers and manufacturers worldwide use the Companys test and handling equipment and interface products to test their devices during the manufacturing process. The Companys interface products include the design,
manufacture and marketing of contactors and pins used in various types of test equipment, as well as in a wide variety of commercial and consumer applications. After testing, these semiconductor devices are incorporated into a wide range of
products, including personal and tablet computers, mobile internet equipment such as wireless access points and interfaces, broadband access products such as cable modems and set top boxes, personal communication and entertainment products such as
mobile phones and personal digital music players, consumer products such as televisions, videogame systems and digital cameras, automobile electronics and power management devices used in portable and automotive electronics. The Company also
designs, manufactures and markets printed circuit board (PCB) test systems used in the testing of pre-assembly PCBs. These testers are used to verify the quality of the PCB prior to the installation of components. The types of PCBs that
are tested using the Companys systems include a diverse set of electronic products including network servers, personal computers, tablet computers and mobile phones. The Companys test fixture products include the design, manufacture, and
marketing of in-circuit and functional-circuit test fixtures for testing assembled PCBs. The Company also sells hardware and software support and maintenance services for its products.
The historical financial results in this Annual Report on Form 10-K for the fiscal year ended July 31, 2015 (fiscal
2015) give effect to the completion of the Companys purchase of assets (the Dover Acquisition) from Dover Printing & Identification, Inc. (Dover) and its specified affiliates used exclusively or primarily
in connection with Dovers Everett Charles Technologies (including atg Luther & Maelzer) and Multitest businesses on December 1, 2013 (collectively, the Acquired Businesses or ECT and Multitest). See Note 4
for additional information related to the Dover Acquisition.
Certain prior period amounts on the balance sheet have been
reclassified to conform to the current period presentation. Net income and shareholders equity were not affected by these reclassifications.
On June 12, 2015 the Company announced that it had executed of a non-binding letter of intent to sell its semiconductor test interface board business based in Santa Clara, CA (Interface Board
Business) to Fastprint Hong Kong Co., Ltd., a wholly owned subsidiary of Shenzhen Fastprint Circuit Tech Co., Ltd, and its affiliates (collectively, Fastprint), and on September 8, 2015, the Company entered into a definitive
and binding Asset Purchase Agreement with Fastprint for the sale of the Interface Board Business (the Purchase Agreement).
Pursuant to the Purchase Agreement, we will sell and transfer to Fastprint certain assets used or primarily related to the Interface Board Business, and will assign, and Fastprint will assume, certain
specified liabilities associated with the Interface Board Business, along with the transfer of the employees associated with that business. The purchase price for the Interface Board Business is $23.0 million. $20.7 million is due at closing, with
$2.3 million payable upon the first anniversary of the closing of the transaction, subject to claims for indemnification by Fastprint, if any, prior to that time. The deal is expected to close by October 30, 2015, pending the satisfaction of
customary closing conditions, including applicable governmental approvals.
48
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As a result, the Company has identified certain assets and liabilities associated with
this business to be held for sale. The historical financial results in this Annual Report on Form 10-K for fiscal 2015 give effect to these items as discontinued operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant inter-company transactions and balances have been eliminated in consolidation.
Preparation of Financial Statements and Use of Estimates
The accompanying financial statements have been prepared by the Company, and reflect all adjustments, which, in the opinion of management, are necessary for fair presentation. The preparation of financial
statements in conformity with generally accepted accounting principles 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 may differ from those estimates and such differences may be material to the consolidated financial statements. Such
estimates relate to fair values ascribed to the assets and liabilities acquired in connection with the Dover Acquisition, revenue recognition, the allowance for doubtful accounts, inventory valuation, depreciation, product warranty costs,
stock-based compensation and income taxes, among others.
Revenue Recognition
The Company recognizes revenue based on guidance provided in Topic 605, Revenue Recognition, to the Financial Accounting Standards
Board Codification (FASB ASC) and Accounting Standards Update 2009-13, Multiple-Deliverable Revenue Arrangements (ASU 2009-13). The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery
has occurred or services have been rendered, the sellers price is fixed or determinable and collectability is reasonably assured.
Revenue related to equipment sales is recognized when: (a) the Company has a written sales agreement; (b) delivery has occurred or service has been rendered; (c) the price is fixed or
determinable; (d) collectability is reasonably assured; (e) the equipment delivered is a standard product with historically demonstrated acceptance; and (f) there is no unique customer acceptance provision or payment tied to
acceptance or an undelivered element significant to the functionality of the system. Generally, payment terms are time based after product shipment. From time to time, sales to a customer may involve multiple elements, in which case revenue is
recognized on the delivered element provided that (1) the undelivered element is a proven technology, (2) there is a history of acceptance on the equipment with the customer, (3) the undelivered element is not essential to the
customers application, (4) the delivered item(s) has value to the customer on a stand-alone basis, and (5) if the arrangement includes a general right of return relative to the delivered item(s), delivery or performance of the
undelivered item(s) is considered probable and substantially in the control of the Company. The arrangement consideration, or the amount of revenue to be recognized on each separate unit of accounting, is allocated at the inception of the
arrangement to all deliverables on the basis of their relative selling price.
Revenue related to maintenance and service
contracts is recognized ratably over the duration of the contracts. Net service sales as presented in the Companys Consolidated Statement of Operations and Comprehensive Income (Loss) includes revenue associated with LTX-Credence maintenance
or service contracts
49
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
only, and excludes ECT and Multitest. ECT and Multitest generally do not provide maintenance and service contracts, but rather sell spare parts and other components, and as a result these sales
are recognized as net product sales in the Companys Consolidated Statement of Operations and Comprehensive Income (Loss). Revenue related to spare parts and components is recognized when the four main criteria listed above are met. Generally
customer acceptance is not required for spare parts and component sales.
Inventories
Inventories are stated at the lower of cost or market, determined on the first-in, first-out (FIFO) method, and include
materials, labor and manufacturing overhead. The components of inventories, excluding the Interface Board Business, are as follows:
|
|
|
|
|
|
|
|
|
|
|
As of July 31, |
|
|
|
2015 |
|
|
2014 |
|
|
|
(in thousands) |
|
Material and purchased components |
|
$ |
27,249 |
|
|
$ |
20,813 |
|
Work-in-process |
|
|
15,250 |
|
|
|
23,442 |
|
Finished equipment, including inventory consigned to customers |
|
|
18,094 |
|
|
|
23,429 |
|
|
|
|
|
|
|
|
|
|
Total inventories |
|
$ |
60,593 |
|
|
$ |
67,684 |
|
|
|
|
|
|
|
|
|
|
The Company establishes inventory reserves when conditions exist that indicate inventory may be in excess
of anticipated demand or is obsolete based upon assumptions about future demand for the Companys products or market conditions. The Company regularly evaluates its ability to realize the value of 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 usage alternatives are also explored to mitigate inventory exposure. When recorded, reserves are intended to reduce the carrying value of inventory to its net realizable value. As of
July 31, 2015 and July 31, 2014, inventory is stated net of inventory reserves of $46.9 million and $45.2 million, respectively. If actual demand for products deteriorates or market conditions are less favorable than projected, additional
inventory reserves may be required. Such reserves are not reversed until the related inventory is sold or otherwise disposed.
The following table shows sales of previously reserved inventory and the inventory reserves released for these sales for the fiscal years
ended July 31, 2015, 2014, and 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended July 31, |
|
|
|
2015 |
|
|
2014 |
|
|
2013 |
|
|
|
(in thousands) |
|
Sales of previously reserved inventory |
|
$ |
1,664 |
|
|
$ |
821 |
|
|
$ |
869 |
|
Inventory reserves released for these sales |
|
|
643 |
|
|
|
483 |
|
|
|
300 |
|
Goodwill and Other Intangibles
In accordance with FASB ASC Topic 350IntangiblesGoodwill and Other (ASC 350), goodwill is not amortized. Rather, the Companys goodwill is subject to periodic
impairment testing. ASC 350 requires that the Company assign its goodwill to reporting units and test each reporting units goodwill for impairment at least on an annual basis and between annual tests if an event occurs or circumstances change
that would more likely than not reduce the fair value of a reporting unit below its carrying amount.
50
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In accordance with ASC 350, the Company performed its goodwill impairment test as of
July 31, 2015 and 2014, and determined that no adjustment to goodwill was necessary. As of July 31, 2015, the fair value of the reporting units to which goodwill is allocated substantially exceeded the carrying values of those reporting
units. The observable inputs used in the Companys Discounted Cash Flow (DCF) method for estimating the fair value of the reporting units include discount rates at the Companys weighted-average cost of capital. The Company derives
discount rates that are commensurate with the risks and uncertainties inherent in its respective businesses and its internally developed projections of future cash flows. In addition, the Company determined the projected future cash flows of the
reporting units for the residual period using the Gordon growth method which assumes that the reporting unit will grow and generate free cash flow at a constant rate. The Company believes that the Gordon growth method is the most appropriate method
for determining the residual value because the residual value is calculated at the point at which the Company has assumed that the reporting units have reached stable growth rates. The Companys goodwill consists of the following:
|
|
|
|
|
|
|
|
|
Goodwill |
|
July 31, 2015 |
|
|
July 31, 2014 |
|
|
|
(in thousands) |
|
Semiconductor Test Reporting Unit |
|
|
|
|
|
|
|
|
Merger with Credence Systems Corporation (August 29, 2008) |
|
$ |
28,662 |
|
|
$ |
28,662 |
|
Acquisition of Step Tech Inc. (June 10, 2003) |
|
|
14,368 |
|
|
|
14,368 |
|
Contactors Reporting Unit |
|
|
|
|
|
|
|
|
Acquisition of Titan Semiconductor Tool LLC (February 2, 2015) |
|
|
820 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total goodwill |
|
$ |
43,850 |
|
|
$ |
43,030 |
|
|
|
|
|
|
|
|
|
|
Amortizable intangible assets which relate to the acquisition of Titan Semiconductor Tool LLC
(Titan), and the Acquired Businesses and the merger with Credence Systems Corporation (Credence), and the acquisition of Titan consist of the following, and are included in intangibles asset, net on the Companys
Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of July 31, 2015 |
|
Description |
|
Estimated Useful Life |
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net Amount |
|
|
|
(in years) |
|
|
(in thousands) |
|
|
(in thousands) |
|
|
(in thousands) |
|
Developed technology (Credence, ECT, Multitest, atg-Luther & Maelzer, and Titan) |
|
|
6-20 |
|
|
$ |
29,882 |
|
|
$ |
(26,856 |
) |
|
$ |
3,026 |
|
Customer RelationshipsECT, Multitest, atg-Luther & Maelzer, and Titan |
|
|
2 |
|
|
|
1,844 |
|
|
|
(992 |
) |
|
|
852 |
|
Maintenance agreementsASL & Diamond |
|
|
7 |
|
|
|
1,900 |
|
|
|
(1,629 |
) |
|
|
271 |
|
Trade Names |
|
|
10 |
|
|
|
70 |
|
|
|
(6 |
) |
|
|
64 |
|
Non-compete Agreements |
|
|
1 |
|
|
|
8 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets |
|
|
|
|
|
$ |
33,704 |
|
|
$ |
(29,491 |
) |
|
$ |
4,213 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of July 31, 2014 |
|
Description |
|
Estimated Useful Life |
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net Amount |
|
|
|
(in years) |
|
|
(in thousands) |
|
|
(in thousands) |
|
|
(in thousands) |
|
Developed technology (Credence, ECT, Multitest, and atg-Luther & Maelzer) |
|
|
6-10 |
|
|
$ |
29,262 |
|
|
$ |
(25,855 |
) |
|
$ |
3,407 |
|
Customer RelationshipsECT, Multitest, atg-Luther & Maelzer |
|
|
2 |
|
|
|
1,174 |
|
|
|
(449 |
) |
|
|
725 |
|
Maintenance agreementsASL & Diamond |
|
|
7 |
|
|
|
1,900 |
|
|
|
(1,357 |
) |
|
|
543 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets |
|
|
|
|
|
$ |
32,336 |
|
|
$ |
(27,661 |
) |
|
$ |
4,675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, other than trademarks owned by the Company, are amortized based upon the pattern of
estimated economic use over their estimated useful lives. The weighted average estimated remaining useful life over which these intangible assets will be amortized is 4.3 years.
The Company expects the remaining amortization for these intangible assets as of July 31, 2015 to be:
|
|
|
|
|
Year ending July 31, |
|
Amount (in thousands) |
|
2016 |
|
$ |
1,216 |
|
2017 |
|
|
669 |
|
2018 |
|
|
472 |
|
2019 |
|
|
379 |
|
Thereafter |
|
|
1,477 |
|
|
|
|
|
|
Total |
|
$ |
4,213 |
|
|
|
|
|
|
The identifiable intangible assets associated with the Dover Acquisition include $6.4 million of
trademarks. The Company believes these trademarks will contribute to the Companys cash flows indefinitely. Therefore, in accordance with ASC 350, the Company has assigned an indefinite useful life to the trademarks, and will not amortize the
trademarks until their useful lives are no longer indefinite. These assets are subject to an annual impairment test or more frequently if triggering events occur. For the year ended July 31, 2015, the Company assessed qualitative factors to
determine if a two-step quantitative impairment test was necessary. The Company determined, based on qualitative assessment, that it was more likely than not that the trademarks fair value was greater than their carrying amount, therefore no
quantitative assessment was required, and there was no adjustment to the carrying value of the trademarks.
Long Lived Assets
On an ongoing basis, management reviews the value of and period of amortization or depreciation of the Companys
long-lived assets. In accordance with Topic 360, Property, Plant and Equipment, to the FASB ASC, the Company reviews whether impairment losses exist on its long-lived assets other than goodwill when indicators of impairment are present.
During this review, the Company assesses future cash flows and re-evaluates the significant assumptions used in determining the original cost of long-lived assets other than goodwill. Although the assumptions may vary, they generally include revenue
growth, operating results, cash flows and other indicators of value. Management then determines whether there has been a permanent impairment of the value of long-lived assets based upon events or circumstances that have occurred since acquisition.
The impairment amount recognized is based upon a determination of the impaired assets fair value compared to its carrying value. As of July 31, 2015 and July 31, 2014, there were no indicators that required the Company to conduct a
recoverability test as of those dates.
52
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Foreign Currency Remeasurement
The financial statements of the Companys foreign subsidiaries are remeasured in accordance with Topic 830, Foreign Currency
Matters, to the FASB ASC. The functional currency of the Companys tester group is the U.S. dollar. Accordingly, the Companys foreign subsidiaries that are included in this group remeasure monetary assets and liabilities at month-end
exchange rates while long-term non-monetary items are remeasured at historical rates. Income and expense accounts are remeasured at the average rates in effect during the month. Net gains (losses) resulting from foreign currency remeasurement and
transaction gains or losses are included in the Consolidated Results of Operations and Comprehensive Income (Loss) as a component of other income (expense), net, and were $2.1 million, $0.1 million and $0.0 million for the fiscal years ended
July 31, 2015, 2014 and 2013. The functional currency of each of the Acquired Businesses is local currency, predominately Euro, Malaysian Ringgit and Singapore Dollars, and net gains or losses resulting from foreign currency remeasurement and
translation gains or losses are recorded in stockholders equity as accumulated other comprehensive income (loss).
Product Warranty
Costs
Certain of the Companys products are sold with warranty provisions that require it to remedy deficiencies in
quality or performance of products over a specified period of time at no cost to its customers. The Company generally offers a warranty for most of its products, the standard terms and conditions of which are based on the product sold and the
customer. For all products sold, subject to a warranty, the Company accrues a liability for the estimated cost of standard warranty at the time of shipment. Factors that impact the warranty liability include the number of installed products,
historical and anticipated product failure rates, material usage and service labor costs. The Company periodically assesses the adequacy of its recorded liability and adjusts amounts as necessary.
The following table shows the change in the product warranty liability, as required by Topic 460, Guarantees, to the FASB ASC, for
the fiscal years ended July 31, 2015 and 2014:
|
|
|
|
|
|
|
|
|
Product Warranty Activity |
|
2015 |
|
|
2014 |
|
|
|
(in thousands) |
|
Balance at beginning of period |
|
$ |
3,206 |
|
|
$ |
1,217 |
|
Warranty reserve acquired from ECT and Multitest |
|
|
|
|
|
|
1,926 |
|
Warranty expenditures for current period |
|
|
(2,422 |
) |
|
|
(4,306 |
) |
Changes in liability related to pre-existing warranties |
|
|
(299 |
) |
|
|
(141 |
) |
Provision for warranty costs in the period |
|
|
2,498 |
|
|
|
4,510 |
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
2,983 |
|
|
$ |
3,206 |
|
|
|
|
|
|
|
|
|
|
Trade Accounts Receivable and Allowance for Doubtful Accounts
Trade accounts receivable are recorded at the invoiced amount, do not bear interest, and typically have a contractual maturity of ninety
days or less. A majority of the Companys trade receivables are derived from sales to large multinational semiconductor manufacturers throughout the world. The volatility of the industries that the Company serves can cause certain of its
customers to experience shortages of cash, which can impact their ability to make required payments. An allowance for doubtful accounts is maintained for potential credit losses based upon the Companys assessment of the expected collectability
of all accounts receivable. The allowance for doubtful accounts is reviewed periodically to assess the adequacy of the allowances. In any circumstances in which the Company is aware of a customers inability to meet its financial obligations,
an allowance is provided, which is based on the age of the receivables, the circumstances surrounding the customers financial situation, and historical experience. If circumstances change, and the financial condition of customers is adversely
affected resulting in their inability to meet their financial obligations to the Company, additional allowances may be recorded.
53
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Engineering and Product Development Costs
The Company expenses all engineering and product development costs as incurred. Expenses relating to certain software development costs,
subject to capitalization in accordance with the Topic 985, Software, to the FASB ASC, were insignificant.
Shipping and Handling
Costs
Shipping and handling costs are included in cost of sales in the consolidated statements of operations. Shipping and
handling costs were $7.1 million, $4.5 million, and $2.7 million for fiscal years ended July 31, 2015, 2014, and 2013, respectively.
Income Taxes
The
Company recorded an income tax provision of $2.6 million for the fiscal 2015, primarily due to foreign taxes in profitable locations.
The Company recorded an income tax provision of $0.8 million for the fiscal year ended July 31, 2014 (fiscal 2014), primarily due to $1.3 million of foreign taxes in profitable locations
partially offset by $0.5 million of tax benefit relating to the release of valuation allowance as a result of the Dover Acquisition. Purchase accounting for the Dover Acquisition required the establishment of a deferred tax liability related to the
book-tax basis differences of identifiable intangible assets which created an additional source of U.S. future taxable income that resulted in a release of $0.5 million of the Companys U.S. valuation allowance.
As of July 31, 2015 and July 31, 2014, the total unrecognized income tax benefits were $6.3 million and $6.6 million,
respectively, of which $2.7 million and $3.0 million, respectively, if recognized, would impact the Companys income tax rate. The Company recognizes interest and penalties related to uncertain tax positions as a component of provision for
income taxes. For both July 31, 2015 and July 31, 2014, the Company had accrued approximately $1.0 million for potential payment of accrued interest and penalties.
The Company conducts business globally and, as a result, the Company and its subsidiaries or branches file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions.
In the normal course of business, the Company is subject to examination by taxing authorities throughout the world, including such major jurisdictions as the United States, Singapore, France and Germany. With few exceptions, the Company is no longer
subject to U.S. federal, state and local or non-U.S. income tax examinations for years prior to 1998.
As a result of the
merger with Credence on August 29, 2008, a greater than 50% cumulative ownership change in both entities triggered a significant limitation on net operating loss carryforward utilization. The Companys ability to use the acquired U.S. net
operating loss and credit carryforwards is subject to annual limitation as defined in sections 382 and 383 of the Internal Revenue Code. The Company currently estimates that the annual limitation on its use of net operating losses generated through
August 29, 2008 is approximately $10.1 million which, based on currently enacted federal carryforward periods, limits the amount of net operating losses that are available for utilization to approximately $202.0 million. The Company will
continue to assess the realizability of these carryforwards in subsequent periods.
Accounting for Stock-Based Compensation
The Company has equity awards outstanding under various stock-based compensation plans, including the 2010 Stock Plan (2010
Plan), 2004 Stock Plan, 2001 Stock Plan, 1999 Stock Plan, and 1993 Stock Plan. In addition, the Company assumed the Credence 2005 Stock Incentive Plan in connection with its acquisition of Credence. The Company can only grant awards from the
2010 Plan.
54
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During fiscal 2015, the Company granted 938,307 Restricted Stock Units
(RSUs) to certain executives, directors and employees, with time-based vesting terms ranging from one to four years. Of these, 305,000 RSUs were granted to executives.
The Company recognizes stock-based compensation expense on its equity awards in accordance with the provisions of Topic 718,
CompensationStock Compensation, to the FASB ASC (ASC 718). Under ASC 718, the Company is required to recognize, as expense, the estimated fair value of all share-based payments to employees. In accordance with this standard,
the Company has elected to recognize the compensation cost of all service based awards on a straight-line basis over the vesting period of the award.
For the fiscal years ended July 31, 2015, 2014, and 2013, the Company recorded stock-based compensation expense as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended July 31, |
|
|
|
2015 |
|
|
2014 |
|
|
2013 |
|
|
|
(in thousands) |
|
Cost of sales |
|
$ |
224 |
|
|
$ |
164 |
|
|
$ |
148 |
|
Engineering and product development expenses |
|
|
913 |
|
|
|
632 |
|
|
|
611 |
|
Selling, general and administrative expenses |
|
|
6,414 |
|
|
|
4,623 |
|
|
|
3,958 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense |
|
$ |
7,551 |
|
|
$ |
5,419 |
|
|
$ |
4,717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of July 31, 2015, there was approximately $12.1 million of unrecognized stock-based compensation
expense related to share-based equity grants to employees that is expected to be recognized over the next 2.55 weighted-average years.
Net
income (loss) per Share
Basic net income (loss) 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 net income (loss) per common share reflects the maximum dilution that would have resulted from the assumed exercise and share repurchase related
to dilutive stock options and RSUs, and is computed by dividing net income (loss) by the weighted average number of common shares and the dilutive effect of all securities outstanding.
Reconciliation between basic and diluted net income (loss) per share is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended July 31, |
|
|
|
2015 |
|
|
2014 |
|
|
2013 |
|
|
|
(in thousands, except per share data) |
|
Net income (loss) |
|
$ |
28,226 |
|
|
$ |
833 |
|
|
$ |
(12,127 |
) |
Basic EPS |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstandingbasic |
|
|
53,658 |
|
|
|
48,214 |
|
|
|
47,719 |
|
Basic EPS |
|
$ |
0.53 |
|
|
$ |
0.02 |
|
|
$ |
(0.25 |
) |
Diluted EPS |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstandingbasic |
|
|
53,658 |
|
|
|
48,214 |
|
|
|
47,719 |
|
Plus: impact of stock options and unvested restricted stock units |
|
|
873 |
|
|
|
936 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstandingdiluted |
|
|
54,531 |
|
|
|
49,150 |
|
|
|
47,719 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS |
|
$ |
0.52 |
|
|
$ |
0.02 |
|
|
$ |
(0.25 |
) |
55
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the fiscal years ended July 31, 2015, 2014 and 2013, options to purchase
approximately 0.1 million, 0.4 million, and 1.0 million shares, respectively, of common stock were not included in the calculation of diluted earnings per share because the effect of including the options would have been
anti-dilutive. These options could be dilutive in the future. In accordance with the contingently issuable shares guidance of the FASB ASC Topic 260, Earnings Per Share, the calculation of diluted net income (loss) per share excludes 0
million, 0 million and 2 million RSUs for the fiscal years ended July 31, 2015, 2014, and 2013, respectively, as to include them would have been anti-dilutive.
Cash and Cash Equivalents and Marketable Securities
The Company considers
all highly liquid investments that are readily convertible to cash and that have original maturity dates of three months or less to be cash equivalents. Cash and cash equivalents consist primarily of operating cash, money market accounts and reverse
repurchase agreements. Marketable securities consist primarily of debt securities that are classified as available-for-sale, in accordance with Topic 320, InvestmentsDebt and Equity Securities, to the FASB ASC. The Company also holds
certain investments in commercial paper that it considers to be held to maturity, based on their maturity dates. Securities available for sale include corporate and governmental obligations with various contractual maturity dates some of which are
greater than one year. The Company considers the securities to be liquid and convertible to cash within 30 days. The Company has the ability and intent to liquidate any security that the Company holds to fund operations over the next twelve months,
if necessary, and as such has classified all of its marketable securities as short-term. Governmental obligations include U.S. Government, State, Municipal and Federal Agency securities. The Company has an overnight sweep investment arrangement with
its bank for certain accounts to allow the Company to enter into diversified overnight investments via a money market mutual fund which generally provides a higher investment yield than a regular operating account.
The market value and maturities of the Companys marketable securities are as follows:
|
|
|
|
|
|
|
Total Amount |
|
|
|
(in thousands) |
|
July 31, 2015 |
|
|
|
|
Due in less than one year |
|
$ |
36,447 |
|
Due in 1 to 3 years |
|
|
24,146 |
|
|
|
|
|
|
Total marketable securities |
|
$ |
60,593 |
|
|
|
|
|
|
|
|
|
|
Total Amount |
|
|
|
(in thousands) |
|
July 31, 2014 |
|
|
|
|
Due in less than one year |
|
$ |
21,778 |
|
Due in 1 to 3 years |
|
|
17,881 |
|
|
|
|
|
|
Total marketable securities |
|
$ |
39,659 |
|
|
|
|
|
|
56
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The market value and amortized cost of marketable securities are as follows:
|
|
|
|
|
|
|
|
|
|
|
Market Value |
|
|
Amortized Cost |
|
|
|
(in thousands) |
|
July 31, 2015 |
|
|
|
|
|
|
|
|
Corporate (a) |
|
$ |
15,996 |
|
|
$ |
15,951 |
|
Government |
|
|
25,567 |
|
|
|
25,381 |
|
Mortgage-Backed |
|
|
2,670 |
|
|
|
2,674 |
|
Asset-Backed |
|
|
16,360 |
|
|
|
16,335 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
60,593 |
|
|
$ |
60,341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market Value |
|
|
Amortized Cost |
|
|
|
(in thousands) |
|
July 31, 2014 |
|
|
|
|
|
|
|
|
Corporate (a) |
|
$ |
21,070 |
|
|
$ |
20,884 |
|
Government |
|
|
5,045 |
|
|
|
5,038 |
|
Mortgage-Backed |
|
|
1,920 |
|
|
|
1,923 |
|
Asset-Backed |
|
|
11,624 |
|
|
|
11,609 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
39,659 |
|
|
$ |
39,454 |
|
|
|
|
|
|
|
|
|
|
(a) |
There is no held to maturity investments included in the above figures as of July 31, 2015 and 2014, respectively. |
Realized gains, losses and interest income are included in interest income in the Statements of Operations. Unrealized gains and losses
are reflected as a separate component of comprehensive income (loss) within Stockholders Equity. The Company analyzes its securities portfolio for other-than-temporary impairment on a quarterly basis or upon occurrence of a significant change
in circumstances. There were no other-than-temporary impairment losses recorded in the fiscal years ended July 31, 2015 or 2014.
The following table summarizes marketable securities and related unrealized gains and losses as of July 31, 2015 and 2014:
|
|
|
|
|
|
|
|
|
July 31, 2015 |
|
Market Value |
|
|
Unrealized Gain/(Loss) |
|
|
|
(in thousands) |
|
Securities < 12 months unrealized losses |
|
$ |
17,767 |
|
|
$ |
(28 |
) |
Securities > 12 months unrealized losses |
|
|
11,592 |
|
|
|
(23 |
) |
Securities < 12 months unrealized gains |
|
|
18,681 |
|
|
|
12 |
|
Securities > 12 months unrealized gains |
|
|
12,553 |
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
60,593 |
|
|
$ |
(19 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2014 |
|
Market Value |
|
|
Unrealized Gain/(Loss) |
|
|
|
(in thousands) |
|
Securities < 12 months unrealized losses |
|
$ |
5,101 |
|
|
$ |
(19 |
) |
Securities > 12 months unrealized losses |
|
|
9,739 |
|
|
|
(24 |
) |
Securities < 12 months unrealized gains |
|
|
16,677 |
|
|
|
20 |
|
Securities > 12 months unrealized gains |
|
|
8,142 |
|
|
|
23 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
39,659 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
57
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Interest income and realized gains and losses from sales of marketable securities,
included in interest income in the Statement of Operations, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended July 31, |
|
|
|
2015 |
|
|
2014 |
|
|
2013 |
|
|
|
(in thousands) |
|
Interest income on marketable securities |
|
$ |
1,221 |
|
|
$ |
1,326 |
|
|
$ |
2,483 |
|
Realized gain (loss) from sales of securities |
|
|
22 |
|
|
|
16 |
|
|
|
96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,243 |
|
|
$ |
1,342 |
|
|
$ |
2,579 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Financial Instruments
The Company determines its fair value measurements for assets and liabilities based upon the provisions of Topic 820, Fair Value Measurements and Disclosures, to FASB ASC.
Topic 825 to the FASB ASC, Financial Instruments, requires that disclosure be made of estimates of the fair value of financial
instruments. The carrying amounts of certain of the Companys financial instruments, including cash equivalents, accounts receivable, accounts payable and other accrued liabilities approximate fair value due to their short maturities.
Marketable securities classified as available-for-sale are all debt securities and are recorded at fair value based upon quoted market prices.
Concentration of Credit and Supplier Risk
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended July 31, |
|
|
|
2015 |
|
|
2014 |
|
|
2013 |
|
|
|
(in millions except %s) |
|
Revenue from top ten customers |
|
|
54 |
% |
|
|
51 |
% |
|
|
70 |
% |
Accounts receivable from the same top ten customers |
|
$ |
43.1 |
|
|
$ |
48.6 |
|
|
$ |
21.2 |
|
Sales to customers outside the United States |
|
$ |
312.5 |
|
|
$ |
239.2 |
|
|
$ |
126.0 |
|
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 maintained by major financial institutions. The Company periodically reviews these investments to evaluate and
minimize credit risk. Concentration of credit risk with respect to accounts receivable is limited to certain customers to whom the Company makes substantial sales. To reduce risk, the Company routinely assesses the financial strength of its
customers. The Company does not require collateral, although the Company does obtain letters of credit on sales to certain foreign customers. During fiscal 2015 the Company did not write off any accounts receivable. During fiscal 2014, the Company
wrote off $0.1 million of accounts receivable. There were no write-offs for the fiscal year ended July 31, 2013.
The
Company outsources certain components and subassemblies for our test equipment to contract manufacturers other than its sole source supplier manufacturer. The Companys products incorporate standard components and prefabricated parts
manufactured to its specifications. These components and subassemblies are used to produce testers in configurations specified by its customers. Some of the standard components for the Companys products are available from a number of different
suppliers; however, many such standard components are purchased from a single supplier or a limited group of suppliers. Although the Company believes that all single sourced components currently are available in adequate amounts, shortages or
delivery delays may develop in the future. The Company is dependent on certain semiconductor device manufacturers, who are sole
58
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
source suppliers of custom components for its products. The Company has no written supply agreements with these sole source suppliers and purchases its custom components through individual
purchase orders. The Company continuously evaluates alternative sources for the manufacture of our custom components and the supply of our standard components; however, such alternative sources may not meet its required qualifications or have
capacity that is available to the Company.
Property and Equipment
Property and equipment acquired is recorded at cost. The Company provides for depreciation and amortization using the straight-line
method. Charges are made to operating expenses in amounts that are sufficient to amortize the cost of the assets over their estimated useful lives. Equipment spares used for service and internally manufactured test systems used for testing
components and engineering projects are recorded at cost and depreciated over three to seven years. Repair and maintenance costs that do not extend the lives of property and equipment are expensed as incurred. The Companys property and
equipment as of July 31, 2015 and July 31, 2014 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of July 31, |
|
|
Estimated Useful Lives |
|
|
2015 |
|
|
2014 |
|
|
|
|
(in thousands) |
|
|
(in years) |
Equipment spares |
|
$ |
41,398 |
|
|
$ |
45,572 |
|
|
5 or 7 |
Machinery, equipment and internally manufactured systems |
|
|
32,068 |
|
|
|
38,840 |
|
|
3-7 |
Office furniture and equipment |
|
|
2,518 |
|
|
|
3,179 |
|
|
3-7 |
Purchased software |
|
|
506 |
|
|
|
382 |
|
|
3 |
Land |
|
|
6,106 |
|
|
|
5,602 |
|
|
|
Buildings |
|
|
8,634 |
|
|
|
9,008 |
|
|
10 40 years |
Leasehold improvements |
|
|
11,029 |
|
|
|
7,379 |
|
|
Term of lease or useful life, not to exceed 10 years |
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, gross |
|
|
102,259 |
|
|
|
109,962 |
|
|
|
Accumulated depreciation and amortization |
|
|
(70,809 |
) |
|
|
(77,809 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
$ |
31,450 |
|
|
$ |
32,153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense was $6.4 million, $6.1 million, and $6.5 million for the fiscal years ended
July 31, 2015, 2014, and 2013, respectively.
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which will replace numerous
requirements in U.S. GAAP, including industry-specific requirements, and provide companies with a single revenue recognition model for recognizing revenue from contracts with customers. The core principle of the new standard is that a company should
recognize revenue to show the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The new standard will be effective
for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. For Xcerra, the standard will be effective for the fiscal year starting August 1, 2018. The two permitted transition
methods under the new standard are the full retrospective method, in which case the standard would be applied to each prior reporting period presented, or the modified retrospective method, in which case the cumulative effect of applying the
standard would be recognized at the date of initial application. The Company has not yet selected a transition method. The Company is currently evaluating the impact of this ASU on its financial position and results of operations.
59
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In April 2014, the FASB issued ASU No. 2014-08, Presentation of Financial
Statements ASC 360 Property, Plant and Equipment (ASC 205), Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amended guidance raises the threshold for disposals to qualify as a discontinued operation
by requiring a component of an entity that is held for sale, or has been disposed of by sale, to represent a strategic shift that has or will have a major effect on operations and financial results. Under the amended guidance, a strategic shift
could include the disposal of a major line of business, a major geographical area, a major equity method investment or other major parts of an entity. In addition, the new guidance allows companies to have significant continuing involvement and
continuing cash flows with the discontinued operation. The amended guidance is effective for fiscal years beginning on or after December 15, 2014. Early adoption is permitted but not required for disposals, or classifications as held for sale,
that have not been previously reported in financial statements. The Company has adopted this amended guidance in regard to the Interface Board Business discontinued operation.
In April 2015, the FASB issued ASU No. 2015-03, InterestImputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance
costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The standard takes effect for public companies for financial
statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. For private companies and not-for-profit organizations, the standard takes effect for fiscal years beginning after
December 15, 2015, and interim periods within fiscal years beginning after December 15, 2016. Early adoption is permitted. The Company does not expect the adoption of this update to have a material impact on its financial position and
results of operation.
3. DISCONTINUED OPERATIONS
On September 9, 2015, the Company announced that it has agreed to sell its semiconductor test interface board
business based in Santa Clara, CA (Interface Board Business) to Fastprint Hong Kong Co., Ltd., a wholly owned subsidiary of Shenzhen Fastprint Circuit Tech Co., Ltd, and its affiliates (collectively Fastprint).
The Interface Board Business produces printed circuit boards that are specifically designed to serve as an interface between the tester
and the semiconductor device, or the semiconductor wafer, being tested.
On June 12, 2015, the Company announced that it
had executed a non-binding letter of intent to sell our semiconductor test interface board business based in Santa Clara, CA (Interface Board Business) to Fastprint Hong Kong Co., Ltd., a wholly owned subsidiary of Shenzhen Fastprint
Circuit Tech Co., Ltd, and its affiliates (collectively, Fastprint), and on September 8, 2015, the Company entered into a definitive and binding Asset Purchase Agreement with Fastprint for the sale of the Interface Board Business.
Pursuant to the Purchase Agreement, the Company will sell and transfer to Fastprint certain assets used or primarily related
to the Interface Board Business, and will assign, and Fastprint will assume, certain specified liabilities associated with the Interface Board Business, along with the transfer of the employees associated with that business. The purchase price for
the business is $23.0 million, $20.7 million is due at closing, with $2.3 million payable upon the first anniversary of the closing of the transaction, subject to claims for indemnification by Fastprint, if any, prior to that time. The deal is
expected to close by October 30, 2015, pending the satisfaction of customary closing conditions, including applicable governmental approvals.
The Companys historical financials have been revised to present the operating results of the Interface Board Business as a discontinued operation. The Interface Board Business was acquired from
Dover on December 1, 2013, and as a result there was no impact to the Companys historical financial results for the year ended July 31, 2013.
60
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Summarized results of the discontinued operation are as follows for the years ended
July 31, 2015 and 2014:
|
|
|
|
|
|
|
|
|
|
|
For the twelve
months ended July 31, |
|
|
|
2015 |
|
|
2014 |
|
|
|
(in thousands) |
|
Revenue |
|
$ |
34,920 |
|
|
$ |
25,768 |
|
|
|
|
Loss from discontinued operations |
|
$ |
(3,292 |
) |
|
$ |
(1,258 |
) |
Provision for income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of tax |
|
$ |
(3,292 |
) |
|
$ |
(1,258 |
) |
|
|
|
|
|
|
|
|
|
The operating results of the Interface Board Business were historically included in the results of
operations for the Interface Products Group that were included in the Semiconductor Test Solutions segment.
The presentation
of the Interface Board Business as a discontinued operation has no impact on the previously reported net income (loss) or stockholders equity.
Assets and liabilities identifiable within the Interface Board Business are reported as Assets held for sale and Liabilities held for sale, respectively, in the Consolidated
Balance Sheets. The major classes of assets and liabilities of the discontinued operation as of July 31, 2015 and 2014 is as follows:
|
|
|
|
|
|
|
|
|
|
|
July 31, |
|
|
|
2015 |
|
|
2014 |
|
|
|
(in thousands) |
|
Assets held for sale: |
|
|
|
|
|
|
|
|
Inventory |
|
$ |
1,904 |
|
|
$ |
1,986 |
|
Prepaid expenses and other current assets |
|
|
254 |
|
|
|
266 |
|
Fixed assets, net |
|
|
7,939 |
|
|
|
8,729 |
|
Intangibles |
|
|
357 |
|
|
|
460 |
|
|
|
|
|
|
|
|
|
|
Assets held for sale |
|
$ |
10,454 |
|
|
$ |
11,441 |
|
|
|
|
|
|
|
|
|
|
Liabilities held for sale: |
|
|
|
|
|
|
|
|
Accrued expenses |
|
$ |
1,147 |
|
|
$ |
1,346 |
|
Other long term liabilities |
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
Liabilities held for sale |
|
$ |
1,147 |
|
|
$ |
1,353 |
|
|
|
|
|
|
|
|
|
|
4. BUSINESS COMBINATIONS
Acquisition of Titan Semiconductor
On February 2, 2015, the Company completed an acquisition of substantially all of the assets and certain specified liabilities of Titan. The purchase price of Titan was approximately $2.4 million,
which was paid in cash from the Companys available cash-on-hand. Titan develops, manufactures and sells products for semiconductor test serving the automotive, RF/Wireless, and mixed signal test markets. The acquired products will be
developed, supported, and marketed by Xcerras Contactors operating segment which is part of the Semiconductor Test Solutions reportable segment. The Company has recorded approximately $1.4 million and $0.8 million of
intangible assets and goodwill, respectively, from this transaction.
61
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Acquisition of Everett Charles Technologies LLC and Multitest
On September 6, 2013, in connection with the Dover Acquisition, the Company entered into a Master Sale and Purchase Agreement (the
Dover Purchase Agreement) with Dover and, solely for the limited purposes set forth in the Purchase Agreement, Dover Corporation (Dover Parent). Pursuant to the Dover Purchase Agreement, the Company purchased from Dover or
its specified affiliates (collectively, the Sellers) all assets of the Sellers used exclusively or primarily in connection with the research and development, design, manufacture, assembly, production, marketing, distribution, sale and
repair of probes, assembled board and bare board test equipment, and fixturing products and the provision of services related thereto (the ECT Business, and such assets and intellectual property, the ECT Assets) and all
assets of the Sellers used exclusively or primarily in connection with the research and development, design, manufacture, assembly, production, marketing, distribution, sale and repair of semiconductor test handlers, semiconductor test contactors
and sockets and semiconductor test load boards, and the provision of services related thereto (the MT Business, and such assets and intellectual property, the MT Assets). The Company also assumed certain specified liabilities
of the Sellers related primarily or exclusively to the Acquired Businesses or the Acquired Assets (as defined below). Under the Dover Purchase Agreement, the Company also acquired all of the issued and outstanding capital stock and other equity
interests of specified indirect subsidiaries of Dover Parent and its affiliates engaged in the Acquired Businesses, including Everett Charles Technologies LLC (such capital stock and other equity interests, the Acquired Shares). The ECT
Assets, the MT Assets and the Acquired Shares are collectively referred to as the Acquired Assets.
On
December 1, 2013, the Company acquired the Multitest and ECT businesses of Dover for $93.5 million, of which $73.5 million was paid in cash through a combination of existing cash-on-hand and bank debt and $20.0 million was paid by the
issuance of promissory notes. Pursuant to the Dover Purchase Agreement, the cash purchase price was increased by $12.5 million to reflect, among other required adjustments, specified cash balances held by the Acquired Businesses, acquired
indebtedness, certain transaction costs, employee related liabilities, working capital adjustments and reductions in the principal amount of the promissory notes payable to Dover in connection with the satisfaction of certain conditions.
Subject to certain conditions, the original principal amount of the promissory notes were subject to reduction upon written certification
from the Company to Dover prior to January 1, 2015 of certain specified events related to the Companys relocation from or refurbishment of certain properties of the Acquired Businesses, or the prepayment of the promissory notes in full
prior to such date. In January 2014, the Company executed leases for two new facilities, and in February 2014, the Company provided Dover with written certification of a planned relocation from certain properties of the Acquired Businesses.
Consequently, the original principal amount of the promissory notes issued to Dover was reduced by $2.0 million. The promissory notes were subject to further reduction by $1.75 million upon certification from the company to Dover of other specified
events that had not yet occurred. The promissory notes were to accrue interest on the unpaid balance for each day that they remained outstanding after December 1, 2014 at a per annum rate equal to the London Interbank Offered Rate plus 10%, and
could be prepaid by the Company at any time without penalty prior to May 1, 2019. After giving effect to the post-Closing purchase price adjustments described above, and including the principal amount reduction of the promissory notes to Dover,
the aggregate purchase price paid to the Sellers as of the date of this report was $106.0 million.
In November 2014, the
Company prepaid the outstanding amounts under the promissory notes. The $16.3 million payoff amount reflected the principal amounts of $18.0 million that was outstanding under the original promissory notes, less a $1.8 million reduction triggered by
the prepayment in full of the notes prior to January 1, 2015.
The Company, Dover, and certain of their affiliates also
entered into a transition services agreement, an intellectual property termination agreement and a license agreement which govern certain ongoing relationships between the Company and Dover and their respective affiliates following the Closing.
62
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In accordance with Topic 805, Business Combinations, to the FASB ASC and based on
the terms of the Dover Acquisition, the Company is the accounting acquirer.
The following is a summary of the purchase price
for the Acquired Assets:
|
|
|
|
|
|
|
(in thousands) |
|
Cash paid for Acquired Assets |
|
$ |
88,009 |
|
Seller financingDover promissory notes |
|
|
18,000 |
|
|
|
|
|
|
Purchase price |
|
$ |
106,009 |
|
|
|
|
|
|
The following table summarizes the amounts recognized for the Acquired Assets and liabilities assumed as
of the date of Closing:
The purchase price has been allocated based on the fair value of net assets acquired as follows:
|
|
|
|
|
|
|
(in thousands) |
|
Allocation of purchase consideration |
|
|
|
|
Fair value of assets acquired as of December 1, 2013: |
|
|
|
|
Cash |
|
$ |
18,024 |
|
Accounts receivable |
|
|
51,069 |
|
Inventory |
|
|
41,642 |
|
Property, plant and equipment |
|
|
22,859 |
|
Identifiable intangible assets |
|
|
12,000 |
|
Other assets |
|
|
3,410 |
|
|
|
|
|
|
Assets acquired: |
|
$ |
149,004 |
|
Fair value of liabilities acquired: |
|
|
|
|
Liabilities |
|
|
(32,260 |
) |
Deferred taxes |
|
|
(2,114 |
) |
|
|
|
|
|
Adjusted net assets acquired |
|
$ |
114,630 |
|
Purchase price |
|
|
(106,009 |
) |
|
|
|
|
|
Bargain purchase gain |
|
$ |
8,621 |
|
|
|
|
|
|
The overall fair value of the net assets acquired by the Company exceeded the amount paid, which resulted
in the recognition of a bargain purchase gain by the Company during fiscal 2014. This bargain purchase gain was recorded as a component of the other (expense) income section on the Companys Consolidated Statement of Operations and
Comprehensive Income (Loss). The Company believes it was able to acquire ECT and Multitest for less than the fair value of their net assets since ECT and Multitest had been held as discontinued operations by Dover Parent for more than one year.
Valuation of Intangible Assets and Goodwill
The overall fair value of the Multitest and ECT businesses of Dover has been allocated to tangible assets acquired, assumed liabilities, and identifiable intangible assets, based upon a detailed valuation
that uses information and assumptions provided by management, as further described below.
Identifiable Intangible Assets
As part of the preliminary purchase price allocation, identifiable intangible assets of the Acquired Businesses include developed
technology, customer relationships and trademarks.
63
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
At the date of acquisition, the consolidated financial statements include estimated
identifiable intangible assets with a fair value aggregating $12.0 million, which will be amortized based on the pattern and period over which the economic benefits of the intangible assets are realized. The estimated weighted average period was 8.0
years. The Company engaged independent valuation advisors to assist the Company in estimating the identifiable intangible asset value. The estimated identifiable intangible asset value is primarily based on information and assumptions developed by
the Companys management, certain publicly available information, and discussions with management of the Acquired Businesses.
The Company primarily used the income approach to value the developed technology and other acquired identifiable intangible assets of the Acquired Businesses. This approach calculates fair value by
estimating future cash flows attributable to each intangible asset and discounting the future cash flows to present value using a risk adjusted discount rate.
In estimating the useful life of the acquired intangible assets of the Acquired Businesses, the Company considered paragraph 11 of FASB ASC 350, which lists the pertinent factors to be considered when
estimating the useful life of an intangible asset. These factors include a review of the expected use by the combined company of the assets acquired, the expected useful life of another asset (or group of assets) related to the acquired assets,
legal, regulatory or other contractual provisions that may limit the useful life of an acquired asset or may enable the extension of the useful life of an acquired asset without substantial cost, the effects of obsolescence, demand, competition and
other economic factors, and the level of maintenance expenditures required to obtain the expected future cash flows from the asset. The Company is amortizing these intangible assets over their estimated useful lives using a method that is based on
estimated future cash flows as the Company believes this amortization methodology approximates the pattern in which the economic benefits of the intangible assets will be derived.
The identifiable intangible assets associated with the Dover Acquisition include $6.7 million of trademarks. The Company believes these
trademarks will contribute to the Companys cash flows indefinitely. Therefore, in accordance with ASC 350, the Company has assigned an indefinite useful life to the trademarks, and will not amortize the trademarks until their useful lives are
no longer indefinite.
5. OTHER ACCRUED EXPENSES
Other accrued expenses consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
July 31, |
|
|
|
2015 |
|
|
2014 |
|
|
|
(in thousands) |
|
Accrued compensation |
|
$ |
18,279 |
|
|
$ |
18,931 |
|
Accrued vendor liability |
|
|
1,285 |
|
|
|
966 |
|
Accrued professional fees |
|
|
1,371 |
|
|
|
1,912 |
|
Warranty reserve |
|
|
2,983 |
|
|
|
3,206 |
|
Accrued income, and other taxes |
|
|
3,217 |
|
|
|
3,641 |
|
Accrued restructuring |
|
|
1,603 |
|
|
|
1,478 |
|
Indemnification accrual |
|
|
|
|
|
|
1,500 |
|
Accrued commissions |
|
|
2,403 |
|
|
|
2,154 |
|
Other accrued expenses |
|
|
4,438 |
|
|
|
5,651 |
|
|
|
|
|
|
|
|
|
|
Total accrued expenses |
|
$ |
35,579 |
|
|
$ |
39,439 |
|
|
|
|
|
|
|
|
|
|
64
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. LONG-TERM DEBT
Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
July 31, 2015 |
|
|
July 31, 2014 |
|
|
|
(in thousands) |
|
Bank Term Loan under Credit Agreement |
|
$ |
24,062 |
|
|
$ |
48,518 |
|
Bank Term LoanCommerzbank |
|
|
3,417 |
|
|
|
3,448 |
|
Seller FinancingPromissory Notes |
|
|
|
|
|
|
18,000 |
|
|
|
|
|
|
|
|
|
|
Total debt |
|
|
27,479 |
|
|
|
69,966 |
|
Less: financing fees |
|
|
(1,032 |
) |
|
|
(1,218 |
) |
Less: current portion |
|
|
(2,509 |
) |
|
|
(3,831 |
) |
|
|
|
|
|
|
|
|
|
Total long-term debt |
|
$ |
23,938 |
|
|
$ |
64,917 |
|
|
|
|
|
|
|
|
|
|
The debt principal payments for the next five years and thereafter are as follows:
|
|
|
|
|
Payments due by fiscal year |
|
Debt Principal Payments |
|
|
|
(in thousands) |
|
2016 |
|
|
2,538 |
|
2017 |
|
|
2,850 |
|
2018 |
|
|
3,788 |
|
2019 |
|
|
16,288 |
|
Thereafter |
|
|
2,015 |
|
|
|
|
|
|
Total |
|
$ |
27,479 |
|
|
|
|
|
|
Credit Agreement
On December 15, 2014, the Company entered into a credit agreement (the Credit Agreement) with Everett Charles Technologies LLC, a wholly owned subsidiary of the Company (ECT
and together with the Company, the Borrowers), Silicon Valley Bank, as lender, administrative agent and issuing lender (SVB), and the several lenders from time to time party thereto (the Lenders). The Credit
Agreement provides for a senior secured credit facility, consisting of a term loan facility (the Term Loan), in favor of the Borrowers in the aggregate principal amount of $25.0 million which was advanced to the Company on
December 15, 2014 (the Facility).
The proceeds of the Term Loan were used to pay off $25.0 million of the
outstanding indebtedness under the previous credit facility that was advanced to the Company pursuant to that certain credit agreement entered into on November 27, 2013 with ECT, SVB as lender, administrative agent and issuing lender, and the
lenders from time to time party thereto (the Original Credit Agreement). As of December 15, 2014, no amounts remained outstanding under the credit facility issued under the Original Credit Agreement.
All obligations under the Facility are secured by a first priority security interest in substantially all of the Borrowers existing
and future assets, including a pledge of the stock or other equity interests of the Borrowers domestic subsidiaries and of any first tier foreign subsidiaries, provided that not more than 66% of the voting stock of any such foreign
subsidiaries shall be required to be pledged.
The Credit Agreement requires that the Term Loan be repaid in quarterly
installments, with 5% of the principal due the first year, 10% of principal due in each of the second and third years, 15% of principal due the
65
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
fourth year, and a final payment of $15 million due on December 14, 2018 (the Maturity Date). The outstanding balance of the Term Loan may, at the Borrowers option, be
prepaid at any time in whole or in part without premium or penalty, other than customary breakage costs, if any, subject to the terms and conditions of the Credit Agreement.
As the terms of the Credit Agreement were not substantially different from the terms of the Original Credit Agreement, the Company accounted for this transaction as a modification of debt, and accordingly
continues to recognize deferred financing fees over the term of the Credit Agreement.
Borrowings made under the Facility bear
interest, at a base rate plus a margin (such margin not to exceed a per annum rate of 1.75%) based on a ratio of the Companys consolidated senior debt to consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) (the
Leverage Ratio), or at a LIBOR rate plus a margin (such margin not to exceed a per annum rate of 2.75%) based on the Leverage Ratio. The interest rate otherwise payable under the Facility will be subject to increase by 2.0% per
annum during the continuance of a payment default and may be subject to increase by 2.0% per annum during the continuance of any other event of default. As of July 31, 2015, the interest rate in effect on the Facility was 2.63%.
Covenants
The Credit Agreement contains customary affirmative and negative covenants, subject in certain cases to baskets and exceptions, including
negative covenants with respect to indebtedness, liens, fundamental changes, dispositions, restricted payments, investments, ERISA matters, matters relating to subordinated debt, affiliate transactions, sale and leaseback transactions, swap
agreements, accounting changes, negative pledge clauses, clauses restricting subsidiary distributions, lines of business, amendments to certain documents and use of proceeds. The Credit Agreement also contains customary reporting and other
affirmative covenants. The Credit Agreement contains a consolidated fixed charge coverage ratio and consolidated leverage ratio.
The Companys obligations under the Facility may be accelerated upon the occurrence of an event of default under the Credit Agreement, which includes customary events of default, including payment
defaults, the inaccuracy of representations or warranties, the failure to comply with covenants, ERISA defaults, judgment defaults, bankruptcy and insolvency defaults and cross defaults to material indebtedness
As of July 31, 2015, the Company was in compliance with all covenants under the Credit Agreement.
On September 16, 2015 the Company and ECT (the Borrowers) entered into the First Amendment to the Credit Agreement and
Waiver with SVB and the Lenders, pursuant to which SVB and the Lenders waived the delivery of monthly financial statements for the month ending June 30, 2015, and the parties agreed to amend the Credit Agreement such that the delivery of
financial statements were to occur on a quarterly basis as opposed to monthly, and that the Company may repurchase up to $30 million of its capital stock provided that it comply with certain financial covenants.
Seller FinancingPromissory Notes
As described in Note 4 above, pursuant to the Dover Purchase Agreement, in connection with the closing of the Dover Acquisition, the Company issued promissory notes having an aggregate principal amount of
$20.0 million to Dover. During the three months ended January 31, 2014, the original principal amount of the promissory notes issued to Dover was reduced by $2.0 million, when the company executed leases for two new facilities, which triggered
a reduction to the notes in accordance with their terms. On November 26, 2014, the
66
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Company repaid in full all outstanding amounts under these promissory notes. The $16.3 million payoff amount reflected the principal amount of $18.0 million that was outstanding under the
original promissory notes, less $1.8 million pursuant to a reduction in principal for which the Company was entitled under the original promissory notes. Such reduction related to prepayment of the promissory notes before January 1, 2015 and
was recorded as a gain on repayment of subordinated debt as a component of other income in the Companys Consolidated Statements of Operations and Comprehensive Income (Loss) for the year ended July 31, 2015. As a result of this repayment
during the interest-free period, the Company reversed approximately $0.9 million of accrued interest and recorded the benefit as a component of other income in the Companys Consolidated Statement of Operations and Comprehensive Income (Loss)
for the year ended July 31, 2015.
Bank Term LoanCommerzbank
In May 2014, the Company entered into a loan agreement with Commerzbank to finance the purchase of the Companys leased facility in
Rosenheim, Germany. The principal amount of the term loan is 2.9 million euro ($3.9 million, using a July 31, 2014 exchange rate), payable over 10 years at an annual interest rate of 2.35%. Principal plus accrued interest is due quarterly
over the duration of the term loan.
7. INCOME TAXES
The components of income (loss) before income taxes and the provision (benefit) from income taxes consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended July 31, |
|
|
|
2015 |
|
|
2014 |
|
|
2013 |
|
|
|
(in thousands) |
|
Income (loss) before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
$ |
6,290 |
|
|
$ |
(4,715 |
) |
|
$ |
(15,388 |
) |
Foreign |
|
|
27,816 |
|
|
|
7,573 |
|
|
|
2,986 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
$ |
34,106 |
|
|
$ |
2,858 |
|
|
$ |
(12,402 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for (benefit from) income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
State |
|
|
|
|
|
|
(16 |
) |
|
|
|
|
Foreign |
|
|
3,123 |
|
|
|
2,019 |
|
|
|
(275 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current |
|
$ |
3,123 |
|
|
$ |
2,003 |
|
|
$ |
(275 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
110 |
|
|
$ |
(414 |
) |
|
$ |
|
|
State |
|
|
2 |
|
|
|
(12 |
) |
|
|
|
|
Foreign |
|
|
(647 |
) |
|
|
(810 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Deferred |
|
|
(535 |
) |
|
|
(1,236 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for (benefit from) income taxes |
|
$ |
2,588 |
|
|
$ |
767 |
|
|
$ |
(275 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
67
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Reconciliation of the U.S. federal statutory rate to the Companys effective tax
rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended July 31, |
|
|
|
2015 |
|
|
2014 |
|
|
2013 |
|
U.S. federal statutory rate |
|
|
35.00 |
% |
|
|
35.00 |
% |
|
|
35.00 |
% |
Change in valuation allowance |
|
|
(15.33 |
) |
|
|
240.91 |
|
|
|
(41.24 |
) |
Foreign rate differential |
|
|
(21.03 |
) |
|
|
(47.44 |
) |
|
|
3.49 |
|
Permanent differences |
|
|
8.88 |
|
|
|
(200.49 |
) |
|
|
(2.19 |
) |
Change in uncertain tax positions |
|
|
(0.26 |
) |
|
|
(2.97 |
) |
|
|
7.16 |
|
Other |
|
|
0.33 |
|
|
|
1.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate |
|
|
7.59 |
% |
|
|
26.86 |
% |
|
|
2.22 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets and liabilities as of July 31, 2015, and 2014 are as follows:
|
|
|
|
|
|
|
|
|
|
|
As of July 31, |
|
|
|
2015 |
|
|
2014 |
|
|
|
(in thousands) |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Net operating loss carryforwards |
|
$ |
139,688 |
|
|
$ |
148,155 |
|
Capital loss carryforwards |
|
|
420 |
|
|
|
418 |
|
Tax credits |
|
|
31,226 |
|
|
|
29,033 |
|
Inventory valuation reserves |
|
|
24,281 |
|
|
|
20,635 |
|
Deferred revenue |
|
|
1,410 |
|
|
|
1,615 |
|
Other |
|
|
14,517 |
|
|
|
13,223 |
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
211,542 |
|
|
|
213,079 |
|
Valuation allowance |
|
|
(209,734 |
) |
|
|
(211,925 |
) |
|
|
|
|
|
|
|
|
|
Net deferred tax assets |
|
$ |
1,808 |
|
|
$ |
1,154 |
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Intangibles |
|
$ |
(839 |
) |
|
$ |
(1,078 |
) |
Fixed assets and spares |
|
|
(1,312 |
) |
|
|
(509 |
) |
Prepaid expenses |
|
|
(335 |
) |
|
|
(32 |
) |
Other |
|
|
|
|
|
|
(58 |
) |
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
(2,486 |
) |
|
|
(1,677 |
) |
|
|
|
|
|
|
|
|
|
Net deferred tax assets (liabilities) |
|
$ |
(678 |
) |
|
$ |
(523 |
) |
|
|
|
|
|
|
|
|
|
Cumulative unremitted foreign earnings that are considered to be indefinitely reinvested outside of the
U.S. and on which no U.S. taxes have been provided are approximately $29.9 million and $8.3 million as of July 31, 2015 and 2014. Due to net operating loss and credit carryforwards, the residual U.S. tax liability, if such amounts were
remitted, would be minimal.
Compliance with section 10-30 of FASB ASC Topic 740, Income Taxes, requires the Company to
periodically evaluate the necessity of establishing or increasing a valuation allowance for deferred tax assets depending on whether it is more likely than not that a related benefit will be realized in future periods. Because of the cumulative net
loss position of the Company and the uncertainty of the timing of profitability in future periods, the Company determined that a valuation allowance against its US net deferred tax assets is appropriate as the Company determined it would be more
likely than not unable to realize its US deferred tax assets. There is,
68
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
however, no valuation allowance in certain foreign jurisdictions, as the foreign entities have cumulative income and expected future income. The valuation allowance totaled $209.7 million and
$211.9 million as of July 31, 2015 and 2014, respectively. The decrease in the Companys valuation allowance compared to the prior year was primarily due to a decrease in U.S. deferred tax assets associated with sources of income in the
current year.
As of July 31, 2015, the Company had federal net operating loss carryforwards of $344.4 million, which
expire from 2019 to 2034, federal tax credit carryforwards, including research and development and foreign tax credits, of $9.2 million which expire from 2018 to 2035, state net operating loss carryforwards of $255.8 million, which expire from 2016
to 2034, and state tax credits and carryforwards of $36.3 million, of which the majority have an indefinite credit carryforward period. The remaining state tax credit carryforwards begin expiring in 2016 to 2030. The Company also has foreign net
operating loss carryforwards of approximately $16.6 million in various foreign jurisdictions.
As of July 31, 2014, the
Company had federal net operating loss carryforwards of $367.1 million, which expire from 2019 to 2034, federal tax credit carryforwards, including research and development and foreign tax credits, of $8.0 million which expire from 2018 to 2034,
state net operating loss carryforwards of $255.4 million, which expire from 2015 to 2034, and state tax credits and carryforwards of $34.8 million, of which the majority have an indefinite credit carryforward period. The remaining state tax credit
carryforwards begin expiring in 2015 to 2029. The Company also has foreign net operating loss carryforwards of approximately $16.1 million in various foreign jurisdictions.
As a result of the merger with Credence Systems Corporation on August 29, 2008, a greater than 50% cumulative ownership change in both entities triggered a significant limitation in net operating
loss carryforward utilization. The Companys ability to use the acquired U.S. net operating loss and credit carryforwards is subject to annual limitations as defined in sections 382 and 383 of the Internal Revenue Code. The Company currently
estimates that the annual limitation on its use of net operating losses generated through August 29, 2008 will be approximately $10.1 million, which, based on the currently enacted federal carryforward period, limits the amount of net operating
losses that are available for utilization to approximately $202.0 million. The Company will continue to assess the realizability of these carryforwards in subsequent periods.
A summary of the Companys adjustments to its uncertain tax positions in the fiscal years ended July 31, 2015, 2014 and 2013 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2015 |
|
|
July 31, 2014 |
|
|
July 31, 2013 |
|
|
|
(in thousands) |
|
Balance at beginning of year |
|
$ |
6,590 |
|
|
$ |
6,788 |
|
|
$ |
8,009 |
|
Increase (decrease) for uncertain tax positions related to the current year |
|
|
185 |
|
|
|
12 |
|
|
|
(242 |
) |
Decrease for uncertain tax positions related to prior years |
|
|
|
|
|
|
|
|
|
|
(54 |
) |
Decreases for lapses of statutes of limitations |
|
|
(508 |
) |
|
|
(210 |
) |
|
|
(925 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year |
|
$ |
6,267 |
|
|
$ |
6,590 |
|
|
$ |
6,788 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of July 31, 2015 and 2014, the Companys unrecognized tax benefits were $6.3 million and
$6.6 million, respectively, of which $2.7 million and $3.0 million, respectively, if recognized, would impact the effective income tax rate. The Company recognizes interest and penalties related to uncertain tax positions as a component of income
tax expense. The Company has accrued a total of $1.0 million for the potential payment of interest and penalties at both July 31, 2015 and July 31, 2014. The Company does not anticipate the amount of the reserve for uncertain tax positions
that will be reduced over the next 12 month period will be material as the Company settles disputed items with the appropriate taxing authorities.
69
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company files income tax returns with the U.S. federal government and various state
and international jurisdictions, which are subject to potential examination by tax authorities. With few exceptions, the Companys 1998 and subsequent federal and state tax years remain open by statute, principally relating to net operating
loss carryforwards.
Net cash paid for income taxes during the fiscal years ended July 31, 2015, July 31, 2014 and
July 31, 2013 was approximately $2.9 million, $1.1 million, and $0.2 million, respectively.
8. STOCKHOLDERS EQUITY
Stock Repurchases
On September 15, 2011, the Company announced that its Board of Directors authorized a stock repurchase program for up to $25 million (the 2011 Plan). Under this program, the
Companys Board of Directors authorized the Company to repurchase shares of our common stock from time to time in open market transactions. The Company determined the timing and amount of the transaction based on its evaluation of market
conditions and other factors. The Company could suspend or discontinue the repurchase program at any time and the program had no expiration date. During the year ended July 31, 2015, the Company did not repurchase any shares under this program.
On September 3, 2015, the Company announced that its Board of Directors authorized a stock repurchase program, pursuant
to which the Company is authorized to repurchase up to $30 million of its common stock from time to time in open market transactions (the 2015 plan). This repurchase program supersedes the 2011 Plan and as a result there are no shares
available for repurchase under the 2011 Plan. The Company may suspend or discontinue the repurchase program at any time and the program has no expiration date. As of October 7, 2015, the Company had repurchased 1,206,605 shares for $7.4 million
under the 2015 plan.
Equity Offering
On September 17, 2014, the Company closed an underwritten public offering of 4,682,927 shares of its common stock at $10.25 per share. The Company also granted to the underwriters a 30-day option to
purchase up to an aggregate of 702,439 additional shares of common stock to cover over-allotments which they exercised on September 22, 2014. All of the shares were sold by the Company pursuant to an effective shelf registration statement
previously filed with the SEC.
The offering, and the follow-on option to sell additional shares, resulted in net proceeds to
Xcerra, after deducting underwriting discounts and commissions and offering expenses, of approximately $52.1 million. Xcerra used approximately $20 million of the net proceeds from the offering to repay a portion of the outstanding principal of
the Companys bank term loan with SVB and syndicate.
Reserved Unissued Shares
At July 31, 2015 and July 31, 2014, the Company had reserved 4,632,441 and 5,274,122 of unissued shares of its common stock for
possible issuance under stock-based compensation plans and the Companys Employee Stock Purchase Plan.
70
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. EMPLOYEE BENEFIT PLANS
Stock Option Plans
In connection with the Companys stock-based compensation plans, at July 31, 2015, 25,080 shares were available for future grant under the 2010 Plan. No shares were available for future grant
under any of the Companys other stock-based compensation plans. The Companys general practice has been to issue new shares upon the exercise of stock options or vesting of RSUs.
For the fiscal years ended July 31, 2015, 2014 and 2013 the Companys stock option activity is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 |
|
|
2014 |
|
|
2013 |
|
|
|
Number of Shares |
|
|
Weighted Average Exercise Price |
|
|
Number of Shares |
|
|
Weighted Average Exercise Price |
|
|
Number of Shares |
|
|
Weighted Average Exercise Price |
|
Options outstanding, beginning of year |
|
|
475,874 |
|
|
$ |
15.08 |
|
|
|
950,554 |
|
|
$ |
22.88 |
|
|
|
1,242,471 |
|
|
$ |
21.87 |
|
Exercised |
|
|
(47,687 |
) |
|
|
5.79 |
|
|
|
(69,641 |
) |
|
|
5.84 |
|
|
|
(2,449 |
) |
|
|
5.55 |
|
Forfeited/Expired |
|
|
(403,107 |
) |
|
|
14.99 |
|
|
|
(405,039 |
) |
|
|
34.97 |
|
|
|
(289,468 |
) |
|
|
18.71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding and exercisable, end of year |
|
|
25,080 |
|
|
$ |
11.42 |
|
|
|
475,874 |
|
|
$ |
15.08 |
|
|
|
950,554 |
|
|
$ |
22.88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The intrinsic value of options exercised during the years ended July 31, 2015, 2014 and 2013 was $0,
$207,708, and, $1,307, respectively.
As of July 31, 2015, the status of the Companys outstanding and exercisable
stock options is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
|
Options Exercisable |
|
Range of Exercise Price ($) |
|
Number Outstanding (#) |
|
|
Weighted Average Remaining Contractual Life (yrs) |
|
|
Weighted Average Exercise Price ($) |
|
|
Number Exercisable (#) |
|
|
Weighted Average Exercise Price ($) |
|
$ 0.00 $13.88 |
|
|
25,080 |
|
|
|
0.23 |
|
|
$ |
11.42 |
|
|
|
25,080 |
|
|
$ |
11.42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,080 |
|
|
|
0.23 |
|
|
$ |
11.42 |
|
|
|
25,080 |
|
|
$ |
11.42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intrinsic value at July 31, 2015 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Units
For the years presented, the Company granted RSUs to certain executives, directors and employees, with vesting terms ranging from one to four years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended July 31, |
|
|
|
2015 |
|
|
2014 |
|
|
2013 |
|
Total awards |
|
|
938,307 |
|
|
|
1,109,100 |
|
|
|
895,900 |
|
Executives only |
|
|
305,000 |
|
|
|
445,000 |
|
|
|
390,000 |
|
71
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the fiscal years ended July 31, 2015, 2014, and 2013 the status of the
Companys outstanding RSUs is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 |
|
|
2014 |
|
|
2013 |
|
|
|
Number of Shares |
|
|
Weighted Average Grant-Date Fair
Value |
|
|
Number of Shares |
|
|
Weighted Average Grant-Date Fair
Value |
|
|
Number of Shares |
|
|
Weighted Average Grant-Date Fair
Value |
|
RSUs outstanding, beginning of year |
|
|
2,154,638 |
|
|
$ |
6.68 |
|
|
|
1,968,690 |
|
|
$ |
5.98 |
|
|
|
1,848,598 |
|
|
$ |
5.81 |
|
Granted |
|
|
938,307 |
|
|
|
9.87 |
|
|
|
1,109,100 |
|
|
|
7.31 |
|
|
|
895,900 |
|
|
|
5.82 |
|
Vested |
|
|
(878,186 |
) |
|
|
6.73 |
|
|
|
(786,360 |
) |
|
|
5.94 |
|
|
|
(754,556 |
) |
|
|
5.39 |
|
Forfeited |
|
|
(40,625 |
) |
|
|
7.25 |
|
|
|
(136,792 |
) |
|
|
5.98 |
|
|
|
(21,252 |
) |
|
|
5.54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs outstanding, end of year |
|
|
2,174,134 |
|
|
$ |
8.03 |
|
|
|
2,154,638 |
|
|
$ |
6.68 |
|
|
|
1,968,690 |
|
|
$ |
5.98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of RSUs vested during the fiscal years ended July 31, 2015, 2014, and 2013 was
$5.9 million, $4.7 million, and $4.1 million, respectively.
Employee Stock Purchase Plan
In December 2003, the shareholders approved an employee stock purchase plan, which was subsequently amended in September 2005, July
2009 and October 2012 (2004 ESPP). Under the 2004 ESPP, as amended, eligible employees may contribute up to 15% of their annual compensation for the purchase of common stock of the Company, subject to an annual limit of $25,000. The
price paid for the common stock is equal to 85% of the price of the Companys common stock on the last business day of a six-month offering period. The 2004 ESPP limited the number of shares that can be issued over the term of the plan to
eligible employees to 400,000 shares, and the July 2009 amendment increased the number of shares that may be issued by an additional 400,000 shares. An October 2012 amendment increased the number of shares that may be issued by an additional 800,000
shares. In fiscal years 2015, 2014, and 2013, the total number of shares issued under the 2004 ESPP were 169,624, 114,346, and 165,572, respectively. As of July 31, 2015, there are 428,916 shares available for issuance under the 2004 ESPP.
Other Compensation Plans
The Company has established a Profit Sharing Bonus Plan, whereby a percentage of pretax profits is distributed quarterly to all eligible non-executive employees. Under the Profit Sharing Bonus Plan, the
Company recorded profit sharing expense for all eligible employees of approximately $0.9 million, $0.3 million, and $0.1 million for the fiscal years ended July 31, 2015, 2014, and 2013 respectively.
The Company also has other established incentive compensation plans for its ECT, atg-Luther & Maelzer and Multitest employees.
Under these plans, individuals are compensated based on company performance as well as individual performance, in addition to other specific criteria for each plan. Under these plans, the Company recorded expense of approximately $2.0 million and
$1.3 million for fiscal 2015 and fiscal 2014, respectively.
The Company has an Executive Profit Sharing Plan pursuant to
which the Companys executives are eligible to receive cash awards based on the Companys achievement of certain profitability milestones. For fiscal 2014, the plan included milestones for achieving certain synergy savings targets, all of
which were met. Executive employees included in this plan are excluded from the Profit Sharing Bonus Plan. Under the Executive Profit Sharing Plan, the Company recognized expense of $2.7 million for fiscal 2015, and $3.2 million for fiscal 2014.
There was no expense recorded for the fiscal year ended July 31, 2013.
72
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company maintains a 401(k) Growth and Investment Plan (401(k) Plan).
Eligible employees may make voluntary contributions to the 401(k) Plan through a salary reduction contract up to the statutory limit or 20% of their annual compensation. The Company matches 50% of employees first 6% of voluntary contributions.
Company contributions vest at a rate of 20% per year and employees are 100% vested after 5 years of service. The Company funded the match with a contribution of $1.4 million for fiscal 2015, and $1.2 million and $1.1 million for each of
the fiscal years ended July 31, 2014, and 2013, respectively.
10. SEGMENT, INDUSTRY AND GEOGRAPHIC AND SIGNIFICANT CUSTOMER SEGMENT INFORMATION
In accordance with the provisions of Topic 280, Segment Reporting to the FASB ASC (ASC 280),
starting in fiscal 2014, the Company determined that it has six operating segments (Semiconductor Test, Semiconductor Handlers, Contactors, PCB Test, Probes / Pins, and Fixtures). Based on the aggregation criteria of ASC 280, the Company determined
that several of the operating segments can be aggregated due to these segments having similar economic characteristics and meeting all of the other aggregation criteria in ASC 280. Consequently, the Company has two reportable segments: the
Semiconductor Test Solutions (STS) reportable segment, which is comprised of the Semiconductor Test, Semiconductor Handlers, and Contactors operating segments, and the Electronic Manufacturing Solutions (EMS) reportable segment, which is comprised
of the PCB Test, Probes / Pins, and Fixtures operating segments. This financial reporting structure was implemented effective as of December 1, 2013, the acquisition date of Multitest and ECT.
For the fiscal year ended July 31, 2013 the Company operated as one reportable segment, that is, the design, manufacture and sale of
automated test equipment for the semiconductor industry that is used to test system-on-a-chip, digital, analog and mixed signal integrated circuits. For the fiscal years ended July 31, 2014 and 2015, this reportable segment is now known as the
Semiconductor Test operating segment which is now aggregated into the STS reportable segment.
The Semiconductor Test segment
includes operations related to the design, manufacture and sale of automated test equipment for the semiconductor industry that is used to test system-on-a-chip, digital, analog and mixed signal integrated circuits. The Semiconductor Handlers
segment includes operations related to the design, manufacture and sale of test handlers used in the testing of integrated circuits. The Contactors segment includes operations related to the design, manufacture and sale of test contactors which
serve as the interface between the test handler and the semiconductor device under test. The PCB test segment includes operations related to design, manufacture and sale of equipment used in the testing of bare and loaded printed circuit boards. The
Probes / Pins segment includes operations related to the design, manufacture and sale of the physical devices used to connect electronic test equipment to the device under test. The Fixtures segment includes operations related to the design,
manufacture and sale of PCB test fixtures that enable the transmission of test signals from the loaded PCB to the tester. Each operating segment has a segment manager who is directly accountable to and maintains regular contact with the
Companys chief operating decision maker (chief executive officer and chief operating officer) to discuss operating activities, financial results, forecasts, and plans for the segment.
The Company evaluates performance using several factors, of which the primary financial measures are revenue and operating segment
operating income. The accounting policies of the operating segments are the same as those described in Note 2 Summary of Significant Accounting Policies.
73
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Segment information for the years ended July 31, 2015, 2014 and 2013 is as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Semiconductor Test Solutions |
|
|
Electronic Manufacturing Solutions |
|
|
Corporate |
|
|
Consolidated |
|
2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
313,858 |
|
|
$ |
84,120 |
|
|
$ |
|
|
|
$ |
397,978 |
|
Operating income (loss) |
|
$ |
26,318 |
|
|
$ |
5,481 |
|
|
$ |
(2,206 |
) |
|
$ |
29,593 |
|
Depreciation and amortization expense |
|
$ |
6,795 |
|
|
$ |
1,289 |
|
|
$ |
|
|
|
$ |
8,084 |
|
|
|
|
|
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
246,939 |
|
|
$ |
58,167 |
|
|
$ |
|
|
|
$ |
305,106 |
|
Operating income (loss) |
|
$ |
(4,360 |
) |
|
$ |
4,533 |
|
|
$ |
(3,944 |
) |
|
$ |
(3,771 |
) |
Depreciation and amortization expense |
|
$ |
7,036 |
|
|
$ |
1,024 |
|
|
$ |
|
|
|
$ |
8,060 |
|
|
|
|
|
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
151,982 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
151,982 |
|
Operating income (loss) |
|
$ |
(12,390 |
) |
|
$ |
|
|
|
$ |
(476 |
) |
|
$ |
(12,866 |
) |
Depreciation and amortization expense |
|
$ |
8,044 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
8,044 |
|
Included in Corporate is restructuring charges.
The Company is not disclosing total assets for each of its reportable segments, as total assets by reportable segment is not a key metric
utilized by the Companys chief operating decision maker.
The Companys sales to its top ten customers for the
fiscal years ended July 31, 2015, 2014, and 2013, along with the accounts receivable for the same customers at July 31, 2015, 2014, and 2013, are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended July 31, |
|
|
|
2015 |
|
|
2014 |
|
|
2013 |
|
Net sales to the top ten customers |
|
|
54 |
% |
|
|
51 |
% |
|
|
70 |
% |
Accounts receivable from top ten customers (in millions) |
|
$ |
43.1 |
|
|
$ |
48.6 |
|
|
$ |
21.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended July 31, |
|
|
|
2015 |
|
|
2014 |
|
|
2013 |
|
The Companys customers over 10% of net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
Spirox |
|
|
13 |
% |
|
|
17 |
% |
|
|
27 |
% |
Texas Instruments |
|
|
<10 |
% |
|
|
<10 |
% |
|
|
12 |
% |
74
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Companys net sales to geographic area for the fiscal years ended July 31,
2015, 2014, and 2013, along with the long-lived assets by location at July 31, 2015 and July 31, 2014, are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended July 31, |
|
|
|
2015 |
|
|
2014 |
|
|
2013 |
|
|
|
(in thousands) |
|
Sales to unaffiliated customers (ship to location): |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
85,467 |
|
|
$ |
65,878 |
|
|
$ |
25,999 |
|
Taiwan |
|
|
50,759 |
|
|
|
51,699 |
|
|
|
39,913 |
|
Philippines |
|
|
50,271 |
|
|
|
33,767 |
|
|
|
23,106 |
|
Malaysia |
|
|
38,840 |
|
|
|
21,611 |
|
|
|
15,935 |
|
Thailand |
|
|
26,414 |
|
|
|
18,806 |
|
|
|
4,597 |
|
Hong Kong/China |
|
|
43,330 |
|
|
|
27,108 |
|
|
|
13,373 |
|
Germany |
|
|
29,503 |
|
|
|
21,385 |
|
|
|
6,855 |
|
Singapore |
|
|
21,652 |
|
|
|
30,174 |
|
|
|
9,221 |
|
All other countries (none of which is individually greater than 10% of net sales) |
|
|
51,742 |
|
|
|
34,678 |
|
|
|
12,983 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales to unaffiliated customers |
|
$ |
397,978 |
|
|
$ |
305,106 |
|
|
$ |
151,982 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of July 31, |
|
|
|
2015 |
|
|
2014 |
|
|
|
(in thousands) |
|
Long-lived assets: |
|
|
|
|
|
|
|
|
United States |
|
$ |
16,317 |
|
|
$ |
16,570 |
|
Germany |
|
|
9,254 |
|
|
|
9,198 |
|
Malaysia |
|
|
3,281 |
|
|
|
3,598 |
|
China |
|
|
471 |
|
|
|
711 |
|
Singapore |
|
|
678 |
|
|
|
689 |
|
Japan |
|
|
617 |
|
|
|
446 |
|
Philippines |
|
|
273 |
|
|
|
391 |
|
Taiwan |
|
|
181 |
|
|
|
107 |
|
All other countries |
|
|
378 |
|
|
|
443 |
|
|
|
|
|
|
|
|
|
|
Total long-lived assets |
|
$ |
31,450 |
|
|
$ |
32,153 |
|
|
|
|
|
|
|
|
|
|
Transfer prices on products sold to foreign subsidiaries are intended to produce profit margins that
correspond to the subsidiarys sales and support efforts.
11. COMMITMENTS AND CONTINGENCIES
From time to time, the Company is subject to certain legal proceedings and other contingencies, the outcomes of which
are subject to significant uncertainty. The Company accrues for estimated losses if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. The Company uses judgment and
evaluates, with the assistance of legal counsel, whether a loss contingency arising from litigation should be disclosed or recorded. The outcome of legal proceedings and other contingencies is inherently uncertain and often difficult to estimate.
Accordingly, if the outcome of legal proceedings and other contingencies is different than is anticipated by the Company, the Company would record the difference between any previously recorded amount and the full amount at which the matter was
resolved, in earnings in the period resolved, which could negatively impact the Companys results of operations and financial position for the period.
75
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company is a defendant in a litigation matter incidental to the business that is
related to customer expectations of test system performance for products that were shipped in 2006 by Credence. The Company does not believe the plaintiffs claims have merit and is vigorously defending its position. An estimate of any
potential loss cannot be made, and accordingly the Company has not accrued any amounts related to this matter.
In the
ordinary course of business, the Company agrees from time to time to indemnify certain customers against certain third party claims for property damage, bodily injury, personal injury or intellectual property infringement arising from the operation
or use of the Companys products. Also, from time to time in agreements with suppliers, licensors, and other business partners, the Company agrees to indemnify these partners against certain liabilities arising out of the sale or use of the
Companys products. The maximum potential amount of future payments the Company could be required to make under these indemnification obligations is theoretically unlimited; however, the Company has general and umbrella insurance policies that
enable it to recover a portion of any amounts paid, and many of its agreements contain a limit on the maximum amount, as well as limits on the types of damages recoverable. Based on the Companys experience with such indemnification claims, it
believes the estimated fair value of these obligations is minimal. Accordingly, the Company has no liabilities recorded for these agreements as of July 31, 2015 or July 31, 2014.
Subject to certain limitations, the Company indemnifies its current and former officers and directors for liability or costs that may
incur in certain circumstances in connection with their services as directors and officers of the Company. Although the maximum potential amount of future payments the Company could be required to make under these agreements is theoretically
unlimited, as there were no known or pending claims, the Company has not accrued a liability for these agreements as of July 31, 2015 or July 31, 2014.
As of July 31, 2015, the Company had approximately $40.2 million of non-cancelable inventory commitments with its suppliers. The Company expects to consume this inventory through normal operating
activity.
The Company has operating lease commitments for certain facilities and equipment that expire at various dates
through 2024. The Company has an option to extend the term for its Norwood, Massachusetts facility lease for a single extension term of five years provided that the Company notifies its landlord at least 425 days prior to expiration of the
current extension term. Minimum lease payment obligations under non-cancelable leases as of July 31, 2015, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ending July 31, |
|
Facilities |
|
|
Equipment |
|
|
Total Operating Leases |
|
|
|
(in thousands) |
|
2016 |
|
$ |
6,887 |
|
|
$ |
658 |
|
|
$ |
7,545 |
|
2017 |
|
|
5,294 |
|
|
|
403 |
|
|
|
5,697 |
|
2018 |
|
|
2,623 |
|
|
|
156 |
|
|
|
2,779 |
|
2019 |
|
|
2,087 |
|
|
|
13 |
|
|
|
2,100 |
|
2020 |
|
|
1,486 |
|
|
|
|
|
|
|
1,486 |
|
Thereafter |
|
|
3,036 |
|
|
|
|
|
|
|
3,036 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments |
|
$ |
21,413 |
|
|
$ |
1,230 |
|
|
$ |
22,643 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total rent expense for the fiscal years ended July 31, 2015, 2014, and 2013 was $5.8 million, $6.9
million, and $4.1 million, respectively.
76
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. RESTRUCTURING
In accordance with the provisions of Topic 420, Exit or Disposal Cost Obligation, to the FASB ASC, the Company
recognizes certain costs associated with headcount reductions, office vacancies and other costs to move or relocate operations or employees as restructuring costs in the period in which such actions are initiated and approved by management or the
obligations are incurred, as applicable.
As of July 31, 2015, the Companys restructuring accrual represents
obligations related to remaining lease and property tax payments associated with the Companys decision to vacate facilities during the fiscal years and 2009, as well as severance obligations payable related to headcount reductions from actions
undertaken during fiscal 2014 and 2015.
In the fiscal year ended July 31, 2009, the Company vacated certain facilities
in an effort to consolidate operations and align the Companys capacity after the merger with Credence. During fiscal 2015, the Company recognized expense of $0.3 million as a result of modifying sublease assumptions for its facility accrual
associated with its Milpitas, California location. As of July 31, 2015 and 2014, the accrual for the previously restructured facility leases was $1.4 million and $2.1 million, respectively. This includes $0.5 million and $1.1 million,
respectively, of long-term payments to be made for the remainder of the respective lease terms, the longest of which is through 2017. This liability is included in other long term liabilities on the Companys consolidated balance sheets. The
remainder of the accrual of $0.9 million is included in other accrued expenses on the Companys consolidated balance sheets as of July 31, 2015.
On January 30, 2014, the Company announced a strategic restructuring plan in connection with ongoing efforts to reduce costs and maximize efficiencies in connection with the Dover Acquisition. The
Company recorded restructuring expense of $3.5 million during fiscal 2014 related to headcount reductions in connection with the implementation of the restructuring plan.
On April 30, 2014, the Company ceased use of its Beaverton, Oregon facility. All operations that had occurred at that location have been transferred to other locations in North America. During fiscal
2014, the Company recorded $0.1 million as restructuring expense, net of assumptions for sublease income, related to remaining lease payments on the Beaverton, Oregon facility.
77
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table sets forth the Companys restructuring accrual activity for the
three years ended July 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance Costs |
|
|
Facility Leases |
|
|
Total |
|
|
|
(in thousands) |
|
Balance July 31, 2012 |
|
$ |
363 |
|
|
$ |
3,697 |
|
|
$ |
4,060 |
|
Restructuring expense |
|
|
216 |
|
|
|
260 |
|
|
|
476 |
|
Accretion |
|
|
|
|
|
|
229 |
|
|
|
229 |
|
Stock based compensation |
|
|
(47 |
) |
|
|
|
|
|
|
(47 |
) |
Cash paid |
|
|
(530 |
) |
|
|
(1,414 |
) |
|
|
(1,944 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance July 31, 2013 |
|
$ |
2 |
|
|
$ |
2,772 |
|
|
$ |
2,774 |
|
Balance assumed from Dover acquisition |
|
|
447 |
|
|
|
|
|
|
|
447 |
|
Restructuring expense |
|
|
3,533 |
|
|
|
410 |
|
|
|
3,943 |
|
Accretion |
|
|
|
|
|
|
274 |
|
|
|
274 |
|
Cash paid |
|
|
(3,561 |
) |
|
|
(1,325 |
) |
|
|
(4,886 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance July 31, 2014 |
|
$ |
421 |
|
|
$ |
2,131 |
|
|
$ |
2,552 |
|
Restructuring expense |
|
|
1,148 |
|
|
|
1,058 |
|
|
|
2,206 |
|
Accretion |
|
|
|
|
|
|
326 |
|
|
|
326 |
|
Cash paid |
|
|
(885 |
) |
|
|
(2,071 |
) |
|
|
(2,956 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance July 31, 2015 |
|
$ |
684 |
|
|
$ |
1,444 |
|
|
$ |
2,128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13. FAIR VALUE MEASUREMENTS
The Company determines its fair value measurements for assets and liabilities based upon the provisions of Topic 820,
Fair Value Measurements and Disclosures, to the FASB ASC.
The Company holds short-term money market investments and
certain other financial instruments which are carried at fair value. The Company determines fair value based upon quoted prices, when available or through the use of alternative approaches when market quotes are not readily accessible or available.
Valuation techniques for fair value are based upon observable and unobservable inputs. Observable inputs reflect market data
obtained from independent sources, while unobservable inputs reflect the Companys best estimate, considering all relevant information. These valuation techniques involve some level of management estimation and judgment. The valuation process
to determine fair value also includes making appropriate adjustments to the valuation model outputs to consider risk factors.
The fair value hierarchy of the Companys inputs used in the determination of fair value for assets and liabilities during the
current period consists of three levels. Level 1 inputs are composed of unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. Level 2 inputs include quoted prices for similar instruments in active
markets; quoted prices for identical or similar instruments in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable
market data by correlation or other means. Level 3 inputs incorporate the Companys own best estimate of what market participants would use in pricing the asset or liability at the measurement date where consideration is given to the risk
inherent in the valuation technique and the risk inherent in the inputs to the model. If inputs used to measure an asset or liability fall within different levels of the hierarchy, the categorization is based on the lowest level input that is
significant to the fair value
78
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
measurement of the asset or liability. The Companys assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers
factors specific to the asset or liability.
The following table presents financial assets and liabilities measured at fair
value and their related valuation inputs as of July 31, 2015 and July 31, 2014, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using (in
thousands) |
|
July 31, 2015 |
|
Total Fair Value of Asset or Liability |
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
|
Significant Other Observable Inputs (Level 2) |
|
|
Significant Unobservable Inputs (Level 3) |
|
Cash and cash equivalents (1) |
|
$ |
77,858 |
|
|
$ |
77,858 |
|
|
$ |
|
|
|
$ |
|
|
Marketable securities |
|
|
60,593 |
|
|
|
7,843 |
|
|
|
52,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
138,451 |
|
|
$ |
85,701 |
|
|
$ |
52,750 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2014 |
|
Total Fair Value of Asset or Liability |
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
|
Significant Other Observable Inputs (Level 2) |
|
|
Significant Unobservable Inputs (Level 3) |
|
Cash and cash equivalents (1) |
|
$ |
59,269 |
|
|
$ |
59,269 |
|
|
$ |
|
|
|
$ |
|
|
Marketable securities |
|
|
39,659 |
|
|
|
3,974 |
|
|
|
35,685 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
98,928 |
|
|
$ |
63,243 |
|
|
$ |
35,685 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Cash and cash equivalents as of July 31, 2015 and July 31, 2014 includes cash held in operating accounts of approximately $76.3 million and $56.0 million,
respectively, that are not subject to fair value measurements. For purposes of this disclosure they are included as having Level 1 inputs. |
The carrying value of accounts receivable, prepaid expenses, accounts payable and accrued expenses approximate fair value due to their short-term nature.
There were no assets or liabilities not measured at fair value but for which fair value is required to be disclosed. The carrying value
of the Companys long-term debt, which includes term loans (and seller-financed promissory notes for the fiscal 2014) approximates fair value due to market interest. Long-term debt at July 31, 2015 and 2014 was $27.5 million and $68.7
million, respectively. Within the hierarchy of fair value measurement, these are level 2 inputs.
14. QUARTERLY RESULTS OF OPERATIONS (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended July 31, 2015 |
|
First Quarter (a) |
|
|
Second Quarter (a) |
|
|
Third Quarter (a) |
|
|
Fourth Quarter (a) |
|
|
|
(in thousands, except per share data) |
|
Net sales |
|
$ |
127,162 |
|
|
$ |
92,284 |
|
|
$ |
103,643 |
|
|
$ |
102,072 |
|
Gross profit |
|
|
53,813 |
|
|
|
36,484 |
|
|
|
43,985 |
|
|
|
45,484 |
|
Net income |
|
|
12,062 |
|
|
|
3,929 |
|
|
|
4,738 |
|
|
|
7,496 |
|
Net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.24 |
|
|
$ |
0.07 |
|
|
$ |
0.09 |
|
|
$ |
0.15 |
|
Diluted |
|
$ |
0.24 |
|
|
$ |
0.07 |
|
|
$ |
0.09 |
|
|
$ |
0.15 |
|
(a) |
The results for fiscal 2015, as presented here, reflect the impact of removing the operating results attributed to the discontinued operations for the Fourth Quarter
only, which was the period in which the Company made the determination that the Interface Board Business was held for sale. |
79
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Net income for fiscal 2015 includes the following activity associated with non-recurring
transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended July 31, 2015 |
|
First Quarter |
|
|
Second Quarter |
|
|
Third Quarter |
|
|
Fourth Quarter |
|
|
|
(in thousands) |
|
Discontinued operations |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(912 |
) |
Restructuring |
|
|
(708 |
) |
|
|
(230 |
) |
|
|
(530 |
) |
|
|
(738 |
) |
Gain from financing activities |
|
|
|
|
|
|
2,685 |
|
|
|
|
|
|
|
|
|
Reversal of indemnification accrual |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,500 |
|
Acquisition and integration related expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(649 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-recurring income (expense) |
|
$ |
(708 |
) |
|
$ |
2,455 |
|
|
$ |
(530 |
) |
|
$ |
(799 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended July 31, 2014 (b) |
|
First Quarter |
|
|
Second Quarter |
|
|
Third Quarter |
|
|
Fourth Quarter |
|
|
|
(in thousands, except per share data) |
|
Net sales |
|
$ |
32,767 |
|
|
$ |
68,356 |
|
|
$ |
105,424 |
|
|
$ |
124,327 |
|
Gross profit |
|
|
17,131 |
|
|
|
26,812 |
|
|
|
43,555 |
|
|
|
52,903 |
|
Net income (loss) |
|
|
(6,900 |
) |
|
|
(1,604 |
) |
|
|
(200 |
) |
|
|
9,537 |
|
Net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.14 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.00 |
) |
|
$ |
0.20 |
|
Diluted |
|
$ |
(0.14 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.00 |
) |
|
$ |
0.19 |
|
(b) |
The results for the second quarter of 2014, as presented here, reflect the impact of retroactive accounting treatment for $2.6 million of bargain purchase gain, ($1.4)
million of which was recorded in the third quarter of 2014 and $4 million of which was recorded in the fourth quarter of 2014. |
Net income for fiscal 2014 includes the following activity associated with non-recurring transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended July 31, 2014 |
|
First Quarter |
|
|
Second Quarter |
|
|
Third Quarter |
|
|
Fourth Quarter |
|
|
|
(in thousands) |
|
Restructuring |
|
$ |
|
|
|
$ |
(2,159 |
) |
|
$ |
(1,422 |
) |
|
$ |
(363 |
) |
Bargain purchase gain |
|
|
|
|
|
|
8,621 |
|
|
|
|
|
|
|
|
|
Acquisition and integration related expenses |
|
|
(1,700 |
) |
|
|
(428 |
) |
|
|
(350 |
) |
|
|
(407 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-recurring (expense) income |
|
$ |
(1,700 |
) |
|
$ |
6,034 |
|
|
$ |
(1,772 |
) |
|
$ |
(770 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15. SUBSEQUENT EVENTS
Stock Repurchases
On September 3, 2015, the Company announced that its Board of Directors authorized a stock repurchase program, pursuant to which it is authorized to repurchase up to $30 million of its common stock
from time to time in open market transactions. This repurchase program supersedes the 2011 repurchase program and as a result there are no shares available for repurchase under the 2011 repurchase program.
As of October 7, 2015, we have repurchased 1,206,605 shares of common stock for a total purchase price of $7.4 million, since the
inception of the program on September 3, 2015.
80
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Sale of Interface Board Business
On June 12, 2015, the Company announced the execution of a non-binding letter of intent to sell our semiconductor test interface
board business based in Santa Clara, CA (Interface Board Business) to Fastprint Hong Kong Co., Ltd., a wholly owned subsidiary of Shenzhen Fastprint Circuit Tech Co., Ltd, and its affiliates (collectively, Fastprint), and on
September 8, 2015, the Company entered into the Purchase Agreement with Fastprint for the sale of the Interface Board Business.
Pursuant to the Purchase Agreement, the Company will sell and transfer to Fastprint certain assets used or primarily related to the Interface Board Business, and will assign, and Fastprint will assume,
certain specified liabilities associated with the Interface Board Business, along with the transfer of the employees associated with that business. The purchase price for the business is $23.0 million. $20.7 million is due at closing, with
$2.3 million payable upon the first anniversary of the closing of the transaction, subject to claims for indemnification by Fastprint, if any, prior to that time. The deal is expected to close by October 30, 2015, pending the satisfaction
of customary closing conditions, including applicable governmental approvals.
On September 16, 2015 the Company and ECT
(the Borrowers) entered into the First Amendment to the Credit Agreement and Waiver with SVB and the Lenders, pursuant to which SVB and the Lenders waived the delivery of monthly financial statements for the month ending June 30, 2015, and the
parties agreed to amend the Credit Agreement such that the delivery of financial statements were to occur on a quarterly basis as opposed to monthly, and that the Company may repurchase up to $30 million of its capital stock provided that it comply
with certain financial covenants.
81
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Xcerra Corporation (formerly LTX-Credence Corporation)
Norwood, Massachusetts
We have audited the accompanying consolidated balance sheets of Xcerra Corporation as of July 31, 2015 and 2014 and the related
consolidated statements of operations and comprehensive income (loss), stockholders equity, and cash flows for each of the three years in the period ended July 31, 2015. In connection with our audits of the financial statements, we have
also audited the financial statement schedules listed in the accompanying index. These financial statements and schedules are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial
statements and schedules 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. An audit 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, as well as evaluating the overall presentation of the financial statements and
schedules. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of Xcerra Corporation at July 31, 2015 and 2014, and the results of its operations and its cash flows for each of the three years in the period ended
July 31, 2015, in conformity with accounting principles generally accepted in the United States of America.
Also,
in our opinion, the financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Xcerra
Corporations internal control over financial reporting as of July 31, 2015, based on criteria established in Internal ControlIntegrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) and our report dated October 14, 2015 expressed an unqualified opinion thereon.
/s/BDO USA, LLP
Boston, Massachusetts
October 14, 2015
82
Item 9. |
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
There has been no change of accountants nor any disagreements with accountants on any matter of accounting principles or practices or
financial disclosure required to be reported under this Item.
Item 9A. |
Controls and Procedures |
Evaluation of
Disclosure Controls and Procedures
The Companys management, with the participation of the Companys Chief
Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Companys disclosure controls and procedures as of July 31, 2015. The term disclosure controls and procedures, as defined in Rules 13a-15(e) and
15d-15(e)) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported, within the time period specified in the SECs rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be
disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the companys management, including its principal executive and principal financial officers, as appropriate to allow
timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies
its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of the Companys disclosure controls and procedures as of July 31, 2015, the Companys Chief Executive Officer and
Chief Financial Officer concluded that, as of such date, the Companys disclosure controls and procedures were effective at the reasonable assurance levels.
Managements report on the Companys internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)) under the Exchange Act) and the independent registered public
accounting firms related audit report are included in this Item 9A.
Managements Annual Report on Internal Control Over
Financial Reporting
The management of the Company is responsible for establishing and maintaining adequate internal
control over financial reporting for the Company. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the
Companys principal executive and principal financial officers and effected by the Companys board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
|
|
|
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the
Company; |
|
|
|
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and |
|
|
|
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Companys assets that
could have a material effect on the financial statements. |
Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
83
The Companys management assessed the effectiveness of the Companys internal
control over financial reporting as of July 31, 2015. In making this assessment, the Companys management used the criteria based on the framework in Internal ControlIntegrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
Based on our assessment, management concluded that, as of July 31,
2015, the Companys internal control over financial reporting is effective based on those criteria.
The Companys
independent registered public accounting firm has issued a report on its assessment of the Companys internal control over financial reporting. This report appears below.
84
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Xcerra
Corporation (formerly LTX-Credence Corporation)
Norwood, Massachusetts
We have audited Xcerra Corporations internal control over financial reporting as of July 31, 2015, based on criteria
established in Internal ControlIntegrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Xcerra Corporations management is responsible for maintaining
effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Managements Annual Report on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion on the companys internal control over financial reporting based on our audit.
We conducted our audit 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 effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys
internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the financial statements.
Because of its inherent limitations,
internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Xcerra Corporation
maintained, in all material respects, effective internal control over financial reporting as of July 31, 2015, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Xcerra Corporation as of July 31, 2015 and
2014, and the related consolidated statements of operations and comprehensive income (loss), stockholders equity, and cash flows for each of the three years in the period ended July 31, 2015 and our report dated October 14, 2015
expressed an unqualified opinion thereon.
/s/BDO USA, LLP
Boston, Massachusetts
October 14, 2015
85
Changes in Internal Controls
There was no change in our internal control over financial reporting during the three months ended July 31, 2015 that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
Item 9B. |
Other Information |
None.
PART III
Item 10. |
Directors, Executive Officers and Corporate Governance |
The information required by this item, including information relating to our directors and executive officers, Section 16(a) beneficial ownership reporting compliance, code of ethics, director
nomination procedures and audit committee, is incorporated herein by reference from our definitive proxy statement in connection with our 2015 Annual Meeting of Stockholders (the 2015 Proxy Statement). The 2015 Proxy Statement will be
filed with the SEC not later than 120 days after the close of the fiscal year.
Item 11. |
Executive Compensation |
The information required by this item, including information relating to our executive compensation and compensation committee, is
incorporated herein by reference from the 2015 Proxy Statement.
Item 12. |
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
The information required by this item, including information relating to our security ownership of certain beneficial owners, is
incorporated herein by reference from the 2015 Proxy Statement. In addition, the information under the heading Securities Authorized for Issuance under Equity Compensation Plans in Part II, Item 5 of this Form 10-K is
incorporated herein by reference.
Item 13. |
Certain Relationships and Related Transactions, and Director Independence |
The information required by this item, including information relating to our related person transactions and director independence, is incorporated herein by reference from the 2015 Proxy Statement.
Item 14. |
Principal Accountant Fees and Services |
The information required by this item, including information relating to our principal accountant fees and services, is incorporated herein by reference from the 2015 Proxy Statement.
86
PART IV
Item 15. |
Exhibits and Financial Statement Schedules |
(a) 1. Financial Statements
The
following consolidated financial statements of the Company for the fiscal year ended July 31, 2015, are included in Item 8, herein.
|
|
|
|
|
Report of BDO USA, LLP, Independent Registered Public Accounting Firm |
|
|
82 |
|
Consolidated Balance SheetsJuly 31, 2015 and 2014 |
|
|
44 |
|
Consolidated Statements of Operations and Comprehensive Income (Loss) for the fiscal years ended July
31, 2015, 2014, and 2013 |
|
|
45 |
|
Consolidated Statements of Stockholders Equity for the fiscal years ended July
31, 2015, 2014, and 2013 |
|
|
46 |
|
Consolidated Statements of Cash Flows for the fiscal years ended July 31, 2015, 2014, and
2013 |
|
|
47 |
|
Notes to Consolidated Financial Statements |
|
|
48 |
|
2. Financial Statement Schedules
Consolidated financial statement Schedule II for the Company is included in Item 15(c). All other schedules for which provision is
made in the applicable security regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted.
(b) Exhibits
The exhibits filed as part of this Annual Report on Form 10-K are set forth on the Exhibit Index immediately preceding such exhibits, and are incorporated herein by reference.
87
(c) Financial Statement Schedules
SCHEDULE II
XCERRA CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
For Years Ended July 31, 2015,
2014 and 2013
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description |
|
Balance at beginning of period |
|
|
Charged to expense |
|
|
Transfers, Net (1) |
|
|
Deductions (2) |
|
|
Balance at end of period |
|
Reserve for doubtful accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2015 |
|
$ |
139 |
|
|
$ |
5 |
|
|
$ |
|
|
|
$ |
(34 |
) |
|
$ |
110 |
|
July 31, 2014 |
|
$ |
|
|
|
$ |
268 |
|
|
$ |
|
|
|
$ |
(129 |
) |
|
$ |
139 |
|
July 31, 2013 |
|
$ |
39 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(39 |
) |
|
$ |
|
|
Reserve for excess and obsolete inventory (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2015 |
|
$ |
45,178 |
|
|
$ |
2,665 |
|
|
$ |
1,841 |
|
|
$ |
(2,776 |
) |
|
$ |
46,908 |
|
July 31, 2014 |
|
$ |
41,817 |
|
|
$ |
3,662 |
|
|
$ |
2,371 |
|
|
$ |
(2,672 |
) |
|
$ |
45,178 |
|
July 31, 2013 |
|
$ |
42,392 |
|
|
$ |
1,822 |
|
|
$ |
359 |
|
|
$ |
(2,756 |
) |
|
$ |
41,817 |
|
(1) |
Represents transfers from fully reserved vendor liability obligations and internal capital equipment and transfers to fixed assets. This figure also represents reserves
related to the discontinued operations. |
(2) |
Represents amounts written off or utilization of reserve or recovery of previously written off amounts. |
(3) |
Amounts charged to expense and recorded in cost of sales are costs relating to product deemed defective or unusable during the normal manufacturing process which total
$2.6 million, $3.7 million and $1.8 million for fiscal years 2015, 2014, and 2013, respectively. Deductions, which totaled $2.8 million, $2.7 million and $2.8 million for the fiscal years 2015, 2014, and 2013, respectively, are also recorded to cost
of sales and primarily represent scrapping of inventory no longer in use, with some release of reserves related to sales of previously reserved inventory. |
88
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
Xcerra CORPORATION |
|
|
By: |
|
/s/ DAVID G.
TACELLI |
|
|
David G. Tacelli |
|
|
President and Chief Executive Officer |
October 14, 2015
Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated.
|
|
|
|
|
|
|
|
/S/ ROGER W.
BLETHEN Roger W. Blethen |
|
Chairman of the Board |
|
October 14, 2015 |
|
|
|
/S/ DAVID G.
TACELLI David G. Tacelli |
|
President, Chief Executive Officer and Director (Principal Executive Officer) |
|
October 14, 2015 |
|
|
|
/S/ MARK J.
GALLENBERGER Mark J. Gallenberger |
|
Senior Vice President, Chief Operating Officer, Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer) |
|
October 14, 2015 |
|
|
|
/S/ MARK S.
AIN Mark S. Ain |
|
Director |
|
October 14, 2015 |
|
|
|
/S/ ROGER J.
MAGGS Roger J. Maggs |
|
Director |
|
October 14, 2015 |
|
|
|
/S/ BRUCE R.
WRIGHT Bruce R. Wright |
|
Director |
|
October 14, 2015 |
|
|
|
/S/ JORGE L.
TITINGER Jorge L. Titinger |
|
Director |
|
October 14, 2015 |
89
EXHIBIT INDEX
|
|
|
Exhibit No. |
|
Description |
2.3 |
|
Master Sale and Purchase Agreement, made and effective as of September 6, 2013, by and among the Registrant, Dover Printing & Identification, Inc. and, for the limited
purposes set forth therein, Dover Corporation (Incorporated by reference to Exhibit 2.1 to the Registrants Current Report on Form 8-K filed on September 9, 2013) |
|
|
3.1 |
|
Restated Articles of Organization, as amended |
|
|
3.2 |
|
By-laws, as amended |
|
|
10.1+ |
|
2004 Stock Plan (Incorporated by reference to Exhibit 10.15 to the Registrants Quarterly Report on Form 10-Q for the quarter ended October 31, 2004) |
|
|
10.2+ |
|
Second Amended and Restated 2004 Employee Stock Purchase Plan (Incorporated by reference to Exhibit 99.1 to the Registrants Registration Statement on Form S-8 filed on
January 17, 2013 (File No. 333-186072)) |
|
|
10.3+ |
|
2010 Stock Incentive Plan (Incorporated by reference to Appendix A to the Registrants Proxy Statement on Schedule 14A filed on November 8, 2010) |
|
|
10.4+ |
|
Summary of Executive Profit Sharing Plan (Incorporated by reference to the Registrants Current Report on Form 8-K filed on August 29, 2014) |
|
|
10.5+ |
|
Form of Change of Control Agreement entered into with certain executive officers (Incorporated by reference to Exhibit 10(Y) to the Registrants Quarterly Report on Form 10-Q
for the quarter ended January 31, 1998) |
|
|
10.6+ |
|
Form of Indemnification Agreement between the Registrant and each of its directors and officers (Incorporated by reference to Exhibit 10.1 to the Registrants Current Report on
Form 8-K filed on December 12, 2011) |
|
|
10.7 |
|
Credit Agreement, dated November 27, 2013, among the Company, Everett Charles Technologies LLC, the Several Lenders from time to time party thereto and Silicon Valley Bank as
Administrative Agent, Issuing Bank and Lender (Incorporated by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K filed on December 2, 2013) |
|
|
10.8 |
|
First Amendment to Credit Agreement and Waiver, dated April 15, 2014, among the Registrant, Everett Charles Technologies, LLC, the Several Lenders from time to time party
thereto and Silicon Valley Bank as Administrative Agent, Issuing Bank and Lender (Incorporated by reference to Exhibit 10.1 to the Registrants Quarterly Report on Form 8-K filed on June 9,
2014) |
90
|
|
|
Exhibit No. |
|
Description |
10.9+ |
|
Executive Employment Agreement, dated April 29, 2014, between the Company and David G. Tacelli (Incorporated by reference to Exhibit 10.1 to the Registrants Current
Report on Form 8-K filed with the SEC on May 2, 2014). |
|
|
10.10+ |
|
Executive Employment Agreement, dated April 29, 2014, between the Company and Mark J. Gallenberger (Incorporated by reference to Exhibit 10.2 to the Registrants Current
Report on Form 8-K filed with the SEC on May 2, 2014) |
|
|
10.11+ |
|
Addendum to Employment Agreement, dated April 29, 2014, between the Company and Pascal Ronde (Incorporated by reference to Exhibit 10.3 to the Registrants Current Report
on Form 8-K filed with the SEC on May 2, 2014) |
|
|
10.12 |
|
Credit Agreement, dated December 15, 2014, among the Company, Everett Charles Technologies LLC, the Several Lenders from time to time party thereto and Silicon Valley Bank as
Administrative Agent, Issuing Bank and Lender. (Incorporated by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K filed with the SEC on December 19, 2014) |
|
|
10.13 |
|
Asset Purchase Agreement, dated as of September 8, 2015, by and among the Company, Everett Charles Technologies, LLC, Multitest Electronic Systems, Inc., Fastprint Hong Kong Co.
Ltd., Fastprint Technology (U.S.) LLC, and FastTest Technology, Inc. (Incorporated by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K filed with the SEC on September 8, 2015) |
|
|
10.14 |
|
First Amendment to Credit Agreement and Waiver, dated September 16, 2015, among the Company, Everett Charles Technologies, LLC, the several lenders identified on the signature pages
thereto and Silicon Valley Bank as Administrative Agent and Collateral Agent |
|
|
21.1 |
|
Subsidiaries of Registrant |
|
|
23.1 |
|
Consent of BDO USA, LLP |
|
|
31.1 |
|
Rule 13a-14(a) Certification of Principal Executive Officer |
|
|
31.2 |
|
Rule 13a-14(a) Certification of Principal Financial Officer |
|
|
32.1 |
|
Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. §1350 |
|
|
101.INS |
|
XBRL Instance Document |
|
|
101.SCH |
|
XBRL Taxonomy Extension Schema Document |
|
|
101.CAL |
|
XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
101.DEF |
|
XBRL Taxonomy Extension Definition Linkbase Document |
|
|
101.LAB |
|
XBRL Taxonomy Extension Label Linkbase Document |
|
|
101.PRE |
|
XBRL Taxonomy Extension Presentation LinkBase Document |
+ |
This exhibit is a compensatory plan or arrangement in which executive officers or directors of the Registrant participate. |
Pursuant to Item 601 of Regulation S-K, certain instruments with respect to long-term debt not exceeding 10% of the total assets of
the Company and its subsidiaries on a consolidated basis are not filed herewith. The Company hereby agrees to furnish to the Commission a copy of each such instrument upon request.
91
Shareholder Return on Common Stock
The graph below compares Xcerra Corporations cumulative 5-year total shareholder return on common stock with the cumulative total
returns of the NASDAQ Composite Index and the Philadelphia Semiconductor Sector Index. The graph tracks the performance of a $100 investment in our common stock and in each index (with the reinvestment of all dividends) from 7/31/2011 to 7/31/2015.
* $100 invested on 7/31/11 in stock or index, including reinvestment of dividends.
Fiscal year ending July 31.
|
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|
|
|
|
|
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|
|
7/11 |
|
|
7/12 |
|
|
7/13 |
|
|
7/14 |
|
|
7/15 |
|
Xcerra Corporation |
|
|
100.00 |
|
|
|
81.50 |
|
|
|
74.55 |
|
|
|
130.04 |
|
|
|
87.48 |
|
NASDAQ Composite Index |
|
|
100.00 |
|
|
|
106.26 |
|
|
|
131.09 |
|
|
|
157.97 |
|
|
|
185.39 |
|
Philadelphia Semiconductor Sector Index |
|
|
100.00 |
|
|
|
98.26 |
|
|
|
122.40 |
|
|
|
155.65 |
|
|
|
165.57 |
|
The stock price performance included in this graph is not necessarily indicative
of future stock price performance.
92
Exhibit 3.1
COMMONWEALTH OF MASSACHUSETTS
William Francis Galvin
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
Articles of Amendment
(General Laws Chapter 156D, Section 10.06; 950 CMR 113.34)
Xcerra Corporation, having a registered office at 155 Federal Street, Boston, MA 02110 (the Corporation), certifies as
follows:
FIRST, ARTICLE VI, Section 2 of the Restated Articles of Organization of the Corporation, as amended, are
affected by these Articles of Amendment (this Amendment).
SECOND, this Amendment was duly adopted and approved on
October 21, 2014 by the Board of Directors and on December 18, 2014 by the Shareholders of the Corporation, in each case in the manner required by Massachusetts General Laws Chapter 156D and the Corporations Restated Articles of
Organization, as amended (the Restated Articles).
THIRD, ARTICLE VI, Section 2 of the Restated Articles is
hereby amended and restated in its entirety to read as follows:
2. By-laws. The board of directors may amend, add to or
repeal the By-laws, in whole or in part, except with respect to any provision thereof which by law or the By-laws requires action by the shareholders. The By-laws may, but are not required to, provide that in a meeting of shareholders other than a
Contested Election Meeting (as defined below), when a quorum is present at the meeting, a nominee for election as a director at such meeting shall be elected to the board of directors only if the votes cast for such nominees
election exceed the votes cast against such nominees election (with abstentions, broker non-votes and withheld votes not counted as a vote for or against such
nominees election). In a Contested Election Meeting, when a quorum is present at the meeting, directors shall be elected by a plurality of the votes cast by the shares entitled to vote in the election at such Contested Election Meeting. A
meeting of shareholders shall be a Contested Election Meeting if there are more persons nominated for election as directors at such meeting than there are directors to be elected at such meeting, determined as of the tenth day preceding
the date of the corporations first notice to shareholders of such meeting sent pursuant to the By-laws (the Determination Date); provided, however, that if in accordance with the By-laws, shareholders are entitled to make
nominations during a period of time that ends after the otherwise applicable Determination Date, the Determination Date shall instead be as of the end of such period.
FOURTH, this Amendment will become effective at the time and on the date when these Articles of Amendment were received for filing.
1
Signed by /s/ Colin Savoy
(signature of authorized individual)
|
¨ |
Chairman of the board of directors, |
|
¨ |
Court-appointed fiduciary, |
on this 20th day of
February, 2015.
2
THE COMMONWEALTH OF MASSACHUSETTS
I hereby certify that, upon examination of this document, duly submitted to me, it appears
that the provisions of the General Laws relative to corporations have been complied with,
and I hereby approve said articles; and the filing fee having been paid, said articles are
deemed to have been filed with me on:
February 20, 2015 10:43 AM
/s/ William Francis Galvin
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
3
COMMONWEALTH OF MASSACHUSETTS
William Francis Galvin
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts
02108-1512
Articles of Amendment
(General Laws Chapter 156D, Section 10.06; 950 CMR 113.34)
LTX-Credence Corporation, having a registered office at 155 Federal Street, Boston, MA 02110 (the Corporation), certifies as
follows:
FIFTH, ARTICLE 1 of the Restated Articles of Organization of the Corporation are affected by these Articles of
Amendment (this Amendment).
SIXTH, this Amendment was duly adopted and approved on February 26, 2014 by the
Board of Directors and on May 16, 2014 by the Shareholders of the Corporation, in each case in the manner required by Massachusetts General Laws Chapter 156D and the Corporations Restated Articles of Organization (the Restated
Articles).
SEVENTH, ARTICLE I of the Restated Articles is hereby amended and restated in its entirety to read as
follows:
ARTICLE I The exact name of the corporation is: Xcerra Corporation.
EIGHTH, this Amendment will become effective at the time and on the date when these Articles of Amendment were received for filing.
Signed by /s/ Colin Savoy
(signature of authorized individual)
|
¨ |
Chairman of the board of directors, |
|
¨ |
Court-appointed fiduciary, |
on this 21st day of
May, 2014.
1
COMMONWEALTH OF MASSACHUSETTS
William Francis Galvin
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts
02108-1512
Articles of Amendment
(General Laws Chapter 156D, Section 10.07; 950 CMR 113.35)
I hereby
certify that upon examination of these restated articles of organization, it appears that the provisions of the General Laws relative thereto have been complied with, and the filing fee in the amount of $100 having been paid, said articles are
deemed to have been filed with me this 20 day of May, 2014, at 3:50 p.m.
time
Effective date: May 20, 2014
(must be within 90 days of date submitted)
/s/ William Francis Galvin
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
Filing fee: Minimum filing fee $100 per article amended, stock increases $100 per 100,000 shares, plus $100 for each additional 100,000 shares or any fraction thereof.
TO BE FILLED IN BY CORPORATION
Contact Information:
Mark Devine
WilmerHale, 60 State Street
Boston, MA 02109
Telephone: (617) 526-5122
Email: mark.devine@wilmerhale.com
Upon filing, a copy of this filing will be available at www.sec.state.ma.us/cor. If the document is rejected, a copy of the rejection sheet and rejected document will be available in the rejected queue.
2
Restated Articles of Organization
(General Laws Chapter 156D, Section 10.07; 950 CMR 113.35)
LTX-Credence Corporation, having a registered office at 155 Federal Street, Boston, MA 02110, certifies as follows:
NINTH, these Restated Articles were duly adopted and approved on May 25, 2010 by the board of directors and on July 8, 2010 by
the shareholders, in each case in the manner required by G. L. Chapter 156D and the corporations Articles of Organization.
TENTH, the following information is required to be in the Articles of Organization pursuant to G. L. Chapter 156D, Section 2.02:
ARTICLE I. The exact name of the corporation is LTX-Credence Corporation.
ARTICLE II. The corporation may engage in the business of manufacturing and selling electronic test equipment and other electronic
equipment and, in general, carry on any business permitted to corporations under G. L. Chapter 156D as now in effect or as hereafter amended, or any successor provision to such Chapter.
ARTICLE III. The total number of shares of each class of stock that the corporation is authorized to issue is 150,000,000 shares, which
shall consist entirely of Common Stock, par value $0.05 per share.
ARTICLE IV. If more than one class or series of shares is
authorized, the preferences, limitations and relative rights of each class or series are as follows: Not applicable.
ARTICLE
V. The restrictions imposed by the Articles of Organization upon the transfer of shares of any class or series of stock are as follows: None.
ARTICLE VI. Other lawful provisions:
1. Meetings of Shareholders. Meetings
of the shareholders may be held anywhere within the United States.
2. By-laws. The board of directors may amend, add
to or repeal the By-laws, in whole or in part, except with respect to any provision thereof which by law or the By-laws requires action by the shareholders.
3. Business. The corporation may be a partner in any business enterprise which the corporation would have the power to conduct by itself.
4. Indemnity. No director shall be personally liable to the corporation or any of its shareholders for monetary damages for any
breach of fiduciary duty as a director not withstanding any provision of law imposing such liability; provided, however, that this provision shall not eliminate or limit the liability of a director for (i) any breach of the directors duty
of
1
loyalty to the corporation or its shareholders, (ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) authorizing
distributions to shareholders in violation of the corporations Articles of Organization or which render the corporation insolvent or bankrupt, and approving loans to officers or directors of the corporation which are not repaid and which were
not approved or ratified by a majority of disinterested directors or shareholders, or (iv) any transaction from which the director derived an improper personal benefit. No amendment to or repeal of this provision shall apply to or have any
effect on the liability or alleged liability of any director of the corporation for or with respect to any acts or omissions of such director occurring prior to the effective date of such amendment.
5. Reverse Stock Split. That, effective at 5:00 p.m., Eastern time, on the filing date of these Restated Articles with the
Secretary of the Commonwealth of The Commonwealth of Massachusetts (the Effective Time), a one-for-three reverse stock split of the corporations Common Stock shall become effective, pursuant to which each three issued and
outstanding shares of Common Stock held of record by each shareholder of the corporation immediately prior to the Effective Time shall be reclassified and combined into one (1) share of Common Stock automatically and without any action by the
holder thereof upon the Effective Time and shall represent one (1) share of Common Stock from and after the Effective Time. No fractional shares of Common Stock shall be issued as a result of such reclassification and combination. In lieu of
any fractional shares to which the shareholder would otherwise be entitled, the corporation shall pay cash equal to such fraction multiplied by the then fair market value of the Common Stock as determined by the board of directors of the
corporation.
ARTICLE VII. The effective date of the restatement of the Articles of Organization is the date and time these
Restated Articles were received for filing.
ELEVENTH, these Restated Articles consolidate all amendments into a single
document. If a new amendment authorizes an exchange, or effects a reclassification or cancellation, of issued shares, provisions for implementing that action are set forth in these Restated Articles unless contained in the text of the amendment.
TWELFTH, Articles III and VI of the Articles of Organization of the corporation are being amended by these Restated Articles.
Signed by /s/ Colin Savoy
(signature of authorized individual)
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Chairman of the board of directors, |
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¨ |
Court-appointed fiduciary, |
on this 30th day of
September, 2010.
2
COMMONWEALTH OF MASSACHUSETTS
William Francis Galvin
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts
02108-1512
Restated Articles of Organization
(General Laws Chapter 156D, Section 10.07; 950 CMR 113.35)
I hereby certify that upon examination of these restated articles of organization, duly submitted to me, it appears that the provisions of the General Laws relative to the organization of corporations
have been complied with, and I hereby approve said articles; and the filing fee in the amount of $400 having been paid, said articles are deemed to have been filed with me this 30th day of September, 2010, at 9:10 a.m./p.m.
time
Effective date:
September 30, 2010
(must be within 90 days of date submitted)
/s/ William Francis Galvin
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
Filing fee: Minimum filing fee $200, plus $100 per article amended, stock increases $100 per 100,000 shares, plus $100 for each additional 100,000 shares
or any fraction thereof.
TO BE FILLED IN BY CORPORATION
Contact Information:
Colin Savoy
825 University Avenue
Norwood, MA 02062
Telephone: (503) 466-7238
Email: colin_savoy@ltxc.com
3
Exhibit 3.2
XCERRA CORPORATION
BY-LAWS
TABLE OF CONTENTS
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Title |
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Article I General |
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Section 1.1 |
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Offices |
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Section 1.2 |
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Seal |
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Section 1.3 |
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Fiscal Year |
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Article II Stockholders |
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Section 2.1 |
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Place of Meeting |
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1 |
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Section 2.2 |
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Annual Meetings |
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1 |
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Section 2.3 |
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Special Meetings |
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1 |
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Section 2.4 |
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Notice of Meetings |
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2 |
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Section 2.5 |
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Quorum |
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2 |
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Section 2.6 |
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Voting |
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Section 2.7 |
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Inspectors of Election |
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Section 2.8 |
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Action Without Meeting |
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Section 2.9 |
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Application for Special Meeting |
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Article III Directors |
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Section 3.1 |
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Powers |
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Section 3.2 |
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Number, Election and Term of Office |
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5 |
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Section 3.3 |
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Place of Meetings |
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Section 3.4 |
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Annual Meetings |
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Section 3.5 |
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Regular Meetings |
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Section 3.6 |
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Special Meetings |
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Section 3.7 |
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Notice of Meetings |
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Section 3.8 |
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Quorum |
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Section 3.9 |
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Voting |
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Section 3.10 |
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Action Without Meeting |
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Section 3.11 |
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Meetings by Telephone Conference Calls |
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Section 3.12 |
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Resignations |
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Section 3.13 |
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Removal |
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Section 3.14 |
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Enlargement of the Board of Directors; Vacancies |
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Section 3.15 |
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Compensation of Directors |
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Section 3.16 |
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Committees |
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Section 3.17 |
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Issuance of Stock |
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TABLE OF CONTENTS
(Continued)
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Title |
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Article IV Officers |
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Section 4.1 |
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Officers |
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Section 4.2 |
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Election and Term of Office |
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Section 4.3 |
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Chairman of the Board |
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Section 4.4 |
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President |
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Section 4.5 |
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Vice Presidents |
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Section 4.6 |
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Treasurer and Assistant Treasurer |
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Section 4.7 |
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Clerk and Assistant Clerk |
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Section 4.8 |
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Secretary and Assistant Secretary |
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Section 4.9 |
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Resignation |
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Section 4.10 |
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Removal |
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Section 4.11 |
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Vacancies |
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Section 4.12 |
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Subordinate Officers |
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Section 4.13 |
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Compensation |
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Article V Stock |
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Section 5.1 |
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Stock Certificates; Uncertificated Shares |
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Section 5.2 |
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Transfer of Stock |
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Section 5.3 |
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Fixing Date for Determination of Stockholders Rights |
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Section 5.4 |
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Lost, Mutilated or Destroyed Certificates |
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Article VI Miscellaneous Management Provisions |
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Section 6.1 |
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Execution of Instruments |
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Section 6.2 |
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Corporate Records |
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Section 6.3 |
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Voting of Securities Owned by Corporation |
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Section 6.4 |
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Conflict of Interest |
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Section 6.5 |
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Indemnification |
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Section 6.6 |
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Transactions with Related Persons |
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Article VII Amendments |
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Section 7.1 |
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General |
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Section 7.2 |
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Date of Annual Meeting of Stockholders |
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Article VIII |
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Section 8.1 |
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Control Share Acquisitions |
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ii
XCERRA CORPORATION
BY-LAWS
Article I General
Section 1.1.
Offices. The principal office of the corporation shall be in Norwood, Massachusetts. The corporation may also have offices at such other place or places within or without Massachusetts as the Board of Directors may from time to time determine
or the business of the corporation may require.
Section 1.2. Seal. The seal of the corporation shall be in
the form of a circle inscribed with the name of the corporation, the year of its incorporation and the word Massachusetts. When authorized by the Board of Directors and to the extent not prohibited by law, a facsimile of the corporate
seal may be affixed or reproduced.
Section 1.3. Fiscal Year. The fiscal year of the corporation shall be
the twelve months ending July 31 of each year.
Article II Stockholders
Section 2.1. Place of Meeting. Meetings of stockholders shall be held at the principal office of the corporation or,
to the extent permitted by the Articles of Organization, at such other place within the Unites States as the Board of Directors may from time to time designate.
Section 2.2. Annual Meetings. The annual meeting of stockholders shall be held within six months after the end of the corporations fiscal year specified by these By-laws. The date
and hour of the annual meeting shall be fixed by the Board of Directors. The purposes for which the annual meeting is to be held, in addition to those prescribed by law, by the Articles of Organization or these By-laws, may be specified by the Board
of Directors or the President. In the event that no date for the annual meeting is established or if no annual meeting is held in accordance with the foregoing provisions, a special meeting may be held in lieu thereof, and any action taken at such
meeting shall have the same effect as if taken at the annual meeting.
Section 2.3. Special Meetings.
Special meetings of stockholders may be called by the President or by the Board of Directors, and shall be called by the Clerk or, in case of death, absence, incapacity or refusal of the Clerk, by any other officer, upon written application of one
or more stockholders who hold at least forty percent in interest of the capital stock entitled to vote at the meeting. At any special meeting only business to which a reference shall have been contained in the notice of such meeting be transacted.
Section 2.4. Notice of Meetings. Written or printed notice of each meeting of stockholders, stating the
place, date and hour and the purposes of the meeting shall be given by the Clerk or other officer calling the meeting at least seven days, but not more than sixty days, before the meeting to each stockholder entitled to vote at the meeting or
entitled to such notice by leaving such notice with him at his residence or usual place of business or by mailing it, postage prepaid, and addressed to the stockholder at his address as it appears in the records of the corporation. No notice need be
given to any stockholder if he, or his authorized attorney, waives such notice by a writing executed before or after the meeting and filed with the records of the meeting or by his presence, in person or by proxy, at the meeting. Any person
authorized to give notice on any such meeting may make affidavit of such notice, which, as to the facts therein stated, shall be conclusive. It shall be the duty of every stockholder to furnish the Clerk of the corporation or to the transfer agent,
if any, of the class of stock owned by him, his current post office address.
Section 2.5. Quorum. At all
meetings of stockholders the holders of a majority in interest of all capital stock entitled to vote at such meeting or, if two or more classes of stock are issued, outstanding and entitled to vote as separate classes, a majority in interest of each
class, present in person or represented by proxy, shall constitute a quorum. The announcement of a quorum by the officer presiding at the meeting shall constitute a conclusive determination that a quorum is present. The absence of such an
announcement shall have no significance. Shares of its own stock held by the corporation or held for its use and benefit shall not be counted in determining the total number of shares outstanding at any particular time. If a quorum is not present or
represented, the stockholders present or represented and entitled to vote at such meeting, by a majority vote, may adjourn the meeting from time to time, without notice other than announcement at the meeting until a quorum is present or represented.
At any adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted if the meeting had been held as originally called. The stockholders present at a duly organized meeting may
continue to transact business until adjournment notwithstanding the withdrawal of one or more stockholder so as to leave less than a quorum.
1
Section 2.6. Voting.
(a) Except as otherwise provided by law or the Articles of Organization, at all meetings of stockholders each stockholder shall have one
vote for each share of stock entitled to vote and registered in his name and a proportionate vote for a fractional share. Any stockholder may vote in person or by proxy dated not more than six months prior to the meeting and filed with the Clerk of
the meeting. Every proxy shall be in writing, subscribed by a stockholder or his authorized attorney-in-fact, and dated. A proxy with respect to stock held in the name of two or more persons shall be valid if executed by any one of them unless at or
prior to exercise of the proxy the corporation receives a specific written notice to the contrary from any one of them. No proxy shall be valid after the final adjournment of the meeting. Voting on all matters, including the election of directors,
shall be by voice vote unless voting by ballot is requested by any stockholder. The corporation shall not, directly or indirectly, vote shares of its own stock.
(b) When a quorum of a voting group is present at any meeting of stockholders, favorable action on a matter, other than the election of Directors is taken by a voting group if the votes cast within the
group favoring the action exceed the votes cast opposing the action, unless a greater number of affirmative votes is required by law, the Articles of Organization, these By-laws, or, to the extent authorized by law, a resolution of the Board of
Directors requiring receipt of a greater affirmative vote of the stockholders, including more separate voting groups
(c) Other
than in a Contested Election Meeting (as defined below), when a quorum is present at any meeting of stockholders, a nominee for election as a director at such meeting shall be elected to the Board of Directors if the votes cast for such
nominees election exceed the votes cast against such nominees election (with abstentions, broker non-votes and withheld votes not counted as a vote for or against
such nominees election). In a Contested Election Meeting, when a quorum is present at the meeting, directors shall be elected by a plurality of the votes cast by the shares entitled to vote in the election at such Contested Election Meeting. A
meeting of stockholders shall be a Contested Election Meeting if there are more persons nominated for election as directors at such meeting than there are directors to be elected at such meeting, determined as of the tenth day preceding
the date of the corporations first notice to stockholders of such meeting sent pursuant to Section 2.4 of these By-laws (the Determination Date); provided, however, that if in accordance with Section 3.2 of these By-laws
stockholders are entitled to make nominations during a period of time that ends after the otherwise applicable Determination Date, the Determination Date shall instead be as of the end of such period.
Section 2.7. Inspectors of Election. Two inspectors may be appointed by the Board of Directors before or at each
meeting of stockholders, or, if no such appointment shall have been made, the presiding officer may make such appointment at the meeting. At the meeting for which they are appointed, such inspectors shall open and close the polls, receive and take
charge of the proxies and ballots, and decide all questions touching on the qualifications of voters, the validity of proxies and the acceptance and rejection of votes. If any inspector previously appointed shall fail to attend or refuse or be
unable to serve, the presiding officer shall appoint an inspector in his place.
Section 2.8. Action Without
Meeting. Any actions which may be take by stockholders may be taken without a meeting if all stockholders entitled to vote on the matter consent to the action in writing and the written consents are filed with the records of the meetings of
stockholders. Such consents shall be treated for all purposes as a vote at a meeting.
Section 2.9. Application
for Special Meeting. (a) In order that the corporation may determine the stockholders entitled to apply for a special meeting pursuant to Section 2.3, the Board of Directors shall fix a record date, in accordance with the procedures
set forth below, to determine the stockholders entitled to make such application (the Application Record Date). Any stockholder of record seeking to have stockholders apply for a special meeting shall, by sending a written request to the
Clerk of the corporation by hand or by certified or registered mail, return receipt requested, request the Board of Directors to fix an Application Record Date. The Board of Directors shall promptly, but in all events within 5 Business Days (as
defined herein) after the date on which a valid request to fix an Application Record Date is so delivered, affirmatively vote and fix the Application Record Date. The Application Record Date shall not precede the date of the vote fixing the
Application Record Date and shall not be more than 10 days after the date of the vote of the Board of Directors fixing the Application Record Date. If no Application Record Date has been fixed by the Board of Directors within 5 Business Days after
the date on which such valid request is delivered to the Clerk, the Application Record Date shall be the first date on which a signed valid request that the Board of Directors fix an Application Record Date is delivered to the corporation as set
forth above. To be valid, such written request shall be signed by one or more stockholders of record (or their duly authorized proxies or other representatives), shall bear the date of signature of each such stockholder (or proxy or other
representative) and shall set forth (i) a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholders and
the beneficial owners, if any, on whose behalf the request is made; and (ii) as to the stockholders making the request and the beneficial owners, if any, on whose behalf the request is made (x) the name and address of such stockholders as
they appear on the corporations books, and of such beneficial owners, and (y) the class and number of shares of the corporation which are owned beneficially and of record by such stockholders and such beneficial owners.
2
(b) In order for a stockholder or stockholders to request a special meeting, a written
application for a special meeting signed by the holders of record, as of the close of business on the Application Record Date, of shares representing at least forty percent in interest of the capital stock of the corporation entitled to vote at such
special meeting must be delivered to the Clerk of the corporation at the principal executive offices of the corporation by hand or by certified or registered mail, return receipt request, and must be so received by the corporation within 60 days
after the Application Record Date. To be valid, the written application shall set forth (i) a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material
interest in such business of such stockholders and of the beneficial owners, if any, on whose behalf the application is made; and (ii) as to the stockholders making the application and the beneficial owners, if any, on whose behalf the
application is made (x) the name and address of such stockholders as they appear on the corporations books, and of such beneficial owners, and (y) the class and number of shares of the corporation which are owned beneficially and of
record by such stockholders an such beneficial owners.
(c) As provided in Section 2.7, there shall be appointed an
independent inspector of elections to act as an agent of the corporation for the purpose of promptly performing a ministerial review of the validity of any purported written application for a special meeting received by the Clerk. For the purpose of
permitting the inspectors to perform such review, no purported application shall be deemed to have been delivered to the corporation until such date as the independent inspectors certify to the corporation that the application has been validly
submitted by the holders of record, as of the close of business on the Application Record Date, of at least forty percent in interest of the capital stock of the corporation entitled to vote at such special meeting. Nothing contained in this
paragraph (c) shall in any way be construed to suggest or imply that the Board of Directors or any stockholder shall not be entitled to contest the validity of any request, whether before or after such certification by the independent
inspectors, or to take any other action (including, without limitation, the commencement, prosecution or defense of any litigation with respect thereto, and the seeking of injunctive relief in such litigation).
(d) Within 5 Business Days following the date that a valid application for a special meeting is deemed pursuant to paragraph
(c) hereof to have been delivered to the corporation (the Delivery Date), the Board of Directors shall set the record date (the Special Meeting Record Date) for the special meeting to be held pursuant to such application
(the Application Special Meeting), and the hour and day of the Application Special Meeting. The Special Meeting Record Date shall not precede the date of the vote of the Board of Directors setting the Special Meeting Record Date and
shall not be later than 15 Business Days following the date of such vote. The date of the Application Special Meeting shall be not less than 10 nor more than 50 days after the Special Meeting Record Date. In the event that the directors then in
office fail, within 5 Business Days after the Delivery Date, to designate an hour and date for an Application Special Meeting and the Special Meeting Record Date, then the Application Special Meeting shall be held at 12:00 p.m. local time on the
60th day after the Delivery Date or, if such 60th day is not a Business Day, on the first preceding Business Day, and the Special Meeting Record Date shall be the close of business on the 30th day before such meeting date (or if such day is not a
Business Day, on the close of business on the next Business Day).
(e) For purposes of these By-laws, Business Day
shall mean any day other than a Saturday, a Sunday or a day on which banking institutions in the Commonwealth of Massachusetts are authorized or obligated by law or executive order to close.
Article III Directors
Section 3.1. Powers. Except as otherwise provided by law, the Articles of Organization or these By-laws, the business of the corporation shall be managed by a Board of Directors who may
exercise all the powers of the corporation.
Section 3.2. Number, Election and Term of Office. The number
of directors shall be not less than three, except that whenever there shall be only two stockholders, the number of directors shall be not less than two and whenever there shall be only one stockholder, the number of directors shall not be less than
one.
No stockholder shall nominate any person to serve as a director of the corporation (other than a nominee of the Board of
Directors) unless such stockholder has provided at least sixty days advance written notice thereof to the Clark of the corporation, together with such information concerning the identity, background and experience of the nominee as the Board
of Directors may require and any other information which would be required in a proxy statement soliciting proxies for the election of such nominee as a director of the corporation (whether or not proxies are solicited).
The Board of Directors shall be divided into three classes, such classes to be as nearly equal in number as possible. One of such classes of directors
shall be elected annually by the stockholders. Subject to the foregoing requirements and applicable law, the Board of Directors may, from time to time, fix the number of directors and their respective classifications, provided that any such action
does
3
not operate to remove a director elected by the stockholders other than in the manner specified in the Articles of Organization or the By-laws. Except as otherwise provided in accordance with
these By-laws, the members of each class shall be elected for a term of three years and shall serve until their successors are elected and qualified. Any successor to a director whose seat becomes vacant shall serve for the remainder of the term of
his predecessor and until his successor is elected and qualified. Except as otherwise provided by law, by the Articles of Organization or by these By-laws, a director shall hold office until the annual meeting of stockholders held in the third year
following the year of his election and thereafter until his successors is chosen and qualified.
Section 3.3.
Place of Meetings. Meetings of the Board of Directors may be held at any place within or without the Commonwealth of Massachusetts.
Section 3.4. Annual Meetings. A meeting of the Board of Directors for the election of officers and the transaction of general business shall be held each year beginning in 1977, at the
place of and immediately after the final adjournment of the annual meeting of stockholders or the special meeting in lieu of the annual meeting. No notice of such annual meeting need be given.
Section 3.5. Regular Meetings. Regular meetings of the Board of Directors may be held, without notice, at such time
and place as the Board of Directors may determine. Any director not present at the time of the determination shall be advised, in writing, of any such determination.
Section 3.6. Special Meetings. Special meetings of the Board of Directors, including meetings in lieu of the annual or regular meetings, may be held upon notice at any time upon the
call of the President and shall be called by the President or the Clerk or, in case of the death, absence, incapacity or refusal of the Clerk, by any other officer, upon written application, signed by any two directors, stating the purpose of the
meeting.
Section 3.7. Notice of Meetings. Wherever notice of any meetings of the Board of Directors is
required by these By-laws or by vote of the Board of Directors, such notice shall state the place, date and hour of the meeting and shall be given to each director by the President, Clerk or other officer calling the meeting at least two days prior
to such meeting if given in person by telephone or by telegram or at least four days prior to such meeting if given by mail. Notice shall be deemed to have been duly given, if by mail, by depositing the notice in the post office as a first class
letter, postage prepaid, or, if by telegram, by completing and filing the notice on a telegraph blank and paying the requisite fee at any telegraph office, the letter or telegram being addressed to the director at his last known mailing address as
it appears on the books of the corporation. No notice need be given to any director who waives such notice by a writing executed before or after the meeting and filed with the records of the meeting or by his attendance at the meeting without
protesting at or before the commencement of the meeting the lack of notice to him. No notice of adjourned meetings of the Board of Directors need be given.
Section 3.8. Quorum. At all meetings of the Board of Directors, a majority of the directors then in office, but in no event less than two directors, shall constitute a quorum. If a
quorum is not present, those present may adjourn the meeting from time to time until a quorum is obtained. At any adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted if the meeting
had been held as originally called.
Section 3.9. Voting. At any meeting of the Board of Directors the vote
of a majority of those present shall decide any matter except as otherwise provided by law, the Articles of Organization or these By-laws.
Section 3.10. Action Without Meeting. Any action which may be taken at any meeting of the Board of Directors may be taken without a meeting if all the directors consent to the action in
writing and the written consents are filed with the records of the meetings of the Board of Directors. Such consents shall be treated for all purposes as a vote at a meeting.
Section 3.11. Meetings by Telephone Conference Calls. Directors or members of any committee designated by the Board of Directors may participate in a meeting of the Board of Directors
or such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other at the same time and participation by such means shall constitute presence in
person at a meeting.
Section 3.12. Resignations. Any director may resign by giving written notice to the
President or Clerk. Such resignation shall take effect at the time or upon the event specified therein, or, if none is specified, upon receipt. Unless otherwise specified in the resignation, its acceptance shall not be necessary to make it
effective.
Section 3.13. Removal. A director whose term is classified in accordance with these By-laws may
be removed from office only for cause by vote of either (a) the holders of a majority of the shares outstanding and entitled to vote in the election of directors (b) a
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majority of the directors then in office. Cause shall mean, in the case of the removal of a director whose term is classified in accordance with these By-laws, only
(i) conviction of a felony (ii) declaration of unsound mind by order of court, (iii) gross dereliction of duty, (iv) commission of an action involving moral turpitude, or (v) commission of an action that constitutes
intentional misconduct or a knowing violation of law if such action in either event results both in an improper substantial personal benefit and a material injury to the corporation. A director may be removed for cause only after reasonable notice
and opportunity to be heard before the body proposing to remove him.
Section 3.14. Enlargement of the Board of
Directors; Vacancies. The number of directors whose terms are classified in accordance with the provisions of these By-laws may be increased by the directors by affirmative vote of a majority of the directors then in office. Any vacancy at any
time existing in the Board of Directors among those directors whose terms are classified in accordance with these By-laws, whether resulting from an increase in the size of the Board of Directors, from the death, resignation, disqualification or
removal of a director or otherwise, shall be filled solely by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board of Directors.
Section 3.15. Compensation of Directors. Directors may be paid such compensation for their services and such
reimbursements for expenses of attendance at meetings as the Board of Directors may from time to time determine. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor.
Section 3.16. Committees. The Board of Directors may, by vote of a majority of the directors then in
office, appoint from their number one or more committees and delegate to such committees some or all of their powers to the extent permitted by law, the Articles of Organization or these By-laws. Except as the Board of Directors may otherwise
determine, any such committee shall be governed in the conduct of its business by the rules governing the conduct of the business of the Board of Directors contained in these By-laws and may, by majority vote of the entire committee, make other
rules for the conduct of its business. The Board of Directors shall have power at any time to fill vacancies in any such committees, to change its membership or to discharge the committee.
Section 3.17. Issuance of Stock. The Board of Directors shall have power to issue and sell or otherwise dispose of
such shares of the corporations authorized but unissued capital stock to such persons and at such times and for such consideration, cash, property, services, expenses, or otherwise, and upon such terms as it shall determine from time to time.
Article IV Officers
Section 4.1. Officers. The officers of the corporation shall consist of a President, a Treasurer, a Clerk, and such other officers with such other titles as the Board of Directors may
determine including but not limited to a Chairman of the Board of Directors, a Secretary, one or more Vice Presidents, Assistant Treasurers and Assistant Clerks, and Assistant Secretaries. Any two offices may be held by the same person except that
the Clerk shall not also serve as President or Treasurer. Any officer may be required to give a bond for the faithful performance of his duties in such form and with such sureties as the Board of Directors may determine.
Section 4.2. Election and Term of Office. Except for the initial officers and except as provided in Section 4.11,
the President, Treasurer and Clerk shall be elected by the Board of Directors at its annual meeting or at the special meeting held in lieu of the annual meeting and shall hold office until the following annual meeting of the Board of Directors or
the special meeting in lieu of said annual meeting and until their successors are chosen and qualified. Other officers may be chosen by the Board of Directors at the annual meeting or any other meeting and shall hold office for such period as the
Board of Directors may prescribe.
Section 4.3. Chairman of the Board. The Chairman of the Board of
Directors shall preside at all meetings of the stockholders and directors and shall have such other duties as may be assigned to him from time to time by the Board of Directors.
Section 4.4. President. Unless the Board of Directors otherwise determines, the President shall be the chief executive
officer of the corporation. He shall have the general control and management of the corporations business and affairs. He need not be a director. Unless there is a Chairman of the Board, the President shall preside at all meetings of the Board
of Directors and of the stockholders.
Section 4.5. Vice Presidents. The Vice President, or if there be
more than one, the Vice Presidents, shall perform such of the duties of the President on behalf of the corporation as may be respectively assigned to him or them from time to time by the Board of Directors or the President. The Board of Directors
may designate a Vice President as the Executive Vice President, and in the absence or inability of the President to act, such Executive Vice President shall have and possess all of the powers of and discharge all of the duties of the President,
subject to the control of the Board of Directors.
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Section 4.6. Treasurer and Assistant Treasurer. The Treasurer shall be
the principal financial officer of the corporation. He shall have custody and control over all funds and securities of the corporation, maintain full and adequate accounts of all moneys received and paid by him on account of the corporation and,
subject to the control of the Board of Directors, discharge all duties incident to the office of Treasurer. Any Assistant Treasurer shall perform such of the duties of the Treasurer and such other duties as the Board of Directors, the President or
the Treasurer may designate. The Treasurer shall have authority, in connection with the normal business of the corporation, to sign contracts, bids, bonds, powers of attorney and other documents when required.
Section 4.7. Clerk and Assistant Clerk. The Clerk shall be the principal recording officer of the corporation. He
shall record all proceedings of the stockholders and discharge all duties incident to the office of Clerk. Unless a Secretary is appointed by the Board of Directors to perform such duties, the Clerk shall record all proceedings of the Board of
Directors and of any committees appointed by the Board of Directors. Any Assistant Clerk shall perform such of the duties of the Clerk and such other duties as the Board of Directors, the President or the Clerk may designate. In the absence of the
Clerk or any Assistant Clerk from any meeting of stockholders, the Board of Directors or any committee appointed by the Board of Directors, a Temporary Clerk designated by the person presiding at the meeting shall perform the duties of the Clerk.
The Clerk shall be a resident of the Commonwealth of Massachusetts unless a resident agent has been appointed by the corporation pursuant to law to accept service of process.
Section 4.8. Secretary and Assistant Secretary. If appointed by the Board of Directors, the Secretary shall record all proceedings of the Board of Directors and discharge all duties
incident to the office of Secretary. Any Assistant Secretary shall perform such of the duties of the Secretary and such other duties as the Board of Directors, President or Secretary may designate. The Board of Directors and any committee appointed
by the Board of Directors may appoint a Secretary and one or more Assistant Secretaries to perform the functions of the Secretary and Assistant Secretary for such committee.
Section 4.9. Resignation. Any officer may resign by giving written notice to the President or Clerk. Such resignation shall take effect at the time or upon the event specified therein,
or, if none is specified, upon receipt. Unless otherwise specified in the resignation, its acceptance shall not be necessary to make it effective.
Section 4.10. Removal. An officer may be removed from office with cause, after reasonable notice and opportunity to be heard, or without cause, in either case, by vote of a majority of
the directors then in office.
Section 4.11. Vacancies. The Board of Directors may fill any vacancy
occurring in any office for any reason and may, in its discretion, leave unfilled for such period as it may determine any offices other than those of President, Treasurer and Clerk.
Section 4.12. Subordinate Officers. The Board of Directors may, from time to time, authorize any officer to appoint
and remove subordinate officers and to-prescribe their powers and duties. The term subordinate officers shall in no event include the President, Treasurer and Clerk.
Section 4.13. Compensation. The Board of Directors may fix the compensation of all officers of the corporation and may
authorize any officer upon whom the power of appointing subordinate officers may have been conferred to fix the compensation of such subordinate officers.
Article V Stock
Section 5.1. Stock
Certificates; Uncertificated Shares. If shares are represented by certificates, the recordholder of such shares shall be entitled to a certificate or certificates of stock of the corporation in such form as the Board of Directors may from time
to time prescribe. Each certificate shall be duly numbered and entered in the books of the corporation as it is issued, shall state on its face the name of the corporation and that it is organized under the laws of The Commonwealth of Massachusetts,
shall state the holders name and the number and the class and the designation of the series, if any, of his shares that are registered in certificate form, shall be signed by the President or a Vice President and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary and may, but need not, be sealed with the seal of the corporation. If any stock certificate is signed by a transfer agent, or by a registrar, other than a director, officer or employee
of the corporation, the signatures thereon of the officers may be facsimiles. In case any officer who has signed or whose facsimile signature has been placed on any certificate shall have ceased to be such officer before such certificate is issued,
it may nevertheless be issued by the corporation and delivered with the same effect as if he were such officer at the time of its issue. Every certificate of stock which is subject to any restriction on transfer pursuant to the Articles of
Organization, the By-laws or any agreement to which the corporation is a party, shall have the restrictions noted conspicuously on the certificate and shall also set forth on the face or back of the certificate either (i) the full text of the
restriction, or (ii) a statement of the existence of such restriction and a statement that the corporation will furnish a copy thereof to the holder of such certificate upon written request and without charge. Every certificate issued at a time
when the corporation is authorized to issue more than one class or series of stock
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shall set forth upon the face or back of the certificate either (i) the full text of the preferences, voting powers, qualifications and special and relative rights of the shares of each
class and series, if any, authorized to be issued, as set forth in the Articles of Organization or (ii) a statement of the existence of such preferences, powers, qualifications and rights, and a statement that the corporation will furnish a
copy thereof to the holder of such certificate upon written request and without charge.
The Board of Directors may authorize
the issue of some or all of the shares of any or all of the corporations classes or series without certificates. The authorization shall not affect shares already represented by certificates until they are surrendered to the corporation.
Within a reasonable time after the issue or transfer of shares without certificates, the corporation shall send the shareholder a written statement of the information required by the MBCA to be on certificates.
Section 5.2. Transfer of Stock. Subject to any transfer restrictions then in force, the shares of stock of the
corporation shall be transferable only upon its books by the holders thereof in person or by their duly authorized attorneys or legal representatives. In the case of shares represented by certificates, such transfer shall be effected by delivery of
the old certificate, together with a duly executed assignment and power to transfer endorsed thereon or attached thereto and with such proof of the authenticity of the signature and such power of authority to make the transfer as the corporation or
its agents may reasonably require, to the person in charge of the stock and transfer books and ledgers or to such other person as the Board of Directors may designate, who shall thereupon cancel the old certificate and issue a new certificate. In
the case of shares issued without certificates, such transfer shall be effected in accordance with such procedures as the Board of Directors may from time to time establish. The corporation may treat the holder of record of any share or shares of
stock as the owner of such stock, and shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person, whether or not it shall have notice thereof, express or otherwise.
Section 5.3. Fixing Date for Determination of Stockholders Rights. The Board of Directors may fix in advance a
time, not exceeding sixty days preceding the date of any meeting of stockholders, or the date for the payment of any dividend or the making of any distribution to stockholders, or the date for the allotment of rights, or the date when any change or
conversion or exchange of capital stock shall go into effect, or the last date on which the consent or dissent of stockholders maybe be effectively expressed for any purpose, as the record date for determining the stockholders entitled notice of,
and to vote at, such meeting and any adjournment thereof, to receive such dividend or distribution, to receive such allotment of rights, or to exercise the rights in respect of any such change, conversion or exchange of capital stock, or to express
such consent or dissent. In such case only stockholders of record on the date so fixed shall have such right, notwithstanding any transfer of stock on the books of the corporation after the record date. In lieu of fixing such record date, the Board
of Directors may close the stock transfer books for all or any part of such period. In any case in which the Board of Directors does not fix a record date or provide for the closing of the transfer books, the record date shall be the thirtieth day
next preceding the date of such meeting, the dividend payment or distribution date, the date for allotment of rights, the date for exercising of rights in respect of any such change, conversion or exchange of capital stock, or the date for
expressing such consent or dissent, as the case may be.
Section 5.4. Lost, Mutilated or Destroyed
Certificates. No certificates for shares of stock of the corporation shall be issued in place of any certificate alleged to have been lost, mutilated or destroyed, except upon production of such evidence of the loss, mutilation or destruction
and upon indemnification of the corporation and its agents to such extent and in such manner as the Board of Directors may prescribe and as required by law.
Article VI Miscellaneous Management Provisions
Section 6.1. Execution of Instruments. Except as otherwise provided in these By-laws or as the Board of Directors may
generally or in particular cases authorize the execution thereof in some other manner, all instruments, documents, deeds, leases, transfers, contracts, bonds, notes, checks, drafts and other obligations made, accepted or endorsed by the corporation
shall be signed by the President or a Vice President, or by the Treasurer or an Assistant Treasurer, or by the Clerk. Facsimile signatures may be used in the manner and to the extent authorized generally or in particular cases by the Board of
Directors.
Section 6.2. Corporate Records. The original, or attested copies, of the Articles of
Organization, By-laws, and records of all meetings of incorporators and stockholders, and the stock and transfer records, which shall contain the names of all stockholders and the record address and the amount of stock held by each, shall be kept in
the Commonwealth of Massachusetts at the principal office of the corporation, or at an office of its Clerk, its resident agent or its transfer agent. The copies and records need not all be kept in the same office. They shall be available at all
reasonable times for inspection by any stockholder for any proper purpose. They shall not be available for inspection to secure a list of stockholders or other information for the purpose of selling such list or information of copies thereof or of
using the same for a purpose other than in the interest of the applicant, as a stockholder, relative to the affairs of the corporation.
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Section 6.3. Voting of Securities Owned by this Corporation. Subject
always to the specific directions of the Board of Directors, (a) any shares or other securities issued by any other corporation and owned or controlled by this corporation may be voted in person at any meeting of security holders of such other
corporation by the President of this corporation if he is present at such meeting, or in his absence by the Treasurer of this corporation if he is present at such meeting, and (b) whenever, in the judgment of the President, it is desirable for
this corporation to execute a proxy or written consent in respect to any shares or other securities issued by any other corporation and owned by this corporation, such proxy or consent shall be executed in the name of this corporation by the
President, without the necessity of any authorization by the Board of Directors, affixation of corporate seal or countersignature or attestation by another officer, provided that if the President is unable to execute such proxy or consent by reason
of sickness, absence from the United States or other similar cause, the Treasurer may execute such proxy or consent. Any person or persons designated in the manner above stated as the proxy or proxies of this corporation shall have full right, power
and authority to vote the shares or other securities issued by such other corporation and owned by this corporation the same as such shares or other securities might be voted by this corporation.
Section 6.4. Conflict of Interest. No contract or other transaction of the corporation shall, in the absence of fraud,
be affected or invalidated by the fact that any stockholder, director or officer of the corporation or any corporation, firm or association of which he may be a director, officer, stockholder or member may be a party to or may have an interest,
pecuniary or otherwise, in, any such contract or other transaction, provided that the nature and extent of his interest was disclosed to, or known by, the entire Board of Directors before acting on such contract or other transaction. Except in the
case of any contract or other transaction between the corporation and any other corporation controlling, controlled by or under common control with the corporation, any director of the corporation who is also a director, officer, stockholder or
member of any corporation, firm or association with which the corporation proposes to contract or transact any business, or who has an interest, pecuniary or otherwise, in any such contract or other transaction, may not be counted in determining the
existence of a quorum at any meeting of the Board of Directors which shall authorize any such contract or such transaction, and such director shall not participate in the vote to authorize any such contract or such transaction, and such director
shall not participate in the vote to authorize any such contract or transaction. Any such contract or transaction may be authorized or approved by a majority of the directors then in office and not disqualified by this Section 6.4 to vote on
such matters, even though the disinterested directors do not constitute a quorum.
Section 6.5.
Indemnification. (a) The corporation shall indemnify each director and officer against all judgments, fines, settlement payments and expenses, including reasonable attorneys fees, paid or incurred in connection with any claim,
action, suit or proceeding, civil or criminal, to which he may be made a party or with which he may be threatened by reason of his being or having been a director or officer of the corporation, or, at its request, a director, officer, stockholder or
member of any other corporation, firm, association or other organization or by reason of his serving or having served, at its request, in any capacity with respect to any employee benefit plan, or by reason of any action or omission by him in such
capacity, whether or not he continues to be a director or officer at the time of incurring such expense or at the time the indemnification is made. No indemnification shall be made hereunder (i) with respect to payments and expenses incurred in
relation to matters as to which he shall be finally adjudged in such action, suit or proceeding not to have acted in good faith and in the reasonable belief that his action was in the best interest of the corporation (or, to the extent that such
matter relates to service with respect to an employee benefit plan, in the best interests of the participants or beneficiaries of such employee benefit plan), or (ii) otherwise prohibited by law. The foregoing right of indemnification shall not
be exclusive of other rights to which any director or officer may otherwise be entitled and shall inure to the benefit of the executor or administrator of such director or officer. The corporation may pay the expenses incurred by any such proceeding
in advance of the final disposition of such action, suit or proceeding, upon receipt of an undertaking by such person to repay such payment if it is determined that such person is not entitled to indemnification hereunder.
(b) The Board of Directors may, without stockholder approval, authorize the corporation to enter into agreements, including any amendments
or modification thereto, with any of its directors, officers or other persons described in paragraph (a) above providing for indemnification of such persons to the maximum extent permitted under applicable law and the corporations
Articles of Organization and By-laws.
(c) No amendment to or repeal of this section shall have any adverse effect on
(i) the right of any director or officer under any agreement entered into prior thereto, or (ii) the rights of any director or officer hereunder relating to his service, for which he would otherwise be entitled to indemnity hereunder,
during any period prior to such amendment or repeal.
Section 6.6. Transactions with Related Persons. The
affirmative vote of the holders of not less than seventy-five percent of all outstanding shares of capital stock of the corporation entitled to vote thereon and the affirmative vote of holders not less than
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two-thirds of all such outstanding shares not held by any Related Person (as hereinafter defined) shall be required for the approval or authorization of any Related Person Transaction (as
hereinafter defined), whether or not any stockholder approval or authorization of such Related Person Transaction would otherwise be required; provided, however, that the seventy-five percent and two-thirds voting requirements shall not be
applicable if:
(1) The Continuing Directors of the corporation (as hereinafter defined) by a two-thirds vote of
the Continuing Directors then in office have approved the Related Person Transaction; or
(2) The Related Person Transaction is
solely between the corporation and another corporation, one hundred percent of the shares of outstanding capital stock entitled to vote generally in the election of directors of which is owned directly or indirectly by the corporation.
For the purposes of the preceding and succeeding paragraphs:
(i) The term Continuing Director shall mean a director who was a member of the Board of Directors of the corporation immediately prior to the time that any Related Person involved in a Related
Person Transaction became a Related Person.
(ii) The term Related Person shall mean and include any individual,
corporation, partnership or other person or entity which, together with its Affiliates and Associates (as such terms are defined in Rule 12b-2, or any successor rule, promulgated under the Securities Exchange Act of 1934), beneficially owns (as
defined in Rule 13d-3, or any successor rule, promulgated under the Securities Exchange Act of 1934) in the aggregate ten percent or more of all outstanding shares of capital stock of the corporation, entitled to vote generally for directors and any
Affiliate or Associate of any such individual, corporation, partnership or other person or entity. Without limiting the foregoing, any shares of stock of the corporation that any Related Person has the right to acquire pursuant to any agreement, or
upon exercise of conversion rights, warrants or options, or otherwise, shall be deemed beneficially owned by the Related Person.
(iii) The term Related Person Transaction shall mean generally any business, financial, employment or other agreement or
arrangement with any Related Person, or any action, consent or other arrangement which affects the rights or obligations of the corporation with respect to a Related Person, and shall include, but shall not be limited to, the following:
(a) any merger, consolidation or share exchange of the corporation or any of its subsidiaries with or into (i) any Related Person, or
(ii) any other corporation (whether or not itself a Related Person) which is, or after such merger, consolidation or share exchange would be, an Affiliate of a Related Person; in each case irrespective of which corporation or company is
surviving entity;
(b) any merger or consolidation of a Related Person with or into the corporation or a subsidiary of the
corporation;
(c) any sale, lease, exchange, transfer or other disposition, including without limitation a mortgage or any
other security device, of all or any tangible or intangible assets of the corporation or of a subsidiary of the corporation to a Related Person;
(d) any sale, lease, exchange, transfer, loan or other disposition of all or any tangible or intangible assets of a Related Person to the corporation or a subsidiary of the corporation;
(e) the issuance of any securities or the loan of any asset of the corporation or a subsidiary of the corporation to a Related Person;
(f) any recapitalization that would have the effect of increasing the voting power of a Related Person with respect to the
corporation;
(g) any loan or other extension of credit by the corporation to a Related Person or by a Related Person of the
corporation;
(h) any employment or consulting agreement or arrangement between the corporation and a Related Person;
(i) any agreement, contract or other arrangement providing for any of the transactions described in this definition of Related
Person Transaction.
Anything in these By-laws to the contrary notwithstanding, this Section 6.6 shall not be repealed,
modified or amended in any respect, unless such action is approved by the affirmative vote of the holders of not less than seventy-five percent of all outstanding shares of capital stock of the corporation entitled to vote thereon and by the
affirmative vote of holders of not less than two-thirds of all such outstanding shares held by any Related Person; provided however, that any amendment, declared advisable by the affirmative vote of two-thirds of the Continuing Directors then in
office may be approved by the affirmative vote of the holders of not less than two-thirds of all outstanding shares of capital stock of the corporation entitled to vote thereon.
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Article VII Amendments
Section 7.1. General. These By-laws may be amended, added to or repealed, in whole or in part, (a) by a vote of the stockholders
at a meeting, where the substance of the proposed amendment is stated in the notice of the meeting, or (b) by vote of a majority of the directors then in office, except that no amendment may be made by the Board of Directors on matters reserved
to the stockholders by law or the Articles of Organization or which changes the provisions of these By-laws relating to meetings of Stockholders, to the removal of directors or to the requirements for amendment of these By-laws. Notice of any
amendment, addition or repeal of any By-law by the Board of Directors stating the substance of such action shall be given to all stockholders not later than the time when notice is given of the meeting of stockholders next following such action by
the Board of Directors. Any By-law adopted by the Board of Directors may be amended or repealed by the stockholders.
Section 7.2. Date of Annual Meeting of Stockholders. No amendment of these By-laws changing the date of the annual
meeting of stockholders may be made within sixty days before the date fixed in these By-laws for such meeting. Notice of such changes shall be given to all stockholders at least twenty days before the new dated fixed for the meeting.
Article VIII
Section 8.1. Control Share Acquisitions. Massachusetts General Law ch 110D shall not apply to Control Share acquisitions.
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Exhibit 10.14
FIRST AMENDMENT TO CREDIT AGREEMENT AND WAIVER
This First Amendment to Credit Agreement and Waiver (this Amendment) is made effective as of this 16th day of September, 2015 (the Amendment Effective
Date), by and among XCERRA CORPORATION, a Massachusetts corporation (Xcerra) and EVERETT CHARLES TECHNOLOGIES LLC, a Delaware limited liability company (ECT and
collectively with Xcerra, the Borrower), the lenders identified on the signature pages hereto (the Lenders) and SILICON VALLEY BANK (SVB), as administrative agent and
collateral agent for the Lenders (in such capacity, the Administrative Agent).
WITNESSETH:
WHEREAS, reference is made to that certain Credit Agreement dated as of December 15, 2014 (as the same may be amended,
amended and restated, supplemented, restructured or otherwise modified, renewed or replaced from time to time, the Credit Agreement) by and among the Borrower, the Lenders and the Administrative Agent. All capitalized terms
used herein, and not otherwise defined herein, shall have the meanings assigned to such terms in the Credit Agreement; and
WHEREAS, the parties hereto have agreed to modify and amend certain terms and conditions of the Credit Agreement and waive certain
provisions of the Credit Agreement, in each case, subject to the terms and conditions contained herein;
NOW, THEREFORE, for
good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:
1. Waiver. By their signatures below, the Administrative Agent and the Lenders hereby agree to waive the delivery by the Borrower of monthly financial statements for the month ending June 30,
2015, as required pursuant to Section 6.1(c) of the Credit Agreement.
2. Amendments to the Credit Agreement.
Subject to the conditions set forth in Section 3 hereof, the Credit Agreement is hereby amended as follows:
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a. |
Section 6.1(c) of the Credit Agreement is hereby deleted in its entirety and the following is substituted in its stead: |
(c) [Reserved].
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b. |
Section 6.2(b) of the Credit Agreement is hereby deleted in its entirety and the following is substituted in its stead: |
(b) concurrently with the delivery of any financial statements pursuant to Section 6.1, (i) a certificate of a
Responsible Officer stating that, to the best of such Responsible Officers knowledge, no Default or Event of Default has occurred and is continuing except as specified in such certificate, (ii) a Compliance Certificate containing all
information and calculations necessary for determining compliance by each Group Member with the provisions of Section 7.1 of this Agreement as of the last day of the fiscal quarter or fiscal year of the Borrower, as the case may be, and
(iii) to the extent not previously disclosed to the Administrative Agent, a description of any change in the jurisdiction of organization of any Loan Party and a list of any federally registered
Intellectual Property issued to or acquired by any Loan Party since the date of the most recent report delivered pursuant to this clause (iii) (or, in the case of the first such report so
delivered, since the Closing Date);
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c. |
Section 7.6(f) of the Credit Agreement is hereby deleted in its entirety and the following is substituted in its stead: |
(f) the Borrower may make Restricted Payments to repurchase its Capital Stock in an aggregate amount not to exceed $30,000,000,
provided that, after giving pro forma effect to any such Restricted Payment, the Consolidated Leverage Ratio for the immediately preceding four fiscal quarters is at least 0.25x lower than the maximum permitted ratio under
Section 7.1(b); and
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d. |
Exhibit B to the Credit Agreement (Form of Compliance Certificate) is hereby deleted in its entirety, and the Exhibit B attached hereto is substituted in its stead.
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3. Conditions Precedent to Effectiveness. This Amendment shall not be effective until each of the
following conditions precedent has been fulfilled to the satisfaction of the Administrative Agent:
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a. |
This Amendment shall have been duly executed and delivered by the respective parties hereto. The Administrative Agent shall have received a fully executed copy hereof.
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|
b. |
All necessary consents and approvals to authorize this Amendment shall have been obtained by the Borrower. |
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c. |
No Default or Event of Default shall have occurred and be continuing. |
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d. |
After giving effect to this Amendment, the representations and warranties herein and in the Credit Agreement and the other Loan Documents shall be true and correct,
(i) to the extent qualified by materiality, in all respects, and (ii) to the extent not qualified by materiality, true and correct in all material respects, in each case, on and as of the date hereof, as though made on such date (except to
the extent that such representations and warranties relate solely to an earlier date). |
4. Representations
and Warranties. Each Loan Party hereby represents and warrants to the Administrative Agent and the Lenders as follows:
(a)
This Amendment is, and each other Loan Document to which it is or will be a party, when executed and delivered by each Loan Party that is a party thereto, will be the legally valid and binding obligation of such Loan Party, enforceable against such
Loan Party in accordance with its respective terms, except as enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors rights generally.
(b) The representations and warranties set forth in this Amendment, the Credit Agreement, as amended by this Amendment and
after giving effect hereto, and the other Loan Documents to which it is a party are, (i) to the extent qualified by materiality, true and correct in all respects, and (ii) to the extent not qualified by materiality, true and correct in all
material respects, in each case, on and as of the date hereof, as though made on such date (except to the extent that such representations and warranties relate solely to an earlier date).
2
5. Choice of Law. This Amendment and the rights of the parties hereunder, shall be
determined under, governed by, and construed in accordance with the laws of the State of New York.
6. Counterpart
Execution. This Amendment may be executed in any number of counterparts, all of which when taken together shall constitute one and the same instrument, and any of the parties hereto may execute this Amendment by signing any such counterpart.
Delivery of an executed counterpart of this Amendment by telefacsimile or other electronic method of transmission shall be equally as effective as delivery of an original executed counterpart of this Amendment. Any party delivering an executed
counterpart of this Amendment by telefacsimile or other electronic method of transmission also shall deliver an original executed counterpart of this Amendment, but the failure to deliver an original executed counterpart shall not affect the
validity, enforceability, and binding effect of this Amendment.
7. Effect on Loan Documents.
(a) The Credit Agreement, as amended and modified hereby, and each of the other Loan Documents shall be and remain in full force and
effect in accordance with their respective terms and hereby are ratified and confirmed in all respects. The execution, delivery, and performance of this Amendment shall not operate, except as expressly set forth herein, as a modification or waiver
of any right, power, or remedy of the Administrative Agent or any Lender under the Credit Agreement or any other Loan Document. The consents, modifications and other agreements herein are limited to the specifics hereof (including facts or
occurrences on which the same are based), shall not apply with respect to any facts or occurrences other than those on which the same are based, and except as expressly set forth herein, shall neither excuse any non-compliance with the Loan
Documents, nor operate as a consent or waiver to any matter under the Loan Documents. Except for the amendments to the Credit Agreement expressly set forth herein, the Credit Agreement and other Loan Documents shall remain unchanged and in full
force and effect. To the extent any terms or provisions of this Amendment conflict with those of the Credit Agreement or other Loan Documents, the terms and provisions of this Amendment shall control.
(b) To the extent that any terms and conditions in any of the Loan Documents shall contradict or be in conflict with any terms or
conditions of the Credit Agreement, after giving effect to this Amendment, such terms and conditions are hereby deemed modified or amended accordingly to reflect the terms and conditions of the Credit Agreement, as modified or amended hereby.
(c) This Amendment is a Loan Document.
8. Payment of Costs and Fees. Borrower shall pay to the Administrative Agent all costs and all reasonable out-of-pocket expenses in connection with the preparation, negotiation, execution and
delivery of this Amendment and any documents and instruments relating hereto (which costs include, without limitation, the reasonable fees and expenses of outside counsel retained by Administrative Agent, in each case, as set forth in
Section 10.5 of the Credit Agreement).
9. Release by Group Members. Effective on the Amendment Effective
Date, each Group Member, for itself and on behalf of its successors, assigns, and officers, directors, employees, agents and attorneys, and any Person acting for or on behalf of, or claiming through it, hereby waives, releases, remises and forever
discharges the Administrative Agent and each of the Lenders and each of their respective successors in title, past and present and future officers, directors, employees, limited partners, general partners, investors, attorneys, assigns,
subsidiaries, shareholders, trustees, agents and other professionals and all other persons and entities to whom the Administrative Agent or any Lender would be liable if such persons or entities were found to be liable to such Group Member (each a
Releasee and
3
collectively, the Releasees), from any and all claims, suits, liens, lawsuits, amounts paid in settlement, debts, deficiencies, diminution in value, disbursements, demands,
obligations, liabilities, causes of action, damages, losses, costs and expenses of any kind or character, whether based in equity, law, contract, tort, implied or express warranty, strict liability, criminal or civil statute or common law (each a
Claim and collectively, the Claims), whether known or unknown, fixed or contingent, direct, indirect, or derivative, asserted or unasserted, matured or unmatured, foreseen or unforeseen, past or present,
liquidated or unliquidated, suspected or unsuspected, which such Group Member ever had or now has against any such Releasee which arose from the beginning of the world to and including the date hereof which relates, directly or indirectly to the
Credit Agreement, any other Loan Document, or to any acts or omissions of any such Releasee with respect to the Credit Agreement or any other Loan Document, or to the lender-borrower relationship evidenced by the Loan Documents, except for the
duties and obligations set forth in this Amendment. As to each and every Claim released hereunder, each Group Member also waives the benefit of each other similar provision of applicable federal or state law (including without limitation the laws of
the state of New York), if any, pertaining to general releases after having been advised by its legal counsel with respect thereto.
10. Entire Agreement. This Amendment, and terms and provisions hereof, the Credit Agreement and the other Loan Documents constitute the entire understanding and agreement between the parties hereto
with respect to the subject matter hereof and supersedes any and all prior or contemporaneous amendments or understandings with respect to the subject matter hereof, whether express or implied, oral or written.
11. Reaffirmation. Each Loan Party hereby reaffirms its obligations under each Loan Document to which it is a party. Each Loan
Party hereby further ratifies and reaffirms the validity and enforceability of all of the Liens heretofore granted, pursuant to and in connection with the Guaranty and Collateral Agreement or any other Loan Document to the Administrative Agent on
behalf and for the benefit of Secured Parties, as collateral security for the obligations under the Loan Documents in accordance with their respective terms, and acknowledges that all of such Liens, and all collateral heretofore pledged as security
for such obligations, continues to be and remain collateral for such obligations from and after the date hereof.
12.
Ratification. The Borrower hereby restates, ratifies and reaffirms each and every term and condition set forth in the Credit Agreement and the Loan Documents effective as of the date hereof and as amended hereby.
13. Severability. In case any provision in this Amendment shall be invalid, illegal or unenforceable, such provision shall be
severable from the remainder of this Amendment and the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
[Signature pages follow.]
4
IN WITNESS WHEREOF, each of the undersigned has caused this Amendment to be duly executed
and delivered by its proper and duly authorized officer as of the date set forth below.
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BORROWER: |
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XCERRA CORPORATION, a Massachusetts corporation |
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By /s/ Mark Gallenberger |
Name: |
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Mark Gallenberger |
Title: |
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SVP, COO & CFO |
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EVERETT CHARLES TECHNOLOGIES LLC, a Delaware limited liability company |
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By /s/ Mark Gallenberger |
Name: |
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Mark Gallenberger |
Title: |
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SVP, COO & CFO |
FIRST AMENDMENT TO CREDIT AGREEMENT SIGNATURE PAGE
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ADMINISTRATIVE AGENT: |
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SILICON VALLEY BANK, as Administrative Agent |
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By: /s/ Michael Shuhy |
Name: |
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Michael Shuhy |
Title: |
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Director |
FIRST AMENDMENT TO CREDIT AGREEMENT SIGNATURE PAGE
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LENDERS: |
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SILICON VALLEY BANK, as Issuing Lender and as a Lender |
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By: /s/ Michael Shuhy |
Name: |
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Michael Shuhy |
Title: |
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Director |
FIRST AMENDMENT TO CREDIT AGREEMENT SIGNATURE PAGE
EXHIBIT B
FORM OF COMPLIANCE CERTIFICATE
XCERRA CORPORATION & EVERETT
CHARLES TECHNOLOGIES LLC
Date:
, 20
This
Compliance Certificate is delivered pursuant to Section 6.2(b)(ii) of that certain Credit Agreement, dated as of December 15, 2014, among XCERRA CORPORATION, a Massachusetts corporation (Xcerra),
EVERETT CHARLES TECHNOLOGIES LLC, a Delaware limited liability company (collectively with Xcerra, the Borrower), the several banks and other financial institutions from time to time parties thereto (each a
Lender, and collectively, the Lenders), SILICON VALLEY BANK (SVB), as the Issuing Lender, and SVB, as administrative agent for the Lenders (in such capacity, the
Administrative Agent) (as amended, restated, amended and restated, supplemented, restructured or otherwise modified from time to time, the Credit Agreement). Unless otherwise defined herein, terms
defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.
The
undersigned, a duly authorized and acting Responsible Officer of the Borrower, hereby certifies, in his/her capacity as an officer of the Borrower, and not in any personal capacity, as follows:
I have reviewed and am familiar with the contents of this Compliance Certificate.
I have reviewed the terms of the Credit Agreement and the other Loan Documents and have made, or caused to be made under my supervision,
a review in reasonable detail of the transactions and condition of the Borrower and its Subsidiaries during the accounting period covered by the financial statements attached hereto as Attachment 1 (the Financial
Statements). Except as set forth on Attachment 2, such review did not disclose the existence at the end of the accounting period covered by the Financial Statements, and I have no knowledge of the existence as of the date of
this Compliance Certificate, of any condition or event which constitutes a Default or an Event of Default.
Attached hereto as
Attachment 3 are the computations showing compliance with the covenants set forth in Sections 7.1(a) and (b) of the Credit Agreement, as of the as of the Statement Date set forth in such Attachment 3.
[To the extent not previously disclosed to the Administrative Agent, a description of any change in the jurisdiction of organization of
any Loan Party.]
[To the extent not previously disclosed to the Administrative Agent, an updated Schedule 6 to the
Guarantee and Collateral Agreement, listing any registered patents, registered trademarks or registered copyrights issued to or acquired by any Loan Party since [the Closing Date][during the most recent Fiscal Quarter].]1
[Remainder of page intentionally left blank; signature page follows]
1 |
To be included in Compliance Reports delivered with respect to quarterly financials only. |
Exhibit B
IN WITNESS WHEREOF, I have executed this Compliance Certificate as of the date first written
above.
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XCERRA CORPORATION |
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By: |
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Name: |
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Title: |
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EVERETT CHARLES TECHNOLOGIES LLC |
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By: |
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Name: |
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Title: |
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Exhibit B
Attachment 1
to Compliance Certificate
[Attach Financial Statements]
Attachment 1
Attachment 2
to Compliance Certificate
Except as set forth below, no Default or Event of
Default has occurred. [If a Default or Event of Default has occurred, the following describes the nature of the Default or Event of Default in reasonable detail and the steps, if any, being taken or contemplated by the Borrower to be taken on
account thereof.]
Attachment 2
Attachment 3
to Compliance Certificate
The information described herein is as of
[ ], [ ] (the Statement
Date), and pertains to the Test Period or Subject Period defined below.
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I. |
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Section 7.1(a) Consolidated Fixed Charge Coverage Ratio2 |
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A. |
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Consolidated EBITDA for the Subject Period: (Subject Period means the four fiscal quarter period ending on the Statement Date) |
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1. |
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Consolidated Net Income for the Subject Period: |
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$___________ |
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2. |
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Consolidated Interest Expense for the Subject Period: |
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$___________ |
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3. |
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Provision for income taxes for the Subject Period: |
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$___________ |
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4. |
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Depreciation expenses for the Subject Period: |
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$___________ |
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5. |
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Amortization expenses for the Subject Period: |
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$___________ |
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6. |
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Non-cash stock compensation expense: |
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$___________ |
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7. |
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Non-cash foreign exchange losses: |
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$___________ |
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8. |
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Other non-cash items reducing Consolidated Net Income (excluding any such non-cash item to the extent that it represents an accrual or reserve for potential cash items in any future
period or amortization of a prepaid cash item that was paid in a prior period) approved by the Administrative Agent: |
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$___________ |
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9. |
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Other non-cash items increasing Consolidated Net Income for the Subject Period (excluding any such non-cash item to the extent it represents the reversal of an accrual or reserve
for potential cash item in any prior period): |
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$___________ |
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10. |
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Consolidated EBITDA for the Subject Period (Lines I.A.1+I.A.2+I.A.3+I.A.4+I.A.5+I.A.6+I.A.7+I.A.8 minus I.A.9): |
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$___________ |
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B. |
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Portion of taxes based on income actually paid by the Borrower and its Subsidiaries in cash (net of any cash refunds received) during the Subject Period: |
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$___________ |
2 |
Consolidated Fixed Charge Coverage Ratio only tested as of the end of each Fiscal Quarter |
Attachment 3
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C. |
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Consolidated Capital Expenditures (excluding the principal amount funded with the Loans) for the Subject Period: |
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$___________ |
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D. |
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Consolidated Fixed Charges for the Subject Period: |
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1. |
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Consolidated Interest Expense for the Subject Period: |
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$___________ |
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2. |
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Scheduled payments made during the Subject Period by the Borrower and its Subsidiaries on account of principal of Indebtedness of the Borrower and its Subsidiaries (including
scheduled principal payments in respect of the Term
Loans):3 |
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$___________ |
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3. |
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Consolidated Fixed Charges for the Subject Period (Lines I.C.1+I.C.2) (without duplication): |
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$___________ |
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E. |
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Consolidated Fixed Charge Coverage Ratio for the Subject Period (ratio of Lines (I.A.10 minus I.B minus I.C.) to I.D.3): |
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________ to 1 |
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Minimum required: |
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1.50 to 1 |
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Covenant compliance: Yes ¨ No ¨ |
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II. |
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Section 7.1(b) Consolidated Leverage
Ratio4 |
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A. |
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Consolidated Senior Indebtedness as of the Statement Date: |
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$___________ |
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B. |
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Consolidated EBITDA for the Subject Period (Line I.A.10): |
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$___________ |
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C. |
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Consolidated Leverage Ratio (ratio of Line II.A to II.B): |
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________ to 1 |
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Maximum permitted: |
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2.25 to 1 |
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Covenant compliance: Yes ¨ No ¨ |
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3 |
Any calculation of Consolidated Fixed Charges which includes any of the following fiscal quarters of the Borrower shall be made for the period of time from
November 27, 2013 through such date of calculation and annualized (x) with a multiple of 4x for the period ending January 31, 2014, (y) with a multiple of 2x for the period ending April 30, 2014, and (z) with a multiple
of 1.3x for the period ending July 31, 2014. |
4 |
Consolidated Leverage Ratio only tested as of the end of each Fiscal Quarter |
Attachment 3
Exhibit 21.1
Subsidiaries of Registrant
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Entity Name |
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Jurisdiction of Organization |
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% Ownership |
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LTX-Credence (Deutschland) GmbH |
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Germany |
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100 |
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Wholly owned Subsidiaries: |
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atg-Luther & Maelzer GmbH |
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Germany |
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100 |
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Multitest GmbH |
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Germany |
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100 |
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atg-Luther & Maelzer Asia Ltd. |
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Taiwan |
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100 |
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Multitest elektronische Systeme GmbH |
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Germany |
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100 |
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LTX-Credence France S.A.S. |
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France |
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100 |
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LTX-Credence Italia S.r.l |
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Italy |
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100 |
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LTX Asia International, Inc. |
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Delaware |
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100 |
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Wholly owned subsidiary: |
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LTX (Shanghai) Co., Ltd. |
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China |
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100 |
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LTX-Credence Sdn BhD. |
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Malaysia |
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100 |
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Wholly owned subsidiaries: |
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Multitest Electronic Systems (Philippines) Corporation |
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Philippines |
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100 |
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Multitest Electronic Systems (Penang) Sdn. Bhd. |
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Malaysia |
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100 |
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LTX LLC |
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Delaware |
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100 |
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Multitest Electronic Systems Inc. |
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Delaware |
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100 |
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Everett Charles Technologies LLC |
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Delaware |
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100 |
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Credence Capital Corporation |
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California |
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100 |
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Credence International Limited, Inc. |
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Delaware |
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100 |
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Wholly owned subsidiary: |
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Credence Systems Korea Ltd. |
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South Korea |
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100 |
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Credence International Ltd. |
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British Virgin Islands |
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100 |
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Wholly owned subsidiaries: |
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Credence Malta Limited |
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Malta |
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100 |
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LTX-Credence Singapore Pte Ltd. |
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Singapore |
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100 |
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NPTest de Costa Rica SA. |
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Costa Rica |
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100 |
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NPTest (Philippines) Inc. |
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Philippines |
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100 |
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Test Solutions (Suzhou) Co., Ltd. |
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China |
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100 |
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Everett Charles Technologies (Shenzhen) Limited |
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China |
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100 |
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LTX-Credence Systems KK |
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Japan |
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100 |
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Credence Semiconductor Test System (Shanghai) Co., Ltd |
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China |
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100 |
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Xcerra (Thailand) Company Limited |
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Thailand |
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100 |
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Credence Systems (M) Sdn BhD |
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Malaysia |
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100 |
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Credence Systems (P), Inc. |
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Philippines |
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100 |
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Everett Charles Technologies Board Test Manufacturing Limited Company |
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Hungary |
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100 |
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Credence Systems (UK) Limited |
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United Kingdom |
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100 |
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LTX-Credence Armenia L.L.C. |
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Republic of Armenia |
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100 |
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Everett Charles Technologies Mexico, S. de R.L. de C.V.. |
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Mexico |
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100 |
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Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby
consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-163030 and File No. 333-195033) and Form S-8 (File No. 333-30972, File No. 333-54230, File No. 333-75734, File
No. 333-102051, File No. 333-111814, File No. 333-121379, File No. 333-147977, File No. 333-153548, File No. 333-152426, File 333-160915, File 333-172605 and File 333-186072) pertaining to the Credence Systems
Corporation 1993 Stock Option Plan, as amended and restated, the LTX Corporation 1999 Stock Plan, the LTX Corporation 2001 Stock Plan, the NPTest Holding Corporation 2003 Stock Incentive Plan, the LTX Corporation 2004 Stock Plan, the Second Amended
and Restated LTX - Credence Corporation 2004 Employee Stock Purchase Plan, the Credence Systems Corporation 2005 Stock Incentive Plan, and the LTX - Credence Corporation 2010 Stock Plan of Xcerra Corporation of our reports dated October 14,
2015, relating to the consolidated financial statements and schedule, and the effectiveness of Xcerra Corporations internal control over financial reporting as of July 31, 2015, which appear in this Annual Report on Form 10-K.
/s/ BDO USA, LLP
Boston, Massachusetts
October 14, 2015
Exhibit 31.1
Rule 13a-14(a) CERTIFICATION
I, David G. Tacelli, certify that:
1. |
I have reviewed this Annual Report on Form 10-K of Xcerra Corporation; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c) |
Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d) |
Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal
quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
|
5. |
The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
|
a) |
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the registrants ability to record, process, summarize and report financial information; and |
|
b) |
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial
reporting. |
|
|
/S/ DAVID G.
TACELLI |
David G. Tacelli |
President and Chief Executive Officer |
(Principal Executive Officer) |
Dated: October 14, 2015
Exhibit 31.2
Rule 13a-14(a) CERTIFICATION
I, Mark J. Gallenberger, certify that:
1. |
I have reviewed this Annual Report on Form 10-K of Xcerra Corporation; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c) |
Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d) |
Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal
quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
|
5. |
The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
|
a) |
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the registrants ability to record, process, summarize and report financial information; and |
|
b) |
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial
reporting. |
|
|
/S/ MARK J.
GALLENBERGER |
Mark J. Gallenberger |
Senior Vice President, |
Chief Financial Officer, Chief Operating Officer
and Treasurer |
(Principal Financial Officer) |
Dated: October 14, 2015
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. §1350
In connection with the
Annual Report on Form 10-K of Xcerra Corporation (the Company) for the fiscal year ended July 31, 2015 as filed with the Securities and Exchange Commission on the date hereof (the Report), the undersigned hereby certify,
pursuant to 18 U.S.C. Section 1350, that, to the best of their knowledge:
|
(1) |
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
|
(2) |
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
|
/S/ DAVID G. TACELLI |
David G. Tacelli |
President and Chief Executive Officer |
(Principal Executive Officer) |
Dated: October 14, 2015
|
/S/ MARK J. GALLENBERGER |
Mark J. Gallenberger |
Senior Vice President, |
Chief Financial Officer, Chief Operating Officer
and Treasurer |
(Principal Financial Officer) |
Dated: October 14, 2015
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