NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. THE COMPANY
Xcerra Corporation (Xcerra or the Company), 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 (atg), Everett Charles Technologies (ECT), LTX-Credence (LTXC) and Multitest
(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.
On November 30, 2015, the Company completed the sale of 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), pursuant to an Asset Purchase Agreement,
entered into between the company and Fastprint on September 8, 2015 (the Purchase Agreement). 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.
The Company sold and transferred to Fastprint certain assets used
in or primarily related to the Interface Board Business (the Assets), and assigned, and Fastprint assumed, certain specified liabilities associated with the Interface Board Business (the Assumed Liabilities), along with the
transfer of the employees associated with that business, all pursuant to the terms of the Purchase Agreement. The purchase price for the Assets and the Assumed Liabilities was $23.0 million (the Purchase Price). Fastprint also agreed to
pay for the accrued and unpaid vacation of certain U.S. employees transferring to Fastprint (the Accrued U.S. Compensation Amount). At the Closing Fastprint paid ECT, as designated by the Company, the aggregate cash sum of $21.4 million,
consisting of $20.7 million of the Purchase Price and the Accrued U.S. Compensation Amount, plus certain prepaid amounts. Pursuant to the Purchase Agreement, $2.3 million of the purchase price was withheld by Fastprint, subject to claims for
indemnification by Fastprint, if any, prior to that time and was paid to ECT on December 1, 2016. As of October 31, 2016, this receivable was included in prepaid expenses and other current assets on the Companys consolidated balance
sheet.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The
unaudited 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 United States generally accepted accounting principles (U.S. GAAP) 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.
6
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
LTXC maintenance or service contracts 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 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 are as follows:
|
|
|
|
|
|
|
|
|
|
|
October 31,
2016
|
|
|
July 31,
2016
|
|
|
|
(in thousands)
|
|
Material and purchased components
|
|
$
|
28,719
|
|
|
$
|
27,753
|
|
Work-in-process
|
|
|
19,219
|
|
|
|
20,218
|
|
Finished equipment, including inventory consigned to customers
|
|
|
22,301
|
|
|
|
22,015
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
$
|
70,239
|
|
|
$
|
69,986
|
|
|
|
|
|
|
|
|
|
|
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 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 October 31, 2016 and July 31, 2016, inventory was stated net of inventory reserves of $23.7 million and $21.4 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.
Goodwill and Other Intangibles
In
accordance with FASB ASC Topic 350
IntangiblesGoodwill and Other
(Topic 350), goodwill is not amortized. Rather, the Companys goodwill is subject to periodic impairment testing. Topic 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. The Company completed its goodwill impairment testing at July 31, 2016 and determined no adjustment to goodwill was necessary.
7
The testing of goodwill for impairment is performed at a level referred to as a reporting unit.
As of October 31, 2016, the Companys goodwill is allocated to its Semiconductor Test reporting unit and its Contactors reporting unit. Based on Topic 350-20-35-3A, as of October 31, 2016, there were no triggering events that required the
Company to complete impairment testing.
The Companys goodwill consists of the following:
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|
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|
|
|
|
Goodwill
|
|
October 31,
2016
|
|
|
July 31,
2016
|
|
|
|
(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
|
|
|
|
820
|
|
|
|
|
|
|
|
|
|
|
Total goodwill
|
|
$
|
43,850
|
|
|
$
|
43,850
|
|
|
|
|
|
|
|
|
|
|
Amortizable intangible assets which relate to the acquisition of Titan Semiconductor Tool LLC
(Titan), ECT, Multitest, and atg, and the merger with Credence Systems Corporation (Credence), consist of the following, and are included in intangible assets, net on the Companys Consolidated Balance Sheets:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of October 31, 2016
|
|
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, and Titan)
|
|
|
6-20
|
|
|
$
|
29,882
|
|
|
$
|
(27,791
|
)
|
|
$
|
2,091
|
|
Customer Relationships
Titan
|
|
|
20
|
|
|
|
670
|
|
|
|
(2
|
)
|
|
|
668
|
|
Trade Names Titan
|
|
|
10
|
|
|
|
70
|
|
|
|
(17
|
)
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortizable intangible assets
|
|
|
|
|
|
$
|
30,622
|
|
|
$
|
(27,810
|
)
|
|
$
|
2,812
|
|
Trademarks
|
|
|
|
|
|
|
6,427
|
|
|
|
|
|
|
|
6,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
|
|
|
|
$
|
37,049
|
|
|
$
|
(27,810
|
)
|
|
$
|
9,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of July 31, 2016
|
|
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, and Titan)
|
|
|
6-20
|
|
|
$
|
29,882
|
|
|
$
|
(27,605
|
)
|
|
$
|
2,277
|
|
Customer Relationships ECT, Multitest, atg, and Titan
|
|
|
2-20
|
|
|
|
1,844
|
|
|
|
(1,174
|
)
|
|
|
670
|
|
Maintenance agreements ASL & Diamond
|
|
|
7
|
|
|
|
1,900
|
|
|
|
(1,900
|
)
|
|
|
|
|
Trade Names
|
|
|
10
|
|
|
|
70
|
|
|
|
(15
|
)
|
|
|
55
|
|
Non-compete Agreements
|
|
|
1
|
|
|
|
8
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortizable intangible assets
|
|
|
|
|
|
$
|
33,704
|
|
|
$
|
(30,702
|
)
|
|
$
|
3,002
|
|
Trademarks
|
|
|
|
|
|
|
6,427
|
|
|
|
|
|
|
|
6,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
|
|
|
|
$
|
40,131
|
|
|
$
|
(30,702
|
)
|
|
$
|
9,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 4.0 years.
8
The Company expects the remaining amortization for these intangible assets to be:
|
|
|
|
|
Year ending July 31,
|
|
Amount
(in thousands)
|
|
Remainder of 2017
|
|
$
|
486
|
|
2018
|
|
|
548
|
|
2019
|
|
|
517
|
|
2020
|
|
|
403
|
|
Thereafter
|
|
|
858
|
|
|
|
|
|
|
Total
|
|
$
|
2,812
|
|
|
|
|
|
|
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.
Long Lived Assets
On an on-going 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 October 31, 2016, there were no indicators that required the Company to conduct a recoverability test.
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 (USD). 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 (losses) are included in our Consolidated Statements of Operations and Comprehensive (Loss) Income as a component of other income (expense), net, and were $0.2 million for the three months ended October
31, 2016 and $1.6 million for the three months ended October 31, 2015. The functional currency of ECT, Multitest and atg is local currency, predominantly Euro, USD, 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 the 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 these amounts as necessary.
9
The following table shows the change in the Companys product warranty liability, as
required by Topic 460,
Guarantees
, to the FASB ASC for the three months ended October 31, 2016 and 2015:
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|
|
|
|
|
|
|
|
|
|
Three Months Ended
October 31,
|
|
Product Warranty Activity
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Balance at beginning of period
|
|
$
|
2,725
|
|
|
$
|
2,983
|
|
Warranty expenditures for current period
|
|
|
(1,071
|
)
|
|
|
(1,135
|
)
|
Changes in liability related to pre-existing warranties
|
|
|
(12
|
)
|
|
|
28
|
|
Provision for warranty costs in the period
|
|
|
788
|
|
|
|
952
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
2,430
|
|
|
$
|
2,828
|
|
|
|
|
|
|
|
|
|
|
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.
Engineering and
Product Development Expenses
The Company expenses all engineering and product development expenses as incurred. Expenses relating
to certain software development costs, which were subject to capitalization in accordance with Topic 485,
Software,
to the FASB ASC, were insignificant.
Shipping and Handling Costs
Shipping and handling costs are included in cost of sales in the Companys Consolidated Statements of Operations and Comprehensive Income
(Loss). Shipping and handling costs were insignificant for the three months ended October 31, 2016 and 2015.
Income Taxes
The Company recorded an income tax provision of $0.6 million for the three months ended October 31, 2016, primarily due to foreign taxes in
profitable locations.
The Companys total liability for unrecognized income tax benefits was $6.1 million and $6.3 million (of which
$2.6 million and $2.7 million, if recognized, would impact the Companys income tax rate) as of October 31, 2016 and July 31, 2016, respectively. The Company recognizes interest and penalties related to uncertain tax positions as a
component of provision for income taxes. As of October 31, 2016 and July 31, 2016, the Company had accrued approximately $1.1 million and $1.2 million, respectively, 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 U.S. 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, Malaysia, China, 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 the years prior to 1998.
As a result of the Companys 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 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
10
through August 29, 2008 will be 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 million. The Company has recorded a valuation allowance against the full value of U.S. net operating loss and credit carryforwards, and will continue to assess the realizability of these carryforwards in subsequent
periods.
Accounting for Stock-Based Compensation
Under Xcerras stock compensation plans, the Company grants restricted stock units (RSUs) and performance-based restricted
stock units (PRSUs), and employees are eligible to purchase Xcerras common stock through its Employee Purchase Plan (ESPP). The Company has equity awards outstanding under various stock-based compensation plans,
including the 2010 Stock Plan (2010 Plan) and 2004 Stock Plan, The Company can only grant awards from the 2010 Plan.
During
the three months ended October 31, 2016, the Company granted 701,500 RSUs to certain employees, with such shares vesting in equal installments in each of the next four years. The stock-based compensation expense related to these awards is
recognized over their vesting periods.
During the three months ended October 31, 2016, the Company granted 229,000 PRSUs, with a grant
date fair value of $1.84 per share to its executive officers with a market metric based on total shareholder return (TSR) relative to the TSR of selected peers during the performance period from August 1, 2016 to July 31,
2017. After completion of the performance period, the portion of PRSUs that are earned will be subject to time-based vesting conditions with 25% vesting immediately and the remaining 75% vesting annually in equal installments over the next
three years. PRSUs are valued using a Monte Carlo simulation model. The number of units expected to be earned, based upon the achievement of the TSR market condition, is factored into the grant date Monte Carlo valuation. Compensation
expense is recognized regardless of the eventual number of units that are earned based upon the market condition, provided the executive officer remains an employee at the end of the vesting period.
The fair value of the PRSUs granted during the three months ending October 31, 2016 was estimated using the Monte Carlo simulation model with
the following assumptions:
|
|
|
|
|
For the Three Months
Ended
|
|
|
October 31,
2016
|
Risk-free interest rate
|
|
0.58%
|
Xcerra volatility-historical
|
|
36.6%
|
Peer group index volatility-historical (average)
|
|
37.5%
|
Dividend yield
|
|
0.00%
|
Expected volatility was based on the historical volatility of Xcerras stock and its peer group, over the
most recent 0.93 year period. The risk-free interest rate was determined using the U.S. Treasury yield curve in effect at the time of grant. Dividend yield was consistent with Xcerras current dividend policy.
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 (Topic 718). Under Topic 718, the Company is required to recognize as expense the estimated fair value as of the grant date of all share-based awards to employees. In accordance with this
standard, the Company recognizes the compensation cost of each service-based award on a straight-line basis over the vesting period of such award. For the three months ended October 31, 2016 and 2015 the Company recorded stock-based compensation
expense of approximately $1.5 million and $1.9 million, respectively, in connection with its share-based awards.
Net income (loss) per share
Basic net income (loss) per common share is computed by dividing net income available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted net income 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 by the weighted average number of common shares and the dilutive effect of all securities outstanding.
11
Reconciliation between basic and diluted net (loss) income per common share is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
October 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands, except
per share data)
|
|
Net income (loss)
|
|
$
|
18
|
|
|
$
|
(1,666
|
)
|
Basic EPS:
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding- basic
|
|
|
53,865
|
|
|
|
54,490
|
|
Basic EPS
|
|
$
|
0.00
|
|
|
$
|
(0.03
|
)
|
Diluted EPS:
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding- basic
|
|
|
53,865
|
|
|
|
54,490
|
|
Plus: impact of unvested RSUs
|
|
|
160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding- diluted
|
|
|
54,025
|
|
|
|
54,490
|
|
Diluted net income (loss) per share
|
|
$
|
0.00
|
|
|
$
|
(0.03
|
)
|
For the three months ended October 31, 2016, there were no outstanding options to purchase stock of the
Company. For the three months ended October 31, 2015, options to purchase approximately 0.1 million shares of common stock were not included in the calculation of diluted net loss per share because the effect of including the options would have
been anti-dilutive. The calculation of diluted net loss per share also excludes 2.4 million RSUs for the three months ended October 31, 2015 in accordance with the contingently issuable shares guidance of Topic 260,
Earnings Per Share
,
to the FASB ASC.
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 and money market accounts. Marketable securities consist primarily of debt securities that are classified as available-for-sale and held-to-maturity, in
accordance with Topic 320,
InvestmentsDebt and Equity Securities
, to the FASB ASC. The Company also holds certain investments in commercial paper or certificates of deposit that it considers to be held-to-maturity, based on their
respective maturity dates. Securities available-for-sale includes corporate, asset-backed, mortgage-backed, 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)
|
|
October 31, 2016
|
|
|
|
|
Due in less than one year
|
|
$
|
24,052
|
|
Due in 1 to 3 years
|
|
|
32,243
|
|
|
|
|
|
|
Total marketable securities
|
|
$
|
56,295
|
|
|
|
|
|
|
|
|
|
|
Total Amount
|
|
|
|
(in thousands)
|
|
July 31, 2016
|
|
|
|
|
Due in less than one year
|
|
$
|
25,257
|
|
Due in 1 to 3 years
|
|
|
31,099
|
|
|
|
|
|
|
Total marketable securities
|
|
$
|
56,356
|
|
|
|
|
|
|
12
The market value and amortized cost of marketable securities are as follows:
|
|
|
|
|
|
|
|
|
|
|
Market
Value
|
|
|
Amortized
Cost
|
|
|
|
(in thousands)
|
|
October 31, 2016
|
|
|
|
|
|
|
|
|
Corporate
|
|
$
|
22,130
|
|
|
$
|
21,976
|
|
Government
|
|
|
17,750
|
|
|
|
17,719
|
|
Mortgage-Backed
|
|
|
1,758
|
|
|
|
1,760
|
|
Asset-Backed
|
|
|
14,657
|
|
|
|
14,615
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
56,295
|
|
|
$
|
56,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
Value
|
|
|
Amortized
Cost
|
|
|
|
(in thousands)
|
|
July 31, 2016
|
|
|
|
|
|
|
|
|
Corporate
|
|
$
|
22,574
|
|
|
$
|
22,405
|
|
Government
|
|
|
18,321
|
|
|
|
18,249
|
|
Mortgage-Backed
|
|
|
1,665
|
|
|
|
1,672
|
|
Asset-Backed
|
|
|
13,796
|
|
|
|
13,739
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
56,356
|
|
|
$
|
56,065
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains and losses on investments held by the Company are reflected as a separate component of
comprehensive income (loss) within Stockholders Equity. Realized gains, losses and interest on investments held by the Company are included in interest income in the Consolidated Statements of Operations and Comprehensive Income (Loss). The
Company analyzes its investments for impairment on a quarterly basis or upon occurrence of indicators of possible impairment. There was no other than temporary impairment losses recorded in the three months ended October 31, 2016 and 2015.
The following table summarizes marketable securities and related unrealized gains and losses as of October 31, 2016 and July 31, 2016:
|
|
|
|
|
|
|
|
|
October 31, 2016
|
|
Market
Value
|
|
|
Unrealized
Gain/(Loss)
|
|
|
|
(in thousands)
|
|
Securities < 12 months unrealized losses
|
|
$
|
8,399
|
|
|
$
|
(6
|
)
|
Securities > 12 months unrealized losses
|
|
|
16,649
|
|
|
|
(23
|
)
|
Securities < 12 months unrealized gains
|
|
|
15,654
|
|
|
|
13
|
|
Securities > 12 months unrealized gains
|
|
|
15,593
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
56,295
|
|
|
$
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2016
|
|
Market
Value
|
|
|
Unrealized
Gain/(Loss)
|
|
|
|
(in thousands)
|
|
Securities < 12 months unrealized losses
|
|
$
|
3,363
|
|
|
$
|
(4
|
)
|
Securities > 12 months unrealized losses
|
|
|
6,925
|
|
|
|
(17
|
)
|
Securities < 12 months unrealized gains
|
|
|
21,894
|
|
|
|
19
|
|
Securities > 12 months unrealized gains
|
|
|
24,174
|
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
56,356
|
|
|
$
|
72
|
|
|
|
|
|
|
|
|
|
|
Property and Equipment
The Company records acquired property and equipment at cost. The Company provides for depreciation 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 October 31, 2016
and July 31, 2016 are summarized as follows:
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
2016
|
|
|
July 31,
2016
|
|
|
Estimated
Useful Lives
|
|
|
|
(in thousands)
|
|
|
(in years)
|
|
Equipment spares
|
|
$
|
29,513
|
|
|
$
|
30,784
|
|
|
|
7
|
|
Machinery, equipment and internally manufactured systems
|
|
|
29,751
|
|
|
|
31,206
|
|
|
|
3-7
|
|
Office furniture and equipment
|
|
|
2,243
|
|
|
|
2,157
|
|
|
|
3-7
|
|
Purchased software
|
|
|
731
|
|
|
|
725
|
|
|
|
3
|
|
Land
|
|
|
2,508
|
|
|
|
2,508
|
|
|
|
|
|
Buildings
|
|
|
7,950
|
|
|
|
7,944
|
|
|
|
10-40 years
|
|
Leasehold improvements
|
|
|
10,302
|
|
|
|
10,312
|
|
|
|
Term of lease or
useful life, not to
exceed 10 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, gross
|
|
|
82,998
|
|
|
$
|
85,636
|
|
|
|
|
|
Accumulated depreciation and amortization
|
|
|
(57,150
|
)
|
|
|
(60,153
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
25,848
|
|
|
$
|
25,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3. DISCONTINUED OPERATIONS
On November 30, 2015, the Company completed the sale of its Interface Board Business to Fastprint pursuant to the Purchase Agreement. 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. The Company sold and transferred the Assets
to Fastprint, and assigned, and Fastprint assumed, the Assumed Liabilities, along with the transfer of the employees associated with that business, all pursuant to the terms of the Purchase Agreement. The purchase price for the Assets and the
Assumed Liabilities was $23.0 million (the Purchase Price). Fastprint also agreed to pay for the accrued and unpaid vacation of certain U.S. employees transferring to the buyer (the Accrued U.S. Compensation Amount). At the
Closing, Fastprint paid ECT, as designated by the Company, the aggregate cash sum of $21.4 million, consisting of $20.7 million of the Purchase Price and the Accrued U.S. Compensation Amount, plus certain prepaid amounts. Pursuant to the Agreement,
$2.3 million of the Purchase Price was withheld by Fastprint, subject to claims for indemnification by Fastprint, if any, prior to that time and was paid to ECT on December 1, 2016. The Companys historical financials have been revised to
present the operating results of the Interface Board Business as a discontinued operation. During the year ended July 31, 2016, the Company recognized a gain of approximately $10.2 million, net of taxes, on the sale of its Interface Board Business.
14
Summarized results of the discontinued operation are as follows for the three months ended
October 31, 2015:
|
|
|
|
|
|
|
Three Months Ended
October 31, 2015
|
|
|
|
(in thousands)
|
|
Revenue
|
|
$
|
9,563
|
|
|
|
|
|
|
Cost of Goods
|
|
$
|
9,193
|
|
|
|
|
|
|
Depreciation expense
|
|
$
|
|
|
Income (loss) from discontinued operations
|
|
$
|
(788
|
)
|
|
|
|
|
|
Gain from sale of discontinued operations
|
|
|
|
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of tax
|
|
$
|
(788
|
)
|
|
|
|
|
|
Cash provided by (used in) operating activities (discontinued operations)
|
|
$
|
(931
|
)
|
|
|
|
|
|
Cash provided by (used in) investing activities (discontinued operations)
|
|
$
|
(350
|
)
|
|
|
|
|
|
The operating results of the Interface Board Business were historically included in the results of operations
for the Interface Products Group which were included in the Semiconductor Test Solutions reportable 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.
4.
SEGMENT REPORTING AND GEOGRAPHIC INFORMATION
Segment Reporting
In accordance with the provisions of Topic 280,
Segment Reporting
to the FASB ASC (Topic 280), the Company has determined
that it has six operating segments (Semiconductor Test, Semiconductor Handlers, Contactors, PCB Test, Probes / Pins, and Fixtures). Based on the aggregation criteria of Topic 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 Topic 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.
The Semiconductor Test operating 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 operating 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 operating segment includes operations related to design, manufacture and sale of equipment used in the testing of bare and printed circuit boards. The Probes / Pins operating 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.
15
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. Segment information for the three months ended
October 31, 2016 and 2015 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Semiconductor
Test Solutions
|
|
|
Electronic
Manufacturing
Solutions
|
|
|
Consolidated
|
|
Three months ended October 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
64,813
|
|
|
$
|
15,272
|
|
|
$
|
80,085
|
|
Income (loss) from operations
|
|
$
|
(317
|
)
|
|
$
|
623
|
|
|
$
|
306
|
|
Depreciation and amortization expense
|
|
$
|
1,350
|
|
|
$
|
196
|
|
|
$
|
1,546
|
|
Three months ended October 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
57,185
|
|
|
$
|
21,216
|
|
|
$
|
78,401
|
|
Income (loss) from operations
|
|
$
|
(3,171
|
)
|
|
$
|
1,741
|
|
|
$
|
(1,430
|
)
|
Depreciation and amortization expense
|
|
$
|
1,472
|
|
|
$
|
403
|
|
|
$
|
1,875
|
|
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.
Geographic Information
The Companys net sales by geographic area for the three months ended October 31, 2016 and 2015, along with its long-lived assets by
location at October 31, 2016 and July 31, 2016, are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
October 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Net sales:
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
10,205
|
|
|
$
|
23,368
|
|
Taiwan
|
|
|
16,610
|
|
|
|
8,977
|
|
Philippines
|
|
|
11,970
|
|
|
|
11,428
|
|
Malaysia
|
|
|
4,511
|
|
|
|
3,273
|
|
Thailand
|
|
|
5,682
|
|
|
|
5,844
|
|
Hong Kong/China
|
|
|
7,417
|
|
|
|
7,423
|
|
Germany
|
|
|
6,430
|
|
|
|
4,712
|
|
Singapore
|
|
|
4,994
|
|
|
|
2,915
|
|
All other countries
|
|
|
12,266
|
|
|
|
10,461
|
|
|
|
|
|
|
|
|
|
|
Total Net Sales
|
|
$
|
80,085
|
|
|
$
|
78,401
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets consist of property and equipment:
|
|
|
|
|
|
|
|
|
|
|
October 31,
2016
|
|
|
July 31,
2016
|
|
|
|
(in thousands)
|
|
Long-lived assets:
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
11,412
|
|
|
$
|
11,004
|
|
Germany
|
|
|
8,671
|
|
|
|
8,457
|
|
Malaysia
|
|
|
3,053
|
|
|
|
3,146
|
|
China
|
|
|
274
|
|
|
|
301
|
|
Singapore
|
|
|
465
|
|
|
|
784
|
|
Japan
|
|
|
811
|
|
|
|
878
|
|
Philippines
|
|
|
155
|
|
|
|
186
|
|
Taiwan
|
|
|
503
|
|
|
|
243
|
|
All other countries
|
|
|
504
|
|
|
|
484
|
|
|
|
|
|
|
|
|
|
|
Total long-lived assets
|
|
$
|
25,848
|
|
|
$
|
25,483
|
|
|
|
|
|
|
|
|
|
|
16
Transfer prices on products sold to foreign subsidiaries are intended to produce profit margins
that correspond to the subsidiarys sales and support efforts.
5. 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 October 31, 2016, the Companys restructuring accrual represented obligations related to remaining lease and
property tax payments associated with the Companys decision to vacate a facility during fiscal year 2009, as well as severance and other post-employment obligations payable in connection with headcount reductions related to the Companys
announcement during fiscal 2016 to move its Customer Repair Center (CRC) function from Milpitas, California to Asia. During the three months ended October 31, 2016, the Company incurred costs associated with the CRC move, and severance paid to
an employee who did not transfer to Fastprint following the termination of a Transition Services Agreement with Fastprint.
In accordance
with the provisions of Topic 420,
Exit or Disposal Cost Obligation
, 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.
The
following table sets forth the Companys restructuring accrual activity for the three months ended October 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
Costs
|
|
|
Facility
Leases
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Balance July 31, 2016
|
|
$
|
142
|
|
|
$
|
734
|
|
|
$
|
876
|
|
Additions to expense
|
|
|
80
|
|
|
|
27
|
|
|
|
107
|
|
Accretion
|
|
|
|
|
|
|
108
|
|
|
|
108
|
|
Cash paid
|
|
|
(111
|
)
|
|
|
(386
|
)
|
|
|
(497
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance October 31, 2016
|
|
$
|
111
|
|
|
$
|
483
|
|
|
$
|
594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in the Companys Consolidated Balance Sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
$
|
111
|
|
|
$
|
483
|
|
|
$
|
594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
Costs
|
|
|
Facility
Leases
|
|
|
Total
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
Balance July 31, 2015
|
|
$
|
684
|
|
|
$
|
1,444
|
|
|
$
|
2,128
|
|
Additions to expense
|
|
|
30
|
|
|
|
103
|
|
|
|
133
|
|
Accretion
|
|
|
|
|
|
|
93
|
|
|
|
93
|
|
Cash paid
|
|
|
(362
|
)
|
|
|
(427
|
)
|
|
|
(789
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance October 31, 2015
|
|
$
|
352
|
|
|
$
|
1,213
|
|
|
$
|
1,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in the Companys Consolidated Balance Sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
$
|
352
|
|
|
$
|
915
|
|
|
$
|
1,267
|
|
Other long-term liabilities
|
|
|
|
|
|
|
298
|
|
|
|
298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance October 31, 2015
|
|
$
|
352
|
|
|
$
|
1,213
|
|
|
$
|
1,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6. 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.
17
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 October 31, 2016 or July 31, 2016.
Subject to certain
limitations, the Company indemnifies its current and former officers and directors for liabilities or costs that they 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 had not accrued a liability for these agreements as of October 31,
2016 or July 31, 2016.
As of October 31, 2016, the Company had approximately $43.1 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 October 31, 2016 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ending July 31,
|
|
Facilities
|
|
|
Equipment
|
|
|
Total
Operating
Leases
|
|
|
|
(in thousands)
|
|
Remainder of 2017
|
|
$
|
4,775
|
|
|
$
|
606
|
|
|
$
|
5,381
|
|
2018
|
|
|
3,504
|
|
|
|
297
|
|
|
|
3,801
|
|
2019
|
|
|
2,647
|
|
|
|
114
|
|
|
|
2,761
|
|
2020
|
|
|
2,192
|
|
|
|
14
|
|
|
|
2,206
|
|
2021
|
|
|
1,861
|
|
|
|
2
|
|
|
|
1,863
|
|
Thereafter
|
|
|
5,427
|
|
|
|
|
|
|
|
5,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
20,406
|
|
|
$
|
1,033
|
|
|
$
|
21,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7. ACCRUED EXPENSES
Other accrued expenses consisted of the following at October 31, 2016 and July 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
October 31,
2016
|
|
|
July 31,
2016
|
|
|
|
(in thousands)
|
|
Accrued compensation
|
|
$
|
12,515
|
|
|
$
|
13,803
|
|
Accrued commissions
|
|
|
2,740
|
|
|
|
2,814
|
|
Warranty reserve
|
|
|
2,430
|
|
|
|
2,725
|
|
Accrued income, and other taxes
|
|
|
4,777
|
|
|
|
2,191
|
|
Accrued vendor liability
|
|
|
1,619
|
|
|
|
1,607
|
|
Lease restoration accrual
|
|
|
1,589
|
|
|
|
1,566
|
|
Accrued professional fees
|
|
|
1,098
|
|
|
|
1,524
|
|
Accrued restructuring
|
|
|
594
|
|
|
|
876
|
|
Other accrued expenses
|
|
|
3,739
|
|
|
|
4,482
|
|
|
|
|
|
|
|
|
|
|
Total accrued expenses
|
|
$
|
31,101
|
|
|
$
|
31,588
|
|
|
|
|
|
|
|
|
|
|
18
8. LONG-TERM DEBT
Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
October 31, 2016
|
|
|
July 31, 2016
|
|
|
|
(in thousands)
|
|
Bank Term Loan under Credit Agreement
|
|
$
|
21,250
|
|
|
$
|
21,875
|
|
Bank Term Loan Commerzbank
|
|
|
3,005
|
|
|
|
3,091
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
24,255
|
|
|
|
24,966
|
|
Less: financing fees
|
|
|
(920
|
)
|
|
|
(947
|
)
|
Less: current portion
|
|
|
(2,819
|
)
|
|
|
(2,822
|
)
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
20,516
|
|
|
$
|
21,197
|
|
|
|
|
|
|
|
|
|
|
The debt principal payments for the next five years and thereafter are as follows:
|
|
|
|
|
Payments due by fiscal year
|
|
Debt Principal
Payments
|
|
|
|
(in thousands)
|
|
Remainder of 2017
|
|
$
|
2,176
|
|
2018
|
|
|
3,838
|
|
2019
|
|
|
16,338
|
|
2020
|
|
|
401
|
|
Thereafter
|
|
|
1,502
|
|
|
|
|
|
|
Total
|
|
$
|
24,255
|
|
|
|
|
|
|
Credit Agreement
On December 15, 2014, the Company entered into a credit agreement (the Credit Agreement) with ECT, a wholly owned subsidiary
of the Company ( 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 (collectively, 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 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 London Interbank Offered Rate (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 October 31, 2016, the interest rate in effect on the Facility was 2.64%.
19
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.
On September 16, 2015 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 the Company may repurchase up to $30 million of its capital stock provided that it comply with certain financial covenants.
As of October 31, 2016, the Company was in compliance with all covenants under the Credit Agreement.
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.
9. 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 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 consideration of factors specific to the asset or liability.
20
The following table presents financial assets and liabilities measured at fair value and their
related valuation inputs as of October 31, 2016 and July 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
(in thousands)
|
|
October 31, 2016
|
|
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)
|
|
$
|
75,630
|
|
|
$
|
75,630
|
|
|
$
|
|
|
|
$
|
|
|
Marketable securities
|
|
|
56,295
|
|
|
|
14,708
|
|
|
|
41,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
131,925
|
|
|
$
|
90,338
|
|
|
$
|
41,587
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2016
|
|
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)
|
|
$
|
83,065
|
|
|
$
|
83,065
|
|
|
$
|
|
|
|
$
|
|
|
Marketable securities
|
|
|
56,356
|
|
|
|
12,597
|
|
|
|
43,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
139,421
|
|
|
$
|
95,662
|
|
|
$
|
43,759
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Cash and cash equivalents as of October 31, 2016 and July 31, 2016 included cash held in operating accounts of approximately $75.1 million and $82.7 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, approximates fair value due to market interest. Long-term debt
at October 31, 2016 and July 31, 2016 was $24.3 million and $25.0 million, respectively. Within the hierarchy of fair value measurement, these are level 2 inputs.
10. STOCKHOLDERS EQUITY
Stock
Repurchases
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 or in privately negotiated transactions (the 2015 Plan). This repurchase program supersedes the
repurchase program that was announced on September 15, 2011 (the 2011 Plan) and as a result there are no shares available for repurchase under the 2011 Plan. The Company may suspend or discontinue 2015 Plan at any time and the 2015
Plan has no expiration date. As of December 9, 2016, the Company had repurchased 1,956,733 shares for approximately $12 million under the 2015 Plan.
11. 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.
21
In April 2015, the FASB issued ASU No. 2015-03,
Interest Imputation 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 Company adopted this ASU in the first quarter of 2017. Adoption of this ASU did not have a material impact on its financial position and results of operation.
In September 2015, the FASB issued ASU No. 2015-16,
Simplifying the Accounting for Measurement-Period Adjustments
, which requires
adjustments to provisional amounts that are identified during the measurement period after a business combination to be recognized in current period financial statements. The Company adopted this ASU in the first quarter of 2017. Adoption of this
ASU did not have a material impact on its financial position or results of operation.
In November 2015, the FASB issued ASU No. 2015-17,
Balance Sheet Classification of Deferred Taxes, which requires that all deferred tax assets and liabilities be classified as non-current on the balance sheet. The amendments in ASU 2015-17 are intended to simplify the presentation of
deferred income taxes. As of July 31, 2016, the Company has adopted ASU 2015-17 on a prospective basis and has not adjusted prior periods as a result of the adoption. As required by ASU 2015-17, all deferred tax assets and liabilities are now
classified as non-current in the Companys consolidated balance sheets.
In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842),
which requires companies that are lessees to recognize a right-of-use asset and lease liability for most leases that do not meet the definition of a short-term lease. For income statement purposes, leases will continue to
be classified as either operating or financing. Classification will be based on criteria that are largely similar to those applied in current lease accounting. This standard will result in extensive qualitative and quantitative disclosure changes.
This standard will be effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period. For Xcerra, the standard will be effective for the fiscal year starting August 1, 2019,
with early adoption permitted. The Company is currently evaluating the impact of this ASU on its financial position and results of operations.
In March 2016, the FASB issued ASU No. 2016-09,
Compensation-Stock Compensation (Topic 718): Improvements to Employee
Share-Based Payment Accounting.
This ASU changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements,
as well as classification in the statement of cash flows. This pronouncement is effective for annual periods beginning after December 15, 2016. Early adoption is permitted. The Company is currently evaluating the impact of this ASU on its
financial position and results of operations.
In August 2016, the FASB issued ASU No. 2016-15,
Classification of Certain Cash
Receipts and Cash Payments
(a consensus of the FASB Emerging Issues Task Force), which addresses eight classification issues related to the statement of cash flows: Debt prepayment or debt extinguishment costs; Settlement of zero-coupon bonds;
Contingent consideration payments made after a business combination; Proceeds from the settlement of insurance claims; Proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies;
Distributions received from equity method investees; Beneficial interests in securitization transactions; and Separately identifiable cash flows and application of the predominance principle. ASU 2016-15 is effective for public business
entities for annual and interim periods in fiscal years beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period. Entities should apply this ASU using a retrospective transition method to each
period presented. If it is impracticable for an entity to apply the ASU retrospectively for some of the issues, it may apply the amendments for those issues prospectively as of the earliest date practicable. The Company does not expect the
adoption of this ASU to have a material impact on its financial position or results of operation.