NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. THE COMPANY
Xcerra Corporation (Xcerra or the Company, we or us),), 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 service offerings 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, and was payable on the first anniversary of the Closing subject to claims for indemnification by Fastprint, if any, prior to that time. As of the first anniversary date of the Closing, there were no claims for indemnification made by
Fastprint, and the holdback was paid to ECT on December 1, 2016.
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:
|
|
|
|
|
|
|
|
|
|
|
April 30,
2017
|
|
|
July 31,
2016
|
|
|
|
(in thousands)
|
|
Material and purchased components
|
|
$
|
28,052
|
|
|
$
|
27,753
|
|
Work-in-process
|
|
|
26,028
|
|
|
|
20,218
|
|
Finished equipment, including inventory consigned to customers
|
|
|
24,886
|
|
|
|
22,015
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
$
|
78,966
|
|
|
$
|
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 April 30, 2017 and July 31, 2016, inventory was stated net of inventory reserves of $21.3 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
7
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.
The testing of goodwill for impairment is performed at a level referred to as a reporting unit. As of April 30, 2017, 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 April 30, 2017, there were no triggering events that required the Company to complete impairment testing.
The Companys goodwill consists of the following:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
April 30,
2017
|
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of April 30, 2017
|
|
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
|
|
|
$
|
(28,111
|
)
|
|
$
|
1,771
|
|
Customer Relationships Titan
|
|
|
20
|
|
|
|
670
|
|
|
|
(6
|
)
|
|
|
664
|
|
Trade Names Titan
|
|
|
10
|
|
|
|
70
|
|
|
|
(21
|
)
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortizable intangible assets
|
|
|
|
|
|
$
|
30,622
|
|
|
$
|
(28,138
|
)
|
|
$
|
2,484
|
|
Trademarks
|
|
|
|
|
|
|
6,427
|
|
|
|
|
|
|
|
6,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
|
|
|
|
$
|
37,049
|
|
|
$
|
(28,138
|
)
|
|
$
|
8,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
20
|
|
|
|
1,844
|
|
|
|
(1,174
|
)
|
|
|
670
|
|
Maintenance agreements ASL & Diamond
|
|
|
7
|
|
|
|
1,900
|
|
|
|
(1,900
|
)
|
|
|
|
|
Trade Names Titan
|
|
|
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 3.5 years.
8
The Company expects amortization for these intangible assets to be:
|
|
|
|
|
Year ending July 31,
|
|
Amount
(in thousands)
|
|
Remainder of 2017
|
|
$
|
159
|
|
2018
|
|
|
548
|
|
2019
|
|
|
517
|
|
2020
|
|
|
403
|
|
Thereafter
|
|
|
857
|
|
|
|
|
|
|
Total
|
|
$
|
2,484
|
|
|
|
|
|
|
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 Topic 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. As of April 30, 2017, there were no triggering events that required the Company to complete impairment testing on its trademarks.
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
April 30, 2017, there were no indicators that required the Company to conduct a recoverability test.
Foreign Currency Remeasurement and
Translation
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 the Companys Consolidated Statements of Operations and Comprehensive (Loss) Income as a component of other income (expense), net, and were
($0.1) million and $0.7 million, for the three and nine months ended April 30, 2017, respectively, and ($1.5) million and $0.5 million for the three and nine months ended April 30, 2016, respectively. 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 nine months ended April 30, 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
|
Nine months Ended
April 30,
|
|
Product Warranty Activity
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Balance at beginning of period
|
|
$
|
2,725
|
|
|
$
|
2,983
|
|
Warranty expenditures for current period
|
|
|
(2,778
|
)
|
|
|
(1,993
|
)
|
Changes in liability related to pre-existing warranties
|
|
|
(14
|
)
|
|
|
(33
|
)
|
Provision for warranty costs in the period
|
|
|
3,243
|
|
|
|
1,894
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
3,176
|
|
|
$
|
2,851
|
|
|
|
|
|
|
|
|
|
|
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 costs as incurred. Expenses relating to
certain software development costs, subject to capitalization in accordance with 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 Companys Consolidated Statements of Operations and Comprehensive Income
(Loss). Shipping and handling costs were insignificant for the three and nine months ended April 30, 2017 and 2016.
Income Taxes
The Company recorded an income tax provision of $1.7 million for the nine months ended April 30, 2017, 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 April 30, 2017 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 April 30, 2017 and July 31, 2016, the Company had accrued approximately $1.3 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
The Company has equity awards outstanding under the 2010 Stock Incentive Plan (2010 Plan) and can only grant awards from this 2010
Plan.
During the three months ended April 30, 2017, the Company granted 3,500 Restricted Stock Units (RSUs) which are
subject to service-based vesting and vest ratably over four years.
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 and nine months ended
April 30, 2017, the Company recorded stock-based compensation expense of approximately $1.5 million and $4.6 million, respectively, in connection with its share-based awards. For the three and nine months ended April 30, 2016,
the Company recorded stock-based compensation expense of approximately $1.4 million and $5.1 million respectively, in connection with its share-based awards.
Net income per share
Basic net
income 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.
Reconciliation between basic and diluted net income per common share is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
April 30,
|
|
|
Nine months Ended
April 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands, except per share data)
|
|
Net income
|
|
$
|
7,548
|
|
|
$
|
3,157
|
|
|
$
|
10,138
|
|
|
$
|
4,040
|
|
Basic EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding- basic
|
|
|
54,259
|
|
|
|
53,506
|
|
|
|
54,080
|
|
|
|
53,837
|
|
Basic income per share
|
|
$
|
0.14
|
|
|
$
|
0.06
|
|
|
$
|
0.19
|
|
|
$
|
0.08
|
|
Diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding- basic
|
|
|
54,259
|
|
|
|
53,506
|
|
|
|
54,080
|
|
|
|
53,837
|
|
Plus: impact unvested RSUs
|
|
|
784
|
|
|
|
|
|
|
|
581
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding- diluted
|
|
|
55,043
|
|
|
|
53,506
|
|
|
|
54,661
|
|
|
|
53,897
|
|
Diluted income per share
|
|
$
|
0.14
|
|
|
$
|
0.06
|
|
|
$
|
0.19
|
|
|
$
|
0.07
|
|
During the nine months ended April 30, 2017 and April 30, 2016, there were no outstanding options to
purchase stock of the Company.
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
11
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)
|
|
April 30, 2017
|
|
|
|
|
Due in less than one year
|
|
$
|
33,979
|
|
Due in 1 to 3 years
|
|
|
22,048
|
|
|
|
|
|
|
Total marketable securities
|
|
$
|
56,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
The market value and amortized cost of marketable securities are as follows:
|
|
|
|
|
|
|
|
|
|
|
Market
Value
|
|
|
Amortized
Cost
|
|
|
|
(in thousands)
|
|
April 30, 2017
|
|
|
|
|
|
|
|
|
Corporate
|
|
$
|
24,722
|
|
|
$
|
24,586
|
|
Government
|
|
|
13,657
|
|
|
|
13,677
|
|
Mortgage-Backed
|
|
|
2,327
|
|
|
|
2,326
|
|
Asset-Backed
|
|
|
15,321
|
|
|
|
15,306
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
56,027
|
|
|
$
|
55,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 were no other than temporary impairment losses recorded in the three and nine months ended April 30, 2017 or
2016.
12
The following table summarizes marketable securities and related unrealized gains and losses as
of April 30, 2017 and July 31, 2016:
|
|
|
|
|
|
|
|
|
April 30, 2017
|
|
Market
Value
|
|
|
Unrealized
Gain/(Loss)
|
|
|
|
(in thousands)
|
|
Securities < 12 months unrealized losses
|
|
$
|
27,791
|
|
|
$
|
(37
|
)
|
Securities > 12 months unrealized losses
|
|
|
12,993
|
|
|
|
(38
|
)
|
Securities < 12 months unrealized gains
|
|
|
6,188
|
|
|
|
5
|
|
Securities > 12 months unrealized gains
|
|
|
9,055
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
56,027
|
|
|
$
|
(53
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
Property and equipment acquired is recorded at cost. The Company records 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 five 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 April 30, 2017 and
July 31, 2016 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30,
2017
|
|
|
July 31,
2016
|
|
|
Estimated
Useful Lives
|
|
|
|
(in thousands)
|
|
|
(in years)
|
|
Equipment spares
|
|
$
|
27,538
|
|
|
$
|
30,784
|
|
|
|
7
|
|
Machinery, equipment and internally manufactured systems
|
|
|
28,555
|
|
|
|
31,206
|
|
|
|
3-7
|
|
Office furniture and equipment
|
|
|
2,332
|
|
|
|
2,157
|
|
|
|
3-7
|
|
Purchased software
|
|
|
799
|
|
|
|
725
|
|
|
|
3
|
|
Land
|
|
|
2,508
|
|
|
|
2,508
|
|
|
|
|
|
Buildings
|
|
|
7,990
|
|
|
|
7,944
|
|
|
|
10-40 years
|
|
Leasehold improvements
|
|
|
11,995
|
|
|
|
10,312
|
|
|
|
Term of lease or
useful life, not to
exceed 10 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, gross
|
|
|
81,717
|
|
|
|
85,636
|
|
|
|
|
|
Accumulated depreciation and amortization
|
|
|
(54,752
|
)
|
|
|
(60,153
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
26,965
|
|
|
$
|
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
13
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 Purchase Agreement, $2.3 million of the purchase price was withheld by Fastprint,
and was payable on the first anniversary of the Closing subject to claims for indemnification by Fastprint, if any, prior to that time. As of the first anniversary date of the Closing, there were no claims for indemnification made by Fastprint, and
the holdback 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 Boards Business.
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 Boards Business as a
discontinued operation has no impact on 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.
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 and nine months ended April 30, 2017 and 2016 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Semiconductor
Test Solutions
|
|
|
Electronic
Manufacturing Solutions
|
|
|
Consolidated
|
|
Three months ended April 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
83,521
|
|
|
$
|
20,114
|
|
|
$
|
103,635
|
|
Income (loss) from operations
|
|
$
|
11,298
|
|
|
$
|
(2,412
|
)
|
|
$
|
8,886
|
|
Depreciation and amortization expense
|
|
$
|
1,277
|
|
|
$
|
258
|
|
|
$
|
1,535
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Semiconductor
Test Solutions
|
|
|
Electronic
Manufacturing Solutions
|
|
|
Consolidated
|
|
Three months ended April 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
65,878
|
|
|
$
|
16,359
|
|
|
$
|
82,237
|
|
Income (loss) from operations
|
|
$
|
979
|
|
|
$
|
(355
|
)
|
|
$
|
624
|
|
Depreciation and amortization expense
|
|
$
|
1,466
|
|
|
$
|
240
|
|
|
$
|
1,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Semiconductor
Test Solutions
|
|
|
Electronic
Manufacturing Solutions
|
|
|
Consolidated
|
|
Nine months ended April 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
212,604
|
|
|
$
|
51,241
|
|
|
$
|
263,845
|
|
Income (loss) from operations
|
|
$
|
12,444
|
|
|
$
|
(2,042
|
)
|
|
$
|
10,402
|
|
Depreciation and amortization expense
|
|
$
|
3,978
|
|
|
$
|
663
|
|
|
$
|
4,641
|
|
Nine months ended April 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
178,427
|
|
|
$
|
54,545
|
|
|
$
|
232,972
|
|
Income (loss) from operations
|
|
$
|
(5,932
|
)
|
|
$
|
542
|
|
|
$
|
(5,390
|
)
|
Depreciation and amortization expense
|
|
$
|
4,374
|
|
|
$
|
1,073
|
|
|
$
|
5,447
|
|
The Company does not disclose 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 and nine months ended April 30, 2017 and 2016, along with its long-lived
assets by location at April 30, 2017 and July 31, 2016, are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
April 30,
|
|
|
Nine months Ended
April 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
23,223
|
|
|
$
|
11,420
|
|
|
$
|
49,928
|
|
|
$
|
45,335
|
|
Malaysia
|
|
|
8,318
|
|
|
|
4,619
|
|
|
|
21,447
|
|
|
|
14,621
|
|
Hong Kong/China
|
|
|
14,943
|
|
|
|
16,621
|
|
|
|
31,464
|
|
|
|
40,654
|
|
Taiwan
|
|
|
13,654
|
|
|
|
6,686
|
|
|
|
39,208
|
|
|
|
22,757
|
|
Thailand
|
|
|
5,251
|
|
|
|
6,640
|
|
|
|
17,217
|
|
|
|
16,924
|
|
Philippines
|
|
|
14,582
|
|
|
|
9,100
|
|
|
|
32,975
|
|
|
|
25,982
|
|
Germany
|
|
|
6,615
|
|
|
|
7,297
|
|
|
|
20,694
|
|
|
|
18,201
|
|
Singapore
|
|
|
5,197
|
|
|
|
8,150
|
|
|
|
17,464
|
|
|
|
15,853
|
|
All other countries
|
|
|
11,852
|
|
|
|
11,704
|
|
|
|
33,448
|
|
|
|
32,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Sales
|
|
$
|
103,635
|
|
|
$
|
82,237
|
|
|
$
|
263,845
|
|
|
$
|
232,972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30,
2017
|
|
|
July 31,
2016
|
|
|
|
(in thousands)
|
|
Long-lived assets:
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
12,934
|
|
|
$
|
11,004
|
|
Germany
|
|
|
8,512
|
|
|
|
8,457
|
|
Malaysia
|
|
|
3,040
|
|
|
|
3,146
|
|
China
|
|
|
229
|
|
|
|
301
|
|
Singapore
|
|
|
442
|
|
|
|
784
|
|
Japan
|
|
|
842
|
|
|
|
878
|
|
Philippines
|
|
|
100
|
|
|
|
186
|
|
15
|
|
|
|
|
|
|
|
|
|
|
April 30,
2017
|
|
|
July 31,
2016
|
|
|
|
(in thousands)
|
|
Taiwan
|
|
|
404
|
|
|
|
243
|
|
All other countries
|
|
|
462
|
|
|
|
484
|
|
|
|
|
|
|
|
|
|
|
Total long-lived assets
|
|
$
|
26,965
|
|
|
$
|
25,483
|
|
|
|
|
|
|
|
|
|
|
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 April 30, 2017, the Companys restructuring accrual represented obligations associated with the
Companys decision to close its engineering development site in Yerevan, Armenia, as well as severance and other post-employment obligations payable in connection with headcount reductions related to continued reorganization of its Fixtures
segment. During the nine months ended April 30, 2017, the Company incurred costs to move its Milpitas, California office to a new location, costs associated with the Customer Repair Center move, reorganization of its Fixtures segment, 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 nine months ended April 30, 2017 and
April 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
Costs
|
|
|
Facility
Leases
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Balance July 31, 2016
|
|
$
|
142
|
|
|
$
|
734
|
|
|
$
|
876
|
|
Additions to expense
|
|
|
348
|
|
|
|
244
|
|
|
|
592
|
|
Accretion
|
|
|
|
|
|
|
253
|
|
|
|
253
|
|
Cash paid
|
|
|
(348
|
)
|
|
|
(1,105
|
)
|
|
|
(1,453
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance April 30, 2017
|
|
$
|
142
|
|
|
|
126
|
|
|
$
|
268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in the Companys Consolidated Balance Sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
$
|
142
|
|
|
$
|
126
|
|
|
$
|
268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
Costs
|
|
|
Facility
Leases
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Balance July 31, 2015
|
|
$
|
684
|
|
|
$
|
1,444
|
|
|
$
|
2,128
|
|
Additions to expense
|
|
|
356
|
|
|
|
148
|
|
|
|
504
|
|
Accretion
|
|
|
|
|
|
|
289
|
|
|
|
289
|
|
Cash paid
|
|
|
(972
|
)
|
|
|
(1,126
|
)
|
|
|
(2,098
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance April 30, 2016
|
|
$
|
68
|
|
|
$
|
755
|
|
|
$
|
823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in the Companys Consolidated Balance Sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
$
|
68
|
|
|
$
|
755
|
|
|
$
|
823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance April 30, 2016
|
|
$
|
68
|
|
|
$
|
755
|
|
|
$
|
823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
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.
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 April 30, 2017 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 April 30, 2017 or July 31, 2016.
As of April 30, 2017 the Company had approximately $60.9 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 lease obligations 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 April 30, 2017 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ending July 31,
|
|
Facilities
|
|
|
Equipment
|
|
|
Total
Operating
Leases
|
|
|
|
(in thousands)
|
|
Remainder of 2017
|
|
$
|
1,100
|
|
|
$
|
163
|
|
|
$
|
1,263
|
|
2018
|
|
|
3,550
|
|
|
|
440
|
|
|
|
3,990
|
|
2019
|
|
|
2,689
|
|
|
|
255
|
|
|
|
2,944
|
|
2020
|
|
|
2,187
|
|
|
|
118
|
|
|
|
2,305
|
|
2021
|
|
|
1,896
|
|
|
|
30
|
|
|
|
1,926
|
|
Thereafter
|
|
|
5,442
|
|
|
|
|
|
|
|
5,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
16,864
|
|
|
$
|
1,006
|
|
|
$
|
17,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7. OTHER ACCRUED EXPENSES
Other accrued expenses consisted of the following at April 30, 2017 and July 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
April 30,
2017
|
|
|
July 31,
2016
|
|
|
|
(in thousands)
|
|
Accrued compensation
|
|
$
|
14,863
|
|
|
$
|
13,803
|
|
Accrued income and other taxes
|
|
|
6,425
|
|
|
|
2,191
|
|
Warranty reserve
|
|
|
3,176
|
|
|
|
2,725
|
|
Accrued commissions
|
|
|
2,281
|
|
|
|
2,814
|
|
17
|
|
|
|
|
|
|
|
|
|
|
April 30,
2017
|
|
|
July 31,
2016
|
|
|
|
(in thousands)
|
|
Accrued vendor liability
|
|
|
2,059
|
|
|
|
1,607
|
|
Accrued professional fees
|
|
|
2,400
|
|
|
|
1,524
|
|
Accrued restructuring
|
|
|
268
|
|
|
|
876
|
|
Lease restoration accrual
|
|
|
|
|
|
|
1,566
|
|
Other accrued expenses
|
|
|
3,604
|
|
|
|
4,482
|
|
|
|
|
|
|
|
|
|
|
Total accrued expenses
|
|
$
|
35,076
|
|
|
$
|
31,588
|
|
|
|
|
|
|
|
|
|
|
8. LONG-TERM DEBT
Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
April 30, 2017
|
|
|
July 31, 2016
|
|
|
|
(in thousands)
|
|
Bank Term Loan under Credit Agreement
|
|
$
|
20,000
|
|
|
$
|
21,875
|
|
Bank Term Loan Commerzbank
|
|
|
2,850
|
|
|
|
3,091
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
22,850
|
|
|
|
24,966
|
|
Less: financing fees
|
|
|
(866
|
)
|
|
|
(947
|
)
|
Less: current portion
|
|
|
(3,444
|
)
|
|
|
(2,822
|
)
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
18,540
|
|
|
$
|
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
|
|
$
|
727
|
|
2018
|
|
|
3,845
|
|
2019
|
|
|
16,345
|
|
2020
|
|
|
407
|
|
Thereafter
|
|
|
1,526
|
|
|
|
|
|
|
Total
|
|
$
|
22,850
|
|
|
|
|
|
|
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.
18
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.
19
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 April 30, 2017, the interest rate in effect on the Facility was 3.55%.
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 April 30, 2017, 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 April 30, 2017 and July 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
(in thousands)
|
|
April 30, 2017
|
|
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)
|
|
$
|
92,310
|
|
|
$
|
92,310
|
|
|
$
|
|
|
|
$
|
|
|
Marketable securities
|
|
|
56,027
|
|
|
|
13,358
|
|
|
|
42,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
148,337
|
|
|
$
|
105,668
|
|
|
$
|
42,669
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 April 30, 2017 and July 31, 2016 included cash held in operating accounts of approximately $91.3 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 debt, which includes term loans, approximates fair value due to market interest. Debt at April 30, 2017 and July 31, 2016 was $22.9 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 the 2015 Plan at any time and the 2015 plan has no expiration date. As of June 9, 2017, 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 Accounting Standards Update 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. In August 2015, the FASB issued ASU No. 2015-14,
Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date
, which delays the effective date of ASU 2014-09 by one year. The FASB agreed to allow entities to choose to adopt the standard as of the original effective
date. In March 2016, the FASB issued ASU No 2016-08,
Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
which clarifies the implementation guidance on principal versus
agent considerations. 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 currently anticipates adopting the standard using the modified retrospective method. We
are in the process of completing our analysis on the impact this guidance will have on our Consolidated Financial Statements and related disclosures, as well as identifying the required changes to our policies, processes and controls. The Company is
still conducting its assessment and will continue to evaluate the impact of this ASU on our financial position and results of operation.
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 fiscal 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 fiscal 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.
In January 2017, the FASB issued
ASU 2017-04,
Intangibles Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment.
The new guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price
allocation. Goodwill impairment will now be the amount by which a reporting units carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance will remain largely unchanged.
Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. The same one-step impairment test will be applied to goodwill at all reporting units, even those
with zero or negative carrying amounts. Entities will be required to disclose the amount of goodwill at reporting units with zero or negative carrying amounts. The revised guidance will be applied prospectively, and is effective in 2020. Early
adoption is permitted for any impairment tests performed after January 1, 2017. The Company is currently evaluating the impact of this ASU on its financial position and results of operations.
12. MERGER AGREEMENT
On April 7,
2017, the Company entered into an Agreement and Plan of Merger (the Merger Agreement) with Unic Capital Management Co., Ltd., a Chinese company (Parent), and China Integrated Circuit Industry Investment Fund Co., Ltd., a
Chinese
22
company (Sponsor), providing for the merger of a wholly owned subsidiary of Parent with and into Xcerra (the Merger), with Xcerra surviving the Merger as a wholly owned
subsidiary of Parent. Pursuant to the terms and subject to the conditions of the Merger Agreement, at the effective time of the Merger (the Effective Time), each share of our common stock that is outstanding immediately prior to the
Effective Time (excluding any shares owned by Xcerra, Parent or Merger Sub or any direct or indirect wholly owned subsidiary of Parent or Merger Sub (which will be cancelled) and any shares with respect to which appraisal rights have been properly
exercised under Massachusetts law) will be cancelled and automatically converted into the right to receive $10.25 in cash, without interest (the Merger Consideration).
See Part I, Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Agreement and
Plan of Merger
for additional details related to the pending Merger.