NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY
Xcerra Corporation (Xcerra or the
Company), formerly known as LTX-Credence Corporation, is a global provider of test and handling capital equipment, interface products, test fixtures, and services to the semiconductor, industrial, and electronics manufacturing
industries. The Company designs, manufactures, markets and services systems and products that address the broad, divergent requirements of the mobility, industrial, medical, automotive and consumer end markets, offering a comprehensive portfolio of
solutions and technologies, and a global network of strategically deployed applications and support resources. Xcerra operates in the semiconductor and electronics manufacturing test markets and is the parent company to the atg-Luther &
Maelzer, Everett Charles Technologies, LTX-Credence and Multitest businesses. Semiconductor designers and manufacturers worldwide use the Companys test and handling equipment and interface products to test their devices during the
manufacturing process. The Companys interface products include the design, manufacture and marketing of contactors and pins used in various types of test equipment, as well as in a wide variety of commercial and consumer applications. After
testing, these semiconductor devices are incorporated into a wide range of products, including personal and tablet computers, mobile internet equipment such as wireless access points and interfaces, broadband access products such as cable modems and
set top boxes, personal communication and entertainment products such as mobile phones and personal digital music players, consumer products such as televisions, videogame systems and digital cameras, automobile electronics and power management
devices used in portable and automotive electronics. The Company also designs, manufactures and markets printed circuit board (PCB) test systems used in the testing of pre-assembly PCBs. These testers are used to verify the quality of
the PCB prior to the installation of components. The types of PCBs that are tested using the Companys systems include a diverse set of electronic products including network servers, personal computers, tablet computers and mobile phones. The
Companys test fixture products include the design, manufacture, and marketing of in-circuit and functional-circuit test fixtures for testing assembled PCBs. The Company also sells hardware and software support and maintenance services for its
products.
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). As a result, the Company had identified certain assets and liabilities associated with this business to be held for
sale certain assets, including this product line, that are included as assets held for sale in the historical financial results for fiscal 2015 in this Annual Report on Form 10-K. 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 Everett Charles, 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 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. This receivable was included as a component of prepaid expenses and other current assets on in the
Companys consolidated balance sheet as of July 31, 2016.
50
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On April 7, 2017, the Company entered into an Agreement and Plan of Merger (as
amended, the Merger Agreement) with Unic Capital Management Co., Ltd., a Chinese company (Unic Capital) and China Integrated Circuit Industry Investment Fund Co., Ltd., a Chinese company (Sponsor) and Unic Acquisition Corporation, a Massachusetts
corporation (Merger Sub). On August 4, 2017, pursuant to that certain Assignment and Assumption Agreement, by and among Unic Capital, Hubei Xinyan Equity Investment Partnership (Limited Partnership), a Chinese limited partnership (Parent) and
Xcerra, Unic Capital irrevocably transferred, conveyed, assigned and delivered to Parent all of Unic Capitals right, interest, benefits, liabilities and obligations in and under the Merger Agreement, and Parent accepted, assumed and agreed to
pay, perform, fulfill and discharge all obligations and liabilities of Unic Capital arising under or relating to the Merger Agreement; provided, however, that in the case where Parent is unable to pay, perform, fulfill or discharge all obligations
and liabilities under the Merger Agreement, Unic Capital will remain wholly liable. Also on August 4, 2017, an amendment to the Merger Agreement was entered into by and among Parent, Sponsor and the Company, pursuant to which, upon the
satisfaction or waiver of the conditions to the closing set forth in the Merger Agreement, Merger Sub will, at the closing, merge with and into the Company (the Merger), and the Company will become a controlled subsidiary of Parent and our
stockholders will receive $10.25 in cash, without interest, less any required tax withholding, for each share of our common stock. If the Merger is not completed, in certain circumstances, the Company could be required to pay a termination fee of
$22.8 million to Parent.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All significant inter-company transactions and balances have been eliminated in consolidation.
Preparation of Financial Statements and Use of Estimates
The accompanying
financial statements have been prepared by the Company, and reflect all adjustments, which, in the opinion of management, are necessary for fair presentation. The preparation of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of
income and expenses during the reporting periods. Actual results may differ from those estimates and such differences may be material to the consolidated financial statements. Such estimates relate to fair values ascribed to revenue recognition, the
allowance for doubtful accounts, inventory valuation, depreciation, product warranty costs, stock-based compensation and income taxes, among others.
Revenue Recognition
The Company recognizes revenue based on guidance
provided in ASC 605,
Revenue Recognition
, 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
51
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 Semiconductor Test operating segments maintenance or service contracts only. The Companys other
operating segments 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, excluding the Interface Board Business, are as
follows:
|
|
|
|
|
|
|
|
|
|
|
As of July 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Material and purchased components
|
|
$
|
30,746
|
|
|
$
|
27,753
|
|
Work-in-process
|
|
|
26,211
|
|
|
|
20,218
|
|
Finished equipment, including inventory consigned to customers
|
|
|
24,552
|
|
|
|
22,015
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
$
|
81,509
|
|
|
$
|
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 the following: forecasted sales or usage, estimated product end of life dates, estimated current and future market value and new product introductions.
Purchasing and usage alternatives are also explored to mitigate inventory exposure. When recorded, reserves are intended to reduce the carrying value of inventory to its net realizable value. As of
July 31, 2017 and July 31, 2016, inventory is stated net of inventory reserves of $22.0 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.
52
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table shows sales of previously reserved inventory and the inventory
reserves released for these sales for the fiscal years ended July 31, 2017, 2016, and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended July 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Sales of previously reserved inventory
|
|
$
|
3,889
|
|
|
$
|
3,822
|
|
|
$
|
1,664
|
|
Inventory reserves released for these sales
|
|
|
1,161
|
|
|
|
826
|
|
|
|
643
|
|
Goodwill and Other Intangibles
In accordance with ASC 350
IntangiblesGoodwill and Other
(ASC 350), goodwill is not amortized. Rather, the Companys goodwill is subject to periodic impairment testing.
As part of the new simplification guidance issued by the FASB, the goodwill test involves a one-step comparison of the reporting units fair value to its carrying value, including goodwill (Step 1). The prior guidance required a
hypothetical purchase price allocation as the second step of the goodwill impairment test, but this step has been eliminated. If the reporting units fair value exceeds its carrying value, no further procedures are required. However, if the
reporting units fair value is less than the carrying value, an impairment charge is recorded for the difference between the fair value and carrying value of the reporting unit. In applying the goodwill impairment test, the Company may assess
qualitative factors to determine whether it is more likely than not that the fair value of the reporting units is less than its carrying value (Step 0). Qualitative factors may include, but are not limited to, economic, market and
industry conditions, cost factors, and overall financial performance of the reporting unit. If after assessing these qualitative factors, the Company determines it is more-likely-than-not that the carrying value is less than the fair
value, then performing Step 1 of the goodwill impairment test is unnecessary. The Company periodically engages third-party valuation consultants to assist in evaluating the Companys estimated fair value calculations. In accordance with ASC
350, the Company performed its goodwill impairment test as of July 31, 2017 and 2016, and determined that no adjustment to goodwill was necessary. As of July 31, 2017, we determined using a Step 0 analysis in accordance with Topic 350 that
it was more likely than not that the fair value of the reporting units to which goodwill is allocated exceeded the carrying values of those reporting units. As of July 31, 2016, we completed a Step 1 analysis using a Discounted Cash Flow (DCF)
method for estimating the fair value of the reporting units including discount rates at the Companys weighted-average cost of capital. The Company derives discount rates that are commensurate with the risks and uncertainties inherent in its
respective businesses and its internally developed projections of future cash flows. In addition, the Company determined the projected future cash flows of the reporting units for the residual period using the Gordon growth method which assumes that
the reporting unit will grow and generate free cash flow at a constant rate. The Company believes that the Gordon growth method is the most appropriate method for determining the residual value because the residual value is calculated at the point
at which the Company has assumed that the reporting units have reached stable growth rates. The Companys goodwill consists of the following:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
July 31,
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
|
|
|
|
|
|
|
|
|
|
|
53
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Amortizable intangible assets which relate to the acquisition of Titan Semiconductor
Tool LLC (Titan), ECT, Multitest, and atg-Luther & Maelzer, and the merger with Credence Systems Corporation (Credence), consist of the following, and are included in intangibles asset, net on the Companys
Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of July 31, 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-Luther & Maelzer, and Titan)
|
|
|
6-20
|
|
|
$
|
29,882
|
|
|
$
|
(28,266
|
)
|
|
$
|
1,616
|
|
Customer RelationshipsECT, Multitest, atg-Luther & Maelzer, and Titan
|
|
|
2
|
|
|
|
670
|
|
|
|
(8
|
)
|
|
|
662
|
|
Trade Names
|
|
|
10
|
|
|
|
70
|
|
|
|
(23
|
)
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortizable intangible assets
|
|
|
|
|
|
$
|
30,622
|
|
|
$
|
(28,297
|
)
|
|
$
|
2,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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-Luther & Maelzer, and Titan)
|
|
|
6-20
|
|
|
$
|
29,882
|
|
|
$
|
(27,605
|
)
|
|
$
|
2,277
|
|
Customer RelationshipsECT, Multitest, atg-Luther & Maelzer, and Titan
|
|
|
2
|
|
|
|
1,844
|
|
|
|
(1,174
|
)
|
|
|
670
|
|
Trade Names
|
|
|
10
|
|
|
|
70
|
|
|
|
(15
|
)
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortizable intangible assets
|
|
|
|
|
|
$
|
31,796
|
|
|
$
|
(28,794
|
)
|
|
$
|
3,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 9.0 years.
The Company expects the remaining amortization for these intangible assets as of July 31, 2017 to be:
|
|
|
|
|
Year ending July 31,
|
|
Amount
(in
thousands)
|
|
2018
|
|
$
|
548
|
|
2019
|
|
|
517
|
|
2020
|
|
|
403
|
|
2021
|
|
|
284
|
|
2022
|
|
|
188
|
|
Thereafter
|
|
|
385
|
|
|
|
|
|
|
Total
|
|
$
|
2,325
|
|
|
|
|
|
|
The identifiable intangible assets associated with the Dover Acquisition include $6.4 million of
trademarks. The Company believes these trademarks will contribute to the Companys cash flows indefinitely. Therefore, in accordance with ASC 350, the Company has assigned an indefinite useful life to the trademarks, and will not amortize the
trademarks until their useful lives are no longer indefinite. These assets are subject to an annual impairment test or more frequently if triggering events occur. For the year ended July 31, 2017, the Company
54
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
assessed qualitative factors to determine if a two-step quantitative impairment test was necessary. The Company determined, based on qualitative assessment, that it was more likely than not that
the trademarks fair value was greater than their carrying amount, therefore no quantitative assessment was required, and there was no adjustment to the carrying value of the trademarks.
Long Lived Assets
On an ongoing basis, management reviews the value of and
period of amortization or depreciation of the Companys long-lived assets. In accordance with ASC 360,
Property, Plant and Equipment
, the Company reviews whether impairment losses exist on its long-lived assets other than goodwill when
indicators of impairment are present. During this review, the Company assesses future cash flows and re-evaluates the significant assumptions used in determining the original cost of long-lived assets other than goodwill. Although the assumptions
may vary, they generally include revenue growth, operating results, cash flows and other indicators of value. Management then determines whether there has been a permanent impairment of the value of long-lived assets based upon events or
circumstances that have occurred since acquisition. The impairment amount recognized is based upon a determination of the impaired assets fair value compared to its carrying value. As of July 31, 2017 and July 31, 2016, there were no
indicators that required the Company to conduct a recoverability test as of those dates.
Foreign Currency Remeasurement
The financial statements of the Companys foreign subsidiaries are remeasured in accordance with ASC 830,
Foreign Currency
Matters
. 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, were $(0.1) million, $1.3 million, and $2.1 million
for the fiscal years ended July 31, 2017, 2016 and 2015. The functional currency of ECT, Multitest and atg is local currency, predominately Euro, U.S. Dollar, Malaysian Ringgit and Singapore Dollars, and net gains or losses resulting from
foreign currency remeasurement and translation gains or losses are recorded in stockholders equity as accumulated other comprehensive income (loss).
Product Warranty Costs
Certain of the Companys products are sold
with warranty provisions that require it to remedy deficiencies in quality or performance of products over a specified period of time at no cost to its customers. The Company generally offers a warranty for most of its products, the standard terms
and conditions of which are based on the product sold and the customer. For all products sold, subject to a warranty, the Company accrues a liability for the estimated cost of standard warranty at the time of shipment. Factors that impact the
warranty liability include the number of installed products, historical and anticipated product failure rates, material usage and service labor costs. The Company periodically assesses the adequacy of its recorded liability and adjusts these amounts
as necessary.
55
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table shows the change in the Companys product warranty liability,
as required by ASC 460, Guarantees, for the fiscal years ended July 31, 2017 and 2016:
|
|
|
|
|
|
|
|
|
Product Warranty Activity
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Balance at beginning of period
|
|
$
|
2,725
|
|
|
$
|
2,983
|
|
Warranty expenditures for current period
|
|
|
(4,959
|
)
|
|
|
(4,735
|
)
|
Translation adjustment
|
|
|
102
|
|
|
|
(12
|
)
|
Provision for warranty costs in the period
|
|
|
5,742
|
|
|
|
4,489
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
3,610
|
|
|
$
|
2,725
|
|
|
|
|
|
|
|
|
|
|
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 Costs
The Company expenses all engineering and product development costs as incurred. Expenses relating to certain software development costs, which were subject to capitalization in accordance with the
ASC 985,
Software,
were insignificant.
Shipping and Handling Costs
Shipping and handling costs are included in cost of sales in the Consolidated Statement of Operations and Comprehensive Income (Loss).
Shipping and handling costs were $6.1 million, $6.4 million, and $7.1 million for fiscal years ended July 31, 2017, 2016, and 2015, respectively.
Income Taxes
The Company recorded an income tax provision of $5.9 million
for fiscal 2017, primarily due to foreign taxes in profitable locations. The Company recorded an income tax benefit of $1.7 million for fiscal 2016 primarily due to foreign taxes in profitable locations and tax benefit associated with the
intra-period tax allocation.
As of July 31, 2017 and July 31, 2016, our liability for unrecognized income tax
benefits was $6.2 million and $6.3 million respectively (of which $2.6 million and $2.7 million, if recognized, would impact our income tax rate). The Company recognizes interest and penalties related to uncertain tax positions as a
component of
56
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
provision for income taxes. For July 31, 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 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 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 the acquired U.S. net operating loss and credit carryforwards is subject to annual limitation as defined in sections 382
and 383 of the Internal Revenue Code. The Company currently estimates that the annual limitation on its use of net operating losses generated through August 29, 2008 is approximately $10.1 million which, based on currently enacted federal
carryforward periods, limits the amount of net operating losses that are available for utilization to approximately $202.0 million. The Company will continue to assess the realizability of these carryforwards in subsequent periods.
Accounting for Stock-Based Compensation
The Company has equity awards outstanding under the 2010 Stock Incentive Plan (2010 Plan) and can only grant awards from this 2010 Plan. During fiscal 2017, the Company granted 765,000
Restricted Stock Units (RSUs) to certain executives, directors and employees, with time-based vesting terms ranging from one to four years. Of these, 229,000 RSUs were granted to executives.
During fiscal 2017, the Company granted 229,000 Performance RSUs (PRUs), 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 fiscal 2017 was estimated using the Monte Carlo simulation model with the following assumptions:
|
|
|
|
|
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.
57
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Prior to the end of the performance period, or July 31, 2017, the Company modified
the PRSU agreements and removed the market criteria, and as a result they were considered to be 100% earned, with 25% vesting immediately and the remaining 75% vesting annually in equal installments over the next three years, as of July 31,
2017. The Company accounted for this change as a modification, and as a result the incremental fair value of the awards were $8.24 per share. The Company will recognize the estimated fair value of these awards over the remaining vesting period.
The Company recognizes stock-based compensation expense on its equity awards in accordance with the provisions of ASC 718,
CompensationStock Compensation,
(ASC 718). Under ASC 718, the Company is required to recognize, as expense, the estimated fair value of all share-based payments to employees. In accordance with this standard, the
Company has elected to recognize the compensation cost of all service based awards on a straight-line basis over the vesting period of the award.
For the fiscal years ended July 31, 2017, 2016, and 2015, the Company recorded stock-based compensation expense as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended July 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Cost of sales
|
|
$
|
227
|
|
|
$
|
216
|
|
|
$
|
224
|
|
Engineering and product development expenses
|
|
|
801
|
|
|
|
897
|
|
|
|
913
|
|
Selling, general and administrative expenses
|
|
|
5,290
|
|
|
|
5,656
|
|
|
|
6,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
$
|
6,318
|
|
|
$
|
6,769
|
|
|
$
|
7,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of July 31, 2017, there was approximately $10.4 million of unrecognized stock-based compensation
expense related to share-based equity grants to employees that is expected to be recognized over the next 2.74 weighted-average years.
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 (loss) per share is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended July 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands, except per share data)
|
|
Net income (loss)
|
|
$
|
22,555
|
|
|
$
|
11,174
|
|
|
$
|
28,226
|
|
Basic Earnings per Share (EPS)
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstandingbasic
|
|
|
54,127
|
|
|
|
53,783
|
|
|
|
53,658
|
|
Basic EPS
|
|
$
|
0.42
|
|
|
$
|
0.21
|
|
|
$
|
0.53
|
|
Diluted EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstandingbasic
|
|
|
54,127
|
|
|
|
53,783
|
|
|
|
53,658
|
|
Plus: impact of unvested restricted stock units
|
|
|
745
|
|
|
|
191
|
|
|
|
873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstandingdiluted
|
|
|
54,872
|
|
|
|
53,974
|
|
|
|
54,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
$
|
0.41
|
|
|
$
|
0.21
|
|
|
$
|
0.52
|
|
58
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During the twelve months ended July 31, 2017 and July 31, 2016, there were no
outstanding options to purchase stock of the Company. During the twelve months ended July 31, 2015, there were approximately 0.1 million options outstanding to purchase stock of the Company, which were excluded from the calculation of
diluted earnings per share because the effect of including them would have been anti-dilutive.
Cash and Cash Equivalents and Marketable
Securities
The Company considers all highly liquid investments that are readily convertible to cash and that have original
maturity dates of three months or less to be cash equivalents. Cash and cash equivalents consist primarily of operating cash. Marketable securities consist primarily of debt securities that are classified as available-for-sale, in accordance with
ASC 320,
InvestmentsDebt and Equity Securities
. The Company may also hold from time to time certain investments in commercial paper that it considers to be held to maturity, based on their maturity dates. Securities available for sale
include corporate and governmental obligations with various contractual maturity dates some of which are greater than one year. The Company considers the securities to be liquid and convertible to cash within 30 days. The Company has the ability and
intent to liquidate any security that the Company holds to fund operations over the next twelve months, if necessary, and as such has classified all of its marketable securities as short-term. Governmental obligations include U.S. Government, State,
Municipal and Federal Agency securities. The Company has an overnight sweep investment arrangement with its bank for certain accounts to allow the Company to enter into diversified overnight investments via a money market mutual fund which generally
provides a higher investment yield than a regular operating account.
The market value and maturities of the Companys
marketable securities are as follows:
|
|
|
|
|
|
|
Total Amount
|
|
|
|
(in thousands)
|
|
July 31, 2017
|
|
|
|
|
Due in less than one year
|
|
$
|
25,458
|
|
Due in 1 to 3 years
|
|
|
31,629
|
|
|
|
|
|
|
Total marketable securities
|
|
$
|
57,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
59
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The market value and amortized cost of marketable securities are as follows:
|
|
|
|
|
|
|
|
|
|
|
Market
Value
|
|
|
Amortized
Cost
|
|
|
|
(in thousands)
|
|
July 31, 2017
|
|
|
|
|
|
|
|
|
Corporate (a)
|
|
$
|
24,969
|
|
|
$
|
24,828
|
|
Government
|
|
|
12,408
|
|
|
|
12,410
|
|
Mortgage-Backed
|
|
|
2,335
|
|
|
|
2,332
|
|
Asset-Backed
|
|
|
17,375
|
|
|
|
17,348
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
57,087
|
|
|
$
|
56,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
Value
|
|
|
Amortized
Cost
|
|
|
|
(in thousands)
|
|
July 31, 2016
|
|
|
|
|
|
|
|
|
Corporate (a)
|
|
$
|
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
|
|
|
|
|
|
|
|
|
|
|
(a)
|
There are no held to maturity investments included in the above figures as of July 31, 2017 and 2016, respectively.
|
Realized gains, losses and interest income are included in interest income in the Statements of Operations. Unrealized gains and losses
are reflected as a separate component of comprehensive income (loss) within Stockholders Equity. The Company analyzes its securities portfolio for other-than-temporary impairment on a quarterly basis or upon occurrence of a significant change
in circumstances. There were no other-than-temporary impairment losses recorded in the fiscal years ended July 31, 2017 or 2016.
The following table summarizes marketable securities and related unrealized gains and losses as of July 31, 2017 and 2016:
|
|
|
|
|
|
|
|
|
July 31, 2017
|
|
Market
Value
|
|
|
Unrealized
Gain/(Loss)
|
|
|
|
(in thousands)
|
|
Securities < 12 months unrealized losses
|
|
$
|
23,378
|
|
|
$
|
(28
|
)
|
Securities > 12 months unrealized losses
|
|
|
18,411
|
|
|
|
(32
|
)
|
Securities < 12 months unrealized gains
|
|
|
2,080
|
|
|
|
3
|
|
Securities > 12 months unrealized gains
|
|
|
13,218
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
57,087
|
|
|
$
|
(34
|
)
|
|
|
|
|
|
|
|
|
|
60
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
Interest income and realized gains and losses from sales of marketable securities, included in interest
income in the Statement of Operations, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended July 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Interest income on marketable securities
|
|
$
|
265
|
|
|
$
|
280
|
|
|
$
|
1,221
|
|
Realized gain (loss) from sales of securities
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
264
|
|
|
$
|
279
|
|
|
$
|
1,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Financial Instruments
The Company determines its fair value measurements for assets and liabilities based upon the provisions of ASC 820,
Fair Value Measurements and Disclosures
.
ASC 825,
Financial Instruments,
requires that disclosure be made of estimates of the fair value of financial instruments. The
carrying amounts of certain of the Companys financial instruments, including cash equivalents, accounts receivable, accounts payable debt and other accrued liabilities approximate fair value due to their short maturities. Marketable securities
classified as available-for-sale are recorded at fair value based upon quoted market prices.
Concentration of Credit and Supplier Risk
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended July 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
(in millions except %s)
|
|
Customer over 10% of net salesSpirox (% of revenue)
|
|
|
15
|
%
|
|
|
19
|
%
|
|
|
13
|
%
|
Net sales from top ten customers (% of total revenue)
|
|
|
59
|
%
|
|
|
55
|
%
|
|
|
54
|
%
|
Accounts receivable from the same top ten customers
|
|
$
|
51.2
|
|
|
$
|
42.3
|
|
|
$
|
43.1
|
|
Net sales to customers outside the United States
|
|
$
|
321.9
|
|
|
$
|
266.0
|
|
|
$
|
312.5
|
|
Financial instruments, which potentially subject the Company to concentrations of credit risk, are cash
equivalents, marketable securities and accounts receivable. All of the Companys cash equivalents and marketable securities are maintained by major financial institutions. The Company periodically reviews these investments to evaluate and
minimize credit risk. Concentration of credit risk with respect to accounts receivable is limited to certain customers to whom the Company makes substantial sales. To reduce risk, the Company routinely assesses the financial strength of its
customers. The Company does not require collateral, although the Company does obtain letters of credit on sales to certain foreign customers. During fiscal 2017 and fiscal 2016 the Company did not write off any accounts receivable. During fiscal
2015, the Company wrote off $0.2 million of accounts receivable.
61
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company outsources certain components and subassemblies for our test equipment to
contract manufacturers other than its sole source supplier manufacturer. The Companys products incorporate standard components and prefabricated parts manufactured to its specifications. These components and subassemblies are used to produce
testers in configurations specified by its customers. Some of the standard components for the Companys products are available from a number of different suppliers; however, many such standard components are purchased from a single supplier or
a limited group of suppliers. Although the Company believes that all single sourced components currently are available in adequate amounts, shortages or delivery delays may develop in the future. The Company is dependent on certain semiconductor
device manufacturers, who are sole source suppliers of custom components for its products. The Company has no written supply agreements with these sole source suppliers and purchases its custom components through individual purchase orders. The
Company continuously evaluates alternative sources for the manufacture of our custom components and the supply of our standard components; however, such alternative sources may not meet its required qualifications or have capacity that is available
to the Company.
Property and Equipment
Property and equipment acquired is recorded at cost. The Company provides for depreciation and amortization using the straight-line method. Charges are made to operating expenses in amounts that are
sufficient to amortize the cost of the assets over their estimated useful lives. Equipment spares used for service and internally manufactured test systems used for testing components and engineering projects are recorded at cost and depreciated
over seven years. Repair and maintenance costs that do not extend the lives of property and equipment are expensed as incurred. The Companys property and equipment as of July 31, 2017 and July 31, 2016 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of July 31,
|
|
|
Estimated
Useful
Lives
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
(in thousands)
|
|
|
(in years)
|
|
Equipment spares
|
|
$
|
27,680
|
|
|
$
|
30,784
|
|
|
|
7
|
|
Machinery, equipment and internally manufactured systems
|
|
|
30,707
|
|
|
|
31,206
|
|
|
|
3-7
|
|
Office furniture and equipment
|
|
|
1,302
|
|
|
|
2,157
|
|
|
|
3-7
|
|
Purchased software
|
|
|
547
|
|
|
|
725
|
|
|
|
3
|
|
Land
|
|
|
2,508
|
|
|
|
2,508
|
|
|
|
|
|
Buildings
|
|
|
7,990
|
|
|
|
7,944
|
|
|
|
10 40 years
|
|
Leasehold improvements
|
|
|
9,679
|
|
|
|
10,312
|
|
|
|
Term of lease or
useful life, not to
exceed 10 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, gross
|
|
$
|
80,413
|
|
|
$
|
85,636
|
|
|
|
|
|
Accumulated depreciation and amortization
|
|
|
(51,904
|
)
|
|
|
(60,153
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
28,509
|
|
|
$
|
25,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense was $5.5 million, $5.7 million, and $6.4 million for the fiscal years ended
July 31, 2017, 2016, and 2015, respectively.
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
62
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
In April 2015, the FASB issued ASU No. 2015-03,
InterestImputation of Interest
(Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs
, which requires that debt issuance costs related to a recognized debt liability, be presented in the balance sheet as a direct deduction from the carrying amount of that debt
liability, consistent with debt discounts. The 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 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 does not expect the adoption of this ASU to have a material
impact on its financial position or results of operation.
63
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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,
IntangiblesGoodwill 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. 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.
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 produced 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 Everett Charles, 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 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. In the three months ended January 31, 2016, the Company recognized a gain of approximately $9.4 million, net of taxes, associated with the sale of the Interface Board Business. As of July 31, 2016, the recognized
gain is approximately $10.2 million, net of taxes, due to a decrease in intraperiod tax allocation of $2.0 million recorded during the three months ended April 30, 2016, offset by a provision of $1.1 million recorded during the three months
ended July 31, 2016.
64
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Companys historical financials have been revised to present the operating
results of the Interface Board Business as a discontinued operation. The Interface Board Business was acquired from Dover on December 1, 2013.
Summarized results of the discontinued operation are as follows for the years ended July 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Revenue
|
|
$
|
12,378
|
|
|
$
|
34,920
|
|
|
|
|
|
|
|
|
|
|
Cost of Goods
|
|
$
|
12,183
|
|
|
$
|
35,392
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense
|
|
$
|
|
|
|
$
|
771
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
$
|
(1,538
|
)
|
|
$
|
(3,292
|
)
|
Gain from sale of discontinued operations
|
|
|
13,578
|
|
|
|
|
|
Provision for income taxes
|
|
|
3,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of tax
|
|
$
|
8,715
|
|
|
$
|
(3,292
|
)
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) operating activities (discontinued operations)
|
|
$
|
7,679
|
|
|
$
|
(2,419
|
)
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) investing activities (discontinued operations)
|
|
$
|
(350
|
)
|
|
$
|
(376
|
)
|
|
|
|
|
|
|
|
|
|
The operating results of the Interface Board Business were historically included in the results of
operations for the Interface Products Group that were included in the Semiconductor Test Solutions segment.
The presentation
of the Interface Board Business as a discontinued operation has no impact on the previously reported net income (loss) or stockholders equity.
4. BUSINESS COMBINATIONS
Acquisition of Titan Semiconductor
On February 2, 2015, the Company completed an acquisition of substantially all of the assets and certain specified liabilities of
Titan. The purchase price of Titan was approximately $2.4 million, which was paid in cash from the Companys available cash-on-hand. Titan develops, manufactures and sells products for semiconductor test serving the automotive,
RF/Wireless, and mixed signal test markets. The acquired products will be developed, supported, and marketed by Xcerras Contactors operating segment which is part of the Semiconductor Test Solutions reportable segment
.
The Company has
recorded approximately $1.4 million and $0.8 million of intangible assets and goodwill, respectively, from this transaction.
65
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. OTHER ACCRUED EXPENSES
Other accrued expenses consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
July 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Accrued compensation
|
|
$
|
18,864
|
|
|
$
|
13,803
|
|
Accrued income, and other taxes
|
|
|
13,163
|
|
|
|
2,191
|
|
Warranty reserve
|
|
|
3,610
|
|
|
|
2,725
|
|
Accrued professional fees
|
|
|
3,218
|
|
|
|
1,524
|
|
Accrued commissions
|
|
|
2,931
|
|
|
|
2,814
|
|
Accrued vendor liability
|
|
|
2,229
|
|
|
|
1,607
|
|
Lease restoration accrual
|
|
|
|
|
|
|
1,566
|
|
Accrued restructuring
|
|
|
86
|
|
|
|
876
|
|
Other accrued expenses
|
|
|
6,161
|
|
|
|
4,482
|
|
|
|
|
|
|
|
|
|
|
Total accrued expenses
|
|
$
|
50,262
|
|
|
$
|
31,588
|
|
|
|
|
|
|
|
|
|
|
6. LONG-TERM DEBT
Long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
July 31, 2017
|
|
|
July 31, 2016
|
|
|
|
(in thousands)
|
|
Bank Term Loan under Credit Agreement
|
|
$
|
19,375
|
|
|
$
|
21,875
|
|
Bank Term LoanCommerzbank
|
|
|
2,791
|
|
|
|
3,091
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
22,166
|
|
|
|
24,966
|
|
Less: financing fees
|
|
|
(840
|
)
|
|
|
(947
|
)
|
Less: current portion
|
|
|
(3,779
|
)
|
|
|
(2,822
|
)
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
17,547
|
|
|
$
|
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)
|
|
2018
|
|
$
|
3,851
|
|
2019
|
|
|
16,351
|
|
2020
|
|
|
413
|
|
2021
|
|
|
413
|
|
2022
|
|
|
413
|
|
Thereafter
|
|
|
725
|
|
|
|
|
|
|
Total
|
|
$
|
22,166
|
|
|
|
|
|
|
Credit Agreement
On December 15, 2014, the Company entered into a credit agreement (the Credit Agreement) with ECT and together with the Company, the Borrowers, Silicon Valley Bank, as
lender, administrative agent and issuing lender (SVB), and the several lenders from time to time party thereto (the Lenders). The Credit
66
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 LIBOR rate plus a margin (such margin not to exceed a
per annum rate of 2.75%) based on the Leverage Ratio. The interest rate otherwise payable under the Facility will be subject to increase by 2.0% per annum during the continuance of a payment default and may be subject to increase by
2.0% per annum during the continuance of any other event of default. As of July 31, 2017, the interest rate in effect on the Facility was 3.69%.
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.
67
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 July 31, 2017, the Company was in compliance with all covenants under the Credit Agreement.
Seller FinancingPromissory Notes
In connection with the closing of the Dover Acquisition the Company issued promissory notes having an aggregate principal amount of $20.0 million to Dover. During the three months ended January 31,
2014, the original principal amount of the promissory notes issued to Dover was reduced by $2.0 million, when the company executed leases for two new facilities, which triggered a reduction to the notes in accordance with their terms. On
November 26, 2014, the Company repaid in full all outstanding amounts under these promissory notes. The $16.3 million payoff amount reflected the principal amount of $18.0 million that was outstanding under the original promissory notes, less
$1.8 million pursuant to a reduction in principal for which the Company was entitled under the original promissory notes. Such reduction related to prepayment of the promissory notes before January 1, 2015 and was recorded as a gain on
repayment of subordinated debt as a component of other income in the Companys Consolidated Statements of Operations and Comprehensive Income (Loss) for the fiscal year ended July 31, 2015 (fiscal 2015). As a result of this
repayment during the interest-free period, the Company reversed approximately $0.9 million of accrued interest and recorded the benefit as a component of other income in the Companys Consolidated Statement of Operations and Comprehensive
Income (Loss) for fiscal 2015.
Bank Term LoanCommerzbank
In May 2014, the Company entered into a loan agreement with Commerzbank to finance the purchase of the Companys leased facility in
Rosenheim, Germany. The principal amount of the term loan is 2.9 million euro ($3.9 million, using a July 31, 2014 exchange rate), payable over 10 years at an annual interest rate of 2.35%. Principal plus accrued interest is due quarterly
over the duration of the term loan.
68
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. INCOME TAXES
The components of income (loss) before income taxes and the provision (benefit) from income taxes consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended July 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Income (loss) before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
7,386
|
|
|
$
|
(9,210
|
)
|
|
$
|
6,290
|
|
Foreign
|
|
|
21,113
|
|
|
|
10,009
|
|
|
|
27,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
$
|
28,499
|
|
|
$
|
799
|
|
|
$
|
34,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for (benefit from) income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
|
$
|
(3,230
|
)
|
|
$
|
|
|
State
|
|
|
6
|
|
|
|
(92
|
)
|
|
|
|
|
Foreign
|
|
|
6,026
|
|
|
|
1,661
|
|
|
|
3,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current
|
|
$
|
6,032
|
|
|
$
|
(1,661
|
)
|
|
$
|
3,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
113
|
|
|
$
|
103
|
|
|
$
|
110
|
|
State
|
|
|
1
|
|
|
|
3
|
|
|
|
2
|
|
Foreign
|
|
|
(202
|
)
|
|
|
(105
|
)
|
|
|
(647
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Deferred
|
|
|
(88
|
)
|
|
|
1
|
|
|
|
(535
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for (benefit from) income taxes
|
|
$
|
5,944
|
|
|
$
|
(1,660
|
)
|
|
$
|
2,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of the U.S. federal statutory rate to the Companys effective tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended July 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
U.S. federal statutory rate
|
|
|
35.00
|
%
|
|
|
35.00
|
%
|
|
|
35.00
|
%
|
Change in valuation allowance
|
|
|
(15.34
|
)
|
|
|
(111.59
|
)
|
|
|
(15.33
|
)
|
Foreign rate differential
|
|
|
(5.45
|
)
|
|
|
(266.17
|
)
|
|
|
(21.03
|
)
|
Permanent differences
|
|
|
6.30
|
|
|
|
99.19
|
|
|
|
8.88
|
|
Change in uncertain tax positions
|
|
|
(0.04
|
)
|
|
|
22.50
|
|
|
|
(0.26
|
)
|
Other
|
|
|
0.40
|
|
|
|
13.30
|
|
|
|
0.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
20.87
|
%
|
|
|
(207.77
|
)%
|
|
|
7.59
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Deferred tax assets and liabilities as of July 31, 2017, and 2016 are as follows:
|
|
|
|
|
|
|
|
|
|
|
As of July 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
140,326
|
|
|
$
|
144,699
|
|
Capital loss carryforwards
|
|
|
|
|
|
|
64
|
|
Tax credits
|
|
|
34,078
|
|
|
|
32,487
|
|
Inventory valuation reserves
|
|
|
11,128
|
|
|
|
14,213
|
|
Deferred revenue
|
|
|
2,182
|
|
|
|
1,237
|
|
Other
|
|
|
16,001
|
|
|
|
14,859
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
203,715
|
|
|
|
207,559
|
|
Valuation allowance
|
|
|
(203,261
|
)
|
|
|
(206,937
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
454
|
|
|
$
|
622
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Intangibles
|
|
$
|
(762
|
)
|
|
$
|
(373
|
)
|
Fixed assets and spares
|
|
|
(213
|
)
|
|
|
(756
|
)
|
Prepaid expenses
|
|
|
(71
|
)
|
|
|
(173
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(1,046
|
)
|
|
|
(1,302
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets (liabilities)
|
|
$
|
(592
|
)
|
|
$
|
(680
|
)
|
|
|
|
|
|
|
|
|
|
Cumulative unremitted foreign earnings that are considered to be indefinitely reinvested outside of the
U.S. and on which no U.S. taxes have been provided are approximately $47.7 million and $35.7 million as of July 31, 2017 and 2016. Due to net operating loss and credit carryforwards, the residual U.S. tax liability, if such amounts were
remitted, would be minimal.
ASC 740-10-30,
Income Taxes
, requires the Company to periodically evaluate the necessity
of establishing or increasing a valuation allowance for deferred tax assets depending on whether it is more likely than not that a related benefit will be realized in future periods. A valuation allowance has been recorded against net deferred tax
assets in the U.S. and in certain foreign jurisdictions with a history of losses. The valuation allowance totaled $203.3 million and $206.9 million as of July 31, 2017 and 2016, respectively. The decrease in the Companys valuation
allowance compared to the prior year was primarily due to a decrease in U.S. deferred tax assets associated with sources of income in the current year.
As of July 31, 2017, the Company had federal net operating loss carryforwards of $349.6 million, which expire from 2019 to 2036, federal tax credit carryforwards, including research and development
and foreign tax credits, of $11.1 million which expire from 2018 to 2037, state net operating loss carryforwards of $249.9 million, which expire from 2018 to 2036, and state tax credits and carryforwards of $37.9 million, of which the majority
have an indefinite credit carryforward period. The remaining state tax credit carryforwards begin expiring in 2018 to 2032. The Company also has foreign net operating loss carryforwards of approximately $13.1 million in various foreign
jurisdictions.
As of July 31, 2016, the Company had federal net operating loss carryforwards of $358.9 million, which
expire from 2019 to 2036, federal tax credit carryforwards, including research and development and foreign tax credits, of $10.2 million which expire from 2018 to 2036, state net operating loss carryforwards of $253.6 million, which expire from 2017
to 2036, and state tax credits and carryforwards of $36.8 million, of which the
70
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
majority have an indefinite credit carryforward period. The remaining state tax credit carryforwards begin expiring in 2017 to 2031. The Company also has foreign net operating loss carryforwards
of approximately $15.9 million in various foreign jurisdictions.
As a result of the merger with Credence Systems Corporation
on August 29, 2008, a greater than 50% cumulative ownership change in both entities triggered a significant limitation in net operating loss carryforward utilization. The Companys ability to use the acquired U.S. net operating loss and
credit carryforwards is subject to annual limitations as defined in sections 382 and 383 of the Internal Revenue Code. The Company currently estimates that the annual limitation on its use of net operating losses generated through August 29,
2008 is approximately $10.1 million, which, based on the currently enacted federal carryforward period, limits the amount of net operating losses that are available for utilization to approximately $202.0 million. The Company will continue to assess
the realizability of these carryforwards in subsequent periods.
A summary of the Companys adjustments to its uncertain
tax positions in the fiscal years ended July 31, 2017, 2016 and 2015 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31,
2017
|
|
|
July 31,
2016
|
|
|
July 31,
2015
|
|
|
|
(in thousands)
|
|
Balance at beginning of year
|
|
$
|
6,283
|
|
|
$
|
6,267
|
|
|
$
|
6,590
|
|
Increase (decrease) for uncertain tax positions related to the current year
|
|
|
200
|
|
|
|
16
|
|
|
|
185
|
|
Decrease for uncertain tax positions related to prior years
|
|
|
|
|
|
|
|
|
|
|
|
|
Decreases for lapses of statutes of limitations
|
|
|
(333
|
)
|
|
|
|
|
|
|
(508
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
6,150
|
|
|
$
|
6,283
|
|
|
$
|
6,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of July 31, 2017 and July 31, 2016, our liability for unrecognized income tax benefits was
$6.2 million and $6.3 million respectively (of which $2.6 million and $2.7 million, if recognized, would impact our income tax rate). The Company recognizes interest and penalties related to uncertain tax positions as a component of
income tax expense. The Company has accrued a total of $1.3 million and $1.2 million, respectively, for the potential payment of interest and penalties at July 31, 2017 and July 31, 2016. The Company does not anticipate a material
reduction of uncertain tax positions over the next 12 months.
The Company files income tax returns with the U.S. federal
government and various state and international jurisdictions, which are subject to potential examination by tax authorities. With few exceptions, the Companys 1998 and subsequent federal and state tax years remain open by statute, principally
relating to net operating loss carryforwards.
8. 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 July 31, 2017, the Company had
repurchased 1,956,733 shares for approximately $12 million under the 2015 Plan.
71
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Equity Offering
On September 17, 2014, the Company closed an underwritten public offering of 4,682,927 shares of its common stock at $10.25 per
share. The Company also granted to the underwriters a 30-day option to purchase up to an aggregate of 702,439 additional shares of common stock to cover over-allotments which they exercised on September 22, 2014. All of the shares were sold by
the Company pursuant to an effective shelf registration statement previously filed with the SEC.
The offering, and the
follow-on option to sell additional shares, resulted in net proceeds to Xcerra, after deducting underwriting discounts and commissions and offering expenses, of approximately $52.1 million. Xcerra used approximately $20 million of the net
proceeds from the offering to repay a portion of the outstanding principal of the Companys bank term loan with SVB and syndicate.
Reserved Unissued Shares
At July 31, 2017 and July 31, 2016, the
Company had reserved 3,433,998 and 3,683,812 of unissued shares of its common stock for possible issuance under stock-based compensation plans and the Companys Employee Stock Purchase Plan.
9. EMPLOYEE BENEFIT PLANS
Stock Option Plans
In connection with the Companys stock-based
compensation plans, at July 31, 2017, there were no options outstanding and exercisable under any plan.
For the fiscal
years ended July 31, 2016 and 2015 the Companys stock option activity was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
Options outstanding, beginning of year
|
|
|
25,080
|
|
|
$
|
11.42
|
|
|
|
475,874
|
|
|
$
|
15.08
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
(47,687
|
)
|
|
|
5.79
|
|
Forfeited/Expired
|
|
|
(25,080
|
)
|
|
|
11.42
|
|
|
|
(403,107
|
)
|
|
|
14.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding and exercisable, end of year
|
|
|
|
|
|
|
|
|
|
|
25,080
|
|
|
$
|
11.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The intrinsic value of options exercised during the year ended July 31, 2015 was $0.
Restricted Stock Units and Performance Restricted Stock Units
For the years presented, the Company granted RSUs and PRSUs to certain executives, directors and employees, with vesting terms ranging
from one to four years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended July 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Total awards
|
|
|
994,000
|
|
|
|
838,300
|
|
|
|
938,307
|
|
Executives only
|
|
|
458,000
|
|
|
|
305,000
|
|
|
|
305,000
|
|
72
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the fiscal years ended July 31, 2017, 2016, and 2015 the status of the
Companys outstanding RSUs and PRSUs is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Grant-Date
Fair Value
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Grant-Date
Fair Value
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Grant-Date
Fair Value
|
|
RSUs and PRSUs outstanding, beginning of year
|
|
|
2,036,956
|
|
|
$
|
7.42
|
|
|
|
2,174,134
|
|
|
$
|
8.03
|
|
|
|
2,154,638
|
|
|
$
|
6.68
|
|
Granted
|
|
|
994,000
|
|
|
|
6.17
|
|
|
|
838,300
|
|
|
|
6.03
|
|
|
|
938,307
|
|
|
|
9.87
|
|
Vested
|
|
|
(888,450
|
)
|
|
|
7.31
|
|
|
|
(918,978
|
)
|
|
|
7.54
|
|
|
|
(878,186
|
)
|
|
|
6.73
|
|
Forfeited
|
|
|
(72,915
|
)
|
|
|
7.15
|
|
|
|
(56,500
|
)
|
|
|
8.39
|
|
|
|
(40,625
|
)
|
|
|
7.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs and PRSUs outstanding, end of year
|
|
|
2,069,591
|
|
|
$
|
6.87
|
|
|
|
2,036,956
|
|
|
$
|
7.42
|
|
|
|
2,174,134
|
|
|
$
|
8.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of RSUs vested during the fiscal years ended July 31, 2017, 2016, and 2015 was $6.5
million, $6.9 million, and $5.9 million, respectively.
Employee Stock Purchase Plan
In December 2003, the shareholders approved an employee stock purchase plan, which was subsequently amended in September 2005, July
2009, October 2012 and August 2016 (2004 ESPP). Under the 2004 ESPP, as amended, eligible employees may contribute up to 15% of their annual compensation for the purchase of common stock of the Company, subject to an annual limit of
$25,000. The price paid for the common stock is equal to 85% of the price of the Companys common stock on the last business day of a six-month offering period. The 2004 ESPP limited the number of shares that can be issued over the term of the
plan to eligible employees to 400,000 shares, and the July 2009 amendment increased the number of shares that may be issued by an additional 400,000 shares. An October 2012 amendment increased the number of shares that may be issued by an additional
800,000 shares, and the latest amendment in August 2016 increased the number of shares that may be issued by an additional 800,000 shares. In fiscal years 2017, 2016, and 2015, the total number of shares issued under the 2004 ESPP were 116,270,
191,909, and 169,624, respectively. As of July 31, 2017, there are 920,737 shares available for issuance under the 2004 ESPP.
Other Compensation Plans
The Company has established a LTX-Credence Profit
Sharing Bonus Plan, whereby a percentage of pretax profits are distributed quarterly to all eligible LTX-Credence non-executive employees. Under the LTX-Credence Profit Sharing Bonus Plan, the Company recorded profit sharing expense for all eligible
employees of approximately $0.8 million, $0.0 million, and $0.9 million, for the fiscal years ended July 31, 2017, 2016, and 2015, respectively.
The Company also has other established incentive compensation plans for its ECT, atg-Luther & Maelzer and Multitest employees. Under these plans, individuals are compensated based on company
performance as well as individual performance, in addition to other specific criteria for each plan. Under these plans, the Company recorded expense of approximately $2.0 million, $1.0 million, and $2.0 million for fiscal 2017, fiscal 2016, and
fiscal 2015, respectively.
73
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company has an Executive Profit Sharing Plan pursuant to which the Companys
executives are eligible to receive cash awards based on the Companys achievement of certain profitability milestones. Executive employees included in this plan are excluded from the above noted compensation plans. Under the Executive Profit
Sharing Plan, the Company recognized expense of $2.9 million for fiscal 2017, $0.1 million for fiscal 2016, and $2.7 million for fiscal 2015.
The Company maintains a 401(k) Growth and Investment Plan (401(k) Plan). Eligible employees may make voluntary contributions to the 401(k) Plan through a salary reduction contract up to the
statutory limit or 20% of their annual compensation. The Company matches 50% of employees first 6% of voluntary contributions. Company contributions vest at a rate of 20% per year and employees are 100% vested after 5 years of
service. The Company funded the match with a contribution of $1.2 million for fiscal 2017, $1.2 million for fiscal 2016, and $1.4 million fiscal 2015.
10. SEGMENT, INDUSTRY AND GEOGRAPHIC AND SIGNIFICANT CUSTOMER SEGMENT INFORMATION
In accordance with the provisions of ASC 280,
Segment Reporting,
the Company determined that it has six operating segments (Semiconductor Test, Semiconductor Handlers, Contactors, PCB Test, Probes
/ Pins, and Fixtures). Based on the aggregation criteria of ASC 280, the Company determined that several of the operating segments can be aggregated due to these segments having similar economic characteristics and meeting all of the other
aggregation criteria in ASC 280. Consequently, the Company has two reportable segments: the Semiconductor Test Solutions (STS) reportable segment, which is comprised of the Semiconductor Test, Semiconductor Handlers, and Contactors operating
segments, and the Electronic Manufacturing Solutions (EMS) reportable segment, which is comprised of the PCB Test, Probes / Pins, and Fixtures operating segments.
The Semiconductor Test segment includes operations related to the design, manufacture and sale of automated test equipment for the semiconductor industry that is used to test system-on-a-chip, digital,
analog and mixed signal integrated circuits. The Semiconductor Handlers segment includes operations related to the design, manufacture and sale of test handlers used in the testing of integrated circuits. The Contactors segment includes operations
related to the design, manufacture and sale of test contactors which serve as the interface between the test handler and the semiconductor device under test. The PCB test segment includes operations related to design, manufacture and sale of
equipment used in the testing of bare and loaded printed circuit boards. The Probes / Pins segment includes operations related to the design, manufacture and sale of the physical devices used to connect electronic test equipment to the device under
test. The Fixtures segment includes operations related to the design, manufacture and sale of PCB test fixtures that enable the transmission of test signals from the loaded PCB to the tester. Each operating segment has a segment manager who is
directly accountable to and maintains regular contact with the Companys chief operating decision maker (chief executive officer and chief operating officer) to discuss operating activities, financial results, forecasts, and plans for the
segment.
The Company evaluates performance using several factors, of which the primary financial measures are revenue and
operating segment operating income. The accounting policies of the operating segments are the same as those described in Note 2 Summary of Significant Accounting Policies.
74
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Segment information for the years ended July 31, 2017, 2016 and 2015 is as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Semiconductor
Test
Solutions
|
|
|
Electronic
Manufacturing
Solutions
|
|
|
Corporate
|
|
|
Consolidated
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
319,319
|
|
|
$
|
71,452
|
|
|
$
|
|
|
|
$
|
390,771
|
|
Operating income (loss)
|
|
$
|
23,450
|
|
|
$
|
4,362
|
|
|
$
|
|
|
|
$
|
27,812
|
|
Depreciation and amortization expense
|
|
$
|
4,781
|
|
|
$
|
1,409
|
|
|
$
|
|
|
|
$
|
6,190
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
252,006
|
|
|
$
|
72,200
|
|
|
$
|
|
|
|
$
|
324,206
|
|
Operating income (loss)
|
|
$
|
(218
|
)
|
|
$
|
1,270
|
|
|
$
|
(924
|
)
|
|
$
|
128
|
|
Depreciation and amortization expense
|
|
$
|
5,612
|
|
|
$
|
1,341
|
|
|
$
|
|
|
|
$
|
6,953
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
313,858
|
|
|
$
|
84,120
|
|
|
$
|
|
|
|
$
|
397,978
|
|
Operating income (loss)
|
|
$
|
26,318
|
|
|
$
|
5,481
|
|
|
$
|
(2,206
|
)
|
|
$
|
29,593
|
|
Depreciation and amortization expense
|
|
$
|
6,795
|
|
|
$
|
1,289
|
|
|
$
|
|
|
|
$
|
8,084
|
|
Included in Corporate is restructuring charges.
The Company is not disclosing total assets for each of its reportable segments, as total assets by reportable segment is not a key metric
utilized by the Companys chief operating decision maker.
The Companys sales to its top ten customers for the
fiscal years ended July 31, 2017, 2016, and 2015, along with the accounts receivable for the same customers at July 31, 2017, 2016, and 2015, are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended July 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Net sales to the top ten customers
|
|
|
59
|
%
|
|
|
55
|
%
|
|
|
54
|
%
|
Accounts receivable from top ten customers (in millions)
|
|
$
|
51.2
|
|
|
$
|
42.3
|
|
|
$
|
43.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended July 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
The Companys customer over 10% of net sales, primarily in the Semiconductor Test and Semiconductor Handler
segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Spirox
|
|
|
15
|
%
|
|
|
19
|
%
|
|
|
13
|
%
|
75
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Companys net sales to geographic area for the fiscal years ended July 31,
2017, 2016, and 2015, along with the long-lived assets by location at July 31, 2017 and July 31, 2016, are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended July 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Sales to unaffiliated customers (ship to location):
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
68,892
|
|
|
$
|
58,224
|
|
|
$
|
85,467
|
|
Taiwan
|
|
|
59,284
|
|
|
|
39,815
|
|
|
|
50,759
|
|
Philippines
|
|
|
54,881
|
|
|
|
34,347
|
|
|
|
50,271
|
|
Malaysia
|
|
|
30,288
|
|
|
|
21,668
|
|
|
|
38,840
|
|
Thailand
|
|
|
25,151
|
|
|
|
20,694
|
|
|
|
26,414
|
|
Hong Kong/China
|
|
|
48,271
|
|
|
|
55,733
|
|
|
|
43,330
|
|
Germany
|
|
|
28,469
|
|
|
|
25,108
|
|
|
|
29,503
|
|
Singapore
|
|
|
24,601
|
|
|
|
19,286
|
|
|
|
21,652
|
|
All other countries (none of which is individually greater than 10% of net sales)
|
|
|
50,934
|
|
|
|
49,331
|
|
|
|
51,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales to unaffiliated customers
|
|
$
|
390,771
|
|
|
$
|
324,206
|
|
|
$
|
397,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of July 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Long-lived assets:
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
14,426
|
|
|
$
|
11,004
|
|
Germany
|
|
|
8,579
|
|
|
|
8,457
|
|
Malaysia
|
|
|
3,069
|
|
|
|
3,146
|
|
China
|
|
|
285
|
|
|
|
301
|
|
Singapore
|
|
|
416
|
|
|
|
784
|
|
Japan
|
|
|
791
|
|
|
|
878
|
|
Philippines
|
|
|
82
|
|
|
|
186
|
|
Taiwan
|
|
|
375
|
|
|
|
243
|
|
All other countries
|
|
|
486
|
|
|
|
484
|
|
|
|
|
|
|
|
|
|
|
Total long-lived assets
|
|
$
|
28,509
|
|
|
$
|
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.
11. COMMITMENTS AND CONTINGENCIES
From time to time, the Company is subject to certain legal proceedings and other contingencies, the outcomes of which are subject to
significant uncertainty. The Company accrues for estimated losses if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. The Company uses judgment and evaluates,
with the assistance of legal counsel, whether a loss contingency arising from litigation should be disclosed or recorded. The outcome of legal proceedings and other contingencies is inherently uncertain and often difficult to estimate. Accordingly,
if the outcome of legal proceedings and other contingencies is different than is anticipated by the Company, the Company would record the difference between any previously recorded amount and the full amount at which the matter was resolved, in
earnings in the period resolved, which could negatively impact the Companys results of operations and financial position for the period.
76
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In July 2016 the Company settled a litigation matter incidental to its business that
related to customer expectations of test system performance for a product that was shipped in 2006 by Credence prior to the merger with LTX. As a result of this settlement agreement, the Company incurred $1.4 million related to its estimated
obligation under this settlement offer. This accrual was included in Accrued Expenses on the Companys Consolidated Balance Sheet as of July 31, 2016, and the charge was recorded as Other Expense in the twelve months ended July 31,
2016.
On August 22, 2017, a putative shareholder class action complaint was filed in the United States District Court for the
District of Massachusetts against the Company and each member of the Board, captioned Chris Stallings v. Xcerra Corporation, et al., C.A. No. 1:17-cv-11579. The complaint alleges, among other things, that the Company and the Board violated federal
securities laws and regulations by soliciting stockholder votes in connection with the Merger through a proxy statement that omits material facts necessary to make the statements therein not false or misleading. The complaint seeks, among other
things, either to enjoin the Company and the Board from conducting the stockholder vote on the Merger unless and until the allegedly omitted material information is disclosed to the Companys stockholders or, in the event the Merger is
consummated, to recover damages resulting from the Companys and the Boards violations of federal securities laws and regulations.
On August 23, 2017, a putative shareholder class action complaint was filed in the United States District Court for the District of Massachusetts against the Company, each member of the Board, Parent,
Unic Capital, Sponsor and Merger Sub, captioned Robert Berg v. Xcerra Corporation et. al., Case No. 1:17-cv-11583. The complaint alleges, among other things, that the Company, the Board, Parent, Unic Capital, Sponsor and Merger Sub violated federal
securities laws and regulations by soliciting stockholder votes in connection with the Merger through a proxy statement that omits material information with respect to the proposed Merger, which renders the proxy statement false and misleading. The
complaint seeks, among other things, either to enjoin the Company, the Board, Parent, Unic Capital, Sponsor and Merger Sub from proceeding with, consummating or closing the Merger or, in the event the Merger is consummated, to rescind the Merger and
set aside or award rescissory damages.
The Company is reviewing the complaints and has not yet formally responded to them,
but believes that the plaintiffs allegations are without merit and intends to defend against them vigorously. However, litigation is inherently uncertain and there can be no assurance regarding the likelihood that the Companys defense of
the actions will be successful. Additional complaints containing substantially similar allegations may be filed in the future.
In the ordinary course of business, the Company agrees from time to time to indemnify certain customers against certain third party
claims for property damage, bodily injury, personal injury or intellectual property infringement arising from the operation or use of the Companys products. Also, from time to time in agreements with suppliers, licensors, and other business
partners, the Company agrees to indemnify these partners against certain liabilities arising out of the sale or use of the Companys products. The maximum potential amount of future payments the Company could be required to make under these
indemnification obligations is theoretically unlimited; however, the Company has general and umbrella insurance policies that enable it to recover a portion of any amounts paid, and many of its agreements contain a limit on the maximum amount, as
well as limits on the types of damages recoverable. Based on the Companys experience with such indemnification claims, it believes the estimated fair value of these obligations is minimal. Accordingly, the Company has no liabilities recorded
for these agreements as of July 31, 2017 or July 31, 2016.
Subject to certain limitations, the Company indemnifies
its current and former officers and directors for liability or costs that may incur in certain circumstances in connection with their services as directors and officers of the Company. Although the maximum potential amount of future payments the
Company could be required to make under these agreements is theoretically unlimited, as there were no known or pending claims, the Company has not accrued a liability for these agreements as of July 31, 2017 or July 31, 2016.
77
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of July 31, 2017, the Company had approximately $58.1 million of non-cancellable
inventory commitments with its suppliers. The Company expects to consume this inventory through normal operating activity.
The Company has operating lease commitments for certain facilities and equipment that expire at various dates through 2024. The Company
has an option to extend the term for its Norwood, Massachusetts facility lease for a single extension term of five years provided that the Company notifies its landlord at least 425 days prior to expiration of the current extension term.
Minimum lease payment obligations under non-cancelable leases as of July 31, 2017, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ending July 31,
|
|
Facilities
|
|
|
Equipment
|
|
|
Total
Operating
Leases
|
|
|
|
(in thousands)
|
|
2018
|
|
$
|
4,200
|
|
|
$
|
560
|
|
|
$
|
4,760
|
|
2019
|
|
|
3,401
|
|
|
|
373
|
|
|
|
3,774
|
|
2020
|
|
|
2,811
|
|
|
|
192
|
|
|
|
3,003
|
|
2021
|
|
|
2,435
|
|
|
|
110
|
|
|
|
2,545
|
|
2022
|
|
|
1,803
|
|
|
|
|
|
|
|
1,803
|
|
Thereafter
|
|
|
4,843
|
|
|
|
|
|
|
|
4,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
19,493
|
|
|
$
|
1,235
|
|
|
$
|
20,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total rent expense for the fiscal years ended July 31, 2017, 2016, and 2015 were $5.0 million, $5.4
million, and $5.8 million, respectively.
12. RESTRUCTURING
In accordance with the provisions of ASC 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.
As of July 31, 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 twelve
months ended July 31, 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.
78
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table sets forth the Companys restructuring accrual activity for the
three years ended July 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
Costs
|
|
|
Facility
Leases
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Balance July 31, 2014
|
|
$
|
421
|
|
|
$
|
2,131
|
|
|
$
|
2,552
|
|
Restructuring expense
|
|
|
1,148
|
|
|
|
1,058
|
|
|
|
2,206
|
|
Accretion
|
|
|
|
|
|
|
326
|
|
|
|
326
|
|
Cash paid
|
|
|
(885
|
)
|
|
|
(2,071
|
)
|
|
|
(2,956
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance July 31, 2015
|
|
|
684
|
|
|
|
1,444
|
|
|
|
2,128
|
|
Restructuring expense
|
|
|
428
|
|
|
|
496
|
|
|
|
924
|
|
Accretion
|
|
|
|
|
|
|
397
|
|
|
|
397
|
|
Cash paid
|
|
|
(970
|
)
|
|
|
(1,603
|
)
|
|
|
(2,573
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance July 31, 2016
|
|
|
142
|
|
|
|
734
|
|
|
|
876
|
|
Restructuring expense
|
|
|
455
|
|
|
|
149
|
|
|
|
604
|
|
Accretion
|
|
|
|
|
|
|
253
|
|
|
|
253
|
|
Cash paid
|
|
|
(576
|
)
|
|
|
(1,071
|
)
|
|
|
(1,647
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance July 31, 2017
|
|
$
|
21
|
|
|
$
|
65
|
|
|
$
|
86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13. FAIR VALUE MEASUREMENTS
The Company determines its fair value measurements for assets and liabilities based upon the provisions of ASC 820,
Fair Value Measurements and Disclosures.
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 considers factors specific to the asset or liability.
79
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table presents financial assets and liabilities measured at fair value and
their related valuation inputs as of July 31, 2017 and July 31, 2016, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
(in thousands)
|
|
July 31, 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)
|
|
$
|
103,637
|
|
|
$
|
103,637
|
|
|
$
|
|
|
|
$
|
|
|
Marketable securities
|
|
|
57,087
|
|
|
|
12,109
|
|
|
|
44,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
160,724
|
|
|
$
|
115,746
|
|
|
$
|
44,978
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 July 31, 2017 and July 31, 2016 includes cash held in operating accounts of approximately $103.5 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 July 31, 2017 and 2016 was $22.2 million and $25.0 million, respectively. Within the hierarchy of fair value
measurement, these are level 2 inputs.
14. QUARTERLY RESULTS OF OPERATIONS (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended July 31, 2017
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
|
(in thousands, except per share data)
|
|
Net sales
|
|
$
|
80,085
|
|
|
$
|
80,124
|
|
|
$
|
103,635
|
|
|
$
|
126,926
|
|
Gross profit
|
|
|
34,360
|
|
|
|
34,786
|
|
|
|
46,325
|
|
|
|
57,637
|
|
Net income
|
|
|
18
|
|
|
|
2,572
|
|
|
|
7,548
|
|
|
|
12,417
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.00
|
|
|
$
|
0.05
|
|
|
$
|
0.14
|
|
|
$
|
0.23
|
|
Diluted
|
|
$
|
0.00
|
|
|
$
|
0.05
|
|
|
$
|
0.14
|
|
|
$
|
0.23
|
|
80
XCERRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Net income for fiscal 2017 includes the following activity associated with non-recurring
transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended July 31, 2017
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
|
(in thousands)
|
|
Restructuring
|
|
$
|
(107
|
)
|
|
$
|
(299
|
)
|
|
$
|
(187
|
)
|
|
$
|
(198
|
)
|
Deal costs
|
|
|
|
|
|
|
(503
|
)
|
|
|
(1,341
|
)
|
|
|
(1,242
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-recurring income (expense)
|
|
$
|
(107
|
)
|
|
$
|
(802
|
)
|
|
$
|
(1,528
|
)
|
|
$
|
(1,440
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended July 31, 2016
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
|
(in thousands, except per share data)
|
|
Net sales
|
|
$
|
78,401
|
|
|
$
|
72,334
|
|
|
$
|
82,237
|
|
|
$
|
91,234
|
|
Gross profit
|
|
|
32,132
|
|
|
|
29,705
|
|
|
|
35,904
|
|
|
|
42,185
|
|
Net income (loss)
|
|
|
(1,666
|
)
|
|
|
2,548
|
|
|
|
3,157
|
|
|
|
7,135
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.03
|
)
|
|
$
|
0.05
|
|
|
$
|
0.06
|
|
|
$
|
0.13
|
|
Diluted
|
|
$
|
(0.03
|
)
|
|
$
|
0.05
|
|
|
$
|
0.06
|
|
|
$
|
0.13
|
|
Net income for fiscal 2016 includes the following activity associated with non-recurring transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended July 31, 2016
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
|
(in thousands)
|
|
Discontinued operations
|
|
$
|
(788
|
)
|
|
$
|
8,363
|
|
|
$
|
2,189
|
|
|
$
|
(1,050
|
)
|
Restructuring
|
|
|
(133
|
)
|
|
|
(252
|
)
|
|
|
(120
|
)
|
|
|
(420
|
)
|
Impairment of asset held for sale
|
|
|
|
|
|
|
|
|
|
|
(601
|
)
|
|
|
|
|
Tax benefit from divestiture
|
|
|
|
|
|
|
|
|
|
|
793
|
|
|
|
2,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-recurring income (expense)
|
|
$
|
(921
|
)
|
|
$
|
8,111
|
|
|
$
|
2,261
|
|
|
$
|
1,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81