Xcerra Corp - FORM 10-Q - December 10, 2015

Xcerra Corp - FORM 10-Q - December 10, 2015

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Xcerra Corp Reports

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EX-32 - EX-32 - Xcerra Corp	d89356dex32.htm
EX-31.1 - EX-31.1 - Xcerra Corp	d89356dex311.htm
EX-31.2 - EX-31.2 - Xcerra Corp	d89356dex312.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 31, 2015

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 000-10761

XCERRA CORPORATION

(Exact name of registrant as specified in its charter)

Massachusetts

04-2594045

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

825 University Ave

Norwood, Massachusetts

02062

(Address of principal executive offices)

(Zip Code)

(781) 461-1000

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class		Outstanding at December 4, 2015
Common Stock, $0.05 par value per share		54,325,388 shares

XCERRA CORPORATION

Index


		Page Number

Part I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets as of October 31, 2015 and July 31, 2015		3

	Consolidated Statements of Operations and Comprehensive (Loss) Income for the Three Months Ended October 31, 2015 and October 31, 2014		4

	Consolidated Statements of Cash Flows for the Three Months Ended October 31, 2015 and October 31, 2014		5

	Notes to Consolidated Financial Statements		6-22

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		22

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		33

Item 4.	Controls and Procedures		33

Part II.	OTHER INFORMATION		34

Item 1.	Legal Proceedings		34

Item 1A.	Risk Factors		34

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		42

Item 6.	Exhibits		42

	SIGNATURE		43

	EXHIBIT INDEX		44

XCERRA CORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands)


	October 31, 2015			July 31, 2015
ASSETS
Current assets:
Cash and cash equivalents	$	64,205		$	77,858
Marketable securities		59,124			60,593
Accounts receivable—trade, net of allowances of $85 and $110, respectively		73,896			81,313
Accounts receivable—other		292			326
Inventories		62,387			60,593
Prepaid expenses and other current assets		8,344			8,393
Assets held for sale		10,713			10,454

Total current assets		278,961			299,530
Property and equipment, net		30,563			31,450
Intangible assets, net		10,226			10,640
Goodwill		43,850			43,850
Other assets		2,585			2,005

Total assets	$	366,185		$	387,475

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	3,143		$	2,509
Accounts payable		20,518			27,492
Deferred revenues		7,197			7,466
Other accrued expenses		30,256			35,579
Liabilities held for sale		912			1,147

Total current liabilities		62,026			74,193
Other long-term liabilities		11,201			10,876
Term loans		23,242			23,938
Commitments and contingencies (Note 7)
Stockholders’ equity:
Common stock		2,672			2,732
Additional paid-in capital		803,707			809,944
Accumulated other comprehensive loss		(14,213	)		(13,424	)
Accumulated deficit		(522,450	)		(520,784	)

Total stockholders’ equity		269,716			278,468

Total liabilities and stockholders’ equity	$	366,185		$	387,475

See accompanying Notes to Consolidated Financial Statements.

XCERRA CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

(Unaudited)

(In thousands, except per share data)


	Three Months Ended October 31,
	2015			2014
Net product sales	$	71,873		$	108,122
Net service sales		6,528			8,099

Net sales		78,401			116,221
Cost of sales		46,269			63,022

Gross profit		32,132			53,199
Engineering and product development expenses		15,063			16,065
Selling, general and administrative expenses		17,952			22,155
Amortization of purchased intangible assets		414			535
Restructuring		133			708

(Loss) income from operations		(1,430	)		13,736
Other income (expense):
Interest expense		(287	)		(915	)
Interest income		124			96
Other income, net		1,626			340

Income before provision for income taxes		33			13,257
Provision for income taxes		911			763

(Loss) income from continuing operations		(878	)		12,494
Loss from discontinued operations, net of tax		(788	)		(432	)

Net (loss) income	$	(1,666	)	$	12,062

Basic net (loss) income per share:
Net (loss) income from continuing operations	$	(0.02	)	$	0.24
Net loss from discontinued operations, net of tax	$	(0.01	)	$	(0.01	)

Basic net (loss) income per share	$	(0.03	)	$	0.24

Diluted net (loss) income per share:
Net (loss) income from continuing operations	$	(0.02	)	$	0.24
Net loss from discontinued operations, net of tax	$	(0.01	)	$	(0.01	)

Diluted net (loss) income per share	$	(0.03	)	$	0.23

Weighted-average common and common equivalent shares used in computing net income per share:
Basic		54,490			51,128
Diluted		54,490			52,303
Comprehensive (loss) income:
Net (loss) income	$	(1,666	)	$	12,062
Unrealized gain (loss) on marketable securities		2			(11	)
Change in pension liability		—			3
Unrealized loss on currency translation		(789	)		(3,620	)

Comprehensive (loss) income	$	(2,453	)	$	8,434

See accompanying Notes to Consolidated Financial Statements.

XCERRA CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)


	Three Months Ended October 31,
	2015			2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(1,666	)	$	12,062
Add (deduct) non-cash items
Stock-based compensation		1,931			1,933
Depreciation and amortization		1,891			2,476
Restructuring		133			708
Other non-cash items		129			326
Changes in operating assets and liabilities:
Accounts receivable		7,743			8,493
Inventories		(1,665	)		2,842
Prepaid expenses		(434	)		(2,708	)
Accounts payable		(6,782	)		(6,985	)
Accrued expenses		(12,079	)		112
Deferred revenues		4,766			1,479

Net cash (used in) provided by operating activities		(6,033	)		20,738

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(591	)		(2,196	)
Purchases of available-for-sale securities		(17,613	)		(38,331	)
Proceeds from sales and maturities of available-for-sale securities		18,891			19,859

Net cash provided by (used in) investing activities		687			(20,668	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchases of common stock		(7,376	)		—
Proceeds from sale of common stock, net of issuance costs		—			52,440
Payments of tax withholdings for vested RSUs, net of proceeds from stock option exercises		(854	)		(942	)
Principal payments on bank term loan		—			(20,730	)

Net cash (used in) provided by financing activities		(8,230	)		30,768

Effect of exchange rate changes on cash and cash equivalents		(77	)		(1,317	)

Net (decrease) increase in cash and cash equivalents		(13,653	)		29,521
Cash and cash equivalents at beginning of period		77,858			59,269

Cash and cash equivalents at end of period	$	64,205		$	88,790

See accompanying Notes to Consolidated Financial Statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. THE COMPANY

Xcerra Corporation (“Xcerra” or the “Company”), is a global provider of test and handling capital equipment, interface products, test fixtures, and services to the semiconductor, industrial, and electronics manufacturing industries. The Company designs, manufacturers, markets and services systems and products that address the broad, divergent requirements of the mobility, industrial, medical, automotive and consumer end markets, offering a comprehensive portfolio of solutions and technologies, and a global network of strategically deployed applications and support resources. Xcerra operates in the semiconductor and electronics manufacturing test markets and is the parent company to the atg-Luther & Maelzer (“atg”), Everett Charles Technologies (“ECT”), LTX-Credence (“LTXC”) and Multitest (“Multitest”) businesses. Semiconductor designers and manufacturers worldwide use the Company’s test and handling equipment and interface products to test their devices during the manufacturing process. The Company’s interface products include the design, manufacture and marketing of load boards, 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 Company’s systems include a diverse set of electronic products including network servers, personal computers, tablet computers and mobile phones. The Company’s test fixture products include the design, manufacture, and marketing of in-circuit and functional-circuit test fixtures for testing assembled PCBs. The Company also sells hardware and software support and maintenance services for its products.

On November 30, 2015, the Company completed the sale of its semiconductor test interface board business based in Santa Clara, CA (“Interface Board Business”) to Fastprint Hong Kong Co., Ltd., a wholly owned subsidiary of Shenzhen Fastprint Circuit Tech Co., Ltd, and its affiliates (collectively, “Fastprint”), pursuant to an Asset Purchase Agreement, entered into between the company and Fastprint on September 8, 2015 (the “Purchase Agreement”).

The Company sold and transferred to Fastprint certain assets used or primarily related to the Interface Board Business, and assigned, and Fastprint assumed, certain specified liabilities associated with the Interface Board Business, along with the transfer of the employees associated with that business, all pursuant to the terms of the Purchase Agreement. The Interface Board Business produces printed circuit boards that are specifically designed to serve as an interface between the tester and the semiconductor device, or the semiconductor wafer, being tested. The purchase price for the Assets was $23.0 million, plus amounts consisting of the accrued and unpaid vacation of certain U.S. employees transferring to the buyer (as defined in the Purchase Agreement, the “Accrued U.S. Compensation Amount” and, together with the Assumed Liabilities, collectively, the “Purchase Price”), and at the Closing the 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 has been withheld by Fastprint and shall be payable on the first anniversary of the Closing subject to claims for indemnification by Fastprint, if any, prior to that time.

As a result, the Company has identified certain assets and liabilities associated with this business to be held for sale. The unaudited financial results in this Quarterly Report on Form 10-Q for the period ending October 31, 2015 give effect to these items as discontinued operations.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant inter-company transactions and balances have been eliminated in consolidation.

Preparation of Financial Statements and Use of Estimates

The accompanying financial statements have been prepared by the Company, and reflect all adjustments, which, in the opinion of management, are necessary for fair presentation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of income and expenses during the reporting periods. Actual results may differ from those estimates and such differences may be material to the consolidated financial statements. Such estimates relate to fair values ascribed to the assets and liabilities acquired in connection with the acquisition of the Multitest and ECT Businesses from Dover Printing & Identification, Inc. (the “Dover Acquisition”), revenue recognition, the allowance for doubtful accounts, inventory valuation, depreciation, product warranty costs, stock-based compensation and income taxes, among others.

Revenue Recognition

The Company recognizes revenue based on guidance provided in Topic 605, Revenue Recognition, to the Financial Accounting Standards Board Codification (“FASB ASC”) and Accounting Standards Update 2009-13, Multiple-Deliverable Revenue Arrangements (“ASU 2009-13”). The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the seller’s price is fixed or determinable and collectability is reasonably assured.

Revenue related to equipment sales is recognized when: (a) the Company has a written sales agreement; (b) delivery has occurred or service has been rendered; (c) the price is fixed or determinable; (d) collectability is reasonably assured; (e) the equipment delivered is a standard product with historically demonstrated acceptance; and (f) there is no unique customer acceptance provision or payment tied to acceptance or an undelivered element significant to the functionality of the system. Generally, payment terms are time based after product shipment. From time to time, sales to a customer may involve multiple elements, in which case revenue is recognized on the delivered element provided that (1) the undelivered element is a proven technology, (2) there is a history of acceptance on the equipment with the customer, (3) the undelivered element is not essential to the customer’s 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 Company’s Consolidated Statement of Operations and Comprehensive Income (Loss) includes revenue associated with LTX-Credence maintenance or service contracts only, and excludes ECT and Multitest. ECT and Multitest generally do not provide maintenance and service contracts, but rather sell spare parts and other components, and as a result these sales are recognized as net product sales in the Company’s Consolidated Statement of Operations and Comprehensive Income (Loss). Revenue related to spare parts and components is recognized when the four main criteria listed above are met. Generally customer acceptance is not required for spare parts and component sales.

Inventories

Inventories are stated at the lower of cost or market, determined on the first-in, first-out (“FIFO”) method, and include materials, labor and manufacturing overhead. The components of inventories are as follows:


	October 31, 2015		July 31, 2015
	(in thousands)
Material and purchased components	$	29,107	$	27,249
Work-in-process		15,078		15,250
Finished equipment, including inventory consigned to customers		18,202		18,094

Total inventories	$	62,387	$	60,593

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 Company’s products or market conditions. The Company regularly evaluates its ability to realize the value of inventory based on a combination of factors, including forecasted sales or usage, estimated product end of life dates, estimated current and future market value, and new product introductions.

Purchasing and usage alternatives are also explored to mitigate inventory exposure. When recorded, reserves are intended to reduce the carrying value of inventory to its net realizable value. As of October 31, 2015 and July 31, 2015, inventory was stated net of inventory reserves of $46.4 million and $46.9 million, respectively. If actual demand for products deteriorates or market conditions are less favorable than projected, additional inventory reserves may be required. Such reserves are not reversed until the related inventory is sold or otherwise disposed.

Goodwill and Other Intangibles

In accordance with FASB ASC Topic 350—Intangibles—Goodwill and Other (“ASC 350”), goodwill is not amortized. Rather, the Company’s goodwill is subject to periodic impairment testing. ASC 350 requires that the Company assign its goodwill to reporting units and test each reporting unit’s goodwill for impairment at least on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company completed its goodwill impairment testing at July 31, 2015 and determined no adjustment to goodwill was necessary.

The testing of goodwill for impairment is performed at a level referred to as a reporting unit. As of October 31, 2015, the Company’s goodwill is allocated to its Semiconductor Test reporting unit and its Contactors reporting unit. Based on ASC 350-20-35-3A, as of October 31, 2015, there were no triggering events that required the Company to complete impairment testing.

The Company’s goodwill consists of the following:


Goodwill	October 31, 2015		July 31, 2015
	(in thousands)
Semiconductor Test Reporting Unit
Merger with Credence Systems Corporation (August 29, 2008)	$	28,662	$	28,662
Acquisition of Step Tech Inc. (June 10, 2003)		14,368		14,368
Contactors Reporting Unit
Acquisition of Titan Semiconductor Tool LLC (February 2, 2015)		820		820

Total goodwill	$	43,850	$	43,850

Amortizable intangible assets which relate to the acquisition of Titan Semiconductor Tool LLC (“Titan”), ECT, Multitest, and atg, and the merger with Credence Systems Corporation (“Credence”), consist of the following, and are included in intangibles asset, net on the Company’s Consolidated Balance Sheets:


			As of October 31, 2015
Description	Estimated Useful Life		Gross Carrying Amount		Accumulated Amortization			Net Amount
	(in years)		(in thousands)		(in thousands)			(in thousands)
Developed technology (Credence, ECT, Multitest, atg, and Titan)		6-20	$	29,882	$	(27,069	)	$	2,813
Customer Relationships – ECT, Multitest, atg, and Titan		2		1,844		(1,123	)		721
Maintenance agreements—ASL & Diamond		7		1,900		(1,697	)		203
Trade Names		10		70		(8	)		62
Non-compete Agreements		1		8		(8	)		—

Total intangible assets			$	33,704	$	(29,905	)	$	3,799


			As of July 31, 2015
Description	Estimated Useful Life		Gross Carrying Amount		Accumulated Amortization			Net Amount
	(in years)		(in thousands)		(in thousands)			(in thousands)
Developed technology (Credence, ECT, Multitest, atg, and Titan)		6-20	$	29,882	$	(26,856	)	$	3,026
Customer Relationships – ECT, Multitest, atg, and Titan		2		1,844		(992	)		852
Maintenance agreements—ASL & Diamond		7		1,900		(1,629	)		271
Trade Names		10		70		(6	)		64
Non-compete Agreements		1		8		(8	)		—

Total intangible assets			$	33,704	$	(29,491	)	$	4,213

Intangible assets, other than trademarks owned by the Company, are amortized based upon the pattern of estimated economic use over their estimated useful lives. The weighted average estimated remaining useful life over which these intangible assets will be amortized is 4.0 years.

The Company expects amortization for these intangible assets to be to be:


Year ending July 31,	Amount (in thousands)
Remainder of 2016	$	792
2017		669
2018		472
2019		379
Thereafter		1,487

Total	$	3,799

The identifiable intangible assets associated with the Dover Acquisition include $6.4 million of trademarks. The Company believes these trademarks will contribute to the Company’s cash flows indefinitely. Therefore, in accordance with ASC 350, the Company has assigned an indefinite useful life to the trademarks, and will not amortize the trademarks until their useful lives are no longer indefinite.

Long Lived Assets

On an on-going basis, management reviews the value of and period of amortization or depreciation of the Company’s long-lived assets. In accordance with Topic 360, Property, Plant and Equipment, to the FASB ASC, the Company reviews whether impairment losses exist on its long-lived assets other than goodwill when indicators of impairment are present. During this review, the Company assesses future cash flows and re-evaluates the significant assumptions used in determining the original cost of long-lived assets other than goodwill. Although the assumptions may vary, they generally include revenue growth, operating results, cash flows and other indicators of value. Management then determines whether there has been a permanent impairment of the value of long-lived assets based upon events or circumstances that have occurred since acquisition. The impairment amount recognized is based upon a determination of the impaired asset’s fair value compared to its carrying value. As of October 31, 2015, there were no indicators that required the Company to conduct a recoverability test.

Foreign Currency Remeasurement

The financial statements of the Company’s foreign subsidiaries are remeasured in accordance with Topic 830, Foreign Currency Matters, to the FASB ASC. The functional currency of the Company’s tester group is the U.S. dollar. Accordingly, the Company’s foreign subsidiaries that are included in this group remeasure monetary assets and liabilities at month-end exchange rates while long-term non-monetary items are remeasured at historical rates. Income and expense accounts are remeasured at the average rates in effect during the month. . Net gains (losses) resulting from foreign currency remeasurement and transaction gains (losses) are included in our Consolidated Statements of Operations and Comprehensive (Loss) Income as a component of other income (expense), net, and were $1.6 million and $0.4 million, respectively, for the three months ended October 31, 2015 and 2014, respectively. The functional currency of ECT, Multitest and atg is local currency, predominantly Euro, Malaysian Ringgit and Singapore Dollars, and net gains or losses resulting from foreign currency remeasurement and translation gains or losses are recorded in stockholders’ equity as accumulated other comprehensive income (loss).

Product Warranty Costs

Certain of the Company’s 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 as amounts as necessary.

The following table shows the change in the Company’s product warranty liability, as required by Topic 460, Guarantees, to the FASB ASC for the three months ended October 31, 2015 and 2014:


	Three Months Ended October 31,
Product Warranty Activity	2015			2014
	(in thousands)
Balance at beginning of period	$	2,983		$	3,206
Warranty expenditures for current period		(1,135	)		(1,440	)
Changes in liability related to pre-existing warranties		28			(108	)
Provision for warranty costs in the period		952			1,734

Balance at end of period	$	2,828		$	3,392

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 Company’s 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 Company’s 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 customer’s inability to meet its financial obligations, an allowance is provided, which is based on the age of the receivables, the circumstances surrounding the customer’s financial situation, and historical experience. If circumstances change, and the financial condition of customers is adversely affected resulting in their inability to meet their financial obligations to the Company, additional allowances may be recorded.

Engineering and Product Development Expenses

The Company expenses all engineering and product development costs as incurred. Expenses relating to certain software development costs, subject to capitalization in accordance with Topic 985, Software, to the FASB ASC, were insignificant.

Shipping and Handling Costs

Shipping and handling costs are included in cost of sales in the Company’s Consolidated Statements of Operations and Comprehensive (Loss) Income. Shipping and handling costs were insignificant for the three months ended October 31, 2015 and 2014.

Income Taxes

The Company recorded an income tax provision of $0.9 million for the three months ended October 31, 2015, primarily due to foreign taxes in profitable locations.

The Company’s total liability for unrecognized income tax benefits was $6.3 million (of which $2.7 million, if recognized, would impact the Company’s income tax rate) as of October 31, 2015 and July 31, 2015. The Company recognizes interest and penalties related to uncertain tax positions as a component of provision for income taxes. As of October 31, 2015 and July 31, 2015, the Company had accrued approximately $1.0 million for potential payment of accrued interest and penalties.

The Company conducts business globally and, as a result, the Company and its subsidiaries or branches file income tax returns in the U.S. federal jurisdiction and various U.S. state and foreign jurisdictions. In the normal course of business the Company is subject to examination by taxing authorities throughout the world, including such major jurisdictions as the United States, Singapore, Malaysia, China, France and Germany. With few exceptions, the Company is no longer subject to U.S. federal, state and local or non-U.S. income tax examinations for the years prior to 1998.

As a result of the Company’s 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 Company’s ability to use acquired U.S. net operating loss and credit carryforwards is subject to annual limitation as defined in sections 382 and 383 of the Internal Revenue Code. The Company currently estimates that the annual limitation on its use of net operating losses generated through August 29, 2008 will be approximately $10.1 million which, based on currently enacted federal carryforward periods, limits the amount of net operating losses that are available for utilization to approximately $202.0 million. The Company has recorded a valuation allowance against the full value of U.S. net operating loss and credit carryforwards, and will continue to assess the realizability of these carryforwards in subsequent periods.

Accounting for Stock-Based Compensation

The Company has equity awards outstanding under various stock-based compensation plans, including the 2010 Stock Plan (“2010 Plan”) and 2004 Stock Plan, The Company can only grant awards from the 2010 Plan.

During the three months ended October 31, 2015, the Company granted 776,300 Restricted Stock Units (“RSUs”) to certain employees, with such shares vesting in equal installments in each of the next four years. The stock-based compensation expense related to these awards is recognized over their vesting periods.

The Company recognizes stock-based compensation expense on its equity awards in accordance with the provisions of Topic 718, Compensation—Stock Compensation to the FASB ASC (“Topic 718”). Under Topic 718, the Company is required to recognize as expense the estimated fair value as of the grant date of all share-based awards to employees. In accordance with this standard, the Company recognizes the compensation cost of each service-based award on a straight-line basis over the vesting period of such award. For the three months ended October 31, 2015 and 2014, the Company recorded stock-based compensation expense of approximately $1.9 million in both periods, in connection with its share-based awards.

Net (loss) income per share

Basic net (loss) income per common share is computed by dividing net (loss) income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted net (loss) 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 (loss) income by the weighted average number of common shares and the dilutive effect of all securities outstanding.

Reconciliation between basic and diluted net (loss) income per common share is as follows:


	Three Months Ended October 31,
	2015			2014
Net (loss) income	$	(1,666	)	$	12,062
Basic EPS
Weighted average shares outstanding- basic		54,490			51,128
Basic EPS	$	(0.03	)	$	0.24
Diluted EPS
Weighted average shares outstanding- basic		54,490			51,128
Plus: impact of stock options and unvested RSUs		—			1,175

Weighted average shares outstanding- diluted		54,490			52,303
Diluted net (loss) income per share	$	(0.03	)	$	0.23

For the three months ended October 31, 2015, there were no outstanding options to purchase stock of the company. For the three months ended October 31, 2014, options to purchase approximately 0.2 million shares of common stock were not included in the calculation of diluted net loss per share because the effect of including the options would have been anti-dilutive. The calculation of diluted net loss per share also excludes 2.4 million RSUs, for the three months ended October 31, 2015 in accordance with the contingently issuable shares guidance of Topic 260, Earnings Per Share, to the FASB ASC.

Cash and Cash Equivalents and Marketable Securities

The Company considers all highly liquid investments that are readily convertible to cash and that have original maturity dates of three months or less to be cash equivalents. Cash and cash equivalents consist primarily of operating cash, money market accounts and reverse repurchase agreements. Marketable securities consist primarily of debt securities that are classified as available-for-sale, in accordance with Topic 320, Investments—Debt and Equity Securities, to the FASB ASC. The Company also holds certain investments in commercial paper that it considers to be held to maturity, based on their maturity dates. Securities available for sale include corporate and governmental obligations with various contractual maturity dates some of which are greater than one year. The Company considers the securities to be liquid and convertible to cash within 30 days. The Company has the ability and intent to liquidate any security that the Company holds to fund operations over the next twelve months, if necessary, and as such has classified all of its marketable securities as short-term. Governmental obligations include U.S. Government, State, Municipal and Federal Agency securities. The Company has an overnight sweep investment arrangement with its bank for certain accounts to allow the Company to enter into diversified overnight investments via a money market mutual fund which generally provides a higher investment yield than a regular operating account.

The market value and maturities of the Company’s marketable securities are as follows:


	Total Amount
	(in thousands)
October 31, 2015
Due in less than one year	$	25,543
Due in 1 to 3 years		33,581

Total marketable securities	$	59,124


	Total Amount
	(in thousands)
July 31, 2015
Due in less than one year	$	36,447
Due in 1 to 3 years		24,146

Total marketable securities	$	60,593

The market value and amortized cost of marketable securities are as follows:


	Market Value		Amortized Cost
	(in thousands)
October 31, 2015
Corporate	$	14,941	$	14,922
Government		25,641		25,448
Mortgage-Backed		2,442		2,444
Asset-Backed		16,100		16,077

Total	$	59,124	$	58,891


	Market Value		Amortized Cost
	(in thousands)
July 31, 2015
Corporate	$	15,996	$	15,951
Government		25,567		25,381
Mortgage-Backed		2,670		2,674
Asset-Backed		16,360		16,335

Total	$	60,593	$	60,341

Unrealized gains and losses on investments held by the Company are reflected as a separate component of comprehensive income (loss) within Stockholders’ Equity. Realized gains, losses and interest on investments held by the Company are included in interest income in the Consolidated Statements of Operations and Comprehensive (Loss) Income. The Company analyzes its investments for impairment on a quarterly basis or upon occurrence of indicators of possible impairment. There were no other-than-temporary impairment losses recorded in the three months ended October 31, 2015 or 2014.

The following table summarizes marketable securities and related unrealized gains and losses as of October 31, 2015 and July 31, 2015:


October 31, 2015	Market Value		Unrealized Gain/(Loss)
	(in thousands)
Securities < 12 months unrealized losses	$	11,916	$	(5	)
Securities > 12 months unrealized losses		22,743		(45	)
Securities < 12 months unrealized gains		13,627		15
Securities > 12 months unrealized gains		10,838		17

Total	$	59,124	$	(18	)



July 31, 2015	Market Value		Unrealized Gain/(Loss)
	(in thousands)
Securities < 12 months unrealized losses	$	17,767	$	(28	)
Securities > 12 months unrealized losses		11,592		(23	)
Securities < 12 months unrealized gains		18,681		12
Securities > 12 months unrealized gains		12,553		20

Total	$	60,593	$	(19	)

Property and Equipment

Property and equipment acquired is recorded at cost. The Company records depreciation using the straight-line method. Charges are made to operating expenses in amounts that are sufficient to amortize the cost of the assets over their estimated useful lives. Equipment spares used for service and internally manufactured test systems used for testing components and engineering projects are recorded at cost and depreciated over five to seven years. Repair and maintenance costs that do not extend the lives of property and equipment are expensed as incurred. The Company’s property and equipment as of October 31, 2015 and July 31, 2015 are summarized as follows:


	October 31, 2015			July 31, 2015			Estimated Useful Lives
	(in thousands)						(in years)
Equipment spares	$	40,245		$	41,398		5 or 7
Machinery, equipment and internally manufactured systems		32,333			32,068		3-7
Office furniture and equipment		2,494			2,518		3-7
Purchased software		602			506		3
Land		6,106			6,106		—
Buildings		8,634			8,634		5 or 7
Leasehold improvements		10,653			11,029		10-40 years Term of lease or useful life, not to exceed 10 years

Property and equipment, gross		101,067			102,259
Accumulated depreciation and amortization		(70,504	)		(70,809	)

Property and equipment, net	$	30,563		$	31,450

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 Company sold and transferred to Fastprint certain assets used or primarily related to the Interface Board Business, and assigned, and Fastprint assumed, certain specified liabilities associated with the Interface Board Business, along with the transfer of the employees associated with that business, all pursuant to the terms of the Purchase Agreement. The Interface Board Business produces printed circuit boards that are specifically designed to serve as an interface between the tester and the semiconductor device, or the semiconductor wafer, being tested. The purchase price for the Assets was $23.0 million, plus amounts consisting of the accrued and unpaid vacation of certain U.S. employees transferring to the buyer (as defined in the Purchase Agreement, the “Accrued U.S. Compensation Amount” and, together with the Assumed Liabilities, collectively, the “Purchase Price”), and at the Closing the 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 has been withheld by Fastprint and shall be payable on the first anniversary of the Closing subject to claims for indemnification by Fastprint, if any, prior to that time. The Company’s 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 expects to recognize a gain of approximately $12.0 million associated with the sale of the Interface Board Business.

Summarized results of the discontinued operation are as follows for the three months ended October 31, 2015 and 2014:


	For the three months ended October 31,
	2015			2014
	(in thousands)
Revenue	$	9,563		$	10,941
Loss from discontinued operations	$	(788	)	$	(432	)
Provision for income taxes		—			—

Loss from discontinued operations, net of tax	$	(788	)	$	(432	)

The operating results of the Interface Board Business were historically included in the results of operations for the Interface Products Group which were included in the Semiconductor Test Solutions reportable segment.

The presentation of the Interface Board Business as a discontinued operation has no impact on the previously reported net income (loss) or stockholder’s equity.

Assets and liabilities identifiable within the Interface Board Business are reported as “Assets held for sale” and “Liabilities held for sale”, respectively, in the Consolidated Balance Sheets. The major classes of assets and liabilities of the discontinued operation as of October 31, 2015 and July 31, 2015 is as follows:


	October 31, 2015		July 31, 2015
	(in thousands)
Assets held for sale:
Inventory	$	1,834	$	1,904
Prepaid expenses and other current assets		250		254
Fixed assets, net		8,289		7,939
Intangibles		340		357

Assets held for sale	$	10,713	$	10,454

Liabilities held for sale:
Accrued expenses	$	912	$	1,147

Liabilities held for sale	$	912	$	1,147

4. BUSINESS COMBINATION

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 Semiconductor LLC (“Titan”). The purchase price of Titan was approximately $2.4 million, which was paid in cash from the Company’s 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 Xcerra’s 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.

5. SEGMENT REPORTING AND GEOGRAPHIC INFORMATION

Segment Reporting

In accordance with the provisions of Topic 280, Segment Reporting to the FASB ASC (“ASC 280”), the Company has determined that it has seven operating segments (Semiconductor Test, Semiconductor Handlers, Contactors, Interface Boards, 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 operating segment includes operations related to the design, manufacture and sale of automated test equipment for the semiconductor industry that is used to test system-on-a-chip, digital, analog and mixed signal integrated circuits. The Semiconductor Handlers operating segment includes operations related to the design, manufacture and sale of test handlers used in the testing of integrated circuits. The Contactors segment includes operations related to the design, manufacture and sale of test contactors which serve as the interface between the test handler and the semiconductor device under test. The Interface Boards operating segment includes operations related to the design, manufacture and sale of circuit boards designed to serve as an interface between the tester and the semiconductor device under test. The PCB test operating segment includes operations related to design, manufacture and sale of equipment used in the testing of bare and loaded printed circuit boards. The Probes / Pins operating segment includes operations related to the design, manufacture and sale of the physical devices used to connect electronic test equipment to the device under test. The Fixtures segment includes operations related to the design, manufacture and sale of PCB test fixtures that enable the transmission of test signals from the loaded PCB to the tester. Each operating segment has a segment manager who is directly accountable to and maintains regular contact with the Company’s chief operating decision maker (chief executive officer and chief operating officer) to discuss operating activities, financial results, forecasts, and plans for the segment.

The Company evaluates performance using several factors, of which the primary financial measures are revenue and operating segment operating income. The accounting policies of the operating segments are the same as those described in Note 2 “Summary of Significant Accounting Policies”.

Segment information for the three months ended October 31, 2015 and 2014 is as follows (in thousands):


	Semiconductor Test Solutions			Electronic Manufacturing Solutions		Consolidated
Three months ended October 31, 2015
Net sales	$	57,185		$	21,216	$	78,401
(Loss) income from operations	$	(3,171	)	$	1,741	$	(1,430	)
Depreciation and amortization expense	$	1,472		$	403	$	1,875

Three months ended October 31, 2014
Net sales	$	93,169		$	23,052	$	116,221
Income (loss) from operations	$	12,091		$	1,645	$	13,736
Depreciation and amortization expense	$	1,939		$	255	$	2,194

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 Company’s chief operating decision maker.

Geographic Information

The Company’s net sales to geographic area for the three months ended October 31, 2015 and 2014, along with its long-lived assets by location at October 31, 2015 and July 31, 2015, are summarized as follows:


	Three Months Ended October 31,
	2015		2014
	(in thousands)
Net sales:
United States	$	23,368	$	32,404
Taiwan		8,977		13,904
Philippines		11,428		12,468
Malaysia		3,273		5,028
Thailand		5,844		8,562
Hong Kong/China		7,423		12,365
Germany		4,712		10,061
Singapore		2,915		6,436
All other countries		10,461		14,993

Total Net Sales	$	78,401	$	116,221


	October 31, 2015		July 31, 2015
	(in thousands)
Long-lived assets:
United States	$	15,112	$	16,317
Germany		9,166		9,254
Malaysia		3,285		3,281
China		424		471
Singapore		649		678
Japan		972		617
Philippines		252		273
Taiwan		317		181
All other countries		386		378

Total long-lived assets	$	30,563	$	31,450

Transfer prices on products sold to foreign subsidiaries are intended to produce profit margins that correspond to the subsidiary’s sales and support efforts.

6. RESTRUCTURING

In accordance with the provisions of Topic 420, Exit or Disposal Cost Obligation, to the FASB ASC, the Company recognizes certain costs associated with headcount reductions, office vacancies and other costs to move or relocate operations or employees as restructuring costs in the period in which such actions are initiated and approved by management or the obligations are incurred, as applicable.

As of October 31, 2015, the Company’s restructuring accrual represented obligations related to remaining lease and property tax payments associated with the Company’s decision to vacate a facility during fiscal year 2009, as well as severance obligations payable related to headcount reductions related to the Company’s announcement in March 2015 to reorganize parts of its Fixtures segment.

During the three months ended October 31, 2015, the Company incurred approximately $0.1 million in relocation costs associated with the Fixtures segment reorganization, which were included in restructuring expense for the period. The remainder of the expense incurred during the three months ended October 31, 2015 was related to severance and other post-employment obligations for certain headcount reductions implemented during the period related to the same action.

The following table sets forth the Company’s restructuring accrual activity for the three months ended October 31, 2015 and October 31, 2014:


	Severance Costs			Facility Leases			Total
				(in thousands)
Balance July 31, 2015	$	684		$	1,444		$	2,128
Additions to expense		30			103			133
Accretion		—			93			93
Cash paid		(362	)		(427	)		(789	)

Balance October 31, 2015	$	352		$	1,213		$	1,565

Included in the Company’s Consolidated Balance Sheet:
Accrued expenses	$	352		$	915		$	1,267
Other long-term liabilities		—			298			298

Balance October 31, 2015	$	352		$	1,213		$	1,565


	Severance Costs			Facility Leases			Total
	(in thousands)
Balance July 31, 2014	$	421		$	2,131		$	2,552
Additions to expense		357			351			708
Accretion		—			78			78
Cash paid		(253	)		(701	)		(954	)

Balance October 31, 2014	$	525		$	1,859		$	2,384

Included in the Company’s Consolidated Balance Sheet:
Accrued expenses	$	525		$	995		$	1,520
Other long-term liabilities		—			864			864

Balance October 31, 2014	$	525		$	1,859		$	2,384

7. 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 Company’s results of operations and financial position for the period.

The Company is a defendant in a litigation matter incidental to the business that is related to customer expectations of test system performance for product that was shipped in 2006 by Credence. The Company does not believe the plaintiff’s claims have merit and is vigorously defending its position. An estimate of any potential loss cannot be made, and accordingly the Company has not accrued any amounts related to this matter.

In the ordinary course of business, the Company agrees from time to time to indemnify certain customers against certain third party claims for property damage, bodily injury, personal injury or intellectual property infringement arising from the operation or use of the Company’s 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 Company’s 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 Company’s experience with such indemnification claims, it believes the estimated fair value of these obligations is minimal. Accordingly, the Company has no liabilities recorded for these agreements as of October 31, 2015 or July 31, 2015.

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 October 31, 2015 or July 31, 2015.

As of October 31, 2015, the Company had approximately $47.9 million of non-cancelable inventory commitments with its suppliers. The Company expects to consume this inventory through normal operating activity.

The Company has operating lease commitments for certain facilities and equipment that expire at various dates through 2024. The Company has an option to extend the term for its Norwood, Massachusetts facility lease for a single extension term of five years provided that the Company notifies its landlord at least 425 days prior to expiration of the current extension term. Minimum lease payment obligations under non-cancelable leases as of October 31, 2015, are as follows:


Fiscal year ending July 31,	Facilities		Equipment		Total Operating Leases
	(in thousands)
Remainder of 2016	$	5,132	$	492	$	5,624
2017		5,306		402		5,708
2018		2,638		154		2,792
2019		2,011		14		2,025
2020		1,493		—		1,493
Thereafter		3,024		—		3,024

Total minimum lease payments	$	19,604	$	1,062	$	20,666

8. OTHER ACCRUED EXPENSES

Other accrued expenses consisted of the following at October 31, 2015 and July 31, 2015:


	(in thousands)
	October 31, 2015		July 31, 2015
Accrued compensation	$	13,909	$	18,279
Accrued vendor liability		1,277		1,285
Accrued professional fees		1,270		1,371
Warranty reserve		2,828		2,983
Accrued income and other taxes		3,989		3,217
Accrued restructuring		1,267		1,603
Accrued commissions		2,062		2,403
Other accrued expenses		3,654		4,438

Total accrued expenses	$	30,256	$	35,579

9. LONG-TERM DEBT

Long-term debt consists of the following:


	October 31, 2015			July 31, 2015
	(in thousands)
Bank Term Loan under Credit Agreement	$	24,062		$	24,063
Bank Term Loan – Commerzbank		3,341			3,416

Total debt		27,403			27,479
Less: financing fees		(1,018	)		(1,032	)
Less: current portion		(3,143	)		(2,509	)

Total long-term debt	$	23,242		$	23,938

The debt principal payments for the next five years and thereafter are as follows:


Payments due by fiscal year	Debt Principal Payments
	(in thousands)
Remainder of 2016	$	2,518
2017		2,849
2018		3,786
2019		16,286
Thereafter		1,964

Total	$	27,403

Credit Agreement

On December 15, 2014, the Company entered into a credit agreement (the “ Credit Agreement”) with ECT, a wholly owned subsidiary of the Company ( together with the Company, the “Borrowers”), Silicon Valley Bank, as lender, administrative agent and issuing lender (“SVB”), and the several lenders from time to time party thereto (the “Lenders”). The Credit Agreement provides for a senior secured credit facility, consisting of a term loan facility (the “Term Loan”), in favor of the Borrowers in the aggregate principal amount of $25.0 million which was advanced to the Company on December 15, 2014 (the “Facility”).

The proceeds of the Term Loan were used to pay off $25.0 million of the outstanding indebtedness under the previous credit facility that was advanced to the Company pursuant to that certain credit agreement entered into on November 27, 2013 with ECT, SVB as lender, administrative agent and issuing lender, and the lenders from time to time party thereto (the “Original Credit Agreement”). As of December 15, 2014, no amounts remained outstanding under the credit facility issued under the Original Credit Agreement.

All obligations under the Facility are secured by a first priority security interest in substantially all of the Borrowers’ existing and future assets, including a pledge of the stock or other equity interests of the Borrowers’ domestic subsidiaries and of any first tier foreign subsidiaries, provided that not more than 66% of the voting stock of any such foreign subsidiaries shall be required to be pledged.

The Credit Agreement requires that the Term Loan be repaid in quarterly installments, with 5% of the principal due the first year, 10% of principal due in each of the second and third years, 15% of principal due the fourth year, and a final payment of $15 million due on December 14, 2018 (the “Maturity Date”). The outstanding balance of the Term Loan may, at the Borrowers’ option, be prepaid at any time in whole or in part without premium or penalty, other than customary breakage costs, if any, subject to the terms and conditions of the Credit Agreement.

As the terms of the Credit Agreement were not substantially different from the terms of the Original Credit Agreement, the Company accounted for this transaction as a modification of debt, and accordingly continues to recognize deferred financing fees over the term of the Credit Agreement.

Borrowings made under the Facility bear interest, at a base rate plus a margin (such margin not to exceed a per annum rate of 1.75%) based on a ratio of the Company’s consolidated senior debt to consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) (the “Leverage Ratio”), or at a London Interbank Offered Rate (“LIBOR”) rate plus a margin (such margin not to exceed a per annum rate of 2.75%) based on the Leverage Ratio. The interest rate otherwise payable under the Facility will be subject to increase by 2.0% per annum during the continuance of a payment default and may be subject to increase by 2.0% per annum during the continuance of any other event of default. As of October 31, 2015, the interest rate in effect on the Facility was 2.67%.

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 Company’s obligations under the Facility may be accelerated upon the occurrence of an event of default under the Credit Agreement, which includes customary events of default, including payment defaults, the inaccuracy of representations or warranties, the failure to comply with covenants, ERISA defaults, judgment defaults, bankruptcy and insolvency defaults and cross defaults to material indebtedness

On September 16, 2015 the Borrowers entered into the First Amendment to the Credit Agreement and Waiver with SVB and the Lenders, pursuant to which SVB and the Lenders waived the delivery of monthly financial statements for the month ending June 30, 2015, and the parties agreed to amend the Credit Agreement to provide that the delivery of financial statements were to occur on a quarterly basis as opposed to monthly, and that the Company may repurchase up to $30 million of its capital stock provided that it comply with certain financial covenants.

As of October 31, 2015, the Company was in compliance with all covenants under the Credit Agreement.

Seller Financing – Promissory Notes

As described in Note 3 above, pursuant to the Dover Purchase Agreement, in connection with the closing of the Dover Acquisition, the Company issued promissory notes having an aggregate principal amount of $20.0 million to Dover. During the three months ended January 31, 2014, the original principal amount of the promissory notes issued to Dover was reduced by $2.0 million, when the company executed leases for two new facilities, which triggered a reduction to the notes in accordance with their terms. On November 26, 2014, the 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 Company’s 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 Company’s Consolidated Statement of Operations and Comprehensive Income (Loss) for fiscal 2015.

Bank Term Loan—Commerzbank

In May 2014, the Company entered into a loan agreement with Commerzbank to finance the purchase of the Company’s 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.

10. FAIR VALUE MEASUREMENTS

The Company determines its fair value measurements for assets and liabilities based upon the provisions of Topic 820, Fair Value Measurements and Disclosures to the FASB ASC.

The Company holds short-term money market investments and certain other financial instruments which are carried at fair value. The Company determines fair value based upon quoted prices, when available or through the use of alternative approaches when market quotes are not readily accessible or available.

Valuation techniques for fair value are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s 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 Company’s 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 Company’s 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 Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and consideration of factors specific to the asset or liability.

The following table presents financial assets and liabilities measured at fair value and their related valuation inputs as of October 31, 2015 and July 31, 2015:


			Fair Value Measurements at Reporting Date Using (in thousands)
October 31, 2015	Total Fair Value of Asset or Liability		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents (1)	$	64,205	$	64,205	$	—	$	—
Marketable securities		59,124		9,718		49,406		—

Total assets	$	123,329	$	73,923	$	49,406	$	—


July 31, 2015	Total Fair Value of Asset or Liability		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents (1)	$	77,858	$	77,858	$	—	$	—
Marketable securities		60,593		7,843		52,750		—

Total assets	$	138,451	$	85,701	$	52,750	$	—

(1)	Cash and cash equivalents as of October 31, 2015 and July 31, 2015 included cash held in operating accounts of approximately $61.0 million and $76.3 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 Company’s long-term debt, which includes term loans (and seller-financed promissory notes for fiscal 2014), approximates fair value due to market interest. Long-term debt at October 31, 2015 and July 31, 2015 was $23.2 million and $23.9 million, respectively. Within the hierarchy of fair value measurement, these are level 2 inputs.

11. 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 (the “2015 plan”). This repurchase program supersedes the repurchase program that was announced on September 15, 2011 (the “2011 Plan”) and as a result there are no shares available for repurchase under the 2011 Plan. The Company may suspend or discontinue the repurchase program at any time and the program has no expiration date. As of December 7, 2015, the Company had repurchased 1,431,412 shares for approximately $8.7 million under the 2015 plan.

Equity Offering

On September 17, 2014, the Company closed an underwritten public offering of 4,682,927 shares of its common stock at $10.25 per share. The Company also granted to the underwriters a 30-day option to purchase up to an aggregate of 702,439 additional shares of common stock to cover over-allotments which they exercised on September 22, 2014. All of the shares were sold by the Company pursuant to an effective shelf registration statement previously filed with the U.S. Securities and Exchange Commission (the “SEC”).

The offering, and the 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 Company’s Term Loan with the Lenders.

12. RECENT ACCOUNTING PRONOUNCEMENTS

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which will replace numerous requirements in U.S. GAAP, including industry-specific requirements, and provide companies with a single revenue recognition model for recognizing revenue from contracts with customers. The core principle of the new standard is that a company should recognize revenue to show the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The new standard will be effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. For Xcerra, the standard will be effective for the fiscal year starting August 1, 2018. The two permitted transition methods under the new standard are the full retrospective method, in which case the standard would be applied to each prior reporting period presented, or the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application. The Company has not yet selected a transition method. The Company is currently evaluating the impact of this ASU on its financial position and results of operations.

In April 2014, the FASB issued ASU No. 2014-08, Presentation of Financial Statements ASC 360 Property, Plant and Equipment (ASC 205), Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amended guidance raises the threshold for disposals to qualify as a discontinued operation by requiring a component of an entity that is held for sale, or has been disposed of by sale, to represent a strategic shift that has or will have a major effect on operations and financial results. Under the amended guidance, a strategic shift could include the disposal of a major line of business, a major geographical area, a major equity method investment or other major parts of an entity. In addition, the new guidance allows companies to have significant continuing involvement and continuing cash flows with the discontinued operation. The amended guidance is effective for fiscal years beginning on or after December 15, 2014. Early adoption is permitted but not required for disposals, or classifications as held for sale, that have not been previously reported in financial statements. The Company has adopted this amended guidance in regard to the Interface Board Business discontinued operation.

In April 2015, the FASB issued ASU No. 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The standard takes effect for public companies for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the adoption of this update to have a material impact on its financial position and results of operation.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read together with the Consolidated Financial Statements and Notes thereto appearing in this Quarterly Report on Form 10-Q. Certain statements in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are forward-looking statements that involve risks and uncertainties. Words such as may, will, could, should, would, anticipates, expects, intends, plans, predicts, projects, believes, seeks, estimates and similar expressions identify such forward-looking statements. The forward-looking statements contained herein are based on current expectations and entail various risks and uncertainties that could cause actual results to differ materially and adversely from those expressed in such forward-looking statements. Factors that might cause such a difference include, among other things, those set forth under “Risk Factors” and those appearing elsewhere in this Quarterly Report on Form 10-Q. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof and reflect management’s estimates and analysis only as of the date hereof. We assume no obligations to update any forward-looking statements to reflect actual results or changes in factors or assumptions affecting forward-looking statements.

Overview

We are a global provider of test and handling capital equipment, interface products, test fixtures and related services to the semiconductor and electronics manufacturing industries. We design, manufacture and market products and services that address the broad, divergent requirements of the mobility, industrial, medical, automotive and consumer end markets, offering a comprehensive portfolio of solutions and technologies, and a global network of strategically deployed applications and support resources. We operate in the semiconductor and electronics manufacturing test markets through our atg-Luther & Maelzer (atg), Everett Charles Technologies (ECT), LTX-Credence (LTXC) and Multitest businesses. We have a broad spectrum of semiconductor and printed circuit board (PCB) test expertise that drives innovative new products and services and our ability to deliver fully integrated semiconductor test solutions.

On November 30, 2015 we completed the sale of our semiconductor test interface board business based in Santa Clara, CA (the 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 us and Fastprint on September 8, 2015 (the Purchase Agreement).

We sold and transferred to Fastprint certain assets used or primarily related to the Interface Board Business, and assigned, and Fastprint assumed, certain specified liabilities associated with the Interface Board Business, along with the transfer of the employees associated with that business, all pursuant to the terms of the Purchase Agreement. The Interface Board Business produces printed circuit boards that are specifically designed to serve as an interface between the tester and the semiconductor device, or the semiconductor wafer, being tested. The purchase price for the Assets was $23.0 million, plus amounts consisting of the accrued and unpaid vacation of certain U.S. employees transferring to the buyer (as defined in the Purchase Agreement, the “Accrued U.S. Compensation Amount” and, together with the Assumed Liabilities, collectively, the “Purchase Price”), and at the Closing the Fastprint paid Everett Charles, as designated by us, 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 has been withheld by Fastprint and shall be payable on the first anniversary of the Closing subject to claims for indemnification by Fastprint, if any, prior to that time.

Industry Conditions and Outlook

We provide test solutions to the large and growing electronics manufacturing industry, of which semiconductors and PCBs are key components. Sales of capital equipment products are driven by the expansion of manufacturing and test capacity, or when customers replace existing equipment with new equipment. Sales of consumable products, which include service, are driven by the level of manufacturing and test activity, and need to be replaced based on usage levels or to accommodate new designs or test techniques. Therefore, overall demand for our capital equipment and consumable products and services is generally dependent on growth in the semiconductor and electronics industry.

Critical Accounting Policies and the Use of Estimates

The preparation of financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets, liabilities, revenues, and expenses, and related disclosure of contingent assets and liabilities. We base these estimates and assumptions on historical experience and evaluate them on an on-going basis to ensure they remain reasonable under current conditions. Actual results could differ from those estimates. We believe that our most critical accounting policies upon which our financial reporting depends and which involve the most complex and subjective judgments or assessments are as follows: revenue recognition, inventory reserves, income taxes, product warranty costs, goodwill and other identifiable intangible assets, impairment of long-lived assets, and allowances for doubtful accounts.

A summary of those accounting policies and estimates that we believe to be most critical to fully understand and evaluate our financial results is set forth below. The summary should be read in conjunction with our Consolidated Financial Statements and Notes and related disclosures elsewhere in this Quarterly Report on Form 10-Q.

Revenue Recognition

We recognize revenue when persuasive evidence of an arrangement exists, delivery or customer acceptance (if required) has occurred or services have been rendered, the price is fixed or determinable and collectability is reasonably assured. Our revenue recognition policy is described in Note 2, Summary of Significant Accounting Policies, contained in the Notes to Consolidated Financial Statements included in this Quarterly Report on Form 10-Q and is incorporated herein by reference.

Inventory Reserves

We are exposed to a number of economic and industry factors that could result in portions of our inventory becoming either obsolete or in excess of anticipated customer demand. These factors include changes in our customers’ capital expenditures, technological changes in our markets, our ability to meet changing customer requirements, competitive pressures in products and prices, and the availability of key components from our suppliers. Our policy is to establish inventory reserves when conditions exist that suggest our inventory may be in excess of anticipated demand or is obsolete based upon our assumptions about future demand for our products or market conditions. We regularly evaluate the ability to realize the value of our inventory based on a combination of factors including the following: historical usage rates, forecasted sales or usage, estimated product end of life dates, estimated current

and future market values, and new product introductions. Purchasing and alternative usage options are also explored to mitigate inventory exposure. When recorded, our reserves are intended to reduce the carrying value of our inventory to its net realizable value. These reserves are not reversed until the related inventory is sold or otherwise disposed. Our inventory reserves policy is described in Note 2, Summary of Significant Accounting Policies, contained in the Notes to the Consolidated Financial Statements included in this Quarterly Report on Form 10-Q and is incorporated herein by reference.

Foreign Currency Remeasurement

The financial statements of our foreign subsidiaries are remeasured in accordance with Topic 830, Foreign Currency Matters, to the Financial Accounting Standards Board Certification, or FASB ASC. The functional currency of our tester group is the U.S. dollar. Accordingly, our foreign subsidiaries that are included in this group remeasure monetary assets and liabilities at month-end exchange rates while long-term non-monetary items are remeasured at historical rates. Income and expense accounts are remeasured at the average rates in effect during the month. Net gains (losses) resulting from foreign currency remeasurement and transaction gains (losses) are included in our Consolidated Statements of Operations and Comprehensive (Loss) Income as a component of other income (expense), net, and were $1.6 million and $0.4 million, respectively, for the three months ended October 31, 2015 and 2014, respectively. The functional currency of ECT, atg and Multitest operations is local currency, predominantly Euro, Malaysian Ringgit and Singapore dollars, and net gains or losses resulting from foreign currency remeasurement and translation gains or losses are recorded in stockholders’ equity as accumulated other comprehensive (loss) income.

Income Taxes

In accordance with Topic 740, Income Taxes to the FASB ASC (Topic 740), we recognize deferred income taxes based on the expected future tax consequences of differences between the financial statement basis and the tax basis of assets and liabilities calculated using enacted tax rates for the year in which the differences are expected to be reflected in the tax return. Valuation allowances are established when necessary to reduce deferred taxes to the amount expected to be realized. We have deferred tax assets resulting from tax credit carryforwards, net operating losses and other deductible temporary differences, which are available to reduce taxable income in future periods. Topic 740 requires that a valuation allowance be established when it is “more likely than not” that all or a portion of deferred tax assets will not be realized. A review of all available positive and negative evidence needs to be considered, including a company’s performance, the market environment in which it operates, the length of carryback and carryforward periods, existing sales backlog and future sales projections. Where there have been cumulative losses in recent years, Topic 740 creates a strong presumption that a valuation allowance is needed. This presumption can be overcome in very limited circumstances. As a result of our cumulative loss position in recent years and the increased uncertainty relative to the timing of profitability in future periods, we continue to maintain a valuation allowance for our entire U.S. net deferred tax assets, and full valuation allowance against the net deferred tax assets of foreign jurisdictions without a history of profitability. The valuation allowance for deferred tax assets decreased from $211.9 million at July 31, 2014 to $209.7 million at July 31, 2015. The decrease in our valuation allowance compared to the prior year was primarily due to a decrease in U.S. deferred tax assets associated with sources of income in the current year. We expect to record a full valuation allowance on future U.S. tax benefits and in certain foreign tax jurisdictions until we sustain an appropriate level of profitability. We will continue to monitor the recoverability of our deferred tax assets on a periodic basis. As a result of our merger with Credence in 2008 and Internal Revenue Code Section 382 guidance, the future utilization of our net operating losses will be subject to annual limitation.

Business Combinations

We account for acquired businesses using the purchase method of accounting which requires that the assets acquired and liabilities assumed be recorded at the date of the acquisition at their respective estimated fair values. The judgments made in determining the estimated fair value assigned to each class of assets acquired, as well as the estimated life of each asset, can materially impact the net income of the periods subsequent to the acquisition through depreciation and amortization, and in certain instances through impairment charges, if the asset becomes impaired in the future. In determining the estimated fair value for intangible assets, we typically utilize the income approach, which discounts the projected future net cash flow using an appropriate discount rate that reflects the risks associated with such projected future cash flow.

Determining the useful life of an intangible asset also requires judgment, as different types of intangible assets will have different useful lives and certain assets may even be considered to have indefinite useful lives. Intangible assets determined to have an indefinite useful life are reassessed periodically based on the expected use of the asset by us, legal or contractual provisions that may affect the useful life or renewal or extension of the asset’s contractual life without substantial cost, and the effects of demand, competition and other economic factors.

Valuation of Goodwill and other Indefinite-Lived Intangible Assets

We perform our annual goodwill impairment test as required under the provisions of Topic 350-10, Intangibles—Goodwill and Other to the FASB ASC (Topic 350) as of July 31 of each fiscal year or more often if there are interim indicators of impairment. Goodwill is considered to be impaired when the net book value of a reporting unit exceeds its estimated fair value. Our goodwill represents the excess of acquisition costs over estimated fair value of net assets acquired from StepTech, Inc on June 10, 2003, from our merger with Credence on August 29, 2008 and from our purchase of Titan Semiconductor LLC (Titan) on February 2, 2015.

As of October 31, 2015, our goodwill is allocated to our Semiconductor Test reporting unit and our Contactors reporting unit. As of October 31, 2015, there were no triggering events that required us to complete impairment testing.

Goodwill impairment testing is a two-step process. The first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of each reporting unit to its respective carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered impaired. If the reporting unit’s carrying amount exceeds the fair value, the second step of the goodwill impairment test must be completed to measure the amount of the impairment loss, if any. The second step compares the implied fair value of goodwill with the carrying value of goodwill. The implied fair value is determined by allocating the fair value of the reporting unit to all of the assets and liabilities of that unit, the excess of the fair value over amounts assigned to its assets and liabilities is the implied fair value of goodwill. The implied fair value of goodwill determined in this step is compared to the carrying value of goodwill. If the implied fair value of goodwill is less than the carrying value of goodwill, an impairment loss is recognized equal to the difference.

In accordance with ASC 350, we performed our goodwill impairment test as of July 31, 2015, and determined that no adjustment to goodwill was necessary. As of July 31, 2015, the fair value of the reporting units to which goodwill is allocated substantially exceeded the carrying values of those reporting units. The observable inputs used in our Discounted Cash Flow (DCF) method for estimating the fair value of the reporting units include discount rates at our weighted-average cost of capital. We derive discount rates that are commensurate with the risks and uncertainties inherent in its respective businesses and its internally developed projections of future cash flows. In addition, we determined the projected future cash flows of the reporting units for the residual period using the Gordon growth method which assumes that the reporting unit will grow and generate free cash flow at a constant rate. We believe that the Gordon growth method is the most appropriate method for determining the residual value because the residual value is calculated at the point at which we have assumed that the reporting units have reached stable growth rates

The identifiable intangible assets associated with the Dover Acquisition include $6.4 million of trademarks. We believe these trademarks will contribute to our cash flows indefinitely. Therefore, in accordance with ASC 350, we have assigned an indefinite useful life to the trademarks, and will not amortize the trademarks until their useful lives are no longer indefinite. These assets are subject to an annual impairment test or more frequently if triggering events occur. For fiscal year 2015, we assessed qualitative factors to determine if a two-step quantitative impairment test was necessary. We determined, based on qualitative assessment, that it was more likely than not that the trademarks’ fair value was greater than their carrying amount, therefore no quantitative assessment was required, and there was no adjustment to the carrying value of the trademarks.

Valuation of Identifiable Intangible Assets

Our identifiable intangible assets include developed technology, distributor and key customer relationships, and trademarks.

We primarily use the income approach to value the existing technology and other intangible assets as of the date of acquisition. This approach calculates fair value by estimating future cash flows attributable to each intangible asset and discounting them to present value at a risk-adjusted discount rate.

In estimating the useful life of the acquired intangible assets, we considered paragraph 11 of Topic 350, which lists the pertinent factors to be considered when estimating the useful life of an intangible asset. These factors include a review of the expected use by the combined company of the assets acquired, the expected useful life of another asset (or group of assets) related to the acquired assets, legal, regulatory or other contractual provisions that may limit the useful life of an acquired asset or may enable the extension of the useful life of an acquired asset without substantial cost, the effects of obsolescence, demand, competition and other economic factors, and the level of maintenance expenditures required to obtain the expected future cash flows from the asset. We have amortized these intangible assets over their estimated useful lives using a method that is based on estimated future cash flows as we believe this amortization methodology approximates the pattern in which the economic benefits of the intangible assets will be derived.

Impairment of Long-Lived Assets Other Than Goodwill

On an on-going basis, our management reviews the carrying value and period of amortization or depreciation of long-lived assets. In accordance with Topic 360, Property, Plant and Equipment, to the FASB ASC, we review whether impairment losses exist on long-lived assets when indicators of impairment are present. During this review, we re-evaluate the significant assumptions used in

determining the original cost and estimated useful life of long-lived assets. Although the assumptions may vary, they generally include revenue growth, operating results, cash flows and other indicators of value. Management then determines whether there has been a permanent impairment of the value of long-lived assets based upon events or circumstances that have occurred since acquisition. The extent of the impairment amount recognized is based upon the difference of the impaired asset’s estimated fair value and its carrying value. As of October 31, 2015 and July 31, 2015, there were no indicators that required us to conduct a recoverability test as of these dates.

Product Warranty Costs

We provide standard warranty coverage on our systems, providing labor and parts necessary to repair the systems during the warranty period. We account for the estimated warranty cost as a charge to cost of sales when the revenue is recognized. Our product warranty cost policy is described in Note 2, Summary of Significant Accounting Policies, contained in the Notes to Consolidated Financial Statements included in this Quarterly Report on Form 10-Q and is incorporated herein by reference.

Trade Accounts Receivable and Allowance for Doubtful Accounts

Trade accounts receivable are recorded at the invoiced amount, do not bear interest, and typically have a contractual maturity of ninety days or less. A majority of our trade receivables are derived from sales to large multinational semiconductor manufacturers throughout the world. The volatility of the industries that we serve can cause certain of our customers to experience shortages of cash, which can impact their ability to make required payments. In order to monitor potential credit losses, we perform on-going credit evaluations of our customers’ financial condition. An allowance for doubtful accounts is maintained for potential credit losses based upon our assessment of the expected collectability of all accounts receivable. The allowance for doubtful accounts is reviewed periodically to assess the adequacy of the allowances. In any circumstances in which we are aware of a customer’s inability to meet its financial obligations, we provide an allowance, which is based on the age of the receivables, the circumstances surrounding the customer’s financial situation and our historical experience. If circumstances change, and the financial condition of our customers were adversely affected resulting in their inability to meet their financial obligations to us, we may need to record additional allowances. Account balances are charged off against the allowance when it is determined the receivable will not be recovered.

Recent Accounting Pronouncements

Our recent accounting pronouncements are described in Note 12, Recent Accounting Pronouncements, contained in the Notes to the Consolidated Financial Statements included in the Quarterly Report on Form 10-Q and is incorporated herein by reference.

Results of Operations

The following table sets forth for the periods indicated the principal items included in the Consolidated Statements of Operations and Comprehensive (Loss) Income in thousands, except for percentage changes and per share data:


Statement of Operations
	Three Months Ended October 31,
	2015			2014			% Change
Net product sales	$	71,873		$	108,122			(33.5	)%
Net service sales		6,528			8,099			(19.4	)

Net sales		78,401			116,221			(32.5	)
Cost of sales		46,269			63,022			(26.6	)

Gross profit		32,132			53,199			(39.6	)
Engineering and product development expenses		15,063			16,065			(6.2	)
Selling, general and administrative expenses		17,952			22,155			(19	)
Amortization of purchased intangible assets		414			535			(22.6	)
Restructuring		133			708			(81.2	)

(Loss) income from operations		(1,430	)		13,736			(110.4	)
Other income (expense):
Interest expense		(287	)		(915	)		(68.6	)
Interest income		124			96			29.2
Other income, net		1,626			340			379.6

Income (loss) from provision for operations before income taxes		33			13,257			(99.8	)
Provision for income taxes		911			763			19.4

(Loss) income from continuing operations		(878	)		12,494			(107	)
Loss from discontinued operations, net of tax		(788	)		(432	)		(82.4	)

Net (Loss) income	$	(1,666	)	$	12,062			(113.8	)

Basic net income (loss) per share:
Net (Loss) income from continuing operations	$	(0.02	)	$	0.24
Net loss from discontinued operations, net of tax	$	(0.01	)	$	(0.01	)

Basic net (Loss) income per share	$	(0.03	)	$	0.24
Diluted net income (loss) per share:
Net (Loss) income from continuing operations	$	(0.02	)	$	0.24
Net loss from discontinued operations, net of tax	$	(0.01	)	$	(0.01	)

Diluted net income (loss) per share	$	(0.03	)	$	0.23

The following table sets forth for the periods indicated the principal items included in the Consolidated Statements of Operations and Comprehensive (Loss) Income expressed in each case as a percentage of net sales:


	Percentage of Net Sales
	Three Months Ended October 31,
	2015			2014
Net sales		100.0	%		100.0	%
Cost of sales		59.0			54.2

Gross profit		41.0			45.8
Engineering and product development expenses		19.2			13.8
Selling, general and administrative expenses		22.9			19.1
Amortization of purchased intangible assets		0.5			0.5
Restructuring		0.2			0.6

(Loss) income from operations		(1.8	)		11.8
Other income (expense):
Interest expense		(0.4	)		(0.7	)
Interest income		0.2			0.0
Other income, net		2.1			0.3

Income from operations before provision for income taxes		0.0			11.4
Provision for income taxes		1.2			0.7

(Loss) income from continuing operations		(1.2	)		10.7
Loss from discontinued operations, net of tax		(1.0	)		(0.4	)
Net (loss) income		(2.2	)%		10.3	%

Three Months Ended October 31, 2015 Compared to the Three Months Ended October 31, 2014

The results of our Interface Board Business are being presented as discontinued operations in the consolidated statement of operating for all periods presented. See Note 3—Discontinued Operations in the notes to the consolidated financial statements for additional information regarding these discontinued operations. Unless otherwise indicated, any reference to income statement items in this Management’s Discussion and Analysis of Financial Condition and Results of Operations refers to results from continuing operations.

Net sales. The decrease in net sales for the three months ended October 31, 2015 compared to the three months ended October 31, 2014 was primarily due to weakening demand for products in our Tester and Handler Groups.

Our Semiconductor Test Solutions (STS) segment, which is comprised of our Tester Group, our Handler Group, and our Interface Products Group, reported net sales of $57.2 million for the three months ended October 31, 2015 as compared to $93.2 million for the three months ended October 31, 2014. The primary driver for the decrease in this segment was softening orders throughout all product lines in our Tester Group, which had a decrease in net sales of $28.7 million, during the three months ended October 31, 2015 as compared to October 31, 2014. Our Handler Group and Interface Products Group also had decreases in net sales largely due to weaker industry conditions.

Our Electronic Manufacturing Solutions (EMS) segment reported net sales of $21.2 million in three months ended October 31, 2015 as compared to $23.1 million for three months ended October 31, 2014. This segment is comprised of our PCB Test Group, our Probes/Pins Group and our Fixtures Services Group. Since the majority of EMS’ revenue is recurring revenue for consumable products, the decrease year over year was less pronounced then in the STS segment

Service revenue decreased by 19.4% in the three months ended October 31, 2015 as compared to October 31, 2014, primarily due to increased reliability of our test equipment which reduces the demand for post-warranty service contracts and lower priced service contracts based on the lower average selling price of the underlying testers.

Gross profit. The decrease in gross profit for the three months ended October 31, 2015 compared to the three months ended October 31, 2014 was primarily due to the decrease in net sales among all business units except for PCB Test, which generated higher sales in the quarter ending October 31, 2015. The decrease in net sales results in less absorption of fixed cost of sales.

Engineering and product development expenses. The decrease in engineering and product development expenses for the three months ended October 31, 2015 compared to the three months ended October 31, 2014 was due primarily to lower project spending and lower medical claim expenses.

Selling, general and administrative expenses. The decrease in selling, general and administrative expenses for the three months ended October 31, 2015 compared to the three months ended October 31, 2014 was due primarily to lower variable compensation on lower net sales, lower travel expenses and lower medical claims.

Amortization of purchased intangible assets. The decrease in amortization for the three months ended October 31, 2015 compared to the three months ended October 31, 2014 follows accelerated amortization using the cash flows of certain intangible assets. Amortization expense is weighted heavier in the first years after acquisition.

Restructuring. The restructuring expense recorded in the three months ended October 31, 2015 included $0.1 million of relocation cost and severance related to our announcement in March 2015 of our decision to reorganize portions of our Fixtures Services Group.

Income (loss) from continuing operations. We reported a loss from continuing operations of $1.7 million for the three months ended October 31, 2015, as compared to income from continuing operations for the three months ended October 31, 2014 of $12.1 million. This decrease year over year was primarily driven by lower net sales and weaker gross margin profitability.

Our STS segment reported losses from continuing operations of $3.2 million for the three months ended October 31, 2015, as compared to income from continuing operations of $12.1 million for the three months ended October 31, 2014. This decrease year over year was largely driven by the Tester Group and Handler Group business, which experienced weaker industry conditions.

Our EMS segment reported income from continuing operations of $1.7 million in the three months ended October 31, 2015, as compared to income from continuing operations of $1.6 million in the three months ended October 31, 2014. This slight increase was driven by our PCB Test Group.

Interest expense. The decrease in interest expense for the three months ended October 31, 2015 compared to the three months ended October 31, 2014 was driven by a reduction in our outstanding indebtedness from $48.0 million at October 31, 2014 to $26.4 million at October 31, 2015.

Interest income. Interest income increased slightly in the periods presented due to limited changes in the core composition of marketable securities invested within our portfolio.

Other income (expense), net. The increase in other income (expense) for the three months ended October 31, 2015 compared to the three months ended October 31, 2014 was related primarily to $1.2 million of foreign exchange gains due to remeasurement of Euro and US dollar-based assets into a weaker Malaysian Ringgit.

Provision for income taxes. We recorded an income tax provision of $0.9 million in the three months ended October 31, 2015, primarily due to foreign tax expense in profitable locations.

As of October 31, 2015 and July 31, 2015 our liability for unrecognized income tax benefits was $6.3 million (of which $2.7 million, if recognized, would impact our income tax rate).

We expect to maintain a full valuation allowance on U.S. deferred tax benefits and in certain foreign jurisdictions until we can sustain an appropriate level of profitability. We will continue to monitor the recovery of our deferred tax assets on a periodic basis.

Discontinued Operations. Our Interface Board Business generated a loss of $0.8 million for the three months ended October 31, 2015 as compared to a loss of $0.4 million for the three months ended October 31, 2014. For the three months ended October 31, 2015, revenue decreased by $1.3 million to $9.6 million from $10.9 million in the three months ended October 31, 2014.

Comprehensive income (loss). During the three months ended October 31, 2015 and 2014, we recognized $(0.8) million and $(3.6) million, respectively, of unrealized losses from currency translation, largely driven by the weakening of the Malaysian Ringgit and Euro to the U.S. dollar.

Liquidity and Capital Resources

The following is a summary of significant items impacting our liquidity and capital resources for the three months ended October 31, 2015 (in millions):


Cash and cash equivalents and marketable securities at July 31, 2015	$	138.5
Cash used for stock repurchases		(7.4	)
Payments on tax withholdings for vested RSUs, net of proceeds		(0.8	)
Capital expenditures		(0.6	)
Effect of exchange rate changes in cash		(0.1	)
Other cash used, primarily by operating activities, net		(6.3	)

Cash and cash equivalents and marketable securities at October 31, 2015	$	123.3

As of October 31, 2015, we had $123.3 million in cash and cash equivalents and marketable securities and net working capital of $216.9 million, as compared to $138.5 million of cash and cash equivalents and marketable securities and net working capital of $225.3 million at July 31, 2015. The decrease in cash and cash equivalents and marketable securities during the three months ended October 31, 2015 was due to $7.4 million of repurchases of common stock, $0.8 million of payments of tax withholdings for vested RSU’s, net of proceeds from stock option exercises, and purchases of property and equipment of $0.6 million. The remainder was primarily cash used for operations.

Accounts receivable from trade customers, net of allowances, was $73.9 million at October 31, 2015 as compared to $81.3 million at July 31, 2015. This decrease was driven by lowered revenue during the three months ended October 31, 2015 of $78.4 million compared to $102.1 million for the three months ended July 31, 2015.

Purchases of property and equipment totaled $0.6 million for the three months ended October 31, 2015, as compared to $2.2 million for the three months ended October 31, 2014. Capital expenditures for the three months ended October 31, 2015 were primarily related to certain engineering projects. Capital expenditures for the three months ended October 31, 2014 were composed primarily of leasehold improvements for our Fontana facility of approximately $1.5 million, as well as capital related to certain engineering projects.

Net cash used in operating activities for the three months ended October 31, 2015 was $6.0 million, as compared to net cash provided by operating activities of $20.7 million for the three months ended October 31, 2014. The net cash used in operating activities for the three months ended October 31, 2015 was primarily related to our net loss of $1.7 million adjusted for non-cash items including depreciation, amortization and stock-based compensation of approximately $4.1 million, as well as an increase in working capital of $8.5 million. The net cash provided by operating activities for the three months ended October 31, 2014 was primarily related to our net income of $12.1 million adjusted for non-cash items including depreciation, amortization and stock-based compensation of approximately $5.4 million, as well as a decrease in working capital of $3.2 million.

Net cash provided by investing activities for the three months ended October 31, 2015 was $0.7 million, as compared to net cash used in investing activities of $20.7 million for the three months ended October 31, 2014. The net cash provided by investing activities for the three months ended October 31, 2015 was primarily related to $17.6 million of purchases of available-for-sale securities, and $0.6 million of purchases of property and equipment, offset by $18.9 million from sales and maturities of available-for-sale marketable securities. The net cash used in investing activities for the three months ended October 31, 2014 was primarily related to $38.3 million of purchases of available-for-sale securities and $2.2 million of purchases of property and equipment, offset by $19.9 million from sales and maturities of available-for-sale marketable securities.

Net cash used in financing activities for the three months ended October 31, 2015 was $8.2 million, as compared to net cash provided by financing activities of $30.8 million for the three months ended October 31, 2014. The net cash used in financing activities for the three months ended October 31, 2015 was primarily related to $7.4 million of cash used for our repurchase of common stock, as well as payments of tax withholdings for vested RSUs, net of proceeds from stock option exercises of $0.8 million. The net cash provided by financing activities for the three months ended October 31, 2014 was related to $52.4 million of net proceeds from our issuance of common stock, offset in part by principal payments of the bank term loan of $20.7 million, as well as payments of tax withholdings for vested RSUs, net of proceeds from stock option exercises of $0.9 million.

Credit Agreement and Seller Financing

On December 15, 2014, we and ECT (the Borrowers) entered into an amended Credit Agreement (the Credit Agreement) with SVB, and the several lenders from time to time party thereto (the Lenders). The Credit Agreement provides for a senior secured credit facility, consisting of a term loan facility (Term Loan), in favor of the Borrowers in the aggregate principal amount of $25.0 million which was advanced to us on December 15, 2014 (Facility).

The Credit Agreement requires that the Term Loan be repaid in quarterly installments, with 5% of the principal due the first year, 10% of principal due in each of the second and third years, 15% of principal due the fourth year, and a final payment of $15 million due on December 14, 2018. The outstanding balance of the Term Loan may, at the Borrowers’ option, be prepaid at any time in whole or in part without premium or penalty, other than customary breakage costs, if any, subject to the terms and conditions of the Credit Agreement.

Borrowings made under the Facility bear interest, at a base rate plus a margin (such margin not to exceed a per annum rate of 1.75%) based on the Leverage Ratio, or at a LIBOR rate plus a margin (such margin not to exceed a per annum rate of 2.75%) based on the Leverage Ratio. The interest rate otherwise payable under the Facility will be subject to increase by 2.0% per annum during the continuance of a payment default and may be subject to increase by 2.0% per annum during the continuance of any other event of default. As of October 31, 2015, the interest rate in effect on the Facility was 2.67%.

The proceeds of the Term Loan were used to pay off $25.0 million of the outstanding indebtedness under our previous credit facility (the Original Facility) that was advanced to us pursuant to that certain credit agreement entered into on November 27, 2013 with ECT, SVB, as lender, administrative agent and issuing lender, and the lenders from time to time party thereto. The balance of outstanding indebtedness of approximately $2.5 million was funded through our cash flow from operations. As of December 15, 2014, the previous facility had been terminated.

Our obligations under the Facility may be accelerated upon the occurrence of an event of default under the Credit Agreement, which includes customary events of default, including payment defaults, the inaccuracy of representations or warranties, the failure to comply with covenants, ERISA defaults, judgment defaults, bankruptcy and insolvency defaults and cross defaults to material indebtedness.

As of October 31, 2015, we were in compliance with all covenants under the Credit Agreement.

On September 16, 2015 we and ECT (the Borrowers) entered into the First Amendment to the Credit Agreement and Waiver with SVB and the Lenders, pursuant to which SVB and the Lenders waived the delivery of monthly financial statements for the month ending June 30, 2015, and the parties agreed to amend the Credit Agreement to provide that the delivery of financial statements would occur on a quarterly basis as opposed to monthly, and that we may repurchase up to $30 million of our capital stock provided that we comply with certain financial covenants.

We expect that the outstanding debt obligations under the Credit Agreement to have a material impact on our liquidity and capital resources in the near future.

Seller Financing

In connection with the closing of the Dover Acquisition, we issued promissory notes having an aggregate principal amount of $20.0 million to Dover. On November 26, 2014, we repaid in full all outstanding amounts under the promissory notes. The $16.3 million payoff amount reflected the principal amount of $18.0 million that was outstanding under the original promissory notes, less a $1.8 million reduction triggered by the prepayment in full of the notes prior to January 1, 2015, and was recorded as a gain on repayment of subordinated debt as a component of other income in fiscal 2015 in our Consolidated Statements of Operations and Comprehensive Income (Loss).

Bank Term Loan—Commerzbank

In May 2014, we entered into a loan agreement with Commerzbank to finance the purchase of our leased facility in Rosenheim, Germany. The principal amount of the term loan is 2.9 million Euros, payable over 10 years in Euro at an annual interest rate of 2.35%. Principal plus accrued interest is due quarterly over the duration of the term loan.

Follow-On Public Offering

On September 17, 2014, we closed an underwritten public offering of 4,682,927 shares of our common stock at $10.25 per share. We granted to the underwriters a 30-day option to purchase up to an aggregate of 702,439 additional shares of common stock to cover over-allotments which they exercised on September 22, 2014. All of the shares were sold pursuant to an effective shelf registration statement previously filed with the U.S. Securities and Exchange Commission (the SEC).

The offering resulted in net proceeds to us, after deducting underwriting discounts and commissions and offering expenses, of approximately $52.1 million. We used approximately $20 million of the net proceeds from the offering to repay a portion of the outstanding principal of the Original Facility, and approximately $16 million to repay the outstanding principal balance of the promissory notes issued to Dover Corporation. The balance of the proceeds was used for general corporate purposes, including capital expenditures and potential strategic acquisitions.

Stock Repurchases

On September 3, 2015, we announced that our Board of Directors authorized a stock repurchase program, pursuant to which we are authorized to repurchase up to $30 million of our common stock from time to time in open market transactions (2015 Plan). This repurchase program supersedes the 2011 repurchase program Plan (the 2011 Plan) which was announced on September 15, 2011 and under which we purchased 3,294,666 shares for $18.7 million. As a result there were no shares available for repurchase under the 2011 Plan following approval of this plan. We may suspend or discontinue 2015 plan at any time and the program has no expiration date. As of December 7, 2015, we have repurchased 1,431,412 shares for approximately $8.7 million.

Commitments and Contingencies

As of October 31, 2015, our major outstanding contractual obligations are related to our bank term loan, rental properties, other operating leases, inventory purchase commitments, and severance obligations.

In the ordinary course of business, we agree 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 our products. Also, from time to time in agreements with suppliers, licensors and other business partners, we agree to indemnify these partners against certain liabilities arising out of the sale or use of our products. The maximum potential amount of future payments we could be required to make under these indemnification obligations is theoretically unlimited; however, we have general and umbrella insurance policies that enable it to recover a portion of any amounts paid and many of these agreements contain a limit on the maximum amount, as well as limits on the types of damages recoverable. Based on our experience with such indemnification claims, we believe the estimated fair value of these obligations is minimal. Accordingly, we have no liabilities recorded for these agreements as of October 31, 2015.

We are a defendant in a litigation matter incidental to our business that is related to customer expectations of test system performance for product that was shipped in 2006 by Credence. We do not believe the plaintiff’s claims have merit and we are vigorously defending our position. An estimate of any potential loss cannot be made; we do not believe a loss is probable, and accordingly we have not accrued any amounts related to this matter.

Subject to certain limitations, we indemnify our current and former officers and directors for liability or costs they may incur upon certain events or occurrences encountered in the course of performing their duties to us. Although the maximum potential amount of future payments we could be required to make under these agreements is theoretically unlimited, as there were no known or pending claims, we have not accrued a liability for these agreements as of October 31, 2015.

The aggregate outstanding amount of our contractual obligations was $98.3 million as of October 31, 2015. These obligations and commitments represent maximum payments based on current operating forecasts. Certain of the commitments could be reduced if changes to our operating forecasts occur in the future.

The following summarizes our contractual obligations as of October 31, 2015 and the effect such obligations are expected to have on our liquidity and cash flows in future periods:


	Total		2016		2017-2018		2019-2020		Thereafter
	(in thousands)
Contractual Obligations:
Operating leases	$	20,666	$	5,624	$	8,500	$	3,518	$	3,024
Inventory commitments		47,894		35,919		11,782		27		166
Severance		352		352		—		—		—
Bank Term Loan- principal and interest		29,413		3,174		7,747		16,815		1,677

Total Contractual Obligations	$	98,325	$	45,069	$	28,029	$	20,360	$	4,867

We also expect to invest approximately $4.3 million in capital expenditures for the remainder of the fiscal year ending July 31, 2016.

Off-Balance Sheet Arrangements

As of October 31, 2015 we did not have any off-balance sheet arrangements.

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

There has been no material change in our quantitative and qualitative disclosures about market risk exposure since the filing of our Annual Report on Form 10-K for fiscal year 2015.

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of October 31, 2015. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e)) under the Securities Exchange Act of 1934 (the ExchangeAct), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of the Company’s disclosure controls and procedures as of October 31, 2015, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of such date, the Company’s disclosure controls and procedures were effective at the reasonable assurance levels.

Changes in Internal Controls

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)) under the Exchange Act) during the three months ended October 31, 2015 that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.

Limitations on the Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls over financial reporting can prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. The inherent limitations in all control systems include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons or by collusion of two or more people. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

PART II—OTHER INFORMATION

Item 1.

Legal Proceedings

We are subject to various legal proceedings, claims and litigation which arise in the ordinary course of operations. We believe we have meritorious defenses against all pending claims and intend to vigorously pursue them. While it is not possible to predict or determine the outcomes of any pending actions, we believe the amount of liability, if any, with respect to such actions, would not materially affect our financial position, results of operations or cash flows.

Item 1A.

Risk Factors

This Quarterly Report includes or incorporates forward-looking statements that involve substantial risks and uncertainties and fall within the meaning of Section 27A of the Securities Act of 1933 (the Securities Act) and Section 21E of the Securities Act. You can identify these forward-looking statements by our use of the words “believes,” “anticipates,” “plans,” “expects,” “may,” “will,” “would,” “should,” “intends,” “estimates,” “seeks” or similar expressions, whether in the negative or affirmative. We cannot guarantee that we actually will achieve these plans, intentions or expectations. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included below important factors that we believe could cause our actual results to differ materially from the forward-looking statements that we make. If any of these risks were to occur, our business, financial condition, results of operations or prospects, could be materially and adversely affected. These risks and uncertainties may be interrelated or co-related, and as a result, the occurrence of one risk might directly affect other risks described below, make them more likely to occur or magnify their impact. Moreover, the risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business. We do not assume any obligation to update any forward-looking statement we make.

The risk factors set forth below with an asterisk (*) next to the title are new risk factors or risk factors containing changes from the risk factors previously disclosed in our Annual Report on Form 10-K.

Our mergers and acquisitions may be costly, be difficult to integrate, disrupt our business, dilute stockholder value, and divert management attention, which may limit our ability to realize the anticipated benefits of such transactions.

We have in the past, and may in the future, seek to acquire or invest in businesses, products, technologies or engineers which could put a strain on our resources, result in one-time charges (such as acquisition-related expenses, write-offs or restructuring charges) or in the future, impairment of goodwill, cause ownership dilution to our stockholders and adversely affect our financial results. Additionally, we may fund future acquisitions by utilizing our cash, raising debt, issuing shares of our common stock, or by other means, which could subject us to the risks described below in “We may need financing, which could be difficult to obtain.” We have also incurred and may continue to incur certain liabilities or other expenses in connection with acquisitions, which could materially adversely affect our business, financial condition and results of operations.

Mergers and acquisitions of high-technology companies are inherently risky, and future mergers or acquisitions may not be successful and could materially adversely affect our business, operating results or financial condition. Integrating newly acquired businesses, products or technologies into our company could put a strain on our resources, could be expensive and time consuming, may cause delays in product delivery and might not be successful. Future acquisitions and investments could divert management’s attention from other business concerns and expose our business to unforeseen liabilities (including liabilities related to acquired intellectual property and other assets), unanticipated costs associated with transactions, and risks associated with entering new markets. In addition, we might lose key employees while integrating new organizations. We might not be successful in integrating any acquired businesses, products and product development projects, technologies, personnel, operations, or systems, and might not achieve anticipated revenues and cost benefits. Investments that we make may not result in a return consistent with our projections upon which such investments are made, or may require additional investment that we did not originally anticipate. In addition, future acquisitions could result in customer dissatisfaction, performance problems with an acquired company, potentially dilutive issuances of equity securities or the incurrence of debt, contingent liabilities, possible impairment charges related to goodwill or other intangible assets or other unanticipated events or circumstances, any of which could harm our business, financial condition, results of operations, and could cause the price of our common stock to decline.

Our primary market is the highly volatile semiconductor industry, which causes significant fluctuations in our financial results.

We sell capital equipment and peripheral connectivity products to companies that design, manufacture, assemble, and test semiconductor devices. The semiconductor industry is highly volatile, causing significant fluctuations on our financial results. Our business typically is negatively impacted in the second quarter of each fiscal year due to weak seasonality that occurs at this time of the year. The ability to forecast the business outlook for our industry is typically limited to three months. Regardless of our outlook and forecasts, any failure to expand in cycle upturns to meet customer demand and delivery requirements or contract in cycle downturns at a pace consistent with the industry could have an adverse effect on our business.

Any significant downturn in the markets for our customers’ semiconductor devices or in general economic conditions would likely result in a reduction in demand for our products and would negatively impact our business. Downturns in the semiconductor test equipment and electronics manufacturing industries have been characterized by diminished product demand, excess production capacity, accelerated erosion of selling prices and excessive inventory levels. We believe the markets for newer generations of semiconductor devices and electronic products will also have similar characteristics. Our market is also characterized by rapid technological change and changes in customer demand. In the past, we have experienced delays in purchase commitments, delays in collecting accounts receivable and significant declines in demand for our products during these downturns, and we may not be able to maintain or exceed our current level of sales.

Additionally, as a capital equipment provider, our revenue is driven by the capital expenditure budgets and spending patterns of our customers who often delay or accelerate purchases in reaction to variations in their businesses. Because a high portion of our costs are fixed, we are limited in our ability to reduce expenses and inventory purchases quickly in response to decreases in orders and revenues. In an economic contraction, we may not be able to reduce our significant fixed costs, such as continued investment in research and development, capital equipment requirements and materials purchased from our suppliers.

The market for capital equipment is highly concentrated, and we have limited opportunities to sell our products.

The semiconductor and electronics manufacturing industries are highly concentrated, and a small number of semiconductor device manufacturers, contract assemblers, and electronics manufacturers account for a substantial portion of the purchases of capital equipment generally, including our equipment. Our top customer in fiscal 2015 and the fiscal year ended July 31, 2014 (Fiscal 2014) was Spirox, which accounted for 13% and 17%, respectively, of our net sales in those years. In the fiscal year ended July 31, 2013 (fiscal 2013), our top customers were Spirox and Texas Instruments, which accounted for 27% and 12% of our net sales, respectively. Sales to the top ten customers were 54%, 51%, and 70%, of net sales in fiscal 2015, fiscal 2014, and fiscal 2013, respectively. Our customers may cancel orders with few or no penalties. If a major customer reduces orders for any reason, our revenues, operating results, and financial condition may be negatively affected.

Our ability to increase our sales will depend, in part, on our ability to obtain orders from new customers. Semiconductor and electronics manufacturers typically select a particular vendor’s product for testing and handling its new generations of a device and make substantial investments to develop related test program applications and interfaces. Once a manufacturer has selected a test and/or handling system vendor for a new generation of a device, that manufacturer is more likely to purchase systems from that vendor for that generation of the device, and, possibly, subsequent generations of that device as well. Therefore, the opportunities to obtain orders from new customers may be limited, which may impair our ability to grow our revenue.

Our substantial debt and financial obligations could adversely affect our financial condition and ability to operate our business, we may not be able to pay our debt and other obligations, and we may incur additional debt.

As of October 31, 2015, our outstanding indebtedness was approximately $26.4 million. Our existing indebtedness and any additional indebtedness that we may incur in the future could have important consequences, including:

•

making it more difficult for us to satisfy our obligations under our debt agreements, including financial and operational restrictions;

•

making it difficult for us to obtain any necessary future financing for working capital, capital expenditures, debt service requirements or other purposes;

•

limiting our future ability to refinance our indebtedness on terms acceptable to us or at all;

•

requiring us to dedicate a substantial portion of any cash flow from operations to pay principal and interest on our indebtedness, thereby reducing the amount of cash flow available for other purposes, including capital expenditures;

•

limiting our flexibility in planning for, or reacting to changes in, our business and the industries in which we compete;

•

placing us at a possible competitive disadvantage with respect to less leveraged competitors and competitors that have better access to capital resource; and

•

making us more vulnerable in the event of a downturn in our business.

Our debt level and the terms of our financing arrangements could adversely affect our financial condition and limit our ability to successfully implement our growth strategy.

We may not be able to meet our debt service obligations, including our obligations under a Credit Agreement (the Credit Agreement) with ECT (together with us, the Borrowers), Silicon Valley Bank, as lender, administrative agent and issuing lender (SVB), and the several lenders from time to time part thereto (the Lenders) dated December 15, 2014. The Credit Agreement provides for a senior secured credit facility, consisting of a term loan facility, in favor of the Borrowers in the aggregate principal amount of $25.0 million which was advanced to us on December 15, 2014 (the Facility). If we are unable to maintain certain financial covenants,

we would be in default under the Facility, which could permit the Lenders to accelerate the maturity of the Facility. Any such default could have material adverse effect on our business, prospects, financial position and operating results, and could force us to refinance all or part of our existing debt, sell our assets, borrow more money or raise equity. There is no guarantee that we would be able to take any of these actions on a timely basis, on terms satisfactory to us, or at all. In addition, we may not be able to repay amounts due in respect of our obligations, if payment of those obligations were to be accelerated following the occurrence of any other event of default as defined in the instruments creating those obligations.

We may need additional financing, which could be difficult to obtain or limit our operational flexibility.

We believe our cash, cash equivalents, and marketable securities balance of $123.3 million as of October 31, 2015 will be sufficient to fund our ongoing operations for at least the next twelve months. However, we may need to raise additional funds in the future and, in such event, we may not be able to obtain such financing on favorable terms, if at all. Further, if we issue additional equity or equity-linked securities to obtain financing, stockholders may experience dilution. If we incur substantial additional indebtedness in the future, the risks described above under “Our substantial debt and financial obligations could adversely affect our financial condition and ability to operate our business, we may not be able to pay our debt and other obligations, and we may incur additional debt” would intensify.

Our sales and operating results have fluctuated significantly from period to period, including from one quarter to another, and they may continue to do so.

Our quarterly and annual operating results are affected by a wide variety of factors that have had and could continue to have material and adverse effects on our financial condition and stock price or lead to significant variability in our operating results or our stock price, including the following:

•

the fact that sales of a limited number of test systems may account for a substantial portion of our net sales in any particular fiscal quarter;

•

order cancellations by customers;

•

lower gross margins in any particular period due to changes in:

•

our product mix;

•

the configurations of test systems sold;

•

the customers to whom we sell our test systems; or

•

volume;

•

a long sales cycle due to the significant investment made by our customers in installing our test systems and the time required to incorporate our systems into our customers’ design or manufacturing process; and

•

changes in the timing of product orders due to:

•

unexpected delays in the introduction of products by our customers,

•

excess production capacity by our customers,

•

shorter than expected lifecycles of our customers’ semiconductor devices,

•

uncertain market acceptance of products developed by our customers, or

•

our own research and development.

We cannot predict the impact of these and other factors on our sales and operating results in any future period. Results of operations in any period, therefore, should not be considered indicative of the results to be expected for any future period. Because of this difficulty in predicting future performance, our operating results may fall below expectations of securities analysts or investors in some future quarter or quarters. Our failure to meet these expectations would likely adversely affect the market price of our common stock.

A substantial amount of the shipments of our systems for a particular quarter may occur late in the quarter. Our shipment pattern may expose us to significant risks of not meeting our expected financial results for each quarter in the event of problems during the complex process of final, test and acceptance prior to revenue recognition. If we were to experience problems of this type late in our quarter, shipments could be delayed and our operating results could fall below expectations.

Our dependence on subcontractors and sole source suppliers may prevent us from delivering an acceptable product on a timely basis.

We rely on one subcontractor to manufacture our test systems and multiple other subcontractors for the manufacture of the components and subassemblies used to produce our test systems. Certain of the suppliers for certain components and subassemblies are sole source suppliers. We have no long term supply agreements with our test system contract manufacturers and purchase products through individual purchase orders. For all of our products, we may be required to qualify new or additional subcontractors and suppliers due to capacity constraints, competitive or quality concerns or other risks that may arise, including as a result of a change in control of, or deterioration in the financial condition of, a supplier or subcontractor. The process of qualifying subcontractors and suppliers is lengthy. Our reliance on subcontractors gives us less control over the manufacturing process and exposes us to significant risks, especially inadequate capacity, late delivery, substandard quality, and high costs. In addition, the manufacture of certain of these components and subassemblies is an extremely complex process. If a supplier became unable to provide parts in the volumes needed, at the required standards of quality or at an acceptable price, we would have to identify and qualify acceptable replacement parts from alternative sources of supply or manufacture such components or subassemblies internally. The failure to qualify acceptable replacement subcontractors or suppliers quickly would delay the manufacturing and delivery of our products, which could cause us to lose revenues and customers.

We also may be unable to engage alternative sources for the production of our products on a timely basis or upon terms favorable to us, if at all. If we are required for any reason to seek a new manufacturer of our products, an alternate manufacturer may not be available and, in any event, transitioning to a new manufacturer would require a significant lead time of nine months or more and would involve substantial expense and disruption of our business. Our test systems are highly sophisticated and complex capital equipment, with many custom components, and final assembly requires specific technical know-how and expertise. These factors could make it more difficult for us to find a new manufacturer of our systems if our relationship with our outsource suppliers is terminated for any reason, which would cause us to lose revenues and customers.

We are dependent on certain semiconductor device manufacturers as sole source suppliers of certain sub-assemblies and components used in our test systems which are manufactured in accordance with our proprietary design and specifications. We have no written supply agreement with these sole source suppliers and purchase our custom components through individual purchase orders. If one of our sole source suppliers were to fail to produce or provide the parts they agreed to build for us at the specifications, price or volume required, we would face a significant delay in the final production of our products because we do not have redundant capacity available, and our revenue and results of operations would be materially and adversely affected.

Compliance with current and future environmental regulations may be costly and disruptive to our operations.

We may be subject to environmental and other regulations due to our production and marketing of products in certain states and countries that limit or restrict the amount of hazardous material in certain electronic components such as PCBs. One such regulation is Directive 2002/95/EC of the European Parliament and of the Council of 27 January 2003 that restricts the use of certain hazardous substances in electrical and electronic equipment. “RoHS” is short for restriction of hazardous substances. The RoHS Directive banned the placing on the European Union market of new electrical and electronic equipment containing more than agreed levels of lead, cadmium, mercury, hexavalent chromium, polybrominated biphenyl (PBB) and polybrominated diphenyl ether (PBDE), except where exemptions apply, from July 1, 2006. Manufacturers are required to ensure that their products, including their constituent materials and components, do not contain more than the minimum levels of the nine restricted materials in order to be allowed to export goods into the Single Market (i.e. of the European Community’s 28 Member States). Any interruption in supply due to the unavailability of restriction free products could have a significant impact on the manufacturing and delivery of our products. If a supplier became unable to provide parts in the volumes needed or at an acceptable price, we would have to identify and qualify acceptable replacements from alternative sources of supply or manufacture such components internally. As previously discussed, the failure to qualify acceptable replacements quickly would delay the manufacturing and delivery of our products, which could cause us to lose revenues and customers.

Regulations related to conflict minerals may adversely affect us.

The U.S. Securities and Exchange Commission has adopted disclosure rules for companies that use conflict minerals in their products, with substantial supply chain verification requirements in the event that the materials come from, or could have come from, the Democratic Republic of the Congo or adjoining countries. These rules and verification requirements, which have applied to our activities since 2013 and will apply to our activities going forward, impose additional costs on us and on our suppliers, and may limit the sources or increase the prices of materials used in our products. Further, if we are unable to certify that our products are conflict free, we may face challenges with our customers, which could place us at a competitive disadvantage, and our reputation may be harmed.

We may not be able to deliver custom hardware options and related applications to satisfy specific customer needs in a timely manner.

The success of our business relies in substantial part on our ability to develop and deliver customized hardware and applications to meet our customers’ specific requirements. Our equipment may fail to meet our customers’ technical or cost requirements and may be replaced by competitive equipment or an alternative technology solution. Our inability to provide a test system that meets requested performance criteria when required by a device manufacturer would severely damage our reputation with that customer. This loss of reputation together with the risks discussed above under, “The market for capital equipment is highly concentrated, and we have limited opportunities to sell our products” may make it substantially more difficult for us to sell systems to that manufacturer for a number of years. We have, in the past, experienced delays in introducing some of our products and enhancements.

Our dependence on international sales and non-U.S. suppliers involves significant risk.

International sales have constituted a significant portion of our revenues in recent years, and we expect that to continue. International sales accounted for 79% of our revenues for fiscal 2015, 78% of our revenues for fiscal 2014 and 83% of our revenues for fiscal 2013. In addition, we rely on non-U.S. suppliers for several components of the equipment we sell. As a result, a major part of our revenues and the ability to manufacture our products are subject to the risks associated with international commerce. These international relationships make us particularly sensitive to economic, political, regulatory and environmental changes in the countries from which we derive sales and obtain supplies. Our sole source final assembly manufacturing supplier for our test systems in Malaysia increases our exposure to these types of international risks. International sales and our relationships with suppliers may be hurt by many factors, including:

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changes in law or policy resulting in burdensome government controls, tariffs, restrictions, embargoes or export license requirements;

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political and economic instability in our target international markets;

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longer payment cycles common in foreign markets;

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difficulties of staffing and managing our international operations;

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less favorable foreign intellectual property laws making it harder to protect our technology from appropriation by competitors;

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difficulties collecting our accounts receivable;

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the impact of the Foreign Corrupt Practices Act of 1977 and similar laws; and

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adverse weather and climate events.

In the past, we have incurred expenses to meet new regulatory requirements in Europe, experienced periodic difficulties in obtaining timely payment from non-U.S. customers, and been affected by economic conditions in several Asian countries. Our foreign sales are typically invoiced and collected in U.S. dollars. A strengthening in the U.S. dollar relative to the currencies of those countries where we do business would increase the prices of our products as stated in those currencies and could hurt our sales in those countries. Significant fluctuations in the exchange rates between the U.S. dollar and foreign currencies could cause us to lower our prices and thus reduce our profitability. These fluctuations could also cause prospective customers to push out or delay orders because of the increased relative cost of our products. In the past, there have been significant fluctuations in the exchange rates between the U.S. dollar and the currencies of countries in which we do business. From time to time we may enter into foreign currency hedging arrangements

Our market is highly competitive, and we have limited resources to compete.

The semiconductor equipment and electronics manufacturing industries are highly competitive in all areas of the world. There are other domestic and foreign companies that participate in the markets for each of our products. Our competitors include Advantest Corporation and Teradyne Inc., Johnstech, MicroCraft, Cohu, Inc., SPEA, Shenzhen Mason Electronics Co., Ltd., Bojay, OXO, Sanmina, Interconnect Devices, Inc., QA Technology, and Ingun. Some of these competitors have substantially greater financial resources and more extensive engineering, manufacturing, marketing, and customer support capabilities than we have.

We expect our competitors to enhance their current products and to introduce new products that may have comparable or better price and performance. The introduction of competing products could hurt sales of our current and future products. In addition, new competitors, including semiconductor and electronics manufacturers themselves, may offer new technologies, which may in turn reduce the value of our products. Increased competition could lead to intensified price-based competition, which would hurt our business and results of operations. Unless we are able to invest significant financial resources in developing products and maintaining customer support centers worldwide, we may not be able to compete effectively.

We are exposed to the risks associated with the volatility of the U.S. and global economies.

Slow or negative growth in the domestic or global economies may continue to materially and adversely affect our business, financial condition and results of operations for the foreseeable future. The strength of the domestic and global economies impact business capital spending and the sale of electronic goods and information technology equipment, which impacts our sales, revenues, and profits. The lack of visibility regarding whether there will be sustained growth in domestic and global economies creates uncertainty regarding the amount of our sales, and underscores the need for caution in predicting growth in the semiconductor test equipment industry in general and in our revenues and profits specifically. Our results of operations would be further adversely affected if we were to experience lower than anticipated order levels, cancellations of orders in backlog, extended customer delivery requirements or pricing pressure as a result of a slowdown. At lower levels of revenue, there is a higher likelihood that these types of changes in our customers’ requirements would adversely affect our results of operations because in any particular quarter a limited number of transactions accounts for an even greater portion of sales for the quarter.

Development of our products requires significant lead-time and expenditures, and we may fail to correctly anticipate the technical needs of our customers.

Our systems are used by our customers to develop, test and manufacture their new semiconductor and electronics devices. We therefore must anticipate industry trends and develop products in advance of the commercialization of our customers’ semiconductor and electronics devices, requiring us to make significant capital investments to develop new equipment for our customers well before their devices are introduced. If our customers fail to introduce their devices in a timely manner or the market does not accept their devices, we may not recover our capital investment, in whole or in part. In addition, even if we are able to successfully develop enhancements or new generations of our products, these enhancements or new generations of products may not generate revenue in excess of the costs of development, and they may be quickly rendered obsolete by changing customer preferences or the introduction of products embodying new technologies or features by our competitors. Furthermore, if we were to make announcements of product delays, or if our competitors were to make announcements of new systems, these announcements could cause our customers to defer or forego purchases of our systems, which would also hurt our business.

We may not be able to recover capital expenditures.

We continue to make capital expenditures in the ordinary course of our business. We may not be able to recover the expenditures for capital projects within the assumed timeframe, or at all, which may have an adverse impact on our profitability.

We have significant guarantees, indemnification and customer confidentiality obligations.

From time to time, we make guarantees to customers regarding the delivery and performance of our products and guarantee certain indebtedness, performance obligations or lease commitments of our subsidiary and affiliate companies. We also have agreed to provide indemnification to our officers, directors, employees and agents, to the extent permitted by law, arising from certain events or occurrences while the officer, director, employee or agent, is or was serving at our request in such capacity. Additionally, we have confidentiality obligations to certain customers. If we become liable under any of these obligations, it could materially and adversely affect our business, financial condition or operating results.

Our success depends on attracting and retaining key personnel.

Our success depends substantially upon the continued service of our executive officers and key personnel, none of whom is bound by an employment or non-competition agreement. Our success also depends on our ability to attract and retain highly qualified managers and technical, engineering, marketing, sales and support personnel. Competition for such specialized personnel is intense, and it may become more difficult for us to hire or retain them. Our volatile business cycles only aggravate this problem. If we implement layoffs during an industry downturn, our ability to hire or retain qualified personnel may be diminished. Our business, financial condition and results of operations could be materially adversely affected by the loss of any of our key employees, by the failure of any key employee to perform in his or her current position, or by our inability to attract additional skilled employees.

We may not be able to protect our intellectual property rights.

Our success depends in part on our ability to obtain intellectual property rights and licenses and to preserve other intellectual property rights covering our products and development and testing tools. To that end, we have obtained certain domestic and international patents and may continue to seek patents on our inventions when appropriate. We have also obtained certain trademark registrations. The process of seeking intellectual property protection can be time consuming and expensive. We cannot ensure that:

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patents will issue from currently pending or future applications;

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our existing patents or any new patents will be sufficient in scope or strength to provide meaningful protection or any commercial advantage to us;

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foreign intellectual property laws will protect our intellectual property rights; or

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others will not independently develop similar products, duplicate our products or design around our technology.

If we do not successfully enforce our intellectual property rights, our competitive position could suffer, which could harm our operating results. We also rely on trade secrets, proprietary know-how and confidentiality provisions in agreements with employees and consultants to protect our intellectual property. Other parties may not comply with the terms of their agreements with us, and we may not be able to adequately enforce our rights against these parties.

Third parties may claim we are infringing their intellectual property, and we could incur significant litigation costs and licensing expenses or be prevented from selling our products.

Intellectual property rights are uncertain and involve complex legal and factual questions. We may be unknowingly infringing on the intellectual property rights of others and may be liable for that infringement, which could result in a significant liability for us. If we do infringe the intellectual property rights of others, we could be forced to either seek a license to intellectual property rights of others or alter our products so that they no longer infringe the intellectual property rights of others. A license could be very expensive to obtain or may not be available at all. Similarly, changing our products or processes to avoid infringing the rights of others may be costly or impractical.

If we were to become involved in a dispute regarding intellectual property, whether ours or that of another company, we may have to participate in legal proceedings. These types of proceedings may be costly and time consuming for us, even if we eventually prevail. If we do not prevail, we might be forced to pay significant damages, obtain licenses, modify our products or processes, stop making products or stop using processes.

In the future we may be subject to litigation that could have an adverse effect on our business.

From time to time, we may be subject to litigation or other administrative and governmental proceedings that could require significant management time and resources and cause us to incur expenses and, in the event of an adverse decision, pay damages in an amount that could have a material adverse effect on our financial position or results of operations.

Product defects and any damages stemming from product liability could harm our reputation among existing and potential customers and could have a material adverse effect upon our business results and financial condition

We cannot guarantee that there are no defects in the products we manufacture or that our product liability insurance will sufficiently cover the ultimate amount of any damages caused by such defects. Large scale accidents due to product defects or any discovery of defects in our products could harm our reputation, result in claims for damages, and have a material adverse effect upon our business results and financial condition.

Our operations and the operations of our customers and suppliers are subject to risks of natural catastrophic events, widespread health epidemics, acts of war, and the threat of domestic and international terrorist attacks, any one of which could result in cancellation of orders, delays in deliveries or other business activities, or loss of customers and could negatively affect our business and results of operations.

Our operations and those of our customers and suppliers are subject to disruption for a variety of reasons, including work stoppages, acts of war, terrorism, health epidemics, fires, earthquakes, hurricanes, volcanic eruptions, energy shortages, telecommunication failures, tsunamis, flooding or other natural disasters. Such disruption could materially increase our costs and expenses as well as cause delays in, among other things, shipments of products to our customers, our ability to perform services requested by our customers, or the installation and acceptance of our products at customer sites. Any of these conditions could have a material adverse effect on our business, financial conditions or results of operations.

Damage, interference or interruption to our information technology networks and systems could hinder business continuity and lead to substantial costs or harm to our reputation

We rely on various information technology networks and systems, some of which are managed by third parties, to process, transmit and store electronic information, including confidential data, and to carry out and support a variety of business activities, including manufacturing, research and development, supply chain management, sales and accounting. Attacks by hackers or computer viruses, wrongful use of the information security system, careless use, accidents or disasters could undermine the defenses we have established for these systems and disrupt business continuity, which could not only risk leakage or tampering of information but could also result in a legal claim, litigation, damages liability or an obligation to pay fines. If this were to occur, our reputation could be harmed, we could incur substantial costs, and it may have a material adverse effect upon our financial condition and results of operation.

Our stock price is volatile.

In the three months ended October 31, 2015, our stock price ranged from a low of $5.77 to a high of $7.26. The price of our common stock has been and likely will continue to be subject to wide fluctuations in response to a number of events and factors, such as:

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quarterly variations in operating results;

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variances of our quarterly results of operations from securities analysts’ estimates;

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changes in financial estimates and recommendations by securities analysts;

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announcements of technological innovations, new products, acquisitions or strategic alliances; and

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news reports relating to trends in our markets.

In addition, the stock market in general, and the market prices for semiconductor-related and electronics manufacturing companies in particular, have experienced significant price and volume fluctuations that often have been unrelated to the operating performance of the companies affected by these fluctuations. These broad market fluctuations may adversely affect the market price of our common stock, regardless of our operating performance.

We may record impairment charges, which would adversely impact our results of operations.

We review our goodwill and indefinite-lived intangible assets for impairment at least annually, or whenever events or changes in circumstances indicate that the carrying amounts of these assets may not be recoverable, in accordance with FASB Topic 350, Intangibles—Goodwill and Other to the FASB ASC. We also review our other long lived assets for impairment whenever events or changes in circumstances indicate that the carrying amounts of these assets may not be recoverable.

One potential indicator of goodwill impairment is whether our fair value, as measured by our market capitalization, has remained below our net book value for a significant period of time. Whether our market capitalization triggers an impairment charge in any future period will depend on the underlying reasons for the decline in stock price, the significance of the decline, and the length of time the stock price has been trading at such prices.

In the event that we determine in a future period that impairment exists for any reason, we would record an impairment charge, which would reduce the underlying asset’s value in the period such determination is made, which would adversely impact our financial position and results of operations

Internal control deficiencies or weaknesses that are not yet identified could emerge.

Over time we may identify and correct deficiencies or weaknesses in our internal controls and, where and when appropriate, report on the identification and correction of these deficiencies or weaknesses. However, our internal control procedures can provide only reasonable, and not absolute, assurance that deficiencies or weaknesses are identified. Deficiencies or weaknesses that have not been identified by us could emerge and the identification and correction of these deficiencies or weaknesses could have a material impact on our results of operations. If our internal control over financial reporting are not considered adequate, we may experience a loss of public confidence, which could have an adverse effect on our business and stock price.

Fluctuation in foreign currency exchange rates may adversely affect our results of operations and financial position.

Our results of operations and financial position could be adversely affected as a result of adverse fluctuations in foreign currency exchange rates that reduce the purchasing power of the U.S. dollar, increase our costs and expenses and otherwise harm our business. Although our financial statements are denominated in U.S. dollars, a sizable portion of our revenues and costs are denominated in other currencies, primarily the Euro. Any hedging strategies that we may use in an effort to reduce the adverse impact of fluctuations in foreign currency exchange rates may not be successful. In addition, our foreign currency exposure on assets and liabilities for which we do not hedge could have a material impact on our results of operations in periods when the U.S. dollar significantly fluctuates in relation to unhedged non-U.S. currencies in which we transact business.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Item 6.

Exhibits

The exhibits filed as part of this Quarterly Report on Form 10-Q are set forth on the Exhibit Index immediately preceding such exhibits, and are incorporated herein by reference.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	Xcerra Corporation

Date: December 10, 2015	By:	/S/ MARK J. GALLENBERGER
		Mark J. Gallenberger
		Senior Vice President, Chief Operating Officer, Chief Financial Officer and Treasurer (Principal Financial Officer)

EXHIBIT INDEX


Exhibit Number		Description

10.1		Asset Purchase Agreement, dated as of September 8, 2015, by and among Xcerra Corporation, Everett Charles Technologies, LLC, Multitest Electronic Systems, Inc., FastPrint Hong Kong Co. Ltd., Fastprint Technology (U.S.) LLC, and FastTest Technology, Inc. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on September 8, 2015)

10.2		First Amendment to Credit Agreement and Waiver, dated September 16, 2015, among the Company, Everett Charles Technologies, LLC, the several lenders identified on the signature pages thereto and Silicon Valley Bank as Administrative Agent and Collateral Agent (Incorporated by reference to Exhibit 10.14 to the Registrant’s Annual Report on Form 10-K filed with the SEC on October 14, 2015)

31.1 *		Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act

31.2 *		Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act

32 *		Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

*	Filed herewith

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