Fair Value Measurements

12 Months Ended

Aug. 31, 2016

13.

FAIR VALUE MEASUREMENTS

The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments as of August 31, 2016 and 2015 (in thousands):


	August 31, 2016				August 31, 2015
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Financial assets:
Cash and cash equivalents	$	6,030	$	6,030	$	4,808	$	4,808
Receivables (including related parties)		900		900		2,049		2,049
Other assets (non-derivatives)		643		643		872		872
Financial liabilities:
Payables (including related parties)	$	4,552	$	4,552	$	5,214	$	5,214
Long-term debt (including current installments)		2,909		2,889		3,907		3,906

The fair values of the financial instruments shown in the above table as of August 31, 2016 and 2015 represent the amounts that would be received to sell those assets or that would be paid to transfer those liabilities in an orderly transaction between market participants at that date. Those fair value measurements maximize the use of observable inputs. However, in situations where there is little, if any, market activity for the asset or liability at the measurement date, the fair value measurement reflects management’s own judgments about the assumptions that market participants would use in pricing the asset or liability. Those judgments are developed by management based on the best information available in the circumstances, including expected cash flows and appropriately risk‑adjusted discount rates, available observable and unobservable inputs.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments:

Cash, cash equivalents, receivables and payables (including related parties) and notes payable to banks: The carrying amounts, at face value or cost plus accrued interest, approximate fair value because of the short maturity of these instruments.

Other assets (non‑derivatives) include primarily value‑added tax (“VAT”) refund receivables, refundable deposits, and restricted time deposits. The fair value of VAT refund receivables approximates the carrying amount because of the short maturity. The fair value of refundable deposits and restricted time deposits with no fixed maturity is based on the carrying amount.

Long‑term debt: The fair value of the Company’s variable rate long‑term debt is estimated based on the prevailing market rate adjusted by the Company’s credit spread.

The following table presents assets that were measured at fair value on a nonrecurring basis as of August 31, 2016 (in thousands):



			Quoted
			prices in
			active		Significant
			markets for		other		Significant
			identical		observable		unobservable
	Fair		assets		inputs		inputs		Total
	value		(Level 1)		(Level 2)		(Level 3)		losses
Long-lived assets	$	9,660	$	—	$	—	$	9,660	$	8,635
Goodwill		—		—		—		—		55
Investment in non-marketable equity security—Nanoteco and LumenMax		20		—		—		20		597
Total	$	9,680	$	—	$	—	$	9,680	$	9,287

The asset group associated with the manufacture and sale of LED chips and LED components with a carrying amount of $18.3 million at August 31, 2016 was written down to its fair value of $9.7 million, resulting in an impairment charge of $8,635 thousand on property, plant and equipment and intangible assets for the year ended August 31, 2016. Management determined the fair value of the asset group based on the present value of expected future net cash flows discounted at the weighted average cost of capital of 13.4%. Management developed the expected future net cash flows based on company-specific assumptions established using historical data and internally developed estimates as part of the Company's long-term planning process, and adjusted them as appropriate to take into account the highest and best use of the long-lived assets from the perspective of market participants in measuring fair value of the asset group.

An impairment loss on the Company's investment in Nanoteco and LumenMax was recognized based on the excess of the carrying amount over the estimated recoverable value. The recoverable value of the investment was determined based on management's best estimate of the amount that could be realized from the investment, which considered the latest financial report and the investee's plan of liquidation proposed in September 2016. Management believes the estimated recoverable value reflected the exit price from a market participant's perspective at August 31, 2016.

The following table presents the long-lived assets (property, plant and equipment and intangible assets) that were measured at relative fair value on a nonrecurring basis as of August 31, 2016 (in thousands):


			Quoted
			prices in
			active		Significant
			markets for		other		Significant
			identical		observable		unobservable
	Fair		assets		inputs		inputs		Total
	value		(Level 1)		(Level 2)		(Level 3)		losses
Property, plant and equipment	$	8,738	$	—	$	—	$	8,738	$	7,433
Intangible assets		44		—		—		44		1,202
Total	$	8,782	$	—	$	—	$	8,782	$	8,635

Property, plant and equipment with a carrying amount of $16.1 million was written down to its relative fair value of $8.7 million, resulting in an impairment charge of $7.4 million for the year ended August 31, 2016. Intangible assets with a carrying amount of $1.2 million was written down to its relative fair value of $44 thousand, resulting in an impairment charge of $1.2 million for the year ended August 31, 2016. Management determined the fair value of the asset group based on the present value of estimated future net cash flows discounted at the weighted average cost of capital of 13.4%. Management developed the expected future net cash flows based on company-specific assumptions established using historical data and internally developed estimates as part of the Company's long-term planning process, and adjusted them as appropriate to take into account the highest and best use of the long-lived assets from the perspective of market participants in measuring fair value.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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