NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.
Summary of Significant Accounting Policies
Operations
Perceptron, Inc. (“Perceptron” “we”, “us” or “our”) develops, produces and sells a comprehensive range of automated industrial metrology products and solutions to manufacturing organizations for dimensional gauging, dimensional inspection and 3D scanning products. Our products provide solutions for manufacturing process control as well as sensor and software technologies for non-contact measurement, scanning and inspection applications. We also offer Value Added Services such as training and customer support services.
Basis of Presentation and Principles of Consolidation
The consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The consolidated financial statements include the accounts of Perceptron and our wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
These consolidated financial statements include the results of our acquisitions of Next Metrology Software s.r.o. (“NMS”), which was consummated on January 29, 2015, and Coord3 s.r.l. (“Coord3”), which was consummated on February 27, 2015, from their acquisition dates. See Note 2, “Acquisitions”, below.
The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition
Revenue related to products and services is recognized upon shipment when title and risk of loss has passed to the customer or upon completion of the service, there is persuasive evidence of an arrangement, the sales price is fixed or determinable, collection of the related receivable is reasonably assured and customer acceptance criteria, if any, have been successfully demonstrated.
We also have multiple element arrangements in our Measurement Solutions product line which may include elements such as, equipment, installation, labor support and/or training. Each element has value on a stand-alone basis and the delivered elements do not include general rights of return. Accordingly, each element is considered a separate unit of accounting. When available, we allocate arrangement consideration to each element in a multiple element arrangement based upon vendor specific objective evidence (“VSOE”) of fair value of the respective elements. When VSOE cannot be established, we attempt to establish the selling price of each element based on relevant third-party evidence. Our products contain a significant level of proprietary technology, customization or differentiation, therefore, comparable pricing of products with similar functionality cannot be obtained. In these cases, we utilize our best estimate of selling price (“BESP”). We determine the BESP for a product or service by considering multiple factors including, but not limited to, pricing practices, internal costs, geographies and gross margin.
For multiple element arrangements, we defer from revenue recognition the greater of the relative fair value of any undelivered elements of the contract or the portion of the sales price of the contract that is not payable until the undelivered elements are completed. As part of this evaluation, we limit the amount of revenue recognized for delivered elements to the amount that is not contingent on the future delivery of products or services, including a consideration of payment terms that delay payment until those future deliveries are completed.
Some multiple element arrangements contain installment payment terms with a final payment (“final buy-off”) due upon the completion of all elements in the arrangement or when the customer’s final acceptance is received. We recognize revenue for each completed element of a contract when it is both earned and realizable. A provision for final customer acceptance generally does not preclude revenue recognition for the delivered equipment element because we rigorously test equipment prior to shipment to ensure it will function in our customer’s environment. The final acceptance amount is assigned to specific element(s) identified in the contract, or if not specified in the contract, to the last element or elements to be delivered that represent an amount at least equal to the final payment amount.
Our Measurement Solutions are designed and configured to meet each customer’s specific requirements. Timing for the delivery of each element in the arrangement is primarily determined by the customer’s requirements and the number of elements ordered. Delivery of all of the multiple elements in an order will typically occur over a
three
to
15
-month period after the order is received.
We do not have price protection agreements or requirements to buy back inventory. Our history demonstrates that sales returns have been insignificant.
Research and Development
In fiscal year 2015 and the first half of fiscal 2016, in connection with our NMS acquisition, costs incurred after technological feasibility for certain new products were capitalized. In the third quarter of fiscal 2016, we recorded an impairment charge of $694,000 for one of
these products. The remaining capitalized costs will continue to be amortized to cost of goods sold over the estimated lives of these products. All other research and development costs, including future software development costs, are expensed as incurred.
Foreign Currency
The financial statements of our wholly-owned foreign subsidiaries are translated in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 830,
“Foreign Currency Translation Matters”.
The functional currency of most of our non-U.S. subsidiaries is the local currency. Under this standard, translation adjustments are accumulated in a separate component of shareholders’ equity until disposal of the subsidiary. Gains and losses on foreign currency transactions are included in our Consolidated Statement of Operations under “Foreign currency income (loss), net”.
Earnings Per Share
Basic earnings per share (“EPS”) is calculated by dividing net income by the weighted average number of common shares outstanding during the period. Other obligations, such as stock options and restricted stock awards, are considered to be potentially dilutive common shares. Diluted EPS assumes the issuance of potential dilutive common shares outstanding during the period and adjusts for any changes in income and the repurchase of common shares that would have occurred from the assumed issuance, unless such effect is anti-dilutive. The calculation of diluted shares also takes into effect the average unrecognized non-cash stock-based compensation expense and additional adjustments for tax benefits related to non-cash stock-based compensation expense. Furthermore, we exclude all options to purchase common stock from the computation of diluted EPS in periods of net losses because the effect is anti-dilutive.
Options to purchase
194,000
,
181,000
and
196,000
shares of common stock, for the fiscal years ended June 30, 2016, 2015 and 2014, were not included in the computation of diluted EPS because the effect would have been anti-dilutive.
Cash and Cash Equivalents
We consider all highly liquid investments purchased with maturities of three months or less to be cash equivalents. Fair value approximates carrying value because of the short maturity of the cash equivalents. At June 30, 2016, we had
$6,787,000
in cash and cash equivalents of which
$5,849,000
was held in foreign bank accounts. We maintain our cash in bank deposit accounts, which, at times, may exceed federally insured limits. We have not experienced any losses in such accounts.
Accounts Receivable and Concentration of Credit Risk
We market and sell our products principally to automotive manufacturers, line builders, system integrators, original equipment manufacturers and value-added resellers. Our accounts receivable are principally from a small number of large customers. We perform ongoing credit evaluations of our customers. Accounts receivable are generally due within
30
to
60
days and are stated at amounts due from customers, net of an allowance for doubtful accounts. Accounts receivable outstanding longer than the contractual payment terms are considered past due. We determine our allowance for doubtful accounts by considering a number of factors, including the length of time trade accounts receivable are past due, our previous loss history, our customer’s current ability to pay their outstanding balance due to us, and the condition of the general economy and the industry as a whole. We write-off accounts receivable when they become uncollectible; payments subsequently received on such receivables are included in the allowance for doubtful accounts. Changes in our allowance for doubtful accounts are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
Costs and
|
|
|
|
Ending
|
|
Balance
|
|
Expenses
|
|
Charge-offs
|
|
Balance
|
Fiscal year ended June 30, 2016
|
$
|
214
|
|
$
|
137
|
|
$
|
(82)
|
|
$
|
269
|
Fiscal year ended June 30, 2015
|
$
|
146
|
|
$
|
36
|
|
$
|
32
|
|
$
|
214
|
Fiscal year ended June 30, 2014
|
$
|
174
|
|
$
|
(34)
|
|
$
|
6
|
|
$
|
146
|
Short-Term and Long-Term Investments
We account for our investments in accordance with ASC 320,
“Investments – Debt and Equity Securities
”. Investments with a term to maturity between three months to one year are considered short-term investments and are classified as available-for-sale investments. Investments with a term to maturity beyond one year may be classified as available for sale if we reasonably expect the investment to be realized in cash or sold or consumed during the normal operating cycle of the business. Investments are classified as held-to-maturity if the term to maturity is greater than one year and we have the intent and ability to hold such investments to maturity. All investments are initially recognized at fair value. Subsequent measurement for available-for-sale investments is recorded at fair value. Unrealized gains and losses on available-for-sale investments are recorded in other comprehensive income. Held-to-maturity investments are subsequently measured at amortized cost. At each balance sheet date, we evaluate all investments for possible other-than-temporary impairment which involves significant judgment. In making this judgment, we review factors such as the length of time and extent to which fair value has been below the cost basis, the anticipated recovery period, the financial condition of the issuer, the credit rating of the instrument and our ability and intent to hold the investment for a period of time which may be sufficient for recovery of the cost basis. Any losses determined to be other-than-temporary are charged as an impairment loss and recorded in earnings. If market, industry, and/or investee conditions deteriorate, future impairments may be incurred.
At June 30, 2016, we held a long-term investment in preferred stock that is not registered under the Securities Act of 1933 and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. The preferred stock investment is currently recorded at
$725,000
after consideration of impairment charges recorded in fiscal 2008 and 2009. We estimated that the fair market value of this investment at June 30, 2016 exceeded $725,000 based on an internal valuation model which included the use of a discounted cash flow model. The fair market analysis considered the following key inputs, (i) the underlying structure of the security; (ii) the present value of the future principal discounted at rates considered to reflect current market conditions; and (iii) the time horizon that the market value of the security could return to its cost and be sold. Under ASC 820,
“Fair Value Measurements”
, such valuation assumptions are defined as Level 3 inputs.
As of June 30, 2016, we had restricted cash held in both short-term and long-term bank guarantees. These guarantees provide financial assurance that we will fulfill certain customer obligations in China. The cash is restricted as to withdrawal or use while the related bank guarantee is outstanding. Interest is earned on the restricted cash and recorded as interest income. As of June 30, 2016 and June 30, 2015 we had short-term bank guarantees of $77,000 and $238,000 respectively, and long-term bank guarantees of $45,000 and $102,000 respectively
.
The following table presents our Short-term and Long-term Investments by category (in thousands):
|
|
|
|
|
|
|
June 30, 2016
|
|
Cost
|
|
Fair Value or
Carrying Value
|
Short-Term Investments
|
|
|
|
|
|
Bank Guarantee
|
$
|
77
|
|
$
|
77
|
Mutual Funds
|
|
29
|
|
|
29
|
Time/Fixed Deposits
|
|
1,368
|
|
|
1,368
|
Total Short-Term Investments
|
$
|
1,474
|
|
$
|
1,474
|
|
|
|
|
|
|
Long-Term Investments
|
|
|
|
|
|
Time Deposits
|
$
|
45
|
|
$
|
45
|
Preferred Stock
|
|
3,700
|
|
|
725
|
Total Long-Term Investments
|
$
|
3,745
|
|
$
|
770
|
|
|
|
|
|
|
Total Investments
|
$
|
5,219
|
|
$
|
2,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2015
|
Short-Term Investments
|
Cost
|
|
Fair Value or
Carrying Value
|
Bank Guarantee
|
$
|
238
|
|
$
|
238
|
Mutual Funds
|
|
34
|
|
|
34
|
Time/Fixed Deposits
|
|
3,862
|
|
|
3,862
|
Total Short-Term Investments
|
$
|
4,134
|
|
$
|
4,134
|
|
|
|
|
|
|
Long-Term Investments
|
|
|
|
Time Deposits
|
$
|
102
|
|
$
|
102
|
Preferred Stock
|
|
3,700
|
|
|
725
|
Total Long-Term Investments
|
$
|
3,802
|
|
$
|
827
|
|
|
|
|
|
|
Total Investments
|
$
|
7,936
|
|
$
|
4,961
|
Inventory
Inventory is stated at the lower of cost or market. The cost of inventory is determined by the first-in, first-out (“FIFO”) method. We provide a reserve for obsolescence to recognize inventory impairment for the effects of engineering change orders, age and use of inventory that affect the value of the inventory. The reserve for obsolescence creates a new cost basis for the impaired inventory. When inventory that has previously been impaired is sold or disposed of, the related obsolescence reserve is reduced resulting in the reduced cost basis being reflected in cost of goods sold. A detailed review of the inventory is performed annually with quarterly updates for known changes that have occurred since the annual review. Inventory, net of reserves of
$1,608,000
and
$1,436,000
at June 30, 2016 and June 30, 2015, respectively, is comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30,
|
|
2016
|
|
2015
|
Component parts
|
$
|
5,054
|
|
$
|
4,694
|
Work in process
|
|
3,461
|
|
|
1,989
|
Finished goods
|
|
3,657
|
|
|
5,215
|
Total
|
$
|
12,172
|
|
$
|
11,898
|
|
|
|
|
|
|
Changes in our reserve for obsolescence is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
Costs and
|
|
|
|
Ending
|
|
Balance
|
|
Expenses
|
|
Charge-offs
|
|
Balance
|
Fiscal year ended June 30, 2016
|
$
|
1,436
|
|
$
|
465
|
|
$
|
(293)
|
|
$
|
1,608
|
Fiscal year ended June 30, 2015
|
$
|
1,185
|
|
$
|
44
|
|
$
|
207
|
|
$
|
1,436
|
Fiscal year ended June 30, 2014
|
$
|
1,124
|
|
$
|
342
|
|
$
|
(281)
|
|
$
|
1,185
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Instruments
The carrying amounts of our financial instruments, which include cash and cash equivalents, short-term investments, accounts receivable, accounts payable and amounts due to banks or other lenders, approximate their fair values at June 30, 2016 and 2015. See “Short-Term and Long-Term Investments” for a discussion of our investments. Fair values have been determined through information obtained from market sources and management estimates.
We follow the provisions of ASC 820,
“Fair Value Measurements and Disclosures”
for all financial assets and liabilities as well as nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Our financial instruments include investments classified as available for sale, mutual funds, fixed deposits and certificate of deposits at June 30, 2016.
ASC 820 establishes a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources (observable inputs), or reflect our assumptions of market participant valuation (unobservable inputs). These two types of inputs create the following fair value hierarchy:
|
·
|
|
Level 1 – Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities.
|
|
·
|
|
Level 2 – Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly.
|
|
·
|
|
Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable and reflect management’s estimates and assumptions.
|
ASC 820 requires the use of observable market data if such data is available without undue cost and effort.
The following table presents our investments at June 30, 2016 and 2015 that are measured and recorded at fair value on a recurring basis consistent with the fair value hierarchy provisions of ASC 820 (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
June 30, 2016
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Mutual funds
|
$
|
29
|
|
$
|
29
|
|
$
|
-
|
|
$
|
-
|
Fixed deposits and certificates of deposit
|
|
1,490
|
|
|
-
|
|
|
1,490
|
|
|
-
|
Preferred Shares
|
|
725
|
|
|
-
|
|
|
-
|
|
|
725
|
Total
|
$
|
2,244
|
|
$
|
29
|
|
$
|
1,490
|
|
$
|
725
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
June 30, 2015
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Mutual funds
|
$
|
34
|
|
$
|
34
|
|
$
|
-
|
|
$
|
-
|
Fixed deposits and certificates of deposit
|
|
4,202
|
|
|
-
|
|
|
4,202
|
|
|
-
|
Preferred Shares
|
|
725
|
|
|
-
|
|
|
-
|
|
|
725
|
Total
|
$
|
4,961
|
|
$
|
34
|
|
$
|
4,202
|
|
$
|
725
|
During fiscal years 2016 and 2015, we
did not
record any other-than-temporary impairments on our financial assets required to be measured on a recurring basis.
Property and Equipment
Property and equipment are recorded at historical cost. Depreciation related to machinery and equipment and furniture and fixtures is primarily computed on a straight-line basis over estimated
useful
lives
ranging from
3
to
15
years. Depreciation on buildings is computed on a straight-line basis over
40
years. Depreciation on building improvements is computed on a straight-line basis over estimated useful lives ranging from
10
to
15
years. Our depreciation expense for the years ended June 30, 2016, 2015, and 2014 was
$1,016,000
,
$770,000
, and
$726,000
, respectively.
When assets are retired, the costs of such assets and related accumulated depreciation or amortization are eliminated from the respective accounts and the resulting gain or loss is reflected in the Consolidated Statement of Operations in “Other income (expense), net”.
Goodwill
Goodwill represents the excess purchase price over the fair value of the net amounts assigned to assets acquired and liabilities assumed in connection with our acquisitions. Under ASC Topic 805
“
Business Combinations”
, we are required to test goodwill for impairment annually or more frequently, whenever events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit with goodwill below its carrying amount. Application of the goodwill impairment test requires judgment, including assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units and determination of the fair value of each reporting unit.
The qualitative events or circumstances that could affect the fair value of a reporting unit could include economic conditions; industry and market considerations, including competition; increases in raw materials, labor, or other costs; overall financial performance such as negative or declining cash flows; relevant entity-specific events such as changes in management, key personnel, strategy, or customers; sale or disposition of a significant portion of a reporting unit and regulatory or political developments. Companies have the option under ASC Topic 350
“Intangibles – Goodwill and Other”
to evaluate goodwill based upon these qualitative factors, and if it is more likely than not that the fair value of the reporting unit is greater than its carrying amount, then no further goodwill impairment tests are necessary. If the qualitative review indicates it is more likely than not that the fair value of the reporting unit is less than its carrying amount, a two-step quantitative impairment test is performed to identify potential goodwill impairment and measure the amount of goodwill impairment loss to be recognized, if any. In fiscal year 2016, we elected the two-step quantitative goodwill impairment test.
Step 1 is to identify potential impairment by comparing fair value of a reporting unit with its carrying value, including goodwill. If the fair value is lower than the carrying value, this is an indication of goodwill impairment and Step 2 must be performed. Under Step 2, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. This analysis requires significant judgment in developing assumptions, such as estimating future cash flows, which is dependent on internal forecasts, estimating the long-term rate of growth for our business, estimating the useful life over which cash flows will occur and calculating our weighted average cost of capital. The estimates used to calculate the fair value of a reporting unit change from year to year based on operating results, market conditions, foreign currency fluctuations and other factors. Changes in these estimates and assumptions could materially affect the determination of fair value and could result in goodwill impairment for a reporting unit, negatively impacting the Company’s results of operations for the period and financial position.
During the fourth quarter of fiscal year 2016, we completed Step 1 of our goodwill impairment testing. Based on the results of this test, the fair value of our reporting unit exceeded our carrying value by
12%
. As a result,
no
impairment loss was recognized.
The balance of goodwill as of June 30, 2015 was
$7,499,000
. Goodwill is recorded on the local books of Coord3 and NMS and foreign currency effects will continue to impact the balance of goodwill in future periods. As of June 30, 2016, our goodwill balance is
$7,500,000
due to the change in foreign currency rates from June 30, 2015 to June 30, 2016.
Intangible Assets
We acquired intangible assets in addition to goodwill in connection with the acquisitions of Coord3 and NMS. These assets are susceptible to shortened estimated useful lives and changes in fair value due to changes in their use, market or economic changes, or other events or circumstances. We evaluate the potential impairment of these intangible assets whenever events or circumstances indicate their carrying value may not be recoverable. Factors that could trigger an impairment review include historical or projected results that are less than the assumptions used in the original valuation of an intangible asset, a change in our business strategy or our use of an intangible asset or negative economic or industry trends.
If an event or circumstance indicates that the carrying value of an intangible asset may not be recoverable, we assess the recoverability of the asset by comparing the carrying value of the asset to the sum of the undiscounted future cash flows that the asset is expected to generate over its remaining economic life. If the carrying value exceeds the sum of the undiscounted future cash flows, we compare the fair value of the intangible asset to the carrying value and record an impairment loss for the difference.
We generally estimate the fair value of our intangible assets using the income approach based upon a discounted cash flow model. The income approach requires the use of many assumptions and estimates including future revenues and expenses, discount factors, income tax rates, the identification of groups of assets with highly independent cash flows, and assets’ economic lives. Volatility in the global economy makes these assumptions and estimates more judgmental. Actual future operating results and the remaining economic lives of our other intangible assets could differ from those used in assessing the recoverability of these assets and could result in an impairment of other intangible assets in future periods.
During the third quarter of fiscal 2016, we determined that
one
of our product lines was not viable in the market. As a result of this determination, the unamortized software development costs associated with this product line was written off in the amount of
$694,000
and included in “Severance, Impairment and Other Charges” on our Consolidated Statement of Operations (see Note 12 for further discussion).
The amortization periods for customer/distributor relationships, trade name and software are
five
years,
ten
years and
five
years, respectively. Collectively, the weighted average amortization period of intangible assets subject to amortization is approximately
5.0
years. The intangible assets are amortized over the period of economic benefit or on a straight line basis. Our intangible assets as of June 30, 2016 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
|
June 30,
|
|
|
|
2016
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
2015
|
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
Customer/Distributor Relationships
|
|
$
|
3,170
|
|
$
|
(847)
|
|
$
|
2,323
|
|
$
|
3,172
|
|
$
|
(211)
|
|
$
|
2,961
|
Trade Name
|
|
|
2,461
|
|
|
(328)
|
|
|
2,133
|
|
|
2,463
|
|
|
(82)
|
|
|
2,381
|
Software
|
|
|
676
|
|
|
(181)
|
|
|
495
|
|
|
1,249
|
|
|
(12)
|
|
|
1,237
|
Other
|
|
|
118
|
|
|
(52)
|
|
|
66
|
|
|
120
|
|
|
(14)
|
|
|
106
|
Total
|
|
$
|
6,425
|
|
$
|
(1,408)
|
|
$
|
5,017
|
|
$
|
7,004
|
|
$
|
(319)
|
|
$
|
6,685
|
Amortization expense for the fiscal years ended June 30, 2016, 2015 and 2014 was
$1,12
1
,000
,
$328,000
and
$0
, respectively.
The estimated amortization of the remaining intangible assets by year is as follows (in thousands):
|
|
|
|
|
|
Years Ending June 30,
|
Amount
|
2017
|
|
1,058
|
2018
|
|
1,080
|
2019
|
|
1,061
|
2020
|
|
668
|
2021
|
|
246
|
after 2021
|
|
904
|
|
$
|
5,017
|
|
|
|
Deferred Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and the effects of operating losses and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided for deferred tax assets if it is more likely than not that these items will either expire before we are able to realize their benefit or future deductibility is uncertain (see Note 10 for further discussion).
Warranty
Our Measurement Solutions generally carry a one to three-year warranty for parts and a
one
-year warranty for labor and travel related to warranty. Product sales to the forest products industry carry a
three
-year warranty for TriCam
®
sensors. Sales of ScanWorks
®
have a
one
-year warranty for parts. Sales of WheelWorks
®
products have a
two
-year warranty for parts. We provide a reserve for warranty based on our experience and knowledge.
Factors affecting our warranty reserve include the number of units sold or in-service as well as historical and anticipated rates of claims and cost per claim. We periodically assess the adequacy of our warranty reserve based on changes in these factors. If a special circumstance arises which requires a higher level of warranty, we make a special warranty provision commensurate with the facts. Changes to our warranty reserve is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
Costs and
|
|
|
|
Ending
|
|
Balance
|
|
Expenses
|
|
Charge-offs
|
|
Balance
|
Fiscal year ended June 30, 2016
|
$
|
170
|
|
$
|
200
|
|
$
|
(60)
|
|
$
|
310
|
Fiscal year ended June 30, 2015
|
$
|
87
|
|
$
|
268
|
|
$
|
(185)
|
|
$
|
170
|
Fiscal year ended June 30, 2014
|
$
|
63
|
|
$
|
305
|
|
$
|
(281)
|
|
$
|
87
|
Self–Insurance
We are self-insured for health, vision and short-term disability costs up to a certain stop-loss level per claim and on an aggregate basis of a percentage of estimated annual costs. The estimated liability is based upon review by management and an independent insurance consultant of claims filed and claims incurred but not yet reported.
New Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update No. 2014-09,
Revenue from Contracts with Customers
(ASU 2014-09)
,
which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. In May 2016, FASB updated the guidance in ASU No. 2014-09. The amendments to not change the core principle of the guidance rather, they seek only to update implementation of the certain narrow topics within ASU 2014-09. Further, in March 2016, the FASB issued the final guidance to clarify the principal versus agent guidance (i.e., whether an entity should report revenue gross or net). Finally, in April 2016, the FASB issued the final guidance to clarify identifying performance obligation and the licensing implementation guidance. These standards will be effective for annual periods beginning after December 15, 2017 (as amended in August 2015, by ASU 2015-14,
Deferral of the Effective Date)
, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the applications of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). We are currently evaluating the impact of the adoption of ASU 2014-09 on our consolidated financial statements and have not yet determined the method by which we will adopt the standard in fiscal year 2019.
In July 2015, the FASB issued Accounting Standards Update No. 2015-11,
Simplifying the Measurement of Inventory
(ASU 2015-11), which changes the measurement of inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. There were also amendments to the guidance to more clearly articulate the requirements for the measurement and disclosure of inventory. ASU 2015-11 is effective for Perceptron on July 1, 2017 and is not expected to have a significant impact on our consolidated financial statements or disclosures.
In September 2015, the FASB issued Accounting Standards Update No. 2015-16,
Business Combinations – Simplifying the Accounting for Measurement-Period Adjustments (ASU 2015-16),
which requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments in this update require that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been
completed at the acquisition date. ASU 2015-16 is effective beginning for Perceptron on July 1, 2016 and is not expected to have a significant impact on our consolidated financial statements or disclosures.
In November 2015, the FASB issued Accounting Standards Update No. 2015-17,
Balance Sheet Classification of Deferred Taxes (ASU 2015-17),
which requires all deferred tax assets and liabilities, included related valuation allowances, be classified as non-current on our consolidated balance sheets. ASU 2015-17 is effective beginning July 1, 2017 and is not expected to have a significant impact on our consolidated financial statements or disclosures.
In January 2016, the FASB issued Accounting Standards Update No. 2016-01,
Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01),
which amends certain aspects of recognition, measurement, presentation and disclosure of financial instruments. ASC 2016-01 is effective beginning for Perceptron on July 1, 2018 and is not expected to have a significant impact on our consolidated financial statements or disclosures.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02
Leases (ASU 2016-2),
which establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. A modified retrospective transition approach is required for lessees with capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. We are currently evaluating the impact of the adoption of ASU 2016-02 on our consolidated financial statements.
In March 2016, the FASB issued Accounting Standards Update No. 2016-09,
Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09),
which changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows. ASU 2016-09 is effective for fiscal years and interim periods beginning after December 15, 2016, with early adoption permitted. We are currently evaluating the impact of the adoption of ASU 2016-09 on our consolidated financial statements.
In June 2016, the FASB issued Accounting Standards Update No. 2016-13,
Financial Instruments – Credit Losses (Topic 326) (ASU 2016-13),
which requires the measurement of all expected credit losses for financial assets held at the reporting date to be based on historical experience, current conditions as well as reasonable and supportable forecasts. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019 including interim periods within those fiscal years, with early adoption permitted. We are currently evaluating the impact of the adoption of ASU 2016-13 on our consolidated financial statements.
In August 2016, the FASB issued Accounting Standards Update No. 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15),
which will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for Perceptron beginning on July 1, 2018 and requires us to utilize a retrospective adoption unless it is impracticable for us to apply, in which case, we would be required to apply the amendment prospectively as of the earliest date practicable. We are currently evaluating the impact of the adoption of ASU 2016-15 on our consolidated statement of cash flows.
2.
Acquisitions
In accordance with ASC Topic 805,
“Business Combinations”
, we account for acquisitions by applying the acquisition method of accounting. The acquisition method of accounting requires, among other things, that the assets acquired and liabilities assumed in a business combination be measured at their fair values as of the closing date of the acquisition.
The acquisitions of NMS and Coord3 have been accounted for as business combinations. During the fourth quarter of fiscal year 2015, a valuation analysis was performed and the resulting fair values at the date of acquisition are presented below. There was an adjustment period of one year from the date of acquisition to adjust the fair values of the assets and liabilities acquired, and to date, no such adjustment was required. We are currently involved in final negotiations for payments in both the NMS and Coord3 acquisitions, thus the purchase price remains subject to change. The accompanying
C
onsolidated
S
tatement of
O
perations for the fiscal year ended June 30, 2015, the year in which the acquisition occurred, includes revenue of $5,639,000 and a net loss of $532,000 related to the operations of NMS and Coord3 subsequent to the dates each acquisition closed.
NMS
On January 29, 2015, we acquired 100% of the outstanding share capital of NMS. NMS is a developer of coordinate measuring machine (“CMM”) operating software, based in Prague, Czech Republic. The primary reason for the acquisition was to expand and diversify our offerings in the industrial metrology market, particularly in the scanning CMM market.
The total consideration payable in the acquisition of NMS was €2,250,000 (equivalent to approximately $2,560,000). We paid €1,800,000 (equivalent to approximately $2,050,000) on January 29, 2015, €250,000 (equivalent to approximately $282,000) on February 27, 2015 and €100,000 (equivalent to approximately $113,000) on February 1, 2016. Approximately €100,000 remains payable at June 30, 2016 to the
extent not used to cover indemnification obligations. We are currently negotiating the timing and the final amount of this payment.
The following table summarizes the acquisition date fair values of the assets and liabilities acquired (in thousands):
|
|
|
|
|
|
Receivables and other current assets
|
$
|
77
|
Intangible asset
|
|
391
|
Goodwill
|
|
2,209
|
Accounts payable and other current liabilities
|
|
(117)
|
|
|
|
Total identifiable net assets
|
$
|
2,560
|
|
|
|
The goodwill arising from the acquisition of NMS consists largely of the synergies expected from combining our existing research and development operations and NMS’s technical knowledge in developing CMM operating software. The goodwill is expected to be deductible for tax purposes.
Coord3
On February 27, 2015, we acquired 100% of the outstanding share capital of Coord3, a subsidiary of Coord3 Industries s.r.l. Coord3 is an Italian-based supplier of a full range of CMMs with a global customer base. By combining the full range of Coord3's CMMs with our laser scanners and NMS’s CMM operating software, we are able to offer a price competitive, fully integrated scanning CMM solutions’ worldwide.
The total consideration payable in the acquisition of Coord3 was €1,959,000 (equivalent to approximately $2,210,000). We paid €1,659,200 (equivalent to approximately $1,872,000) on February 27, 2015 and €300,000 (equivalent to approximately $338,000) is payable 18 months following the closing of the Coord3 purchase to the extent not used to cover indemnification obligations. Due to certain events that occurred within the first 18 months after the acquisition was completed, the remaining portion of the purchase price has not been paid to date. Negotiations with the previous owner continues and final resolution is expected in fiscal 2017.
The following table summarizes the acquisition date fair values of the assets and liabilities acquired (in thousands):
|
|
|
|
|
|
Cash
|
$
|
9
|
Accounts receivable
|
|
4,344
|
Inventories
|
|
3,093
|
Other assets
|
|
1,055
|
Goodwill
|
|
5,375
|
Other intangibles
|
|
5,850
|
Accounts payable and other current liabilities
|
|
(5,225)
|
Taxes payable
|
|
(7,531)
|
Loans payable
|
|
(2,109)
|
Deferred taxes
|
|
(1,836)
|
Other long term liabilities
|
|
(815)
|
|
|
|
Total identifiable net assets
|
$
|
2,210
|
The goodwill arising from the acquisition consists largely of the synergies expected from combining our operations with those of Coord3. None of the goodwill is expected to be deductible for tax purposes.
We acquired current and long-term taxes payable as part of the purchase of Coord3. The tax liabilities represent income and payroll related taxes that are payable in accordance with government authorized installment payment plans. These installment plans require varying monthly payments through January 2021.
Other long-term liabilities include $775,000 of long-term contractual and statutory severance liabilities acquired as part of the purchase of Coord3 that represent amounts that will be payable to employees upon termination of employment.
Pro forma Information
The following unaudited pro forma information for fiscal 2015 and 2014 is based on the assumption that the acquisitions of NMS and Coord3 occurred on July 1, 2013, respectively (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
2014
|
Revenue
|
|
$
|
84,091
|
|
$
|
76,513
|
Net Income (Loss)
|
|
$
|
(470)
|
|
$
|
1,895
|
|
|
|
|
|
|
|
Income (Loss) Per Common Share
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.05)
|
|
$
|
0.21
|
Diluted
|
|
$
|
(0.05)
|
|
$
|
0.21
|
|
|
|
|
|
|
|
As of June 30, 2015, the year in which the acquisitions occurred, we incurred acquisition related costs of approximately $1,600,000 for legal, accounting and valuation consulting fees which are included in “Selling, general and administrative expenses” on our
C
onsolidated
S
tatement of
O
perations.
These pro forma results of operations have been prepared for comparative purposes only and they do not purport to be indicative of the results of operations that actually would have resulted had the acquisitions occurred on the date indicated or that may result in the future.
3. Leases
We lease building space, office equipment and motor vehicles under operating leases. Lease terms generally cover periods from two to five years and may contain renewal options. The following is a summary, as of June 30, 2016, of the future minimum annual lease payments required under our operating leases having initial or remaining non-cancelable terms in excess of one year:
|
|
|
(in thousands)
|
|
|
Year
|
Minimum Rentals
|
2017
|
$
|
1,018
|
2018
|
|
721
|
2019
|
|
105
|
2020
|
|
1
|
2021 and beyond
|
|
-
|
|
|
|
Total minimum lease payments
|
$
|
1,845
|
|
|
|
Re
ntal expenses for operating leases in the fiscal years ended June 30, 2016, 2015 and 2014 were $1,097,000
,
$1,007,000 and $1,018,000, respectively.
4.
Credit Facilities
We had $200,000 in short-term notes payable outstanding at June 30, 2016 and no short-term notes payable at June 30, 2015. We had approximately $365,000 of long-term debt outstanding at June 30, 2016 and no long-term debt outstanding at June 30, 2015, all of which is included in “Other Long-Term Liabilities” on our Consolidated Balance Sheet.
We acquired bank debt of approximately $2,100,000 as part of the purchase of Coord3. The Company paid approximately $1,700,000 of this debt in March 2015 and the remaining balance was paid in June 2015.
On October 30, 2015, we entered into an Eighth Amendment to our Amended and Restated Credit Agreement with Comerica Bank (“Credit Agreement”). The Eighth Amendment changed the Credit Agreement to an on-demand line of credit from a committed line of credit that previously required the Company to pay a commitment fee of 0.15% per annum.
This Credit Agreement is cancelable at any time by either Perceptron or Comerica and any amounts outstanding would be immediately due and payable.
The maximum permitted borrowings increased from $6.0 million to $10.0 million. The borrowing base was amended to add an amount equal to the lesser of 50% of eligible inventory or $4.0 million to the previous formula of the lesser of $6.0 million or 80% of eligible receivables. At June 30, 2016, our maximum borrowing under this facility was approximately $4.0 million. Proceeds under the Credit Agreement may be used for working capital and capital expenditures. Security for the Credit Agreement is substantially all of our assets held in the United States. Borrowings are designated as a Libor-based Advance or as a Prime-based Advance if the Libor-based Advance is not available. Interest on Libor-based Advances is calculated at 2.35% above the Libor Rate offered at the time for the period chosen, and is payable on the last day of the applicable period. We are required to maintain a Tangible Net Worth of at least $29.0 million, down from the $31.0 million requirement in effect prior to October 30, 2015. We were not in compliance with the Tangible Net Worth financial covenant at June 30, 2016, however a
waiver was obtained from Comerica Bank on August 29, 2016. We are not allowed to pay cash dividends under the Credit Agreement. We are also required to have no advances outstanding under the Credit Agreement for 30 days (which need not be consecutive) during each calendar year. At June 30, 2016, we did not have any borrowings outstanding under the Credit Agreement, however early in the first quarter of fiscal 2017, we borrowed $1.5 million under the Credit Agreement.
At June 30, 2016, our German subsidiary (“GmbH”)
had an unsecured credit facility totaling
€350,000 (equivalent to approximately $388,000). The facility allows €100,000 to be used to finance working capital needs and equipment purchases or capital leases. The facility allows up to €250,000 to be used for providing bank guarantees. Any borrowings for working capital needs will bear interest at 4.25%. Amounts exceeding the limit of €100,000 will bear interest at 7.15%. Any outstanding bank guarantees will bear interest at 2.0%. The GmbH credit facility is cancelable at any time by either GmbH or the bank and any amounts then outstanding would become immediately due and payable. At June 30, 2016 and 2015, GmbH had no borrowings or bank guarantees outstanding.
During the second quarter of fiscal 2016, Coord3 entered into a secured credit facility totaling
€
200,000 (equivalent to approximately $222,000), however the facility was canceled in the fourth quarter of fiscal 2016.
During the third quarter of fiscal 2016, Coord3 exercised an option to purchase the current manufacturing facility. The total remaining principal payments of
€
510,000 (equivalent to approximately $565,000) payable over the following 36 months at a 7.0% annual interest rate are recorded in “Short-term notes payable” and “Other Long-Term Liabilities” on our Consolidated Balance Sheet at June 30, 2016.
5.
Information About Major Customers
Our sales efforts are led by account managers who develop a close consultative selling relationship with our customers.
Our principal customers have historically been automotive manufacturing companies that we either sell to directly or through manufacturing line builders, system integrators or original equipment manufacturers. Our products are typically purchased for installation in connection with retooling programs undertaken by these companies. Because sales are dependent on the timing of customers’ retooling programs, sales by customer vary significantly from year to year, as do our largest customers.
For the fiscal years 2016, 2015 and 2014, approximately
34%
,
40
% and
43
%, respectively, of our “Net Sales” on our consolidated statements of operations were derived from sales directly to our
four
largest automotive end-user customers. We also sell to manufacturing line builders, system integrators or assembly equipment manufacturers, who in turn sell to our automotive customers. For the fiscal years 2016, 2015 and 2014, approximately
8
%,
10
% and
16
%, respectively, of net sales were to manufacturing line builders, system integrators and original equipment manufacturers for the benefit of the same
four
largest automotive end user customers in each respective year. During the fiscal years ended June 30, 2016, 2015 and 2014, direct sales to Volkswagen Group accounted for
approximately
17%
,
20%
and
30%
, respectively of our total net sales and General Motors Company accounted for approximately
12%
,
12%
and less than
10%
, respectively of our
total net sales.
6.
Contingencies
We may, from time to time, be subject to litigation and other claims in the ordinary course of our business. We accrue for estimated losses arising from such litigation or claims 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. To estimate whether a loss contingency should be accrued by a charge to income, we evaluate, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of the loss. Since the outcome of litigation and claims is subject to significant uncertainty, changes in the factors used in our evaluation could materially impact our financial position or results of operations.
We are currently unaware of any significant pending litigation affecting us other than the matters set forth below.
We are a party to a civil suit filed by 3CEMS, a Cayman Islands and People’s Republic of China corporation, in the U.S. District Court for the Eastern District of Michigan and served on us on or about January 7, 2015. The suit alleges that we breached our contractual obligations by failing to pay for component parts to be used to manufacture optical video scopes for our discontinued Commercial Products Business Unit. 3CEMS alleged that it purchased the component parts in advance of the receipt of orders based upon instructions they claimed to have received from us. The suit alleged damages of not less than
$4.0
million. We intend to vigorously defend against 3CEMS’ claims.
Because of the inherent uncertainty of litigation and claims such as the 3CEMS matter, we are unable to reasonably estimate a possible loss or range of loss relating to the 3CEMS matter.
As part of routine evaluation procedures, we identified a potential concern regarding the employment status and withholding for several individuals in one of our foreign jurisdictions. During fiscal 2015, we estimated a range of the potential financial liability related to this matter of
€
486,000
to
€
1
million.
We were not able to reasonably estimate the amount within this range that we would be required to pay for this matter. As a result, in fiscal 2015, we recorded a reserve of
€486,000
(equivalent to approximately
$539,000
) representing the minimum amount we estimated would be paid. In the fourth quarter of fiscal 2016, we received the final notice regarding this issue, and as a result, we recorded an additional expense of
€227,000
(equivalent to app
roximately
$250,000
)
.
7.
401(k) Plan
We have a 401(k) tax deferred savings plan that covers all eligible employees based in the U.S. We may make discretionary contributions to the plan, however as part of our financial improvement plan announced in the third quarter of fiscal 2016, we ceased making any discretionary contributions. Our contribution during fiscal years 2016, 2015 and 2014 were $385,000, $640,000 and $577,000, respectively.
8.
Employee Stock Purchase Plan
We have an Employee Stock Purchase Plan for all U.S.-based employees meeting certain eligibility criteria. Under the Plan, eligible employees may purchase shares of our common stock at 85% of
the
market value at the beginning of a six-month election period. Purchases are limited to 10% of an employee's eligible compensation and the shares purchased are restricted from being sold for one year from the purchase date. At June 30, 2016, 133,543 shares remained available under the Plan.
Activity under this Plan is shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase Period Ended
|
|
June 30,
|
|
2016
|
|
2015
|
|
2014
|
Non-cash stock based compensation expense
|
$
|
19,000
|
|
$
|
14,075
|
|
$
|
30,571
|
Common shares purchased
|
|
2,011
|
|
|
3,271
|
|
|
14,672
|
Average purchase price per share
|
$
|
8.50
|
|
$
|
10.67
|
|
$
|
5.74
|
|
|
|
|
|
|
|
|
|
9.
Stock Based Compensation
We maintain a 2004 Stock Incentive Plan (“2004 Plan”) covering substantially all company employees, non-employee directors and certain other key persons. Options previously granted under a 1998 Global Team Member Stock Option Plan (“1998 Plan”) will continue to be maintained until all options are exercised, cancelled or expire. No further grants are permitted to be made under the terms of the 1998 Plan. The 2004 Plan is administered by a committee of our Board of Directors: The Management Development, Compensation and Stock Option Committee. The 1998 Plan is administered by our President.
Awards under the 2004 Plan may be in the form of stock options, stock appreciation rights, restricted stock or restricted stock units, performance share awards, director stock purchase rights and deferred stock units; or any combination thereof. The terms of the awards are determined by the Management Development, Compensation and Stock Option Committee, except as otherwise specified in the 2004 Plan.
Stock Options
Options outstanding under the 2004 Plan generally become exercisable at
25%
or
33
1/3 % per year beginning one year after the date of grant and expire
ten
years after the date of grant. All options outstanding under the 1998 Plan are vested and expire
ten
years from the date of grant. Option prices from options granted under these plans must not be less than fair market value of the Company’s stock on the date of grant. We use the Black-Scholes model for determining stock option valuations. The Black-Scholes model requires subjective assumptions, including future stock price volatility and expected time to exercise, which affect the calculated values. The expected term of option exercises is derived from historical data regarding employee exercises and post-vesting employment termination behavior. The risk-free rate of return is based on published U.S. Treasury rates in effect for the corresponding expected term. The expected volatility is based on historical volatility of our stock price. These factors could change in the future, which would affect the stock-based compensation expense in future periods.
We recognized operating expense for non-cash stock-based compensation costs related to stock options in the amount of
$428,000
,
$298,000
and
$255,000
for the fiscal years ended June 30, 2016, 2015 and 2014, respectively.
As of June 30, 2016, the total remaining unrecognized
compensation cost related to non-vested stock-based compensation amounted to
$633,000
. We expect to recognize this cost over a weighted average vesting period of
2.0
years.
We received
$58,000
in cash from option exercises under all stock option payment arrangements for the twelve months ended June 30, 2016. The actual tax benefit realized related to tax deductions for non-qualified options exercised and disqualifying dispositions under all stock option payment arrangements totaled approximately
$8,000
for fiscal 2016.
Activity under these Plans is shown in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2016
|
|
Fiscal Year 2015
|
|
|
|
|
Weighted
|
|
Aggregate
|
|
|
|
Weighted
|
|
Aggregate
|
|
|
|
|
Average
|
|
Intrinsic
|
|
|
|
Average
|
|
Intrinsic
|
|
|
|
|
Exercise
|
|
Value (1)
|
|
|
|
Exercise
|
|
Value (1)
|
Shares subject to option
|
|
Shares
|
|
Price
|
|
($000)
|
|
Shares
|
|
Price
|
|
($000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of period
|
|
658,641
|
|
$
|
8.53
|
|
|
|
|
765,486
|
|
$
|
8.09
|
|
|
|
New Grants (based on fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of common stock at dates of grant)
|
|
511,197
|
|
$
|
7.35
|
|
|
|
|
114,000
|
|
$
|
10.01
|
|
|
|
Exercised
|
|
(9,748)
|
|
$
|
5.92
|
|
|
|
|
(135,635)
|
|
$
|
6.29
|
|
|
|
Expired
|
|
(123,833)
|
|
$
|
9.08
|
|
|
|
|
(21,260)
|
|
$
|
11.48
|
|
|
|
Forfeited
|
|
(401,099)
|
|
$
|
8.48
|
|
|
|
|
(63,950)
|
|
$
|
9.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
635,158
|
|
$
|
7.53
|
|
$
|
54
|
|
658,641
|
|
$
|
8.53
|
|
$
|
1,438
|
Exercisable at end of period
|
|
329,210
|
|
$
|
7.78
|
|
$
|
54
|
|
356,966
|
|
$
|
7.94
|
|
$
|
1,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2014
|
|
|
|
|
|
|
Weighted
|
|
Aggregate
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
Intrinsic
|
|
|
|
|
|
|
|
|
|
|
Exercise
|
|
Value (1)
|
|
|
|
|
|
|
Shares subject to option
|
|
Shares
|
|
Price
|
|
($000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of period
|
|
1,122,675
|
|
$
|
7.07
|
|
|
|
|
|
|
|
|
|
|
|
New Grants (based on fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of common stock at dates of grant)
|
|
214,000
|
|
$
|
10.80
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
(497,446)
|
|
$
|
7.16
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
(18,743)
|
|
$
|
9.14
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
(55,000)
|
|
$
|
5.89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
765,486
|
|
$
|
8.09
|
|
$
|
3,614
|
|
|
|
|
|
|
|
|
Exercisable at end of period
|
|
407,236
|
|
$
|
7.47
|
|
$
|
2,148
|
|
|
|
|
|
|
|
|
(1) The intrinsic value of a stock option is the amount by which the current market value of the underlying stock exceeds the exercise price of the option. The total intrinsic value of stock options exercised
during the fiscal years ended June 30, 2016, 2015 and 2014, were
$24,000
,
$641,000
and
$2,034,000
, respectively.
The total fair value of shares vested
during the fiscal years ended June 30, 2016, 2015 and 2014, were
$323,000
,
$295,000
and
$182,000
, respectively.
The estimated fair value as of the date options were granted during the periods presented using the Black-Scholes option-pricing model, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Weighted average estimated fair value per
|
|
|
|
|
|
|
|
|
share of options granted during the period
|
$
|
2.94
|
|
$
|
4.04
|
|
$
|
3.18
|
Assumptions:
|
|
|
|
|
|
|
|
|
Dividend yield
|
|
-
|
|
|
-
|
|
|
2.10
|
Common stock price volatility
|
|
45.43%
|
|
|
46.85%
|
|
|
38.88%
|
Risk free rate of return
|
|
1.55%
|
|
|
1.62%
|
|
|
1.53%
|
Expected option term (in years)
|
|
5.7
|
|
|
5.8
|
|
|
5.0
|
The following table summarizes information about stock options at June 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
Average
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
Exercise
|
|
|
|
Exercise
|
Range of Exercise Prices
|
|
Shares
|
|
Contractual Life
|
|
Price
|
|
Shares
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2.80
|
|
to
|
|
$
|
4.87
|
|
56,900
|
|
5.14
|
|
$
|
3.79
|
|
36,900
|
|
$
|
3.22
|
|
5.70
|
|
to
|
|
|
8.81
|
|
480,158
|
|
6.49
|
|
$
|
7.21
|
|
216,510
|
|
$
|
7.34
|
|
8.94
|
|
to
|
|
|
14.01
|
|
98,100
|
|
4.01
|
|
$
|
11.25
|
|
75,800
|
|
$
|
11.27
|
$
|
2.80
|
|
to
|
|
$
|
14.01
|
|
635,158
|
|
5.99
|
|
$
|
7.53
|
|
329,210
|
|
$
|
7.78
|
Restricted Shares
The Com
pany’s restricted stock and restricted stock units under the 2004 Plan have been awarded by three methods as follows:
|
1.
|
|
Awards that are earned based on an individual’s achievement of performance goals during the initial fiscal year with either a subsequent
one
-
year service vesting period or with a
one
-third vesting requirement on the first, second and third anniversary of the issuance, provided the individual’s employment has not terminated prior to the vesting date and are freely transferable after vesting;
|
|
2.
|
|
Awards that are earned based on achieving certain revenue and operating income results with a subsequent one-third vesting requirement on the first, second and third anniversary of the issuance provided the individual’s employment has not terminated prior to the vesting date and are freely transferable after vesting; and
|
|
3.
|
|
Awards to non-management members of our Board of Directors with a subsequent one-third vesting requirement on the first, second and third anniversary of the issuance provided the service of the non-management member of our Board of Directors has not terminated prior to the vesting date and are freely transferable after vesting.
|
The grant date fair value associated with the restricted stock is calculated in accordance with ASC 718
“Compensation – Stock Compensation”
. Co
mpensation expense related to restricted stock awards is based on the closing price of our Common Stock on the grant date authorized by our Board of Directors, multiplied by the number of restricted stock awards expected to be issued and vested and is amortized over the combined performance and service periods. The non-cash stock-based compensation expense recorded for restricted stock awards for the fiscal years ended June 30, 2016, 2015 and 2014 was
$221,000
,
$209,000
and
$161,000
, respectively.
As of June 30, 2016, the total remaining unrecognized compensation cost related to restricted stock awards amounted to
$186,000
. We expect to recognize this cost over a weighted average vesting period of
1.3
years.
A summary of the status of restricted shares issued at June 30, 2016 is presented in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
Nonvested
|
|
Grant Date
|
|
Shares
|
|
Fair Value
|
Nonvested at June 30, 2015
|
|
62,014
|
|
$
|
10.76
|
Granted
|
|
25,000
|
|
|
6.41
|
Vested
|
|
(33,007)
|
|
|
11.69
|
Forfeited or expired
|
|
(12,866)
|
|
|
9.20
|
Nonvested at June 30, 2016
|
|
41,141
|
|
$
|
7.82
|
|
|
|
|
|
|
Available Shares
At June 30, 2016, the 2004 Plan had
682,579
shares available for future grants
.
10.
Income Taxes
(Loss) income from our operations before income taxes for U.S. and foreign operations was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
U.S.
|
$
|
(5,828)
|
|
$
|
(2,668)
|
|
$
|
(2,124)
|
Foreign
|
|
(3,389)
|
|
|
1,833
|
|
|
5,126
|
Total
|
$
|
(9,217)
|
|
$
|
(835)
|
|
$
|
3,002
|
|
|
|
|
|
|
|
|
|
The income tax (provision) benefit reflected in the statement of income consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Current (provision) benefit:
|
|
|
|
|
|
|
|
|
U.S. Federal, State & Other
|
$
|
(116)
|
|
$
|
(19)
|
|
$
|
(102)
|
Foreign
|
|
(185)
|
|
|
204
|
|
|
(1,581)
|
Deferred taxes
|
|
|
|
|
|
|
|
|
U.S.
|
|
(11,349)
|
|
|
1,051
|
|
|
969
|
Foreign
|
|
(1,246)
|
|
|
(862)
|
|
|
139
|
Total (provision) benefit
|
$
|
(12,896)
|
|
$
|
374
|
|
$
|
(575)
|
|
|
|
|
|
|
|
|
|
The components of deferred taxes were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
|
|
|
|
|
|
Benefit of net operating losses
|
$
|
9,268
|
|
$
|
8,582
|
|
$
|
7,149
|
Tax credit carry-forwards
|
|
5,451
|
|
|
5,006
|
|
|
4,928
|
Deferred Revenue
|
|
1,434
|
|
|
1,665
|
|
|
1,351
|
Impaired Investment
|
|
1,060
|
|
|
1,012
|
|
|
1,012
|
Property and intangible assets
|
|
242
|
|
|
-
|
|
|
-
|
Other
|
|
3,029
|
|
|
574
|
|
|
411
|
Deferred tax asset
|
|
20,484
|
|
|
16,839
|
|
|
14,851
|
Valuation allowance
|
|
(19,453)
|
|
|
(3,104)
|
|
|
(3,103)
|
Total deferred tax assets
|
|
1,031
|
|
|
13,735
|
|
|
11,748
|
Deferred tax liabilities - basis difference and amortization
|
|
(1,631)
|
|
|
(1,798)
|
|
|
-
|
Net deferred taxes
|
$
|
(600)
|
|
$
|
11,937
|
|
$
|
11,748
|
|
|
|
|
|
|
|
|
|
Rate Reconciliation:
|
|
|
|
|
|
|
|
|
Provision at U.S. statutory rate
|
|
34.0%
|
|
|
34.0%
|
|
|
34.0%
|
Net effect of taxes on foreign activities
|
|
(5.9%)
|
|
|
(4.2%)
|
|
|
(10.0%)
|
Tax effect of U.S. permanent differences
|
|
2.6%
|
|
|
21.2%
|
|
|
(0.4%)
|
State taxes and other, net
|
|
(1.5%)
|
|
|
(0.4%)
|
|
|
(0.7%)
|
Adjustment related to prior years
|
|
3.8%
|
|
|
(5.9%)
|
|
|
0.3%
|
Valuation allowance
|
|
(172.9%)
|
|
|
0.0%
|
|
|
(4.0%)
|
Effective tax rate
|
|
(139.9%)
|
|
|
44.7%
|
|
|
19.2%
|
|
|
|
|
|
|
|
|
|
The amount of earnings retained for use by our foreign subsidiaries for which no tax provision has been made amounted to approximately
$17.2
million as of June 30, 2016. We may be subject to U.S. income taxes and foreign withholding taxes if these earnings are distributed in the future. It is not practicable to estimate the amount of unrecognized deferred tax liability for the undistributed foreign earnings. At June 30, 2016, we had net operating loss carry-forwards for U.S. federal income tax purposes of
$30.0
million that expire in the years
2022
through
2036
and tax credit carry-forwards of $5.4 million of which
$5.2
million expire in the years
2018
through
2036
. Included in the U.S. federal net operating loss carry-forward is
$8.3
million from the exercise of employee stock options, the tax benefit of which, when recognized, will be accounted for as an increase to additional paid-in-capital rather than a reduction of the income tax provision.
Our deferred tax assets are substantially represented by the tax benefit of U.S. net operating losses “(NOL’s”), tax credit carry-forwards and the tax benefit of future deductions represented by timing differences for deferred revenue, inventory obsolescence, allowances for bad debts, warranty expenses and unrealized losses on investments. We assess the realizability of the NOL’s and tax credit carry-forwards based on a number of factors including our net operating history, the volatility of our earnings, our accuracy of forecasted earnings for future periods and the general business climate at the end of fiscal 2016. As of June 30, 2016, we have been in a three-year cumulative loss position, therefore, we have determined that it is not more likely than not that any of our deferred tax assets will be realized as benefits in the future. Accordingly, we have established a full valuation allowance against our U.S. net deferred tax assets. Additionally, we have established a full valuation allowance against our Germany and Brazil deferred tax assets, based on a similar analysis of our cumulative recent losses in these jurisdictions. The net change in the total valuation allowance for the fiscal years ended June 30, 2016, 2015 and 2014 was
$16,349,000
,
$0
, and
$121,000
, respectively. We also have a deferred tax liability related to the basis difference in the Coord3 intangible assets acquired.
On June 30, 2016 and 2015, we had
$251,000
and
$1,315,000
of unrecognized tax benefits that would affect the effective tax rate if recognized. Our policy is to classify interest and penalties related to unrecognized tax benefits as interest expense and income tax expense, respectively. As of June 30, 2016, there was no accrued interest or penalties related to uncertain tax positions recorded on our Consolidated Balance Sheets or Consolidated Statements of Operations. For U.S. federal income tax purposes, the tax years
2013
through
2016
remain open to examination by government tax authorities. For German income tax purposes, tax years
2012
through
2016
remain open to examination by government tax authorities. At June 30, 2016, our China location has no tax years open to examination.
The aggregate changes in the balance of unrecognized tax benefits were as follows (in thousands):
|
|
|
|
|
|
Year End June 30
|
2016
|
Balance, beginning of year
|
$
|
1,315
|
Increases for tax positions related to the current year
|
|
173
|
Decreases for tax positions related to the prior year
|
|
(1,237)
|
Balance, year end
|
$
|
251
|
|
|
|
11.
Dividends
In fiscal 2015, our Board of Directors elected to not pay a dividend and to end our dividend program for the foreseeable future; as a result, no dividend was paid in fiscal 2016. In fiscal year 2014, our Board of Directors declared the following dividend:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend
|
|
|
|
|
|
|
|
Declaration date
|
|
Per Share
|
|
Record Date
|
|
Total Amount
|
|
Payment Date
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 21, 2014
|
|
$
|
0.15
|
|
June 5, 2014
|
|
$
|
1,372
|
|
June 26, 2014
|
|
|
|
|
|
|
|
|
|
|
|
12.
Severance, Impairment and Other Charges
During the third quarter of fiscal 2016, we announced a financial improvement plan that resulted in a reduction in global headcount of approximately 10%. This plan was implemented to re-align our fixed costs with our near-to mid-term expectations for our business. As a result of this restructuring plan, we expect to incur pre-tax cash and non-cash charges of approximately $3.0 million. The charges recorded as Severance, Impairment and Other Charges for the fiscal year ended June 30, 2016 related to this restructuring plan are as follows
|
|
|
(in thousands)
|
Fiscal Year ended
June 30, 2016
|
Severance and related costs
|
$
|
1,968
|
Impairment
|
|
694
|
Inventory write-off
|
|
164
|
Total
|
$
|
2,826
|
Severance expense for the
fiscal year ended June 30, 2016
was associated with a reduction in force at our U.S. ($1,395,000), Germany ($472,000) and China ($101,000) locations. We also recorded an impairment charge of previously capitalized software and wrote-off inventory in the amount of $858,000 related to a product line that was discontinued in the third quarter of fiscal 2016.
The following table reconciles the activity for
fiscal year ended June 30, 2016
for the Restructuring Reserve:
|
|
|
(in thousands)
|
Restructuring Reserve
|
Balance at July 1, 2015
|
$
|
-
|
Accruals - Severance related
|
|
1,968
|
Payments
|
|
(1,154)
|
Balance at June 30, 2016
|
$
|
814
|
The remaining accrued balance at June 30, 2016 mainly includes payments to be made related to our U.S. and Germany reduction in force and is expected to be paid within the next 9 months
.
13.
Segment and Geographic Information
Our business is largely in the global automotive market and our business segment is primarily the automotive industry. We account for geographic sales based on the country from which the sale is invoiced rather than the country to which the product is shipped. We operate in three geographic areas: The Americas (substantially all of which is the United States, with less than 10% from net sales in Brazil), Europe, and Asia.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographical Regions ($000)
|
|
Americas
|
|
Europe (1)
|
|
Asia (2)
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve months ended June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
22,523
|
|
$
|
31,087
|
|
$
|
15,525
|
|
$
|
69,135
|
Long-lived assets, net
|
|
|
6,607
|
|
|
1,696
|
|
|
393
|
|
|
8,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve months ended June 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
28,434
|
|
$
|
29,636
|
|
$
|
16,335
|
|
$
|
74,405
|
Long-lived assets, net
|
|
|
6,532
|
|
|
797
|
|
|
338
|
|
|
7,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve months ended June 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
18,278
|
|
$
|
27,807
|
|
$
|
13,527
|
|
$
|
59,612
|
Long-lived assets, net
|
|
|
5,662
|
|
|
396
|
|
|
207
|
|
|
6,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Our German subsidiary had net external sales of $19.7 million, $24.0 million and $27.8 million in the fiscal years ended June 30, 2016, 2015 and 2014, respectively. Long-lived assets of our German subsidiary were $395,000, $320,000 and $385,000 as of June 30, 2016, 2015 and 2014, respectively. Our Italian subsidiary had net external sales of $11.4 million, $5.6 million, and $0 in the fiscal years ended June 30, 2016, and 2015 and 2014, respectively. Long-lived assets of our Italian subsidiary were $1,201,000, $438,000 and $0 as of June 30, 2016, 2015 and 2014, respectively.
|
(2)
Our Chinese subsidiary had net external sales of $11.8 million, $12.3 million and $10.0 million in the fiscal years ended June 30, 2016, 2015 and 2014, respectively. Long-lived assets of our Chinese subsidiary were $295,000, $195,000 and $110,000 as of June 30, 2016, 2015 and 2014, respectively.
We have three major product lines: Measurement Solutions, 3D Scanning Solutions and Value Added Services. Sales by our product lines are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended, June 30,
|
Product Lines ($000)
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
Measurement Solutions
|
|
$
|
62,268
|
|
$
|
66,250
|
|
$
|
50,601
|
3D Scanning Solutions
|
|
|
3,936
|
|
|
5,074
|
|
|
5,848
|
Value Added Service
|
|
|
2,931
|
|
|
3,081
|
|
|
3,163
|
Total Net Sales
|
|
$
|
69,135
|
|
$
|
74,405
|
|
$
|
59,612
|
|
|
|
|
|
|
|
|
|
|
14.
Selected Quarterly Financial Data (Unaudited)
Selected unaudited quarterly financial data for the fiscal years ended June 30, 2016 and 2015 are as follows (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
Fiscal Year 2016
|
9/30/2015
|
|
12/31/2015
|
|
3/31/2016
|
|
6/30/2016
|
Net sales
|
$
|
15,068
|
|
$
|
17,211
|
|
$
|
18,082
|
|
$
|
18,774
|
Gross profit
|
|
4,426
|
|
|
5,095
|
|
|
5,202
|
|
|
6,416
|
Net loss
|
|
(2,108)
|
|
|
(1,546)
|
|
|
(2,865)
|
|
|
(15,594)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
(0.23)
|
|
|
(0.17)
|
|
|
(0.31)
|
|
|
(1.66)
|
Diluted
|
|
(0.23)
|
|
|
(0.17)
|
|
|
(0.31)
|
|
|
(1.66)
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2015
|
9/30/2014
|
|
12/31/2014
|
|
3/31/2015
(1)
|
|
6/30/2015
|
Net sales
|
$
|
11,217
|
|
$
|
23,566
|
|
$
|
16,182
|
|
$
|
23,440
|
Gross profit
|
|
3,107
|
|
|
11,313
|
|
|
4,568
|
|
|
9,283
|
Net loss (income)
|
|
(2,040)
|
|
|
2,779
|
|
|
(1,589)
|
|
|
389
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per share
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
(0.22)
|
|
|
0.30
|
|
|
(0.17)
|
|
|
0.04
|
Diluted
|
|
(0.22)
|
|
|
0.30
|
|
|
(0.17)
|
|
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) In the third quarter of fiscal 2015, we acquired NMS and Coord3 (see Note 2).