NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED SEPTEMBER 30,
2016
|
|
|
1.
|
THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
Key Technology, Inc. and its wholly-owned subsidiaries (the “Company”) design, manufacture, sell and service process automation systems that integrate electro-optical inspection and sorting systems with process systems that include specialized conveying and product preparation equipment. The consolidated financial statements include the accounts of Key Technology, Inc. and its subsidiaries, which are all wholly-owned. All significant intercompany accounts and transactions have been eliminated.
Revenue Recognition
—The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been provided, the sale price is fixed or determinable, and collectability is reasonably assured. Additionally, the Company sells its goods on terms that transfer title and risk of loss at a specified location, typically shipping point, port of loading or port of discharge, depending on the final destination of the goods. Accordingly, revenue recognition from product sales occurs when all criteria are met, including transfer of title and risk of loss, which occurs either upon shipment by the Company or upon receipt by customers at the location specified in the terms of sale. Sales of system upgrades are recognized as revenue upon completion of the conversion of the customer’s existing system when this conversion occurs at the customer site. Revenue earned from services (maintenance, installation support, and repairs) is recognized ratably over the contractual period or as the services are performed. If any contract provides for both equipment and services (multiple deliverables), the sales price is allocated to the various elements based on the relative selling price. Each element is then evaluated for revenue recognition based on the previously described criteria. The Company typically has a very limited number of contracts with multiple deliverables and they are not material to the financial statements. The Company’s sales arrangements provide for no other significant post-shipment obligations. If all conditions of revenue recognition are not met, the Company defers revenue recognition. In the event of revenue deferral, the sale value is not recorded as revenue to the Company, accounts receivable are reduced by any related amounts owed by the customer, and the cost of the goods or services deferred is carried in inventory. In addition, the Company periodically evaluates whether an allowance for sales returns is necessary. Historically, the Company has experienced few sales returns. If the Company believes there are potential sales returns, the Company would provide any necessary provision against sales. The Company accounts for cash consideration (such as sales incentives) that are given to customers or resellers as a reduction of revenue rather than as an operating expense unless an identified benefit is received for which fair value can be reasonably estimated. Upon receipt of an order, the Company generally receives a deposit which is recorded as customers’ deposits. The Company makes periodic evaluations of the creditworthiness of its customers and generally does not require collateral. An allowance for credit losses is provided based upon historical experience and anticipated losses. The Company records revenues net of any taxes, such as sales tax, which are passed through to the customer.
Cash and
Cash
Equivalents—
The Company considers all highly liquid investments with original maturities of 90 days or less at date of acquisition to be cash equivalents. Accounts at each institution regularly exceed Federal Deposit Insurance Corporation insurance coverage. The Company has not experienced any losses in such accounts.
Inventories
are stated at the lower of cost (first-in, first-out method) or market.
Property, Plant and Equipment
are recorded at cost and depreciated over estimated useful lives on the straight-line basis, and depreciation commences at the time assets are placed in service. Leasehold improvements are amortized over the lesser of useful life or the term of the applicable lease using the straight-line method. The range of useful lives for fixed assets is as follows:
|
|
|
|
Years
|
|
|
Buildings and improvements
|
7 to 40
|
Manufacturing equipment
|
3 to 10
|
Office equipment, furniture and fixtures
|
3 to 7
|
Computer equipment and software
|
3 to 7
|
Goodwill and Other Intangibles
—The Company has only
one
reporting unit, and the estimated fair value of the Company approximates the market value of the Company. The Company performed its annual assessment on
July 31, 2016
and determined that there has been no impairment of goodwill due to the fair value of the reporting unit exceeding its carrying amount. The fair value of the Company was calculated based on the market capitalization of the Company as of
July 31, 2016
.
Other intangibles are amortized over the estimated useful lives of the related assets, which are between
3
to
16
years. Management evaluates the recoverability of other intangibles based upon current and anticipated results of operations and undiscounted future cash flows whenever events or changes in circumstances indicate the carrying value may not be recoverable. Amortization of other intangibles was
$1,121,000
,
$1,484,000
, and
$1,738,000
for the years ended September 30,
2016
,
2015
, and
2014
, respectively (see Note 2).
Product Warranties
—The Company provides a warranty on its products ranging from
90 days
to
five years
following the date of shipment, the majority of which are for periods of
one
year or less. Management establishes allowances for warranty costs based upon the types of products shipped and product warranty experience. The provision for warranty costs is charged to cost of sales at the time of sale, and it is periodically assessed for adequacy based on changes in these factors.
A reconciliation of the changes in the Company’s allowances for warranties is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Beginning Balance
|
|
$
|
2,255
|
|
|
$
|
2,151
|
|
Warranty costs incurred
|
|
(3,210
|
)
|
|
(3,604
|
)
|
Warranty expense accrued
|
|
2,880
|
|
|
3,784
|
|
Translation adjustments
|
|
7
|
|
|
(76
|
)
|
Ending balance
|
|
$
|
1,932
|
|
|
$
|
2,255
|
|
Research and Development
—Expenditures for research and development are expensed when incurred.
Foreign Currency Translation
—Assets and liabilities denominated in a foreign currency are translated to U.S. dollars at the exchange rate on the balance sheet date. Translation adjustments are shown as part of accumulated other comprehensive income (loss). Revenues, costs, and expenses are translated using an average rate. Realized and unrealized foreign currency transaction gains and losses are included in the consolidated statement of operations.
Impairment of Long-Lived Assets
—The Company regularly reviews all of its long-lived assets, including property, plant and equipment, and amortizable intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If the total of future undiscounted cash flows is less than the carrying amount of these assets, an impairment loss, if any, based on the excess of the carrying amount over the fair value of the assets, is recorded. There were no events during the period that indicated the carrying value of long-lived assets may be impaired.
Estimates—
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management 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 reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Termination Costs—
In fiscal 2016, the Company incurred approximately
$680,000
in costs related to restructuring charges, the majority of which related to termination benefits. These costs were expensed as operating expenses in fiscal 2016.
In fiscal 2015, the Company announced certain cost reduction initiatives. As a result, the Company incurred approximately
$390,000
in costs related to the reduction in workforce, the majority of which relates to termination benefits. Approximately
$143,000
and
$247,000
of these costs were expensed as cost of goods sold and operating expenses, respectively, in fiscal 2015.
In fiscal 2014, the Company announced certain cost reduction initiatives. As a result, the Company incurred approximately
$1.2 million
in costs related to the reduction in workforce, the majority of which relates to termination benefits. Approximately
$750,000
and
$450,000
of these costs were expensed as cost of goods sold and operating expenses, respectively, in fiscal 2014.
Financial Instruments
—The carrying value of the Company’s cash and cash equivalents, accounts receivable, accounts payable, accrued payroll liabilities and commissions, accrued customer support and warranty costs, and other accrued liabilities approximates their estimated fair values due to the short maturities of those instruments.
Derivative Financial Instruments
—The Company recognizes all derivatives on the balance sheet at fair value. The Company enters into such instruments only with financial institutions of good standing, and the total credit exposure related to non-performance by those institutions is not material to the operations of the Company.
Earnings Per Share
—Basic earnings per share (“EPS”) is computed by dividing net earnings available to common shareholders by the weighted average number of shares outstanding for the period. Diluted EPS is computed by dividing net earnings available to common shareholders by the weighted average common stock and common stock equivalent shares outstanding during each period using the treasury stock method for employee stock option plans, warrants and service-based stock awards. The calculation of the basic and diluted EPS from continuing operations is as follows (in thousands except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended September 30, 2016
|
|
|
Loss
|
|
Shares
|
|
Per-Share Amount
|
Basic EPS:
|
|
|
|
|
|
|
Net loss available to common shareholders
|
|
$
|
(697
|
)
|
|
6,332
|
|
|
$
|
(0.11
|
)
|
Effect of dilutive securities:
|
|
|
|
|
|
|
Common stock options
|
|
—
|
|
|
—
|
|
|
|
|
Warrants
|
|
—
|
|
|
—
|
|
|
|
Diluted EPS:
|
|
|
|
|
|
|
Net loss available to common shareholders plus assumed conversions
|
|
$
|
(697
|
)
|
|
6,332
|
|
|
$
|
(0.11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended September 30, 2015
|
|
|
Loss
|
|
Shares
|
|
Per-Share Amount
|
Basic EPS:
|
|
|
|
|
|
|
Net loss available to common shareholders
|
|
$
|
(5,019
|
)
|
|
6,295
|
|
|
$
|
(0.80
|
)
|
Effect of dilutive securities:
|
|
|
|
|
|
|
Common stock options
|
|
—
|
|
|
—
|
|
|
|
Warrants
|
|
—
|
|
|
—
|
|
|
|
Diluted EPS:
|
|
|
|
|
|
|
Net loss available to common shareholders plus assumed conversions
|
|
$
|
(5,019
|
)
|
|
6,295
|
|
|
$
|
(0.80
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended September 30, 2014
|
|
|
Loss
|
|
Shares
|
|
Per-Share Amount
|
Basic EPS:
|
|
|
|
|
|
|
Net loss available to common shareholders
|
|
$
|
(5,413
|
)
|
|
6,295
|
|
|
$
|
(0.86
|
)
|
Effect of dilutive securities:
|
|
|
|
|
|
|
Common stock options
|
|
—
|
|
|
—
|
|
|
|
Warrants
|
|
—
|
|
|
—
|
|
|
|
Diluted EPS:
|
|
|
|
|
|
|
Net loss available to common shareholders plus assumed conversions
|
|
$
|
(5,413
|
)
|
|
6,295
|
|
|
$
|
(0.86
|
)
|
The weighted average number of diluted shares does not include potential common shares which are anti-dilutive. The following potential common shares were not included in the calculation of diluted EPS as they were anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended September 30,
|
|
|
2016
|
|
2015
|
|
2014
|
Common shares from:
|
|
|
|
|
|
|
Assumed exercise of stock options
|
|
—
|
|
|
—
|
|
|
10,000
|
|
Warrants
|
|
—
|
|
|
250,000
|
|
|
250,000
|
|
The restrictions on stock grants may lapse between
October 2016
and
December 2018
. The warrants expired in March 2016 and there were no warrants exercised.
Comprehensive Income (loss)
—In fiscal 2016 and 2015, the Company reclassified losses of
$25,000
and
$4,000
, respectively, for accumulated changes in the fair value of derivatives from Other Comprehensive Income to the results of operations in Other Income (expense). This reclassification was related to the Company entering into a new credit agreement with another domestic lender. As a result, the interest rate swap with the previous lender has been novated. The fair value of the previous interest rate swap will be amortized into earnings from Other Comprehensive Income over the original forecasted settlement period of the swap as it is no longer designated as a hedge.
Share-Based Compensation
—The Company measures the cost of share-based payments based on the grant-date fair value of the award. The cost is recognized as expense over the requisite service period required in exchange for the award. No compensation cost is recognized for awards where the requisite service period is not completed. For awards with a performance condition, compensation cost is only recognized if the performance condition is probable of being achieved.
Warrants
—As part of the acquisition of Visys in fiscal 2013, the Company issued
250,000
warrants. The warrants could be exercised within
three
years after the date of issue at a price per share of
$11.78
as stated in the acquisition agreement. One-half of the warrants could be exercised following the first anniversary of the closing date and the other half following
the second anniversary of the closing date. The warrants could be exercised for cash or on a cashless basis. The warrants expired unexercised during fiscal 2016.
Accounting for Income Taxes
—Deferred income taxes are provided for the effects of temporary differences arising from differences in the reporting of revenues and expenses for financial statement and for income tax purposes under the asset and liability method using currently enacted tax rates. The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than
50%
likelihood of being realized upon ultimate settlement with the relevant tax authority.
Litigation
—The Company acquired Visys N.V. in fiscal 2013 which was subject to litigation proceedings in Belgium and the Netherlands for alleged patent infringement and unfair competition claims seeking lost profits damages, procedural costs and other damages. The cumulative amount of claims was in excess of
€12.75 million
. In fiscal 2014, the Company and Visys N.V. entered into a Settlement Agreement with Tomra Systems ASA and Tomra Sorting N.V. (formerly BEST N.V.) resolving all litigation related to alleged infringement of intellectual property rights owned by Tomra Sorting N.V. and Visys N.V., including all patent claims, trademark claims, counterclaims, invalidity proceedings, patent entitlement proceedings, and unfair competition claims. Under the Settlement Agreement, the parties settled all such disputes and waived all future rights of action related to the subject matter of the pending proceedings, which were withdrawn from the relevant court dockets. The Company recorded an expense related to the settlement of approximately
$550,000
before tax in fiscal 2014.
Recent Accounting Pronouncements Not Yet Adopted
—
In
May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”). ASU 2014-09 supersedes nearly all existing revenue recognition guidance under US GAAP. The standard’s core principle is that a company will recognize revenue when it transfers 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. We are evaluating our existing revenue recognition policies to determine whether any contracts in the scope of the guidance will be affected by the new requirements. ASU 2014-09, as amended by ASU 2015-14, is effective for annual reporting periods beginning after December 15, 2017, including interim periods therein.
In July 2015, the FASB issued ASU 2015-11, "Simplifying the Measurement of Inventory" ("ASU 2015-11"). The previous standard required entities to measure inventory at the lower of cost or market, with market defined as net realizable value or replacement cost. ASU 2015-11 requires entities to measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. ASU 2015-11 is effective for annual reporting periods beginning after December 15, 2016, including interim periods therein. The Company does not anticipate that it will have a material effect on its financial statements.
In November 2015, the FASB issued ASU 2015-17, "Balance Sheet Classification of Deferred Taxes," which eliminates the current requirement to present deferred tax liabilities and assets as current and non-current in a classified balance sheet. Instead, entities will be required to classify all deferred tax assets and liabilities as non-current. This ASU will be effective for the Company beginning in its first quarter of fiscal year 2018 and may be adopted prospectively or retrospectively. Early adoption is permitted, but the Company has not elected to do so. The Company does not expect its adoption to have a material effect on its financial statements.
In February 2016, the FASB issued ASU 2016-02, "Leases" (“ASU 2016-02”), which is intended to improve financial reporting about leasing transactions. ASU 2016-02 will require lessees to recognize the assets and liabilities for the rights and obligations created by their leases on their balance sheet. Lessees will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. ASU 2016-02 is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The Company has not yet determined the effect that the adoption of ASU 2016-02 will have on its consolidated financial position and consolidated results of operations.
In March 2016, the FASB issued ASU 2016-09, "Stock Compensation," which is intended to simplify several aspects of the accounting for share-based payment award transactions, including adjustments to the timing of when excess tax benefits should be recorded and classification in the statement of cash flows. The guidance will be effective for fiscal years beginning after December 15, 2016, including interim periods within those years. The Company does not anticipate that the adoption of this ASU will materially impact its results of operations.
|
|
|
2.
|
GOODWILL AND OTHER INTANGIBLE ASSETS
|
The Company had the following intangible assets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
|
Cost
|
|
Net Book Value
|
|
Amortization Life (Years)
|
Patents and developed technologies
|
|
$
|
17,517
|
|
|
$
|
4,627
|
|
|
3 to 16
|
|
Trademarks and trade names
|
|
864
|
|
|
477
|
|
|
8
|
|
Customer relationships
|
|
432
|
|
|
45
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
$
|
18,813
|
|
|
$
|
5,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2015
|
|
|
Cost
|
|
Net Book Value
|
|
Amortization Life (Years)
|
Patents and developed technologies
|
|
$
|
17,435
|
|
|
$
|
5,297
|
|
|
3 to 16
|
|
Trademarks and trade names
|
|
858
|
|
|
581
|
|
|
8
|
|
Customer relationships
|
|
429
|
|
|
152
|
|
|
4
|
|
Non-compete agreements
|
|
1,373
|
|
|
191
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
$
|
20,095
|
|
|
$
|
6,221
|
|
|
|
Amortization expense for the next five fiscal years is expected to be approximately:
|
|
|
|
|
Year Ended September 30,
|
(In thousands)
|
|
|
2017
|
$
|
864
|
|
2018
|
819
|
|
2019
|
819
|
|
2020
|
812
|
|
2021
|
497
|
|
Thereafter
|
1,338
|
|
Total
|
$
|
5,149
|
|
As of September 30,
2016
, the Company had
$10.3 million
of goodwill which is not being amortized. There were no changes to goodwill, other than foreign translation adjustments, during the fiscal years ended September 30,
2016
and
2015
.
|
|
|
3.
|
TRADE ACCOUNTS RECEIVABLE
|
Trade accounts receivable consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
2016
|
|
2015
|
Trade accounts receivable
|
|
$
|
14,290
|
|
|
$
|
15,097
|
|
Allowance for doubtful accounts
|
|
(266
|
)
|
|
(261
|
)
|
Total trade accounts receivable, net
|
|
$
|
14,024
|
|
|
$
|
14,836
|
|
Amounts charged to bad debt expense for fiscal
2016
,
2015
, and
2014
were
$18,000
,
$23,000
, and
$163,000
, respectively. Actual charges to the allowance for doubtful accounts for fiscal
2016
,
2015
, and
2014
were
$14,000
,
$147,000
, and
$30,000
, respectively.
Inventories consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
2016
|
|
2015
|
Purchased components and raw materials
|
|
$
|
11,690
|
|
|
$
|
14,291
|
|
Work-in-process and sub-assemblies
|
|
12,191
|
|
|
9,769
|
|
Finished goods
|
|
6,806
|
|
|
7,237
|
|
Total inventories
|
|
$
|
30,687
|
|
|
$
|
31,297
|
|
At September 30,
2016
and
2015
, respectively, cumulative inventory adjustments to lower of cost or market totaled
$5.1 million
and
$4.2 million
. Amounts charged to cost of goods sold to record inventory at lower of cost or market were
$2.2 million
for fiscal
2016
,
$1.0 million
for fiscal
2015
, and
$1.5 million
for fiscal
2014
. Actual charges to the cumulative inventory adjustments upon disposition or sale of inventory were
$1.4 million
,
$0.7 million
, and
$1.0 million
for fiscal
2016
,
2015
, and
2014
, respectively.
|
|
|
5.
|
PROPERTY, PLANT AND EQUIPMENT
|
Property, plant and equipment consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
2016
|
|
2015
|
Land and land improvements
|
|
$
|
2,596
|
|
|
$
|
2,596
|
|
Buildings and improvements
|
|
8,999
|
|
|
8,938
|
|
Manufacturing equipment
|
|
14,421
|
|
|
13,479
|
|
Computer equipment and software
|
|
21,242
|
|
|
20,865
|
|
Office equipment, furniture and fixtures
|
|
2,465
|
|
|
2,514
|
|
Construction in progress
|
|
205
|
|
|
245
|
|
|
|
49,928
|
|
|
48,637
|
|
Accumulated depreciation
|
|
(36,139
|
)
|
|
(33,838
|
)
|
Total property, plant and equipment, net
|
|
$
|
13,789
|
|
|
$
|
14,799
|
|
Depreciation expense was
$3.6 million
,
$3.8 million
, and
$3.6 million
for fiscal
2016
,
2015
, and
2014
, respectively.
|
|
|
6.
|
INVESTMENT IN PRODITEC
|
The Company has a
15%
minority interest in Proditec SAS, a French manufacturer of automated, solid dose pharmaceutical inspection systems for approximately
$1.5 million
. The Company has certain tag along rights related to any capital changes at Proditec and may sell its shares to any third party subject to Proditec’s by-laws and right of pre-emption by Proditec. This investment is being accounted for under the cost method of accounting.
As of September 30,
2016
, the Company's non-controlling interest in Proditec had a carrying value of approximately
$1.1 million
and the fair value of the Company’s investment in Proditec was not estimated as there were no events or changes in circumstances that may have a significant adverse effect on the fair value of the investment, and the Company’s management determined that it was not practicable to estimate the fair value of the investment. Further, there are no quoted market prices for the Company’s investment, and sufficient information is not readily available for the Company to utilize a valuation model to determine its fair value without incurring excessive costs relative to the materiality of the investment. The Company’s cost method investment is evaluated for potential other-than-temporary impairment on at least a quarterly basis, or when an event or change in circumstances has occurred that may have a significant adverse effect on the fair value of the investment.
The Company's domestic credit facility provides for a maximum borrowing of
$20.3 million
consisting of a
three-year term
loan of
$5.3 million
and revolving loans up to the lesser of
$15.0 million
or a borrowing base calculated based on the outstanding amount of the Company's eligible accounts receivable and eligible inventory. The credit facility also provides for a credit sub-facility of up to
$4.0 million
for standby letters of credit. The credit facility matures on
July 19, 2018
. The revolving credit facility bears interest, at the Company's option, at either the lender's base lending rate or
LIBOR
using a tiered structure depending on the Company's achievement of specified financial ratios. The Company's base lending rate option will be the lender's base lending rate plus
0.75%
,
1.00%
or
1.25%
per annum. The Company's
LIBOR
option will be
LIBOR
plus
2.25%
,
2.50%
or
2.75%
. At September 30, 2016, the interest rate would have been
3.28%
based on the lowest of the available alternative rates. The term loan facility bears interest, at the Company's option, at either the lender's base lending rate plus
1.75%
or the one-, two-, or three-month
LIBOR
rate plus
3.25%
. The Company also simultaneously entered into an interest rate swap agreement with the lender to fix the term loan interest rate at
6.20%
. The lending facility is secured by the Company's receivables, equipment and fixtures, inventory, general intangibles, subsidiary stock, securities, investment property, financial assets, real property, and certain other assets. The credit facility contains covenants related to minimum liquidity levels and certain financial covenants that will be applicable only if the Company does not exceed certain calculated total unrestricted cash and credit availability or an event of default occurs. The credit facility permits capital expenditures to a certain level and contains customary default and acceleration provisions. The credit facility also restricts, above certain levels, acquisitions, incurrence of additional indebtedness, payment of dividends and lease expenditures. At September 30, 2016, the Company had
no
outstanding borrowings under the revolving line of credit and
$220,000
of outstanding standby letters of credit.
The Company's Belgian subsidiary has a credit facility with a commercial bank in Belgium. This credit accommodation totals
€2.7 million
(
$3.0 million
) and includes an operating line of
€800,000
(
$0.9 million
), a bank guarantee facility of
€500,000
(
$0.6 million
), and loan agreement provision of
€1.4 million
(
$1.6 million
). The operating line and bank guarantee facility are secured by all of the subsidiary's current assets.The Belgian operating line bears interest at the bank's prime rate, plus
1.25%
. At
September 30, 2016
, the interest rate was
9.75%
. At
September 30, 2016
, the subsidiary had no borrowings under the operating line. At
September 30, 2016
, the subsidiary had various loans outstanding under the loan agreement provision totaling
€233,000
(
$263,000
). The fixed interest rates on these loans ranged from
2.91%
to
3.98%
. The loans mature between
November 2016
and
November 2017
.
Principal payments on long-term debt are as follows:
|
|
|
|
|
Year Ended September 30,
|
(In thousands)
|
2017
|
$
|
587
|
|
2018
|
4,565
|
|
Total
|
$
|
5,152
|
|
Based on the borrowing rates currently available to the Company for loans with similar terms and maturities, the fair value of long-term debt at September 30,
2016
approximates its carrying value.
|
|
|
8.
|
DERIVATIVE INSTRUMENTS
|
The Company uses derivative instruments as risk management tools but does not use derivative instruments for trading or speculative purposes. A hedge is effective if changes in the fair value of the derivative contract are highly correlated with changes in the underlying hedged item at inception of the hedge and over the life of the hedge contract. To the extent the interest rate swap is effective, changes in the fair value will be recognized in Other Comprehensive Income over the term of the derivative contract. To the extent the interest rate swap is not effective, changes in the fair value will be recognized in earnings.
At September 30,
2016
, the Company had an interest rate swap with a notional amount of
$4.9 million
that fixes the interest rate on its LIBOR-based variable rate mortgage at
6.20%
. At September 30,
2016
, the fair value of the swap agreement recorded as a liability in Other long-term liabilities on the Consolidated Balance Sheet was
$177,000
. There were gains of
$72,000
and losses of
$40,000
recognized as part of net earnings in the Consolidated Statement of Operations related to the swap agreement during the fiscal years ended September 30,
2016
and September 30, 2015 as the interest rate swap was not designated as a hedge due to its ineffectiveness. The interest rate swap matures in July 2018. The fair value of a previous interest rate swap is being amortized into earnings from Other Comprehensive Income over the original forecasted settlement period of the swap as it is no longer designated as a hedge. As a result, in fiscal 2016 and 2015, the Company amortized
$25,000
and
$4,000
, respectively, of losses from Other Comprehensive Income into net earnings. During fiscal
2016
and 2015, the Company recorded
$132,000
and
$117,000
, respectively, as interest expense related to the interest rate swaps reflecting actual interest payments and settlements on the interest rate swaps.
At September 30,
2016
, the Company had a one-month undesignated forward exchange contract for
€5.2 million
(
$5.9 million
). Forward exchange contracts are used to manage the Company’s foreign currency exchange risk related to its ongoing operations. Net foreign currency gains of
$157,000
were recorded for forward exchange contracts in the year ended September 30,
2016
in Other income (expense) on the Company’s Consolidated Statement of Operations. The gains on the Company’s forward exchange contracts are generally offset by losses recorded on the underlying assets or liabilities held in foreign currencies. At September 30,
2016
, the Company had liabilities of
$96,000
for settlements under these forward contracts in Other accrued liabilities on the Company’s Consolidated Balance Sheet. At September 30,
2015
, the Company had no liabilities under these forward contracts on the Company’s Consolidated Balance Sheet.
|
|
|
9.
|
FAIR VALUE MEASUREMENTS
|
Fair value measurements are classified under the following hierarchy:
|
|
•
|
Level 1 – Quoted prices for identical instruments in active markets.
|
|
|
•
|
Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs or significant value-drivers are observable in active markets.
|
|
|
•
|
Level 3 – Model-derived valuations in which one or more significant inputs or significant value-drivers are unobservable.
|
When available, the Company uses quoted market prices to determine fair value and classifies such measurements within Level 1. In some cases where market prices are not available, the Company makes use of observable market-based inputs to calculate fair value, in which case the measurements are classified within Level 2. If quoted or observable market processes are not available, fair value is based upon internally developed models that use, where possible, current market-based parameters such as interest rates, yield curves and currency rates. These measurements are classified within
Level 3.
Derivative financial instruments
Interest rate swap agreements are measured on a recurring basis based on quoted prices for similar financial instruments and other observable inputs which approximate fair value. The fair value of foreign currency forward contracts is based on the differential between contract price and the market-based forward rate.
The following table presents the Company’s assets and liabilities that are measured and recorded at fair value on a recurring basis consistent with the fair value hierarchy provisions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at September 30, 2016
(in thousands)
|
Description
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total Assets/Liabilities at Fair Value
|
Derivatives:
|
|
|
|
|
|
|
|
|
Interest rate swap
|
|
—
|
|
|
$
|
(177,000
|
)
|
|
—
|
|
|
$
|
(177,000
|
)
|
Forward exchange contracts
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
At September 30,
2016
, the Company had long-term debt of approximately
$5.2 million
. The Company’s long-term debt is recorded at historical cost, and the Company has not elected to fair value such financial instruments. The estimated fair value of the debt approximated its carrying value based on the borrowing rates currently available to the Company for loans with similar terms and maturities.
Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Forward exchange contracts had a fair value of
zero
at the reporting date, as these contracts were entered into as of that date. Changes in assumptions could significantly affect these estimates.
The Company has a leased sales facility in Walla Walla, Washington. The lease expires in
2020
, with
one
five
-year renewal option. The Company has the option to purchase the facility at any time over the rental period for
$1.5 million
declining to
$1.4 million
during the remaining lease term. The Company has a leased operating facility in Oregon under a lease that expires in
2022
, with
two
five
-year renewal options. The Company has leased an operating facility in The Netherlands under a lease that expires in
2020
, with a
five
-year renewal option and a leased warehouse facility under a lease that expires in 2020 with a five-year renewal option. The Company has a leased operating facility in Belgium under a lease that expires in 2019, with renewal options every three-years thereafter and a leased office facility under a lease that expires on 2025 with annual renewal periods. The Company also has leased office space for sales and service and other activities in California, Australia, Mexico, and other leased facilities in Walla Walla. The Company also has leased vehicles, primarily in international locations.
Rental expense is recognized on a straight-line basis over the term of the lease. Rental expense for the Company’s operating leases referred to above was
$1.5 million
for the year ended September 30,
2016
,
$1.4 million
for the year ended September 30,
2015
, and
$1.6 million
for the year ended September 30,
2014
.
The following is a schedule of future minimum rental payments required under operating leases and future rental expense (in thousands):
|
|
|
|
|
|
|
|
|
|
Year Ending September 30,
|
|
Rental Payments
|
|
Rental Expense
|
2017
|
|
$
|
1,253
|
|
|
$
|
1,257
|
|
2018
|
|
1,160
|
|
|
1,160
|
|
2019
|
|
1,005
|
|
|
1,001
|
|
2020
|
|
671
|
|
|
663
|
|
2021
|
|
338
|
|
|
325
|
|
Thereafter
|
|
678
|
|
|
655
|
|
Total
|
|
$
|
5,105
|
|
|
$
|
5,061
|
|
|
|
|
11.
|
CONTRACTUAL GUARANTEES AND INDEMNITIES
|
Intellectual property and general contractual indemnities
The Company, in the normal course of business, provides specific, limited indemnification to its customers for liability and damages related to intellectual property rights. In addition, the Company may enter into contracts with customers where it has agreed to indemnify the customer for personal injury or property damage caused by the Company’s products and services. Indemnification is typically limited to replacement of the items or the actual price of the products and services. The Company maintains product liability insurance as well as errors and omissions insurance, which may provide a source of recovery in the event of an indemnification claim, but does not maintain insurance coverage for claims related to intellectual property rights.
Historically, any amounts payable under these indemnifications have not had a material effect on the Company’s business, financial condition, results of operations, or cash flows. The Company has not recorded any provision for future obligations under these indemnifications. If the Company determines it is probable that a loss has occurred under these indemnifications, then any such reasonably estimable loss would be recognized.
Director and officer indemnities
The Company has entered into indemnification agreements with its directors and certain executive officers that require the Company to indemnify such individuals against certain expenses, judgments and fines in third-party and derivative proceedings. The Company may recover, under certain circumstances, some of the expenses and liabilities that arise in connection with such indemnifications under the terms of its directors’ and officers’ insurance policies. The Company has not recorded any provision for future obligations under these indemnification agreements.
Bank guarantees and letters of credit
At
September 30, 2016
, the Company had standby letters of credit totaling
$220,000
. If the Company fails to meet its contractual obligations, these bank guarantees and letters of credit may become liabilities of the Company. This amount consists of approximately
$220,000
of outstanding performance guarantees secured by bank guarantees under the Company's domestic credit facility. Bank guarantees arise when the Company collects customer deposits prior to order fulfillment. The customer deposits received are recorded as current liabilities on the Company's balance sheet. The bank guarantees repayment of the customer deposit in the event an order is not completed. The bank guarantee is canceled upon shipment and transfer of title. These bank guarantees arise in the normal course of the Company's business and are not deemed to expose the Company to any significant risks since they are satisfied as part of the design and manufacturing process.
The provision (benefit) for income taxes from continuing operations consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
2016
|
|
2015
|
|
2014
|
Current:
|
|
|
|
|
|
|
Federal
|
|
$
|
—
|
|
|
$
|
(320
|
)
|
|
$
|
(2,643
|
)
|
Foreign
|
|
12
|
|
|
27
|
|
|
3
|
|
State
|
|
—
|
|
|
—
|
|
|
(27
|
)
|
|
|
12
|
|
|
(293
|
)
|
|
(2,667
|
)
|
Deferred:
|
|
|
|
|
|
|
Federal
|
|
(378
|
)
|
|
(1,981
|
)
|
|
563
|
|
Foreign
|
|
(195
|
)
|
|
(505
|
)
|
|
(628
|
)
|
State
|
|
37
|
|
|
(127
|
)
|
|
(107
|
)
|
|
|
(536
|
)
|
|
(2,613
|
)
|
|
(172
|
)
|
Valuation reserves:
|
|
|
|
|
|
|
Federal
|
|
571
|
|
|
54
|
|
|
50
|
|
Foreign
|
|
(504
|
)
|
|
(104
|
)
|
|
(46
|
)
|
State
|
|
|
|
|
(4
|
)
|
|
1
|
|
|
|
67
|
|
|
(54
|
)
|
|
5
|
|
Total income tax expense (benefit)
|
|
$
|
(457
|
)
|
|
$
|
(2,960
|
)
|
|
$
|
(2,834
|
)
|
Components of net earnings (loss) before income taxes are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
Earnings (loss)
|
|
2016
|
|
2015
|
|
2014
|
Domestic
|
|
$
|
(2,768
|
)
|
|
$
|
(7,914
|
)
|
|
$
|
(8,682
|
)
|
Foreign
|
|
1,614
|
|
|
(65
|
)
|
|
435
|
|
Total
|
|
$
|
(1,154
|
)
|
|
$
|
(7,979
|
)
|
|
$
|
(8,247
|
)
|
The Company accounts for its deferred tax assets and liabilities, including excess tax benefits of share-based payments, based on the tax ordering of deductions to be used on its tax returns. The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
2016
|
|
2015
|
Deferred tax asset:
|
|
|
|
|
Reserves and accruals
|
|
$
|
4,054
|
|
|
$
|
4,041
|
|
Tax benefits of share-based payments
|
|
543
|
|
|
686
|
|
NOL and other carry forwards
|
|
1,779
|
|
|
2,036
|
|
Unrealized changes in value of derivatives to equity
|
|
61
|
|
|
70
|
|
Deferred tax liability:
|
|
|
|
|
Accumulated depreciation
|
|
(108
|
)
|
|
(610
|
)
|
Intangible assets
|
|
(2,016
|
)
|
|
(2,361
|
)
|
Translation adjustment to equity
|
|
861
|
|
|
883
|
|
Net deferred tax asset
|
|
$
|
5,174
|
|
|
$
|
4,745
|
|
Net deferred tax:
|
|
|
|
|
Current asset
|
|
$
|
3,934
|
|
|
$
|
3,972
|
|
Long-term asset
|
|
3,001
|
|
|
2,917
|
|
Long-term liability
|
|
(1,761
|
)
|
|
(2,144
|
)
|
Net deferred tax asset
|
|
$
|
5,174
|
|
|
$
|
4,745
|
|
At September 30, 2016, the Company had Federal and State net operating loss carryforwards of approximately
$1.0 million
, pretax, the majority of which do not expire until the Company's 2035 fiscal year, and tax credit carryforwards of approximately
$327,000
. Additionally, the Company has approximately
$2.7 million
of pre-tax carryforwards in foreign jurisdictions, the majority of which relate to net operating loss carryforwards which do not expire.
At
September 30, 2016
, the Company had valuation reserves of approximately
$197,000
for deferred tax assets for capital loss carry forwards and changes in the carrying value of its investment in Proditec, and offsetting amounts for foreign deferred tax assets and U.S. deferred tax liabilities, primarily related to net operating loss carry forwards in the foreign jurisdictions that the Company believes will not be utilized during the carryforward period. During fiscal
2016
, the Company recorded net additional valuation reserves of
$67,000
related to tax carryforwards in foreign jurisdictions that the Company believes will not be utilized during the carryforward period. There were no other valuation allowances at
September 30, 2016
due to anticipated utilization of all the deferred tax assets as the Company believes it will have sufficient taxable income to utilize these assets.
During fiscal 2015, the Company recorded net reduced valuation reserves of
$54,000
due to the expiration of capital loss carryforwards. During fiscal 2014, the Company recorded net additional valuation reserves of
$5,000
related to capital loss carryforwards. In addition, the Company reversed offsetting amounts of approximately
$46,000
of valuation reserves for foreign deferred tax assets and U.S. deferred tax liabilities related to the utilization of net operating loss carryforwards in Europe in fiscal 2014. As these were offsetting amounts, these changes had no effect on net earnings.
Income tax expense is computed at rates different than statutory rates. The reconciliation between effective and statutory rates is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
2016
|
|
2015
|
|
2014
|
Statutory rates
|
|
(34.0
|
)%
|
|
(34.0
|
)%
|
|
(34.0
|
)%
|
Increase (reduction) in income taxes resulting from:
|
|
|
|
|
|
|
Domestic production deduction
|
|
—
|
%
|
|
—
|
%
|
|
1.3
|
%
|
Research and development credit
|
|
(14.9
|
)%
|
|
(0.1
|
)%
|
|
(1.3
|
)%
|
Changes in tax law, R&D credit
|
|
(9.2
|
)%
|
|
(3.8
|
)%
|
|
—
|
%
|
State income taxes, net of federal benefit
|
|
2.1
|
%
|
|
(1.1
|
)%
|
|
(1.0
|
)%
|
Rate differential, surtax on taxable income levels
|
|
—
|
%
|
|
—
|
%
|
|
(0.5
|
)%
|
Differences in foreign effective tax rates
|
|
4.8
|
%
|
|
1.3
|
%
|
|
0.4
|
%
|
Valuation reserve
|
|
5.8
|
%
|
|
—
|
%
|
|
0.1
|
%
|
Meals and entertainment deduction limitation
|
|
5.5
|
%
|
|
0.7
|
%
|
|
0.8
|
%
|
Other permanent differences
|
|
0.3
|
%
|
|
(0.1
|
)%
|
|
(0.2
|
)%
|
Income tax combined effective rate
|
|
(39.6
|
)%
|
|
(37.1
|
)%
|
|
(34.4
|
)%
|
In fiscal 2016, income tax expense was reduced by approximately
$106,000
for additional research and development tax credits related to expenditures incurred in fiscal 2015 due to the permanent renewal of the tax credit retroactive to January 1, 2015. In fiscal 2015, the existing research and development tax credit was retroactively renewed for a
one
-year period beginning on January 1, 2014. Due to this change in tax law, the Company recorded approximately
$305,000
of additional research and development credits in fiscal 2015 related to research and development expenditures incurred during fiscal 2014.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
|
|
|
|
|
Balance at October 1, 2015
|
$
|
93
|
|
Additions based on tax positions related to the current period
|
5
|
|
Reductions for tax positions of prior periods
|
(3
|
)
|
Balance at September 30, 2016
|
$
|
95
|
|
As of September 30,
2016
, the amount of unrecognized tax benefits, which if recognized would favorably affect the Company’s effective tax rate, is
$95,000
.
The Company is subject to income taxes in the U.S. federal jurisdiction and various state and foreign jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. The Company is generally no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for the years before 2011.
The Company is not currently under examination by any U.S. federal or state jurisdictions. There are examinations in foreign jurisdictions for which there are no expected material changes in the unrecognized tax benefit liability within the next twelve months. While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax positions, the Company believes its recorded liabilities for income taxes represent the most probable outcome. The Company adjusts these liabilities in light of changing facts and circumstances.
The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in other income and expense for all periods presented. As of September 30,
2016
and
2015
, the Company had accrued
$32,000
and
$30,000
, respectively, for possible interest and penalties.
|
|
|
13.
|
SHARE-BASED COMPENSATION PLANS
|
At September 30,
2016
, the Company had two share-based compensation plans, which are shareholder-approved, as described below. The Company issues new shares of common stock for exercises and awards under these plans.
Share-based compensation costs charged against income are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
2016
|
|
2015
|
|
2014
|
Cost of goods sold
|
|
$
|
169
|
|
|
$
|
31
|
|
|
$
|
218
|
|
Operating expenses
|
|
977
|
|
|
1,454
|
|
|
1,227
|
|
Total share-based compensation expense
|
|
$
|
1,146
|
|
|
$
|
1,485
|
|
|
$
|
1,445
|
|
Income tax benefit
|
|
413
|
|
|
531
|
|
|
516
|
|
Approximately
$24,000
,
$17,000
, and
$25,000
of share-based compensation expense remained capitalized in inventory as of September 30,
2016
,
2015
, and
2014
, respectively.
As of September 30,
2016
, the total unrecognized compensation cost related to these plans was
$1.1 million
and was composed of:
$1.1 million
related to service-based stock awards that is expected to be recognized over a weighted-average period of
1.25
years and
$0
related to performance-based stock awards that are expected to be recognized over the weighted-average period of
1.17
years.
Employees’ Stock Incentive Plans
—Under the 2010 Equity Incentive Plan (the “Incentive Plan”), eligible employees may receive restricted stock, incentive stock options or non-qualified stock options. The restrictions on restricted stock awards lapse based on employment-based or performance-based measures. At September 30,
2016
, the total number of shares reserved for issuance under the Incentive Plans was
648,403
, of which
266,367
were available for grant.
Service-Based Stock Awards
—Under the Incentive Plans, the Company may award service-based stock grants to selected executives and other key employees, the lapse of the restrictions on which is contingent upon meeting the required service period, generally
three
years, and in the case of certain executives, in increments over a
three
-year period, or in the case of members of the board of directors,
one
year. The fair value of these grants is based on the closing fair market value at the grant date. The restrictions on the grants lapse at the end of the required service period. Stock compensation expense is recognized based on the grant date fair value of the stock over the vesting period.
The summary of activity for service-based stock awards as of September 30,
2016
, and changes during the year then ended, is presented below:
|
|
|
|
|
|
|
|
|
Service-Based Stock Awards
|
|
Number of Shares
|
|
Weighted-Average Grant Date Fair Value per Share
|
Non-vested balance at October 1, 2015
|
|
232,849
|
|
|
$
|
12.77
|
|
Granted
|
|
117,104
|
|
|
$
|
8.43
|
|
Vested
|
|
(130,344
|
)
|
|
$
|
12.27
|
|
Forfeited
|
|
(9,444
|
)
|
|
$
|
12.71
|
|
Non-vested and expected to vest balance at September 30, 2016
|
|
210,165
|
|
|
$
|
10.67
|
|
The number of shares granted in fiscal
2016
that vest in one year or less was
42,283
, vest in two years was
10,611
, and vest in three years was
64,210
. The total fair value of shares vested in fiscal
2016
,
2015
, and
2014
was
$1.2 million
,
$1.5 million
, and
$0.9 million
, respectively. As of September 30,
2016
, there was
$1.1 million
of total unrecognized compensation cost related to service-based stock awards that is expected to be recognized over a weighted-average period of
1.25
years. In fiscal
2015
, the Company granted
84,108
shares of service-based awards with a weighted average grant date fair value of
$12.78
. In fiscal
2014
, the Company granted
95,522
shares of service-based awards with a weighted average grant date fair value of
$13.67
.
Employee Performance-Based Stock Awards
—
In fiscal
2016
, 2015 and 2014, the Company awarded performance-based stock grants to selected executives. The lapse of restrictions on the awards is contingent on achievement of performance-based objectives as determined by the Compensation and Management Development Committee of the Board of Directors over a
three
-year period ending September 30, 2018, 2017 and 2016, respectively.
Compensation expense is recognized over the period the employee performs related services based on the estimated number of shares expected to vest at the grant date fair value and if it is probable that the performance goal will be achieved. If the performance goals are not met or the service period is not fulfilled, no compensation cost is recognized and any recognized compensation cost will be reversed.
A summary of the activity for performance-based stock awards as of September 30,
2016
, and changes during the year then ended, is presented below:
|
|
|
|
|
|
|
|
|
Performance-Based Stock Awards
|
|
Number of Shares
|
|
Weighted-Average Grant Date Fair Value per Share
|
Non-vested balance at October 1, 2015
|
|
238,721
|
|
|
$
|
13.95
|
|
Granted
|
|
63,257
|
|
|
$
|
11.65
|
|
Vested
|
|
—
|
|
|
$
|
—
|
|
Forfeited
|
|
(130,107
|
)
|
|
$
|
14.39
|
|
Non-vested balance at September 30, 2016
|
|
171,871
|
|
|
$
|
12.76
|
|
The total fair value of shares that vested in fiscal
2016
,
2015
, and
2014
was
$0
,
$0
, and
$0
, respectively. The Company estimates it is less than probable that the performance based objectives will be achieved on all these awards and, therefore, no compensation cost is expected to be recognized on these awards. As of September 30,
2016
, there was no unrecognized compensation cost related to the performance-based stock awards. In fiscal
2015
, the Company granted
65,284
shares of performance based awards with a grant date fair value of
$13.02
. In fiscal
2014
, the Company granted
75,013
shares of performance-based awards with a grant date fair value of
$13.80
.
Employee Stock Purchase Plan
—
Most employees are eligible to participate in the Company’s Employee Stock Purchase Plan (the “Purchase Plan”). Shares are not available to employees who already own
5%
or more of the Company’s stock. Employees can withhold, by payroll deductions, up to
5%
of their regular compensation to purchase shares at a purchase price of
85%
of the fair market value of the common stock on the purchase date. There were
500,000
shares reserved for purchase under the Purchase Plan of which
340,439
remained available at September 30,
2016
.
During the years ended September 30,
2016
,
2015
, and
2014
, the Company issued
6,314
,
5,003
, and
6,013
shares, respectively, under the Purchase Plan and recorded compensation cost based on the
15%
discount from market price paid by the employees.
Cash received from option exercises and employee stock purchase plan purchases was
$49,000
,
$151,000
, and
$124,000
for the years ended September 30,
2016
,
2015
and
2014
, respectively. The tax benefit to be realized for the tax deductions from option exercises and restricted shares vesting under the share-based payment arrangements was
$325,000
,
$450,000
, and
$412,000
for the years ended September 30,
2016
,
2015
and
2014
, respectively.
|
|
|
14.
|
STOCK REPURCHASE PROGRAM
|
The Company initiated a stock repurchase program effective
May 30, 2012
to repurchase up to
500,000
shares of its common stock. The timing of any repurchases and the exact number of shares to be purchased will be determined by the Company and will depend on market conditions and other factors. The Company retires the shares upon repurchase. The program does not incorporate a fixed expiration date. In fiscal
2016
, 2015 and 2014, the Company did not repurchase any shares under the program.
|
|
|
15.
|
EMPLOYEE BENEFIT PLANS
|
The Company has a 401(k) profit sharing plan which covers substantially all United States employees. The Company matches
50%
of employee contributions for a maximum match of
4%
of each participating employee’s compensation. The Company contributed
$625,000
,
$160,000
, and
$714,000
in matching funds to the plan for the years ended September 30,
2016
,
2015
and
2014
, respectively.
The Company’s business units serve customers in its primary market—the food processing and agricultural products industry—through common sales and distribution channels. Therefore, the Company reports on one segment. The following table summarizes information about products and services (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
2016
|
|
2015
|
|
2014
|
Net sales by product category:
|
|
|
|
|
|
|
Automated inspection systems
|
|
$
|
38,620
|
|
|
$
|
37,529
|
|
|
$
|
55,829
|
|
Process systems
|
|
52,339
|
|
|
37,768
|
|
|
34,580
|
|
Parts and service
|
|
29,081
|
|
|
27,628
|
|
|
27,849
|
|
Total net sales by product category
|
|
$
|
120,040
|
|
|
$
|
102,925
|
|
|
$
|
118,258
|
|
Net sales for service were less than
10%
of total net sales for the years ended September 30,
2016
,
2015
, and
2014
, respectively, and is therefore summarized with parts and service. Upgrades of automated inspection systems are included with automated inspection systems.
The following table summarizes certain information about geographic areas (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
2016
|
|
2015
|
|
2014
|
Net sales:
|
|
|
|
|
|
|
Domestic
|
|
$
|
56,554
|
|
|
$
|
51,954
|
|
|
$
|
61,421
|
|
International
|
|
63,486
|
|
|
50,971
|
|
|
56,837
|
|
Total net sales
|
|
$
|
120,040
|
|
|
$
|
102,925
|
|
|
$
|
118,258
|
|
Long-lived assets:
|
|
|
|
|
|
|
Domestic
|
|
$
|
13,782
|
|
|
$
|
15,590
|
|
|
|
|
International
|
|
16,563
|
|
|
16,782
|
|
|
|
|
Total long-lived assets
|
|
$
|
30,345
|
|
|
$
|
32,372
|
|
|
|
|
There was
one
customer that accounted for greater than
10%
of net sales during fiscal
2016
. There was
one
other customer that individually accounted for
10%
of net sales during fiscal 2015 and 2014.
One
single country outside the United States accounted for more than
10%
of net sales in
2016
. Location of the customer is the basis for the categorization of net sales.
* * * * * *
SUPPLEMENTARY DATA
QUARTERLY FINANCIAL INFORMATION
(Unaudited)
The following is a summary of operating results by quarter for the years ended September 30,
2016
and
2015
(in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 Quarter Ended
|
|
December 31
|
|
March 31
|
|
June 30
|
|
September 30
|
|
Total
|
Net sales
|
|
$
|
24,803
|
|
|
$
|
28,510
|
|
|
$
|
36,207
|
|
|
$
|
30,520
|
|
|
$
|
120,040
|
|
Gross profit
|
|
6,980
|
|
|
8,469
|
|
|
10,654
|
|
|
9,943
|
|
|
36,046
|
|
Net earnings(loss)
|
|
(1,699
|
)
|
|
(550
|
)
|
|
1,035
|
|
|
515
|
|
|
(697
|
)
|
Net earnings(loss) per share - basic
|
|
$
|
(0.27
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
0.16
|
|
|
$
|
0.08
|
|
|
$
|
(0.11
|
)
|
Net earnings(loss) per share - diluted
|
|
$
|
(0.27
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
0.16
|
|
|
$
|
0.08
|
|
|
$
|
(0.11
|
)
|
2015 Quarter Ended
|
|
December 31
|
|
March 31
|
|
June 30
|
|
September 30
|
|
Total
|
Net sales
|
|
$
|
20,091
|
|
|
$
|
21,581
|
|
|
$
|
30,810
|
|
|
$
|
30,443
|
|
|
$
|
102,925
|
|
Gross profit
|
|
5,476
|
|
|
5,705
|
|
|
9,237
|
|
|
8,395
|
|
|
28,814
|
|
Net earnings(loss)
|
|
(1,828
|
)
|
|
(1,947
|
)
|
|
295
|
|
|
(1,540
|
)
|
|
(5,019
|
)
|
Net earnings(loss) per share - basic
|
|
$
|
(0.29
|
)
|
|
$
|
(0.31
|
)
|
|
$
|
0.05
|
|
|
$
|
(0.24
|
)
|
|
$
|
(0.80
|
)
|
Net earnings(loss) per share - diluted
|
|
$
|
(0.29
|
)
|
|
$
|
(0.31
|
)
|
|
$
|
0.05
|
|
|
$
|
(0.24
|
)
|
|
$
|
(0.80
|
)
|
Note: Annual totals may not agree to the summation of quarterly information due to insignificant rounding and the required calculation conventions.
* * * * * *