The notes to the consolidated financial statements are an integral part of these statements.
The notes to the consolidated financial statements are an integral part of these statements.
The notes to the consolidated financial statements are an integral part of these statements.
The notes to the consolidated financial statements are an integral part of these statements
.
The notes to the consolidated financial statements are an integral part of these statements.
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 manufacturers for dimensional gauging, dimensional inspection and 3D scanning. 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.
Basis of Presentation and Principles of Consolidation
The Consolidated Financial Statements and accompanying notes have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). Our Consolidated Financial Statements include the accounts of Perceptron and our wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
Management is required to make certain estimates and assumptions under U.S. GAAP during the preparation of these Consolidated Financial Statements. These estimates and assumptions may affect the reported amounts of assets and liabilities as well as the 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 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 internal research and development costs, including future software development costs, are expensed as incurred, however, when we utilize outside resources to develop certain new products, including software development, costs incurred after technological feasibility will be capitalized.
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Foreign Currency
The financial statements of our wholly-owned foreign subsidiaries are translated in accordance with the FASB 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 gain (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 outstanding 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 23,000, 119,000 and 194,000 shares of common stock for the fiscal years ended June 30, 2018, 2017 and 2016, respectively, 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, 2018, we had $5,830,000 in cash and cash equivalents of which $4,631,000 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 customers’ 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, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts.
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.
Inventory
Inventory is stated at the lower of cost or net realizable value using 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.
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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, 2018 and 2017. 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 required specific 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, 2018.
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:
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Level 1 – Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities.
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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.
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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.
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ASC 820 requires the use of observable market data if such data is available without undue cost and effort.
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. We review our property and equipment for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of these assets is measured by comparison of their carrying amounts to future undiscounted cash flows the assets are expected to generate. If any of these assets would be considered impaired, the impairment that would be recognized would equal the amount by which the carrying value of the asset exceeds its fair value.
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 the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“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 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, or if we choose not to perform a qualitative assessment, a quantitative impairment test is performed to identify potential goodwill impairment and measure the amount of goodwill impairment loss to be recognized, if any. During the fourth quarter of fiscal 2018, we elected to complete a quantitative goodwill impairment test, which resulted in no impairment.
In conjunction with our annual goodwill impairment test, we early adopted Accounting Standards Update No. 2017-04,
Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment (Topic 350)
(ASU 2017-04) as of April 1, 2018, the beginning of our fourth quarter. ASU 2017-04 requires goodwill impairment to be measured as the excess of the carrying value over the fair value of the reporting unit, not to exceed the carrying amount of goodwill. Previously, goodwill impairment was measured as the excess of carrying value over the implied fair value of goodwill. The adoption of ASU 2017-04 had no impact on our financial statements.
38
The quantitative goodwill impairment test contains estimates regarding future revenue growth and expense levels. To the extent that actual results do not meet projected result
s, it could result in a material impairment to goodwill which could negatively impact our results of operations.
Goodwill is recorded on the local books of Coord3 and NMS and foreign currency effects will impact the balance of goodwill in future periods. As of June 30, 2018 and 2017, our goodwill balance is $7,985,000 and $7,793,000, respectively, with the increase due to the differences in foreign currency rates at June 30, 2018 compared to June 30, 2017.
Intangibles
We acquired intangible assets in addition to goodwill in connection with the acquisitions of Coord3 and NMS in the third quarter of fiscal 2015. Furthermore, we continue to develop intangibles, primarily software. 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 or asset group by comparing the carrying value of the asset or asset group to the sum of the undiscounted future cash flows that the asset or asset group 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 or asset group to the carrying value and record an impairment loss for the difference. We generally estimate the fair value of our intangible assets or asset groups 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 remaining economic lives of our intangible assets could differ from those used in assessing the recoverability of these assets and could result in an impairment of our intangible assets in future periods, negatively impacting our financial position and results of operations. There were no impairment of our intangibles during fiscal years ended June 30, 2018 and 2017, respectively.
The amortization periods for customer/distributor relationships, trade name and software are five years, ten years and five years, respectively.
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 18 “Income Taxes” for further discussion).
Warranty
Our In-Line and Near-Line 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. Our Off-Line Measurement Solutions generally carry a twelve-month warranty after the machine passes the acceptance test or a fifteen-month warranty from the date of shipment, whichever date comes first, on parts only. 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.
Self–Insurance
Since January 1, 2017, we have used a fully-insured model for health and vision coverages we offer our U.S employees. We are currently self-insured for any short-term disability claims we may have outstanding.
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New Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“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 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). In April 2016, the FASB issued final guidance to clarify identifying performance obligation and the licensing implementation guidance. In May 2016, FASB updated the guidance in ASU No. 2014-09, which updated implementation of certain narrow topics within ASU 2014-09. Finally, in December 2016, the FASB issued several technical corrections and improvements, which clarify the previously issued standards and corrected unintended application of previous guidance. These standards (collectively “ASC 606”) 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 will adopt the new standard effective July 1, 2018 using the modified retrospective transition method with the cumulative effect recorded to the opening balance of retained earnings as of the date of adoption. We have established a project management team to analyze the impact of the new standard. The team has evaluated our different revenue streams and reviewed representative contracts with customers to identify if there are differences that would result from the application of the new standard as compared to our current accounting policies and practices. Certain services will be recognized over time instead of at a point in time upon completion of those services under current guidance. Additionally, for our multiple element contracts in which the payment terms do not correspond with performance, we will no longer be required to limit the revenue recognized for delivered elements to the amount that is not contingent on the future delivery of products or services. Instead, we will record revenue for each of the performance obligations as control transfers to the customers, which will generally accelerate the revenue recognized for such contracts. We will also capitalize amounts related to certain commissions paid which qualify as “costs to obtain a contract”. We are finalizing the quantification of the effects on our consolidated financial statements. We anticipate that a new positive transition adjustment will be recorded to retained earnings at July 1, 2018 between the amounts of $1.8 million and $2.3 million. We have also implemented new business processes and internal controls in order to recognize revenue in accordance with the new standard.
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. In February 2018, the FASB issued Accounting Standards Update No. 2018-03 —
Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825-10)
:
Recognition and Measurement of Financial Assets and Financial Liabilities
(ASU 2018-03), which contains technical corrections and improvements related to ASU 2016-01. Both ASU 2016-01 and ASU 2018-03, are effective for Perceptron on July 1, 2018 and are 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. In January 2018, the FASB issued Accounting Standards Update No. 2018-01,
Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842
, which permits an entity to elect an optional transition practical expedient to not evaluate land easements under Topic 842. In July 2018, the FASB issued Accounting Standards Updates No. 2018-11 and 2018-10,
Leases (Topic 842): Targeted Improvements
and
Codification Improvements to Topic 842, Leases
. Both of these ASUs are effective at the same time as when we adopt ASU 2016-02. We are currently evaluating the impact of the adoption of ASU 2016-02 and the related Updates 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. ASU 2016-15 is not expected to have a significant impact on our consolidated financial statements or disclosures.
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In October 2016
, the FASB issued Accounting Standards Update No. 2016-16,
Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory
(ASU 2016-16), which requires that an entity should recognize the income tax consequences of an intra-entity transfer
of an asset other than inventory when the transfer occurs. ASU 2016-16 is effective for annual reporting periods beginning after December 15, 2017, with early adoption permitted as of the beginning of an annual reporting period for which financial statem
ents (interim or annual) have not been issued or made available for issuance.
ASU 2016-16 is effective for Perceptron on July 1, 2018 and is not expected to have a significant impact on our consolidated financial statements
.
In November 2016, the FASB issued Accounting Standards Update No. 2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash
(ASU 2016-18), which requires a company to present their Statement of Cash Flows including amounts generally described as restricted cash or restricted cash equivalents with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 is effective for annual reporting periods beginning after December 15, 2017, with early adoption permitted. We hold restricted cash in short-term bank guarantees to provide financial assurance that we will fulfill certain customer obligations in China. These balances are currently part of ‘Short-term investments’ on our Consolidated Balance Sheet and the movement is part of ‘Purchases of short-term investments’ and ‘Sales of short-term investments’ in the investing activities section of our Consolidated Statement of Cash Flow. This balance will be reclassified into “Cash and cash equivalents” on our Consolidated Balance Sheet as of July 1, 2018 and will no longer be considered an investing activity on our Consolidated Statement of Cash Flow.
In January 2017, the FASB issued Accounting Standards Update No. 2017-01,
Business Combinations (Topic 805):
Clarifying the Definition of a Business
(ASU 2017-01), which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 is effective for Perceptron on July 1, 2018 and is not expected to have a significant impact on our consolidated financial statements or disclosures.
In February 2017, the FASB issued Accounting Standards Update No. 2017-05,
Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets
(ASU 2017-05), which clarifies the scope of Subtopic 610-20 and adds guidance for partial sales of nonfinancial assets. Subtopic 610-20, which was issued in May 2014 as a part of Accounting Standards Update No. 2014-09, provides guidance for recognizing gains and losses from the transfer of nonfinancial assets in contracts with noncustomers. ASU 2017-05 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period with early application permitted only as of annual reporting periods beginning after December 15, 2016. We do not expect ASU 2017-05 to have a significant impact on our consolidated financial statements or disclosures.
In May 2017, the FASB issued Accounting Standards Update No. 2017-09,
Compensation—Stock Compensation (Topic 718):
Scope of Modification Accounting
(ASU 2017-09), which provide clarity and reduce both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation—Stock Compensation, to a change to the terms or conditions of a share-based payment award. ASU 2017-09 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. We do not expect ASU 2017-09 to have a significant impact on our consolidated financial statements or disclosures.
In February 2018, the FASB issued Accounting Standards Update 2018-02—
Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
(ASU 2018-02), which allows for a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. ASU 2018-02 is effective for Perceptron on July 1, 2019 and is not expected to have a significant impact on our consolidated financial statements or disclosures.
In July 2018, the FASB issued Accounting Standards Update No. 2018-09,
Codification Improvements
(ASU 2018-09), which clarifies, corrects and makes minor improvements a wide variety of Topics in the Codification. The amendments make the Codification easier to understand and apply by eliminating inconsistencies and providing clarifications. The transition and effective dates is based on the facts and circumstances of each amendment, including some amendments that will be effective upon issuance of the Update and many of them will be effective for annual periods beginning after December 31, 2018. We are currently evaluating the impact of the adoption of ASU 2018-09 on our consolidated financial statements and disclosures.
Recently Adopted Accounting Pronouncements
In July 2015, the FASB issued Accounting Standards Update No. 2015-11,
Simplifying the Measurement of Inventory
(ASU 2015-11), which requires an entity to measure inventory at the lower of cost and net realizable value. Net realizable value is defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. We adopted this standard on July 1, 2017. Adoption of this guidance did not have a material impact on our consolidated financial statements.
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, including related valuation allowances, be classified as non-current on our consolidated balance sheets. We adopted this standard on July 1, 2017, and as a result, reclassified $438,000 of previously “Short-term deferred income tax assets” to “Long-Term Deferred Income Tax Asset” and reclassified $752,000 of previously “Short-term deferred income tax liability” to “Long-Term Deferred Income Tax Liability” on our consolidated balance sheet. Our Consolidated Balance Sheets as of June 30, 2017 and 2016 were not retrospectively adjusted.
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In March 2016, the FASB issued Accounting Standards Update No. 2016-09,
Compensation - Stock Compensation (Topic 718)
(ASU 2016-09), which simplifies several aspects of accounting for share-based payment award transactions, including income tax consequence
s, classification of awards as either equity or liabilities and classification on the statement of cash flows. Certain of these changes are required to be applied retrospectively, while other changes are required to be applied prospectively. We adopted thi
s standard on July 1, 2017. ASU 2016-09 requires prospective recognition of excess tax benefits and deficiencies in the income statement. Due to the fact that our U.S. Federal Deferred Taxes have a full valuation allowance, there was no net impact to our
consolidated financial statements related to our adoption of ASU 2016-09. We elected to continue to estimate forfeiture rates at the time of grant, instead of accounting for them as they occur. Finally, as excess tax benefits are no longer recognized in
additional paid-in capital, we excluded the excess tax benefits from the assumed proceeds available to repurchase shares in the computation of diluted earnings per share for the fiscal year ended June 30, 2018.
In January 2017, the FASB issued Accounting Standards Update No. 2017-04,
Intangibles—Goodwill and Other: Simplifying the Test for Goodwill Impairment
(ASU 2017-04). ASU. 2017-04 simplified wording and removes Step 2 of the Goodwill Impairment Test. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for annual reporting periods beginning after December 15, 2019 with early adoption permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We adopted this standard on April 1, 2018, in conjunction with our annual goodwill impairment test for fiscal 2018. Adoption of this guidance did not have a material impact on our consolidated financial statements.
2
.
Information About Major Customers
Our sales efforts for in-line and near-line products are led by account teams that focus on automotive OEMs. These 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 2018, 2017 and 2016, approximately 41%, 36% and 34%, 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 2018, 2017 and 2016, approximately 7%, 11% and 8%, 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, 2018, 2017 and 2016, direct sales to General Motors Company accounted for approximately 17%, 14% and 12%, respectively of our total net sales and Volkswagen Group accounted for approximately 15%, 16% and 17%, respectively of our total net sales.
3.
Allowance for Doubtful Accounts
Changes in our allowance for doubtful accounts are as follows (in thousands):
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|
|
|
Expenses
|
|
|
Charge-offs
|
|
|
Balance
|
|
Fiscal year ended June 30, 2018
|
|
$
|
253
|
|
|
$
|
195
|
|
|
$
|
(44
|
)
|
|
$
|
404
|
|
Fiscal year ended June 30, 2017
|
|
$
|
269
|
|
|
$
|
22
|
|
|
$
|
(38
|
)
|
|
$
|
253
|
|
Fiscal year ended June 30, 2016
|
|
$
|
214
|
|
|
$
|
137
|
|
|
$
|
(82
|
)
|
|
$
|
269
|
|
4.
Inventory
Inventory, net of reserves of $2,115,000 and $1,918,000 at June 30, 2018 and June 30, 2017, respectively, is comprised of the following (in thousands):
|
|
June 30,
2018
|
|
|
June 30,
2017
|
|
Component parts
|
|
$
|
5,156
|
|
|
$
|
4,445
|
|
Work in process
|
|
|
3,525
|
|
|
|
3,864
|
|
Finished goods
|
|
|
5,148
|
|
|
|
3,157
|
|
Total
|
|
$
|
13,829
|
|
|
$
|
11,466
|
|
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, 2018
|
|
$
|
1,918
|
|
|
$
|
785
|
|
|
|
(588
|
)
|
|
$
|
2,115
|
|
Fiscal year ended June 30, 2017
|
|
$
|
1,608
|
|
|
$
|
375
|
|
|
$
|
(65
|
)
|
|
$
|
1,918
|
|
Fiscal year ended June 30, 2016
|
|
$
|
1,436
|
|
|
$
|
465
|
|
|
$
|
(293
|
)
|
|
$
|
1,608
|
|
42
5.
Intangibles
Our intangible assets as of June 30, 2018 and 2017 are as follows (in thousands):
|
|
June 30, 2018
|
|
|
June 30, 2017
|
|
|
|
Gross
|
|
|
|
|
|
|
Net
|
|
|
Gross
|
|
|
|
|
|
|
Net
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
Customer/Distributor Relationships
|
|
$
|
3,329
|
|
|
$
|
(2,219
|
)
|
|
$
|
1,110
|
|
|
$
|
3,263
|
|
|
$
|
(1,524
|
)
|
|
$
|
1,739
|
|
Trade Name
|
|
|
2,586
|
|
|
|
(862
|
)
|
|
|
1,724
|
|
|
|
2,533
|
|
|
|
(591
|
)
|
|
|
1,942
|
|
Software
|
|
|
1,490
|
|
|
|
(504
|
)
|
|
|
986
|
|
|
|
677
|
|
|
|
(312
|
)
|
|
|
365
|
|
Other
|
|
|
124
|
|
|
|
(124
|
)
|
|
|
—
|
|
|
|
121
|
|
|
|
(94
|
)
|
|
|
27
|
|
Total
|
|
$
|
7,529
|
|
|
$
|
(3,709
|
)
|
|
$
|
3,820
|
|
|
$
|
6,594
|
|
|
$
|
(2,521
|
)
|
|
$
|
4,073
|
|
Amortization expense for the fiscal years ended June 30, 2018, 2017 and 2016 was $1,168,000, $1,073,000 and $1,121,000, respectively.
The estimated amortization of the remaining intangible assets by year is as follows (in thousands):
Years Ending June 30,
|
|
Amount
|
|
2019
|
|
|
1,229
|
|
2020
|
|
|
865
|
|
2021
|
|
|
421
|
|
2022
|
|
|
421
|
|
2023
|
|
|
377
|
|
after 2023
|
|
|
507
|
|
|
|
$
|
3,820
|
|
Collectively, the weighted average amortization period of intangible assets subject to amortization is approximately 3.1 years. The intangible assets are amortized over the period of economic benefit or on a straight line basis.
6.
Short-Term and Long-Term Investments
As of June 30, 2018 and 2017, we held restricted cash in short-term bank guarantees. The restricted cash provides 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, 2018 and June 30, 2017 we had short-term bank guarantees of $166,000 and $239,000 respectively.
At
June 30, 2018
, we held a long-term investment in preferred stock that is not registered under the Securities Act of 1933, as amended 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, 2018
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”
(“ASC 820”) such valuation assumptions are defined as Level 3 inputs.
43
Th
e following table presents our Short-Term and Long-Term Investments by category at
June 30, 2018
and
2017
(in thousands):
|
|
June 30, 2018
|
|
Short-Term Investments
|
|
Cost
|
|
|
Fair Value or
Carrying Value
|
|
Bank Guarantees
|
|
$
|
166
|
|
|
$
|
166
|
|
Mutual Funds
|
|
|
23
|
|
|
|
23
|
|
Time/Fixed Deposits
|
|
|
688
|
|
|
|
688
|
|
Total Short-Term Investments
|
|
$
|
877
|
|
|
$
|
877
|
|
|
|
|
|
|
|
|
|
|
Long-Term Investments
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
$
|
3,700
|
|
|
$
|
725
|
|
Total Long-Term Investments
|
|
$
|
3,700
|
|
|
$
|
725
|
|
|
|
|
|
|
|
|
|
|
Total Investments
|
|
$
|
4,577
|
|
|
$
|
1,602
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
Short-Term Investments
|
|
Cost
|
|
|
Fair Value or
Carrying Value
|
|
Bank Guarantees
|
|
$
|
239
|
|
|
$
|
239
|
|
Time/Fixed Deposits
|
|
|
1,333
|
|
|
|
1,333
|
|
Total Short-Term Investments
|
|
$
|
1,572
|
|
|
$
|
1,572
|
|
|
|
|
|
|
|
|
|
|
Long-Term Investments
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
$
|
3,700
|
|
|
$
|
725
|
|
Total Long-Term Investments
|
|
$
|
3,700
|
|
|
$
|
725
|
|
|
|
|
|
|
|
|
|
|
Total Investments
|
|
$
|
5,272
|
|
|
$
|
2,297
|
|
7.
Financial Instruments
The following table presents our investments at June 30, 2018 and 2017 that are measured and recorded at fair value on a recurring basis consistent with the fair value hierarchy provisions of ASC 820 (in thousands). The fair value of our short-term investments approximates their cost basis.
Description
|
|
June 30, 2018
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Mutual funds
|
|
$
|
23
|
|
|
$
|
23
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Time/Fixed Deposits and Bank Guarantees
|
|
|
854
|
|
|
|
-
|
|
|
|
854
|
|
|
|
-
|
|
Preferred Stock
|
|
|
725
|
|
|
|
-
|
|
|
|
-
|
|
|
|
725
|
|
Total
|
|
$
|
1,602
|
|
|
$
|
23
|
|
|
$
|
854
|
|
|
$
|
725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
June 30, 2017
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Time/Fixed Deposits and Bank Guarantees
|
|
$
|
1,572
|
|
|
$
|
-
|
|
|
$
|
1,572
|
|
|
$
|
-
|
|
Preferred Stock
|
|
|
725
|
|
|
|
-
|
|
|
|
-
|
|
|
|
725
|
|
Total
|
|
$
|
2,297
|
|
|
$
|
-
|
|
|
$
|
1,572
|
|
|
$
|
725
|
|
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. Changes in assumptions could significantly affect these estimates. During fiscal years 2018 and 2017, we did not record any other-than-temporary impairments on our financial assets required to be measured on a recurring basis.
44
8
.
Warranties
Changes to our warranty reserve is as follows (in thousands):
|
|
Beginning
|
|
|
Accruals -
|
|
|
Settlements/Claims
|
|
|
Effect of Foreign
|
|
|
Ending
|
|
|
|
Balance
|
|
|
Current Year
|
|
|
(in cash or in kind)
|
|
|
Currency
|
|
|
Balance
|
|
Fiscal year ended June 30, 2018
|
|
$
|
548
|
|
|
$
|
844
|
|
|
$
|
(1,006
|
)
|
|
$
|
5
|
|
|
$
|
391
|
|
Fiscal year ended June 30, 2017
|
|
$
|
370
|
|
|
$
|
631
|
|
|
$
|
(453
|
)
|
|
$
|
—
|
|
|
$
|
548
|
|
Fiscal year ended June 30, 2016
|
|
$
|
192
|
|
|
$
|
451
|
|
|
$
|
(272
|
)
|
|
$
|
(1
|
)
|
|
$
|
370
|
|
9.
Property and Equipment
Our property and equipment consisted of the following as of June 30, 2018 and 2017 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
2018
|
|
|
June 30,
2017
|
|
Building and Land
|
|
$
|
7,844
|
|
|
$
|
7,788
|
|
Machinery and Equipment
|
|
|
14,578
|
|
|
|
16,414
|
|
Furniture and Fixtures
|
|
|
1,060
|
|
|
|
1,054
|
|
Total Property and Equipment, gross
|
|
|
23,482
|
|
|
|
25,256
|
|
Less: Accumulated Depreciation
|
|
|
(16,869
|
)
|
|
|
(17,879
|
)
|
Total Property and Equipment, net
|
|
$
|
6,613
|
|
|
$
|
7,377
|
|
Depreciation expense for the years ended June 30, 2018, 2017, and 2016 was $1,108,000, $1,121,000, and $1,016,000, respectively.
10.
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 11%. This plan was implemented to re-align our fixed costs with our near-to mid-term expectations for our business. In addition, during the first quarter of fiscal 2017, we decided to terminate production and marketing of a specific product line due to limitations in its design. Since this decision was made, we have written off $290,000, net related to inventory and impaired certain customer receivable balances in the amount of $127,000. By the second quarter of fiscal 2018, we had substantially completed the plan that was announced; we incurred total pre-tax cash and non-cash charges related to the original restructuring plan, as well as the additional charges from the terminated product line, of $3,531,000.
In July 2017, we entered into an agreement to settle the civil suit that was filed by 3CEMS, a Cayman Island and People’s Republic of China corporation, in January 2015 (see Note 14 “Commitments and Contingencies – Legal Proceedings” for further discussion). The settlement of $1,000,000 was recorded as expense in fiscal 2017.
In January 2018, a judge in a trade secrets case brought by Perceptron granted the defendants’ motions for recovery of their attorney fees (see Note 14 “Commitments and Contingencies – Legal Proceedings” for further discussion relating to this matter). A charge in the amount of $675,000 was recorded as a liability in the second quarter of fiscal 2018. We have appealed the court’s decision to grant summary disposition and the award of the attorney fees.
The charges recorded as Severance, Impairment and Other Charges are as follows (in thousands):
|
|
Fiscal Years Ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Severance and Related Costs
|
|
$
|
(13
|
)
|
|
$
|
301
|
|
|
$
|
1,968
|
|
Court Award
|
|
|
675
|
|
|
|
-
|
|
|
|
-
|
|
Legal Settlement
|
|
|
-
|
|
|
|
1,000
|
|
|
|
-
|
|
Impairment
|
|
|
(42
|
)
|
|
|
169
|
|
|
|
694
|
|
Inventory Write-Off
|
|
|
(17
|
)
|
|
|
307
|
|
|
|
164
|
|
Total
|
|
$
|
603
|
|
|
$
|
1,777
|
|
|
$
|
2,826
|
|
Severance expense for the
fiscal year ended June 30, 2018
was associated with adjustments at our China (income of $15,000) and U.S. (expense of $2,000)
locations as we reached final settlements related to several individuals impacted by the reduction in force. The decrease in the impairment for the fiscal year ended
June 30, 2018
was due to a collection of an accounts receivable balance that was previously written off. The decrease of the inventory write-off was due to finding other uses for some of the inventory originally designated as impaired.
45
Severance expense for the
fiscal year ended June 30, 201
7
was associated with
adjustments at our U.S. location (
expense
of $312
,000), our
China
location
(
expense
of $8
2,0
00)
and our German
location
(
income
of $93
,000),
primarily as we reached final settlements related to several individuals impacted by the reduction in force.
Severance expense for the fiscal year ended June 30, 2016 was associated with a reduction in force at our U.S. location ($1,395,000), our German location ($472,000) and our China location ($101,000). 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 the Reserve for Restructuring and Other Charges (in thousands):
|
|
2018
|
|
|
2017
|
|
Balance at June 30
|
|
$
|
1,113
|
|
|
$
|
814
|
|
Accruals - Severance Related
|
|
|
(13
|
)
|
|
|
301
|
|
Accruals - Court Award
|
|
|
675
|
|
|
|
-
|
|
Accruals - Legal Settlement
|
|
|
-
|
|
|
|
1,000
|
|
Payments
|
|
|
(1,100
|
)
|
|
|
(1,002
|
)
|
Balance at June 30,
|
|
$
|
675
|
|
|
$
|
1,113
|
|
The remaining accrued balance at
June 30, 2018
is the accrual for the judgment related to the trade secrets case. Due to our appeal of the court decisions in this case, the timing of any payments related to this matter is unknown to us at this time.
11
.
Credit Facilities
We had approximately $175,000 and $1,705,000 outstanding under our lines of credit and short-term notes payable at June 30, 2018 and 2017, respectively. In addition, we had zero and $171,000 in long-term debt outstanding included in ‘Other Long-Term Liabilities’ at June 30, 2018 and 2017, respectively, on our Consolidated Balance Sheet.
On December 4, 2017, we entered into a Loan Agreement (the “Loan Agreement”) with Chemical Bank (“Chemical”), and related documents, including a Promissory Note. The Loan Agreement is an on-demand line of credit and is cancelable at any time by either Perceptron or Chemical and any amounts outstanding would be immediately due and payable. The Loan Agreement is guaranteed by our U.S. subsidiaries. The Loan Agreement allows for maximum permitted borrowings of $8.0 million. The borrowing base is calculated at the lesser of (i) $8.0 million or (ii) the sum of 80% of eligible accounts receivable balances of U.S. customers, and subject to limitations, certain foreign customers, plus the lesser of 50% of eligible inventory or $3.0 million. At June 30, 2018, our additional available borrowing under this facility was approximately $6.8 million. Security for the Loan Agreement is substantially all of our assets in the U.S. Interest is calculated at 2.65% above the 30 day LIBOR Rate. We are not allowed to pay cash dividends under the Loan Agreement. We had zero
in borrowings outstanding under the Loan Agreement at June 30, 2018.
Prior to December 4, 2017, we were party to an Amended and Restated Credit Agreement with Comerica Bank. We had $1,500,000 outstanding at June 30, 2017 under this agreement. On December 4, 2017, in connection with entering into the Loan Agreement, we repaid in full and terminated our Amended and Restated Credit Agreement with Comerica Bank and related documents. There were no prepayment fees payable in connection with the repayment of the loan.
During the third quarter of fiscal 2016, our Italian subsidiary, Coord3, exercised an option to purchase their current manufacturing facility. The total remaining principal payments of €150,000 (equivalent to approximately $175,000) payable over the next 10 months at a 7.0% annual interest rate are recorded in “Lines of credit and short-term notes payable” on our Consolidated Balance Sheet at June 30, 2018.
Our Brazilian subsidiary (“Brazil”) has a credit line and overdraft facility with their local bank. Brazil can borrow a total of B$200,000 (equivalent to approximately $52,000). This Brazil facility is cancelable at any time by either Brazil or the bank and any amount then outstanding would become immediately due and payable. The monthly interest rate for the current facility is 12.30%. Brazil previously had two additional credit lines that were cancelled in June 2018. We had no borrowings under these facilities at June 30, 2018 and 2017, respectively.
12
.
Current and Long-Term Taxes Payable
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.
13
.
Other Long-Term Liabilities
Other long-term liabilities at June 30, 2018 and 2017 include $601,000 and $614,000, respectively for 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.
46
1
4
.
Commitments and Contingencies
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, 2018
, 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):
Years Ending June 30,
|
|
Minimum
Rentals
|
|
2019
|
|
$
|
966
|
|
2020
|
|
|
573
|
|
2021
|
|
|
371
|
|
2022
|
|
|
177
|
|
2023 and beyond
|
|
|
-
|
|
|
|
$
|
2,087
|
|
Rental expenses for operating leases in the fiscal years ended June 30, 2018, 2017 and 2016 were $884,000, $943,000 and $1,097,000, respectively.
Legal Proceedings
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 were 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 alleged 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. In July 2017, we entered into an agreement with 3CEMS to settle this suit and recorded the expense in the fourth quarter of fiscal 2017. As part of the settlement, we agreed to pay 3CEMS $1,000,000 in four equal payments of $250,000 each over a period of ten months beginning in August 2017. As of June 30, 2018, this settlement was paid in full (see Note 10 ‘Severance, Impairment and Other Charges’ for further discussion).
We are currently unaware of any significant pending litigation affecting us other than the matters set forth below.
In May 2017, a judge in a trade secrets case brought by Perceptron granted the defendants’ motions for summary disposition. Furthermore, in January 2018 the judge granted the defendants’ motions for recovery of their attorney fees in the amount of $675,000, plus interest. We are appealing the court’s decision to grant summary disposition and the award of the attorney fees. In the second quarter of fiscal 2018, we recorded a charge in the amount of $675,000 relating to this matter (see Note 10 ‘Severance, Impairment and Other Charges’ for further discussion). Due to our appeal of the court decisions in the trade secrets case, the timing of any payments related to this matter is unknown to us at this time.
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 $582,000) 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 approximately $272,000). To date, we have paid €677,000 (equivalent to approximately $810,000). We believe that the Slovakian authorities have closed this issue and therefore, in the second quarter of fiscal 2018, we reversed the remaining accrual.
In the third quarter of fiscal 2018, the Canadian Revenue Agency (“CRA”) completed a Goods and Services Tax/Harmonized Sales Tax Returns (GST/HST) audit. Based on this audit, the CRA preliminarily proposed to assess us approximately CAD $1,218,000 (equivalent to approximately $923,000) in taxes plus interests and penalties related to sales from 2013 through 2018. CRA has indicated that we are entitled to invoice our customers to recover this amount and our customers are required to remit payment. Our response to the CRA preliminary assessment was delivered in April 2018. In June 2018, we received the final assessment, which confirmed the preliminary assessment. In August 2018, we filed a formal appeal request and posted a surety bond as security for this claim. We have not recorded an accrual related to this preliminary audit finding because we are disputing several of the CRA’s conclusions, and, in addition, if our dispute is not resolved to our satisfaction, we expect to ultimately receive the funds from our customers (excluding any interest or penalties), although there may be a timing difference between when we must pay the CRA and when we collect the funds from our customers.
47
1
5
.
401(k) Plan
We have a 401(k) tax deferred savings plan that covers all eligible employees based in the U.S. As part of our financial improvement plan announced in the third quarter of fiscal 2016, we ceased making discretionary contributions at that time. In December 2016, we reinstated discretionary contributions which we expect to continue into our fiscal year 2019. Our contributions during fiscal years 2018, 2017 and 2016 were $281,000, $171,000 and $385,000, respectively.
16.
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, 2018, 124,433 shares remained available under the Plan.
Activity under this Plan is shown in the following table (in thousands, except per share amount):
|
|
Purchase Period Ended
|
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Non-cash stock based compensation expense
|
|
$
|
10
|
|
|
$
|
4
|
|
|
$
|
19
|
|
Common shares purchased
|
|
|
5
|
|
|
|
4
|
|
|
|
2
|
|
Average purchase price per share
|
|
$
|
5.95
|
|
|
$
|
3.86
|
|
|
$
|
8.50
|
|
17.
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. All Options previously granted under a 1998 Global Team Member Stock Option Plan (“1998 Plan”) were exercised, cancelled or expired before March 31, 2017. The 2004 Plan is administered by a committee of our Board of Directors: The Management Development, Compensation and Stock Option Committee (“MDCSOC”).
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 MDCSOC, 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. Option prices from options granted under this plan must not be less than fair market value of our 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 $336,000, $374,000 and $428,000 for the fiscal years ended June 30, 2018, 2017 and 2016, respectively.
As of
June 30, 2018
, the total remaining unrecognized
compensation cost related to non-vested stock-based compensation amounted to $292,000. We expect to recognize this cost over a weighted average vesting period of 1.8 years.
We received $458,000 in cash from option exercises under all stock option payment arrangements for the twelve months ended
June 30, 2018
. 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 $87,000 for fiscal 2018.
48
Activity under these Plans is shown i
n the following tables:
|
|
Fiscal Year 2018
|
|
|
Fiscal Year 2017
|
|
|
|
|
|
|
|
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
|
|
|
622,636
|
|
|
$
|
7.26
|
|
|
|
|
|
|
|
635,158
|
|
|
$
|
7.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Grants (based on fair value of
common stock at dates of grant)
|
|
|
100,000
|
|
|
$
|
7.95
|
|
|
|
|
|
|
|
166,500
|
|
|
$
|
6.63
|
|
|
|
|
|
Exercised
|
|
|
(52,000
|
)
|
|
$
|
8.81
|
|
|
|
|
|
|
|
(28,916
|
)
|
|
$
|
4.89
|
|
|
|
|
|
Expired
|
|
|
(34,000
|
)
|
|
$
|
9.99
|
|
|
|
|
|
|
|
(115,635
|
)
|
|
$
|
8.28
|
|
|
|
|
|
Forfeited
|
|
|
(1,600
|
)
|
|
$
|
10.55
|
|
|
|
|
|
|
|
(34,471
|
)
|
|
$
|
7.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
|
635,036
|
|
|
$
|
7.02
|
|
|
$
|
2,269
|
|
|
|
622,636
|
|
|
$
|
7.26
|
|
|
$
|
279
|
|
Exercisable at end of period
|
|
|
384,805
|
|
|
$
|
6.87
|
|
|
$
|
1,445
|
|
|
|
336,022
|
|
|
$
|
7.50
|
|
|
$
|
279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2016
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Aggregate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Intrinsic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
|
|
|
Value (1)
|
|
|
|
|
|
|
|
|
|
|
|
Shares subject to option
|
|
Shares
|
|
|
Price
|
|
|
($000)
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of period
|
|
|
658,641
|
|
|
$
|
8.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Grants (based on fair value
of common stock at dates of grant)
|
|
|
511,197
|
|
|
$
|
7.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(9,748
|
)
|
|
$
|
5.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(123,833
|
)
|
|
$
|
9.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(401,099
|
)
|
|
$
|
8.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
|
635,158
|
|
|
$
|
7.53
|
|
|
$
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of period
|
|
|
329,210
|
|
|
$
|
7.78
|
|
|
$
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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, 2018, 2017 and 2016, were $87,000, $58,000 and $24,000, respectively.
The total fair value of shares vested
during the fiscal years ended June 30, 2018, 2017 and 2016, were $400,000, $409,000 and $323,000, 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:
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Weighted average estimated fair value per
|
|
|
|
|
|
|
|
|
|
|
|
|
share of options granted during the period
|
|
$
|
3.96
|
|
|
$
|
3.02
|
|
|
$
|
2.94
|
|
Assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend yield
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Common stock price volatility
|
|
|
49.01
|
%
|
|
|
48.25
|
%
|
|
|
45.43
|
%
|
Risk free rate of return
|
|
|
1.81
|
%
|
|
|
1.81
|
%
|
|
|
1.55
|
%
|
Expected option term (in years)
|
|
|
5.4
|
|
|
|
5.5
|
|
|
|
5.7
|
|
49
The following table summarizes information about stock options at
June 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
40,400
|
|
|
|
4.20
|
|
|
$
|
3.95
|
|
|
|
33,733
|
|
|
$
|
3.77
|
|
|
5.70
|
|
|
to
|
|
|
|
8.81
|
|
|
|
555,136
|
|
|
|
7.31
|
|
|
$
|
6.94
|
|
|
|
311,572
|
|
|
$
|
6.65
|
|
|
8.94
|
|
|
to
|
|
|
|
14.01
|
|
|
|
39,500
|
|
|
|
5.20
|
|
|
$
|
11.25
|
|
|
|
39,500
|
|
|
$
|
11.25
|
|
$
|
2.80
|
|
|
to
|
|
$
|
|
14.01
|
|
|
|
635,036
|
|
|
|
6.98
|
|
|
$
|
7.02
|
|
|
|
384,805
|
|
|
$
|
6.87
|
|
Restricted Stock and Restricted Stock Units
Our restricted stock and restricted stock units under the 2004 Plan generally have been awarded by four methods as follows:
(1)
|
Awards that are earned based on achieving certain individual and financial 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 anniversaries 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 anniversaries of the issuance, provided the individual’s employment has not terminated prior to the vesting date and are freely transferable after vesting;
|
(3)
|
Awards to non-management members of our Board of Directors with a subsequent one-third vesting requirement on the first, second and third anniversaries 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; and
|
(4)
|
Awards that are granted with a one-third vesting requirement on the first, second and third anniversaries of the issuance provided the individual’s employment has not terminated prior to the vesting date and are freely transferable after vesting, including restricted stock units granted as part of the Fiscal Year 2018 Long-Term Incentive Compensation Plan.
|
The grant date fair value associated with the restricted stock is calculated in accordance with ASC 718
“Compensation – Stock Compensation”
. Compensation expense related to restricted stock awards is based on the closing price of our Common Stock on the grant date authorized by our MDCSOC, multiplied by the number of restricted stock and restricted stock unit award 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 and restricted stock unit awards for the fiscal years ended
June 30, 2018
,
2017
and
2016
was $186,000, $145,000 and $221,000, respectively. As of
June 30, 2018
, the total remaining unrecognized compensation cost related to restricted stock and restricted stock unit awards is approximately
$251,000. We expect to recognize this cost over a weighted average vesting period of 2.3 years.
A summary of the status of restricted stock and restricted stock unit awards issued at
June 30, 2018
is presented in the table below:
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
Nonvested
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
|
Fair Value
|
|
Nonvested at June 30, 2017
|
|
|
11,776
|
|
|
|
$
|
8.08
|
|
Granted
|
|
|
88,112
|
|
|
|
|
7.72
|
|
Vested
|
|
|
(21,518
|
)
|
|
|
|
7.75
|
|
Forfeited or expired
|
|
|
(800
|
)
|
|
|
|
7.95
|
|
Nonvested at June 30, 2018
|
|
|
77,570
|
|
|
|
$
|
7.77
|
|
Performance Stock Units
During the second quarter of fiscal 2018, the MDCSOC granted certain employees 40,150 shares of Performance Share Units (“PSUs”) as part of the Fiscal Year 2018 Long-Term Incentive Compensation Plan. The Performance Measures were defined by the MDCSOC as a specific Target level of Revenue and Operating Income for each of the following: fiscal year 2018, fiscal year 2019 and fiscal year 2020. Up to one-third of the PSUs can be earned each year based upon actual performance levels achieved in that fiscal year. One half of the award earned each fiscal year is based upon the achievement of the two Performance Targets in that fiscal year, provided that a minimum level of Operating Income is achieved for that fiscal year. The actual award level for each fiscal year can range from 50% to 150% (for Revenue Target) or 75% to 200% (for Operating Income Target) of the target awards depending on actual performance levels achieved in each fiscal year compared to that year’s target. The non-cash stock-based compensation expense recorded for performance share unit awards for the fiscal years ended
June 30, 2018
was $165,000. As of
June 30, 2018
, the total remaining unrecognized compensation cost related to performance share unit awards is approximately $213,000. We expect to recognize this cost over a weighted average vesting period of 1.5 years.
50
Board of Directors Fees
Our Board of Directors’ fees are typically payable in cash on September 1, December 1, March 1, and June 1 of each fiscal year; however, under our 2004 Plan each director can elect to receive our stock in lieu of cash on a calendar year election. Each of our Directors elected stock for the calendar year of 2017 and cash for calendar year of 2018. We issued 29,527 shares to our directors and recorded expense of $257,000 related to the portion of our fiscal year 2018 that fell in calendar year 2017.
Available Shares
At
June 30, 2018
, the 2004 Plan had 883,229 shares available for future grants.
18.
Income Taxes
Income (loss) from our operations before income taxes for U.S. and foreign operations was as follows (in thousands):
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
U.S.
|
|
$
|
2,228
|
|
|
$
|
(732
|
)
|
|
$
|
(5,828
|
)
|
Foreign
|
|
|
2,261
|
|
|
|
1,994
|
|
|
|
(3,389
|
)
|
Total
|
|
$
|
4,489
|
|
|
$
|
1,262
|
|
|
$
|
(9,217
|
)
|
The income tax (provision) benefit reflected in the statement of income consists of the following (in thousands):
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Current (provision) benefit:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal, State & Other
|
|
$
|
(75
|
)
|
|
$
|
(127
|
)
|
|
$
|
(116
|
)
|
Foreign
|
|
|
(1,213
|
)
|
|
|
(727
|
)
|
|
|
(185
|
)
|
Deferred taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
308
|
|
|
|
—
|
|
|
|
(11,349
|
)
|
Foreign
|
|
|
207
|
|
|
|
(576
|
)
|
|
|
(1,246
|
)
|
Total (provision) benefit
|
|
$
|
(773
|
)
|
|
$
|
(1,430
|
)
|
|
$
|
(12,896
|
)
|
The components of deferred taxes were as follows (in thousands):
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Benefit of net operating losses
|
|
$
|
7,334
|
|
|
$
|
8,787
|
|
|
$
|
9,268
|
|
Tax credit carry-forwards
|
|
|
7,475
|
|
|
|
5,284
|
|
|
|
5,451
|
|
Deferred revenue
|
|
|
1,668
|
|
|
|
2,073
|
|
|
|
1,434
|
|
Impaired investment
|
|
|
677
|
|
|
|
1,054
|
|
|
|
1,060
|
|
Property and intangible assets
|
|
|
61
|
|
|
|
187
|
|
|
|
242
|
|
Other
|
|
|
1,885
|
|
|
|
2,161
|
|
|
|
3,029
|
|
Deferred tax asset
|
|
|
19,100
|
|
|
|
19,546
|
|
|
|
20,484
|
|
Valuation allowance
|
|
|
(17,845
|
)
|
|
|
(19,099
|
)
|
|
|
(19,453
|
)
|
Total deferred tax assets
|
|
|
1,255
|
|
|
|
447
|
|
|
|
1,031
|
|
Deferred tax liabilities - basis difference and amortization
|
|
|
(1,917
|
)
|
|
|
(1,623
|
)
|
|
|
(1,631
|
)
|
Net deferred taxes
|
|
$
|
(662
|
)
|
|
$
|
(1,176
|
)
|
|
$
|
(600
|
)
|
The reconciliation of income tax rate to effective tax rate was as follows (in thousands):
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Provision at U.S. statutory rate
|
|
|
28.1
|
%
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
Net effect of taxes on foreign activities
|
|
|
8.4
|
%
|
|
|
49.5
|
%
|
|
|
(5.9
|
%)
|
Tax effect of U.S. permanent differences
|
|
|
0.5
|
%
|
|
|
14.7
|
%
|
|
|
2.6
|
%
|
State taxes and other, net
|
|
|
0.2
|
%
|
|
|
4.9
|
%
|
|
|
(1.5
|
%)
|
Stock based compensation
|
|
|
1.3
|
%
|
|
|
56.9
|
%
|
|
|
0.0
|
%
|
Other
|
|
|
(6.2
|
%)
|
|
|
(1.3
|
%)
|
|
|
3.8
|
%
|
Valuation allowance
|
|
|
(15.1
|
%)
|
|
|
(45.6
|
%)
|
|
|
(172.9
|
%)
|
Effective tax rate
|
|
|
17.2
|
%
|
|
|
113.1
|
%
|
|
|
(139.9
|
%)
|
51
On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was enacted by the U.S. The Act implements comprehensive tax legislation which, among other changes, reduces the federal statutory corporate tax rate from
3
5
% to 21% and implements a territorial tax system that eliminates the ability to credit certain foreign taxes. Additionally, in December 2017, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which address
es how a company recognizes provisional amounts when a company does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the effect of the changes in the Tax Act. Th
e measurement period, as defined in SAB 118, ends when a company has obtained, prepared and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year.
As we have a June 30 fiscal year end, the lower income tax rates will be phased in, resulting in a blended rate for fiscal 2018 and a 21% rate for years thereafter. Based on the provisions of the Act, we re-measured our U.S. deferred tax assets and related valuation allowance at the date of enactment. The re-measurement of U.S. deferred tax assets and related valuation allowance at the lower enacted corporate tax rate resulted in a net change of zero.
Furthermore, the new Act repeals the Alternative Minimum Tax (“AMT”) on corporations. Any AMT credit carryforwards can be used to offset regular tax for any tax year and is refundable, subject to limitation in 2018 - 2021. With this change, we expect to be able to use or monetize the AMT credit in the next four years, and therefore, the valuation allowance recorded against the credit was removed. As a result, we recorded a tax benefit in the amount of $279,000 in the second quarter of fiscal 2018.
The Act also imposes a tax on the untaxed foreign earnings of foreign subsidiaries of U.S. companies by deeming those earnings to be repatriated (the “Transition Tax”). Generally, foreign earnings held in the form of cash and cash equivalents are taxed by the U.S. at a 15.5% rate and the remaining earnings are taxed at an 8% rate. The Transition Tax generally may be paid in installments over an eight-year period. At the date of enactment, we were not in a position to present either a final or provisional estimate with respect to the Transition Tax. As of June 30, we have estimated the impact of the Transition Tax by incorporating assumptions made based upon our current interpretation and analysis to-date of the Act and have determined that our foreign tax credits would completely offset any Transition Tax calculated, and therefore, we do not expect to make any cash payments related to the Transition Tax. The actual impact of the Act may differ from our estimates due to, among other things, further refinement of our calculations as allowed under SAB 118, changes in interpretations and assumptions we have made, guidance that may be issued and actions we may take as a result of the Act.
At June 30, 2018, we had net operating loss carry-forwards for U.S. federal income tax purposes of $25.8 million that expire in the years 2022 through 2036 and tax credit carry-forwards of $7.5 million of which $5.0 million expire in the years 2019 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 was recognized on July 1, 2017 in accordance with ASU 2016-09. A corresponding valuation allowance was also recorded.
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. We also have a deferred tax liability related to the basis difference in the Coord3 intangible assets acquired.
As of the end of our fiscal year 2016, we had been in a three-year cumulative loss position in the U.S., therefore, at that time, we determined that it was not more likely than not that any of our U.S. deferred tax assets would be realized as benefits in the future. Accordingly, we established a full valuation allowance against our U.S. net deferred tax assets as of June 30, 2016 and this valuation allowance remains at June 30, 2018. Additionally, during fiscal years 2016 and 2017, we established full valuation allowances against our Germany, Japan, Singapore and Brazil net deferred tax assets for similar reasons. While our U.S. and Germany locations had pre-tax income during fiscal year 2018, both are still in a three-year cumulative loss position as of June 30, 2018 and we have determined that it is not likely than not that any of our deferred tax assets, except for the U.S. AMT credit, will be realized as benefits in the future. The net change in the total valuation allowance for the fiscal years ended June 30, 2018, 2017 and 2016 was ($1,254,000), ($354,000), and $16,349,000, respectively.
On June 30, 2018 and 2017, we had $73,000 and $120,000 of unrecognized tax benefits that would affect the effective tax rate if recognized absent valuation considerations. 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, 2018, 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 2015 through 2018 remain open to examination by government tax authorities. For German income tax purposes, tax years 2014 through 2018 remain open to examination by government tax authorities. For our China income tax purposes, tax years 2015 through 2018 remain open to examination by government tax authorities generally.
The aggregate changes in the balance of unrecognized tax benefits were as follows (in thousands):
|
|
2018
|
|
Balance, at June 30, 2017
|
|
$
|
120
|
|
Increases for tax positions related to the current year
|
|
|
-
|
|
Decreases for tax positions related to the prior year
|
|
|
(47
|
)
|
Balance, at June 30, 2018
|
|
$
|
73
|
|
52
19.
Segment and Geographic Information
We manage our business under three operating segments: Americas, Europe and Asia. All of our operating segments rely on our core technologies and sell the same products primarily in the global automotive industry. The segments also possess similar economic characteristics, resulting in similar long-term expected financial performance. In addition, we sell to the same customers in all of our operating segments. Accordingly, our operating segments are aggregated into one reportable segment.
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. Sales and Long-lived assets, net by our geographical regions are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographical Regions
|
|
Americas
|
|
|
Europe (1)
|
|
|
Asia (2)
|
|
|
Consolidated
|
|
Twelve months ended June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
34,720
|
|
|
$
|
33,492
|
|
|
$
|
16,481
|
|
|
$
|
84,693
|
|
Long-lived assets, net
|
|
|
5,608
|
|
|
|
1,541
|
|
|
|
189
|
|
|
|
7,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve months ended June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
30,311
|
|
|
$
|
32,139
|
|
|
$
|
15,497
|
|
|
$
|
77,947
|
|
Long-lived assets, net
|
|
|
6,202
|
|
|
|
1,638
|
|
|
|
262
|
|
|
|
8,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
(1)
|
Our German subsidiary had net external sales of $23.2 million, $21.8 million and $19.7 million in the fiscal years ended June 30, 2018, 2017 and 2016, respectively. Long-lived assets, net of our German subsidiary were $173,000, $285,000 and $395,000 as of June 30, 2018, 2017 and 2016, respectively. Our Italian subsidiary had net external sales of $10.3 million, $10.3 million, and $11.4 in the fiscal years ended June 30, 2018, 2017 and 2016, respectively. Long-lived assets, net of our Italian subsidiary were $1,263,000, $1,245,000 and $1,201,000 as of June 30, 2018, 2017 and 2016, respectively.
|
(2)
|
Our Chinese subsidiary had net external sales of $14.0 million, $11.5 million and $11.8 million in the fiscal years ended June 30, 2018, 2017 and 2016, respectively. Long-lived assets, net of our Chinese subsidiary were $71,000, $165,000 and $295,000 as of June 30, 2018, 2017 and 2016, respectively.
|
We have three major product lines: Measurement Solutions, 3D Scanning Solutions and Value Added Services. Sales by our product lines are as follows (in thousands):
|
|
Fiscal Year Ended, June 30,
|
|
Product Lines
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Measurement Solutions
|
|
$
|
77,235
|
|
|
$
|
69,731
|
|
|
$
|
62,268
|
|
3D Scanning Solutions
|
|
|
2,729
|
|
|
|
5,490
|
|
|
|
3,936
|
|
Value Added Service
|
|
|
4,729
|
|
|
|
2,726
|
|
|
|
2,931
|
|
Total Net Sales
|
|
$
|
84,693
|
|
|
$
|
77,947
|
|
|
$
|
69,135
|
|
53
20.
Selected Quarterly Financial Data (Unaudited)
Selected unaudited quarterly financial data for the fiscal years ended June 30, 2018 and 2017 are as follows (in thousands, except per share amounts):
|
|
Quarter Ended
|
|
Fiscal Year 2018
|
|
9/30/2017
|
|
|
12/31/2017
|
|
|
3/31/2018
|
|
|
6/30/2018
|
|
Net Sales
|
|
$
|
19,269
|
|
|
$
|
20,433
|
|
|
$
|
21,397
|
|
|
$
|
23,594
|
|
Gross Profit
|
|
|
7,650
|
|
|
|
7,407
|
|
|
|
7,922
|
|
|
|
9,021
|
|
Net Income
|
|
|
1,558
|
|
|
|
366
|
|
|
|
1,020
|
|
|
|
772
|
|
Net Income Per Common Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
0.16
|
|
|
|
0.04
|
|
|
|
0.11
|
|
|
|
0.08
|
|
Diluted
|
|
|
0.16
|
|
|
|
0.04
|
|
|
|
0.11
|
|
|
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2017
|
|
9/30/2016
|
|
|
12/31/2016
|
|
|
3/31/2017
|
|
|
6/30/2017
|
|
Net Sales
|
|
$
|
17,520
|
|
|
$
|
21,751
|
|
|
$
|
16,325
|
|
|
$
|
22,351
|
|
Gross Profit
|
|
|
4,574
|
|
|
|
9,444
|
|
|
|
5,190
|
|
|
|
8,561
|
|
Net (Loss) Income
|
|
|
(2,355
|
)
|
|
|
2,524
|
|
|
|
(598
|
)
|
|
|
261
|
|
Net (Loss) Income Per Common Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
(0.25
|
)
|
|
|
0.27
|
|
|
|
(0.06
|
)
|
|
|
0.03
|
|
Diluted
|
|
|
(0.25
|
)
|
|
|
0.27
|
|
|
|
(0.06
|
)
|
|
|
0.03
|
|
54