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
The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers”, which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition, and requires entities to recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services.
We adopted ASC 606 as of July 1, 2018 using the modified retrospective transition method. The cumulative effect of initially applying the new standard was recorded as an adjustment to the opening balance of retained deficit within our Consolidated Balance Sheet. The adjustment to retained deficit was the result of changing the timing of our revenue for several performance obligations and the number of performance obligations in our contracts with multiple performance obligations, as well as ceasing the deferral of revenue on satisfied performance obligations for the portion of the sales price of the contract that is not payable until additional performance obligations are satisfied. The new revenue recognition and related guidance provides for certain practical expedients for companies to follow when implementing this guidance. We have elected to apply certain practical expedients including those that allow us to group certain contracts within each country as a separate portfolio, and those that do not require us to assess whether promised goods or services are performance obligations if they are immaterial in the context of the contract with the customer. The revenues associated with our Measurement Solutions and Value Added Services that were impacted beginning July 1, 2018 which were included in the modified transition method adjustment aggregated $3.8 million. The net impact on retained deficit associated with these revenues was an increase of $2,049,000. In accordance with the modified retrospective transition method, the historical information within the financial statements has not been restated and continues to be reported under the accounting standard in effect for those periods. As a result, we have disclosed the accounting policies in effect prior to July 1, 2018, as well as the policies applied starting July 1, 2018.
Periods prior to July 1, 2018
Revenue is recognized in accordance with ASC 605. 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.
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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.
Periods commencing July 1, 2018
Revenue is recognized when or as our customer obtains control of promised goods or services in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. To achieve this principle, we analyze our contracts under the following five steps:
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Identify the contract with the customer
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Identify the performance obligation(s) in the contract
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Determine the transaction price
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Allocate the transaction price to performance obligation(s) in the contract
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Recognize revenue when or as we satisfy a performance obligation
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We have contracts with multiple performance obligations in our Measurement Solutions product line such as: equipment, installation, labor support and/or training. Each performance obligation is distinct and we do not provide general rights of return for transferred goods and services. Accordingly, each performance obligation is considered a separate unit of accounting. Our Measurement Solutions are designed and configured to meet each customer’s specific requirements. Timing for the delivery of each performance obligation in the arrangement is primarily determined by the customer’s requirements. Delivery of all performance obligations in an order will typically occur over a three to 15-month period after the order is received. For the equipment performance obligation, we typically recognize revenue when we ship or when the equipment is received by our customer, depending on the specific terms of the contract with our customer. We have elected to treat shipping and handling costs as an activity necessary to fulfill the performance obligation to transfer product to the customer and not as a separate performance obligation. For the installation, labor support and training performance obligations, we generally recognize revenue over time as we perform because of the continuous transfer of control to the customer. Because control transfers over time, based on labor hours, revenue is recognized based on the extent of progress toward completion of the performance obligation. We do not have price protection agreements or requirements to buy back inventory. Our history demonstrates that sales returns have been insignificant.
The timing of revenue recognition, billings and cash collections results in “Billed receivables”, “Unbilled receivables” and “Deferred revenue” on our Consolidated Balance Sheets. Our Unbilled receivables and Deferred revenues are reported in a net position on a contract-by-contract basis at the end of each reporting period. In addition, we defer certain costs incurred to obtain a contract, primarily related to sales commissions.
We exercise judgment in connection with the determination of the amount of revenue to be recognized in each period. Such judgments include, but are not limited to, allocating consideration to each performance obligation in contracts with multiple performance obligations and determining the estimated selling price for each such performance obligation. Any material changes in these judgments could impact the timing of revenue recognition, which could have a material effect on our financial position and results of operations.
Research and Development
Costs incurred after technological feasibility for certain products are capitalized and 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.
Foreign Currency
The financial statements of our wholly-owned foreign subsidiaries are translated in accordance with the 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 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
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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 122,000 and 23,000 of common stock for the fiscal years ended June 30, 2019 and 2018 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 original 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, 2019, we had $4,585,000 in cash and cash equivalents of which $3,808,000 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.
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 receivables are principally from a small number of large customers. We perform ongoing credit evaluations of our customers.
Billed receivables, net – Billed receivables, net includes amounts billed and currently due from our customers and are generally due within 30 to 60 days of invoicing. Billed receivables are stated net of an allowance for doubtful accounts. Billed receivables 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 the billed receivable are past due, our previous loss history, our customers’ current ability to pay their outstanding balance due to us, the condition of the general economy and the industry as a whole. We write-off billed receivables when they become uncollectible and payments subsequently received on such receivables are credited to the allowance for doubtful accounts.
Unbilled receivables – Our unbilled receivables include unbilled amounts typically resulting from our Measurement Solutions as we recognize revenue when or as performance obligations are satisfied. Our unbilled receivable include the revenue amount that exceeds the amount billed to the customer, where the right to payment is not solely due to the passage of time. Amounts are stated at their net realizable value.
Deferred Commissions
Our incremental direct costs of obtaining a contract, which consist primarily of sales commissions, are deferred and amortized based on the timing of revenue recognition over the period of contract performance. As of June 30, 2019, capitalized commissions of $164,000 were included in “Other current assets” on our Consolidated Balance Sheet. Commission expense recognized during the twelve months ended June 30, 2019 was $969,000, and is included in “Selling, general and administrative expense” in our Consolidated Statement of Operations
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. Our short-term investments are recorded at fair value, which approximates cost. Upon adoption of ASU 2016-01 “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01)” effective July 1, 2018, changes in the fair value of our equity securities are recognized in net income. Prior to the adoption of ASU 2016-01, unrealized gains and losses on available-for-sale equity investments were recorded in other comprehensive income, and at each balance sheet date, we evaluated our investments for possible other-than-temporary impairment, which involved significant judgment. In making this judgment, we reviewed factors such as the length of time and extent to which fair value had 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 were charged as an impairment loss and recorded in earnings.
For equity securities that do not have readily determinable fair values such as our preferred stock investment, upon the adoption of ASU 2016-01, we measure the investment at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer.
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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Fair Value Measurements
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, 2019 and 2018. 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, 2019.
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. See Note 9, of the Notes to the Consolidated Financial Statements, “Fair Value Measurements” for further discussion.
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.
Intangible Assets
We acquired intangible assets consisting of a Trade Name, Customer/Distributor Relationships in addition to goodwill in connection with the acquisitions of Coord3 and NMS in the third quarter of fiscal 2015 which is considered our CMM reporting unit. 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. The amortization periods for customer/distributor relationships, trade name and software are five years, ten years and five years, respectively.
Impairment of Long-Lived Assets Subject to Amortization
Long-lived assets, such as property and equipment and definite-lived intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. In assessing long-lived assets for impairment, assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. If circumstances require a long-lived asset or asset group to be tested for possible impairment, we compare the undiscounted cash flows expected to be generated by that asset or asset group to its carrying amount. If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment charge is recognized to the extent that the carrying amount exceeds its fair value. Fair values of long-lived assets are determined through various techniques, such as applying expected present value calculations to the estimated future cash flows using assumptions a market participant would utilize, or through the use of a third-party independent appraiser or valuation specialist.
During the fourth quarter of fiscal 2019, due to the impairment indicators discussed in “Goodwill” below, we assessed whether the carrying amounts of our long-lived assets in the CMM reporting unit (the asset group) may not be recoverable and therefore may be impaired. To assess the recoverability, the undiscounted cash flows of the asset group were analyzed over a range of potential remaining useful lives with the customer relationships as the primary asset. The result was that the asset group carrying value exceeded the sum of the undiscounted cash flows. After a fair value analysis, we determined that our trade name and customer relationships were impaired. We recorded a non-cash impairment loss related to these definite-lived intangible assets of $1.4 million. See Note 7, of the Notes to the Consolidated Financial Statements, “Intangible Assets” for further discussion. There were no impairment indicators for other long-lived assets subject to amortization.
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Goodwill
Goodwill is not subject to amortization and is reviewed at least annually in the fourth quarter of each year using data as of March 31 of that year, or earlier if an event occurs or circumstances change and there is an indicator of impairment. The impairment test consists of comparing a reporting unit’s fair value to its carrying value. A reporting unit is defined as an operating segment or one level below an operating segment. Goodwill is recorded in our CMM reporting unit. A significant amount of judgment is involved in determining if an indicator of goodwill impairment has occurred. Such indicators may include, among others: a significant decline in expected future cash flows; a significant adverse change in legal factors or in the business climate; unanticipated competition; and the testing for recoverability of a significant asset group. Our goodwill impairment analysis also includes a comparison of the aggregate estimated fair value of all reporting units to our total market capitalization. Therefore, our stock may trade below our book value and a significant and sustained decline in our stock price and market capitalization could result in goodwill impairment charges.
Companies have the option to evaluate goodwill impairment based upon qualitative factors similar to the indicators described above. If it is determined that the estimated fair value of the reporting unit is more likely than not less than the carrying amount, including goodwill, a quantitative assessment is required. Otherwise, no further analysis is necessary.
In a quantitative assessment, the fair value of a reporting unit is determined and then compared to its carrying value. A reporting unit’s fair value is determined based upon consideration of various valuation methodologies, including the income approach and multiples of current and future earnings. In fiscal 2018, we adopted ASU 2017-04 Intangibles – Goodwill and Other; Simplifying the Test for Goodwill Impairment which removes Step 2 of the Goodwill impairment test. As a result, if the fair value of a reporting unit is less than its carrying value, a goodwill impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized cannot exceed the total amount of goodwill allocated to that reporting unit.
In the fourth quarter of fiscal 2019, we completed our annual goodwill impairment testing. The impairment test consisted of a quantitative assessment due to a decrease in our stock price in the fourth quarter 2019 and uncertainty with future revenue growth primarily due to companies postponing decisions about purchasing new capital goods such as CMMs. The estimated fair value for the CMM reporting unit was determined using the income approach and the market approach, both of which yielded similar fair values. With the income approach, fair value is determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. We use our internal forecasts to estimate future cash flows and include an estimate of long-term future growth rates based on our most recent views of the long-term outlook for the business. Other significant assumptions and estimates used in the income approach include terminal growth rates, future estimates of capital expenditures, and changes in future working capital requirements. Such projections contain management’s best estimates of economic and market conditions over the projected period. The discount rate is sensitive to changes in interest rates and other market rates in place at the time the assessment is performed. The discount rate used in the annual valuation was 16.0% for CMM. With the market approach, fair value is determined based on applying selected pricing multiples to CMM’s historical and expected earnings. The pricing multiples are derived based on the observed pricing multiples for identified comparable publicly traded companies.
Based on the results of the 2019 annual impairment test, the fair value of our CMM reporting unit was less than its carrying value. As a result, we recorded a non-cash goodwill impairment charge of $6.0 million due to the lack of projected growth in the sales of our Off-Line Measurement Solutions. This impairment is not deductible for income tax purposes. The impairment loss is recorded in “Severance, impairment and other charges” on our Consolidated Statements of Operations. After the impairment charge, the adjusted carrying value of CMM’s goodwill was $1.8 million at June 30, 2019 compared to $8.0 million as of June 30, 2018. Goodwill is recorded within the CMM reporting unit and foreign currency effects will impact the balance of goodwill in future periods. Future changes in our estimates or assumptions or in interest rates could have a significant impact on the estimated fair value and result in an additional goodwill impairment charge that could be material to our consolidated financial statements.
Deferred Revenue
Deferred revenue is recognized when billings are issued or deposits received in advance of our satisfaction of specific performance obligations, primarily under our Measurement Solutions.
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 20, “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.
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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.
New Accounting Pronouncements
In February 2016, the FASB issued Accounting Standards Update No. 2016-02 Leases (ASU 2016-02), 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. 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. A modified retrospective transition approach was originally 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 July 2018, the FASB issued ASU 2018-11 Leases (Topic 842): Targeted Improvements, which created an optional transition method to adopt ASU 2016-02. The optional method is a modified retrospective approach whereby an entity can initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to their opening balance of retained earnings. In March 2019, the FASB issued ASU 2019-01 Leases (Topic 842): Codification Improvements, which clarified three specific issues related to Topic 842. We have performed a detailed analysis of ASU 2016-02 (as amended) and have noted that our leases under ASC 840 substantially all meet the definition of a lease under ASC 842. Furthermore, we have determined that we will use the modified retrospective approach as our transition method. We anticipate that a ROU asset and lease liability will be recorded at July 1, 2019 between the amounts of $4.0 million to $4.5 million. We have also implemented new business processes and internal controls in order to properly account for leases under the new standard. Finally, our disclosure will be enhanced as we provide the required level of detail related to our leasing activities.
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. In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments – Credit Losses (ASU 2018-19). ASU 2018-19 clarifies that receivables arising from operating leases are not within the scope of ASU 2016-13. In May 2019, the FASB issued ASU 2019-05 Targeted Transition Relief to ASU 2016-13: Financial Instruments – Credit Losses. ASU 2016-13, as amended, is effective for fiscal years beginning after December 15, 2019 including interim periods within those fiscal years, with early adoption permitted. We do not expect the impact of the adoption of ASU 2016-13 to be material on our consolidated financial statements.
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 to 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. For the amendments that were effective upon issuance of the Update, there was no material impact to our consolidated financial statements or disclosures. We are currently evaluating the impact of the remaining amendments of ASU 2018-09 on our consolidated financial statements and disclosures.
In August 2018, the FASB issued Accounting Standards Update No. 2018-13 – Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirement for Fair Value Measurement (ASU 2018-13), which changes the disclosures related to, among other aspects of fair value, unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurement and the narrative description of measurement uncertainty. ASU 2018-13 is effective for Perceptron on July 1, 2020. We are currently evaluating the impact of the adoption of ASU 2018-13 on our disclosures.
In August 2018, the FASB issued Accounting Standards Update No. 2018-15 – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract (ASU 2018-15), which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing costs incurred to develop or obtain inter-use software. ASU 2018-15 is effective for Perceptron on July 1, 2020. We are currently evaluating the impact of the adoption of ASU 2018-15 on our consolidated financial statements and disclosures.
Recently Adopted Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so,
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more judgment and estimates may be required within the revenue recognition process than were required under previous 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 implementation of certain narrow topics within ASU 2014-09. Finally, in December 2016, the FASB issued several technical corrections and improvements, which clarified the previously issued standards and corrected unintended application of previous guidance. These standards (collectively “ASC 606”) were 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 modified retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures).
We adopted the new standard effective July 1, 2018 using the modified retrospective transition method only for the contracts that were open as of June 30, 2018 with the cumulative effect recorded to the opening balance of retained earnings, as adjusted, as of the date of adoption. Results for reporting periods beginning July 1, 2018 are presented under ASC 606, while prior period amounts were not adjusted and continue to be reported in accordance with our historic accounting under ASC 605. Under ASC 606, certain of our services are recognized over time instead of at a point in time upon completion of those services as recognized under superseded guidance. Additionally, for our contracts with multiple performance obligations in which the payment terms do not correspond with performance, we are no longer required to limit the revenue recognized for satisfied performance obligations to the amount for which payment is not delayed until the satisfaction of additional performance obligations. Instead, we record revenue for each of the performance obligations as control transfers to the customer, which generally accelerates the revenue recognized for such contracts compared to revenue recognized under superseded guidance. We also capitalize amounts related to certain commissions paid which qualify as costs to obtain a contract. The revenues associated with our Measurement Solutions and Value Added Services that were impacted beginning at July 1, 2018, which were included in the modified transition method adjustment, aggregated to $3.8 million. The net impact on retained earnings, as adjusted, associated with these revenues was an increase of $2,049,000. We have also implemented new business processes and internal controls in order to recognize revenue in accordance with the new standard.
The following table summarizes the cumulative effect of the changes to our Consolidated Balance Sheet as of July 1, 2018 from the adoption of ASC 606 (in thousands):
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Opening
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At June 30,
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ASC 606
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Balance at
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2018
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Adjustments
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July 1, 2018
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(As Revised)
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(As Revised)
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Assets
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|
|
|
|
|
|
|
|
|
|
|
Unbilled receivables
|
|
$
|
-
|
|
|
$
|
1,864
|
|
|
$
|
1,864
|
|
Inventories
|
|
|
13,829
|
|
|
|
(1,350
|
)
|
|
|
12,479
|
|
Other current assets
|
|
|
1,327
|
|
|
|
49
|
|
|
|
1,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
|
9,430
|
|
|
|
(1,976
|
)
|
|
|
7,454
|
|
Long-Term Deferred Income Tax Liability
|
|
|
638
|
|
|
|
490
|
|
|
|
1,128
|
|
Retained earnings
|
|
|
567
|
|
|
|
2,049
|
|
|
|
2,616
|
|
Under the modified retrospective method of adoption, we are required to disclose in the first year of adoption the hypothetical impact to our financial statements as if we had continued to follow our accounting policies under ASC 605 for the period. See Note 3, of the Notes to the Consolidated Financial Statements, “Revenue from Contracts with Customers” for a summary of the impact as of and for the twelve months ended June 30, 2019.
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. We adopted both ASU 2016-01 and ASU 2018-03 on July 1, 2018. Adoption of these standards did not have a material impact on our consolidated financial statements or disclosures.
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 made eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. We adopted ASU 2016-15 on July 1, 2018. Adoption of this standard did not have a material impact on our Consolidated Statement of Cash Flow.
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. We adopted ASU 2016-16 on July 1, 2018. Adoption of this standard did not have a material impact on our consolidated financial statements.
37
In November 2016, the FASB issued ASU 2016-18, which requires a company to present their Statement of Cash Flow 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. We adopted ASU 2016-18 on July 1, 2018. 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 part of “Short-term investments” on our Consolidated Balance Sheet. The activity in this account is no longer 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. We adopted ASU 2017-01 on July 1, 2018. Adoption of this standard did not have a material impact on our consolidated financial statements.
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. We adopted ASU 2017-05 on July 1, 2018. Adoption of this standard did not have a material impact on our consolidated financial statements.
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 stock-based payment award. We adopted ASU 2017-09 on July 1, 2018. Adoption of this standard did not have a material impact on our consolidated financial statements.
Revision of Previously Issued Financial Statements
During the fourth quarter of fiscal 2019, an error was identified related to the accounting for our deferred tax liabilities associated with certain amortizable intangible assets acquired in 2015. The error relates to not appropriately reducing the associated deferred tax liabilities for the tax effect of amortization on the intangible assets since 2016. The error was immaterial to our previously issued financial statements, but the cumulative correction would have had a material effect on the 2019 financial statements. Accordingly, the results for the years ended June 30, 2018 and 2017 have been adjusted to incorporate the revised amounts, where applicable.
38
The following table summarizes the effect of this revision of our Consolidated Balance Sheets as of June 30, 2018 and 2017, (in thousands):
|
Year ended June 30, 2018
|
|
|
Year ended June 30, 2017
|
|
|
In Thousands
|
|
|
In Thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Previously
|
|
|
|
|
As
|
|
|
As Previously
|
|
|
|
|
As
|
|
|
Reported
|
|
Adjustment
|
|
Revised
|
|
|
Reported
|
|
Adjustment
|
|
Revised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
$
|
74,204
|
|
$
|
-
|
|
$
|
74,204
|
|
|
$
|
70,615
|
|
$
|
-
|
|
$
|
70,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
25,838
|
|
|
-
|
|
|
25,838
|
|
|
|
28,155
|
|
|
-
|
|
|
28,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Deferred Taxes
|
|
1,717
|
|
|
(1,079
|
)
|
|
638
|
|
|
|
871
|
|
|
(820
|
)
|
|
51
|
|
Long-Term Taxes Payable and Other Long-Term Liabilities
|
|
1,051
|
|
|
|
|
|
1,051
|
|
|
|
1,754
|
|
|
-
|
|
|
1,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
28,606
|
|
|
(1,079
|
)
|
|
27,527
|
|
|
|
30,780
|
|
|
(820
|
)
|
|
29,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock - no par value
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Common stock, $0.01 par value
|
|
96
|
|
|
-
|
|
|
96
|
|
|
|
94
|
|
|
-
|
|
|
94
|
|
Accumulated other comprehensive income (loss)
|
|
(2,098
|
)
|
|
2
|
|
|
(2,096
|
)
|
|
|
(2,721
|
)
|
|
-
|
|
|
(2,721
|
)
|
Additional paid-in capital
|
|
48,110
|
|
|
-
|
|
|
48,110
|
|
|
|
46,688
|
|
|
-
|
|
|
46,688
|
|
Retained (deficit) earnings
|
|
(510
|
)
|
|
1,077
|
|
|
567
|
|
|
|
(4,226
|
)
|
|
820
|
|
|
(3,406
|
)
|
Total shareholders' equity
|
|
45,598
|
|
|
1,079
|
|
|
46,677
|
|
|
|
39,835
|
|
|
820
|
|
|
40,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders' Equity
|
$
|
74,204
|
|
$
|
-
|
|
$
|
74,204
|
|
|
$
|
70,615
|
|
$
|
-
|
|
$
|
70,615
|
|
39
The following table summarizes the effect of this revision of our Consolidated Statement of Operations for the twelve months ended June 30, 2018 and 2017, (in thousands):
|
|
Year ended June 30, 2018
|
|
|
Year ended June 30, 2017
|
|
|
|
(In Thousands Except Per Share Amounts)
|
|
|
(In Thousands Except Per Share Amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Previously
|
|
|
|
|
As
|
|
|
As Previously
|
|
|
|
|
As
|
|
|
|
Reported
|
|
Adjustment
|
|
Revised
|
|
|
Reported
|
|
Adjustment
|
|
Revised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
$
|
84,693
|
|
$
|
-
|
|
$
|
84,693
|
|
|
$
|
77,947
|
|
$
|
-
|
|
$
|
77,947
|
|
Cost of Sales
|
|
|
52,693
|
|
|
-
|
|
|
52,693
|
|
|
|
50,178
|
|
|
-
|
|
|
50,178
|
|
Gross Profit
|
|
|
32,000
|
|
|
-
|
|
|
32,000
|
|
|
|
27,769
|
|
|
-
|
|
|
27,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
27,052
|
|
|
-
|
|
|
27,052
|
|
|
|
25,950
|
|
|
-
|
|
|
25,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
|
4,948
|
|
|
-
|
|
|
4,948
|
|
|
|
1,819
|
|
|
-
|
|
|
1,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income and (Expense)
|
|
|
(459
|
)
|
|
-
|
|
|
(459
|
)
|
|
|
(557
|
)
|
|
-
|
|
|
(557
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes
|
|
|
4,489
|
|
|
-
|
|
|
4,489
|
|
|
|
1,262
|
|
|
-
|
|
|
1,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Tax Benefit (Expense)
|
|
|
(773
|
)
|
|
257
|
|
|
(516
|
)
|
|
|
(1,430
|
)
|
|
253
|
|
|
(1,177
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
3,716
|
|
$
|
257
|
|
$
|
3,973
|
|
|
$
|
(168
|
)
|
$
|
253
|
|
$
|
85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Per Common Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.39
|
|
$
|
0.03
|
|
$
|
0.42
|
|
|
$
|
(0.02
|
)
|
$
|
0.03
|
|
$
|
0.01
|
|
Diluted
|
|
$
|
0.39
|
|
$
|
0.02
|
|
$
|
0.41
|
|
|
$
|
(0.02
|
)
|
$
|
0.03
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
9,469
|
|
|
-
|
|
|
9,469
|
|
|
|
9,382
|
|
|
-
|
|
|
9,382
|
|
Dilutive effect of stock options
|
|
|
110
|
|
|
-
|
|
|
110
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Diluted
|
|
|
9,579
|
|
|
-
|
|
|
9,579
|
|
|
|
9,382
|
|
|
-
|
|
|
9,382
|
|
As a result of the above revisions, Total Comprehensive Income (Loss) was increased from $4,339 to $4,598 for the fiscal year ended June 30, 2018 and from $331 to $584 for the fiscal year ended June 30, 2017.
The consolidated statements of cash flows are not presented because there is no impact on total cash flows from operating activities, investing activities and financing activities. Certain components of net cash provided by operating activities changed, as caused by the revision, but the net change amounted to zero for the fiscal year ended June 30, 2018.
2.Information About Major Customers
Our sales efforts for in-line and near-line products are led by account teams that focus on automotive Original Equipment Manufacturers. 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 2019 and 2018, approximately 32% and 41%, 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 2019 and, 2018, approximately 9% and 7%, 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, 2019 and 2018, direct sales to Volkswagen Group accounted for approximately 13% and 15%, respectively, and direct sales to General Motors Company accounted for approximately 11% and 17%, respectively of our Net Sales.
3.Revenue from Contracts with Customers
40
Disaggregated Revenue
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 substantially the same customers in all of our operating segments. Accordingly, our operating segments are aggregated into one reportable segment.
See Note 21, of the Notes to the Consolidated Financial Statements, “Segment and Geographic Information” for revenue by geography and product line.
We have three major product lines: Measurement Solutions, 3D Scanning Solutions and Value Added Services.
Our revenues can be disaggregated between two categories (1) goods transferred at a point in time, which typically includes the equipment performance obligation of our Measurement Solutions and contracts that include a single performance obligation and (2) services transferred over time, which include installation, labor support and training performance obligations.
The following table summarizes these two categories for the twelve months ended June 30, 2019 (in thousands):
|
|
Twelve Months Ended
|
|
Timing of Revenue Recognition
|
|
June 30, 2019
|
|
Goods transferred at a point of time
|
|
$
|
57,784
|
|
Services transferred over time
|
|
|
19,038
|
|
Total Net Sales
|
|
$
|
76,822
|
|
Remaining Performance Obligations
The estimated recognition of our remaining unsatisfied performance obligations beyond one year is as follows (in thousands):
Years Ending June 30,
|
|
Amount
|
|
2021
|
|
$
|
780
|
|
2022
|
|
|
114
|
|
2023
|
|
|
-
|
|
2024
|
|
|
-
|
|
after 2024
|
|
|
-
|
|
Total
|
|
$
|
894
|
|
Contract Balances
Current balances of our contract balances are as follows (in thousands):
Balance Sheet Account
|
|
June 30, 2019
|
|
|
July 1, 2018
|
|
|
Increase / (Decrease)
|
|
Unbilled receivables
|
|
$
|
5,394
|
|
|
$
|
1,864
|
|
|
$
|
3,530
|
|
Deferred revenue
|
|
|
(6,649
|
)
|
|
|
(7,454
|
)
|
|
|
805
|
|
Net Unbilled receivables / (Deferred revenue)
|
|
$
|
(1,255
|
)
|
|
$
|
(5,590
|
)
|
|
$
|
4,335
|
|
The change in our net Unbilled receivables / (Deferred revenue) from July 1, 2018 to June 30, 2019 was primarily due to the amount of revenue recognized as we satisfied performance obligations during the twelve months ended June 30, 2019, partially offset by the amount and timing of invoicing during that same period related to our Measurement Solutions and 3D Scanning Solutions. During the twelve months ended June 30, 2019, we recognized revenue of $5,454,000 that was included in “Deferred revenue” at July 1, 2018.
41
Financial Statement Impact of Adopting ASC 606
The following table summarizes the cumulative effect of the changes to our unaudited Consolidated Balance Sheet as of June 30, 2019 from the adoption of ASC 606 (in thousands, except per share amount):
|
|
As reported
|
|
|
|
|
|
|
Balances
|
|
|
|
June 30,
|
|
|
ASC 606
|
|
|
without adoption
|
|
|
|
2019
|
|
|
Adjustments
|
|
|
of ASC 606
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
4,585
|
|
|
$
|
-
|
|
|
$
|
4,585
|
|
Short-term investments
|
|
|
1,431
|
|
|
|
|
|
|
|
1,431
|
|
Receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
Billed receivables, net
|
|
|
27,449
|
|
|
|
-
|
|
|
|
27,449
|
|
Unbilled receivables, net
|
|
|
5,394
|
|
|
|
(5,394
|
)
|
|
|
-
|
|
Other receivables
|
|
|
200
|
|
|
|
-
|
|
|
|
200
|
|
Inventories, net
|
|
|
10,810
|
|
|
|
3,970
|
|
|
|
14,780
|
|
Other current assets
|
|
|
1,529
|
|
|
|
(165
|
)
|
|
|
1,364
|
|
Total current assets
|
|
|
51,398
|
|
|
|
(1,589
|
)
|
|
|
49,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and Equipment, Net
|
|
|
6,538
|
|
|
|
-
|
|
|
|
6,538
|
|
Goodwill
|
|
|
1,741
|
|
|
|
-
|
|
|
|
1,741
|
|
Intangible assets, Net
|
|
|
1,816
|
|
|
|
-
|
|
|
|
1,816
|
|
Long-Term Investment
|
|
|
725
|
|
|
|
-
|
|
|
|
725
|
|
Long-Term Deferred Income Tax Assets
|
|
|
620
|
|
|
|
333
|
|
|
|
953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
62,838
|
|
|
$
|
(1,256
|
)
|
|
$
|
61,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Line of credit and short-term notes payable
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Accounts payable
|
|
|
7,397
|
|
|
|
-
|
|
|
|
7,397
|
|
Accrued liabilities and expenses
|
|
|
3,609
|
|
|
|
-
|
|
|
|
3,609
|
|
Accrued compensation
|
|
|
1,646
|
|
|
|
-
|
|
|
|
1,646
|
|
Current portion of taxes payable
|
|
|
320
|
|
|
|
-
|
|
|
|
320
|
|
Income taxes payable
|
|
|
536
|
|
|
|
-
|
|
|
|
536
|
|
Reserves for restructuring and other charges
|
|
|
44
|
|
|
|
-
|
|
|
|
44
|
|
Deferred revenue
|
|
|
6,649
|
|
|
|
2,489
|
|
|
|
9,138
|
|
Total current liabilities
|
|
|
20,201
|
|
|
|
2,489
|
|
|
|
22,690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Taxes Payable
|
|
|
114
|
|
|
|
-
|
|
|
|
114
|
|
Long-Term Deferred Income Tax Liability
|
|
|
41
|
|
|
|
-
|
|
|
|
41
|
|
Other Long-Term Liabilities
|
|
|
556
|
|
|
|
-
|
|
|
|
556
|
|
Total Liabilities
|
|
$
|
20,912
|
|
|
$
|
2,489
|
|
|
$
|
23,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Common stock
|
|
|
97
|
|
|
|
-
|
|
|
|
97
|
|
Accumulated other comprehensive loss
|
|
|
(3,079
|
)
|
|
|
-
|
|
|
|
(3,079
|
)
|
Additional paid-in capital
|
|
|
49,083
|
|
|
|
-
|
|
|
|
49,083
|
|
Retained deficit
|
|
|
(4,175
|
)
|
|
|
(3,745
|
)
|
|
|
(7,920
|
)
|
Total Shareholders' Equity
|
|
$
|
41,926
|
|
|
$
|
(3,745
|
)
|
|
$
|
38,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders' Equity
|
|
$
|
62,838
|
|
|
$
|
(1,256
|
)
|
|
$
|
61,582
|
|
42
The following table summarizes the effect on our unaudited Consolidated Statement of Operations for the twelve months ended June 30, 2019 of adopting ASC 606 (in thousands):
|
|
As reported
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended
|
|
|
ASC 606
|
|
|
Balances without
|
|
|
|
June 30, 2019
|
|
|
Adjustments
|
|
|
adoption of ASC 606
|
|
Net Sales
|
|
$
|
76,822
|
|
|
$
|
(4,043
|
)
|
|
$
|
72,779
|
|
Cost of Sales
|
|
|
49,630
|
|
|
|
(2,506
|
)
|
|
|
47,124
|
|
Gross Profit
|
|
|
27,192
|
|
|
|
(1,537
|
)
|
|
|
25,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
18,980
|
|
|
|
2
|
|
|
|
18,982
|
|
Engineering, research and development
|
|
|
8,040
|
|
|
|
-
|
|
|
|
8,040
|
|
Severance, impairment and other charges
|
|
|
6,930
|
|
|
|
-
|
|
|
|
6,930
|
|
Total operating expenses
|
|
|
33,950
|
|
|
|
2
|
|
|
|
33,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (Loss) Income
|
|
|
(6,758
|
)
|
|
|
(1,539
|
)
|
|
|
(8,297
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income and (Expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(252
|
)
|
|
|
-
|
|
|
|
(252
|
)
|
Foreign currency loss, net
|
|
|
(90
|
)
|
|
|
-
|
|
|
|
(90
|
)
|
Other income (expenses), net
|
|
|
97
|
|
|
|
-
|
|
|
|
97
|
|
Total other income and (expenses)
|
|
|
(245
|
)
|
|
|
-
|
|
|
|
(245
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Income Before Income Taxes
|
|
|
(7,003
|
)
|
|
|
(1,539
|
)
|
|
|
(8,542
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Tax (Expense) Benefit
|
|
|
212
|
|
|
|
(157
|
)
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (Loss) Income
|
|
$
|
(6,791
|
)
|
|
$
|
(1,696
|
)
|
|
$
|
(8,487
|
)
|
4.Allowance for Doubtful Accounts
Changes in our allowance for doubtful accounts are as follows (in thousands):
|
|
Beginning
|
|
|
|
|
|
|
|
|
|
|
Ending
|
|
|
|
Balance
|
|
|
Expenses
|
|
|
Charge-offs
|
|
|
Balance
|
|
Fiscal year ended June 30, 2019
|
|
$
|
404
|
|
|
$
|
219
|
|
|
$
|
(82
|
)
|
|
$
|
541
|
|
Fiscal year ended June 30, 2018
|
|
$
|
253
|
|
|
$
|
195
|
|
|
$
|
(44
|
)
|
|
$
|
404
|
|
Fiscal year ended June 30, 2017
|
|
$
|
269
|
|
|
$
|
22
|
|
|
$
|
(38
|
)
|
|
$
|
253
|
|
5.Inventory
Inventory, net of reserves of $1,778,000 and $2,115,000 at June 30, 2019 and June 30, 2018, respectively, is comprised of the following (in thousands):
|
|
June 30,
2019
|
|
|
June 30,
2018
|
|
Component parts
|
|
$
|
5,229
|
|
|
$
|
5,156
|
|
Work in process
|
|
|
1,383
|
|
|
|
3,525
|
|
Finished goods
|
|
|
4,198
|
|
|
|
5,148
|
|
Total
|
|
$
|
10,810
|
|
|
$
|
13,829
|
|
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, 2019
|
|
$
|
2,115
|
|
|
$
|
204
|
|
|
|
(541
|
)
|
|
$
|
1,778
|
|
Fiscal year ended June 30, 2018
|
|
$
|
1,918
|
|
|
$
|
785
|
|
|
$
|
(588
|
)
|
|
$
|
2,115
|
|
Fiscal year ended June 30, 2017
|
|
$
|
1,608
|
|
|
$
|
375
|
|
|
$
|
(65
|
)
|
|
$
|
1,918
|
|
43
6.Goodwill
Our goodwill balance as of June 30, 2019 and 2018 is as follows (in thousands):
|
|
2019
|
|
|
2018
|
|
Balance at beginning of year
|
|
$
|
7,985
|
|
|
$
|
7,793
|
|
Impairment
|
|
|
(6,020
|
)
|
|
|
-
|
|
Impact of foreign currency
|
|
|
(224
|
)
|
|
|
192
|
|
Balance at end of year
|
|
$
|
1,741
|
|
|
$
|
7,985
|
|
Based on the results of the 2019 annual impairment test, the fair value of our CMM reporting unit was less than its carrying value. As a result, we recorded a non-cash goodwill impairment charge of $6.0 million due to the lack of projected revenue growth in the sales of our Off-Line Measurement Solutions. The lack of growth in the sales of our Off-Line Measurement Solutions is primarily due to companies postponing decisions about purchasing new capital goods such as CMMs. This impairment is not deductible for income tax purposes. The impairment loss is recorded in “Severance, impairment and other charges” on our Consolidated Statements of Operations. After the impairment charge, the adjusted carrying value of CMM’s goodwill was $1.8 million as of June 30, 2019 compared to $8.0 million as of June 30, 2018.
7.Intangible Assets
Our other intangible assets as of June 30, 2019 and 2018 are as follows (in thousands):
|
|
June 30, 2019
|
|
|
June 30, 2018
|
|
|
|
Gross
|
|
|
|
|
|
|
Impact of
|
|
|
|
|
|
|
Net
|
|
|
Gross
|
|
|
|
|
|
|
Net
|
|
|
|
Carrying
|
|
|
Impairments
|
|
|
foreign
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
Amount
|
|
|
|
|
|
|
currency
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
Customer/Distributor Relationships
|
|
$
|
3,249
|
|
|
$
|
(589
|
)
|
|
$
|
(7
|
)
|
|
$
|
(2,653
|
)
|
|
$
|
-
|
|
|
$
|
3,329
|
|
|
$
|
(2,219
|
)
|
|
$
|
1,110
|
|
Trade Name
|
|
|
2,523
|
|
|
|
(795
|
)
|
|
|
(8
|
)
|
|
|
(1,059
|
)
|
|
|
661
|
|
|
|
2,586
|
|
|
|
(862
|
)
|
|
|
1,724
|
|
Software
|
|
|
1,902
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(747
|
)
|
|
|
1,155
|
|
|
|
1,490
|
|
|
|
(504
|
)
|
|
|
986
|
|
Other
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
124
|
|
|
|
(124
|
)
|
|
|
-
|
|
Total
|
|
$
|
7,674
|
|
|
$
|
(1,384
|
)
|
|
$
|
(15
|
)
|
|
$
|
(4,459
|
)
|
|
$
|
1,816
|
|
|
$
|
7,529
|
|
|
$
|
(3,709
|
)
|
|
$
|
3,820
|
|
In the fourth quarter of fiscal 2019, due to impairment indicators, we assessed whether the carrying amounts of our long-lived assets in the CMM reporting unit (asset group) may not be recoverable and therefore may be impaired. To assess the recoverability, the undiscounted cash flows of the asset group were analyzed over a range of potential remaining useful lives with the customer relationships as the primary asset. The result was that the asset group carrying value exceeded the sum of the undiscounted cash flows. After a fair value analysis, we determined our trade name and customer relationships were not recoverable and were impaired. As a result, we recorded a non-cash definite-lived asset impairment loss of $0.6 million and $0.8 million, respectively, for the Customer/Distributor Relationship and Trade Name intangible assets, which is recorded in “Severance, impairment and other charges” on our Consolidated Statement of Operations. We also reviewed the remaining useful life of our Trade Name and determined that no significant change was necessary.
The impairment was determined by comparing the fair value of each of the intangible assets to their respective carrying value. The fair value of the trade name was determined using the relief from royalty method and the fair value of the customer relationships was determined using the income approach.
Amortization expense for the fiscal years ended June 30, 2019 and 2018 was $956,000 and $1,168,000, respectively.
The estimated amortization of the remaining intangible assets by year is as follows (in thousands):
Years Ending June 30,
|
|
Amount
|
|
2020
|
|
|
344
|
|
2021
|
|
|
352
|
|
2022
|
|
|
388
|
|
2023
|
|
|
354
|
|
2024
|
|
|
300
|
|
after 2024
|
|
|
78
|
|
|
|
$
|
1,816
|
|
Collectively, the weighted average amortization period of intangible assets subject to amortization is approximately 5.3 years. The intangible assets, except for software, are amortized over the period of economic benefit or on a straight-line basis. Software is amortized based on forecasted utilization over the economic life of the software program.
44
8.Short-Term and Long-Term Investments
As of June 30, 2019, and 2018, 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, 2019, and June 30, 2018 we had short-term bank guarantees of $258,000 and $166,000, respectively.
At June 30, 2019, 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 investment does not have a readily determinable fair value. Upon the adoption of ASU 2016-01, the preferred stock investment is recorded at $725,000 after consideration of impairment charges recorded in fiscal 2008 and 2009. In fiscal 2019, there were no changes to the carrying value of the investment resulting from observable price changes in orderly transactions for an identical or similar investment in the issuer.
The following table presents our Short-Term and Long-Term Investments by category at June 30, 2019 and 2018 (in thousands):
|
|
June 30, 2019
|
|
Short-Term Investments
|
|
Cost
|
|
|
Fair Value or
Carrying Value
|
|
Bank Guarantees
|
|
$
|
258
|
|
|
$
|
258
|
|
Mutual Funds
|
|
|
-
|
|
|
|
-
|
|
Time/Fixed Deposits
|
|
|
1,173
|
|
|
|
1,173
|
|
Total Short-Term Investments
|
|
$
|
1,431
|
|
|
$
|
1,431
|
|
|
|
|
|
|
|
|
|
|
Long-Term Investments
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
$
|
3,700
|
|
|
$
|
725
|
|
Total Long-Term Investments
|
|
$
|
3,700
|
|
|
$
|
725
|
|
|
|
|
|
|
|
|
|
|
Total Investments
|
|
$
|
5,131
|
|
|
$
|
2,156
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
9.Fair Value Measurements
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, 2019.
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:
|
(1)
|
Level 1 – Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities.
|
|
(2)
|
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.
|
|
(3)
|
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.
|
45
ASC 820 requires the use of observable market data if such data is available without undue cost and effort.
The following table presents our investments at June 30, 2019 and 2018 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, 2019
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Mutual funds
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Time/Fixed Deposits and Bank Guarantees
|
|
|
1,431
|
|
|
|
-
|
|
|
|
1,431
|
|
|
|
-
|
|
Total
|
|
$
|
1,431
|
|
|
$
|
-
|
|
|
$
|
1,431
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
June 30, 2018
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Mutual funds
|
|
$
|
23
|
|
|
$
|
23
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Time/Fixed Deposits and Bank Guarantees
|
|
|
854
|
|
|
|
-
|
|
|
|
854
|
|
|
|
-
|
|
Total
|
|
$
|
877
|
|
|
$
|
23
|
|
|
$
|
854
|
|
|
$
|
-
|
|
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 year 2018, we did not record any other-than-temporary impairments on our financial assets required to be measured on a recurring basis.
We also measure certain assets and liabilities at fair value on a nonrecurring basis. These assets are tested for impairment when events or circumstances occur which may indicate that the derived fair value is below carrying cost or on an annual basis in accordance with applicable GAAP. For these assets, we do not periodically adjust carrying value fair value except in the event of an impairment. The fair value of assets and liabilities measured on a nonrecurring basis are classified in the fair value hierarchy in the table below (in thousands):
Description
|
|
June 30, 2019
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Goodwill
|
|
$
|
1,741
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,741
|
|
Trade Name
|
|
|
661
|
|
|
|
-
|
|
|
|
-
|
|
|
|
661
|
|
Total
|
|
$
|
2,402
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based on the results of the 2019 annual impairment test, the fair value of our CMM reporting unit was less than its carrying value. As a result we recorded a non-cash goodwill impairment charge of $6.0 million in the CMM reporting unit, primarily due to the lack of growth in the sales of our off-line product line, principally from the on-going trade war as companies are postponing decisions about purchasing new capital goods such as CMMs. This impairment is not deductible for income tax purposes. The impairment loss is recorded in “Severance, impairment and other charges” on our Consolidated Statements of Operations. After the impairment charge, the adjusted carrying value of CMM’s goodwill was $1.8 million as of June 30, 2019 compared to $8.0 million as of June 30, 2018.
The fair value of goodwill was determined using a combination of the income approach and the market approach. The fair value of the Trade Name was determined using the relief from royalty method. In addition, as described in Note 7 – “Intangible Assets Subject to Amortization”, the Company also fully impaired its Customer Relationships, the fair value of which was determined using the income approach.
There were no assets or liabilities measured at fair value on a non-recurring basis at June 30, 2018.
10.Warranties
Changes to our warranty reserve, which is part of “Accrued liabilities and expenses” on our Consolidated Balance Sheet, are 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, 2019
|
|
$
|
391
|
|
|
$
|
660
|
|
|
$
|
(709
|
)
|
|
$
|
(1
|
)
|
|
$
|
341
|
|
Fiscal year ended June 30, 2018
|
|
$
|
548
|
|
|
$
|
844
|
|
|
$
|
(1,006
|
)
|
|
$
|
5
|
|
|
$
|
391
|
|
Fiscal year ended June 30, 2017
|
|
$
|
370
|
|
|
$
|
631
|
|
|
$
|
(453
|
)
|
|
$
|
-
|
|
|
$
|
548
|
|
46
11.Property and Equipment
Our property and equipment consisted of the following as of June 30, 2019 and 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
2019
|
|
|
June 30,
2018
|
|
Building and Land
|
|
$
|
7,647
|
|
|
$
|
7,844
|
|
Machinery and Equipment
|
|
|
11,616
|
|
|
|
14,578
|
|
Furniture and Fixtures
|
|
|
1,286
|
|
|
|
1,060
|
|
Total Property and Equipment, gross
|
|
|
20,549
|
|
|
|
23,482
|
|
Less: Accumulated Depreciation
|
|
|
(14,011
|
)
|
|
|
(16,869
|
)
|
Total Property and Equipment, net
|
|
$
|
6,538
|
|
|
$
|
6,613
|
|
Depreciation expense for the years ended June 30, 2019 and 2018 was $1,072,000 and $1,108,000, respectively.
12.Severance, Impairment and Other Charges
During the third quarter of fiscal 2016, we announced a financial improvement plan that resulted in a reduction in global headcount of approximately 11%. This plan was implemented to re-align our fixed costs with our near-to mid-term expectations for our business. By the end of fiscal 2018, we had completed the plan that was announced.
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 16, of the Notes to the Consolidated Financial Statements, “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 appealed this court decision. In January 2019, we settled with the defendants and ended our appeal in return for a net payment due to them in the amount of $66,000. As a result, in the second quarter of fiscal 2019, we adjusted our accrual.
In fiscal 2019, we announced that in reaction to short-term revenue trends, we had implemented a plan to reduce fixed costs, including position eliminations and headcount reductions. Cash pre-tax charges related to the actions are approximately $0.1 million.
During the fourth quarter of fiscal 2019, we completed our annual goodwill impairment test (see Note 1, of the Notes to the Consolidated Financial Statements, “Summary of Significant Accounting Policies – Goodwill” and Note 6 – “Goodwill” for further discussion) and as a result, recorded an impairment charge in the amount of $6,020,000. Furthermore, there were indications of impairment of some of our intangible assets (see Note 1, of the Notes to the Consolidated Financial Statements, “Summary of Significant Accounting Policies – Intangible Assets” and Note 7, of the Notes to the Consolidated Financial Statements, “Intangible Assets” for further discussion) and as a result, recorded an impairment charge of $1,384,000.
The charges recorded as Severance, Impairment and Other Charges are as follows (in thousands):
|
|
Fiscal Years Ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Severance and Related Costs
|
|
$
|
135
|
|
|
$
|
(13
|
)
|
Court Award / Settlement
|
|
|
(609
|
)
|
|
|
675
|
|
Receivable and Inventory Write-Off
|
|
|
-
|
|
|
|
(59
|
)
|
Impairments of Goodwill and Intangible Assets
|
|
|
7,404
|
|
|
|
-
|
|
Total
|
|
$
|
6,930
|
|
|
$
|
603
|
|
Severance expense for the fiscal year ended June 30, 2019 was associated with headcount reductions at our U.S. (expense of $125,000) and Germany (expense of $10,000) locations.
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. In fiscal 2018, there was a recovery of certain previously written off receivable balances, and the recognition in 2018 that certain inventory previously written off could be used.
47
The following table reconciles the activity for the Reserve for Restructuring and Other Charges (in thousands):
|
|
2019
|
|
|
2018
|
|
Balance at beginning of year
|
|
$
|
675
|
|
|
$
|
1,113
|
|
Accruals - Severance Related
|
|
|
135
|
|
|
|
(13
|
)
|
Accruals / Adjustments - Court Award / Settlement
|
|
|
(609
|
)
|
|
|
675
|
|
Payments
|
|
|
(157
|
)
|
|
|
(1,100
|
)
|
Balance at end of year
|
|
$
|
44
|
|
|
$
|
675
|
|
The remaining balance as of June 30, 2019 is the accrual for the reduction in force in the U.S. and is expected to be paid out within the next fiscal quarter.
13.Credit Facilities
We had no borrowings outstanding under our lines of credit and short-term notes payable at June 30, 2019 compared to $175,000 outstanding at June 30, 2018.
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, 2019, our additional available borrowing under this facility was approximately $4.2 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 no borrowings outstanding under the Loan Agreement at June 30, 2019.
Prior to December 4, 2017, we were party to an Amended and Restated Credit Agreement with Comerica Bank. 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 last principal payment of €15,000 (equivalent to approximately $17,000) was paid during the fourth quarter of fiscal 2019 at a 7.0% annual interest rate.
Our Brazilian subsidiary (“Brazil”) has a credit line and overdraft facility with their local bank. Brazil can borrow a total of B$300,000 (equivalent to approximately $78,000). 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 12.0%. We had no borrowings under these facilities at June 30, 2019 and 2018, respectively.
14.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.
15.Other Long-Term Liabilities
Other long-term liabilities at June 30, 2019 and 2018 include $556,000 and $601,000, 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.
48
16.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, 2019, 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
|
|
2020
|
|
$
|
834
|
|
2021
|
|
|
711
|
|
2022
|
|
|
492
|
|
2023
|
|
|
398
|
|
2024 and beyond
|
|
|
1,888
|
|
|
|
$
|
4,323
|
|
Rental expenses for operating leases in the fiscal years ended June 30, 2019 and 2018 were $845,000 and $884,000, 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 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. In the second quarter of fiscal 2018, we recorded a charge in the amount of $675,000 relating to this matter. We appealed this court’s decision to grant summary disposition and the award of the attorney fees. In January 2019, we settled with the defendants and ended our appeal in return for a net payment due to them in the amount of $66,000. As a result, in the second quarter of fiscal 2019, we adjusted our accrual and paid the settlement amount in the third quarter of fiscal 2019 (see Note 12, of the Notes to the Consolidated Financial Statements, ‘Severance, Impairment and Other Charges’ for further discussion).
Loss Contingencies
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 because, 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.
In the fourth quarter of fiscal 2019, we identified a potential concern regarding the residency status of certain U.S. employees as it relates to payroll taxes and withholdings in their country of residency. We estimated the range of correcting this issue, including interest and penalties to range from $0.2 million to $0.3 million. We are not able to reasonably estimate the amount within this range that we would be required to pay for this matter. As a result, we recorded a reserve of $0.2 million representing the minimum amount we estimated would be paid.
49
17. 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 2020. Our contributions during fiscal years 2019 and 2018 were $402,000 and $281,000, respectively.
18.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, 2019, 123,040 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,
|
|
|
|
2019
|
|
|
2018
|
|
Non-cash stock-based compensation expense
|
|
$
|
10
|
|
|
$
|
10
|
|
Common shares purchased
|
|
|
1
|
|
|
|
5
|
|
Average purchase price per share
|
|
$
|
8.26
|
|
|
$
|
5.95
|
|
19.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. 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 $390,000 and $336,000 for the fiscal years ended June 30, 2019 and 2018, respectively. As of June 30, 2019, the total remaining unrecognized compensation cost related to non-vested stock-based compensation amounted to $129,000. We expect to recognize this cost over a weighted average vesting period of 1.2 years.
We received $318,000 in cash from option exercises under all stock option payment arrangements for the twelve months ended June 30, 2019. 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 $160,000 for fiscal 2019.
50
Activity under these Plans is shown in the following tables:
|
|
Fiscal Year 2019
|
|
|
Fiscal Year 2018
|
|
|
|
|
|
|
|
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
|
|
|
635,036
|
|
|
$
|
7.02
|
|
|
|
|
|
|
|
622,636
|
|
|
$
|
7.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Grants (based on fair value of common stock at dates of grant)
|
|
|
8,000
|
|
|
$
|
8.28
|
|
|
|
|
|
|
|
100,000
|
|
|
$
|
7.95
|
|
|
|
|
|
Exercised
|
|
|
(55,445
|
)
|
|
$
|
5.73
|
|
|
|
|
|
|
|
(52,000
|
)
|
|
$
|
8.81
|
|
|
|
|
|
Expired
|
|
|
(10,900
|
)
|
|
$
|
3.63
|
|
|
|
|
|
|
|
(34,000
|
)
|
|
$
|
9.99
|
|
|
|
|
|
Forfeited
|
|
|
(9,570
|
)
|
|
$
|
7.78
|
|
|
|
|
|
|
|
(1,600
|
)
|
|
$
|
10.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
|
567,121
|
|
|
$
|
7.22
|
|
|
$
|
-
|
|
|
|
635,036
|
|
|
$
|
7.02
|
|
|
$
|
2,269
|
|
Exercisable at end of period
|
|
|
436,953
|
|
|
$
|
7.16
|
|
|
$
|
-
|
|
|
|
384,805
|
|
|
$
|
6.87
|
|
|
$
|
1,445
|
|
(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, 2019 and 2018 were $160,000 and $87,000, respectively. The total fair value of shares vested during the fiscal years ended June 30, 2019 and 2018 were $413,000 and $400,000, 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:
|
|
2019
|
|
|
2018
|
|
Weighted average estimated fair value per
|
|
|
|
|
|
|
|
|
share of options granted during the period
|
|
$
|
3.91
|
|
|
$
|
3.96
|
|
Assumptions:
|
|
|
|
|
|
|
|
|
Dividend yield
|
|
|
-
|
|
|
|
-
|
|
Common stock price volatility
|
|
|
43.50
|
%
|
|
|
49.01
|
%
|
Risk free rate of return
|
|
|
2.56
|
%
|
|
|
1.81
|
%
|
Expected option term (in years)
|
|
|
6.6
|
|
|
|
5.4
|
|
The following table summarizes information about stock options at June 30, 2019:
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
20,000
|
|
|
|
6.88
|
|
|
$
|
4.87
|
|
|
|
20,000
|
|
|
$
|
4.87
|
|
|
5.70
|
|
|
to
|
|
|
8.81
|
|
|
|
508,121
|
|
|
|
6.83
|
|
|
$
|
7.00
|
|
|
|
377,953
|
|
|
$
|
6.86
|
|
|
8.94
|
|
|
to
|
|
|
14.01
|
|
|
|
39,000
|
|
|
|
4.26
|
|
|
$
|
11.26
|
|
|
|
39,000
|
|
|
$
|
11.26
|
|
$
|
2.80
|
|
|
to
|
|
|
14.01
|
|
|
|
567,121
|
|
|
|
6.65
|
|
|
$
|
7.22
|
|
|
|
436,953
|
|
|
$
|
7.16
|
|
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
|
51
(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 and Fiscal Year 2019 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, 2019 and 2018 was $244,000 and 186,000, respectively. As of June 30, 2019, the total remaining unrecognized compensation cost related to restricted stock and restricted stock unit awards is approximately $286,000. We expect to recognize this cost over a weighted average vesting period of 1.8 years.
A summary of the status of restricted stock and restricted stock unit awards issued at June 30, 2019 is presented in the table below:
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
Nonvested
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
|
Fair Value
|
|
Nonvested at June 30, 2018
|
|
|
77,570
|
|
|
|
$
|
7.77
|
|
Granted
|
|
|
51,650
|
|
|
|
|
7.21
|
|
Vested
|
|
|
(25,857
|
)
|
|
|
|
7.77
|
|
Forfeited or expired
|
|
|
(9,943
|
)
|
|
|
|
7.44
|
|
Nonvested at June 30, 2019
|
|
|
93,420
|
|
|
|
$
|
7.49
|
|
Performance Stock Units
During the second quarter of fiscal 2019, our MDCSOC granted certain employees Performance Share Units (“PSUs”) as part of the Fiscal Year 2019 Long-Term Incentive Compensation Plan. The Performance Measures were defined by the MDCSOC as a specific Target level of Revenue and Operating Income Before Incentive Compensation for each of the following: plan year 2019 (October 1, 2018 to September 30, 2019), fiscal year 2020 and fiscal year 2021. Up to one-third of the PSUs can be earned each year, determined based upon actual performance levels achieved in that year. One half of the award earned each year is based upon the achievement of the two Performance Targets in that year, provided that a minimum level of Operating Income Before Incentive Compensation is achieved for that year. The actual award level for each 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 year compared to that year’s target. If Operating Income Before Incentive Compensation is less than 75% of the targeted Operating Income Before Incentive Compensation for the year, then no PSU’s will vest for that year and the PSU’s vesting that year will expire.
During the second quarter of fiscal 2018, the MDCSOC granted certain employees PSUs as part of the Fiscal Year 2018 Long-Term Incentive Compensation Plan. For fiscal 2018, actual Revenue and Operating Income Before Incentive Compensation exceeded the Fiscal Year 2018 Targets, resulting in 161.5% of the target level of PSU’s vesting.
At this time, we estimate that the level of actual performance as measured against the Operating Income Before Incentive Compensation target levels will be less than 75% for the fiscal year and plan year of 2019, the threshold performance level for the vesting of these awards in fiscal 2019. Therefore, no non-cash stock-based compensation expense has been recorded for performance share unit awards for fiscal year 2019. 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, 2019, the total remaining unrecognized compensation cost related to performance share unit awards is approximately $355,000. We expect to recognize this cost over a weighted average vesting period of 1.4 years.
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 cash for the calendar year of 2018 and a combination of cash and stock for calendar year of 2019. We issued 15,328 shares to our directors and recorded expense of $68,000.
Available Shares
At June 30, 2019, the 2004 Plan had 793,797 shares available for future grants.
20.Income Taxes
(Loss) income from our operations before income taxes for U.S. and foreign operations was as follows (in thousands):
|
|
2019
|
|
|
2018
|
|
U.S.
|
|
$
|
(661
|
)
|
|
$
|
2,228
|
|
Foreign
|
|
|
(6,342
|
)
|
|
|
2,261
|
|
Total
|
|
$
|
(7,003
|
)
|
|
$
|
4,489
|
|
52
The income tax (provision) benefit reflected in the statement of income consists of the following (in thousands):
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
(As Revised)
|
|
Current (provision) benefit:
|
|
|
|
|
|
|
|
|
U.S. Federal, State & Other
|
|
$
|
305
|
|
|
$
|
(75
|
)
|
Foreign
|
|
|
(289
|
)
|
|
|
(1,213
|
)
|
Deferred taxes
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
(274
|
)
|
|
|
308
|
|
Foreign
|
|
|
470
|
|
|
|
464
|
|
Total (provision) benefit
|
|
$
|
212
|
|
|
$
|
(516
|
)
|
The components of deferred taxes were as follows (in thousands):
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
(As Revised)
|
|
Benefit of net operating losses
|
|
$
|
8,749
|
|
|
$
|
7,334
|
|
Tax credit carry-forwards
|
|
|
6,776
|
|
|
|
7,475
|
|
Deferred revenue
|
|
|
781
|
|
|
|
1,668
|
|
Impaired investment
|
|
|
691
|
|
|
|
677
|
|
Property and intangible assets
|
|
|
436
|
|
|
|
61
|
|
Other
|
|
|
1,390
|
|
|
|
1,885
|
|
Deferred tax asset
|
|
|
18,823
|
|
|
|
19,100
|
|
Valuation allowance
|
|
|
(17,976
|
)
|
|
|
(17,845
|
)
|
Total deferred tax assets
|
|
|
847
|
|
|
|
1,255
|
|
Deferred tax liabilities - basis difference and amortization
|
|
|
(268
|
)
|
|
|
(838
|
)
|
Net deferred taxes
|
|
$
|
579
|
|
|
$
|
417
|
|
The reconciliation of income tax rate to effective tax rate was as follows (in thousands):
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
(As Revised)
|
|
Provision at U.S. statutory rate
|
|
|
21.0
|
%
|
|
|
28.1
|
%
|
Net effect of taxes on foreign activities
|
|
|
(7.2
|
%)
|
|
|
2.7
|
%
|
Tax effect of U.S. permanent differences
|
|
|
(5.8
|
%)
|
|
|
0.5
|
%
|
State taxes and other, net
|
|
|
(4.1
|
%)
|
|
|
0.2
|
%
|
Stock-based compensation
|
|
|
0.1
|
%
|
|
|
1.3
|
%
|
Other
|
|
|
0.0
|
%
|
|
|
(6.2
|
%)
|
Valuation allowance
|
|
|
(1.0
|
%)
|
|
|
(15.1
|
%)
|
Effective tax rate
|
|
|
3.0
|
%
|
|
|
11.5
|
%
|
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 35% to 21% and implements a territorial tax system that eliminates the ability to credit certain foreign taxes.
As we have a June 30 fiscal year end, the lower income tax rates were 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 within stated limitation period, and therefore, the valuation allowance recorded against the credit was removed in the second quarter of fiscal 2018.
The Act also imposed 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.
53
We completed our evaluation and related calculations related to the Transition Tax during the second quarter of fiscal 2019, which confirmed our previous conclusion that our foreign tax credits would completely offset any tax calculated. As a result, we have not made any cash payments related to the Transition Tax.
At June 30, 2019, we had net operating loss carry-forwards for U.S. federal income tax purposes of $29.4 million; $26.8 million that expire in the years 2021 through 2035 and $2.6 million that will carry forward indefinitely. We also had tax credit carry-forwards of $6.8 million of which $4.6 million expire in the years 2020 through 2034. 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. Our deferred tax liability is substantially represented by 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, 2017 and this valuation allowance remains at June 30, 2019. Additionally, during fiscal years 2017 and 2018, 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 and 2019, however, we have determined that it remains more likely than not that of our deferred tax assets, except for the U.S. AMT credit, will not be realized as benefits in the future in these jurisdictions. The net change in the total valuation allowance for the fiscal years ended June 30, 2019 and 2018 was ($131,000) and ($1,254,000), respectively.
On June 30, 2019 and 2018, we had $234,000 and $73,000 of unrecognized tax benefits and reserves for uncertain tax positions that would affect the effective tax rate if recognized absent valuation considerations. Our policy is to classify interest and penalties related to uncertain tax positions as interest expense and income tax expense, respectively. As of June 30, 2019, there was $261,000 of accrued interest and penalties related to uncertain tax positions recorded on our Consolidated Balance Sheets and Consolidated Statements of Operations. For U.S. federal income tax purposes, the tax years 2016 through 2019 remain open to examination by government tax authorities. For German income tax purposes, tax years 2015 through 2019 remain open to examination by government tax authorities. For our China income tax purposes, tax years 2016 through 2019 remain open to examination by government tax authorities generally.
The aggregate changes in the balance of unrecognized tax benefits and uncertain tax positions were as follows (in thousands):
|
|
2019
|
|
Balance, at June 30, 2018
|
|
$
|
73
|
|
Increases for tax positions related to the current year
|
|
|
-
|
|
Increases for tax positions related to the prior year
|
|
|
234
|
|
Reduction due to lapse in statute of limitation
|
|
|
(73
|
)
|
Balance, at June 30, 2019
|
|
$
|
234
|
|
21.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, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
25,173
|
|
|
$
|
34,563
|
|
|
$
|
17,086
|
|
|
$
|
76,822
|
|
Tangible long-lived assets, net
|
|
|
4,773
|
|
|
|
1,490
|
|
|
|
275
|
|
|
|
6,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve months ended June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
34,720
|
|
|
$
|
33,492
|
|
|
$
|
16,481
|
|
|
$
|
84,693
|
|
Tangible long-lived assets, net
|
|
|
4,883
|
|
|
|
1,541
|
|
|
|
189
|
|
|
|
6,613
|
|
54
(1)
|
Our German subsidiary had net external sales of $24.7 million and $23.2 million in the fiscal years ended June 30, 2019 and 2018, respectively. Tangible long-lived assets, net of our German subsidiary were $209,000 and $173,000 as of June 30, 2019 and 2018, respectively. Our Italian subsidiary had net external sales of $9.9 million and $10.3 million in the fiscal years ended June 30, 2019 and 2018, respectively. Tangible long-lived assets, net of our Italian subsidiary were $1,166,000 and $1,263,000 as of June 30, 2019 and 2018, respectively.
|
(2)
|
Our Chinese subsidiary had net external sales of $13.4 million and $14.0 million in the fiscal years ended June 30, 2019 and 2018, respectively. Tangible long-lived assets, net of our Chinese subsidiary were $97,000 and $71,000 as of June 30, 2019 and 2018, 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
|
|
2019
|
|
|
2018
|
|
Measurement Solutions
|
|
$
|
70,142
|
|
|
$
|
77,235
|
|
3D Scanning Solutions
|
|
|
3,075
|
|
|
|
2,729
|
|
Value Added Service
|
|
|
3,605
|
|
|
|
4,729
|
|
Total Net Sales
|
|
$
|
76,822
|
|
|
$
|
84,693
|
|