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As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 9/28/20 Perceptron Inc./MI 10-K 6/30/20 120:12M ActiveDisclosure/FA |
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM i 10-K
(Mark One)
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i ☒ |
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended i June 30, i 2020 /
OR
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i ☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________ to ________.
Commission File Number: i i 0-20206 /
PERCEPTRON, INC.
(Exact Name of Registrant as Specified in Its Charter)
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i Michigan |
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i 38-2381442 |
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(State or Other Jurisdiction of Incorporation or Organization) |
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(I.R.S. Employer Identification No.) |
i 47827 Halyard Drive
i Plymouth, i Michigan i 48170-2461
(Address of Principal Executive Offices)
( i 734) i 414-6100
(Registrant’s telephone number, including area code)
Securities registered pursuant to section 12(b) of the Act:
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Title of Each Class |
Trading Symbol(s) |
Name of Each Exchange on Which Registered |
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i Common Stock, $0.01 par value |
i PRCP |
i The Nasdaq Stock Market LLC |
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Rights to Purchase Preferred Stock |
(Nasdaq Global Market) |
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ i No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ i No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. i Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). i Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large Accelerated Filer |
☐ |
Accelerated Filer |
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i Non-Accelerated Filer |
☒ |
Smaller Reporting Company |
i ☒ |
Emerging growth Company |
i ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404b of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes i i ☐ / No ☒
The aggregate market value of the voting stock held as of the registrant’s most recently completed second fiscal quarter by non-affiliates of the registrant, based upon the closing sale price of the Common Stock on December 31, 2019, as reported by the Nasdaq Global Market, was approximately $ i 53,000,000 (assuming only for purposes of this computation, but not admitting for any purpose, that executive officers of the registrant may be affiliates).
The number of shares of Common Stock, $0.01 par value, issued and outstanding as of September 24, 2020, was i 9,763,675
i
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following document, to the extent specified in this report, are incorporated by reference in Part III of this report:
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Document |
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Proxy Statement for 2020 |
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Part III, Items 10-14 |
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Annual Meeting of Shareholders |
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Part I. |
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Item 1. |
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2 |
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Item 1A. |
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6 |
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Item 1B. |
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15 |
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Item 2. |
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15 |
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Item 3. |
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15 |
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Item 4. |
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15 |
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Part II. |
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Item 5. |
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16 |
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Item 6. |
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Item 7. |
Management’s Discussion and Analysis of Financial Condition and |
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Item 7A. |
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Item 8. |
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27 |
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Item 9. |
Changes in and Disagreements with Accountants on Accounting and |
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54 |
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Item 9A. |
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54 |
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Item 9B. |
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55 |
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Part III. |
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Item 10. |
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55 |
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Item 11. |
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55 |
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Item 12. |
Security Ownership of Certain Beneficial Owners and Management and |
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56 |
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Item 13. |
Certain Relationships and Related Transactions, and Director Independence |
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56 |
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Item 14. |
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56 |
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Part IV. |
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Item 15. |
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62 |
PART I
General
Perceptron, Inc. (“Perceptron”, “we”, “us” or “our”) develops, produces and sells a comprehensive range of automated industrial metrology products and solutions to manufacturing organizations for dimensional gauging, dimensional inspection and 3D scanning. Products include 3D machine vision solutions, robot guidance, coordinate measuring machines, laser scanning and advanced analysis software. Our customers, which include global automotive and other manufacturing companies, rely on Perceptron's metrology solutions to assist in managing their complex manufacturing processes to improve quality, shorten product launch times and reduce costs. Headquartered in Plymouth, Michigan, Perceptron has subsidiary operations in Brazil, China, Czech Republic, France, Germany, India, Italy, Japan, Slovakia, Spain and the United Kingdom.
The impact of the COVID-19 pandemic on us is discussed throughout this Annual Report on Form 10-K, including in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Covid-19 Pandemic”, “– Liquidity and Capital Resources – Impact of COVID-19 Pandemic”, “Item 1A: Risk Factors titled “The COVID-19 pandemic has disrupted and may continue to disrupt our business which could have a material adverse impact on our results of operations and financial condition” and Note 23, of the Notes to the Consolidated Financial Statements, “COVID-19 Pandemic”, contained in Item 8 of this Annual Report on Form 10-K.
On September 27, 2020, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Atlas Copco North America LLC, a Delaware limited liability company (“Parent”), and Odyssey Acquisition Corp., a wholly owned subsidiary of Parent (“Merger Subsidiary”), providing for the merger of Merger Subsidiary with and into Perceptron (the “Merger” and, collectively with the other transactions contemplated by the Merger Agreement, the “Transactions”), with Perceptron surviving the Merger as a wholly owned subsidiary of Parent. At the effective time of the Merger, each issued and outstanding share of our common stock immediately prior to the Effective Time shall be converted into the right to receive $7.00 per share in cash, without interest (the “Merger Consideration”). Immediately prior to the effective time of the Merger, subject to the terms and conditions of the Merger Agreement, each of our outstanding and unexercised stock options, restricted stock units, and performance share units shall automatically and without any required action on the part of the holder thereof, become immediately vested and be cancelled and converted into the right to receive (without interest) from Perceptron an amount in cash based in part on the options, restricted stock units, or performance share units held immediately prior to the effective date. The Merger is subject to customary closing conditions, including shareholder and regulatory approvals. For additional information regarding the Merger, see our other filings made with the SEC, which are available at the SEC’s public reference facilities or on the SEC’s website at www.sec.gov, including our Current Report on Form 8-K filed with the SEC on September 28, 2020, Note 24, of the Notes to the Consolidated Financial Statements, “Subsequent Event”, contained in Item 8 of this Annual Report on Form 10-K and “Item 1A: Risk Factors” contained in this Annual Report on Form 10-K.
Our products are categorized as follows:
In-Line, Near-Line and Off-Line Measurement Solutions (“Measurement Solutions”). Sales of these products involve the development, manufacture and installation of:
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In-Line fixed and robot-mounted laser-based, non-contact dimensional gauging systems used in original equipment manufacturing plants and component supplier plants; |
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In-Line laser-based, non-contact systems that perform gauging for and intelligent guidance of industrial robots in the performance of a variety of complex automated assembly operations; |
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Near-Line robot-mounted laser-based, non-contact dimensional gauging systems used in original equipment manufacturing plants and component supplier plants; and |
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Off-Line inspection and gauging cells comprising Coordinate Measuring Machines (“CMM”) or industrial and collaborative robotic solutions integrated with laser-based non-contact scanning sensors. |
3D Scanning Solutions. Sales of these products involve the development, manufacture and marketing of laser-based sensors and software for the following applications:
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Laser scanning sensors and metrology software for three-dimensional measurement on CMM for the reverse engineering and automated component inspection markets; and |
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Laser scanning sensors integrated into vehicle wheel-alignment machines installed in automotive assembly plants. |
Value Added Services. Perceptron offers the following value added services to customers:
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Training; |
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Field Service and Calibration; |
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Launch Support Services; |
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Consulting Services; and |
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Equipment and Software Maintenance Agreements. |
Markets
Perceptron has a long history serving the global automotive manufacturing market with advanced technology. In fiscal 2020 and 2019, automotive sales represented approximately 85% and 80% of our Net Sales on our Consolidated Statement of Operations (“Net Sales”), respectively. We have product offerings encompassing numerous manufacturing processes, including complex part assembly, automotive body construction, industrial robotic guidance for complex assembly applications, gauging cells, coordinate measuring solutions and reverse engineering.
Products and Applications
Measurement Solutions
Perceptron’s In-Line and Near-Line Measurement Solutions are based on a combination of our non-contact Helix® sensor technology and Vector software. Our Off-Line Measurement Solutions are based on our full line of Coord3® CMMs, V7 3D Laser Scanner, plus TouchDMIS™ measuring software. Measurement Solutions in our fiscal year 2020 and 2019 represented 92% and 91% of our Net Sales, respectively.
In-Line and Near-Line
AutoGauge®: Our automated metrology systems are used in assembly and fabrication plants to contain, correct, and improve the quality of complex assemblies. AutoGauge® systems are placed directly in the manufacturing line or near the line to automatically measure critical dimensional characteristics.
AutoGauge®ACF: Our turnkey near-line robotic measurement systems are used in assembly and manufacturing facilities to replace traditional checking fixtures. Virtually everything about AutoGauge®ACF is automatic – from high speed data collection, to real-time reporting and analysis. AutoGauge®ACF measures parts within minutes, greatly increasing inspection throughput compared to CMMs, ring gauges, manual tools, and other optical metrology systems.
AutoFit®: Our gap and flush systems are used in automotive manufacturing plants to contain, correct, and control the fit of exterior body components. Customers receive critical fit and finish data on the four corners of the fully assembled vehicle, such as tail lamp fit to the quarter panel and decklid; head lamp fit to the hood, fender, and bumper assemblies. They can be installed at multiple locations in the manufacturing process, including in the body shop just after the door load process and in the final assembly area after the vehicle has been painted and completely assembled. AutoFit® can measure vehicles while in motion along the assembly line or in a stationary position.
AutoGuide®: Our robot guidance systems are used by manufacturing companies to automate assembly operations – improving productivity and quality at the same time. These systems utilize Perceptron sensors and software to guide and control robots for numerous assembly applications, including automotive windshield insertion, roof loading, hinge mounting, door attachment, and sealant dispensing. We recently expanded our robot platform for the requirements of de-racking, seam sealing, and glue bead applications. These applications require a simple, robust configuration with minimum setup to eliminate the customers’ need for precision fixtures, large conveyors, station operators and part handlers.
AccuSite®: Our optical tracking technology actively tracks robots on the plant floor providing metrology grade accuracy for both automated metrology and robot guidance solutions. Absolute accurate systems do not require expensive, time consuming CMM comparison activities and provide the customer with actionable data sooner. In robot guidance systems, AccuSite® monitors the robots positional drift in high precision assembly operations.
Helix®evo: Our Helix®evo 3D scanning sensors measure the multitude of materials used in today’s manufacturing, such as chrome, aluminum, sheet metal and painted surfaces. Its scan acquisition provides accurate feature extraction along with the pristine scan quality required for form analysis. Helix®evo also uses a single power-over-ethernet cable which reduces the number of auxiliary components required and is designed for fast and accurate measurement on the plant floor.
Helix®solo: Our Helix®solo family of contour and surface sensors are a cost-effective option for single feature measurements. Helix®solo utilizes a high-resolution camera and multiple laser color options offering unparalleled return images on challenging materials without applying sprays, stickers, or additional part preparation.
Off-Line
Coord3®: The Coord3® CMM product line includes bridge, gantry and horizontal style machines. Coord3® CMMs can be equipped with tactile scanning probes, V7 3D laser scanner, and TouchDMIS™ measuring software.
V7: Our V7 3D laser scanner offers high quality scanning at an affordable price to maximize the value of Coord3® CMMs. This versatile scanning tool improves part inspection throughput with high speed measurement. The V7 generated point clouds also enables reverse engineering, cloud-to-CAD comparison, and 3D visualization.
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TouchDMISTM : TouchDMIS™ measuring software simplifies CMM measurement by incorporating a 100% touch interface with the TouchCADTM quick programming module. TouchDMIS™ is the world’s first all-touch CMM software.
3D Scanning Solutions
3D Scanning Solutions in our fiscal year 2020 and 2019 represented 4% and 4% of our Net Sales, respectively.
WheelWorks®: WheelWorks® software and sensors offer a fast, accurate, non-contact method of measuring wheel position for use in automated or manual wheel alignment machines in automotive assembly plants. We supply sensors and software to a number of wheel alignment equipment manufacturers in Europe, Asia and North America who in turn sell alignment systems to automotive manufacturers.
Value Added Services
Value Added Services: Value Added Services sales in our fiscal year 2020 and 2019 represented 5%, and 5% of our Net Sales, respectively. Value Added Services include training, field service, calibration, launch support services, consulting services, maintenance agreements and repairs.
Sales and Marketing
We market our in-line and near-line products directly to end-user Original Equipment Manufacturer (“OEM”) customers and through manufacturing line builders and system integrators. We market our Coord3 CMM product line through both direct sales and value added resellers.
Our principal customers for Measurement Solution products have historically been automotive manufacturing companies that we either sell to directly or through manufacturing line builders, system integrators or assembly 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. During our fiscal years 2020 and 2019, direct sales to Kuka accounted for approximately 12% and 7%, respectively, and direct sales to Volkswagen Group accounted for approximately 11% and 13%, respectively, and direct sales to General Motors Company accounted for approximately 4% and 11%, respectively, of our Net Sales.
Manufacturing and Suppliers
Our manufacturing operations consist primarily of final assembly and calibration of hardware components and the development, testing and integration of our software with these hardware components. We build our products from a combination of commercially available parts and uniquely designed and manufactured parts. The components are primarily manufactured by third parties. Individual components such as printed circuit boards are manufactured and supplied by third parties. We believe a low level of vertical integration gives us significant manufacturing and inventory flexibility and minimizes total product costs.
We purchase certain component parts and assemblies from single and multi-source suppliers. With respect to the majority of our components, we believe that alternative suppliers could be found if existing suppliers could not ship to us. Many of our components are customized for our specific manufacturing needs. Due to these specifications, various lead times would be required, based on the specific component that needed to be re-sourced. Component supply shortages in certain industries, including the electronics industry, have occurred in the past and are possible in the future due to imbalances in supply and demand. We use global purchasing sources to minimize the risk of part shortages. We have not experienced significant component supply shortages from single source suppliers in recent years. Significant delays or interruptions in the delivery of components, assemblies or products by suppliers, or difficulties or delays in shifting manufacturing capacity to new suppliers, could have a material adverse effect on us.
Competition
We believe our products provide cost-efficient and complete solutions for our customers in terms of system capabilities, level of support and competitive pricing for the value provided, which we believe are the principal competitive factors in our markets. We also believe the technology within our products is more advanced than our competition.
There are a number of companies that sell similar and/or alternative technologies and methods into the same markets and regions as Perceptron. We believe there may be entities, some of which may be larger and have greater resources than our resources, that could develop technology and products which could prove to be competitive with us. We also believe that certain existing or potential customers may be capable of internally developing their own technology. See Item 1A: “Risk Factors” titled “There are a number of companies offering competitive products in our markets, or developing products to compete with our products, which could result in a reduction in our revenues through lost sales or a reduction in prices”.
Backlog
Backlog represents orders or bookings we have received but have not yet been filled, that is, our unsatisfied performance obligations. As of June 30, 2020, we had a backlog of $36.3 million, compared to $38.4 million at June 30, 2019. Most of our backlog is subject to cancellation or delay by the customer, often with limited or no penalties. Historically, cancellations of orders once they have been booked have been very infrequent although several cancellations have occurred during the last two fiscal years. The level of our backlog at any particular time is not necessarily indicative of our future operating performance. We expect to be able to fill substantially all of the orders
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in our backlog by June 30, 2021. See Note 3, of the Notes to the Consolidated Financial Statements, “Revenue from Contracts with Customers”, contained in Item 8 of this Annual Report on Form 10-K for our current expectation on the timing of the revenue recognition for our current backlog level.
Research and Development
During fiscal year 2020, our research and development efforts focused on developing new and improved hardware and software subsystems to support the range of our industry-proven solutions. Product development accomplishments during this period included the completion and release of the following:
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Next Generation of AccuSite® hardware and software to support multiple robots in a single station and improved accuracy. |
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Expanded AccuSite® functionality for precision AutoGuide applications where robot accuracy is critical to part placement. |
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Integrated a very small sensor with a field of view of up to 1M3 for single sensor acquisition of most parts and simple integration into all robotic end of arm tooling. |
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Automated Path Generation (APG) software simplifies system setup and maintenance for AutoGauge® and AutoGauge®ACF systems by handling the robot path programming, collision avoidance, and measurement planning. |
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TouchDMISTM software supporting new alignment capability for V7 laser scanner, automated program activation, and improved tolerance functionality. |
We continue to focus on value engineering our hardware and software solutions to remove costs from all phases of our product lifecycle. We believe this investment in our products provides ongoing competitive advantages in all our markets.
Patents, Trade Secrets and Confidentiality Agreements
As of June 30, 2020, we own 9 U.S. patents that have been granted to us which relate to various products and processes manufactured, used, and/or sold. One additional U.S. patent is pending. We also own 5 foreign patents that have been granted to us in Europe, China and Japan and we have 1 patent application pending in foreign locations. The U.S. and foreign patents expire from 2020 through 2032. In addition, we hold perpetual licenses to more than 35 other U.S. patents including rights to practice 7 U.S. patents for non-forest product related applications that were assigned in conjunction with the sale of a previous business unit in 2002, and rights to practice 9 U.S. patents that were sold in conjunction with the sale of another prior business line in August 2012. The expiration dates for these licensed patents range from 2020 to 2031.
Perceptron has registered, and continues to register, various trade names and trademarks including Perceptron®, Powered by Perceptron®, AutoGauge®, AutoFit®, AutoGuide®, AutoScan®, AccuSite®, Contour Probe®, ScanWorks®, TriCam®, WheelWorks®, Visual Fixturing®, Helix®, Intelligent Illumination®, TouchDMIS™ and Coord3™, among others, which are used in connection with the conduct of our business.
Our software products are copyrighted and generally licensed to our customers pursuant to license agreements that restrict the use of the products to the customer’s own internal purposes on designated Perceptron equipment.
We also use proprietary information and invention agreements and non-disclosure agreements with employees, consultants and other parties to protect our intellectual property.
There can be no assurance that any of the above measures will be adequate to protect our intellectual property or other proprietary rights. Effective patent, trademark, copyright and trade secret protection may be unavailable in certain foreign countries.
Employees
As of June 30, 2020, we have 295 employees worldwide. In Italy, we have 50 employees covered by Italy’s National Collective Bargaining Agreement signed in November 2016 for employees in the mechanical engineering industry. None of our other employees are covered by a collective bargaining agreement. We believe our relations with our employees are good.
Because of COVID-19, many of our non-production employees worldwide are working remotely, while our production and installation employees are working at our facilities or customer facilities, in compliance with recommended or mandated government requirements.
Available Information
Perceptron’s Internet address is www.perceptron.com. On our website, we make available, free of charge, our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (“SEC”). These reports can be accessed through the “Investor Relations” section of our website under “SEC Filings”. The information found on our website is not part of this or any report we file with, or furnish to, the SEC.
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An investment in our Common Stock involves numerous risks and uncertainties. You should carefully consider the following information about these risks. Any of the risks described below could result in a significant or material adverse effect on our future results of operations, cash flows or financial condition. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently deem immaterial, also may become important factors that adversely affect our business in the future. We believe that the most significant of the risks and uncertainties we face are as follows:
The Merger is subject to receipt of approval from our shareholders as well as the satisfaction of other closing conditions in the Merger Agreement.
The Merger Agreement contains a number of conditions to completion of the Merger, including the adoption of the Merger Agreement by a majority of the outstanding shares of our Common Stock. In addition, the consummation of the Merger is also subject to certain other customary closing conditions as follows: (i) no provision of any applicable law or regulation and no judgment, injunction, order or decree shall prohibit the consummation of the Merger upon the terms contemplated in the Merger Agreement, (ii) any applicable waiting period under the Antitrust Laws (as defined in the Merger Agreement) relating to the Merger shall have expired or been terminated and any approval, clearance, notice or decision approving or not prohibiting the Merger or terminating further investigation of the Merger under the Antitrust Laws relating to the Merger shall have been obtained, (iii) the CFIUS Approval (as defined in the Merger Agreement) shall have been obtained, (iv) the absence of a material adverse effect on the Company and (v) other customary closing conditions, including the accuracy of the other party’s representations and warranties, and the other party’s compliance with its covenants and agreements contained in the Merger Agreement (subject in the case of this clause (v) to certain materiality qualifiers). The obligations of the parties to consummate the Merger is not subject to any financing condition or the receipt of any financing by the Parent. We can provide no assurance that all required approvals will be obtained or that all closing conditions will otherwise be satisfied (or waived, if applicable), or as to the timing of such approvals or the satisfaction (or waiver, if applicable) of such conditions. Certain of the conditions to completion of the Merger are not within either our or the Parent’s control, and neither we nor Parent can predict when or if these conditions will be satisfied (or waived, if applicable).
Failure to complete the Merger could materially adversely affect our stock price, future business operations and financial results.
If the Merger is not completed for any reason, our shareholders will not receive the Merger Consideration. Instead, we will remain an independent public company, and the shares of our Common Stock will continue to be traded on the Nasdaq. Moreover, our ongoing business may be materially adversely affected, and we would be subject to a number of risks, including the following:
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We may experience negative reactions from the financial markets, including potentially significant negative impacts on our stock price |
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We may experience negative publicity, which could have an adverse effect on our ongoing operations including, but not limited to, retaining and attracting employees, partners, customers, and others with whom we do business |
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We will still be required to pay certain significant costs relating to the Merger, such as legal, accounting, financial advisor, printing, and other professional services fees, which may relate to activities that we would not have undertaken other than in connection with the Merger |
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We may be required to pay a cash termination fee as required under the Merger Agreement |
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The Merger Agreement places certain restrictions on the conduct of our business, which may have delayed or prevented us from undertaking business opportunities that, absent the Merger Agreement, we may have pursued |
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Matters relating to the Merger require substantial commitments of time and resources by our management, which may have resulted and could continue to result in the distraction of management from ongoing business operations and pursuing other opportunities that could have been beneficial to us |
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We may be required to commit time and resources to defending against enforcement proceedings commenced against us related to the Merger |
If the Merger is not consummated, the risks described above may materialize, and they may have a material adverse effect on our business operations, financial results, and stock price.
Shareholder litigation challenging the proposed Merger may prevent the Merger from being completed within the anticipated timeframe.
Shareholder litigation challenging the proposed Merger may be commenced against us and may delay completion of the Merger in the expected timeframe or altogether. If the plaintiffs in any such litigation are successful in obtaining an injunction prohibiting the parties from consummating the Merger on the terms contemplated by the Merger Agreement, the injunction may prevent the completion of the Merger in the expected timeframe or altogether. In addition, litigation challenging the Merger may result in significant defense costs and serve as a distraction to management and directors.
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We are subject to certain restrictions in the Merger Agreement that may hinder operations pending the consummation of the Merger.
Whether or not it is completed, the pending Merger may disrupt our current plans and operations, which could have an adverse effect on our business and financial results. The Merger Agreement generally requires us to operate our business in the ordinary course of business consistent with past practice pending completion of the Merger, and it also restricts us from taking certain actions with respect to our business and financial affairs, subject to certain exceptions. These restrictions could be in place for an extended period of time, including if the consummation of the Merger is delayed more than expected, which may delay or prevent us from undertaking business opportunities that, absent the Merger Agreement, we might have pursued, or from effectively responding to competitive pressures or industry developments. For these and other reasons, the pendency of the Merger could adversely affect our business and financial results.
If the Merger Agreement is terminated, we may, under certain circumstances, be obligated to pay a termination fee to Parent. These costs could require us to use cash that would have otherwise been available for other uses.
If the Merger is not completed, under specified circumstances, we will be required to pay Parent a termination fee. The termination fee payable by us to Parent of $2,100,000 is payable if the Merger Agreement is validly terminated in connection with certain specified circumstances, including if (i) the Company enters into an Alternative Acquisition Agreement (as defined in the Merger Agreement) with respect to a Superior Proposal (as defined in the Merger Agreement), (ii) the Board makes an Adverse Recommendation Change (as defined in the Merger Agreement), the Company or any of its subsidiaries enters into an Alternative Acquisition Agreement, the Company fails to recommend in the proxy statement that the shareholders of the Company approve the Merger Agreement, the Company breaches certain negative and affirmative covenants in the Merger Agreement relating to solicitation or other offers or the Company breaches certain covenants regarding the preparation and filing of proxy materials and the holding of a shareholders meeting to approve and adopt the Merger Agreement, and (iii) subject to certain conditions, (A) an Acquisition Proposal (as defined in the Merger Agreement) shall have been made publicly or announced to the Company or otherwise made to the Board which Acquisition Proposal has not been withdrawn prior to termination of the Merger Agreement, (B) the Merger Agreement is terminated in accordance with certain provisions of the Merger Agreement and (C) within nine (9) months following the date of such termination of the Merger Agreement, the Company shall have entered into any Alternative Acquisition Agreement (which Alternative Acquisition Agreement shall later be consummated whether or not within such nine-month period) or consummated a transaction related to any Acquisition Proposal (whether or not such Acquisition Proposal is the same as the original Acquisition Proposal made, communicated or publicly disclosed). If the Merger Agreement is terminated, any termination fee we may be required to pay under the Merger Agreement may require us to use available cash that would have otherwise been available for general corporate purposes or other uses. For these and other reasons, termination of the Merger Agreement could materially adversely affect our business operations and financial results, which in turn would materially and adversely affect the price of our Common Stock.
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The COVID-19 pandemic has disrupted and may continue to disrupt our business, which could have a material adverse impact on our results of operations and financial condition.
The ongoing COVID-19 pandemic has resulted in a global health crisis with widespread economic implications. In North America, Europe, Asia and Brazil (our primary markets), federal, state and local governments have recommended or mandated actions to slow the transmission of COVID-19. These actions include the implementation of shelter-in-place orders, quarantines, significant restrictions on travel, and restrictions that prohibit non-essential employees from occupying their place of work. There remains considerable uncertainty regarding the extent to which COVID-19 will continue to spread and the extent and duration of governmental and other measures implemented to try to slow the spread of the virus. The COVID-19 pandemic has created significant volatility in the global economy and financial markets, resulting in a significant reduction in both economic activity and employment levels. The COVID-19 pandemic has disrupted, and may continue to disrupt, the global automotive industry, resulting in significantly lower sales and production volumes. The spread of COVID-19 has disrupted the manufacturing, delivery and overall supply chain of automobile manufacturers and suppliers. We, along with many of our customers and suppliers, temporarily closed or limited operations at production facilities, the impact of which is likely to negatively affect our results of operations and financial condition. Further, negative financial results, an economic downturn or uncertainty, or a tightening of credit markets caused by COVID-19 or other similar outbreaks could have a material adverse effect on our liquidity, our ability to effectively meet our short- and long-term financial obligations, and our accounting estimates. Any further delays in resumption of production and other consumer activity affecting our customers and any future wave of COVID-19 or other similar outbreaks could further adversely affect our business. Our order volumes may be volatile, creating the need for us to manage our suppliers, while continuing to ensure a continued supply of component parts for our products. We have implemented new measures that modify our current production environment to ensure continued health and safety of our workers, consistent with guidance provided by the U.S. Centers for Disease Control and Prevention and other governmental bodies. If we are unsuccessful adapting and managing our production to respond to these requirements or recommend actions, our results of operations could be materially impacted. The ultimate impact that COVID-19 will have on our business, results of operations, cash flows, liquidity and financial condition will depend on a number of evolving factors that we may not be able to accurately predict, including the duration and scope of the COVID-19 pandemic, actions taken by governments and our customers and suppliers in response to the COVID-19 pandemic, and the impact of the COVID-19 pandemic on economic activity. The impacts of the COVID-19 pandemic and the other factors described above make it more difficult for us to forecast customer requirements and provide guidance on our future results. Accordingly, any guidance we provide is likely to be less reliable than usual, and actual results are more likely to differ from any such guidance. In light of the foregoing, investors are urged to put the guidance in context and not to place undue reliance on it.
We have adopted or modified, and will continue to adopt additional, business and workforce practices (including those related to employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences) and protocols, including those to promote social distancing and enhance sanitary measures in our facilities, to conform to government restrictions and best practices encouraged by governmental and regulatory authorities. If a large proportion of our employees in critical positions were to contract COVID-19 or be quarantined as a result of the virus, at the same time, we would rely upon our business continuity plans in an effort to continue operations. There is no certainty that the foregoing measures will be sufficient to mitigate the risks posed by the virus, in which case our employees or other individuals may become sick, our ability to perform critical functions could be harmed, and we may be unable to respond to some of the needs of our global business. Further, our increased reliance on remote access to our information systems increases our exposure to potential cybersecurity breaches.
We may become subject to claims or lawsuits by employees, customers, suppliers or other parties regarding actions we take in our operations in response to the COVID-19 pandemic.
As a borrower under the Paycheck Protection Program our eligibility for and forgiveness of that loan is likely to be reviewed by the SBA.
On April 16, 2020, we entered into an unsecured loan with a bank in an aggregate principal amount of approximately $2.5 million pursuant to the Paycheck Protection Program, (the “PPP”), under Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). In connection with this loan, we were required to certify that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” On April 23, 2020, the Small Business Administration (“SBA”) issued new guidance that questioned whether a public company with substantial market value and access to capital markets would qualify to participate in the PPP. The SBA guidance further indicates that borrowers “must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.” Subsequently, on April 29, 2020 the SBA issued guidance that it will review all PPP loans of more than $2 million, following the lender’s submission of the borrower’s loan forgiveness application. Under PPP, a portion of the PPP Loan is eligible for forgiveness if we were eligible for the PPP Loan, use the loan proceeds for eligible expenses and otherwise satisfy PPP requirements. While we believe we are eligible for the PPP Loan, in the event it was determined that we were not eligible for the PPP Loan, it is possible we would be required to repay the PPP Loan on an accelerated basis, rather than over two years provided under the PPP Loan promissory note, and at a higher interest rate than 1.000% per annum. If we were to be audited and receive an adverse finding in such audit, some or all of the PPP Loan might not be forgiven and we could be required to return or repay some or all of the PPP Loan, together with interest on the loan, which could reduce our liquidity, and potentially subject us to fines and penalties.
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A significant percentage of our revenue is derived from a small number of customers, so that the loss or material change in strategy of any one of these customers could result in a significant reduction in our revenues and profits.
A majority of our revenue in fiscal 2020 was derived from the sale of systems and solutions to a small number of customers that consist primarily of automotive manufacturers and suppliers in North America, Western Europe and Asia.
With such a large percentage of our revenues coming from such a small and highly concentrated group of customers, we are susceptible to a substantial risk of losing revenues if these customers stop purchasing our products or reduce their purchases of our products. In addition, we have no control over whether these customers will continue to purchase our products, systems and solutions in volumes or at prices sufficient to generate profits for us.
Because a large portion of our revenues are generated from a limited number of sizeable orders, our revenues and profits may vary widely from quarter to quarter and year to year.
A large portion of our revenue is generated from a limited number of sizeable orders that are placed by a small number of customers. If the timing of these orders is delayed from one quarter to the next or from one year to the next, we may experience fluctuations in our quarterly and annual revenues and operating results.
The amount of revenues that we earn in any given quarter may vary based in part on the timing of new vehicle programs in the global automotive industry. In contrast, many of our operating expenses are fixed and will not vary from quarter to quarter. As a result, our operating results may vary significantly from quarter to quarter and from year to year.
Our future commercial success depends upon our ability to maintain a competitive technological position in our markets, which are characterized by continual technological change.
Technology plays a key role in the systems and solutions that we produce. The ability to sell our products to customers is directly influenced by the technology used in our systems and solutions. With the rapid pace at which technology is changing, there is a possibility that our customers may require more technologically advanced systems and solutions than we may be capable of producing.
Technological developments could render our actual and proposed products or technologies as uneconomical or obsolete. There is also a possibility that we may not be able to keep pace with our competitors’ products. In that case, our competitors may make technological improvements to their products that make them more desirable than our products.
Our growth and future financial performance depend upon our ability to introduce new products and enhance existing products that include the latest technological advances and customer requirements. We may not be able to introduce new products successfully or achieve market acceptance for such products. Any failure by us to anticipate or respond adequately to changes in technology and customer preferences, or any significant delays in product development or introduction, could have a material adverse effect on our business. Accordingly, we believe that our future commercial success will depend upon our continued ability to develop and introduce new cost-effective products and maintain a competitive technological position.
We may need replacement or additional financing in the future to meet our operational needs, including working capital or capital expenditures and such financing may not be available on terms favorable to us, if at all, and may be dilutive to existing shareholders.
Our credit facilities in the U.S. and Brazil are on-demand facilities and may be cancelled by either party at any time. We may need to seek additional financing for our general corporate purposes. For example, we may need to increase our investment in research and development activities or need funds to support working capital or capital expenditure needs. We may be unable to obtain any desired replacement or additional financing on terms favorable to us, if at all. If adequate funds are not available on acceptable terms, we may be unable to fund our operations, successfully develop or enhance products or respond to competitive pressures, any of which could negatively affect our business. If we raise additional funds through the issuance of equity securities, our shareholders will experience dilution of their ownership interest. If we raise additional funds by issuing debt, we may be subject to further limitations on our operations due to restrictive covenants.
Our future success is dependent upon our ability to implement our long-term growth strategy.
Our future success is dependent upon our ability to implement our long-term strategy, which includes growing our customer base in the automotive market and expanding into new markets. However, there are a number of uncertainties involved in our long-term strategy over which we have no or limited control, including:
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The quality and cost of competitive products already in existence or developed in the future |
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The level of interest that existing and potential new customers may have in our existing and new products and technologies |
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Our ability to resolve technical issues inherent in the development of new products and technologies |
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Our ability to identify and satisfy market needs |
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Our ability to identify satisfactory distribution networks |
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General product development and commercialization difficulties |
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Rapid or unexpected technological changes |
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General product demand and market acceptance risks |
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Our ability to successfully compete with alternative and similar technologies |
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Our ability to attract and retain the appropriate personnel to effectively develop, manufacture, represent, install and service our products |
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The effect of economic conditions |
Even if we are able to expand our customer base and markets, the new revenues we derive may not offset declines in revenues from our current products. We also may not be able to generate profits from these new customers or markets at the same level as we generate from our current business. There can be no assurance that we will be able to expand our customer base and markets or successfully execute our strategies in a fashion to maintain or increase our revenues and profits.
We are dependent on proprietary technology. If our competitors develop competing products that violate our intellectual property rights or successfully challenge those rights, our revenues and profits may be adversely affected.
Our products contain features that are protected by patents, trademarks, trade secrets, copyrights and contractual rights. Despite these protections, there is still a chance that competitors may use these protected features in their products as a result of our inability to keep our trade secrets confidential, or in violation of our intellectual property rights or following a successful challenge to those rights. The prosecution of infringement claims against third parties and the defense of legal actions challenging our intellectual property rights could be costly and require significant attention from management. Because of the small size of our management team, this could result in the diversion of management’s attention from day-to-day operations.
It is possible that competitors may develop technology that performs the same functions as our products without infringing upon our exclusive rights or may reverse engineer those features of our products that are not protected by patents, trademarks and trade secrets. If a competitor is able to develop such technology or reverse engineer an unprotected feature successfully, the competitor may introduce similar products to compete with our products.
Because our products are sold globally, we are at risk of competitors misappropriating our intellectual property included in those products or reverse engineering those products. As a result, we may have a more limited ability, and significantly greater costs, to enforce our intellectual property rights in those products. Constant technological improvement of those products will be particularly important to keep our products competitive in their markets.
There are a number of companies offering competitive products in our markets, or developing products to compete with our products, which could result in a reduction in our revenues through lost sales or a reduction in prices.
We are aware of a number of companies in our markets selling products using similar or alternative technologies and methods. We believe that there may be other companies which may be engaged in the development of technology and products for some of our markets that could prove to be competitive with ours. Some of these companies are substantially larger and have significantly greater resources than us. We believe that the principal competitive factor in our markets is the total capability that a product offers. In some markets, a competitive price for the level of functionality and reliability provided are the principal competitive factors. While we believe that our products compete favorably, it is possible that these competitors could capture some of our sales opportunities or force us to reduce prices in order to complete the sale.
We believe that certain existing and potential customers may be capable of internally developing their own technology. This could cause a decline in sales of our products to those customers.
We have operations outside the United States, increasing the possibility that our business could be adversely affected by risks of doing business in foreign countries.
We have significant operations outside of the United States.
Our foreign operations are subject to risks customarily encountered in such operations. For instance, we may encounter fluctuations in foreign currency exchange rates, differences in the level of protection available for our intellectual property, the impact of differences in language and local business and social customs on our ability to market and sell our products in these markets, the inability to recruit qualified personnel in a specific country or region, more stringent employment regulations and local labor conditions and difficulties in repatriating cash earned in other countries back to the U.S. In addition, we may be affected by U.S. laws and policies that impact foreign trade and investment. Finally, we may be adversely affected by laws and policies imposed by foreign governments in the countries where we have business operations or sell our products.
Our revenues are highly influenced by the sale of products for use in the global automotive market, particularly by manufacturers based in the United States, China and Western Europe. These manufacturers have experienced periodic downturns in their businesses that could adversely affect their level of purchases of our products.
Due to our significant revenue from the automotive industry, our ability to sell our systems and solutions to automotive manufacturers and suppliers is affected by periodic downturns in the global automotive industry, such as what occurred in 2009-2010 and what is occurring now because of the COVID-19 Pandemic.
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New vehicle tooling programs are the most important selling opportunity for our automotive-related sales. The number and timing of new vehicle tooling programs can be influenced by a number of economic factors. Our customers only launch a limited number of new car programs in any given year because of the time and financial resources required. From a macro perspective, we continue to assess the global economy and its likely effect on our automotive customers and markets served. We continue to view the automotive industry’s focus on introducing new vehicles more frequently, including producing more electronic vehicles and starting to introduce autonomous vehicles to satisfy their customers’ changing requirements, as well as their continuing focus on improved quality, as positive indicators for new business. However, because of periodic economic downturns experienced by our customers, our customers could decide to reduce their number of new car programs. The automobile industry is a very cost competitive industry. Pricing pressures could adversely affect the margins we realize on the sale of our products, and ultimately, our profitability.
A significant amount of our assets represent intangible assets, and our net income would be reduced if our intangible assets become further impaired.
Intangible assets relate primarily to software developed by us and are subject to an impairment analysis whenever events or changes in circumstances exist that indicate that the carrying value of the intangible asset might not be recoverable. If we determine that any intangible assets or goodwill is impaired, we would be required to take a related charge to earnings that could have a material adverse effect on our results of operations.
We have recorded impairment charges in the past primarily relating to goodwill and net intangibles assets balances of our CMM reporting unit. As of June 30, 2020, after giving effect to these impairment charges, we had $1.1 million of net intangible assets. Any future impairment of these assets could require, material non-cash charges to our results of operations, which could have a material adverse effect on our stock price and on our financial condition and results of operations.
Our ability to increase sales of our CMM products depends on our ability to successfully expand our distribution channels.
With the acquisitions of Coord3 and NMS in fiscal 2015, we expanded our product lines to include the design, manufacture and sale of CMM products. We market our line of CMM products directly to end users and through distributors and resellers. Growth of our sales of this product line depends upon our ability to expand our distribution channels by identifying, developing and maintaining relationships with distributors and resellers. In addition, our distributors and resellers can potentially sell products offered by our competitors. If we are not able to successfully expand our distribution channels for our CMM products, or if our distributors or resellers do not or are not able to successfully sell our CMM products, our revenues from CMM products will be adversely affected.
Global economic conditions may negatively impact our results of operations.
Our revenue levels are impacted by global economic conditions, as we have a significant business in many countries throughout the world. In fiscal 2020, only 32% of our sales were generated in North America and as a result, a significant decline in global economic conditions, such as we are experiencing with the COVID-19 Pandemic, could have a material adverse impact on our results of operations.
Because of our significant foreign operations, our revenues and profits can vary significantly as a result of fluctuations in the value of the United States Dollar against other currencies.
Products that we sell in foreign markets are typically priced in the currency of the country where the customer is located. To the extent that the U.S. Dollar fluctuates against these currencies, the costs of our products sold in those countries’ currencies also will fluctuate. As a result, revenue and profits on the sale of our products could vary based on these fluctuations. Accordingly, we could experience unanticipated gains or losses in our profits that could have a material impact on our results of operations.
In addition, because a significant portion of our assets are denominated in foreign currencies, we face exposure to foreign currency exchange rate fluctuations. These fluctuations have, in the past, resulted in material adverse foreign currency translations adjustments to our comprehensive net income/loss as well as had a material negative impact on our reported levels of cash and cash equivalents.
If the suppliers and subcontractors we rely on for component parts or products delay deliveries, fail to deliver parts or products meeting our requirements or stop supplying parts or products altogether, we may not be able to deliver products to our customers in a timely fashion and our revenues and profits could be reduced.
We rely on subcontractors for certain components of our products, including outside subcontracting assembly houses to produce the circuit boards that we use in our products. As a result, we have limited control over the quality and the delivery schedules of components or products purchased from third parties. In addition, we purchase a number of component parts from single source suppliers. If our supplies of component parts or products meeting our requirements are significantly delayed or interrupted, including due to impacts from the COVID-19 Pandemic, or our subcontractors choose to terminate their supply contracts, we may not be able to deliver products to our customers in a timely fashion. This could result in a reduction in revenues and profits for these periods. The termination of or material change in the purchase terms of any single source supplier could have a similar impact on us. It is also possible, if our delay in delivering products to our customer is too long, the customer could cancel their order or potentially charge us with penalties, resulting in a permanent loss of revenue and/or profit from that sale. Although we have not experienced significant supply shortages from single source suppliers in recent years, from time to time, we have experienced significant delays in the receipt of certain components. Finally, although we believe that alternative suppliers are available for the components in our products, difficulties or delays may arise if we shift manufacturing capacity to new suppliers.
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The occurrence of business system disruptions or information security breaches could adversely affect our business.
Many companies have experienced material information security breaches caused by illegal hacking, computer viruses or acts of vandalism or terrorism. While we have implemented security measures to protect against such breaches, it is possible that our security measures may not detect or prevent such breaches. Any such compromise to our information security could result in an interruption in our operations, the unauthorized publication of our confidential business or proprietary information, the unauthorized release of customer, vendor, or employee data, the violation of privacy or other laws, monetary losses and the exposure to litigation, any of which could harm our business and operating results. A disruption to our management information systems could cause significant disruption to our business, including our ability to receive and ship orders, receive and process payments and timely report our financial results. Any disruption occurring with these systems may have a material adverse effect on our results of operations.
We may have additional tax liabilities, which could change our effective tax rate and have a significant adverse impact on our business.
We are subject to income taxes in the U.S. and other jurisdictions, including Germany, Italy and China. In determining our provisions for income taxes, we make judgments regarding various tax positions reported on our tax returns. As a result, there are transactions and calculations where the ultimate tax determination is uncertain. Our tax returns are regularly under audit by tax authorities. Because of these uncertain tax positions, the final determination of these tax audits could be materially different than is reflected in our financial statements and could have a material adverse effect on our provisions for income taxes, results of operations or cash flows.
A number of factors may adversely impact our future effective tax rates, such as the future valuation of our deferred tax assets which are predominantly in the U.S., which can vary significantly, positively or negatively, depending on future periods of taxable income or taxable losses in each tax jurisdiction in which we operate, the geographic composition of our pre-tax income and the various tax rates in those countries, changes in available tax credits, and changes in tax laws and rates. A change in our effective tax rate can adversely impact our net income.
We face various risks arising from the legal, regulatory and tax requirements imposed on our operations in the various countries in which we conduct our business operations.
We are subject to various risks relating to our compliance with existing and new laws, rules and regulations implemented in the countries in which we conduct our business operations, including anti-corruption, anti-bribery, tax, material composition of our products, such as restrictions on lead and other substances, environmental, safety and export control regulations.
We are subject to the United States Foreign Corrupt Practices Act (“FCPA”), which generally prohibits companies and their intermediaries from making improper payments to foreign officials for the purpose of obtaining or keeping business or other benefits. As a result of our foreign operations, we may have contact with persons who are considered foreign officials under the FCPA, putting us at an increased risk of potential FCPA violations.
Our failure or inability to comply with any of these laws, rules or regulations could subject us to civil or criminal penalties, other remedial measures or financial or regulatory obligations that may adversely affect our results of operations, financial position, reputation or ability to conduct business. We may receive audit notices or other inquiries from governmental or regulatory authorities, and we may participate in voluntary disclosure programs, related to legal, regulatory or tax compliance matters. These audits, inquiries or disclosure programs or any non-compliance with applicable laws, rules or regulations could result in our incurring material expense, including investigation costs, defense costs, assessments and penalties, or other consequences that could have a materially adverse effect on our results of operations, financial position, reputation or ability to conduct business.
We are subject to risks related to the ongoing trade disputes, including those between the United States and China.
The U.S. has imposed significant increases in tariffs on certain imports, which has prompted retaliatory measures from major U.S. trading partners, principally China. To date, increased tariffs have increased the cost of certain products we sell in China, causing customers in China to postpone decisions about purchasing new capital goods. Such tariffs could increase our costs to purchase components used in our products. Our earnings and sales have been, and could be in the future, negatively affected by changes to international trade agreements in North America and elsewhere and further increases of import tariffs. A prolonged trade war might cause a decrease in our sales, operating income and net earnings.
We may not be able to complete business opportunities and our profits could be negatively affected if we do not successfully integrate those that we do complete.
We will evaluate, from time to time, business opportunities that fit our strategic plans. There can be no assurance that we will identify any opportunities that fit our strategic plans or be able to enter into agreements with identified business opportunities on terms acceptable to us. We may incur significant development and other costs with no assurance that a business opportunity will be realized after incurring these costs.
12
We intend to finance any such business opportunities from available cash on hand, existing credit facilities, issuance of additional stock or additional sources of financing, as circumstances warrant. The issuance of additional equity securities to finance business opportunities could be substantially dilutive to our current stockholders. In addition, if the business opportunities do not perform as expected, we could incur charges with no future benefits. If we are not successful in generating additional profits from these items, this dilution and these additional costs could cause our Common Stock price to drop.
Failure to comply with U.S. federal, state and international laws and regulations relating to privacy or data protection, or the expansion of current or the enactment of new laws or regulations relating to privacy or data protection, could adversely affect our business and our financial condition.
A variety of U.S. federal, state and international laws and regulations govern the collection, use, retention, sharing and security of data. Laws and regulations relating to privacy and data protection are evolving and subject to potentially differing interpretations. These requirements may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another or may conflict with other rules or our practices. As a result, our practices may not have complied or may not comply in the future with all such laws, regulations, requirements and obligations. Any failure, or perceived failure, by us to comply with our posted privacy policies or with any federal, state or international privacy or data protection related laws, regulations, industry self-regulatory principles, industry standards or codes of conduct, regulatory guidance, orders to which we may be subject or other legal obligations relating to privacy or data protection could adversely affect our reputation and business, and may result in claims, proceedings or actions against us by governmental entities or others or other liabilities or require us to change our operations and/or cease using certain data sets. Any such claim, proceeding or action could hurt our reputation and business, force us to incur significant expenses in defense of such proceedings, distract our management, increase our costs of doing business, result in a loss of customers and suppliers and may result in the imposition of monetary penalties. We may also be contractually required to indemnify and hold harmless third parties from the costs or consequences of non-compliance with any laws, regulations or other legal obligations relating to privacy or data protection or any inadvertent or unauthorized use or disclosure of data that we store or handle as part of operating our business.
Foreign data protection, privacy and other laws and regulations are often more restrictive than those in the U.S. The European Union, for example, traditionally has imposed stricter obligations under its laws and regulations relating to privacy and data protection than the U.S., most recently adopting the General Data Protection Regulation (GDPR) throughout Europe in May 2018. Individual European Union member countries have discretion with respect to their interpretation and implementation of these laws and the penalties for breach and have their own regulators with differing attitudes towards enforcement, which results in varying privacy standards and enforcement risk from country to country.
We are subject to risks related to litigation.
From time to time, we are subject to lawsuits and other claims arising out of our business operations. Adverse judgments in one or more of these lawsuits could require us to pay significant damage amounts. The outcome of lawsuits is inherently uncertain and typically a loss cannot be reasonably estimated or accrued by us. Accordingly, if the outcome of a legal proceeding is adverse to us, we would have to record a charge for the matter at the time the legal proceeding is resolved and generally in the full amount at which it is resolved. In addition, the expenses related to these lawsuits may be significant. Lawsuits can have a material adverse effect on our business and operating results, particularly where we have not established an accrual or a sufficient accrual for damages, settlements or expenses. See “Item 3 – Legal Proceedings” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies – Litigation and Other Contingencies” below for a discussion of our policies in accounting for lawsuits and other claims.
We could become involved in costly litigation alleging patent infringement.
In the past, we had been informed that certain of our customers have received allegations of possible patent infringement involving processes and methods used in our products. Certain of these customers, including a customer who was a party to a patent infringement suit relating to this matter, settled such claims. We believe that the processes used in our products were independently developed without utilizing any previous patented process or technology. It is possible, however, that in the future, we or our customers could receive allegations of possible patent infringement or could be parties to patent infringement litigation relating to our products.
The defense of patent infringement litigation could be costly and require significant attention from management. Because of the small size of our management team, this could result in the diversion of management’s attention from day-to-day operations or could have a material adverse effect on our results of operations.
Our business depends on our ability to attract and retain key personnel.
Our success depends in large part upon the continued service of our executives and key employees, including those in engineering, software engineering, sales and marketing positions, as well as our ability to attract such additional employees in the future. At times and in certain geographic markets, competition for the type of highly skilled employees we require can be significant. The loss of key personnel or the inability to attract new qualified key employees could adversely affect our ability to implement our long-term growth strategy and have a material adverse effect on our business.
13
Because of the limited trading in our Common Stock, it may be difficult for shareholders to dispose of a large number of shares of our Common Stock in a short period of time or at then current prices.
Because of the limited number of shares of our Common Stock outstanding and the limited number of holders of our Common Stock, only a limited number of shares of our Common Stock trade on a daily basis. This limited trading in our Common Stock makes it difficult to dispose of a large number of shares in a short period of time. In addition, it is possible that the sale by a shareholder of a large number of shares of our Common Stock over an extended period would depress the price of our Common Stock.
The trading price of our stock has been volatile.
The following factors may affect the market price of our Common Stock, which can vary widely over time:
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• |
variances in our operating results |
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• |
announcements by our largest customers that have a significant impact on their operations |
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• |
announcements of new products by us |
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• |
announcements of new products by our competitors |
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|
• |
market conditions in the electronic and sensing industry and/or automotive industry |
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• |
market conditions and stock prices in general |
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|
• |
the volume of our Common Stock traded |
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• |
disruptive trading activity or practices impacting the stock markets generally or our Common Stock in particular |
Market volatility adversely impacts the market price of our Common Stock.
The capital and credit markets are subject to volatility and disruption. During such a period, the volatility and disruption could reach unprecedented levels, which would exert downward pressures on stock prices, including the market price of our Common Stock.
The Board of Directors has the right to issue up to 1,000,000 shares of preferred stock without further action by shareholders. The issuance of those shares could cause the market price of our Common Stock to drop significantly and could be used to prevent or frustrate shareholders’ attempts to replace or remove current management.
Although no preferred stock currently is outstanding, we are authorized to issue up to 1,000,000 shares of preferred stock. Preferred stock may be issued in one or more series, the terms of which may be determined at the time of issuance by the Board of Directors, without further action by shareholders, and may include voting rights (including the right to vote as a series on particular matters), the dividends payable thereon, liquidation payments, preferences as to dividends and liquidation, conversion rights and redemption rights. In the event that preferred stock is issued, the rights of the common stockholders may be adversely affected. This could result in a reduction in the value of our Common Stock.
The preferred stock could be issued to discourage, delay or prevent a change in control. This may be beneficial to our management or Board of Directors in a hostile tender offer or other takeover attempt and may have an adverse impact on shareholders who may want to participate in the tender offer or who favor the takeover attempt.
Our rights plan could be used to discourage hostile tender offers.
We maintain a rights plan. Under the plan, if any person acquires 20% or more of our outstanding Common Stock, our shareholders, other than the acquirer, will have the right to purchase shares of our Common Stock at half their market price. The rights plan discourages potential acquirers from initiating tender offers for our Common Stock without the approval of the Board of Directors. This may be beneficial to our management or Board of Directors in a hostile tender offer or other takeover attempt and may have an adverse impact on shareholders who may want to participate in the tender offer or who favor the takeover attempt.
If management is not able to provide a positive report on our disclosure controls and internal controls over financial reporting, shareholders and others may lose confidence in our financial statements, which could cause our stock price to drop.
We are required by SEC rules to include a report of management on our disclosure controls in our quarterly reports on Form 10-Q and in our annual reports on Form 10-K and internal controls over financial reporting in our annual reports on Form 10-K.
During the course of the external audit of our fiscal 2019 financial statements, a material weakness was identified regarding the inadequate design and operation of internal controls related to income tax accounting. We enhanced our internal controls during fiscal 2020 to remediate this control deficiency as of June 30, 2020. In the event we identify other material weaknesses in our disclosure controls and internal controls that we cannot remediate in a timely manner, investors and others may lose confidence in the reliability of our financial statements. This could cause our stock price to drop.
14
None.
Our principal domestic facility consists of a 70,000 square foot building located in Plymouth, Michigan, owned by us and pledged to Chemical Bank to secure our Credit Agreement. In addition, we own a 3,100 square meter facility in Bruzolo, Italy. We lease a 1,754 square meter facility in Munich, Germany and we lease office space in Sao Paulo, Brazil; Tokyo, Japan; Prague, Czech Republic; Shanghai, China; and Chennai, New Delhi and Coimbatore, India. We believe our current and expected facilities will be sufficient to accommodate our requirements through fiscal 2021.
From time to time, we may become involved in legal proceedings and claims arising in the ordinary course of our business, including but not limited to legal proceedings and claims brought by employees or former employees relating to working conditions or other issues. We are not currently a party to any legal proceedings the outcome of which, if determined adversely to us, we believe would individually or in the aggregate have a material adverse effect on our business, operating results, financial condition or cash flows.
Not applicable.
15
PART II
|
ITEM 5: |
MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Perceptron’s Common Stock is traded on The Nasdaq Global Market under the symbol “PRCP”.
The approximate number of shareholders of record on September 16, 2020, was 100.
The information pertaining to the securities we have authorized for issuance under equity plans is hereby incorporated by reference to Item 12, "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters – Equity Compensation Plan Information”. For more information about our equity compensation plans, see Note 20, of the Notes to the Consolidated Financial Statements, “Stock-Based Compensation”, contained in Item 8 of this Annual Report on Form 10-K.
As a smaller reporting company, as defined in Rule 10(f)(1) of Regulation S-K under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company is not required to provide the information required by this item.
16
SAFE HARBOR STATEMENT
Certain statements in this report, including statements made in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, may be “forward-looking statements” within the meaning of the Securities Exchange Act of 1934, including our expectation as to our fiscal year 2021 and future results, operating data, new order bookings, revenue, expenses, net income and backlog levels, trends affecting our future revenue levels, the rate of new orders, the timing of revenue and net income increases from new products which we have recently released or have not yet released, the timing of the introduction of new products and our ability to fund our fiscal year 2021 and future cash flow requirements. We may also make forward-looking statements in our press releases or other public or shareholder communications. Whenever possible, we have identified these forward-looking statements by words such as “target,” “will,” “should,” “could,” “believes,” “expects,” “anticipates,” “estimates,” “prospects,” “outlook,” “guidance” or similar expressions. We claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 for all of our forward-looking statements. While we believe that our forward-looking statements are reasonable, you should not place undue reliance on any such forward-looking statements, which speak only as of the date made. Because these forward-looking statements are based on estimates and assumptions that are subject to significant business, economic and competitive uncertainties, many of which are beyond our control or are subject to change, actual results could be materially different. Factors that might cause such a difference include, without limitation, the risks and uncertainties discussed from time to time in our periodic reports filed with the Securities and Exchange Commission, including those listed in “Item 1A: Risk Factors” of this report. Except as required by applicable law, we do not undertake, and expressly disclaim, any obligation to publicly update or alter our statements whether as a result of new information, events or circumstances occurring after the date of this report or otherwise.
Executive Summary
Perceptron, Inc. (“Perceptron”, “we”, “us” or “our”) develops, produces and sells a comprehensive range of automated industrial metrology products and solutions to manufacturing organizations for dimensional gauging, dimensional inspection and 3D scanning. Our primary operations are in North America, Europe and Asia. All of our products rely on our core technologies and are divided into the following customer solution categories:
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• |
In-Line and Near-Line Measurement Solutions - engineered metrology systems for industrial automated process control and assembly using fixed and robot mounted laser scanners. We also provide Value Added Services including training, field service, calibration, launch support services, consulting services, maintenance agreements and repairs related to our In-Line and Near-Line Measurement Solutions. |
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• |
Off-Line Measurement Solutions - tailored metrology products for industrial gauging and dimensional inspection using standalone robot-mounted laser scanners and Coordinate Measuring Machines (“CMM”). We also provide Value Added Services including training, calibration, maintenance agreements and repairs related to our Off-Line Measurement Solutions. |
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• |
3D Scanning Solutions - laser scanner products that target the digitizing, reverse engineering, inspection and original equipment manufacturers wheel alignment sectors. |
The largest end-use market we serve is the automotive industry. New automotive tooling programs represent the most important selling opportunity for our In-Line and Near-Line Measurement Solutions. The number and timing of new vehicle tooling programs vary based on the plans of the individual automotive manufacturers. The existing installed base of In-Line and Near-Line Measurement Solutions also provides a continuous revenue stream in the form of system additions, upgrades and modifications as well as Value Added Services such as customer training and support.
Our Off-Line Measurement and 3D Scanning Solutions are utilized by a wide variety of targeted industrial customers, with the automotive industry representing the largest source of customers for industrial metrology products.
We continue to focus our attention on innovative solutions for our core automotive business. Our unique AutoFit® and AccuSite® solutions, for instance, provide us with confidence for increased automotive market penetration in each of our key geographies, as well as additional product offerings in the future. The four key elements of our strategic plan are:
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1. |
Continuous investment in our engineering capabilities to further expand our technical advantages; |
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2. |
Broadening our product offering to automotive customers and in the future industries beyond automotive; |
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3. |
Achieving greater cost efficiencies as we continue lean practices throughout the organization; and |
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4. |
Management of working capital such that we can maximize free cash flow and reinvest in the growth of the business and advance our technology. |
In the third quarter of fiscal 2020, the Company determined there was a triggering event caused by the economic impacts of the COVID-19 pandemic and related restrictions. As a result, the Company recorded a non-cash goodwill charge of $1.7 million, and a non-cash trade name charge of $0.5 million.
We continue to set our long-term aspirations for sustained revenue and earnings growth. As such, our focus remains on product development and improvement efforts for our core automotive market and adjacent markets, as well as with our existing customers, potential new automotive customers and their suppliers. Our strategic investments to update and expand our suite of metrology solutions over the past several years have further positioned us to meet customers’ demand with top-of-the-line solutions. Our confidence in the long-term growth potential of Perceptron remains strong as we continue to make progress in key areas around the world.
17
COVID-19 Pandemic
The COVID-19 pandemic poses significant risks to our business. See Note 23 of the Notes to the Consolidated Financial Statements, “COVID-19 Pandemic” contained in this Annual Report on Form 10-K for a discussion of the impact of COVID-19 on our business. The ongoing global public health actions attempting to reduce the spread of COVID-19 are creating and may continue to create significant disruptions to our operations, our customer and supplier relationships, and general global economic conditions. Accordingly, we are closely monitoring and adjusting for the impact of COVID-19 on our global operations, communicating with and monitoring the actions of our customers and suppliers, and reviewing our near-term financial performance as we manage the Company through the uncertainty related to the COVID-19 pandemic. Over the last six months, first in China and then in Europe and the United States, the Company either closed or limited operations at its facilities due to local government mandates requiring citizens to shelter-in-place, as have its customers and suppliers. During that period, our employees have continued to operate remotely and, in some cases, on site with customers where allowable. The Company has gradually reopened previously closed facilities as permitted by law and as required to meet customer requirements. We have incurred some additional costs as we resume operations in order to comply with government requirements and guidelines. We expect to be able to fund these costs as described under “Liquidity and Capital Resources – Impact of COVID-19 Pandemic” below. We believe that the Company currently has sufficient raw material and finished goods inventory to support customer demand and, to date, have experienced minimal disruption to our supply chain. We have implemented cost reduction efforts to help mitigate the impact on our business including reducing discretionary spending and various other measures. Some of our orders from customers have been delayed as a result of the COVID-19 pandemic and we may continue to experience such delays. Delays in these orders could affect our ability to fund our business solely through near-term revenue, our cash, cash equivalents, short-term investments and our existing lines of credit. To help provide us with additional liquidity in the U.S. during this period and in light of economic uncertainties posed by the COVID-19 pandemic, we applied for and received a loan under the U.S. government Paycheck Protection Program. See “Liquidity and Capital Resources – Impact of COVID-19 Pandemic” for a description of this loan. See “Item 1A: Risk Factors” titled “The COVID-19 pandemic has disrupted and may continue to disrupt our business, which could have a material adverse impact on our results of operations and financial condition.”
Subsequent Event
On September 27, 2020, we entered into the Merger Agreement with Parent and Merger Subsidiary, providing for the Merger and, with Perceptron surviving the Merger as a wholly owned subsidiary of Parent. At the effective time of the Merger, each issued and outstanding share of our common stock immediately prior to the Effective Time shall be converted into the right to the Merger Consideration. The Merger is subject to customary closing conditions, including shareholder and regulatory approvals. For additional information regarding the Merger, see our other filings made with the SEC, which are available at the SEC’s public reference facilities or on the SEC’s website at www.sec.gov, including our Current Report on Form 8-K filed with the SEC on September 28, 2020, Note 24, of the Notes to the Consolidated Financial Statements, “Subsequent Event”, contained in Item 8 of this Annual Report on Form 10-K and “Item 1A: Risk Factors” contained in this Annual Report on Form 10-K.
Results of Operations
Fiscal Year Ended June 30, 2020, Compared to Fiscal Year Ended June 30, 2019
Overview –We reported a net loss of $4.0 million, or ($0.41) per diluted share, for the fiscal year ended June 30, 2020 compared with a net loss of $6.8 million, or $(0.71) per diluted share, for the fiscal year ended June 30, 2019.
Bookings – Bookings represent new orders received from our customers. We expect the level of new orders to fluctuate from period to period and do not believe new order bookings during any particular period are indicative of our future operating performance.
Bookings by geographic location were (in millions):
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|
Fiscal Years Ended June 30, |
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|||||||||||||
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2019 |
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|
Increase/(Decrease) |
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||||||||||||||||
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Geographic Region |
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas |
|
$ |
14.9 |
|
|
|
24.8 |
% |
|
$ |
19.0 |
|
|
|
26.6 |
% |
|
|
$ |
(4.1 |
) |
|
|
(21.6 |
%) |
|
Europe |
|
|
28.9 |
|
|
|
48.0 |
% |
|
|
34.8 |
|
|
|
48.6 |
% |
|
|
|
(5.9 |
) |
|
|
(17.0 |
%) |
|
Asia |
|
|
16.4 |
|
|
|
27.2 |
% |
|
|
17.7 |
|
|
|
24.8 |
% |
|
|
|
(1.3 |
) |
|
|
(7.3 |
%) |
|
Totals |
|
$ |
60.2 |
|
|
|
100.0 |
% |
|
$ |
71.5 |
|
|
|
100.0 |
% |
|
|
$ |
(11.3 |
) |
|
|
(15.8 |
%) |
The decrease in bookings for fiscal 2020 as compared to fiscal 2019 of $11.3 million, including an unfavorable currency impact of $1.4 million, is primarily due to declines in orders from customers as a result of a slowing of the global automotive industry, most recently resulting from the COVID-19 pandemic. This contributed to a decrease of $5.7 million in our In-Line and Near-Line Measurement Solutions, a decrease of $2.6 million in our Off-Line Measurement Solutions, a decrease of $2.0 million in our 3D Scanning Solutions, and a decrease of $1.0 million in our Value Added Services. On a geographic basis, the $5.9 million decrease in our Europe region is primarily due to a decrease of $2.6 million in our In-Line and Near-Line Measurement Solutions, a decrease of $1.5 million in our 3D Scanning Solutions, a decrease of $1.4 million in our Off-Line Measurement Solutions, and a decrease of $0.4 million in our Value Added Services. The $4.1 million decrease in our America region is primarily due to a decrease of $3.4 million in our In-Line and Near-Line Measurement Solutions, a decrease of $0.6 million in our Value Added Services, and a decrease of $0.1 million in our 3D Scanning Solutions. The $1.3 million decrease in our Asia region is due to a decrease of $1.2 million in our Off-Line Measurement Solutions and a decrease of $0.4
18
million in our 3D Scanning Solutions, partially offset by an increase of $0.3 million in our In-Line and Near-Line Measurement Solutions. The decreased bookings across the geographic regions is primarily due to a slowing of the global automotive industry, most recently resulting from the COVID-19 pandemic.
We expect the negative impacts of the COVID-19 pandemic on bookings to continue at least through the end of fiscal 2021 and potentially thereafter.
Backlog – Backlog represents orders or bookings we have received but have not yet been filled as of the reporting date. We believe that the level of backlog during any particular period is not necessarily indicative of our future operating performance. Although most of the backlog is subject to cancellation by our customers, we expect to fill substantially all of the orders in our backlog.
Backlog by geographic location was (in millions):
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As of June 30, |
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|||||||||||||
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2019 |
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|
Increase/(Decrease) |
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Geographic Region |
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|
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas |
|
$ |
6.3 |
|
|
|
17.3 |
% |
|
$ |
11.6 |
|
|
|
30.2 |
% |
|
|
$ |
(5.3 |
) |
|
|
(45.7 |
%) |
|
Europe |
|
|
18.0 |
|
|
|
49.6 |
% |
|
|
18.2 |
|
|
|
47.4 |
% |
|
|
|
(0.2 |
) |
|
|
(1.1 |
%) |
|
Asia |
|
|
12.0 |
|
|
|
33.1 |
% |
|
|
8.6 |
|
|
|
22.4 |
% |
|
|
|
3.4 |
|
|
|
39.5 |
% |
|
Totals |
|
$ |
36.3 |
|
|
|
100.0 |
% |
|
$ |
38.4 |
|
|
|
100.0 |
% |
|
|
$ |
(2.1 |
) |
|
|
(5.5 |
%) |
The current year ending backlog decreased by $2.1 million or 5.5% compared to the ending backlog at June 30, 2019. The decrease in our backlog was primarily due to a decrease of $0.8 million in our 3D Scanning Solutions, a decrease of $0.6 million in our Off-Line Measurement Solutions, a decrease of $0.5 million in our Value Added Services, and a decrease of $0.2 million in our In-Line and Near-Line Measurement Solutions. On a geographic basis, the $5.3 million decrease in our America region is primarily due to a decrease of $5.2 million in our In-Line and Near-Line Measurement Solutions, and a decrease of $0.1 million in our Value Added Services. The $0.2 million decrease in our Europe region is primarily due to a decrease of $0.6 million in our Off-Line Measurement Solutions, a decrease of $0.5 million in our 3D Scanning Solutions, a decrease of $0.4 million in our Value Added Services, partially offset by an increase of $1.3 million in our In-Line and Near-Line Measurement Solutions. The $3.4 million increase in our Asia region is primarily due to an increase of $3.7 million in our In-Line and Near-Line Measurement Solutions, partially offset by a decrease of $0.3 million in our 3D Scanning Solutions. The decline in Americas is the result of a slowdown in the automotive industry in the US, most recently resulting from the COVID-19 pandemic. This is in contrast to China, the largest growing market of the world, where sales activity has shown a stronger recovery.
A summary of our operating results is shown below (in millions):
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|
Fiscal Years Ended June 30, |
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|||||||||||||
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|
|
|
|
% of Sales |
|
|
2019 |
|
|
% of Sales |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas Sales |
|
|
20.2 |
|
|
|
32.4 |
% |
|
|
25.1 |
|
|
|
32.7 |
% |
|
Europe Sales |
|
|
29.1 |
|
|
|
46.7 |
% |
|
|
34.6 |
|
|
|
45.0 |
% |
|
Asia Sales |
|
|
13.0 |
|
|
|
20.9 |
% |
|
|
17.1 |
|
|
|
22.3 |
% |
|
Net Sales |
|
$ |
62.3 |
|
|
|
100.0 |
% |
|
$ |
76.8 |
|
|
|
100.0 |
% |
|
Cost of Sales |
|
|
39.0 |
|
|
|
62.5 |
% |
|
|
49.6 |
|
|
|
64.6 |
% |
|
Gross Profit |
|
|
23.3 |
|
|
|
37.5 |
% |
|
|
27.2 |
|
|
|
35.4 |
% |
|
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
17.2 |
|
|
|
27.7 |
% |
|
|
19.0 |
|
|
|
24.7 |
% |
|
Engineering, research and development |
|
|
6.1 |
|
|
|
9.7 |
% |
|
|
8.0 |
|
|
|
10.4 |
% |
|
Severance, impairment and other charges |
|
|
3.3 |
|
|
|
5.3 |
% |
|
|
6.9 |
|
|
|
9.0 |
% |
|
Operating Loss |
|
|
(3.3 |
) |
|
|
(5.3 |
%) |
|
|
(6.7 |
) |
|
|
(8.7 |
%) |
|
Other Income and (Expenses), net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
(0.1 |
) |
|
|
(0.3 |
%) |
|
|
(0.3 |
) |
|
|
(0.5 |
%) |
|
Foreign currency loss, net |
|
|
(0.6 |
) |
|
|
(0.9 |
%) |
|
|
(0.1 |
) |
|
|
(0.1 |
%) |
|
Other income and (expense), net |
|
|
0.4 |
|
|
|
0.7 |
% |
|
|
0.1 |
|
|
|
0.1 |
% |
|
Loss Before Income Taxes |
|
|
(3.6 |
) |
|
|
(5.8 |
%) |
|
|
(7.0 |
) |
|
|
(9.1 |
%) |
|
Income Tax (Expense) Benefit |
|
|
(0.4 |
) |
|
|
(0.8 |
%) |
|
|
0.2 |
|
|
|
0.2 |
% |
|
Net Loss |
|
$ |
(4.0 |
) |
|
|
(6.6 |
%) |
|
$ |
(6.8 |
) |
|
|
(8.9 |
%) |
Sales – Net sales of $62.3 million for our fiscal year 2020 decreased $14.5 million, or (18.9%), including an unfavorable currency impact of $1.3 million. The decrease is primarily due to reduced bookings and delays in delivery dates for orders from our customers, as a result of a slowing of the global automotive industry, most recently resulting from the COVID-19 pandemic. This contributed to a decrease of $8.8 million in our In-Line and Near-Line Measurement Solutions, a decrease of $4.0 million in our Off-Line Measurement Solutions, a decrease of $0.9 million in our 3D Scanning Solutions, and a decrease of $0.8 million in Value Added Services. On a geographic basis, the
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$5.5 million decrease in our Europe region is primarily due to a decrease of $3.0 million in our In-Line and Near-Line Measurement Solutions, a decrease of $1.4 million in our Off-Line Measurement Solutions, a decrease of $0.8 million in our 3D Scanning Solutions, and a decrease of $0.3 million in our Value Added Services. The $4.9 million decrease in our Americas region is primarily due to a decrease of $4.4 million in our In-Line and Near-Line Measurement Solutions, and a decrease of $0.5 million in our Value Added Services. The $4.1 million decrease in our Asia region is primarily due to a decrease of $2.6 million in our Off-Line Measurement Solutions, a decrease of $1.4 million in our In-Line and Near-Line Measurement Solutions, and a decrease of $0.1 million in our 3D Scanning Solutions.
Gross Profit – Gross profit percentage was 37.4% of sales in the fiscal year ended June 30, 2020, compared to 35.4% of sales in the fiscal year ended June 30, 2019. The higher gross margin percentage in fiscal 2020 was primarily due to the level and mix of revenue and timing of certain expenses in our cost of goods sold in fiscal 2020 versus 2019.
Selling, General and Administrative (SG&A) Expenses – SG&A expenses were approximately $17.2 million for our fiscal year 2020, as compared to $19.0 million for our fiscal year 2019. The decrease is primarily due to decreased spending in legal and consulting fees of $1.4 million, lower financing expenses of $0.2 million, and lower advertising fees of $0.2 million.
Engineering, Research and Development (R&D) Expenses – Engineering, research and development expenses were approximately $6.1 million in our fiscal year 2020, compared to $8.0 million in our fiscal year 2019, the decrease is primarily due to lower employee-related costs as a result of the cost reductions actions taken in the third quarter of fiscal 2020 and fourth quarter of fiscal 2019.
Severance, Impairment and Other Charges – Severance, impairment and other charges for fiscal 2020 were approximately $3.3 million compared to $6.9 in 2019. In fiscal 2020 the charges were primarily due to impairment charges in the amount of $1.7 million and $0.5 million against our goodwill and definite-lived intangible assets, respectively, as well as severance expenses in the amount of $1.1 million in the third quarter of fiscal 2020. See Note 13 of the Notes to the Consolidated Financial Statements, “Severance, Impairment and Other Charges” contained in this Annual Report on Form 10-K for further discussion.
During the third quarter of fiscal 2020, we completed an interim 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 $1.7 million. 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 $0.5 million.
In fiscal 2019, the charges primarily related to impairment charges for goodwill and intangibles assets in the amount of $6.0 million and $1.4 million, respectively, and severance expenses in the amount of $10.1 million, partially offset by a $0.6 million reduction in an accrual related to a trade secrets case brought by us that we settled in January 2019.
Interest Expense, net – Net interest expense was $0.1 million in fiscal 2020, compared with net interest expense of $0.3 million in fiscal 2019. The decrease was primarily due to interest recorded related to a one-time withholding tax required to be recognized in one of our Asia locations in 2019, and the continued pay-down of interest bearing liabilities incurred in the acquisition of Coord3.
Foreign Currency Loss, net – Foreign currency loss was a net loss of $0.6 million in fiscal 2020 compared with a net loss of $0.1 million in fiscal 2019. The net loss in fiscal 2020 was primarily related to changes in the value of the Brazilian Real in relation to the US dollar.
Other Income and (Expense), net – Net other income was $0.4 million in fiscal 2020 compared with a net other income of $0.1 million in fiscal 2019.
Income Tax Expense – Our effective tax rate for fiscal year ended June 30, 2020 was (9.2)% compared to 3.0% in fiscal year 2019. We have previously established full valuation allowances against our U.S. Federal, Germany, Japan, India, Netherlands, and Brazil net deferred tax assets. The effective tax rate in fiscal 2020 is impacted by not recognizing tax benefits on pre-tax losses in these jurisdictions, withholding taxes paid in the U.S. due to certain intercompany payments, and an increase in reserves for uncertain tax positions. See Note 21, of the Notes to the Consolidated Financial Statements, “Income Taxes”, contained in Item 8 of this Annual Report on Form 10-K for further discussion.
Liquidity and Capital Resources
Our primary liquidity needs are to fund product development and capital expenditures as well as support working capital requirements. In general, our principal sources of liquidity are cash and cash equivalents on hand, cash flows from operating activities and borrowings, including under available credit facilities.
Cash on Hand. Our cash and cash equivalents were $10.6 million at June 30, 2020 compared to $4.6 million at June 30, 2019. Of these cash and cash equivalents, $6.8 million or approximately 64% was held in foreign bank accounts at June 30, 2020.
Cash Flow. The $6.1 million increase in cash, cash equivalents and restricted cash from June 30, 2019 to June 30, 2020 was primarily related to $4.8 million provided by financing activities, $0.5 million provided by operating activities, $0.5 million provided by investing activities and $0.4 million favorable impact from changes in exchange rates.
Cash provided by investing activities in fiscal year 2020 is due to the sale of short-term investments of $2.6 million and net purchases of short-term investments of $1.5 million and capital expenditures of $0.7 million
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Cash provided by operations totaled $0.5 million as our net loss of $4.0 million was principally caused by the $2.2 million pre-tax non-cash asset impairment, $1.8 million of non-cash depreciation and amortization and $0.7 million of non-cash stock compensation expense, other non-cash items of $0.4 million, offset by net working capital usage of $0.6 million.
The cash used for working capital items included cash utilized for other assets and liabilities of $1.4 million, net payments of accrued liabilities and expenses of $0.2 million, a change in deferred revenue of $0.3 million, a decrease in accounts payable of $0.6 million and, partially offset by cash provided by net inventory reductions of $0.2 million, and cash provided by accounts receivable of $1.6 million.
|
|
• |
The change in other assets and liabilities is primarily related to the timing of accruals for leases, taxes and payroll. |
|
|
• |
The change in accrued liabilities relates to a decrease in legal, consulting and other liabilities. In addition, the VAT payable in China decreased mostly due to a reduction in revenue caused by COVID-19. |
|
|
• |
The change in deferred revenue, is primarily due to decrease in sales related to COVID-19. |
|
|
• |
The change in accounts payable is due to the timing of payments made to our suppliers, as well as a decrease in inventory purchases. |
|
|
• |
The change in inventory is primarily due to revenue reduction related to COVID-19. |
Cash provided by financing activities in fiscal year 2020 was primarily due to cash received from our lines of credit of $5.5 million and our PPP loan of $2.5 million partially offset by payments of $3.3 million on the lines of credit.
Cash used for investing activities in fiscal 2019 is due to capital expenditures of $1.5 million and net purchases of short-term investments of $0.5 million.
Cash provided by operations in fiscal 2019 totaled $0.9 million as our net loss of $6.8 million was principally caused by the $7.4 million pre-tax non-cash asset impairment, $2.0 million of non-cash depreciation and amortization and $0.7 million of non-cash stock compensation expense, offset by our net working capital usage of $2.2 million and $0.3 million of other non-cash items.
The cash used for working capital items in fiscal 2019 included cash utilized for other assets and liabilities of $1.7 million, net payments of accrued liabilities and expenses of $1.3 million, a change in deferred revenue of $0.7 million, a decrease in accounts payable of $0.1 million and, partially offset by cash provided by net inventory reductions of $1.5 million, and cash provided by accounts receivable of $0.1 million.
|
|
• |
The change in other assets and liabilities is primarily related to the timing of several prepaid assets, including our corporate insurance coverage and the settlement in the trade secrets case. |
|
|
• |
The change in accrued liabilities and expenses relates primarily to payments of our annual short-term incentive compensation made in the first quarter of fiscal 2019 that related to fiscal year 2018 performance. |
|
|
• |
The change in deferred revenue, is primarily due to the initial impact of adopting ASC 606, as well as 2019’s overall lower activity level. |
|
|
• |
The change in accounts payable is due to the timing of payments made to our suppliers, as well as a decrease in inventory purchases. |
|
|
• |
The change in inventory is primarily due to the reduction in work in process, generated in large part, by the adoption of ASC 606. |
Cash used for financing activities in fiscal 2019 was primarily due to cash received from our stock compensation plans of $0.3 million, partially offset by payments of $0.2 million on the note payable related to the manufacturing facility in Italy.
Working Capital Reserves. We provide a reserve for obsolescence to recognize inventory impairment for the effects of engineering change orders as well as the age and usage 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, 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. During fiscal year 2020, we increased our reserve for obsolescence by $0.2 million. See Note 5, of the Notes to the Consolidated Financial Statements, “Inventory”, contained in Item 8 of this Annual Report on Form 10-K.
We determine our allowance for doubtful accounts by considering a number of factors, including the length of time trade accounts receivable are past due, our previous loss history, our customer’s current ability to pay their outstanding balance due to us, and the condition of the general economy and the industry as a whole. We write off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts. During fiscal year 2020, there was no material change to our allowance for doubtful accounts. See Note 4, of the Notes to the Consolidated Financial Statements, “Allowance for Doubtful Accounts”, contained in Item 8 of this Annual Report on Form 10-K.
Investments. At June 30, 2020, we had short-term investments totaling $0.4 million and a long-term investment recorded at $0.7 million compared to short-term investments totaling $1.4 million and a long-term investment recorded at $0.7 million at June 30, 2019. See Note 8, of the Notes to the Consolidated Financial Statements, “Short-Term and Long-Term Investments”, contained in Item 8 of this Annual Report on Form 10-K for further information on our investments and their current valuation. The market for our long-term investment is currently illiquid. We have $0.4 million of our short-term investments serving as collateral for bank guarantees for 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.
21
Credit Facilities. We had $2.2 million borrowings outstanding under our lines of credit and short-term notes payable at June 30, 2020 compared to zero borrowings outstanding at June 30, 2019.
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, 2020, our available borrowing under this facility was approximately $4.0 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 $2.2 million and zero borrowings outstanding under our Loan Agreement at June 30, 2020 and 2019, respectively.
Our Brazilian subsidiary (“Brazil”) has several borrowing facilities with total available borrowings of B$354,000 (equivalent to approximately $65,000 USD). At June 30, 2020, the outstanding balances totaled B$250,000 (equivalent to approximately $46,000 USD and are included in Lines of credit and current portion of long-term debt on the Consolidated Balance Sheet). The monthly interest rate on the outstanding balances range from 0.37% to 13.94%. Brazil had no borrowings under these facilities at June 30, 2019.
See “Liquidity and Capital Resources – Impact of COVID-19 Pandemic” for a description of the Company’s loan under the Paycheck Protection Program.
Commitments and Contingencies. In May 2017, a judge in a trade secrets case brought by Perceptron granted the defendants’ motions for summary disposition and in January 2018 granted their motion for recovery of their attorney fees in the amount of $0.7 million, plus interest. In the second quarter of fiscal 2018, we recorded a charge in the amount of $0.7 million relating to this matter. We appealed this court’s decision to grant summary disposition and the award of 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 $0.1 million. 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 13, of the Notes to the Consolidated Financial Statements, “Severance, Impairment and Other Charges”, contained in Item 8 of his Annual Report on Form 10-K.
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 $1.2 million (equivalent to approximately $0.9 million) in taxes plus interest 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 did not record an accrual related to this audit finding because we are disputing several of the CRA’s conclusions and a loss is not considered probable. We ultimately expect to receive the funds from our customers (excluding any interest or penalties) if we are ultimately required to pay the CRA, 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 to correct 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 representing the minimum amount we estimated would be paid. As of June 30, 2020, the reserve balance is $0.3 million.
See Item 3, “Legal Proceedings” and Note 17, of the Notes to the Consolidated Financial Statements, “Commitments and Contingencies”, contained in Item 8 of this Annual Report on Form 10-K, for a discussion of certain other contingencies relating to our liquidity, financial position and results of operations. See also, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies - Litigation and Other Contingencies”.
Capital Spending. We spent $0.5 million on capital equipment and $0.2 million on intangible projects in our fiscal year 2020 compared to $1.1 million on capital equipment and $0.4 million on intangible projects in our fiscal 2019. We continue to closely analyze all potential capital projects and review the project’s expected return on investment.
Capital Resources. Information in this “Outlook” section should be read in conjunction with the “Safe Harbor Statement,” cautionary statements and discussion of risk factors included in “Item 1A: Risk Factors” of this report.
At June 30, 2020, we had $11.0 million in cash, cash equivalents and short-term investments of which $7.2 million, or approximately 65%, was held in foreign bank accounts. We have not been repatriating our foreign earnings. 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, 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”).
Foreign earnings held in the form of cash and cash equivalents are taxed at a 15.5% rate and the remaining earnings are taxed at an 8% rate. 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. As a result of the Act and the payment of any Transition Tax due, we may be in a position to repatriate our past and future foreign earnings to the U.S. in a more cost-effective manner than under prior law, which could positively impact our liquidity in the U.S. Any such repatriation may be subject to taxation under foreign laws or the laws of the State of Michigan. We have determined not to repatriate such earnings at this time because of the associated costs to do so and the financial requirements of
22
our subsidiaries outside the United States. See Note 21, of the Notes to the Consolidated Financial Statements, “Income Taxes,” contained in Item 8 of this Annual Report on Form 10-K for further discussion.
Impact of COVID-19 Pandemic. We are continuously reviewing our liquidity and anticipated capital requirements in light of the uncertainty created by the COVID-19 pandemic. To provide additional liquidity during this period and in light of economic uncertainties posed by the COVID-19 pandemic, the Company entered into a loan with TCF National Bank on April 16, 2020 (the “PPP Loan”), pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP Loan was in an aggregate principal amount of $2.5 million. The PPP Loan is evidenced by a promissory note (the “Note”) dated April 16, 2020. The PPP Loan matures two years from the disbursement date and bears interest at a rate of 1.000% per annum. Principal and interest are payable monthly commencing with a date determined by the lender following the remittance of the amount of the PPP Loan to be forgiven by the SBA to the lender or potentially earlier, as determined under applicable Small Business Administration rules, if the Company’s PPP Loan is reviewed. The PPP Loan may be prepaid by us at any time prior to maturity with no prepayment penalties. We can apply for forgiveness for all or a portion of the PPP Loan. The loans issued under PPP are subject to forgiveness to the extent proceeds are used for payroll costs, including payments required to continue group health care benefits, and certain rent, utility, and mortgage interest expenses incurred or paid during a 24 week period (the “Covered Period”) following the disbursement date (collectively, “Qualifying Expenses”), pursuant to the terms and limitations of the PPP. We expect to be able to use a significant portion of the PPP Loan proceeds for Qualifying Expenses and to have a significant portion of the PPP Loan eligible for forgiveness.
Any portion of the PPP Loan that is not used for Qualifying Expenses or is not otherwise forgiven is expected to be repaid on the terms set forth above. We cannot be certain as to the amount of the PPP Loan that will be forgiven, if any.
In connection with the PPP Loan, as required by the CARES Act, we certified that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant” and were otherwise eligible for the PPP Loan. While we believe we are eligible for the PPP Loan, in the event it was determined that we were not eligible for the PPP Loan, it is possible we would be required to repay the PPP Loan on an accelerated basis, rather than over two years provided under the PPP Loan promissory note, and at a higher interest rate than 1.000% per annum. See “Item 1A. Risk Factors” titled “As a borrower under the Paycheck Protection Program our eligibility for and forgiveness of that loan is likely to be reviewed by the SBA.”
As a result of our PPP Loan, utilization of our existing credit facility with Chemical, continued collection of customer receivables, and cash, cash equivalents and short-term investments, we believe we have sufficient cash resources to fund our current operations and strategic plans for at least the next twelve months. Our expectations are based upon our internal projections about the global automotive industry and related economic conditions, as well as our current understanding of our key customers’ plans for retooling projects. If our key customers’ plans differ from our understanding or the impact of the COVID-19 pandemic varies from our expectations, our results of operations and financial condition could be more negatively impacted. See “Item 1A. Risk Factors” titled “The COVID-19 pandemic has disrupted and may continue to disrupt our business, which could have a material adverse impact on our results of operations and financial condition.”
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements and accompanying notes, which have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP). Our significant accounting policies are discussed in Note 1, of the Notes to Consolidated Financial Statements, “Summary of Significant Accounting Policies”, contained in Item 8 of this Annual Report on Form 10-K. Our significant accounting policies are subject to judgments and uncertainties, which affect the application of these policies and require us to make estimates based on assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. We base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances. On an ongoing basis, we evaluate these estimates and underlying assumptions. In the event any estimate or underlying assumption proves to be different from actual amounts, adjustments are made in the subsequent period to reflect more current information. We believe that the following significant accounting policies involve our most difficult, subjective or complex judgments or involve the greatest uncertainty.
Revenue Recognition. In accordance with ASC 606, 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 |
|
|
• |
Recognize revenue when or as we satisfy a performance obligation |
23
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 of 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, 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.
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.
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, the adjusted carrying value of which has been reduced to zero at June 30, 2020, as discussed below. 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 software is five years.
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. 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. In the third quarter of fiscal 2020, we determined there was a triggering event caused by the economic impacts of the COVID-19 pandemic and related restrictions. As a result, 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. The result was that the asset group carrying value exceeded the sum of the undiscounted cash flows. After a fair value analysis, it was determined the trade name was not recoverable and was impaired. As a result, we recorded a non-cash impairment loss of $0.5 million in the third quarter of fiscal 2020. After the impairment charges, the adjusted carrying value of CMM’s long-lived assets was zero at June 30, 2020 compared to $0.7 million at June 30, 2019.
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.
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 was 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.
24
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 used 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 in the CMM reporting unit, primarily due to the lack of projected growth in the sales of our off-line product line.
In the third quarter of fiscal 2020, we determined there was a triggering event caused by the economic impacts of the COVID-19 pandemic and related restrictions. As a result, we performed an interim quantitative impairment test as of March 31, 2020. The estimated fair value for the CMM reporting unit was determined using the income approach. 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. The future cash flows were based upon internal forecasts and include an estimate of long-term future growth rates based on the 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. There is inherent uncertainty associated with these key assumptions including the duration of the economic downturn associated with COVID-19 and the recovery period. Such projections are considered Level 3 on the fair value hierarchy and contain management’s best estimates of economic and market conditions over the projected period. The result of the goodwill impairment test indicated the fair value of the Company’s CMM reporting unit was less than its carrying value. As a result, we recorded a non-cash goodwill charge of $1.7 million in the third quarter of fiscal 2020. These impairments are not deductible for income tax purposes. The impairment losses are recorded in “Severance, impairment and other charges” on our Consolidated Statements of Operations.
After these impairment charges, the adjusted carrying value of CMM’s goodwill was zero at June 30, 2020, as compared to $1.7 million at June 30, 2019.
Deferred Income Taxes. Deferred income tax assets and liabilities represent the estimated future income tax effect in each jurisdiction that we operate of temporary differences between the book and tax basis of our assets and liabilities, assuming they will be realized and settled at the amounts reported in our financial statements. We record a valuation allowance to reduce our deferred tax assets to the amount that we believe is more likely than not to be realized. This assessment includes consideration of cumulative losses in recent years, the scheduled reversal of temporary taxable differences, projected future taxable income and the impact of tax planning. We adjust this valuation allowance periodically based upon changes in these considerations. See Note 21, of the Notes to the Consolidated Financial Statements, “Income Taxes”, contained in Item 8 of this Annual Report on Form 10-K. If actual long-term future taxable income is lower than our estimates, or we revise our initial estimates, we may be required to record material adjustments to our deferred tax assets, resulting in a charge to income in the period of determination and negatively impacting our financial position and results of operations.
Litigation and Other Contingencies. From time to time, we are subject to certain legal proceedings and other contingencies, the outcomes of which are subject to significant uncertainty. We accrue for estimated losses if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. We use judgment and evaluate, with the assistance of legal counsel, whether a loss contingency arising from litigation should be disclosed or recorded. The outcome of legal proceedings and other contingencies is inherently uncertain and therefore a loss cannot always be reasonably estimated. Accordingly, if the outcome of legal proceedings and other contingencies is more adverse than we initially anticipate, we would have to record a charge for the matter, potentially in the full amount at which it was resolved, in the period resolved, negatively impacting our results of operations and financial position for the period. See Note 17, of the Notes to the Consolidated Financial Statements, “Commitments and Contingencies”, contained in Item 8 of this Annual Report on Form 10-K for a discussion of current material claims.
Stock-Based Compensation. The Company accounts for non-cash stock-based compensation in accordance with ASC 718, "Compensation - Stock Compensation". Under the fair value recognition provisions of this statement, stock-based compensation cost is measured at the grant date based on the value of the award and is recognized as expense over the vesting period. Determining the fair value of stock-based awards at the grant date requires judgment, including estimating the number of stock-based awards that are expected to be forfeited. The estimated forfeiture rate may change from time to time based upon our actual experience. An increase in the forfeiture rate would require us to reverse a portion of our prior expense for non-cash stock-based compensation, which would positively impact our results of operations. See Note 20, of the Notes to the Consolidated Financial Statements, “Stock-based Compensation”, contained in Item 8 of this Annual Report on Form 10-K.
25
Leases. The FASB issued ASC 842, “Leases” 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, which we adopted in fiscal 2020. We elected to use the modified retrospective approach as our transition method. Operating lease right-of-use assets and liabilities are reflected within the captions “Right-of-use assets”, “Short-term operating lease liability” and “Long-term operating lease liability”, respectively, on the Company’s Consolidated Balance Sheet as of June 30, 2020. Right-of-use assets, Short-term operating lease liability and Long-term operating lease liability were $3,668,000, $475,000 and $3,245,000 as of June 30, 2020, respectively. When readily determinable, the discount rate used to calculate the lease liability is the rate implicit in the lease. Otherwise, we applied judgment and used our incremental borrowing rate based on the information available at lease commencement. Lease expense, recorded in the cost of sales and selling, general & administrative expense categories in the Company’s Consolidated Statement of Operations total $704,000 for the fiscal year ended June 30, 2020. Cash paid for operating leases was $737,000 for fiscal year 2020 and is included in operating cash flows. As required for other monetary liabilities, lessees shall remeasure a foreign currency-denominated lease liability using the exchange rate at each reporting date, but the lease assets are nonmonetary assets measured at historical rates, which are not affected by subsequent changes in the exchange rates. We have foreign currency-denominated lease liabilities that could be impacted on the future by these requirements. See Note 12, of Notes to the Consolidated Financial Statements, “Leases”, contained in Item 8 of this Annual Report on Form 10-K.
Not applicable.
26
27
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Perceptron, Inc.
Plymouth, Michigan
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Perceptron, Inc. (the “Company”) and subsidiaries as of June 30, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, shareholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at June 30, 2020 and 2019, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Changes in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for leases in fiscal 2020 due to the adoption of Accounting Standards Codification Topic 842, Leases.
Emphasis of Matter
As more fully described in Note 23 to the consolidated financial statements, the Company has been and may be further materially impacted by the novel strain Coronavirus (COVID-19) which was declared a global pandemic by the World Health Organization in March 2020.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ BDO USA, LLP
We have served as the Company's auditor since 2013.
Troy, Michigan
28
PERCEPTRON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
As of June 30, |
|
||||||
|
(In Thousands, Except Per Share Amount) |
|
2020 |
|
|
2019 |
|
||
|
ASSETS |
|
|
|
|
|
|
|
|
|
Current Assets |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
i 10,621 |
|
|
$ |
i 4,585 |
|
|
Short-term investments |
|
|
i 355 |
|
|
|
i 1,431 |
|
|
Receivables: |
|
|
|
|
|
|
|
|
|
Billed receivables, net of allowance for doubtful accounts |
|
|
i 25,465 |
|
|
|
i 27,449 |
|
|
of $ i 586 and $ i 541, respectively |
|
|
|
|
|
|
|
|
|
Unbilled receivables, net |
|
|
i 4,784 |
|
|
|
i 5,394 |
|
|
Other receivables |
|
|
i 404 |
|
|
|
i 200 |
|
|
Inventories, net of reserves of $ i 1,929 and $ i 1,778, respectively |
|
|
i 10,387 |
|
|
|
i 10,810 |
|
|
Other current assets |
|
|
i 1,854 |
|
|
|
i 1,529 |
|
|
Total current assets |
|
|
i 53,870 |
|
|
|
i 51,398 |
|
|
|
|
|
|
|
|
|
|
|
|
Property and Equipment, Net |
|
|
i 5,750 |
|
|
|
i 6,538 |
|
|
Goodwill |
|
|
- |
|
|
|
i 1,741 |
|
|
Intangible Assets, Net |
|
|
i 1,100 |
|
|
|
i 1,816 |
|
|
Right of Use Assets |
|
|
i 3,668 |
|
|
|
- |
|
|
Long-Term Investment |
|
|
i 725 |
|
|
|
i 725 |
|
|
Long-Term Deferred Income Tax Assets |
|
|
i 469 |
|
|
|
i 620 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
i 65,582 |
|
|
$ |
i 62,838 |
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
|
Lines of credit and current portion of long-term debt |
|
$ |
i 2,808 |
|
|
$ |
- |
|
|
Accounts payable |
|
|
i 6,667 |
|
|
|
i 7,397 |
|
|
Accrued liabilities and expenses |
|
|
i 3,368 |
|
|
|
i 3,609 |
|
|
Accrued compensation |
|
|
i 1,314 |
|
|
|
i 1,646 |
|
|
Current portion of taxes payable |
|
|
i 113 |
|
|
|
i 320 |
|
|
Income taxes payable |
|
|
i 462 |
|
|
|
i 536 |
|
|
Short-term operating lease liability |
|
|
i 475 |
|
|
|
- |
|
|
Reserve for restructuring and other charges |
|
|
i 148 |
|
|
|
i 44 |
|
|
Deferred revenue |
|
|
i 6,032 |
|
|
|
i 6,649 |
|
|
Total current liabilities |
|
|
i 21,387 |
|
|
|
i 20,201 |
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Taxes Payable |
|
|
- |
|
|
|
i 114 |
|
|
Long-Term Deferred Income Tax Liability |
|
|
i 3 |
|
|
|
i 41 |
|
|
Long-Term Operating Lease Liability |
|
|
i 3,245 |
|
|
|
- |
|
|
Long-Term Deferred Revenue |
|
|
i 214 |
|
|
|
- |
|
|
Long-Term Debt, Less Current Portion |
|
|
i 1,983 |
|
|
|
- |
|
|
Other Long-Term Liabilities |
|
|
i 449 |
|
|
|
i 556 |
|
|
Total Liabilities |
|
$ |
i 27,281 |
|
|
$ |
i 20,912 |
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (Note 17) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' Equity |
|
|
|
|
|
|
|
|
|
Preferred stock, no par value, authorized i i 1,000 / shares, issued i i none / |
|
$ |
i - |
|
|
$ |
i - |
|
|
Common stock, $ i i 0.01 / par value, authorized i i 19,000 / shares, issued |
|
|
|
|
|
|
|
|
|
and outstanding i i 9,744 / and i i 9,656 / , respectively |
|
|
i 97 |
|
|
|
i 97 |
|
|
Accumulated other comprehensive loss |
|
|
( i 3,371 |
) |
|
|
( i 3,079 |
) |
|
Additional paid-in capital |
|
|
i 49,721 |
|
|
|
i 49,083 |
|
|
Retained deficit |
|
|
( i 8,146 |
) |
|
|
( i 4,175 |
) |
|
Total shareholders' equity |
|
|
i 38,301 |
|
|
|
i 41,926 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders' Equity |
|
$ |
i 65,582 |
|
|
$ |
i 62,838 |
|
The notes to the consolidated financial statements are an integral part of these statements.
29
PERCEPTRON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
Years Ended June 30, |
|
|||||
|
(In Thousands, Except Per Share Amount) |
|
2020 |
|
|
2019 |
|
||
|
|
|
|
|
|
|
|
|
|
|
Net Sales |
|
$ |
i 62,262 |
|
|
$ |
i 76,822 |
|
|
Cost of Sales |
|
|
i 38,957 |
|
|
|
i 49,630 |
|
|
Gross Profit |
|
|
i 23,305 |
|
|
|
i 27,192 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses |
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
i 17,245 |
|
|
|
i 18,980 |
|
|
Engineering, research and development |
|
|
i 6,105 |
|
|
|
i 8,040 |
|
|
Severance, impairment and other charges |
|
|
i 3,307 |
|
|
|
i 6,930 |
|
|
Total operating expenses |
|
|
i 26,657 |
|
|
|
i 33,950 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating Loss |
|
|
( i 3,352 |
) |
|
|
( i 6,758 |
) |
|
|
|
|
|
|
|
|
|
|
|
Other Income and (Expense) |
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
( i 136 |
) |
|
|
( i 252 |
) |
|
Foreign currency loss, net |
|
|
( i 558 |
) |
|
|
( i 90 |
) |
|
Other income, net |
|
|
i 407 |
|
|
|
i 97 |
|
|
Total other income and (expense) |
|
|
( i 287 |
) |
|
|
( i 245 |
) |
|
|
|
|
|
|
|
|
|
|
|
Loss Before Income Taxes |
|
|
( i 3,639 |
) |
|
|
( i 7,003 |
) |
|
|
|
|
|
|
|
|
|
|
|
Income Tax (Expense) Benefit |
|
|
( i 332 |
) |
|
|
i 212 |
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss |
|
$ |
( i 3,971 |
) |
|
$ |
( i 6,791 |
) |
|
|
|
|
|
|
|
|
|
|
|
Loss Per Common Share |
|
|
|
|
|
|
|
|
|
Basic and Diluted |
|
$ |
( i 0.41 |
) |
|
$ |
( i 0.71 |
) |
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares Outstanding |
|
|
|
|
|
|
|
|
|
Basic and Diluted |
|
|
i 9,697 |
|
|
|
i 9,612 |
|
The notes to the consolidated financial statements are an integral part of these statements.
30
PERCEPTRON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In Thousands)
|
|
|
Years ended June 30, |
|
|||||
|
(In Thousands) |
|
2020 |
|
|
2019 |
|
||
|
|
|
|
|
|
|
|
|
|
|
Net Loss |
|
$ |
( i 3,971 |
) |
|
$ |
( i 6,791 |
) |
|
Other Comprehensive Loss: |
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
( i 292 |
) |
|
|
( i 983 |
) |
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Loss |
|
$ |
( i 4,263 |
) |
|
$ |
( i 7,774 |
) |
The notes to the consolidated financial statements are an integral part of these statements.
31
PERCEPTRON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(In Thousands)
|
|
|
Years Ended June 30, |
|
|||||
|
|
|
|
|
2019 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Operating Activities |
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
( i 3,971 |
) |
|
$ |
( i 6,791 |
) |
|
Adjustments to reconcile net (loss) to net cash provided by |
|
|
|
|
|
|
|
|
|
operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization, includes $ i i 517 / amortization of ROU assets (imputed) |
|
|
i 1,845 |
|
|
|
i 2,028 |
|
|
Stock compensation expense |
|
|
i 652 |
|
|
|
i 702 |
|
|
Goodwill and intangible assets impairment |
|
|
i 2,246 |
|
|
|
i 7,404 |
|
|
Deferred income taxes (benefit) |
|
|
i 100 |
|
|
|
( i 425 |
) |
|
Loss on disposal of assets |
|
|
i 290 |
|
|
|
i 33 |
|
|
Allowance for doubtful accounts |
|
|
i 45 |
|
|
|
i 137 |
|
|
Changes in assets and liabilities |
|
|
|
|
|
|
|
|
|
Receivables |
|
|
i 1,564 |
|
|
|
i 111 |
|
|
Inventories |
|
|
i 257 |
|
|
|
i 1,497 |
|
|
Accounts payable |
|
|
( i 604 |
) |
|
|
( i 47 |
) |
|
Accrued liabilities and expenses |
|
|
( i 183 |
) |
|
|
( i 1,297 |
) |
|
Deferred revenue |
|
|
( i 304 |
) |
|
|
( i 718 |
) |
|
Other assets and liabilities |
|
|
( i 1,429 |
) |
|
|
( i 1,733 |
) |
|
Net cash provided by operating activities |
|
|
i 508 |
|
|
|
i 901 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities |
|
|
|
|
|
|
|
|
|
Purchases of short-term investments |
|
|
( i 1,483 |
) |
|
|
( i 3,364 |
) |
|
Sales of short-term investments |
|
|
i 2,617 |
|
|
|
i 2,868 |
|
|
Capital expenditures |
|
|
( i 474 |
) |
|
|
( i 1,078 |
) |
|
Capital expenditures-intangibles |
|
|
( i 202 |
) |
|
|
( i 415 |
) |
|
Net cash provided by (used for) investing activities |
|
|
i 458 |
|
|
|
( i 1,989 |
) |
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
|
Payments on lines of credit |
|
|
( i 3,300 |
) |
|
|
( i 171 |
) |
|
Proceeds from lines of credit |
|
|
i 5,546 |
|
|
|
- |
|
|
Proceeds from PPP loan |
|
|
i 2,545 |
|
|
|
- |
|
|
Proceeds from stock plans |
|
|
i 15 |
|
|
|
i 329 |
|
|
Cash payments for shares surrendered upon vesting of restricted |
|
|
|
|
|
|
|
|
|
stock units to cover taxes |
|
|
( i 28 |
) |
|
|
( i 57 |
) |
|
Net cash provided by financing activities |
|
|
i 4,778 |
|
|
|
i 101 |
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Exchange Rate Changes on Cash and Cash Equivalents |
|
|
i 389 |
|
|
|
( i 166 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash |
|
|
i 6,133 |
|
|
|
( i 1,153 |
) |
|
Cash, Cash Equivalents and Restricted Cash, July 1 |
|
|
i 4,843 |
|
|
|
i 5,996 |
|
|
Cash, Cash Equivalents and Restricted Cash, June 30 |
|
$ |
i 10,976 |
|
|
$ |
i 4,843 |
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information |
|
|
|
|
|
|
|
|
|
Cash paid during the year for interest |
|
$ |
i 46 |
|
|
$ |
i 94 |
|
|
Cash paid during the year for income taxes |
|
$ |
i 246 |
|
|
$ |
i 665 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents |
|
$ |
i 10,621 |
|
|
$ |
i 4,585 |
|
|
Restricted Cash included in Short-term Investments |
|
|
i 355 |
|
|
|
i 258 |
|
|
Total Cash, Cash Equivalents and Restricted Cash |
|
$ |
i 10,976 |
|
|
$ |
i 4,843 |
|
The notes to the consolidated financial statements are an integral part of these statements.
32
PERCEPTRON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
Additional |
|
|
Retained |
|
|
Total |
|
||||
|
|
|
Common Stock |
|
|
Comprehensive |
|
|
Paid-In |
|
|
Earnings |
|
|
Shareholders' |
|
|||||||||
|
|
|
Shares |
|
|
Amount |
|
|
Loss |
|
|
Capital |
|
|
(Deficit) |
|
|
Equity |
|
||||||
|
Balances, June 30, 2018 |
|
|
i 9,554 |
|
|
$ |
i 96 |
|
|
$ |
( i 2,096 |
) |
|
$ |
i 48,110 |
|
|
$ |
i 567 |
|
|
$ |
i 46,677 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( i 6,791 |
) |
|
|
( i 6,791 |
) |
|
Adoption of ASC 606 - modified retrospective transition method |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
i 2,049 |
|
|
|
i 2,049 |
|
|
Other comprehensive loss |
|
|
- |
|
|
|
- |
|
|
|
( i 983 |
) |
|
|
- |
|
|
|
- |
|
|
|
( i 983 |
) |
|
Stock-based compensation |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
i 634 |
|
|
|
- |
|
|
|
i 634 |
|
|
Stock plans |
|
|
i 102 |
|
|
|
i 1 |
|
|
|
- |
|
|
|
i 339 |
|
|
|
- |
|
|
|
i 340 |
|
|
Balances, June 30, 2019 |
|
|
i 9,656 |
|
|
$ |
i 97 |
|
|
$ |
( i 3,079 |
) |
|
$ |
i 49,083 |
|
|
$ |
( i 4,175 |
) |
|
$ |
i 41,926 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( i 3,971 |
) |
|
|
( i 3,971 |
) |
|
Other comprehensive loss |
|
|
- |
|
|
|
- |
|
|
|
( i 292 |
) |
|
|
- |
|
|
|
- |
|
|
|
( i 292 |
) |
|
Stock-based compensation |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
i 412 |
|
|
|
- |
|
|
|
i 412 |
|
|
Stock plans |
|
|
i 88 |
|
|
|
- |
|
|
|
- |
|
|
|
i 226 |
|
|
|
- |
|
|
|
i 226 |
|
|
Balances, June 30, 2020 |
|
|
i 9,744 |
|
|
$ |
i 97 |
|
|
$ |
( i 3,371 |
) |
|
$ |
i 49,721 |
|
|
$ |
( i 8,146 |
) |
|
$ |
i 38,301 |
|
The notes to the consolidated financial statements are an integral part of these statements.
33
PERCEPTRON, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
i1.Summary of Significant Accounting Policies
iOperations
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.
iBasis 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.
In particular, management has made estimates and assumptions related to the impact of the novel coronavirus ("COVID-19") on its business. COVID-19 was characterized as a pandemic by the World Health Organization on March 11, 2020. To help lessen its spread, many countries have implemented travel restrictions and/or required companies to limit or suspend business operations. These actions have disrupted supply chains and company operations around the world. The current environment resulting from COVID-19 is unprecedented and comes with a great deal of uncertainty. See Note 23, of the Notes to the Consolidated Financial Statements “COVID-19 Pandemic”, for a discussion of the impact of COVID-19 on the Company’s business.
iRevenue Recognition
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:
|
|
• |
Identify the contract with the customer |
|
|
• |
Identify the performance obligation(s) in the contract |
|
|
• |
Determine the transaction price |
|
|
• |
Allocate the transaction price to performance obligation(s) in the contract |
|
|
• |
Recognize revenue when or as we satisfy a performance obligation |
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. i 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.
/ /34
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.
iForeign 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”.
iEarnings Per Share
Basic earnings per share (“EPS”) is calculated by dividing net income by the weighted average number of common shares outstanding during the period. Other obligations, such as stock options and restricted stock awards, are considered to be potentially dilutive common shares. Diluted EPS assumes the issuance of potential dilutive common shares outstanding during the period and adjusts for any changes in income and the repurchase of common shares that would have occurred from the assumed issuance, unless such effect is anti-dilutive. The calculation of diluted shares also takes into effect the average unrecognized non-cash stock-based compensation expense and additional adjustments for tax benefits related to non-cash stock-based compensation expense. Furthermore, we exclude all outstanding options to purchase common stock from the computation of diluted EPS in periods of net losses because the effect is anti-dilutive.
Options to purchase i 20,000 and i 122,000 of common stock for the fiscal years ended June 30, 2020 and 2019 respectively, were not included in the computation of diluted EPS because the effect would have been anti-dilutive.
iCash 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, 2020, we had $ i 10,621,000 in cash and cash equivalents of which $ i 6,821,000 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.
iReceivable 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 i 30 to i 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 receivables 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 receivables 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, 2020 and 2019, capitalized commissions of $ i 338,000 and $ i 164,000 respectively, were included in “Other current assets” on our Consolidated Balance Sheet. Commission expense recognized during the twelve months ended June 30, 2020 and 2019 was $ i 720,000 and $ i 969,000, and is included in “Selling, general and administrative expense” in our Consolidated Statement of Operations.
iShort-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. Changes in the fair value of our equity securities are recognized in net income. For equity securities that do not have readily determinable fair values such as our preferred stock investment, 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.
35
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.
iFair 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, 2020 and 2019. 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, 2020.
ASC 820 establishes a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources (observable inputs), or reflect our assumptions of market participant valuation (unobservable inputs). These two types of inputs create the following fair value hierarchy:
|
|
• |
Level 1 – Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities. |
|
|
• |
Level 2 – Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly. |
|
|
• |
Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable and reflect management’s estimates and assumptions. |
ASC 820 requires the use of observable market data if such data is available without undue cost and effort. See Note 9, of the Notes to the Consolidated Financial Statements, “Fair Value Measurements” for further discussion.
iProperty 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 i 3 to i 15 years. Depreciation on buildings is computed on a straight-line basis over i 40 years. Depreciation on building improvements is computed on a straight-line basis over estimated useful lives ranging from i 10 to i 15 years.
iIntangible 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, the adjusted carrying value of which has been reduced to i zero at June 30, 2020. 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 software is i five years. See a further discussion on our “Impairment of Long-Lived Assets Subject to Amortization” section below.
/ iImpairment of Long-Lived Assets Subject to Depreciation and 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.
36
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. 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 $ i 1.4 million in the fourth quarter of fiscal 2019. See Note 7, “Intangible Assets” for further discussion. There were no impairment indicators for other long-lived assets subject to amortization at that time.
In the third quarter of fiscal 2020, the Company determined there was a triggering event in the CMM reporting event, caused by the economic impacts of the COVID-19 pandemic and related restrictions. As a result, the Company assessed whether the carrying amounts of its 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. The result was that the asset group carrying value exceeded the sum of the undiscounted cash flows. After a fair value analysis, it was determined the trade name was not recoverable and was impaired. As a result, the Company recorded a non-cash impairment loss of $ i 0.5 million in the third quarter of fiscal 2020. See Note 7 “Intangible Assets” for further discussion. There were no impairment indicators for other long-lived assets subject to amortization.
iGoodwill
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. 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 i 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 $ i 6.0 million due in the fourth quarter of fiscal 2019 to the lack of projected growth in the sales of our Off-Line Measurement Solutions. This impairment was not deductible for income tax purposes.
37
In the third quarter of fiscal 2020, the Company determined there was a triggering event in the CMM reporting unit, caused by the economic impacts of the COVID-19 pandemic and related restrictions. As a result, the Company performed an interim quantitative impairment test as of March 31, 2020. The estimated fair value for the CMM reporting unit was determined using the income approach. 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. 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 valuation was i 18.5%. The future cash flows were based upon internal forecasts and include an estimate of long-term future growth rates based on the 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. There is inherent uncertainty associated with these key assumptions including the duration of the economic downturn associated with COVID-19 and the recovery period. Such projections are considered Level 3 on the fair value hierarchy and contain management’s best estimates of economic and market conditions over the projected period. The result of the goodwill impairment test indicated the fair value of the Company’s CMM reporting unit was less than its carrying value. As a result, the Company recorded a non-cash goodwill charge of $ i 1.7 million in the third quarter of fiscal 2020, which is not deductible for 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 i zero at June 30, 2020 compared to $ i 1.7 million as of June 30, 2019.
iDeferred 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.
iDeferred 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 21, “Income Taxes” for further discussion).
iWarranty
Our In-Line and Near-Line Measurement Solutions generally carry a one to three-year warranty for parts and a one-year warranty for labor and travel related to warranty. Product sales to the forest products industry carry a three-year warranty for TriCam® sensors. Sales of ScanWorks® have a one-year warranty for parts. Sales of WheelWorks® products have a two-year warranty for parts. Our Off-Line Measurement Solutions generally carry a twelve-month warranty after the machine passes the acceptance test or a fifteen-month warranty from the date of shipment, whichever date comes first, on parts only. We provide a reserve for warranty based on our experience and knowledge.
Factors affecting our warranty reserve include the number of units sold or in-service as well as historical and anticipated rates of claims and cost per claim. We periodically assess the adequacy of our warranty reserve based on changes in these factors. If a special circumstance arises which requires a higher level of warranty, we make a special warranty provision commensurate with the facts.
iSelf–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.
iNew Accounting Pronouncements
Recently Issued Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“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. ASU 2016-13, as amended, is effective for the Company on July 1, 2023, with early adoption permitted. The Company does not expect the impact of the adoption of ASU 2016-13 to be material on its consolidated financial statements.
38
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 internal use software. ASU 2018-15 is effective for the Company on July 1, 2020. The Company is currently evaluating the impact of this standard on its consolidated financial statements and disclosures.
In November 2019, the FASB issued Accounting Standards Update No. 2019-11—Codification Improvements to Topic 326, Financial Instruments—Credit Losses (ASU 2019-11). The amendments in this Update represent changes to clarify, correct errors in, or improve the Codification. The amendments make the Codification easier to understand and easier to apply by eliminating inconsistencies and providing clarifications. The effective dates and transition requirements for ASU 2019-11 are the same as ASU 2016-13. ASU 2019-11 is effective for the Company on July 1, 2023. The Company is currently evaluating the impact of this standard on its consolidated financial statements and disclosures.
In December 2019, the FASB issued Accounting Standards Update No. 2019-12—Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12). The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. ASU 2019-12 is effective for the Company on July 1, 2021. The Company is currently evaluating the impact of this standard on its consolidated financial statements and disclosures.
In January 2020, the FASB issued Accounting Standards Update No. 2020-01—Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)—Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (a consensus of the Emerging Issues Task Force) (ASU 2020-01). The amendments in this ASU clarify certain interactions between the guidance to account for certain equity securities under Topic 321, the guidance to account for investments under the equity method of accounting in Topic 323, and the guidance in Topic 815, which could change how an entity accounts for an equity security under the measurement alternative or a forward contract or purchased option to purchase securities that, upon settlement of the forward contract or exercise of the purchased option, would be accounted for under the equity method of accounting or the fair value option in accordance with Topic 825, Financial Instruments. These amendments improve current GAAP by reducing diversity in practice and increasing comparability of the accounting for these interactions. ASU 2020-01 is effective for the Company on July 1, 2021. The Company is currently evaluating the impact of this standard on its 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 the Company on July 1, 2021. The Company is currently evaluating the impact of this standard on its consolidated financial statements and disclosures.
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued Accounting Standards Update No. 2016-02 Leases (ASU 2016-2), which establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. The Company adopted this guidance on July 1, 2019, using the modified retrospective approach.
The adoption of the standard resulted in the recognition of net operating lease right-of-use assets of $ i i 4.0 / million and operating lease liabilities of $ i i 3.9 / million on the consolidated balance sheet as of July 1, 2019 primarily related to the Company’s real estate operating leases. The operating lease right-of-use asset includes the impact of deferred rent. The Company does not have any finance leases.
The Company elected to apply the package of practical expedients upon transition, which includes no reassessment of whether existing contracts are or contain leases and allowed for the lease classification for existing leases to be retained. The Company did not elect the practical expedient to use hindsight, and accordingly the initial lease term did not differ under the new standard versus prior accounting practice. After transition, in certain instances, the cost of renewal options will be recognized earlier in the term of the lease than under the previous lease accounting rules. The Company has selected as its accounting policy to keep leases with a term of twelve months or less off the balance sheet and recognize these lease payments on a straight-line basis over the lease term.
See Note 12 of the Notes to the Consolidated Financial Statements, “Leases” for further information on the impact of the new standard.
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 was adopted on July 1, 2019 and did not have a significant impact on the Company’s consolidated financial statements or disclosures.
i2.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.
39
For the fiscal years 2020 and 2019 approximately i 32% and i 32%, respectively, of our “Net Sales” on our Consolidated Statements of Operations were derived from sales directly to our i four largest customers. During the fiscal years ended June 30, 2020 and 2019, direct sales to Kuka accounted for approximately i 12% and i 7%, respectively, and direct sales to Volkswagen Group accounted for approximately i 11% and i 13%, respectively, and direct sales to General Motors Company accounted for approximately i 4% and i 11%, respectively, of our Net Sales.
i3.Revenue from Contracts with Customers
Disaggregated Revenue
We manage our business under i 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 i one reportable segment.
See Note 22, of the Notes to the Consolidated Financial Statements, “Segment and Geographic Information” for revenue by geography and product line.
We have i 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.
i
The following table summarizes these two categories for the twelve months ended June 30, 2020 (in thousands):
|
|
|
Twelve Months Ended |
|
Twelve Months Ended |
|
||
|
Timing of Revenue Recognition |
|
|
|
||||
|
Goods transferred at a point of time |
|
$ |
i 41,784 |
|
$ |
i 57,784 |
|
|
Services transferred over time |
|
|
i 20,478 |
|
|
i 19,038 |
|
|
Total Net Sales |
|
$ |
i 62,262 |
|
$ |
i 76,822 |
|
/
Remaining Performance Obligations
i
The estimated recognition of our remaining unsatisfied performance obligations beyond one year is as follows (in thousands):
|
Years Ending June 30, |
|
Amount |
|
|
|
2021 |
|
$ |
i 10,235 |
|
|
2022 |
|
|
i 821 |
|
|
2023 |
|
|
i 1 |
|
|
2024 |
|
|
- |
|
|
after 2024 |
|
|
- |
|
|
Total |
|
$ |
i 11,057 |
|
/
Contract Balances
i
Current balances of our contract balances are as follows (in thousands):
|
Balance Sheet Account |
|
|
|
|
|
Increase / (Decrease) |
|
|||||
|
Unbilled receivables |
|
$ |
i 4,784 |
|
|
$ |
i 5,394 |
|
|
$ |
( i 610 |
) |
|
Deferred revenue |
|
|
( i 6,246 |
) |
|
|
( i 6,649 |
) |
|
|
i 403 |
|
|
Net Unbilled receivables / (Deferred revenue) |
|
$ |
( i 1,462 |
) |
|
$ |
( i 1,255 |
) |
|
$ |
( i 207 |
) |
/
The change in our net Unbilled receivables / (Deferred revenue) from July 1, 2019 to June 30, 2020 was primarily due to the amount of revenue recognized as we satisfied performance obligations during the twelve months ended June 30, 2020, 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, 2020, we recognized revenue of $ i 6,551,000 that was included in “Deferred revenue” at July 1, 2019. During the twelve months ended June 30, 2019, we recognized revenue of $ i 5,454,000 that was included in “Deferred revenue” at July 1, 2018.
/
40
4.Allowance for Doubtful Accounts
Changes in our allowance for doubtful accounts are as follows (in thousands):
i
|
|
|
Beginning |
|
|
|
|
|
|
|
|
|
|
Ending |
|
||
|
|
|
Balance |
|
|
Expenses |
|
|
Charge-offs |
|
|
Balance |
|
||||
|
Fiscal year ended June 30, 2020 |
|
$ |
i 541 |
|
|
$ |
i 136 |
|
|
$ |
( i 91 |
) |
|
$ |
i 586 |
|
|
Fiscal year ended June 30, 2019 |
|
$ |
i 404 |
|
|
$ |
i 219 |
|
|
$ |
( i 82 |
) |
|
$ |
i 541 |
|
/ i
5.Inventory
Inventory, net of reserves of $ i 1,929,000 and $ i 1,778,000 at June 30, 2020 and June 30, 2019, respectively, is comprised of the following (in thousands):
i
|
|
|
|
|
|
||||
|
Component parts |
|
$ |
i 4,519 |
|
|
$ |
i 5,229 |
|
|
Work in process |
|
|
i 1,714 |
|
|
|
i 1,383 |
|
|
Finished goods |
|
|
i 4,154 |
|
|
|
i 4,198 |
|
|
Total |
|
$ |
i 10,387 |
|
|
$ |
i 10,810 |
|
/
Changes in our reserve for obsolescence is as follows (in thousands):
i
|
|
|
Beginning |
|
|
Costs and |
|
|
|
|
|
|
Ending |
|
|||
|
|
|
Balance |
|
|
Expenses |
|
|
Charge-offs |
|
|
Balance |
|
||||
|
Fiscal year ended June 30, 2020 |
|
$ |
i 1,778 |
|
|
$ |
i 329 |
|
|
|
( i 178 |
) |
|
$ |
i 1,929 |
|
|
Fiscal year ended June 30, 2019 |
|
$ |
i 2,115 |
|
|
$ |
i 204 |
|
|
$ |
( i 541 |
) |
|
$ |
i 1,778 |
|
/ / i
6.Goodwill
iOur goodwill balance as of June 30, 2020 and 2019 is as follows (in thousands):
|
|
|
2020 |
|
|
2019 |
|
||
|
Balance at beginning of year |
|
$ |
i 1,741 |
|
|
$ |
i 7,985 |
|
|
Impairment |
|
|
( i 1,693 |
) |
|
|
( i 6,020 |
) |
|
Impact of foreign currency |
|
|
( i 48 |
) |
|
|
( i 224 |
) |
|
Balance at end of year |
|
$ |
- |
|
|
$ |
i 1,741 |
|
In the third quarter of fiscal 2020, the Company determined there was a triggering event caused by the economic impacts of the COVID-19 pandemic and related restrictions. As a result, the Company performed an interim quantitative impairment test as of March 31, 2020. The result of the goodwill impairment test indicated the fair value of the Company’s CMM reporting unit was less than its carrying value. As a result, the Company recorded a non-cash goodwill charge of $ i 1.7 million in the third quarter of fiscal 2020, which is not deductible for tax purposes. Goodwill was recorded on the local books of the Company’s CMM reporting unit. The Company’s goodwill balance was i zero and $ i 1.7 million as of June 30, 2020 and 2019, respectively.
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 $ i 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 $ i 1.7 million as of June 30, 2019 compared to $ i 8.0 million as of June 30, 2018.
/
41
7.Intangible Assets
iOur other intangible assets as of June 30, 2020 and 2019 are as follows (in thousands):
|
|
|
|
|
|
||||||||||||||||||||||||||||
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
Net |
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
Net |
|
||||
|
|
|
Carrying |
|
|
Impairments |
|
|
Accumulated |
|
|
Carrying |
|
|
Carrying |
|
|
Impairments |
|
|
Accumulated |
|
|
Carrying |
|
||||||||
|
|
|
Amount |
|
|
|
|
|
|
Amortization |
|
|
Amount |
|
|
Amount |
|
|
|
|
|
|
Amortization |
|
|
Amount |
|
||||||
|
Customer/Distributor Relationships |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
i 3,249 |
|
|
$ |
( i 589 |
) |
|
$ |
( i 2,660 |
) |
|
$ |
i - |
|
|
Trade Name |
|
|
i 1,674 |
|
|
|
( i 558 |
) |
|
|
( i 1,116 |
) |
|
|
- |
|
|
|
i 2,523 |
|
|
|
( i 795 |
) |
|
|
( i 1,067 |
) |
|
|
i 661 |
|
|
Software |
|
|
i 2,104 |
|
|
|
- |
|
|
|
( i 1,004 |
) |
|
|
i 1,100 |
|
|
|
i 1,902 |
|
|
|
- |
|
|
|
( i 747 |
) |
|
|
i 1,155 |
|
|
Total |
|
$ |
i 3,778 |
|
|
$ |
( i 558 |
) |
|
$ |
( i 2,120 |
) |
|
$ |
i 1,100 |
|
|
$ |
i 7,674 |
|
|
$ |
( i 1,384 |
) |
|
$ |
( i 4,474 |
) |
|
$ |
i 1,816 |
|
/
In the third quarter of fiscal 2020, the Company determined there was a triggering event caused by the economic impacts of the COVID-19 pandemic and related restrictions. As a result, the Company assessed whether the carrying amounts of its 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. The result was that the asset group carrying value exceeded the sum of the undiscounted cash flows. After a fair value analysis, it was determined the trade name was not recoverable and was impaired. As a result, the Company recorded a non-cash impairment loss of $ i 0.5 million in the third quarter of fiscal 2020, which is not deductible for income tax purposes.
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. 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 $ i 0.6 million and $ i 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 impairments were 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 were determined using the income approach.
Amortization expense for the fiscal years ended June 30, 2020 and 2019 was $ i 343,000 and $ i 956,000, respectively.
iThe estimated amortization of the remaining intangible assets by year is as follows (in thousands):
|
Years Ending June 30, |
|
Amount |
|
|
|
2021 |
|
|
i 278 |
|
|
2022 |
|
|
i 316 |
|
|
2023 |
|
|
i 281 |
|
|
2024 |
|
|
i 225 |
|
|
|
|
$ |
i 1,100 |
|
Collectively, the weighted average amortization period of intangible assets subject to amortization is approximately i 4.0 years. Software is amortized based on forecasted utilization over the economic life of the software program.
/ i8.Short-Term and Long-Term Investments
As of June 30, 2020 and 2019, 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, 2020 and June 30, 2019 we had short-term bank guarantees of $ i 355,000 and $ i 258,000, respectively.
At June 30, 2020, 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. The preferred stock investment is recorded at $ i i 725,000 / after consideration of impairment charges recorded in fiscal 2008 and 2009. In fiscal 2020 and 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.
/42
The following table presents our Short-Term and Long-Term Investments by category at June 30, 2020 and 2019 (in thousands):
i
|
|
|
|
||||||
|
Short-Term Investments |
|
Cost |
|
|
Fair Value or Carrying Value |
|
||
|
Bank Guarantees |
|
$ |
i 355 |
|
|
$ |
i 355 |
|
|
Total Short-Term Investments |
|
$ |
i 355 |
|
|
$ |
i 355 |
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Investments |
|
|
|
|
|
|
|
|
|
Preferred Stock |
|
$ |
i 3,700 |
|
|
$ |
i 725 |
|
|
Total Long-Term Investments |
|
$ |
i 3,700 |
|
|
$ |
i 725 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments |
|
$ |
i 4,055 |
|
|
$ |
i 1,080 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Short-Term Investments |
|
Cost |
|
|
Fair Value or Carrying Value |
|
||
|
Bank Guarantees |
|
$ |
i 258 |
|
|
$ |
i 258 |
|
|
Time/Fixed Deposits |
|
|
i 1,173 |
|
|
|
i 1,173 |
|
|
Total Short-Term Investments |
|
$ |
i 1,431 |
|
|
$ |
i 1,431 |
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Investments |
|
|
|
|
|
|
|
|
|
Preferred Stock |
|
$ |
i 3,700 |
|
|
$ |
i 725 |
|
|
Total Long-Term Investments |
|
$ |
i 3,700 |
|
|
$ |
i 725 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments |
|
$ |
i 5,131 |
|
|
$ |
i 2,156 |
|
/ i
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 requires 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, 2020.
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. |
ASC 820 requires the use of observable market data if such data is available without undue cost and effort.
iThe following table presents our investments at June 30, 2020 and 2019 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 |
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|||||
|
Bank Guarantees |
|
$ |
i 355 |
|
|
$ |
- |
|
|
$ |
i 355 |
|
|
$ |
- |
|
|
Total |
|
$ |
i 355 |
|
|
$ |
- |
|
|
$ |
i 355 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description |
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|||||
|
Time/Fixed Deposits and Bank Guarantees |
|
$ |
i 1,431 |
|
|
$ |
- |
|
|
$ |
i 1,431 |
|
|
$ |
- |
|
|
Total |
|
$ |
i 1,431 |
|
|
$ |
- |
|
|
$ |
i 1,431 |
|
|
$ |
- |
|
/
43
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 2020, we did i 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 and fair value except in the event of an impairment.
See Note 6 and Note 7, “Goodwill” and “Intangible Assets”, respectively for a discussion of a triggering event caused by the economic impacts of the COVID-19 pandemic and related restrictions occurring during fiscal 2020, which required full impairment of the Company’s goodwill and trade name. During fiscal 2019, there was a partial impairment of our goodwill and trade name. At June 30, 2020, there were i i no / assets or liabilities measured at fair value on a non-recurring basis. i At June 30, 2019, the fair value of assets and liabilities measured on a non-recurring basis are classified in the fair value hierarchy in the table below (in thousands):
|
Description |
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|||||
|
Goodwill |
|
$ |
i 1,741 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
i 1,741 |
|
Trade Name |
|
|
i 661 |
|
|
|
- |
|
|
|
- |
|
|
|
i 661 |
|
Total |
|
$ |
i 2,402 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
i 2,402 |
i
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):
i
|
|
|
Beginning |
|
|
Accruals - |
|
|
Settlements/Claims |
|
|
Effect of Foreign |
|
|
Ending |
|
|||||
|
|
|
Balance |
|
|
Current Year |
|
|
(in cash or in kind) |
|
|
Currency |
|
|
Balance |
|
|||||
|
Fiscal year ended June 30, 2020 |
|
$ |
i 341 |
|
|
$ |
i 158 |
|
|
$ |
( i 192 |
) |
|
$ |
|
|
|
$ |
i 307 |
|
|
Fiscal year ended June 30, 2019 |
|
$ |
i 391 |
|
|
$ |
i 660 |
|
|
$ |
( i 709 |
) |
|
$ |
( i 1 |
) |
|
$ |
i 341 |
|
/ i
11.Property and Equipment
Our property and equipment consisted of the following as of June 30, 2020 and 2019 (in thousands):
i
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Building and Land |
|
$ |
i 7,658 |
|
|
$ |
i 7,647 |
|
|
Machinery and Equipment |
|
|
i 11,338 |
|
|
|
i 11,616 |
|
|
Furniture and Fixtures |
|
|
i 1,295 |
|
|
|
i 1,286 |
|
|
Total Property and Equipment, gross |
|
|
i 20,291 |
|
|
|
i 20,549 |
|
|
Less: Accumulated Depreciation |
|
|
( i 14,541 |
) |
|
|
( i 14,011 |
) |
|
Total Property and Equipment, net |
|
$ |
i 5,750 |
|
|
$ |
i 6,538 |
|
/
Depreciation expense for the years ended June 30, 2020 and 2019 was $ i 985,000 and $ i 1,072,000, respectively.
/i
12.Leases
The Company leases office space for its manufacturing, sales and service operations, vehicles and office equipment under operating leases. All of the Company’s leases are operating leases.
In accordance with Accounting Standard Codification Topic 842 (“ASC 842”), the Company has elected not to apply ASC 842 to arrangements with lease terms less than 12 months.
Operating lease right-of-use assets and liabilities are reflected within the captions “Right-of-use assets”, “Short-term operating lease liability” and “Long-term operating lease liability”, respectively, on the Consolidated Balance Sheet. Right-of-use assets, Short-term operating lease liability and Long-term operating lease liability were $ i 3,668,000, $ i 475,000 and $ i 3,245,000 as of June 30, 2020, respectively.
When readily determinable, the discount rate used to calculate the lease liability is the rate implicit in the lease. Otherwise the Company applied judgement and used its incremental borrowing rate based on the information available at lease commencement.
Some of the leases include one or more renewal or termination options at the Company’s discretion, which are included in the determination of the lease term if the Company is reasonably certain to exercise the option.
/44
There were i no Right-of-use leased assets obtained in exchange for new operating lease liabilities for fiscal year 2020.
Lease expense, recorded in the cost of sales and selling, general & administrative expense categories in the Consolidated Statement of Operations total $ i 704,000 the fiscal year ended June 30, 2020.
Cash paid for operating leases was $ i 737,000 for fiscal year 2020 and is included in the line changes in other assets and liabilities in the operating cash flows.
iMaturities of lease liabilities are as follows (in thousands):
|
Years Ending June 30, |
|
Minimum Rentals |
|
|
|
2021 |
|
$ |
i 679 |
|
|
2022 |
|
|
i 484 |
|
|
2023 |
|
|
i 372 |
|
|
2024 |
|
|
i 354 |
|
|
2025 |
|
|
i 314 |
|
|
2026 and beyond |
|
|
i 2,780 |
|
|
|
|
$ |
i 4,983 |
|
|
Less: Imputed interest |
|
|
( i 1,263 |
) |
|
Present value of operating lease liabilities |
|
$ |
i 3,720 |
|
The weighted average remaining lease term for operating leases was i 7 years and the weighted average discount rate was i 6.1% as of June 30, 2020.
i
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 |
|
$ |
i 834 |
|
2021 |
|
|
i 711 |
|
2022 |
|
|
i 492 |
|
2023 |
|
|
i 398 |
|
2024 and beyond |
|
|
i 1,888 |
|
|
|
$ |
i 4,323 |
i
13.Severance, Impairment and Other Charges
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 17, of the Notes to the Consolidated Financial Statements, “Commitments and Contingencies” for further discussion relating to this matter). A charge in the amount of $ i 675,000 was recorded as a liability in the second quarter of fiscal 2018. The Company appealed this court decision. In January 2019, the Company settled with the defendants and ended our appeal in return for a net payment due to them in the amount of $ i 66,000. As a result, the accrual was eliminated in the second quarter of fiscal 2019.
In the second quarter of fiscal 2020, the Company’s President and Chief Executive Officer resigned and the Company had a reduction in force in the U.S. The resignation and the action to reduce workforce resulted in an accrual of $ i 471,000 of severance expense in the quarter ended December 31, 2019. In February 2020, the Company committed to a financial improvement plan that reduced global headcount by approximately i 7%. The plan was implemented to re-align the Company’s fixed costs and its near-to-mid-term expectations for the Company’s business. As a result, in the third quarter of fiscal 2020, the Company recorded a charge for severance and related costs of $ i 590,000. At June 30, 2020, the remaining balance of the accruals was $ i 148,000.
See Note 6 and Note 7, “Goodwill” and “Intangible Assets”, respectively, for a discussion of a triggering event caused by the economic impacts of the COVID-19 pandemic and related restrictions occurring during fiscal 2020.
iThe charges recorded as Severance, Impairment and Other Charges are as follows (in thousands):
|
|
|
Fiscal Years Ended June 30, |
|
|||||
|
|
|
|
|
2019 |
|
|||
|
Severance and Related Costs |
|
$ |
i 1,061 |
|
|
$ |
i 135 |
|
|
Court Award / Settlement |
|
|
- |
|
|
|
( i 609 |
) |
|
Impairments of Goodwill and Intangible Assets |
|
|
i 2,246 |
|
|
|
i 7,404 |
|
|
Total |
|
$ |
i 3,307 |
|
|
$ |
i 6,930 |
|
/ /
45
Severance expense for the fiscal year ended June 30, 2020 was associated with headcount reductions at our U.S. (expense of $ i 733,000), Italy (expense of $ i 235,000) and Germany (expense of $ i 93,000) locations.
Severance expense for the fiscal year ended June 30, 2019 was associated with headcount reductions at our U.S. (expense of $ i 125,000) and Germany (expense of $ i 10,000) locations.
iThe following table reconciles the activity for the Reserve for Restructuring and Other Charges (in thousands):
|
|
|
2020 |
|
|
2019 |
|
||
|
Balance at beginning of year |
|
$ |
i 44 |
|
|
$ |
i 675 |
|
|
Accruals - Severance Related |
|
|
i 1,061 |
|
|
|
i 135 |
|
|
Accruals / Adjustments - Court Award / Settlement |
|
|
- |
|
|
|
( i 609 |
) |
|
Payments |
|
|
( i 957 |
) |
|
|
( i 157 |
) |
|
Balance at end of year |
|
$ |
i 148 |
|
|
$ |
i 44 |
|
i
14.Credit Facilities
The Company had $ i 2,200,000 outstanding under its lines of credit at June 30, 2020. The Company had i zero borrowings outstanding under its lines of credit at June 30, 2019.
On December 4, 2017, the Company 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 $ i 8.0 million. The borrowing base is calculated at the lesser of (i) $ i 8.0 million or (ii) the sum of i 80% of eligible accounts receivable balances of U.S. customers, and subject to limitations, certain foreign customers, plus the lesser of i 50% of eligible inventory or $ i 3.0 million. At June 30, 2020, our available borrowing under this facility was approximately $ i 4.0 million. Security for the Loan Agreement is substantially all of our assets in the U.S. Interest is calculated at i 2.65% above the 30-day LIBOR Rate. The Company is not allowed to pay cash dividends under the Loan Agreement.
On April 16, 2020, the Company entered into an unsecured loan with TCF National Bank in an aggregate principal amount of $ i 2.5 million (the “PPP Loan”), pursuant to the Paycheck Protection Program “PPP loan” under the Cares Act.
The PPP Loan is evidenced by a promissory note (the “Note”) dated April 16, 2020. The PPP Loan matures i two years from the disbursement date and bears interest at a rate of i 1.000% per annum. Principal and interest are payable i monthly commencing with a date determined by the lender following the remittance of the amount of the PPP Loan to be forgiven by the SBA to the lender or potentially earlier, as determined under applicable Small Business Administration rules, if the Company’s PPP Loan is reviewed. The outstanding borrowings may be prepaid by the Company at any time prior to maturity with no prepayment penalties. As of June 30, 2020, the short and long-term balances of the PPP loan are $ i 0.5 million and $ i 2.0 million, respectively. The short-term balance was calculated using a five-month grace period after the end of the Covered Period, as defined below, before loan payments must commence. The grace period of five months is the Company’s estimate of the time it will take the SBA to determine forgiveness, if any. Should the SBA make such determination in less than five months, the loan payments will commence at the time.
Under the terms of the CARES Act, PPP loan recipients can apply for forgiveness for all or a portion of loans granted under the PPP which is dependent upon the Company having initially qualified for the loan. Furthermore, the loans issued under PPP are subject to forgiveness to the extent proceeds are used for payroll costs, including payments required to continue group health care benefits, and certain rent, utility, and mortgage interest expenses incurred or paid during a i twenty-four week period (the “Covered Period”) following the disbursement date (collectively, “Qualifying Expenses”), pursuant to the terms and limitations of the PPP. The Company expects to be able to use a significant portion of the PPP Loan proceeds for Qualifying Expenses and to have a significant portion of the PPP Loan eligible for forgiveness. Any portion of the PPP Loan that is not used for Qualifying Expenses or is not otherwise forgiven is expected to be repaid on the terms set forth above. The Company cannot be certain as to the amount of the PPP Loan that will be forgiven, if any.
Our Brazilian subsidiary (“Brazil”) has several borrowing facilities with total available borrowings of B$ i 354,000 (equivalent to approximately $ i 65,000 USD). At June 30, 2020, the outstanding balances totaled B$ i 250,000 (equivalent to approximately $ i 46,000 USD and are included in Lines of credit and current portion of long-term debt on the Consolidated Balance Sheet). The monthly interest rate on the outstanding balances range from i 0.37% to i 13.94%. Brazil had i no borrowings under these facilities at June 30, 2019.
/ i15.Current and Long-Term Taxes Payable
The Company 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.
46
16.Other Long-Term Liabilities
Other long-term liabilities at June 30, 2020 and 2019 include $ i 449,000 and $ i 556,000, 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.
/ i17.Commitments and Contingencies
The Company may, from time to time, be subject to litigation and other claims in the ordinary course of our business. The Company accrues 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, the Company evaluates, 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.
The Company 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 $ i 675,000, plus interest. In the second quarter of fiscal 2018, the Company recorded a charge in the amount of $ i 675,000 relating to this matter. The Company appealed this court’s decision to grant summary disposition and the award of the attorney fees. In January 2019, the Company settled with the defendants and ended our appeal in return for a net payment due to them in the amount of $ i 66,000. As a result, in the second quarter of fiscal 2019, the Company adjusted its accrual and paid the settlement amount in the third quarter of fiscal 2019 (see Note 13, ‘Severance, Impairment and Other Charges’ for further discussion).
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 $ i 1,218,000 (equivalent to approximately $ i 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, the Company received the final assessment, which confirmed the preliminary assessment. In August 2018, the Company filed a formal appeal request and posted a surety bond as security for this claim. We did not record an accrual related to this audit finding because we are disputing several of the CRA’s conclusions and a loss is not considered probable. We ultimately expect to receive the funds from our customers (excluding any interest or penalties) if we are ultimately required to pay the CRA, 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, the Company 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. As a result, the Company recorded a reserve with a balance of $ i 0.3 million, and $ i 0.2 million at June 30, 2020 and 2019, respectively.
/ i18. 401(k) Plan
The Company has a 401(k) tax deferred savings plan that covers all eligible employees based in the U.S. The Company makes discretionary contributions to the plan that the Company expects to continue into its fiscal year 2021. Its contributions during fiscal years 2020 and 2019 were $ i 196,000 and $ i 402,000, respectively.
/ i19.Employee Stock Purchase Plan
The Company has 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 i 85% of the market value at the beginning of a six-month election period. Purchases are limited to i 10% of an employee's eligible compensation and the shares purchased are restricted from being sold for i one year from the purchase date. At June 30, 2020, i 119,536 shares remained available under the Plan.
Activity under this Plan is shown in the following table (in thousands, except per share amount):
i
|
|
|
Purchase Period Ended |
|
|||||
|
|
|
|
||||||
|
|
|
|
|
2019 |
|
|||
|
Non-cash stock-based compensation expense |
|
$ |
i 4 |
|
|
$ |
i 10 |
|
|
Common shares purchased |
|
|
i 4 |
|
|
|
i 1 |
|
|
Average purchase price per share |
|
$ |
i 4.01 |
|
|
$ |
i 8.26 |
|
/ /
47
20.Stock-Based Compensation
The Company maintains 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 i 33.3 % per year beginning i one year after the date of grant and expire i 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. The Company uses 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.
The Company recognized operating expenses for non-cash stock-based compensation costs related to stock options in the amount of $ i 160,000 and $ i 390,000 for the fiscal years ended June 30, 2020 and 2019, respectively. As of June 30, 2020, the total remaining unrecognized compensation cost related to non-vested stock-based compensation amounted to $ i 51,000. The Company expects to recognize this cost over a weighted average vesting period of i 1.5 years.
We received $ i 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 the tax deductions for non-qualified options exercised and disqualifying dispositions under all stock option payment arrangements total approximately $ i 160,000 for fiscal 2019. The Company received i zero in cash from option exercises under all stock option payment arrangements for the twelve months ended June 30, 2020.
i
Activity relating to stock options granted under this Plan is shown in the following tables:
|
|
|
Fiscal Year 2020 |
|
|
Fiscal Year 2019 |
|
||||||||||||||||||
|
|
|
|
|
|
|
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 |
|
|
i 567,121 |
|
|
$ |
i 7.22 |
|
|
|
|
|
|
|
i 635,036 |
|
|
$ |
i 7.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Grants (based on fair value of common stock at dates of grant) |
|
|
i 33,000 |
|
|
$ |
i 4.53 |
|
|
|
|
|
|
|
i 8,000 |
|
|
$ |
i 8.28 |
|
|
|
|
|
|
Exercised |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
( i 55,445 |
) |
|
$ |
i 5.73 |
|
|
|
|
|
|
Expired |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
( i 10,900 |
) |
|
$ |
i 3.63 |
|
|
|
|
|
|
Forfeited |
|
|
( i 395,195 |
) |
|
$ |
i 6.95 |
|
|
$ |
6,600.00 |
|
|
|
( i 9,570 |
) |
|
$ |
i 7.78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period |
|
|
i 204,926 |
|
|
$ |
i 7.28 |
|
|
$ |
- |
|
|
|
i 567,121 |
|
|
$ |
i 7.22 |
|
|
$ |
- |
|
|
Exercisable at end of period |
|
|
i 166,593 |
|
|
$ |
i 7.79 |
|
|
$ |
- |
|
|
|
i 436,953 |
|
|
$ |
i 7.16 |
|
|
$ |
- |
|
|
(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, 2020 and 2019 were i zero and $ i 160,000, respectively. The total fair value of shares vested during the fiscal years ended June 30, 2020 and 2019 were $ i 197,000 and $ i 413,000, respectively. |
48
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:
|
|
|
2020 |
|
|
2019 |
|
||
|
Weighted average estimated fair value per |
|
|
|
|
|
|
|
|
|
share of options granted during the period |
|
$ |
i 2.19 |
|
|
$ |
i 3.91 |
|
|
Assumptions: |
|
|
|
|
|
|
|
|
|
Dividend yield |
|
|
- |
|
|
|
- |
|
|
Common stock price volatility |
|
|
i 43.50 |
% |
|
|
i 43.50 |
% |
|
Risk free rate of return |
|
|
i 2.56 |
% |
|
|
i 2.56 |
% |
|
Expected option term (in years) |
|
|
6.6 |
|
|
|
6.6 |
|
i
The following table summarizes information about stock options at June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
|
Options Exercisable |
|
||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Average |
|
|
|
|
|
|
Average |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining |
|
|
Exercise |
|
|
|
|
|
|
Exercise |
|
|||
|
Range of Exercise Prices |
|
|
Shares |
|
|
Contractual Life |
|
|
Price |
|
|
Shares |
|
|
Price |
|
||||||||||||
|
$ |
i 2.80 |
|
|
to |
|
$ |
i 4.87 |
|
|
|
i 33,000 |
|
|
|
9.38 |
|
|
$ |
i 4.53 |
|
|
|
- |
|
|
|
|
|
|
|
i 4.88 |
|
|
to |
|
|
i 8.81 |
|
|
|
i 136,426 |
|
|
|
5.08 |
|
|
$ |
i 6.89 |
|
|
|
i 131,093 |
|
|
$ |
i 6.83 |
|
|
|
i 8.82 |
|
|
to |
|
|
i 14.01 |
|
|
|
i 35,500 |
|
|
|
3.27 |
|
|
$ |
i 11.33 |
|
|
|
i 35,500 |
|
|
$ |
i 11.33 |
|
|
$ |
i 2.80 |
|
|
to |
|
|
i 14.01 |
|
|
|
i 204,926 |
|
|
|
5.46 |
|
|
$ |
i 7.28 |
|
|
|
i 166,593 |
|
|
$ |
i 7.79 |
|
Restricted Stock and Restricted Stock Units
Our restricted stock and restricted stock units under the 2004 Plan generally have been awarded by four methods as follows:
|
(1) |
Awards that are earned based on achieving certain individual and financial performance goals during the initial fiscal year with either a subsequent one-year service vesting period or with a one-third vesting requirement on the first, second and third anniversaries of the issuance, provided the individual’s employment has not terminated prior to the vesting date and are freely transferable after vesting; |
|
(2) |
Awards that are earned based on achieving certain revenue and operating income results with a subsequent one-third vesting requirement on the first, second and third anniversaries of the issuance, provided the individual’s employment has not terminated prior to the vesting date and are freely transferable after vesting; |
|
(3) |
Awards to non-management members of our Board of Directors with a subsequent one-third vesting requirement on the first, second and third anniversaries of the issuance provided the service of the non-management member of our Board of Directors has not terminated prior to the vesting date and are freely transferable after vesting; and |
|
(4) |
Awards that are granted with a one-third vesting requirement on the first, second and third anniversaries of the issuance provided the individual’s employment has not terminated prior to the vesting date and are freely transferable after vesting, including restricted stock units granted as part of the Fiscal Year 2018 and Fiscal Year 2019 Long-Term Incentive Compensation Plans. |
The grant date fair value associated with the restricted stock and restricted stock units is calculated in accordance with ASC 718 “Compensation – Stock Compensation”. Compensation expense related to restricted stock and restricted stock units 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, 2020 and 2019 was $ i 252,000 and $ i 244,000, respectively. As of June 30, 2020, the total remaining unrecognized compensation cost related to restricted stock and restricted stock unit awards is approximately $ i 66,000. The Company expects to recognize this cost over a weighted average vesting period of i 0.9 years.
iA summary of the status of restricted stock and restricted stock unit awards issued at June 30, 2020 is presented in the table below:
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
|
|
Nonvested |
|
|
|
Grant Date |
|
||
|
|
|
Shares |
|
|
|
Fair Value |
|
||
|
Nonvested at June 30, 2019 |
|
|
i 93,420 |
|
|
|
$ |
i 7.49 |
|
|
Granted |
|
|
- |
|
|
|
|
- |
|
|
Vested |
|
|
( i 36,103 |
) |
|
|
|
i 7.51 |
|
|
Forfeited or expired |
|
|
( i 29,608 |
) |
|
|
|
i 7.57 |
|
|
Nonvested at June 30, 2020 |
|
|
i 27,709 |
|
|
|
$ |
i 7.41 |
|
49
Performance Stock Units
During the second quarter of fiscal 2020, the Company’s MDCSOC granted certain employees Performance Share Units (“PSUs”) as part of the Fiscal Year 2020 Long-Term Incentive Compensation Plan. The Performance Measures were defined by the Committee as a specific target level of Revenue and Operating Income Before Incentive Compensation for each of the following: fiscal year 2020, fiscal year 2021 and fiscal year 2022. 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 i 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 i 50% to i 150% (for Revenue Target) or i 75% to i 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 i 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. For fiscal year 2020, actual Revenue and Operating Income Before Incentive Compensation did not meet the fiscal year 2020 targets, resulting in the forfeiture of PSU’s vesting in fiscal 2020.
During the second quarter of fiscal 2019, the Company’s MDCSOC granted certain employees PSUs as part of the Fiscal Year 2019 Long-Term Incentive Compensation Plan, up to one-third of which could be earned in plan year 2019 (October 1, 2018 to September 30, 2019), fiscal year 2020 and fiscal year 2021 upon the achievement of a specific target level of Revenue and a threshold and specific target level of Operating Income Before Incentive Compensation. For plan year 2019 and fiscal year 2020, actual Revenue and Operating Income Before Incentive Compensation did not meet the plan year 2019 and fiscal year 2020 targets, respectively, resulting in the forfeiture of PSU’s vesting in plan year 2019 and fiscal year 2020.
During the second quarter of fiscal 2018, the Company’s MDCSOC granted certain employees PSUs as part of the Fiscal Year 2018 Long-Term Incentive Compensation Plan, up to one-third of which could be earned in fiscal 2018, fiscal year 2019 and fiscal year 2020 upon the achievement of a specific target level of Revenue and a threshold and specific target level of Operating Income Before Incentive Compensation. For fiscal year 2019 and fiscal year 2020, actual Revenue and Operating Income Before Incentive Compensation did not meet the fiscal 2019 and fiscal year 2020 targets, respectively, resulting in the forfeiture of PSU’s vesting in fiscal 2019 and fiscal year 2020.
The non-cash stock-based compensation expense recorded for PSU’s issued under the Company’s Fiscal 2020, 2019 and 2018 Long-Term Incentive Compensation Plans for fiscal year 2020 was i zero, because, the level of actual performance as measured against the Operating Income Before Incentive Compensation target levels for fiscal year 2020, was less than i 75%, of the threshold performance level required for the vesting of these awards in fiscal 2020. The non-cash stock-based compensation expense recorded for performance share unit awards for the fiscal year ended June 30, 2020 was zero. As of June 30, 2020, the total remaining unrecognized compensation cost related to performance share unit awards is approximately $ i 126,000. The Company expects to recognize this cost over a weighted average vesting period of i 1.3 years.
During the third quarter of fiscal 2019, the MDCSOC granted PSUs to the Company’s interim President and Chief Executive Officer in lieu of a portion of his cash compensation. During fiscal year 2020, the Company recorded expense related to these PSU’s of $ i 181,000.
iA summary of the status of the PSUs outstanding at June 30, 2020 is presented in the table below:
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
|
|
Nonvested |
|
|
|
Grant Date |
|
||
|
|
|
Shares |
|
|
|
Fair Value |
|
||
|
Nonvested at June 30, 2019 |
|
|
i 69,701 |
|
|
|
$ |
i 7.46 |
|
|
Granted |
|
|
i 60,070 |
|
|
|
|
i 4.64 |
|
|
Vested |
|
|
( i 18,057 |
) |
|
|
|
i 3.82 |
|
|
Forfeited or expired |
|
|
( i 47,450 |
) |
|
|
|
i 7.42 |
|
|
Nonvested at June 30, 2020 |
|
|
i 64,264 |
|
|
|
$ |
i 5.65 |
|
/
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 a combination of cash and stock for calendar year 2019 and calendar year 2020. The Company issued i 42,368 shares to our directors and recorded expense of $ i 172,000 in fiscal year 2020.
Available Shares
At June 30, 2020, the 2004 Plan had i 1,129,674 shares available for future grants.
50
21.Income Taxes
(Loss) income from our operations before income taxes for U.S. and foreign operations was as follows (in thousands):
i
|
|
|
2020 |
|
|
2019 |
|
||
|
U.S. |
|
$ |
i 476 |
|
|
$ |
( i 661 |
) |
|
Foreign |
|
|
( i 4,115 |
) |
|
|
( i 6,342 |
) |
|
Total |
|
$ |
( i 3,639 |
) |
|
$ |
( i 7,003 |
) |
/
The income tax (provision) benefit reflected in the statement of operations consists of the following (in thousands):
i
|
|
|
2020 |
|
|
2019 |
|
||
|
Current (provision) benefit: |
|
|
|
|
|
|
|
|
|
U.S. Federal, State & Other |
|
$ |
( i 118 |
) |
|
$ |
i 305 |
|
|
Foreign |
|
|
( i 101 |
) |
|
|
( i 289 |
) |
|
Deferred taxes |
|
|
|
|
|
|
|
|
|
U.S. |
|
|
- |
|
|
|
( i 274 |
) |
|
Foreign |
|
|
( i 113 |
) |
|
|
i 470 |
|
|
Total (provision) benefit |
|
$ |
( i 332 |
) |
|
$ |
i 212 |
|
/
The components of deferred taxes were as follows (in thousands):
i
|
|
|
2020 |
|
|
2019 |
|
||
|
Benefit of net operating losses |
|
$ |
i 9,187 |
|
|
$ |
i 8,749 |
|
|
Tax credit carry-forwards |
|
|
i 5,804 |
|
|
|
i 6,776 |
|
|
Deferred revenue |
|
|
i 499 |
|
|
|
i 781 |
|
|
Impaired investment |
|
|
i 688 |
|
|
|
i 691 |
|
|
Property and intangible assets |
|
|
i 302 |
|
|
|
i 436 |
|
|
Other |
|
|
i 1,330 |
|
|
|
i 1,390 |
|
|
Deferred tax asset |
|
|
i 17,810 |
|
|
|
i 18,823 |
|
|
Valuation allowance |
|
|
( i 17,229 |
) |
|
|
( i 17,976 |
) |
|
Total deferred tax assets |
|
|
i 581 |
|
|
|
i 847 |
|
|
Deferred tax liabilities - basis difference and amortization |
|
|
( i 115 |
) |
|
|
( i 268 |
) |
|
Net deferred taxes |
|
$ |
i 466 |
|
|
$ |
i 579 |
|
/
The reconciliation of income tax rate to effective tax rate was as follows (in thousands):
i
|
|
|
2020 |
|
|
2019 |
|
||
|
Provision at U.S. statutory rate |
|
|
i 21.0 |
% |
|
|
i 21.0 |
% |
|
Net effect of taxes on foreign activities |
|
|
( i 29.6 |
%) |
|
|
( i 7.2 |
%) |
|
Tax effect of U.S. permanent differences |
|
|
( i 17.8 |
%) |
|
|
( i 5.8 |
%) |
|
State taxes and other, net |
|
|
( i 0.4 |
%) |
|
|
( i 4.1 |
%) |
|
Stock-based compensation |
|
|
i 0.0 |
% |
|
|
i 0.1 |
% |
|
Valuation allowance |
|
|
i 17.6 |
% |
|
|
( i 1.0 |
%) |
|
Effective tax rate |
|
|
( i 9.2 |
%) |
|
|
i 3.0 |
% |
At June 30, 2020, we had net operating loss carry-forwards for U.S. federal income tax purposes of $ i 31.4 million; $ i 28.1 million that expire in the years 2021 through 2035 and $ i 3.3 million that will carry forward indefinitely. We also had tax credit carry-forwards of $ i 5.8 million of which $ i 4.1 million expire in the years 2021 through 2034. Included in the U.S. federal net operating loss carry-forward is $ i 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 “Compensation- Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting”. 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.
As of the end of our fiscal year 2018, 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 i none of our U.S. deferred tax assets would be realized as benefits in the future.
/51
Accordingly, we established a full valuation allowance against our U.S. net deferred tax assets as of June 30, 2018 and this valuation allowance remains at June 30, 2020. Additionally, during fiscal years 2018, 2019 and 2020, we established full valuation allowances against our Germany, Japan, Singapore, Brazil, Netherlands and India, net deferred tax assets for similar reasons. While our U.S. location had pre-tax income during fiscal year 2019 and 2020, however, we have determined that it remains more likely than not that i i none / of our deferred tax assets will 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, 2020 and 2019 was $ i 717,000 and ($ i 131,000), respectively.
On June 30, 2020 and 2019, we had $ i 482,000 and $ i 234,000 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, 2020, there was $ i 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 i 2017 through i 2020 remain open to examination by government tax authorities. For German income tax purposes, tax years i 2016 through i 2020 remain open to examination by government tax authorities. For our China income tax purposes, tax years i 2017 through i 2020 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):
i
|
|
|
2020 |
|
|
|
|
|
|
|
|
|
Balance, at June 30, 2019 |
|
$ |
i 234 |
|
|
Increases for tax positions related to the current year |
|
|
i 248 |
|
|
Increases for tax positions related to the prior year |
|
|
- |
|
|
Reduction due to lapse in statute of limitation |
|
|
- |
|
|
Balance, at June 30, 2020 |
|
$ |
i 482 |
|
The CARES Act is aimed at providing emergency assistance and health care for individuals, families, and businesses affected by the COVID-19 pandemic and generally supporting the U.S. economy. The CARES Act, among other things, includes provisions related to net operating loss carryback periods, modifications to the net interest deduction limitations, and technical corrections to tax depreciation methods for qualified improvement property. The CARES Act did not have material impact on the Company’s income tax provisions for fiscal year 2020. The Company plans on taking advantage of the cash deferral programs available for payment of federal and state income taxes. The Company will continue to evaluate the impact of the CARES Act on its financial position, results of operations, and cash flows. Additionally, on April 16, 2020, the Company entered into an unsecured loan pursuant to the Paycheck Protection Program (the “PPP”) under the CARES Act. See Note 14 of the Notes to the Consolidated Financial Statements, “Credit Facilities”, for details of the PPP Loan.
i
22.Segment and Geographic Information
The Company manages its business under i three operating segments: Americas, Europe and Asia. All of its 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, the Company sells to the same customers in all of our operating segments. Accordingly, our operating segments are aggregated into i one reportable segment.
The Company accounts for geographic sales based on the country from which the sale is invoiced rather than the country to which the product is shipped. The Company operates in three geographic areas: The Americas (substantially all of which is the United States, with less than i 10% from net sales in Brazil), Europe and Asia. i 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, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
i 20,183 |
|
|
$ |
i 29,052 |
|
|
$ |
i 13,027 |
|
|
$ |
i 62,262 |
|
|
Tangible long-lived assets, net |
|
|
i 4,262 |
|
|
|
i 1,321 |
|
|
|
i 167 |
|
|
|
i 5,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve months ended June 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
i 25,173 |
|
|
$ |
i 34,563 |
|
|
$ |
i 17,086 |
|
|
$ |
i 76,822 |
|
|
Tangible long-lived assets, net |
|
|
i 4,773 |
|
|
|
i 1,490 |
|
|
|
i 275 |
|
|
|
i 6,538 |
|
|
(1) |
Our German subsidiary had net external sales of $ i 20.6 million and $ i 24.7 million in the fiscal years ended June 30, 2020 and 2019, respectively. Tangible long-lived assets, net of our German subsidiary were $ i 148,000 and $ i 209,000 as of June 30, 2020 and 2019, respectively. Our Italian subsidiary had net external sales of $ i 8.4 million and $ i 9.9 million in the fiscal years ended June 30, 2020 2019, respectively. Tangible long-lived assets, net of our Italian subsidiary were $ i 1,095,000 and $ i 1,166,000 as of June 30, 2020 and 2019, respectively. |
|
(2) |
Our Chinese subsidiary had net external sales of $ i 10.6 million and $ i 13.4 million in the fiscal years ended June 30, 2020 and 2019, respectively. Tangible long-lived assets, net of our Chinese subsidiary were $ i 64,000 and $ i 97,000 as of June 30, 2020 and 2019, respectively. |
52
The Company has three major product lines: Measurement Solutions, 3D Scanning Solutions and Value Added Services. i Sales by our product lines are as follows (in thousands):
|
|
|
Fiscal Year Ended, June 30, |
|
|||||
|
Product Lines |
|
2020 |
|
|
2019 |
|
||
|
Measurement Solutions |
|
$ |
i 57,270 |
|
|
$ |
i 70,142 |
|
|
3D Scanning Solutions |
|
|
i 2,169 |
|
|
|
i 3,075 |
|
|
Value Added Service |
|
|
i 2,823 |
|
|
|
i 3,605 |
|
|
Total Net Sales |
|
$ |
i 62,262 |
|
|
$ |
i 76,822 |
|
i
23. COVID-19 Pandemic
In March of 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. In North America, Europe, Asia and Brazil (the Company’s primary markets), federal, state and local governments have recommended or mandated actions to slow the transmission of COVID-19. These actions include the implementation of shelter-in-place orders, quarantines, significant restrictions on travel, and restrictions that prohibit non-essential employees from occupying their place of work. There remains considerable uncertainty regarding the extent to which COVID-19 will continue to spread and the extent and duration of governmental and other measures implemented to try to slow the spread of the virus. The COVID-19 pandemic has created significant volatility in the global economy and financial markets, resulting in a significant reduction in both economic activity and employment levels. The COVID-19 pandemic has disrupted the global automotive industry. The Company, along with many of the Company’s customers and suppliers, temporarily closed or limited operations at production facilities. The Company’s revenues have been significantly and negatively affected by the closure of automotive facilities during fiscal year 2020. Further, negative financial results, an economic downturn or uncertainty, or a tightening of credit markets caused by COVID-19 or other similar outbreaks could have a material adverse effect on liquidity, ability to effectively meet short- and long-term financial obligations, and accounting estimates. While most automotive operations the Company supports have resumed operations, the extent to which normal purchasing activities by the Company’s customers will return remains uncertain. Any further delays in resumption of activity from customers and any future wave of COVID-19 or other similar outbreaks could further adversely affect the Company’s business. In response, the Company has implemented cost reduction efforts to help mitigate the impact on the business including reducing discretionary spending and various other measures.
53
24. Subsequent Event
On September 27, 2020, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Atlas Copco North America LLC, a Delaware limited liability company (“Parent”), and Odyssey Acquisition Corp., a wholly owned subsidiary of Parent (“Merger Subsidiary”), providing for the merger of Merger Subsidiary with and into the Company (the “Merger” and, collectively with the other transactions contemplated by the Merger Agreement, the “Transactions”), with the Company surviving the Merger as a wholly owned subsidiary of Parent.
At the effective time of the Merger, each issued and outstanding share of common stock of the Company immediately prior to the Effective Time (other than shares owned by the Company) shall be converted into the right to receive $7.00 per share in cash, without interest (the “Merger Consideration”). Immediately prior to the effective time of the merger, subject to the terms and conditions of the Merger Agreement, each outstanding and unexercised stock option, restricted stock unit, and performance share unit shall automatically and without any required action on the part of the holder thereof, become immediately vested and be cancelled and converted into the right to receive (without interest) from the Company an amount in cash based in part on the options, restricted stock units, or performance share units held immediately prior to the effective date.
The Board of Directors of the Company (the “Board”) has unanimously determined that the Merger Agreement and the Transactions contemplated thereby, including the Merger, are advisable and in the best interests of the Company and its shareholders and the Board has resolved to recommend to the shareholders of the Company that they vote in favor of the approval of the Merger Agreement and the Merger.
The Merger is subject to customary closing conditions, including shareholder and regulatory approvals.
The Merger Agreement contains certain termination rights for each of the Company and Parent. In addition to their respective termination rights, and subject to certain limitations, the Company or Parent may terminate the Merger Agreement if the Merger is not consummated by June 27, 2021.
Upon termination of the Merger Agreement in accordance with its terms, under specified circumstances, the Company could be required to pay Parent a termination fee of $2,100,000.
If the Merger is consummated, the Shares will be delisted from The Nasdaq Stock Market LLC (Nasdaq Global Market) and deregistered under the Securities Exchange Act of 1934.
None.
Evaluation Of Disclosure Controls And Procedures
The Company carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934 (the “1934 Act”). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2020, our disclosure controls and procedures were effective. Rule 13a-15(e) of the 1934 Act defines “disclosure controls and procedures” as controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that the Company files or submits under the 1934 Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the 1934 Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Report Of Management On Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining effective internal controls over financial reporting, as such term is defined in Rules 13a-15(f) under the Securities Exchange Act of 1934, as amended.
Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
54
Our internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of Perceptron, Inc.; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.
Management, with the participation of our principal executive and principal financial officers, conducted an assessment of the effectiveness of our internal control over financial reporting as of June 30, 2020. This assessment was performed using the criteria established under the Internal Control-Integrated Framework (2013) established by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO.
Based on this assessment, management concluded that our internal controls over financial reporting were effective as of June 30, 2020.
Remediation of Material Weakness
Following the identification of the material weaknesses described in our Annual Report on Form 10-K for the year ended June 30, 2019, we initiated remediation measures to address the material weakness over income tax accounting, specifically controls over the income tax provisions, which included the hiring of qualified personnel, the hiring of an outside tax consultant and the implementation of specific review procedures, including the added involvement of the Chief Financial Officer in the review of tax accounting. Based on the implementation work and results obtained, we have completed the processes in remediating the material weaknesses noted in our Form 10-K filed for the year ended June 30, 2019.
Changes In Internal Control Over Financial Reporting
Except as otherwise discussed above, there have been no changes in our internal control over financial reporting during the quarter ended June 30, 2020 identified in connection with our evaluation that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
None.
PART III
The information contained under the captions “Matters to Come Before the Meeting – Proposal 1: Election of Directors”, “Corporate Governance”, “Section 16(a) Beneficial Ownership Reporting Compliance”, “Corporate Governance – Code of Ethics” and “Executive Officers”, of the Company’s proxy statement for our 2020 Annual Meeting of Shareholders (the “Proxy Statement”) is incorporated herein by reference.
The information required by Part III, Item 10 with respect to our nominating committee, audit committee and the audit committee’s financial expert is set forth in the Proxy Statement under the captions “Corporate Governance – Board Leadership Structure and Board and Committee Information – Audit Committee”, “Corporate Governance – Board Leadership Structure and Board and Committee Information – Nominating and Corporate Governance Committee” and “Corporate Governance – Audit Committee Report”, which paragraphs are incorporated herein by reference.
We have adopted a Code of Business Conduct and Ethics that applies to all of our directors, executive and financial officers and employees. The Code of Business Conduct and Ethics has been posted to our website at www.perceptron.com in the “Investor Relations” section under “Governance” and is available free of charge through our website. We will post information regarding any amendment to, or waiver from, our Code of Business Conduct and Ethics for executive and financial officers and directors on our website in the “Investor Relations” section under “Governance”.
The information contained under the captions “Matters to Come Before the Meeting – Proposal 1: Election of Directors – Director Compensation for Fiscal 2020”, “Matters to Come Before the Meeting – Proposal 1: Election of Directors – Standard Director Compensation Arrangements”, “Corporate Governance – Management Development, Compensation and Stock Option Committee Interlocks and Insider Participation” and “Compensation of Executive Officers” of the Proxy Statement is incorporated herein by reference.
55
|
ITEM 12: |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The information contained under the captions “Share Ownership of Management and Certain Shareholders – Principal Shareholders” and “Share Ownership of Management and Certain Shareholders – Beneficial Ownership by Directors and Executive Officers” of the Proxy Statement is incorporated herein by reference.
EQUITY COMPENSATION PLAN INFORMATION
The following table gives information about our Common Stock that may be issued upon the exercise of options, warrants and rights under all of our existing equity compensation plans as of June 30, 2020, including the 2004 Stock Incentive Plan and the Employee Stock Purchase Plan (together, the “Plans”):
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Weighted |
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Number of securities |
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average exercise |
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remaining available for |
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Number of securities |
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price of |
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future issuance under |
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to be issued upon |
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outstanding |
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equity compensation |
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exercise of |
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options, |
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plans (excluding |
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outstanding options, |
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warrants and |
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securities reflected in |
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Plan Category |
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warrants and rights |
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rights |
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column (a)) |
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(a) |
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(b) |
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(c) |
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Equity compensation plans approved by shareholders: |
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2004 Stock Incentive Plan |
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204,926 |
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(1) |
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$ |
7.28 |
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1,129,674 |
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Employee Stock Purchase Plan |
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- |
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(2) |
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- |
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119,536 |
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Total equity compensation plans approved |
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by shareholders |
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204,926 |
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$ |
7.28 |
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1,249,210 |
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(1) |
Awards under the 2004 Stock Incentive 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. |
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(2) |
Does not include an undeterminable number of shares subject to a payroll deduction election under the Employee Stock Purchase Plan for the period from July 1, 2020 until December 31, 2020, which will not be issued until January 2021. |
The information contained under the captions “Corporate Governance – Board Leadership Structure and Board and Committee Information” and “Related Party Transactions” of the Proxy Statement is incorporated herein by reference.
The information contained under the captions “Matters to Come Before the Meeting – Proposal 4: Ratification of Company’s Independent Registered Public Accounting Firm,” “Independent Registered Public Accounting Firm – Policy for Pre-Approval of Audit and Non-Audit Services” and “Independent Registered Public Accounting Firm – Fees Paid to Independent Registered Public Accounting Firm” of the Proxy Statement is incorporated herein by reference.
56
PART IV
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(a) |
(1) |
Financial Statements |
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See Item 8 of this report. |
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(2) |
Financial Statement Schedules |
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Financial statement schedules have been omitted since they are either not required, not applicable, or the information is otherwise included. |
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(3) |
Exhibits |
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57
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Exhibit No |
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Description of Exhibits |
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2. |
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Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession |
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2.1 |
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3. |
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Restated Articles of Incorporation and Bylaws. |
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3.1 |
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3.2 |
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4. |
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Instruments Defining the Rights of Securities Holders. |
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4.1 |
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4.2 |
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4.3 |
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4.4 |
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4.5 |
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4.6 * |
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Amendment No. 2 to Credit Agreement, dated August 17, 2020, between the Company and Chemical Bank. |
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4.7 |
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4.8 |
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4.9 |
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4.10 |
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4.11 |
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4.12 |
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58
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4.13 * |
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Email Amendment to PPP Loan, dated September 18, 2020, from TCF National Bank. |
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4.14 |
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Certain instruments defining the rights of holders of the long-term debt of the Company and its subsidiaries are omitted pursuant to section (b)(4)(iii)(A) of Item 601 of Regulation S-K. The Company hereby agrees to furnish copies of these instruments to the Securities and Exchange Commission upon request. |
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4.15 * |
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10. |
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10.1 |
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Registration Agreement, dated as of June 13, 1985, as amended, among the Company and the Purchasers identified therein, is incorporated by reference to Exhibit 10.3 of the Company's Form S-1 Registration Statement (amended by Exhibit 10.2) No. 33-47463. (P) |
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10.2@ |
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Form of Proprietary Information and Inventions Agreement between the Company and all of the employees of the Company is incorporated herein by reference to Exhibit 10.11 of the Company’s Form S-1 Registration Statement No. 33-47463. (P) |
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10.3@ |
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Form of Confidentiality and Non-Disclosure Agreement between the Company and certain vendors and customers of the Company is incorporated herein by reference to Exhibit 10.12 of the Company's Form S-1 Registration Statement No. 33-47463. (P) |
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10.4@ |
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10.5@ |
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10.6@ |
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10.7@ |
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10.8@ |
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10.9@ |
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10.10@ |
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10.11@ |
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10.12@ |
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10.13@ |
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10.14@ |
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10.15@ |
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59
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10.16@ |
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10.17@ |
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10.18@ |
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10.19@ |
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10.20@ |
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10.21@ |
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10.22@ |
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10.23@ |
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10.24@ |
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10.25@ |
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10.26@ |
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10.27@ |
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10.28@ |
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10.29@ |
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10.30@ |
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10.31@ |
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10.32@ |
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10.33@ |
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60
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10.34@ |
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10.35@ |
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10.36@ |
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10.37@ |
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10.38 |
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10.39 |
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10.40 |
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10.41 |
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21.* |
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23.* |
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31.1* |
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31.2* |
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32.1* |
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32.2* |
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101.INS* |
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Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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101.SCH* |
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Inline XBRL Taxonomy Extension Schema Document |
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101.CAL* |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.LAB* |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE* |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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101.DEF* |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
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104
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The cover page from the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2020, has been formatted in Inline XBRL. |
@ Indicates a management contract, compensatory plan or arrangement.
(P) Paper exhibits
61
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
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Perceptron, Inc. |
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(Registrant) |
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Date: September 28, 2020 |
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By: |
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/s/ Jay W. Freeland |
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Chairman of the Board and Interim President and Chief Executive Officer |
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(Principal Executive Officer) |
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Date: September 28, 2020 |
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By: |
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/s/ Bill Roeschlein |
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Interim Vice President, Finance and Chief Financial Officer |
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(Principal Financial Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
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Signatures |
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Title |
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Date |
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/s/ Jay W. Freeland |
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Chairman of the Board and Interim President and Chief Executive Officer |
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September 28, 2020 |
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(Principal Executive Officer) |
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/s/ Sujatha Kumar |
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Director |
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September 28, 2020 |
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/s/ John F. Bryant |
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Director |
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September 28, 2020 |
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Director |
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September 28, 2020 |
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/s/ James A. Ratigan |
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Director |
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September 28, 2020 |
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Director |
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September 28, 2020 |
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62
| This ‘10-K’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| 7/1/23 | ||||
| 7/1/21 | ||||
| 6/27/21 | ||||
| 12/31/20 | 15-12G | |||
| Filed on: | 9/28/20 | 8-A12G/A, 8-K, DEFA14A | ||
| 9/27/20 | 8-K | |||
| 9/24/20 | ||||
| 9/16/20 | ||||
| 7/1/20 | ||||
| For Period end: | 6/30/20 | 10-K/A | ||
| 4/29/20 | ||||
| 4/23/20 | ||||
| 4/16/20 | 8-K | |||
| 3/31/20 | 10-Q | |||
| 3/11/20 | ||||
| 12/31/19 | 10-Q, SD | |||
| 9/30/19 | 10-Q | |||
| 7/1/19 | ||||
| 6/30/19 | 10-K | |||
| 10/1/18 | ||||
| 7/1/18 | ||||
| 6/30/18 | 10-K, 10-K/A | |||
| 12/22/17 | SC 13D/A | |||
| 12/4/17 | 8-K | |||
| 7/1/17 | ||||
| 1/1/17 | ||||
| List all Filings | ||||
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 11/20/20 Perceptron Inc./MI 10-K/A 6/30/20 12:519K ActiveDisclosure/FA 11/05/20 Perceptron Inc./MI DEFM14A 11/05/20 1:4.1M Broadridge Fin’l So… Inc 11/05/20 Perceptron Inc./MI PRER14A 1:4.1M Broadridge Fin’l So… Inc 11/03/20 Perceptron Inc./MI 10-K/A 6/30/20 12:1.2M ActiveDisclosure/FA 10/21/20 Perceptron Inc./MI PREM14A 10/21/20 1:4M Broadridge Fin’l So… Inc |