47827 Halyard Drive
Plymouth, MI 48170
Tel: +1 734 414 6100
info@perceptron.com
www.perceptron.com
2018 Annual Report
Shareholder Letter
Annual report on Form 10-K
Part I.
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Part II.
Item 5.
Item 6.
Item 7.
Item 8.
Item 9.
Properties
Legal Proceedings
Mine Safety Disclosures
Market for the Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and
Results of Operations
Financial Statements and Supplementary Data
Changes In and Disagreements with Accountants on Accounting and
Financial Disclosures
Item 9A.
Controls and Procedures
Item 9B.
Other Information
Part III.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Part IV.
Item 15.
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Signatures
ii
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2
6
12
12
12
12
13
16
17
29
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57
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Perceptron Profile
61
i
To Our Shareholders:
We are incredibly pleased to report another record year in fiscal 2018, achieving record sales growth, strong
profitability, as well as record bookings and record backlog levels. As we move forward to fiscal 2019, we
remain confident in our ability to build on this momentum, as our strong performance has improved our
balance sheet and cash flows, allowing us to continue our strategic plan investments, while enhancing our
current products and developing unique and disruptive products that we believe will expand our sales
opportunities with current and new customers.
Perceptron’s consistent focus on its strategic initiatives delivered another monumental year of performance
for the fiscal year, demonstrating operational performance improvement, sustained strength in our end
markets and continued cost savings. These results underscore the tremendous strides we have made in
executing our multiyear turnaround strategy, as we achieved $84.6 million in sales for the fiscal year, an
increase of 8.6% compared to the previous year, and a new record for the Company. This represents a 9.2%
5-year CAGR since fiscal 2014, and our sights are set on double-digit revenue growth in the future. Our
quarterly bookings have exceeded $20 million in seven out of the last nine quarters, as we increased annual
bookings by 3.1% to $87.2 million – another new record for Perceptron. In tandem with these positive
results, we will begin fiscal 2019 with a backlog of $47.5 million, outperforming our fiscal 2017 level of $45
million, and achieving our highest year-end backlog in company history. Our strong financial results reflect
the measured improvements that we have made across the organization over the past few years.
Our fiscal 2018 performance embodies the loyalty of our customer base and the strength of the team that
we have in place to drive demand for our unique products and services. This past year marked another
significant improvement to our operational focus and results. Gross profit as a percent of sales finished the
fiscal year at 37.8%, representing a 220-basis-point improvement over our prior fiscal year, as we continued
to tenaciously pursue and leverage greater cost efficiencies while executing a record year of sales and
bookings. The continued dedication to our turnaround efforts was also exemplified by our operating
income of $5.0 million, a 172% improvement over the prior year. We continue to set our long-term
aspirations on:
• High single-digit to double-digit revenue growth,
• Gross profit that grows faster than revenue and exceeds 40% of revenues, and
• Resulting double-digit earnings growth
As always, we are very proud of our team’s execution in delivering these financial results, and the significant
progress we continue to see. We have a talented and experienced workforce that has tremendous domain
knowledge as well as an appetite to learn and improve. Without their tremendous efforts and strong desire
to drive improvement in all facets of our business, these advances would simply not be possible. And while
we display pride in the past year’s results, our team is maintaining its forward focus and is striving for
greater improvements to come.
Our full team, which includes our dedicated Board of Directors, has been incredibly effective in its focus and
execution of our strategic goals. As we continue to execute our long-term strategic plan with our talented
ii
and dedicated employees, we remain confident in the sustainable growth opportunities for both Perceptron
and its stakeholders. This strategic plan remains characterized by four main elements:
First, we have continued our investments to further expand engineering capabilities, which provide distinct
technical advantages in hardware and software technology. Our strategic goals include continuous
improvements to our current product portfolio and the launch of new, innovative product solutions that are
designed to allow us to capture additional sales opportunities. Helixevo
launched earlier this year, reflect the success of this goal. These strategic engineering investments led to the
installation of Helixevo systems on the plant floors of several key customers as well as the shipment of
several systems during our fiscal year. This continued capital allocation strategy is intended to help us
further improve our financial metrics, and significantly upgrade our ability to provide customers with high
accuracy measurements while removing costly and time-consuming correlations.
® and AccuSite®, which were
Second, we are very pleased with the development of these products. We also have line of sight on
additional developments in fiscal 2019, including plans for the launch of new products and technologies
that will enhance our existing product portfolio, such as our recently announced, next-generation
AutoGuideMT, which provides simplified solutions for machine tending applications. As we continue to invest
in support of such opportunities, and devote more resources to our engineering and research and
development efforts than we have in years past, we have already seen and continue to believe this will
enable broader product and solution offerings for new and existing customers within the automotive
industry. This second pillar of our strategic plan strengthens our confidence in the ability to achieve
sustainable growth. We believe that these investments will yield tangible results, increase our win rate,
expand our addressable opportunities, and move us closer to achieving our long-term financial objectives.
Third, our tenacious pursuit of cost savings, beginning in fiscal 2016 with the introduction of our Financial
Improvement Plan, has culminated in a 730-basis-point gross margin expansion as compared with fiscal
2016 results. It is clear that we have fully optimized the savings from this plan, and we continue to identify
additional areas of cost improvements. By instilling a continuous improvement culture across the
organization, our team has made a positive impact on our operating results.
Finally, the prudent management of our working capital has allowed us to maximize free cash flows,
resulting in a record setting year and an improved balance sheet. These actions have positioned us well to
continue to invest in additional strategic growth opportunities, enabling us to grow our business and
technical expertise in pursuit of capturing additional business within our addressable opportunities.
Our reinvestment in the growth of our business is also an investment in our team. As we continue to make
the changes that are necessary for this company to execute the next steps in our strategic plan, it will be this
team that drives the necessary changes and improvements. Our team of approximately 350 employees
across the globe continues to identify new opportunities to add value to our existing and potential new
customers, reduce costs, and increase our internal efficiencies.
We firmly believe we have the right team in place to carry this momentum forward, while possessing the
ability to overcome potential challenges.
Perceptron is a small supplier in huge and technologically advancing industries. We have an excellent brand
name, along with leading technology and a strong reputation in the automotive industry that is rooted in a
iii
long history of expertise. We remain confident that the development path we are on will lead to new
opportunities within automotive, and further down the road, sectors beyond. We plan to provide sustainable
and profitable growth opportunities for the company and its stakeholders through enhanced and expanded
technology, further cultivation of our existing customer relationships, as well as developing new customer
relationships, additional leverage of our fixed costs and global footprint, and relying on the strength of our
talented and cohesive team.
On behalf of Perceptron, we are confident that a relentless focus on these initiatives will provide sustainable
returns for our stakeholders, and we want to thank our shareholders, as well as our dedicated team
members and loyal customers, for their continued support and trust in the pursuit of our goals and the
bright future ahead.
Yours Faithfully,
W. Richard Marz
Chairman
Dave Watza
President and CEO
Safe Harbor Statement
Certain statements in this letter may be “forward-looking statements” within the meaning of the
Securities Exchange Act of 1934, including our expectation as to our fiscal year 2019 and future results.
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. Actual results could differ materially from those in the forward-looking statements due to a
number of uncertainties, including, but not limited to, those set forth in the attached Form 10-K under
Risk Factors and Management Discussion and Analysis of Financial Condition and Results of Operations.
iv
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FORM 10-K
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended June 30, 2018
OR
For the transition period from ________ to ________.
Commission File Number: 0-20206
PERCEPTRON, INC.
(Exact Name of Registrant as Specified in Its Charter)
Michigan
(State or Other Jurisdiction of
Incorporation or Organization)
38-2381442
(I.R.S. Employer Identification No.)
47827 Halyard Drive
Plymouth, Michigan 48170-2461
(Address of Principal Executive Offices)
(734) 414-6100
(Registrant’s telephone number, including area code)
Securities registered pursuant to section 12(b) of the Act:
Title of Each Class
Common Stock, $0.01 par value
Rights to Purchase Preferred Stock
Name of Each Exchange on Which Registered
The NASDAQ Stock Market LLC
(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 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 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. Yes No
Indicate by check mark whether the registrant has submitted electronically and posted on its website, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and
post such files). Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form
10-K.
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.
Large Accelerated Filer
Emerging growth Company
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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes 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, 2017, as reported by the NASDAQ Global Market, was approximately $84,000,000
(assuming, but not admitting for any purpose, that all directors and executive officers of the registrant are affiliates).
Smaller Reporting Company
Non-Accelerated Filer
Accelerated Filer
The number of shares of Common Stock, $0.01 par value, issued and outstanding as of August 21, 2018, was 9,555,767.
Portions of the following document, to the extent specified in this report, are incorporated by reference in Part III of this report:
DOCUMENTS INCORPORATED BY REFERENCE
Document
Proxy Statement for 2018
Annual Meeting of Shareholders
Incorporated by reference in:
Part III, Items 10-14
PART I
ITEM 1: BUSINESS
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, aerospace 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.
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:
•
•
In-Line fixed and robot-mounted laser-based, non-contact dimensional gauging systems used in original equipment
manufacturing plants and component supplier plants;
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;
• Near-Line robot-mounted laser-based, non-contact dimensional gauging systems used in original equipment manufacturing plants
and component supplier plants; and
• 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:
•
•
Laser scanning sensors and metrology software for three-dimensional measurement on CMM for the reverse engineering and
automated component inspection markets;
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:
•
Training;
•
Field Service and Calibration;
•
Launch Support Services;
• Consulting Services; and
•
Equipment and Software Maintenance Agreements.
Markets
Perceptron has a long history serving the global automotive manufacturing market with advanced technology. In fiscal 2018, 2017 and
2016, automotive sales represented approximately 82%, 85% and 65% of total 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 our scanning sensors and software developed by combining
Helix® and TriCam® sensors with Vector software. Our Off-Line measurement solutions are based on a full CMM line plus measuring
software. Measurement Solutions in our fiscal year 2018, 2017, and 2016 represented 91%, 90% and 90% of total sales, respectively.
In-Line and Near-Line
AutoGauge®: Our dimensional gauging systems are used in assembly and fabrication plants to contain, correct and control the quality of
complex assemblies. AutoGauge® systems are placed directly in the manufacturing line or near the line to automatically measure critical
dimensional characteristics of parts using non-contact, laser triangulation sensors.
2
ACF: Our near-line robotic systems utilize Perceptron’s AccuSiteTM optical tracking technology to eliminate the need to
AutoGauge®
correlate to a CMM by making all measurements accurate. These systems are used in assembly and manufacturing facilities to replace
traditional checking fixtures. Virtually everything about AutoGauge®
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. This is a newer product that we launched during our fiscal year ending June 30,
2018.
ACF is automatic – from high speed data collection, to real-time
AutoFit®: Our gap and flush systems are primarily used in automotive manufacturing plants to contain, correct and control the fit of
exterior body panels. These systems automatically measure, record and display the gap and flushness of parts most visible to the
automobile consumer such as gaps between front and rear doors, hoods and fenders as well as deck lids and rear quarter panels. These
measurements can be conducted throughout the manufacturing process, including in the body shop during assembly of non-painted vehicles
and in the final assembly area after the vehicle has been painted. AutoFit® can measure vehicles while in motion along the assembly line or
in a stationary position. During our fiscal year ending June 30, 2018, we made significant advancements in the algorithms that we use to
process the data gathered by our sensors which results in significantly improved information for our customers.
AutoGuide®: Our robot guidance systems are used by manufacturing companies for flexible automated assembly applications. These
systems utilize Perceptron sensors and measurement technology to guide and control robotic assembly operations. AutoGuide® systems
calculate the difference between theoretical and actual relationships of a robot to the part being assembled and communicate compensation
data in six degrees of freedom to the robot. AutoGuide® supports numerous robotic assembly applications including automotive windshield
insertion, roof loading, hinge mounting, door attachment and sealant application. During our fiscal year ending June 30, 2018, we
reworked and optimized our robot guidance platform for the simpler requirements of de-racking, seam sealing and glue bead applications.
The large field of view Helix®
station operators and part handlers. With the streamlined interface for these specific applications, station setup time can now be completed
in hours, not days.
evo X300 sensor and one-glance dashboard eliminate the need for precision fixtures, large conveyors and
evo: Our Helix®
evo sensor family takes 3D scanning to the next level, improving performance through faster measuring and increased
Helix®
overall system robustness. Helix®
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®
components required and is designed for fast and accurate measurement on the plant floor.
evo utilizes a green laser to measure the multitude of materials used in today’s manufacturing, such as
evo also uses a single power over ethernet cable which reduces the number of auxiliary
Off-Line
Coord3®: The Coord3 CMM product line includes bridge, gantry and horizontal style machines. Bench-top CMM are used for small part
inspection while very large CMM are used in aerospace, defense and heavy equipment industries. CMM can be equipped with tactile
scanning probes and our TouchDMIS™ measuring software.
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 2018, 2017, and 2016 represented 3%, 7% and 6% of total 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. Perceptron supplies 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 2018, 2017, and 2016 represented 6%, 3% and 4% of total 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.
3
Perceptron’s 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. For our fiscal years 2018, 2017 and
2016, approximately 41%, 36% and 34%, respectively, of our “Net Sales” on our Consolidated Statements of Operations were derived
from sales directly to our four largest automotive end-user customers. We also sell to manufacturing line builders, system integrators and
assembly equipment manufacturers, who in turn sell to our automotive customers. For our fiscal years 2018, 2017 and 2016,
approximately 7%, 11% and 8%, respectively, of our net sales were to manufacturing line builders, system integrators and original
equipment manufacturers for the benefit of the same four largest automotive end-user customers in each respective year. During our fiscal
years 2018, 2017 and 2016, direct sales to General Motors Company accounted for approximately 17%, 14% and 12%, respectively, and
direct sales to Volkswagen Group accounted for approximately 15%, 16% and 17%, respectively, of our total 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.
However, in fiscal 2017 some of our suppliers informed us that a few of our components were at “end-of-life” and so have been
discontinued. We have launched new products that do not require these “end-of-life” components in significant quantities going forward.
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.
International Operations
Europe: Our European operations contributed approximately 40%, 41% and 45%, of our net sales during our fiscal years ended June 30,
2018, 2017, and 2016, respectively. Our wholly-owned subsidiary, Perceptron Europe B.V. (“Perceptron B.V.”), formed in The
Netherlands, holds a 100% equity interest in Perceptron (Europe) GmbH (“Perceptron GmbH”) and Coord3 s.r.l. (“Coord3”). Perceptron
GmbH is located in Munich, Germany and is the operational headquarters for our European market. We own subsidiaries that operate
direct sales, application and support offices in Vélizy-Villacoublay, France, Barcelona, Spain, Birmingham, UK and Bratislava, Slovakia.
Coord3 is a CMM designer and manufacturer in Bruzolo, Italy. Furthermore, we own a software development company, Next Metrology
Software s.r.o. in Prague, Czech Republic. At June 30, 2018, we had 138 employees in our European operations.
Asia: Our Asian operations contributed approximately 19%, 20% and 22% of our net sales during our fiscal years ended June 30, 2018,
2017, and 2016, respectively. We own subsidiaries that operate direct sales, application and support offices in Tokyo, Japan; Shanghai and
Beijing, China; and Delhi and Chennai, India to service our customers in Asia. At June 30, 2018, we had 61 employees in our Asian
operations.
South America: We have a direct sales, application and support office in Sao Paulo, Brazil to service customers in South America. At
June 30, 2018, we had 5 employees in our Brazilian operations.
Our foreign operations are subject to certain risks typically encountered in such operations, including fluctuations in foreign currency
exchange rates and controls, expropriation and other economic and local policies of foreign governments and the laws and policies of the
U.S. and local governments affecting foreign trade and investment. For information regarding net sales and identifiable assets of our non-
U.S. based operations, see Note 19, of the Notes to the Consolidated Financial Statements, “Segment and Geographic Information”,
contained in Item 8 of this Annual Report on Form 10-K.
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”.
4
Backlog
As of June 30, 2018, we had a backlog of $47.5 million, compared to $45.0 million at June 30, 2017. 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
in our backlog by June 30, 2019.
Research and Development
During fiscal year 2018, our research and development efforts focused on developing new and improved hardware and software
subsystems to support the range of our industry-proven solutions. Developments accomplishments included:
• The release of the Helix®
• The employment of lean, single-piece flow manufacturing for the construction of Helix®
evo sensor family that increases the accuracy, speed and robustness of this unique 3D scanner.
evo, resulting in substantially reduced
labor, reduced lead time and increased product uniformity.
• The creation of a cost-reduced and mass-optimized family of Helix®
when installing systems in our customers’ plants.
evo sensor mounts that reduces the material and labor required
• The development of a modular family of plant-floor ready 3D image processing computers that allows tight control of the cost of
a delivered system.
• The addition of the X0300 member of the Helix®
robot guidance applications in the de-racking arena.
evo family that, when combined with an advanced set of algorithms, facilitates
• The completion of the AccuSite™ external tracking hardware and software suite that is being delivered to a global automotive
OEM of luxury vehicles to control dimensions of closure panels for a new auto platform.
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.
As of June 30, 2018, 54 of our employees were focused primarily on research, development and engineering. For our fiscal years ended
June 30, 2018, 2017 and 2016, our research, development and engineering expenses were $8.0 million, $6.8 million and $7.4 million,
respectively.
Patents, Trade Secrets and Confidentiality Agreements
As of June 30, 2018, we own 18 U.S. patents that have been granted to us which relate to various products and processes manufactured,
used, and/or sold. We also own 5 foreign patents that have been granted to us in Europe, China and Japan and we have 5 patent
applications pending in foreign locations. The U.S. and foreign patents expire from 2018 through 2031. 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 2018 to 2031.
Perceptron has registered, and continues to register, various trade names and trademarks including Perceptron®, Powered by Perceptron®,
AutoGauge®, AutoFit®, AutoGuide®, AutoScan®, 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
During our fiscal year 2016, we implemented a financial improvement plan that resulted in a reduction in global headcount of
approximately 10%. The plan was implemented to re-align our fixed costs with our near-to mid-term expectations for our business. The
financial improvement plan included headcount reductions and position eliminations spread across our geographic regions, departments
and roles. In fiscal 2018, we announced that we were substantially complete with this plan and we started to invest in additional resources
to develop new products. This investment has primarily been in the form of hiring additional full-time staff in our Engineering, Research
and Development area.
5
As of June 30, 2018, we have 337 employees worldwide. All of our employees were employed on a full-time basis and 133 are located in
North America. The remainder are distributed across the globe as identified above in International Operations. In Italy, we have 57
employees covered by Italy’s National Collective Bargaining Agreement for employees in the mechanical engineering industry. The
agreement was signed in November 2016 and it will be valid for 3 years. None of our other employees are covered by a collective
bargaining agreement. We believe our relations with our employees are good.
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.
ITEM 1A: RISK FACTORS
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:
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.
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:
The quality and cost of competitive products already in existence or developed in the future
The level of interest that existing and potential new customers may have in our existing and new products and technologies
•
•
• Our ability to resolve technical issues inherent in the development of new products and technologies
• Our ability to identify and satisfy market needs
• Our ability to identify satisfactory distribution networks
• General product development and commercialization difficulties
• Rapid or unexpected technological changes
• General product demand and market acceptance risks
• Our ability to successfully compete with alternative and similar technologies
• Our ability to attract and retain the appropriate personnel to effectively represent, install and service our products
•
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.
6
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.
There also is the possibility that competitors may develop technology that performs the same functions as our products without infringing
upon our exclusive rights. It is possible that competitors may reverse engineer those features of our products that are not protected by
patents, trademarks and trade secrets. If a competitor is able to reverse engineer an unprotected feature successfully, the competitor may
gain an understanding of how our feature works and 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, some of whom may be substantially larger and have significantly greater resources than us, which may
be engaged in the development of technology and products for some of our markets that could prove to be competitive with ours. 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.
A significant percentage of our revenue is derived from a small number of customers, so that the loss of any one of these customers
could result in a significant reduction in our revenues and profits.
A majority of our revenue in fiscal 2018 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. Because our order terms vary from project to project, the application of our revenue recognition
accounting policies to our orders can cause the timing for the recognition of revenue from an order to vary significantly. This may cause
our revenues and operating results to vary significantly from quarter to quarter and year to year.
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.
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.
7
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 United States. 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.
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, 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. Furthermore, some of our suppliers have informed us that a few of our components
are at “end-of-life”, therefore, we may need to find an alternative supplier or change our product design. 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.
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 or loss as well as had a material negative impact on our reported levels of cash and cash equivalents.
A change in our effective tax rate can have a significant adverse impact on our business.
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. and the valuation 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, changes in tax laws and rates, and the repatriation of earnings from outside the U.S. for
which we have not previously provided for U.S. taxes. A change in our effective tax rate can adversely impact our net income.
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, imposes a tax on the untaxed foreign earnings of foreign subsidiaries of U.S. companies by deeming those
earnings to be repatriated (the “Transition Tax”). The changes in the Act are broad and complex. We have estimated the impact of the
Transition Tax by incorporating assumptions made based upon our current interpretation and analysis to-date of the Act and have
determined that our foreign tax credits would completely offset any Transition Tax calculated, and therefore, we do not expect to make any
cash payments related to the Transition Tax.
From time to time, we may make forward looking statements and provide estimates as to the impact of the Act on us. The final impacts of
the Act may differ from such statements or estimates, possibly materially, as allowed under Staff Accounting Bulletin No. 118 (“SAB
118”), due to, among other things, further refinements of our calculations, changes in interpretations and assumptions we have made,
guidance that may be issued and actions we may take as a result of the Act.
8
The occurrence of business system disruptions or information security breaches could adversely affect our business.
To our knowledge, we have not been subject to any material information security breaches; however, many other companies have
experienced such breaches because of 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 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.
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 strategic plan to expand our revenues will be adversely affected.
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.
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.
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 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.
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.
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.
9
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 2018, only 40% of our sales were generated in North America and as a result, a significant decline in global economic conditions
could have a material adverse impact on our results of operations.
A significant amount of our assets represent goodwill and intangible assets, and our net income would be reduced if our goodwill or
intangible assets become impaired.
As of June 30, 2018, we had $8.0 million of net goodwill and $3.8 million of net intangible assets. Our acquisitions of Coord3 and NMS
resulted in goodwill as the cost exceeded the fair value of the net tangible and identifiable intangible assets acquired. Goodwill is subject to
an impairment analysis at least annually based on the fair value of the reporting unit. Intangible assets relate primarily to trademarks,
customer relationships and software acquired 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.
For example, in the third quarter of fiscal 2016, we recorded an impairment charge in the amount of $0.7 million related to previously
capitalized software related to a product line that was discontinued.
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.
The U.S. proposed significant increases in tariffs on certain imports, which prompted retaliatory measures from major U.S. trading
partners. Our earnings and sales could be affected by changes to international trade agreements in North America and elsewhere, including
potential increases of import tariffs. Changes in government policies in these areas might cause a decrease in our sales, operating income
and net earnings.
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.
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.
10
We may have additional tax liabilities, which could adversely affect our results of operations.
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.
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. Furthermore, in fiscal 2017, we terminated our German
credit facility at the request of the lender, and in fiscal 2018, two of the credit lines in Brazil were closed. 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.
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. However, it is possible, 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.
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:
announcements of new products by us
announcements of new products by our competitors
variances in our operating results
•
•
•
• market conditions in the electronic and sensing industry and/or automotive industry
•
• market conditions and stock prices in general
•
the volume of our Common Stock traded
announcements by our largest customers that have a significant impact on their operations
11
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.
ITEM 1B: UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2: PROPERTIES
Our principal domestic facility consists of a 70,000 square foot building located in Plymouth, Michigan, owned by us. In addition, we own
a 3,100 square meter facility in Bruzolo, Italy. We lease a 1,576 square meter facility in Munich, Germany and we lease office space in
Sao Paulo, Brazil; Tokyo, Japan; Prague, Czech Republic; Shanghai, China; and Chennai and New Delhi, India. We plan to move our
German facility during fiscal 2019. We believe our current and expected facilities will be sufficient to accommodate our requirements
through fiscal 2019.
ITEM 3: LEGAL PROCEEDINGS
See Note 14, of the Notes to the Consolidated Financial Statements, “Commitments and Contingencies”, contained in Item 8 of this Annual
Report on Form 10-K.
ITEM 4: MINE SAFETY DISCLOSURES
Not applicable.
12
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 Stock Market’s Global Market under the symbol “PRCP”. The following table
shows the reported high and low sales prices of Perceptron’s Common Stock for fiscal 2018 and 2017:
Fiscal 2018
Quarter through September 30, 2017
Quarter through December 31, 2017
Quarter through March 31, 2018
Quarter through June 30, 2018
Fiscal 2017
Quarter through September 30, 2016
Quarter through December 31, 2016
Quarter through March 31, 2017
Quarter through June 30, 2017
Prices
High
Low
7.99 $
10.71 $
10.81 $
10.60 $
High
Low
7.00 $
6.97 $
8.87 $
8.95 $
6.80
7.26
8.20
8.51
4.60
5.59
5.96
7.18
$
$
$
$
$
$
$
$
In fiscal 2015, the Board of Directors elected to not pay a dividend and to end our dividend program for the foreseeable future; as a result,
no dividend was paid in fiscal 2018. Based upon a review of our capital allocations, we believe it is better to invest in our growth and
diversification strategy rather than a dividend strategy.
Under the terms of our Loan Agreement with Chemical Bank, we are not permitted to pay dividends. See “Item 7 – Management’s
Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources”.
The approximate number of shareholders of record on August 21, 2018, was 106.
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 17, of the Notes to the Consolidated Financial
Statements, “Stock Based Compensation”, contained in Item 8 of this Annual Report on Form 10-K.
STOCK PRICE PERFORMANCE GRAPH
The following graph compares the cumulative 5-year total return attained by shareholders on our Common Stock relative to the cumulative
total returns of The Nasdaq Stock Market (U.S.) Index (the “Nasdaq U.S. Index”) and a peer group of companies consisting of all U.S.
exchange traded companies with standard industrial classification codes 3823 (Industrial Instruments for Measurement, Display, and
Control of Process Variables; and Related Products), 3827 (Optical Instruments and Lenses) and 3829 (Measuring and Controlling
Devices) (the “Peer Group Index”). The returns of each company in the Peer Group Index have been weighted according to their
respective stock market capitalization. The graph assumes that the value of the investment in our Common Stock, the Peer Group Index
and the Nasdaq U.S. Index was $100 on June 30, 2013 and that all dividends were reinvested.
13
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Perceptron, Inc., the Nasdaq U.S. Index,
and a Peer Group Index
*
$100 invested on June 30, 2013 in stock or index, including reinvestment of dividends. Fiscal year ending June 30.
CUMULATIVE TOTAL RETURN
Perceptron, Inc.
Nasdaq U.S. Index
Peer Group Index
6/30/2013 6/30/2014 6/30/2015 6/30/2016 6/30/2017 6/30/2018
138.06
196.38
221.48
138.19
149.82
140.31
95.27
191.33
188.03
61.24
149.63
151.72
164.65
130.62
132.03
100.00
100.00
100.00
The graph displayed above is presented in accordance with applicable legal requirements. Shareholders are cautioned against drawing any
conclusions from the data contained in the graph, as past results are not necessarily indicative of future performance. The graph in no way
reflects our forecast of future financial performance.
14
The Peer Group consists of the following companies:
• Abaxis, Inc. (ABAX)
• Camtek, Ltd (CAMT)
• Cognex Corp. (CGNX)
• Cubic Corporation (CUB)
• Danaher Corp. (DHR)
• Attune RTD, Inc (AURT)
• Cemtrex Inc. (CETX)
• Clearsign Combustion Corp. (CLIR)
• CyberOptics Corp. (CYBE)
• Electro-Sensors, Inc. (ELSE),
• Esterline Technologies Corp. (ESL)
• EcoLogix Resource Group, Inc. (EXRG)
• Faro Technologies Inc. (FARO)
• Flexpoint Sensor Systems, Inc. (FLXT)
• Fortive Corporation (FTV)
• Hickok, Inc. (HICKA)
• Geospace Technologies Corporation (GEOS)
• Hurco Companies Inc. (HURC)
• INFICON Holding AG (IFCN.SW)
• II-VI Inc. (IIVI)
• International Isotopes, Inc. (INIS)
• Integral Vision, Inc. (INVI)
• Image Sensing Systems, Inc. (ISNS)
• Keysight Technologies, Inc. (KEYS)
• KLA–Tencor Corp. (KLAC)
• Know Labs, Inc. (KNWN)
• Lifeline Biotechnologies, Inc. (LLBO)
• Maclos Capital Inc. (LMSMF)
• Midwest Energy Emissions Corp. (MEEC)
• Mikros Systems Corp (MKRS)
• MKS Instruments, Inc. (MKSI)
• Mesa Laboratories Inc. (MLAB)
• Mechanical Technology, Incorporated (MKTY)
• MTS Systems Corporation (MTSC)
• Nanometrics Incorporated (NANO)
• National Energy Services, Inc. (NESV)
• Nova Measuring Instruments Ltd. (NVMI)
• OPT-Sciences Corporation (OPST)
• Optex Systems Holdings, Inc. (OPXS)
• Orbotech Ltd. (ORBK)
• Rockwell Automation Inc. (ROK)
• Roper Technologies Inc. (ROP)
• Rudolph Technologies Inc. (RTEC)
• Senseonics Holdings, Inc. (SENS)
• Signal Advance, Inc. (SIGL)
• Sierra Monitor Corp. (SRMC)
• ProPhotonix Limited (STKR)
• Sypris Solutions Inc. (SYPR)
• Schmitt Industries, Inc. (SMIT)
• Sensata Technologies Holding NV (ST)
• SheerVision, Inc. (SVSO)
• Thermo Fisher Scientific, Inc. (TMO)
• Trimble Navigation Limited (TRMB)
• US Nuclear Corp (UCLE)
• Universal Dectection Technology (UNDT)
The following companies that were included in the Peer Group used in preparing the Stock Price Performance Graph contained in the
Company’s 2017 Form 10-K were excluded from the Peer Group used in preparing the graph displayed above:
• AmbiCom Holdings, Inc. ((ABHI) – Revoked
• CDEX Inc. (CDEX) – Revoked
• Elbit Vision Systems Ltd. (EVSNF) – Acquired
• Landauer Inc. (LDR) – Acquired
• Secure Point Technologies Inc. (IMSCQ) - Bankruptcy
• Smart Energy Solutions, Inc. (SMGY) – Reporting under a
difference SIC code
• Visualant, Inc. (VSUL) – Now known as Know Labs, Inc.
• Winland Electronics, Inc. (WELX) - Reporting under a
(KNWN) and is included under its new name
different SIC code
15
ITEM 6: SELECTED FINANCIAL DATA
The selected Statement of Operations and Balance Sheet data presented below are derived from our Consolidated Financial Statements and
should be read in conjunction with our Consolidated Financial Statements and notes thereto and Item 7, “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” included in this Annual Report on Form 10-K.
Statement of Operations Data
2018
Fiscal Years Ended June 30,
2016 (1)
(In Thousands, Except Per Share Amounts)
2015 (2)
2017
2014
Net Sales
Gross Profit
Operating Income (Loss)
Income (Loss) Before Income Taxes
Net Income (Loss)
Income (Loss) Per Common Share:
Basic
Diluted
Weighted Average Common Shares Outstanding:
Basic
Diluted
$
84,693 $
32,000
4,948
4,489
3,716
77,947 $
27,769
1,819
1,262
(168 )
69,135 $
21,139
(9,384 )
(9,217 )
(22,113 )
74,405 $
28,271
(37 )
(835 )
(461 )
59,612
24,849
2,942
3,002
2,427
$
$
0.39 $
0.39 $
(0.02 ) $
(0.02 ) $
(2.36 ) $
(2.36 ) $
(0.05 ) $
(0.05 ) $
0.27
0.26
9,469
9,579
9,382
9,382
9,360
9,360
9,252
9,252
8,983
9,210
Balance Sheet Data
2018
As of June 30,
2016
(In Thousands, Except Per Share Amounts)
2015
2017
2014
Working Capital
Total Assets
Long-Term Taxes Payable
Shareholders' Equity
Annual Dividend Declared Per Common Share
$
$
28,168 $
74,204
450
45,598
- $
22,483 $
70,615
969
39,835
- $
21,326 $
67,922
1,714
38,554
- $
32,978 $
94,938
3,056
60,792
- $
46,454
80,066
-
62,780
0.15
(1) The net loss in fiscal 2016 is primarily due to the recording of a $16.3 million deferred tax valuation allowance (see Note 18, of the
Notes to the Consolidated Financial Statements, “Income Taxes” in Item 8 of this Annual Report on Form 10-K).
In the third quarter of fiscal 2015, we acquired Next Metrology Software s.r.o. (“NMS”) and Coord3 Industries s.r.l. (“Coord3”).
(2)
16
ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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 2019 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 will release in the future, the timing of the introduction of new products and our ability to fund our
fiscal year 2019 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,” “aspirations,” “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:
•
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.
• 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.
3D Scanning Solutions - laser scanner products that target the digitizing, reverse engineering, inspection and original equipment
manufacturers wheel alignment markets.
•
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 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 market for our industrial metrology products.
We have continued to make measured improvements across the organization over the past five years. In fiscal 2014, we developed a
strategic plan designed to expand revenues and increase shareholder value over the longer term. The following year, we made significant
progress in implementing this strategic plan. Specifically, we completed our first acquisitions in over 15 years, introduced numerous new
products, launched a global Enterprise Resource Planning (“ERP”) system implementation and diversified our customer and industry base.
In fiscal 2016, we introduced a broadly focused Financial Improvement Plan designed to reduce fixed costs, improve our profitability and
cash flow, while also driving our ability to optimize the value of our business diversification strategy. While adhering to this plan and our
strategic objectives, we achieved record-level bookings in fiscal 2017 and then set a new record-level bookings in fiscal year 2018. The
strategic plan we put into place has continued to drive strength in key customer demand metrics, as evidenced by our robust sales,
profitability and backlog results.
17
This year’s results represented continued progress in our turnaround, reflecting performance improvement, sustained strength in our end
markets and persistent cost savings. Our bookings have exceeded $20 million in seven out of the last nine quarters starting with the fourth
quarter of fiscal year 2016. This sustained, historic performance led to record-level bookings for fiscal 2018 of $87.2 million, surpassing
fiscal 2017’s record level of $84.6 million. Furthermore, we are starting our fiscal 2019 with a backlog level of $47.5 million, the highest
year-end backlog in our history. Finally, operating income improved by $3.1 million when comparing our fiscal year 2018 to our fiscal
year 2017, while we also generated strong operating cash flows throughout the fiscal year. These strong cash flows allow us to invest for
growth, especially in our engineering and research and development area. We believe these investments will drive new product launches
and will yield increasing returns to our shareholders.
We continue to set our long-term aspirations for sustained high single-digit revenue growth and resulting double-digit 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. We are confident that a relentless focus in these
markets will continue to provide sustainable and profitable long-term growth opportunities.
Results of Operations
Fiscal Year Ended June 30, 2018, Compared to Fiscal Year Ended June 30, 2017
Overview –We reported a net income of $3.7 million, or $0.39 per diluted share, for the fiscal year ended June 30, 2018 compared with a
net loss of $0.2 million, or $0.02 per diluted share, for the fiscal year ended June 30, 2017.
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):
Fiscal Years Ended June 30,
Geographic Region
Americas
Europe
Asia
Totals
$
$
2018
35.0
36.1
16.1
87.2
2017
Increase/(Decrease)
40.1 % $
41.4 %
18.5 %
100.0 % $
39.2
29.4
16.0
84.6
46.3 %
34.8 %
18.9 %
100.0 %
$
$
(4.2 )
6.7
0.1
2.6
(10.7 %)
22.8 %
0.6 %
3.1 %
We achieved a record bookings level in fiscal 2018, primarily due to strong market activity in our Europe region. The increase in bookings
for fiscal 2018 as compared to fiscal 2017 of $2.6 million, including a favorable currency impact of $4.2 million, is primarily due to an
increase of $4.8 million in our Off-Line Measurement Solutions, an increase of $1.1 million in our In-Line and Near-Line Measurement
Solutions and an increase of $0.1 million in our Value Added Services, partially offset by a decrease of $3.4 million in our 3D Scanning
Solutions. On a geographic basis, the $6.7 million increase in our Europe region is primarily due to an increase of $4.5 million in our In-
Line and Near-Line Measurement Solutions, an increase of $1.8 million in our Off-Line Measurement Solutions, an increase of $0.3
million in our Value Added Services and an increase of $0.1 million in our 3D Scanning Solutions. The $0.1 million increase in our Asia
region is due to an increase of $2.7 million in our Off-Line Measurement Solutions, partially offset by a decrease of $1.6 million in our 3D
Scanning Solutions and a decrease of $1.0 million in our In-Line and Near-Line Measurement Solutions. The $4.2 million decrease in our
America region is primarily due to a decrease of $2.4 million in our In-Line and Near-Line Measurement Solutions, a decrease of $1.9
million in our 3D Scanning Solutions and a decrease of $0.2 million in our Value Added Services, partially offset by an increase of $0.3
million in our Off-Line Measurement Solutions.
Backlog – Backlog represents orders or bookings we have received but have not yet been filled. 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 during the next twelve months.
Backlog by geographic location was (in millions):
Geographic Region
Americas
Europe
Asia
Totals
$
$
2018
19.8
19.0
8.7
47.5
As of June 30,
41.7 % $
40.0 %
18.3 %
100.0 % $
2017
19.5
16.4
9.1
45.0
Increase/(Decrease)
43.3 %
36.5 %
20.2 %
100.0 %
$
$
0.3
2.6
(0.4 )
2.5
1.5 %
15.9 %
(4.4 %)
5.6 %
18
The current year ending backlog increased by $2.5 million or 5.6% compared to the ending backlog at June 30, 2017. The increase in our
backlog was primarily due to an increase of $2.7 million in our Off-Line Measurement Solutions and an increase of $1.3 million in our In-
Line and Near-Line Measurement Solutions, partially offset by a decrease of $1.1 million in our Value Added Services and a decrease of
$0.4 million in in our 3D Scanning Solutions. On a geographic basis, the $2.6 million increase in our Europe region is primarily due to an
increase of $1.5 million in our In-Line and Near-Line Measurement Solutions, an increase of $1.2 million in our Off-Line Measurement
Solutions and an increase of $0.1 million in our 3D Scanning Solutions, partially offset by a decrease of $0.2 million in our Value Added
Services. The $0.3 million increase in our America region is primarily due to an increase of $1.5 million in our In-Line and Near-Line
Measurement Solutions, partially offset by a decrease of $0.6 million in our Value Added Services, a decrease of $0.4 million in our 3D
Scanning Solutions and a decrease of $0.2 million in our Off-Line Measurement Solutions. The $0.4 million decrease in our Asia region is
primarily due to a decrease of $1.7 million in our In-Line and Near-Line Measurement Solutions, a decrease of $0.3 million in our Value
Added Services and a decrease of $0.1 million in our 3D Scanning Solutions, partially offset by an increase of $1.7 million in our Off-Line
Measurement Solutions.
A summary of our operating results is shown below (in millions):
Americas Sales
Europe Sales
Asia Sales
Net Sales
Cost of Sales
Gross Profit
Operating Expenses
Selling, General and Administrative
Engineering, Research and Development
Severance, Impairment and Other Charges
Operating Income
Other Income and (Expenses), net
Interest Expense, net
Foreign Currency Gain (Loss), net
Other Income and (Expense), net
Income Before Income Taxes
Income Tax Expense
Net Income (Loss)
Fiscal Year Ended June 30,
2018
% of Sales
2017
% of Sales
$
$
$
34.7
33.5
16.5
84.7
52.7
32.0
18.5
8.0
0.6
4.9
(0.2 )
(0.3 )
0.1
4.5
(0.8 )
3.7
$
41.0 %
39.5 %
19.5 %
100.0 % $
62.2 %
37.8 %
21.8 %
9.5 %
0.7 %
5.8 %
(0.2 %)
(0.4 %)
0.1 %
5.3 %
(0.9 %)
4.4 % $
30.3
32.1
15.5
77.9
50.2
27.7
17.3
6.8
1.8
1.8
(0.3 )
(0.3 )
0.0
1.2
(1.4 )
(0.2 )
38.9 %
41.2 %
19.9 %
100.0 %
64.4 %
35.6 %
22.2 %
8.8 %
2.3 %
2.3 %
(0.4 %)
(0.4 %)
0.0 %
1.5 %
(1.8 %)
(0.3 %)
Sales – Net sales of $84.7 million for our fiscal year 2018 increased $6.8 million, or 8.7%, including a favorable currency impact of $3.4
million. The improvement is primarily due to an increase of $5.5 million in our In-Line and Near-Line Measurement Solutions, an increase
of $2.0 million in our Off-Line Measurement Solutions and an increase of $2.0 million in Value Added Services, partially offset by a
decrease of $2.7 million in our 3D Scanning Solutions. On a geographic basis, the $4.4 million increase in our Americas region is
primarily due to an increase of $4.9 million in our In-Line and Near-Line Measurement Solutions and an increase of $0.9 million in our
Value Added Services, partially offset by a decrease of $1.4 million in our 3D Scanning Solutions. The $1.4 million increase in our Europe
region is primarily due to an increase of $1.1 million in our Value Added Services and an increase of $0.4 million in our In-Line and Near-
Line Measurement Solutions, partially offset by a decrease of $0.1 million in our Off-Line Measurement Solutions. The $1.0 million
increase in our Asia region is primarily due to an increase of $2.1 million in our Off-Line Measurement Solutions and an increase of $0.2
million in our In-Line and Near-Line Measurement Solutions, partially offset by a decrease of $1.3 million in our 3D Scanning Solutions.
Gross Profit – Gross profit percentage was 37.8% of sales in the fiscal year ended June 30, 2018, compared to 35.6% of sales in the fiscal
year ended June 30, 2017. The higher gross margin percentage in fiscal 2018 was primarily due to the increase and mix of our revenue, the
timing of certain expenses in our cost of goods sold as well as lower material costs resulting from improved efficiencies, partially offset by
increased warranty expenses.
Selling, General and Administrative (SG&A) Expenses – SG&A expenses were approximately $18.5 million for our fiscal year 2018, an
increase of $1.2 million compared to our fiscal year 2017. The increase is primarily due to increases in employee-related costs of $1.0
million, including a higher accrual for our short-term incentive compensation plan due to improved financial results, an increase in
contractor services of $0.4 million, an increase in our allowance for doubtful accounts of $0.2 million and an increase in Board of Director
fees of $0.2 million, partially offset by decreased spending in legal and audit fees of $0.3 million, advertising and marketing costs of $0.1
million, building and rent expenses of $0.1 million and lower financing expenses of $0.1 million.
Engineering, Research and Development (R&D) Expenses – Engineering, research and development expenses were approximately $8.0
million in our fiscal year 2018, compared to $6.8 million in our fiscal year 2017. This increase is primarily due to higher employee-related
costs due to recent investments in additional resources to develop new products.
19
Severance, Impairment and Other Charges – Severance, impairment and other charges for fiscal 2018 were approximately $0.6 million,
primarily due to the charge we recorded related to an award of attorney fees in a trade secrets case brought by us, as described in Item 7
“Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources –
Commitments and Contingencies”, partially offset by an adjustment related to severance at our Chinese location, a collection of an
accounts receivable balance that was previously written off, as well as a reduction in the inventory write-off due to finding other uses for
some of the inventory originally designated as impaired. We have incurred $3.5 million of expense related to the financial improvement
plan that commenced in March 2016, and we have substantially completed the plan that was announced. See Note 10, of the Notes to the
Consolidated Financial Statements, “Severance, Impairment and Other Charges”, contained in Item 8 of this Annual Report on Form 10-K
for further discussion.
Interest Expense, net – Net interest expense was $0.2 million in fiscal 2018, compared with net interest expense of $0.3 million in fiscal
2017. The improvement was primarily due to the continued pay-down of liabilities assumed in the acquisition of Coord3, as well as due to
fiscal year 2017 interest expense related to a tax audit at our German location.
Foreign Currency Gain (Loss), net – Foreign currency gain (loss) was a net loss of $0.3 million in fiscal 2018, flat compared to the net loss
in fiscal 2017. The net loss in fiscal 2018 was primarily related to the Euro and Brazilian Real compared to the U.S. Dollar. The net loss in
fiscal 2017 was primarily related to the Japanese Yen, Euro and Brazilian Real.
Other Income and (Expense), net – Net other income was $0.1 million in fiscal 2018 compared to an immaterial amount in fiscal 2017.
The net other income in fiscal 2018 was primarily due to receiving a dividend related to our long-term investment.
Income Tax Expense – Our effective tax rate for fiscal year ended June 30, 2018 was 17.2% compared to 113.1% in fiscal year 2017. We
have previously established full valuation allowances against our U.S. Federal, Germany, Japan, Singapore and Brazil net deferred tax
assets. The effective tax rate in fiscal 2018 is impacted by not recognizing tax expenses on pre-tax income in these jurisdictions.
Furthermore, due to the passage of the U.S. Tax Cuts and Jobs Act, in the second quarter of fiscal 2018, we were able to reverse a valuation
allowance of $0.3 million that we had previously recorded on AMT credit carryforwards. See Note 18, 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. The effective tax
rate for fiscal 2017 was impacted by not being able to recognize tax benefits on pre-tax losses in the jurisdictions with full valuation
allowances as well as tax expense related to a tax audit at our German location and normal levels of tax expense from the locations that do
not have a valuation allowance.
Results of Operations
Fiscal Year Ended June 30, 2017, Compared to Fiscal Year Ended June 30, 2016
Overview –We reported a net loss of $0.2 million, or $0.02 per diluted share, for the fiscal year ended June 30, 2017 compared with net loss
of $22.1 million, or $2.36 per diluted share, for the fiscal year ended June 30, 2016.
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):
Geographic Region
Americas
Europe
Asia
Totals
Originally Reported Bookings
Fiscal Years Ended June 30,
2017
39.2
29.4
16.0
84.6
$
$
2016
Increase/(Decrease)
46.3 % $
34.8 %
18.9 %
100.0 % $
$
22.7
34.7
11.0
68.4
70.8
33.2 % $
50.7 %
16.1 %
100.0 % $
16.5
(5.3 )
5.0
16.2
72.7 %
(15.3 %)
45.5 %
23.7 %
Fiscal Year 2016’s Bookings have been updated to reflect corrections to calculations.
In fiscal 2017, we achieved a record bookings level, which was then surpassed in fiscal 2018. This strong level of bookings was primarily
due to strong market activity in our Americas region. The increase in bookings for fiscal 2017 as compared to fiscal 2016 of $16.2 million,
including an unfavorable currency impact of $0.7 million, is primarily due to an increase of $13.7 million in our In-Line and Near-Line
Measurement Solutions, an increase of $2.2 million in our 3D Scanning Solutions and an increase of $1.2 million in our Value Added
Services, partially offset by a decrease of $0.9 million in our Off-Line Measurement Solutions. On a geographic basis, the $16.5 million
increase in our America region is primarily due to an increase of $17.0 million in our In-Line and Near-Line Measurement Solutions, an
increase of $1.0 million in our 3D Scanning Solutions and an increase of $0.4 million in our Value Added Services, partially offset by a
decrease of 1.9 million in our Off-Line Measurement Solutions. The $5.0 million increase in our Asia region is due to an increase of $2.3
million in our Off-Line Measurement Solutions, an increase of $1.2 million in our In-Line and Near-Line Measurement Solutions, an
increase of $1.2 million in our 3D Scanning Solutions and an increase of $0.3 million in our Value Added Services. The $5.3 million
decrease in our Europe region is primarily due to a decrease of $4.5 million in our In-Line and Near-Line Measurement Solutions and a
decrease of $1.3 million in our Off-Line Measurement Solutions, partially offset by an increase of $0.5 million in our Value Added
Services.
20
Backlog – Backlog represents orders or bookings we have received but have not yet been filled. 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 during the next twelve months.
Backlog by geographic location was (in millions):
Geographic Region
Americas
Europe
Asia
Totals
Originally Reported Backlog
2017
19.5
16.4
9.1
45.0
$
$
As of June 30,
2016
Increase/(Decrease)
43.3 % $
36.5 %
20.2 %
100.0 % $
$
10.6
19.1
8.6
38.3
40.6
27.7 % $
49.9 %
22.4 %
100.0 % $
8.9
(2.7 )
0.5
6.7
84.0 %
(14.1 %)
5.8 %
17.5 %
Fiscal Year 2016’s Bookings has been updated to reflect corrections to prior calculations.
The ending backlog at June 30, 2017 increased by $6.7 million or 17.5% compared to the ending backlog at June 30, 2016. The increase in
our backlog was primarily due to an increase of $5.5 million in our In-Line and Near-Line Measurement Solutions and an increase of $1.5
million in our Value Added Services, partially offset by a decrease of $0.2 million in our Off-Line Measurement Solutions and a decrease
of $0.1 million in our 3D Scanning Solutions. On a geographic basis, the $8.9 million increase in our America region is primarily due to an
increase of $8.8 million in our In-Line and Near-Line Measurement Solutions and an increase of $0.6 million in our Value Added Services,
partially offset by a decrease of $0.5 million in our Off-Line Measurement Solutions. The $0.5 million increase in our Asia region is
primarily due to an increase of $0.9 million in our Off-Line Measurement Solutions and an increase of $0.2 million in our 3D Scanning
Solutions, partially offset by a decrease of $0.6 million in our In-Line and Near-Line Measurement Solutions. The $2.7 million decrease in
our Europe region is primarily due to a decrease of $2.7 million in our In-Line and Near-Line Measurement Solutions, a decrease of $0.6
million in our Off-Line Measurement Solutions and a decrease of $0.3 million in our 3D Scanning Solutions, partially offset by an increase
of $0.9 million in our Value Added Services.
A summary of our operating results is shown below (in millions):
Americas Sales
Europe Sales
Asia Sales
Net Sales
Cost of Sales
Gross Profit
Operating Expenses
Selling, General and Administrative
Engineering, Research and Development
Severance, Impairment and Other Charges
Operating Income (Loss)
Other Income and (Expenses), net
Interest Income (Expense), net
Foreign Currency Gain (Loss), net
Other Income and (Expense), net
Income (Loss) Before Income Taxes
Income Tax Expense
Net Loss
Fiscal Year Ended June 30,
2017
% of Sales
2016
% of Sales
30.3
32.1
15.5
77.9
50.2
27.7
17.3
6.8
1.8
1.8
(0.3 )
(0.3 )
0.0
1.2
(1.4 )
(0.2 )
$
38.9 %
41.2 %
19.9 %
100.0 % $
64.4 %
35.6 %
22.2 %
8.8 %
2.3 %
2.3 %
(0.4 %)
(0.4 %)
(0.0 %)
1.5 %
(1.8 %)
(0.3 %) $
22.5
31.1
15.5
69.1
48.0
21.1
20.3
7.4
2.8
(9.4 )
(0.1 )
0.1
0.2
(9.2 )
(12.9 )
(22.1 )
32.6 %
45.0 %
22.4 %
100.0 %
69.5 %
30.5 %
29.4 %
10.7 %
4.0 %
(13.6 %)
(0.1 %)
0.1 %
0.3 %
(13.3 %)
(18.7 %)
(32.0 %)
$
$
$
Sales – Net sales of $77.9 million for our fiscal year 2017 increased $8.8 million, or 12.7%. The currency impact on sales compared to
fiscal 2016, was immaterial. The improvement is primarily due to an increase of $8.0 million in our In-Line and Near-Line Measurement
Solutions and an increase of $1.6 million in our 3D Scanning Solutions, partially offset by a decrease of $0.5 million in our Off-Line
Measurement Solutions and a decrease of $0.3 million in Value Added Services. On a geographic basis, the $7.8 million increase in our
Americas region is primarily due to an increase of $8.3 million in our In-Line and Near-Line Measurement Solutions and an increase of
$1.1 million in our 3D Scanning Solutions, partially offset by a decrease of $1.3 million in our Off-Line Measurement Solutions and a
decrease of $0.3 million in our Value Added Services. The $1.0 million increase in our Europe region is primarily due to an increase of
$2.0 million in our In-Line and Near-Line Measurement Solutions, partially offset by a decrease of $1.0 million in our Off-Line
Measurement Solutions. Our Asia region was flat primarily due to an increase of $1.8 million in our Off-Line Measurement Solutions and
an increase of $0.5 million in our 3D Scanning Solutions, offset by a decrease of $2.3 million in our In-Line and Near-Line Measurement
Solutions.
21
Gross Profit – Gross profit percentage was 35.6% of sales in the fiscal year ended June 30, 2017, compared to 30.5% of sales in the fiscal
year ended June 30, 2016. The higher gross margin percentage in fiscal 2017 was primarily due to the increase and mix of our revenue, the
timing of certain expenses in our cost of goods sold as well as lower employee-related operating costs resulting from our previously
announced financial improvement plan, partially offset by increased warranty costs in fiscal year 2017.
Selling, General and Administrative (SG&A) Expenses – SG&A expenses were approximately $17.3 million for our fiscal year 2017, a
decrease of $3.0 million compared to our fiscal year 2016. The decrease is primarily due to cost savings from the reduction in force related
to our previously announced financial improvement plan including declines in employee-related costs of $1.3 million and contractor
services of $0.8 million. Other decreases in SG&A include lower advertising and marketing costs of $0.5 million, legal and audit fees of
$0.2 million and financing expenses of $0.2 million.
Engineering, Research and Development (R&D) Expenses – Engineering, research and development expenses were approximately $6.8
million in our fiscal year 2017, compared to $7.4 million in our fiscal year 2016. This decrease is primarily due to declines in employee-
related costs and contractor services of $0.3 million and the expenses related to the timing of certain development efforts of $0.3 million.
Severance, Impairment and Other Charges – Severance, impairment and other charges for fiscal 2017 were approximately $1.8 million. A
charge of $1.0 million was related to our legal settlement with 3CEMS and a charge of $0.3 million was related to finalizing severance
agreements at our U.S., China and German locations related to the financial improvement plan we announced in the third quarter of fiscal
2016. In addition, during fiscal 2017, we decided to terminate the production and marketing of a specific product line due to limitations in
its design. As a result of this decision, we wrote off inventory of $0.3 million and impaired certain customer receivable balances in the
amount of $0.2 million.
Interest Income (Expense), net – Net interest expense was $0.3 million in fiscal 2017, compared with net interest expense of $0.1 million in
fiscal 2016. This change was due to a decrease in interest income because of lower invested cash balances in fiscal 2017 compared to
fiscal 2016, as well as the addition of interest expense on Coord3’s purchase of their current manufacturing facility, the utilization of the
U.S. credit facility during fiscal 2017, as well as interest expense related to a tax audit completed in the third quarter of fiscal 2017 at our
German location.
Foreign Currency Gain (Loss) – Foreign currency gain (loss) was a net loss of $0.3 million in fiscal 2017 compared with a net gain of $0.1
million in fiscal 2016. The unfavorable change was primarily related to the Japanese Yen, Euro and Brazilian Real compared to the U.S.
Dollar in fiscal 2017.
Income Tax Expense – Our effective tax rate for fiscal year ended June 30, 2017 was 113.1% compared to (139.9%) in fiscal year 2016.
Our fiscal year 2016 effective tax rate was primarily driven by the establishment of a full valuation allowance against our U.S. Federal,
Germany and Brazil net deferred tax assets. Furthermore, in fiscal 2017, we also established full valuation allowances against our Japan
and Singapore net deferred tax assets. The effective tax rate for fiscal 2017 is impacted by not being able to recognize tax benefits on pre-
tax losses in these jurisdictions as well as tax expense related to a tax audit at our German location and normal levels of tax expense from
the locations that do not have a valuation allowance.
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 under
available credit facilities.
Cash on Hand. Our cash and cash equivalents were $5.8 million at June 30, 2018 compared to $3.7 million at June 30, 2017 and $6.8
million at June 30, 2016.
Cash Flow. The $2.1 million increase in cash from June 30, 2017 to June 30, 2018 was primarily related to $3.8 million of cash provided
by operations, partially offset by $1.2 million of cash used for financing activities, $0.4 million used for investing activities, and $0.1
million impact from changes in exchange rates.
During fiscal 2018, cash provided by operations resulted from net income of $3.7 million and adjustments from non-cash items of $2.8
million, partially offset by working capital changes of $2.7 million. Changes in working capital items resulted from cash used for
inventories of $2.3 million, accounts payable of $0.8 million and other assets and liabilities of $0.5 million, partially offset by cash
provided from accrued liabilities and expenses of $0.8 million and deferred revenue of $0.1 million. The increase in inventory relates to
required inventory levels to support our new product launches and increased revenue levels as well as higher inventory needed to mitigate
supplier part obsolescence, while the decrease in accounts payable represents fluctuations in the timing of receipts of goods and the related
payments. The change in other assets and liabilities is primarily related to the legal settlement with 3CEMS that was announced in July
2017 and payments on the previously announced financial improvement plan, partially offset by the charge we recorded related to an award
of attorney fees in a trade secrets case brought by us. The change in accrued liabilities and expenses relates primarily to the timing of
payments of local value-added taxes at one of our non-U.S. locations and a higher accrual for our short-term incentive compensation plan
due to improved financial results. Finally, the decrease in deferred revenue is due to the timing of revenue recognition on projects that had
started in previous periods compared to new projects commencing in fiscal 2018.
22
Cash used for investing activities in fiscal 2018 is due to capital expenditures of $1.1 million, partially offset by the net sale of short-term
investments of $0.7 million. Cash used for financing activities in fiscal year 2018 was primarily due to cash paid against our line of credit
in the U.S. of $1.5 million, and payments of $0.2 million on the note payable related to the manufacturing facility in Italy, partially offset
by cash received from our stock compensation plans of $0.5 million.
During fiscal 2017, cash used for operations resulted from a use of cash related to working capital changes of $7.5 million and our net loss
of $0.2 million, partially offset by $4.0 million in adjustments from non-cash items. Changes in working capital items resulted from cash
used from accounts receivable of $7.9 million and accounts payable of $0.6 million, partially offset by cash provided from inventories of
$0.5 million and other current assets and liabilities of $0.5 million. The decrease in inventory relates to the timing of projects shipped close
to the end of our fiscal year 2017 and the careful monitoring of our working capital levels, while the decrease in accounts payable
represents fluctuations in the timing of receipts of goods and the related payments. The increase in accounts receivable relates to the timing
of our projects which shipped close to the end of our fiscal year 2017 and cash collections. Finally, the change in other current assets and
liabilities relates primarily to the timing of our revenue recognition and the accrual needed for the legal settlement.
Cash used for investing activities in fiscal 2017 is due to net purchase of short-term investments of $0.1 million and capital expenditures of
$0.7 million. Cash provided from financing activities in fiscal year 2017 was primarily due to cash received under our borrowing
agreement in the U.S. of $1.5 million and cash from our stock plans of $0.1 million, partially offset by $0.2 million of cash related to the
payments 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 2018, we increased our reserve
for obsolescence by $0.2 million. See Note 4, 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 2018, we
increased our allowance for doubtful accounts by $0.2 million. See Note 3, 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, 2018, we had short-term investments totaling $0.9 million and a long-term investment recorded at $0.7 million
compared to short-term investments totaling $1.6 million and a long-term investment recorded at $0.7 million at June 30, 2017. See Note
6, 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 $0.2 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.
Credit Facilities. We had $0.2 million and $1.7 million in our lines of credit and short-term notes payable outstanding at June 30, 2018 and
2017, respectively. In addition, we had zero and $0.2 million in long-term debt outstanding included in “Other Long-Term Liabilities” at
June 30, 2018 and 2017, respectively, on our Consolidated Balance Sheet.
On December 4, 2017, we entered into a Loan Agreement (the “Loan Agreement”) with Chemical Bank (“Chemical”), and related
documents, including a Promissory Note. The Loan Agreement is an on-demand line of credit and is cancelable at any time by either
Perceptron or Chemical and any amounts outstanding would be immediately due and payable. The Loan Agreement is guaranteed by our
U.S. subsidiaries. The Loan Agreement allows for maximum permitted borrowings of $8.0 million. The borrowing base is calculated at
the lesser of (i) $8.0 million or (ii) the sum of 80% of eligible accounts receivable balances of U.S. customers and, subject to limitations,
certain foreign customers, plus the lesser of 50% of eligible inventory or $3.0 million. At June 30, 2018, our additional available borrowing
under this facility was approximately $6.8 million. Security for the Loan Agreement is substantially all of our assets in the U.S. Interest is
calculated at 2.65% above the 30 day LIBOR rate. We are not allowed to pay cash dividends under the Loan Agreement. We had zero in
borrowings outstanding under our Loan Agreement at June 30, 2018.
Prior to December 4, 2017, we were party to an Amended and Restated Credit Agreement with Comerica Bank. We had $1.5 million
outstanding at June 30, 2017 under this agreement. On December 4, 2017, in connection with entering into the Loan Agreement, we repaid
in full and terminated our Amended and Restated Credit Agreement with Comerica Bank and related documents. There were no
prepayment fees payable in connection with the repayment of the loan.
During the third quarter of fiscal 2016, our Italian subsidiary, Coord3, exercised an option to purchase their current manufacturing facility.
The total remaining principal payments of €0.2 million (equivalent to approximately $0.2 million) payable over the next 10 months at a
7.0% annual interest rate are recorded in “Lines of credit and short-term notes payable” on our Consolidated Balance Sheet at June 30,
2018.
23
Our Brazilian subsidiary (“Brazil”) has a credit line and overdraft facility with their local bank. Brazil can borrow a total of B$0.2 million
(equivalent to approximately $0.1 million). The Brazil facility is cancelable at any time by either Brazil or the bank and any amount then
outstanding would become immediately due and payable. The monthly interest rate for this facility is 12.30%. Brazil previously had two
additional credit lines that were cancelled in June 2018. We had no borrowings under these facilities at June 30, 2018 and 2017,
respectively.
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. We are appealing the court’s decision to grant summary disposition and the award of attorney fees. In the second quarter of fiscal
2018, we recorded a charge in the amount of $0.7 million relating to this matter.
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 have not recorded an
accrual related to this audit finding because we are disputing several of the CRA’s conclusions, and, in addition, if our dispute is not
resolved to our satisfaction, we expect to ultimately receive the funds from our customers (excluding any interest or penalties), although
there may be a timing difference between when we must pay the CRA and when we collect the funds from our customers.
See Item 3, “Legal Proceedings” and Note 14 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 $0.7 million on capital equipment and $0.4 million on intangible projects in our fiscal year 2018 compared to
$0.7 million in our fiscal 2017 as we continue to closely scrutinize all potential capital projects compared to our current cash balances.
Capital Resources and Outlook. 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, 2018, we had $6.7 million in cash, cash equivalents and short-term investments of which $5.5 million, or approximately 82%,
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, imposes a tax on the
untaxed foreign earnings of foreign subsidiaries of U.S. companies by deeming those earnings to be repatriated (the “Transition Tax”).
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.
In calculating the Transition Tax, we must calculate the cumulative earnings and profits and related tax pools of each of our non-U.S.
subsidiaries back to 1987. We would have the option to either pay any such Transition Tax over an eight year period or to use our net
operating loss carry forwards included in our existing deferred tax assets to offset the taxable income resulting from the Transition Tax. In
addition, 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 estimated the impact of the Transition Tax by incorporating assumptions made based upon our current interpretation and analysis
to-date of the Act and have determined that our foreign tax credits would completely offset any Transition Tax calculated, and therefore,
we do not expect to make any cash payments related to the Transition Tax. The actual impact of the Act may differ from our estimates due
to, among other things, further refinement of our calculations as allowed under Staff Accounting Bulletin No. 118 (“SAB 118”), changes in
interpretations and assumptions we have made, guidance that may be issued and actions we may take as a result of the Act. See Note 18, of
the Notes to the Consolidated Financial Statements, “Income Taxes,” and Item 1A, “Risk Factors titled “A change in our effective tax rate
can have a significant adverse impact on our business”, contained in this Annual Report on Form 10-K for further discussion.
Our current outlook for our fiscal 2019 is based on our internal projections about the market and related economic conditions, estimated
foreign currency exchange rate effects, as well as our understanding of our key customers’ plans for their retooling projects. If our key
customers’ plans differ from our understanding, this could have an adverse impact on our outlook.
Sales in the fourth quarter of fiscal 2018 increased by 5.6% to $23.6 million, when compared to the same period a year ago. We believe our
sales for the first quarter of fiscal 2019 will be in the range of $18.0 million to $21.0 million after considering the new revenue recognition
rules that we will implement as of July 1, 2018 under Accounting Standards Update No. 2014-19, Revenue from Contracts with Customers
(ASU 2014-09). We will make a one-time adjustment to reflect this change that will immediately strengthen our balance sheet as we
expect to recognize approximately $3.9 to $4.2 million of gross revenue. This adjustment will be recorded directly to retained earnings, net
of associated costs, at an expected amount between $1.8 million to $2.3 million. See Note 1, of the Notes to the Consolidated Financial
Statements, “New Accounting Pronouncements,” contained in this Annual Report on Form 10-K for further discussion. For our full fiscal
year 2019, we expect revenue growth to be in the mid-single digits compared to fiscal 2018 as we consider the impact of ASU 2014-09 on
our revenue levels in addition to our anticipation of benefiting from the new products we launched during fiscal 2018 combined with our
current products and solutions and considering our current backlog levels.
24
After giving recognition to the factors discussed above, we expect that the full fiscal year of 2019 operating income could improve
compared to fiscal 2018, if we are successful at identifying and implementing efficiencies and cost reductions as well as continue to
progress with our long-term growth strategy and diversification program. Based on our business plan, we believe our level of cash, cash
equivalents, short-term investments, credit facilities and expected cash flows in each jurisdiction is sufficient to fund our fiscal 2019 cash
flow requirements. We continue to expect capital spending, including development of intangible assets, to be less than $1.7 million during
fiscal 2019, although there is no binding commitment to do so. Furthermore, the level of our capital spending is dependent on our financial
results.
We will evaluate business development and opportunities that fit our strategic plans. There can be no assurance that we will identify items
that fit our strategic plans or that we will be able to complete on terms acceptable to us. We anticipate that we would finance any such
business development or opportunities from available cash on hand, borrowing from existing credit facilities, identifying additional sources
of financing, or issuance of additional shares of our stock, as circumstances warrant.
Contractual Obligations
The following summarizes our contractual obligations at June 30, 2018, and the effect such obligations are expected to have on our
liquidity and cash flow in future periods (in thousands):
Less than
1 Year
Total
1-3 Years 3-5 Years 5 Years
More than
Purchase Obligations
Operating Leases
Other Contractual Obligations
Note Payable
Total
(1) $
(2)
(3)
(4)
$
14,137 $
2,087
976
175
17,375 $
14,137 $
966
526
175
15,804 $
$
944
450
1,394 $
$
177
-
-
177 $
-
-
-
(1) A purchase obligation is defined as an agreement to purchase goods or services that is enforceable and legally binding. Included in
the purchase obligations category above are obligations related to purchase orders for inventory purchases under our standard terms
and conditions and under negotiated agreements with vendors. We expect to receive consideration (products or services) for these
purchase obligations. The purchase obligation amounts do not represent all anticipated purchases in the future, but represent only
those items for which we were contractually obligated at June 30, 2018.
(2) Operating leases represent commitments to lease building space, office equipment and motor vehicles.
(3) Other contractual obligations referred to above represent government authorized installment payment plans for income and payroll
tax liabilities that were acquired by us as part of our purchase of Coord3. These amounts are reported in our Consolidated Balance
Sheet as “Current portion of taxes payable” and “Long-Term Taxes Payable”. We have excluded long-term deferred income taxes of
$1.7 million as well as $0.6 million of statutory severance liabilities that are included in “Other Long-Term Liabilities” on our
Consolidated Balance Sheet because we are unable to reasonably estimate the timing of future payments.
(4) During the third quarter of fiscal 2016, Coord3 exercised an option to purchase their current manufacturing facility. The total
remaining payments are due over the next 10 months at a 7.0% annual interest rate.
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. Revenue related to products and services is recognized upon shipment when title and risk of loss has passed to the
customer or upon completion of the service, there is persuasive evidence of an arrangement, the sales price is fixed or determinable,
collection of the related receivable is reasonably assured and customer acceptance criteria, if any, have been successfully demonstrated.
We also have multiple element arrangements in our Measurement Solutions product line which may include elements such as: equipment,
installation, labor support and/or training. Each element has value on a stand-alone basis and the delivered elements do not include general
rights of return. Accordingly, each element is considered a separate unit of accounting. When available, we allocate arrangement
consideration to each element in a multiple element arrangement based upon vendor specific objective evidence (“VSOE”) of fair value of
the respective elements. When VSOE cannot be established, we attempt to establish the selling price of each element based on relevant
third-party evidence. Our products contain a significant level of proprietary technology, customization or differentiation, therefore,
comparable pricing of products with similar functionality cannot typically be obtained. In these cases, we utilize our best estimate of
selling price (“BESP”). We determine the BESP for a product or service by considering multiple factors including, but not limited to,
pricing practices, internal costs, geographies and gross margin.
25
For multiple element arrangements, we defer from revenue recognition the greater of the relative fair value of any undelivered elements of
the contract or the portion of the sales price of the contract that is not payable until the undelivered elements are completed. As part of this
evaluation, we limit the amount of revenue recognized for delivered elements to the amount that is not contingent on the future delivery of
products or services, including a consideration of payment terms that delay payment until those future deliveries are completed.
Some multiple element arrangements contain installment payment terms with a final payment (“final buy-off”) due upon the completion of
all elements in the arrangement or when the customer’s final acceptance is received by us. We recognize revenue for each completed
element of a contract when it is both earned and realizable. A provision for final customer acceptance generally does not preclude revenue
recognition for the delivered equipment element because we rigorously test equipment prior to shipment to ensure it will function in our
customer’s environment. The final acceptance amount is assigned to specific element(s) identified in the contract, or if not specified in the
contract, to the last element or elements to be delivered that represent an amount at least equal to the final payment amount.
Our Measurement Solutions are designed and configured to meet each customer’s specific requirements. Timing for the delivery of each
element in the arrangement is primarily determined by the customer’s requirements and the number of elements ordered. Delivery of all of
the multiple elements in an order will typically occur over a three to 15-month period after the order is received. We do not have price
protection agreements or requirements to buy back inventory. Our history demonstrates that sales returns have been insignificant.
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 arrangement consideration to each element in a multiple element arrangement, determining an
estimated selling price for each such element, determining the relative fair value of undelivered elements in a multiple element
arrangement, determining if customer acceptance criteria preclude revenue recognition and interpreting various commercial terms to
determine if all criteria for revenue recognition have been met. 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.
Goodwill. Goodwill represents the excess purchase price over the fair value of the net amounts assigned to assets acquired and liabilities
assumed in connection with our acquisitions. Under the Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) Topic 805 “Business Combinations”, we are required to test goodwill for impairment annually, or more frequently
whenever events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit with goodwill
below its carrying amount. Application of the goodwill impairment test requires judgment, including assignment of assets and liabilities to
reporting units, assignment of goodwill to reporting units and determination of the fair value of each reporting unit. The qualitative events
or circumstances that could affect the fair value of a reporting unit could include economic conditions; industry and market considerations,
including competition; increases in raw materials, labor, or other costs; overall financial performance such as negative or declining cash
flows; relevant entity-specific events such as changes in management, key personnel, strategy, or customers; sale or disposition of a
significant portion of a reporting unit; and regulatory or political developments.
Companies have the option to evaluate goodwill based upon these qualitative factors, and if it is more likely than not that the fair value of
the reporting unit is greater than its carrying amount, then no further goodwill impairment tests are necessary. If the qualitative review
indicates it is more likely than not that the fair value of the reporting unit is less than its carrying amount, or if we choose not to perform a
qualitative assessment, a quantitative impairment test is performed to identify potential goodwill impairment and measure the amount of
goodwill impairment loss to be recognized, if any. During the fourth quarter of fiscal 2018, we elected to complete a quantitative goodwill
impairment test which resulted in no impairment.
In conjunction with our goodwill impairment test, we early adopted Accounting Standards Update No. 2017-04, Intangibles – Goodwill
and Other: Simplifying the Test for Goodwill Impairment (Topic 350) (ASU 2017-04) as of April 1, 2018, the beginning of our fourth
quarter. ASU 2017-04 requires goodwill impairment to be measured as the excess of the carrying value over the fair value of the reporting
unit, not to exceed the carrying amount of goodwill. Previously, goodwill impairment was measured as the excess of carrying value over
the implied fair value of goodwill. The adoption of ASU 2017-04 had no impact on our financial statements.
The quantitative goodwill impairment test contains estimates regarding future revenue growth and expense levels. To the extent that actual
results do not meet projected results, it could result in a material impairment to goodwill which could negatively impact our results of
operations. See Note 1, of the Notes to the Consolidated Financial Statements, “Summary of Significant Accounting Policies – Goodwill”,
contained in Item 8 of this Annual Report on Form 10-K.
Intangibles. Intangibles are susceptible to shortened estimated useful lives and changes in fair value due to changes in their use, market or
economic changes, or other events or circumstances. We evaluate the potential impairment of these intangible assets whenever events or
circumstances indicate their carrying value may not be recoverable. Factors that could trigger an impairment review include historical or
projected results that are less than the assumptions used in the original valuation of an intangible asset, a change in our business strategy or
our use of an intangible asset or negative economic or industry trends.
26
If an event or circumstance indicates that the carrying value of an intangible asset may not be recoverable, we assess the recoverability of
the asset or asset group by comparing the carrying value of the asset or asset group to the sum of the undiscounted future cash flows that
the asset or asset group is expected to generate over its remaining economic life. If the carrying value exceeds the sum of the undiscounted
future cash flows, we compare the fair value of the intangible asset or asset group to the carrying value and record an impairment loss for
the difference. We generally estimate the fair value of our intangible assets or asset groups using the income approach based upon a
discounted cash flow model. The income approach requires the use of many assumptions and estimates including future revenues and
expenses, discount factors, income tax rates, the identification of groups of assets with highly independent cash flows and assets’ economic
lives. Volatility in the global economy makes these assumptions and estimates more judgmental. Actual future operating results and
remaining economic lives of our intangible assets could differ from those used in assessing the recoverability of these assets and could
result in an impairment of our intangible assets in future periods, negatively impacting our financial position and results of operations.
There were no impairment of our intangibles during fiscal year ended June 30, 2018, 2017 and 2016. See Note 5 of the Notes to the
Consolidated Financial Statements, “Intangibles”, contained in Item 8 of this Annual Report on Form 10-K.
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 18, 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 different than we 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 14, 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, share-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 share-based
awards at the grant date requires judgment, including estimating the number of share-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 17, of the Notes to the Consolidated Financial Statements, “Stock Based Compensation”, contained in Item 8 of this
Annual Report on Form 10-K.
27
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary market risk is related to foreign exchange rates. The foreign exchange risk is derived from our operations outside the U.S.,
which are primarily located in Germany, Italy and China. We may, from time to time, have interest rate risk in connection with the
investment of our available cash balances.
Foreign Currency Risk. We have foreign currency exchange risk in our international operations arising from the time period between sales
commitment and delivery for contracts in currencies other than the U.S. Dollar. For sales backlog entered into in currencies other than the
U.S. Dollar, the currency rate risk exposure is predominantly less than one year with the majority in the 120 to 150-day range. At June 30,
2018, our backlog in currencies other than the U.S. Dollar was approximately 60.5% or $28.7 million, compared to 58.5% or $26.3 million
at June 30, 2017. We are most vulnerable to changes in U.S. Dollar/Euro, U.S. Dollar/Chinese Yuan and U.S. Dollar/Japanese Yen
exchange rates.
The potential change in our net income that would result from a hypothetical 10% adverse change in quoted foreign currency exchange
rates related to the translation of foreign denominated revenues and expenses into U.S. Dollars for our fiscal years ended June 30, 2018,
2017 and 2016, would have been approximately $0.1 million, $0.1 million and $0.7 million, respectively. This sensitivity analysis assumes
there are no changes other than the exchange rates. This analysis has inherent limitations, including that it disregards the possibility that (i)
the exchange rates of multiple foreign currencies may not always move in the same direction or the percentage relative to the value of the
U.S. Dollar and (ii) changes in exchange rates may impact the volume of sales.
Interest Rate Risk. We invest our cash and cash equivalents in high quality, short-term investments with primarily a term of three months
or less. Based on our outstanding credit facilities and invested cash balances at June 30, 2018, a 1% increase in interest rates would have
an immaterial impact on our interest expense and a 1% decrease in interest rates would have an immaterial effect on our interest income.
As a result, we do not currently hedge these interest rate exposures.
Uncertainties in Credit Markets. At June 30, 2018, we hold a long-term investment in preferred stock that is not registered under the
Securities Act of 1933 and may not be offered or sold in the United States absent registration or an applicable exemption from registration
requirements. Our long-term investment is subject to risk due to a decline in value of the investment. The investment is currently recorded
at $0.7 million after consideration of impairment charges recorded in fiscal 2008 and 2009.
Based on our current business plan, cash and cash equivalents as well as our short-term investments of $6.7 million at June 30, 2018 and
our existing unused credit facilities, we do not currently anticipate that the lack of liquidity in this long-term investment will affect our
ability to operate or fund our currently anticipated fiscal 2019 cash flow requirements.
New Accounting Pronouncements
For a discussion of new accounting pronouncements, see Note 1 of the Notes to the Consolidated Financial Statements, “Summary of
Significant Accounting Policies – New Accounting Pronouncements”, contained in Item 8 of this Annual Report on Form 10-K.
28
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
Consolidated Financial Statements:
Balance Sheets as of June 30, 2018 and 2017
Statements of Operations for the fiscal years ended June 30, 2018, 2017 and 2016
Statements of Comprehensive Income (Loss) for the fiscal years ended June 30, 2018, 2017 and 2016
Statements of Cash Flows for the fiscal years ended June 30, 2018, 2017 and 2016
Statements of Shareholders’ Equity for the fiscal years ended June 30, 2018, 2017 and 2016
Notes to Consolidated Financial Statements
Page
30
31
32
33
34
35
36
29
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
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, 2018
and 2017, the related consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows for each of the
three years in the period ended June 30, 2018, 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 and
subsidiaries at June 30, 2018 and 2017, and the results of their operations and their cash flows for each of the three years in the period
ended June 30, 2018, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”),
the Company's internal control over financial reporting as of June 30, 2018, based on criteria established in Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated
August 30, 2018 expressed an unqualified opinion thereon.
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 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.
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
August 30, 2018
30
PERCEPTRON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Per Share Amount)
ASSETS
Current Assets
Cash and cash equivalents
Short-term investments
Receivables:
Billed receivables, net of allowance for doubtful accounts
of $404 and $253, respectively
Other receivables
Inventories, net of reserves of $2,115 and $1,918, respectively
Short-term deferred income tax asset
Other current assets
Total current assets
Property and Equipment, Net
Goodwill
Intangible Assets, Net
Long-Term Investments
Long-Term Deferred Income Tax Asset
As of June 30,
2018
2017
$
5,830 $
877
3,704
1,572
31,797
31,776
346
13,829
-
1,327
54,006
6,613
7,985
3,820
725
1,055
167
11,466
438
1,515
50,638
7,377
7,793
4,073
725
9
Total Assets
$
74,204 $
70,615
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Line of credit and short-term notes payable
Accounts payable
Accrued liabilities and expenses
Accrued compensation
Current portion of taxes payable
Short-term deferred income tax liability
Income taxes payable
Reserves for restructuring and other charges
Deferred revenue
Total current liabilities
Long- Term Taxes Payable
Long-Term Deferred Income Tax Liability
Other Long-Term Liabilities
Total Liabilities
Shareholders' Equity
Preferred stock, no par value, authorized 1,000 shares, issued none
Common stock, $0.01 par value, authorized 19,000 shares, issued
and outstanding 9,554 and 9,438, respectively
Accumulated other comprehensive loss
Additional paid-in capital
Retained deficit
Total shareholders' equity
$
$
$
175 $
7,592
4,256
3,155
526
-
768
675
8,691
25,838
450
1,717
601
28,606 $
1,705
8,280
3,952
2,600
791
752
477
1,113
8,485
28,155
969
871
785
30,780
- $
-
96
(2,098 )
48,110
(510 )
45,598
94
(2,721 )
46,688
(4,226 )
39,835
Total Liabilities and Shareholders' Equity
$
74,204 $
70,615
The notes to the consolidated financial statements are an integral part of these statements.
31
PERCEPTRON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
Net Sales
Cost of Sales
Gross Profit
Operating Expenses
Selling, general and administrative
Engineering, research and development
Severance, impairment and other charges
Total operating expenses
2018
Years Ended June 30,
2017
2016
$
84,693 $
52,693
32,000
77,947 $
50,178
27,769
18,469
7,980
603
27,052
17,347
6,826
1,777
25,950
69,135
47,996
21,139
20,316
7,381
2,826
30,523
Operating Income (Loss)
4,948
1,819
(9,384 )
Other Income and (Expense)
Interest expense, net
Foreign currency gain (loss), net
Other income (expense), net
Total other income and (expense)
(181 )
(397 )
119
(459 )
(264 )
(333 )
40
(557 )
(148 )
144
171
167
Income (Loss) Before Income Taxes
4,489
1,262
(9,217 )
Income Tax Expense
Net Income (Loss)
Income (Loss) Per Common Share
Basic
Diluted
Weighted Average Common Shares Outstanding
Basic
Dilutive effect of stock options
Diluted
(773 )
(1,430 )
(12,896 )
$
3,716 $
(168 ) $
(22,113 )
$
$
0.39 $
0.39 $
(0.02 ) $
(0.02 ) $
(2.36 )
(2.36 )
9,469
110
9,579
9,382
-
9,382
9,360
-
9,360
The notes to the consolidated financial statements are an integral part of these statements.
32
PERCEPTRON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In Thousands)
Net Income (Loss)
Other Comprehensive Income (Loss):
Foreign currency translation adjustments
2018
Years ended June 30,
2017
2016
$
3,716 $
(168 ) $
(22,113 )
623
499
(849 )
Comprehensive Income (Loss)
$
4,339 $
331 $
(22,962 )
The notes to the consolidated financial statements are an integral part of these statements.
33
PERCEPTRON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(In Thousands)
2018
Years Ended June 30,
2017
2016
Cash Flows from Operating Activities
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided from
$
3,716 $
(168 ) $
(22,113 )
(used for) operating activities:
Depreciation and amortization
Stock compensation expense
Asset impairment and related inventory write-down
Deferred income taxes
Loss (gain) on disposal of assets
Allowance for doubtful accounts
Changes in assets and liabilities
Receivables
Inventories
Accounts payable
Accrued liabilities and expenses
Deferred revenue
Other assets and liabilities
Net cash provided from (used for) operating activities
Cash Flows from Investing Activities
Purchases of short-term investments
Sales of short-term investments
Capital expenditures
Capital expenditures-intangibles
Net cash (used for) provided from investing activities
Cash Flows from Financing Activities
(Payments to) proceeds from lines of credit and short-term borrowings, net
Proceeds from stock plans
Cash payments for shares surrendered upon vesting of restricted
stock units to cover taxes
Net cash (used for) provided from financing activities
2,276
954
(59 )
(544 )
28
151
21
(2,286 )
(761 )
780
141
(553 )
3,864
(4,789 )
5,535
(735 )
(418 )
(407 )
(1,715 )
489
(19 )
(1,245 )
2,194
797
476
496
(5 )
(16 )
(7,991 )
520
(586 )
180
744
(388 )
(3,747 )
(4,371 )
4,290
(682 )
-
(763 )
1,303
157
-
1,460
Effect of Exchange Rate Changes on Cash and Cash Equivalents
(86 )
(33 )
2,137
649
858
12,521
201
(128 )
5,496
(537 )
1,201
(2,626 )
(1,048 )
(2,059 )
(5,448 )
(3,353 )
5,788
(1,641 )
(129 )
665
(83 )
75
-
(8 )
76
Net Increase (Decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents, July 1
Cash and Cash Equivalents, June 30
Non-Cash Investing and Financing Activity:
Debt related to Purchase of Building
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for interest
Cash paid during the year for income taxes
$
$
2,126
3,704
5,830 $
(3,083 )
6,787
3,704 $
(4,715 )
11,502
6,787
- $
- $
585
260 $
847 $
274 $
555 $
261
1,144
The notes to the consolidated financial statements are an integral part of these statements.
34
PERCEPTRON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In Thousands)
Balances, June 30, 2015
Net loss
Other comprehensive loss
Stock-based compensation
Stock plans
Accumulated
Other
Additional Retained
Total
Common Stock
Comprehensive Paid-In
Shares Amount Income (Loss) Capital
Earnings Shareholders'
(Deficit) Equity
9,348 $
93 $
(2,371 ) $
45,015 $ 18,055 $
60,792
-
-
-
22
-
-
-
1
-
(849 )
-
-
-
-
649
74
(22,113 )
-
-
-
(22,113 )
(849 )
649
75
Balances, June 30, 2016
9,370 $
94 $
(3,220 ) $
45,738 $
(4,058 ) $
38,554
Net loss
Other comprehensive income
Stock-based compensation
Stock plans
-
-
-
68
-
-
-
-
-
499
-
-
-
-
523
427
(168 )
-
-
-
(168 )
499
523
427
Balances, June 30, 2017
9,438 $
94 $
(2,721 ) $
46,688 $
(4,226 ) $
39,835
Net income
Other comprehensive income
Stock-based compensation
Stock plans
-
-
-
116
-
-
-
2
-
623
-
-
-
-
697
725
3,716
-
-
-
3,716
623
697
727
Balances, June 30, 2018
9,554 $
96 $
(2,098 ) $
48,110 $
(510 ) $
45,598
The notes to the consolidated financial statements are an integral part of these statements.
35
PERCEPTRON, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.
Summary of Significant Accounting Policies
Operations
Perceptron, Inc. (“Perceptron” “we”, “us” or “our”) develops, produces and sells a comprehensive range of automated industrial metrology
products and solutions to manufacturers for dimensional gauging, dimensional inspection and 3D scanning. Our products provide solutions
for manufacturing process control as well as sensor and software technologies for non-contact measurement, scanning and inspection
applications. We also offer value added services such as training and customer support.
Basis of Presentation and Principles of Consolidation
The Consolidated Financial Statements and accompanying notes have been prepared in accordance with generally accepted accounting
principles in the United States of America (“U.S. GAAP”). Our Consolidated Financial Statements include the accounts of Perceptron and
our wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
Management is required to make certain estimates and assumptions under U.S. GAAP during the preparation of these Consolidated
Financial Statements. These estimates and assumptions may affect the reported amounts of assets and liabilities as well as the disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
Revenue related to products and services is recognized upon shipment when title and risk of loss has passed to the customer or upon
completion of the service, there is persuasive evidence of an arrangement, the sales price is fixed or determinable, collection of the related
receivable is reasonably assured and customer acceptance criteria, if any, have been successfully demonstrated.
We also have multiple element arrangements in our Measurement Solutions product line which may include elements such as: equipment,
installation, labor support and/or training. Each element has value on a stand-alone basis and the delivered elements do not include general
rights of return. Accordingly, each element is considered a separate unit of accounting. When available, we allocate arrangement
consideration to each element in a multiple element arrangement based upon vendor specific objective evidence (“VSOE”) of fair value of
the respective elements. When VSOE cannot be established, we attempt to establish the selling price of each element based on relevant
third-party evidence. Our products contain a significant level of proprietary technology, customization or differentiation; therefore,
comparable pricing of products with similar functionality cannot be obtained. In these cases, we utilize our best estimate of selling price
(“BESP”). We determine the BESP for a product or service by considering multiple factors including, but not limited to, pricing practices,
internal costs, geographies and gross margin.
For multiple element arrangements, we defer from revenue recognition the greater of the relative fair value of any undelivered elements of
the contract or the portion of the sales price of the contract that is not payable until the undelivered elements are completed. As part of this
evaluation, we limit the amount of revenue recognized for delivered elements to the amount that is not contingent on the future delivery of
products or services, including a consideration of payment terms that delay payment until those future deliveries are completed.
Some multiple element arrangements contain installment payment terms with a final payment (“final buy-off”) due upon the completion of
all elements in the arrangement or when the customer’s final acceptance is received. We recognize revenue for each completed element of
a contract when it is both earned and realizable. A provision for final customer acceptance generally does not preclude revenue recognition
for the delivered equipment element because we rigorously test equipment prior to shipment to ensure it will function in our customer’s
environment. The final acceptance amount is assigned to specific element(s) identified in the contract, or if not specified in the contract, to
the last element or elements to be delivered that represent an amount at least equal to the final payment amount.
Our Measurement Solutions are designed and configured to meet each customer’s specific requirements. Timing for the delivery of each
element in the arrangement is primarily determined by the customer’s requirements and the number of elements ordered. Delivery of all of
the multiple elements in an order will typically occur over a three to 15-month period after the order is received. We do not have price
protection agreements or requirements to buy back inventory. Our history demonstrates that sales returns have been insignificant.
Research and Development
In the first half of fiscal 2016, in connection with our NMS acquisition, costs incurred after technological feasibility for certain new
products were capitalized. In the third quarter of fiscal 2016, we recorded an impairment charge of $694,000 for one of these products. The
remaining capitalized costs will continue to be amortized to cost of goods sold over the estimated lives of these products. All other internal
research and development costs, including future software development costs, are expensed as incurred, however, when we utilize outside
resources to develop certain new products, including software development, costs incurred after technological feasibility will be
capitalized.
36
Foreign Currency
The financial statements of our wholly-owned foreign subsidiaries are translated in accordance with the FASB ASC 830, “Foreign
Currency Translation Matters”. The functional currency of most of our non-U.S. subsidiaries is the local currency. Under this standard,
translation adjustments are accumulated in a separate component of shareholders’ equity until disposal of the subsidiary. Gains and losses
on foreign currency transactions are included in our Consolidated Statement of Operations under “Foreign currency gain (loss), net”.
Earnings Per Share
Basic earnings per share (“EPS”) is calculated by dividing net income by the weighted average number of common shares outstanding
during the period. Other obligations, such as stock options and restricted stock awards, are considered to be potentially dilutive common
shares. Diluted EPS assumes the issuance of potential dilutive common shares outstanding during the period and adjusts for any changes in
income and the repurchase of common shares that would have occurred from the assumed issuance, unless such effect is anti-dilutive. The
calculation of diluted shares also takes into effect the average unrecognized non-cash stock-based compensation expense and additional
adjustments for tax benefits related to non-cash stock-based compensation expense. Furthermore, we exclude all outstanding options to
purchase common stock from the computation of diluted EPS in periods of net losses because the effect is anti-dilutive.
Options to purchase 23,000, 119,000 and 194,000 shares of common stock for the fiscal years ended June 30, 2018, 2017 and 2016,
respectively, were not included in the computation of diluted EPS because the effect would have been anti-dilutive.
Cash and Cash Equivalents
We consider all highly liquid investments purchased with maturities of three months or less to be cash equivalents. Fair value
approximates carrying value because of the short maturity of the cash equivalents. At June 30, 2018, we had $5,830,000 in cash and cash
equivalents of which $4,631,000 was held in foreign bank accounts. We maintain our cash in bank deposit accounts, which, at times, may
exceed federally insured limits. We have not experienced any losses in such accounts.
Accounts Receivable and Concentration of Credit Risk
We market and sell our products principally to automotive manufacturers, line builders, system integrators, original equipment
manufacturers and value-added resellers. Our accounts receivable are principally from a small number of large customers. We perform
ongoing credit evaluations of our customers. Accounts receivable are generally due within 30 to 60 days and are stated at amounts due
from customers, net of an allowance for doubtful accounts. Accounts receivable outstanding longer than the contractual payment terms are
considered past due. We determine our allowance for doubtful accounts by considering a number of factors, including the length of time
trade accounts receivable are past due, our previous loss history, our customers’ current ability to pay their outstanding balance due to us
and the condition of the general economy and the industry as a whole. We write-off accounts receivable when they become uncollectible,
and payments subsequently received on such receivables are credited to the allowance for doubtful accounts.
Short-Term and Long-Term Investments
We account for our investments in accordance with ASC 320, “Investments – Debt and Equity Securities”. Investments with a term to
maturity between three months to one year are considered short-term investments and are classified as available-for-sale investments.
Investments with a term to maturity beyond one year may be classified as available for sale if we reasonably expect the investment to be
realized in cash or sold or consumed during the normal operating cycle of the business. Investments are classified as held-to-maturity if the
term to maturity is greater than one year and we have the intent and ability to hold such investments to maturity. All investments are
initially recognized at fair value. Subsequent measurement for available-for-sale investments is recorded at fair value. Unrealized gains
and losses on available-for-sale investments are recorded in other comprehensive income. Held-to-maturity investments are subsequently
measured at amortized cost. At each balance sheet date, we evaluate all investments for possible other-than-temporary impairment which
involves significant judgment. In making this judgment, we review factors such as the length of time and extent to which fair value has
been below the cost basis, the anticipated recovery period, the financial condition of the issuer, the credit rating of the instrument and our
ability and intent to hold the investment for a period of time which may be sufficient for recovery of the cost basis. Any losses determined
to be other-than-temporary are charged as an impairment loss and recorded in earnings. If market, industry, and/or investee conditions
deteriorate, future impairments may be incurred.
Inventory
Inventory is stated at the lower of cost or net realizable value using the first-in, first-out (“FIFO”) method. We provide a reserve for
obsolescence to recognize inventory impairment for the effects of engineering change orders, age and use of inventory that affect the value
of the inventory. The reserve for obsolescence creates a new cost basis for the impaired inventory. When inventory that has previously
been impaired is sold or disposed of, the related obsolescence reserve is reduced resulting in the reduced cost basis being reflected in cost
of goods sold. A detailed review of the inventory is performed annually with quarterly updates for known changes that have occurred since
the annual review.
37
Financial Instruments
The carrying amounts of our financial instruments, which include cash and cash equivalents, short-term investments, accounts receivable,
accounts payable and amounts due to banks or other lenders, approximate their fair values at June 30, 2018 and 2017. See “Short-Term
and Long-Term Investments” for a discussion of our investments. Fair values have been determined through information obtained from
market sources and management estimates.
We follow the provisions of ASC 820, “Fair Value Measurements and Disclosures” for all financial assets and liabilities as well as
nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. ASC 820
defines fair value, establishes a framework for measuring fair value and required specific disclosures about fair value measurements. Our
financial instruments include investments classified as available for sale, mutual funds, fixed deposits and certificate of deposits at June 30,
2018.
ASC 820 establishes a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions
other market participants would use based upon market data obtained from independent sources (observable inputs), or reflect our
assumptions of market participant valuation (unobservable inputs). These two types of inputs create the following fair value hierarchy:
•
•
•
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.
Property and Equipment
Property and equipment are recorded at historical cost. Depreciation related to machinery and equipment and furniture and fixtures is
primarily computed on a straight-line basis over estimated useful lives ranging from 3 to 15 years. Depreciation on buildings is computed
on a straight-line basis over 40 years. Depreciation on building improvements is computed on a straight-line basis over estimated useful
lives ranging from 10 to 15 years. We review our property and equipment for impairment whenever events or changes in circumstances
indicate the carrying amount of an asset may not be recoverable. Recoverability of these assets is measured by comparison of their
carrying amounts to future undiscounted cash flows the assets are expected to generate. If any of these assets would be considered
impaired, the impairment that would be recognized would equal the amount by which the carrying value of the asset exceeds its fair value.
Goodwill
Goodwill represents the excess purchase price over the fair value of the net amounts assigned to assets acquired and liabilities assumed in
connection with our acquisitions. Under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
Topic 805 “Business Combinations”, we are required to test goodwill for impairment annually, or more frequently whenever events occur
or circumstances change that would more likely than not reduce the fair value of a reporting unit with goodwill below its carrying
amount. Application of the goodwill impairment test requires judgment, including assignment of assets and liabilities to reporting units,
assignment of goodwill to reporting units and determination of the fair value of each reporting unit. The qualitative events or
circumstances that could affect the fair value of a reporting unit could include economic conditions; industry and market considerations,
including competition; increases in raw materials, labor, or other costs; overall financial performance such as negative or declining cash
flows; relevant entity-specific events such as changes in management, key personnel, strategy, or customers; sale or disposition of a
significant portion of a reporting unit; and regulatory or political developments.
Companies have the option to evaluate goodwill based upon these qualitative factors, and if it is more likely than not that the fair value of
the reporting unit is greater than its carrying amount, then no further goodwill impairment tests are necessary. If the qualitative review
indicates it is more likely than not that the fair value of the reporting unit is less than its carrying amount, or if we choose not to perform a
qualitative assessment, a quantitative impairment test is performed to identify potential goodwill impairment and measure the amount of
goodwill impairment loss to be recognized, if any. During the fourth quarter of fiscal 2018, we elected to complete a quantitative goodwill
impairment test, which resulted in no impairment.
In conjunction with our annual goodwill impairment test, we early adopted Accounting Standards Update No. 2017-04, Intangibles –
Goodwill and Other: Simplifying the Test for Goodwill Impairment (Topic 350) (ASU 2017-04) as of April 1, 2018, the beginning of our
fourth quarter. ASU 2017-04 requires goodwill impairment to be measured as the excess of the carrying value over the fair value of the
reporting unit, not to exceed the carrying amount of goodwill. Previously, goodwill impairment was measured as the excess of carrying
value over the implied fair value of goodwill. The adoption of ASU 2017-04 had no impact on our financial statements.
38
The quantitative goodwill impairment test contains estimates regarding future revenue growth and expense levels. To the extent that actual
results do not meet projected results, it could result in a material impairment to goodwill which could negatively impact our results of
operations.
Goodwill is recorded on the local books of Coord3 and NMS and foreign currency effects will impact the balance of goodwill in future
periods. As of June 30, 2018 and 2017, our goodwill balance is $7,985,000 and $7,793,000, respectively, with the increase due to the
differences in foreign currency rates at June 30, 2018 compared to June 30, 2017.
Intangibles
We acquired intangible assets in addition to goodwill in connection with the acquisitions of Coord3 and NMS in the third quarter of fiscal
2015. Furthermore, we continue to develop intangibles, primarily software. These assets are susceptible to shortened estimated useful lives
and changes in fair value due to changes in their use, market or economic changes, or other events or circumstances. We evaluate the
potential impairment of these intangible assets whenever events or circumstances indicate their carrying value may not be recoverable.
Factors that could trigger an impairment review include historical or projected results that are less than the assumptions used in the original
valuation of an intangible asset, a change in our business strategy or our use of an intangible asset or negative economic or industry trends.
If an event or circumstance indicates that the carrying value of an intangible asset may not be recoverable, we assess the recoverability of
the asset or asset group by comparing the carrying value of the asset or asset group to the sum of the undiscounted future cash flows that
the asset or asset group is expected to generate over its remaining economic life. If the carrying value exceeds the sum of the undiscounted
future cash flows, we compare the fair value of the intangible asset or asset group to the carrying value and record an impairment loss for
the difference. We generally estimate the fair value of our intangible assets or asset groups using the income approach based upon a
discounted cash flow model. The income approach requires the use of many assumptions and estimates including future revenues and
expenses, discount factors, income tax rates, the identification of groups of assets with highly independent cash flows and assets’ economic
lives. Volatility in the global economy makes these assumptions and estimates more judgmental. Actual future operating results and
remaining economic lives of our intangible assets could differ from those used in assessing the recoverability of these assets and could
result in an impairment of our intangible assets in future periods, negatively impacting our financial position and results of operations.
There were no impairment of our intangibles during fiscal years ended June 30, 2018 and 2017, respectively.
The amortization periods for customer/distributor relationships, trade name and software are five years, ten years and five years,
respectively.
Deferred Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax basis and the effects of operating losses and tax credit carry-
forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date. A valuation allowance is provided for deferred tax assets if it is
more likely than not that these items will either expire before we are able to realize their benefit or future deductibility is uncertain (see
Note 18 “Income Taxes” for further discussion).
Warranty
Our In-Line and Near-Line Measurement Solutions generally carry a one to three-year warranty for parts and a one-year warranty for labor
and travel related to warranty. Product sales to the forest products industry carry a three-year warranty for TriCam® sensors. Sales of
ScanWorks® have a one-year warranty for parts. Sales of WheelWorks® products have a two-year warranty for parts. Our Off-Line
Measurement Solutions generally carry a twelve-month warranty after the machine passes the acceptance test or a fifteen-month warranty
from the date of shipment, whichever date comes first, on parts only. We provide a reserve for warranty based on our experience and
knowledge.
Factors affecting our warranty reserve include the number of units sold or in-service as well as historical and anticipated rates of claims and
cost per claim. We periodically assess the adequacy of our warranty reserve based on changes in these factors. If a special circumstance
arises which requires a higher level of warranty, we make a special warranty provision commensurate with the facts.
Self–Insurance
Since January 1, 2017, we have used a fully-insured model for health and vision coverages we offer our U.S employees. We are currently
self-insured for any short-term disability claims we may have outstanding.
39
New Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09, Revenue from
Contracts with Customers (ASU 2014-09), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core
principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects
the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve
this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required
under existing U.S. GAAP. In March 2016, the FASB issued the final guidance to clarify the principal versus agent guidance (i.e., whether
an entity should report revenue gross or net). In April 2016, the FASB issued final guidance to clarify identifying performance obligation
and the licensing implementation guidance. In May 2016, FASB updated the guidance in ASU No. 2014-09, which updated
implementation of certain narrow topics within ASU 2014-09. Finally, in December 2016, the FASB issued several technical corrections
and improvements, which clarify the previously issued standards and corrected unintended application of previous guidance. These
standards (collectively “ASC 606”) will be effective for annual periods beginning after December 15, 2017 (as amended in August 2015,
by ASU 2015-14, Deferral of the Effective Date), and interim periods therein, using either of the following transition methods: (i) a full
retrospective approach reflecting the applications of the standard in each prior reporting period with the option to elect certain practical
expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption
(which includes additional footnote disclosures). We will adopt the new standard effective July 1, 2018 using the modified retrospective
transition method with the cumulative effect recorded to the opening balance of retained earnings as of the date of adoption. We have
established a project management team to analyze the impact of the new standard. The team has evaluated our different revenue streams
and reviewed representative contracts with customers to identify if there are differences that would result from the application of the new
standard as compared to our current accounting policies and practices. Certain services will be recognized over time instead of at a point in
time upon completion of those services under current guidance. Additionally, for our multiple element contracts in which the payment
terms do not correspond with performance, we will no longer be required to limit the revenue recognized for delivered elements to the
amount that is not contingent on the future delivery of products or services. Instead, we will record revenue for each of the performance
obligations as control transfers to the customers, which will generally accelerate the revenue recognized for such contracts. We will also
capitalize amounts related to certain commissions paid which qualify as “costs to obtain a contract”. We are finalizing the quantification of
the effects on our consolidated financial statements. We anticipate that a new positive transition adjustment will be recorded to retained
earnings at July 1, 2018 between the amounts of $1.8 million and $2.3 million. We have also implemented new business processes and
internal controls in order to recognize revenue in accordance with the new standard.
In January 2016, the FASB issued Accounting Standards Update No. 2016-01, Financial Instruments – Overall (Subtopic 825-10):
Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01), which amends certain aspects of recognition,
measurement, presentation and disclosure of financial instruments. In February 2018, the FASB issued Accounting Standards Update No.
2018-03 —Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement
of Financial Assets and Financial Liabilities (ASU 2018-03), which contains technical corrections and improvements related to ASU 2016-
01. Both ASU 2016-01 and ASU 2018-03, are effective for Perceptron on July 1, 2018 and are not expected to have a significant impact on
our consolidated financial statements or disclosures.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02 Leases (ASU 2016-2), which establishes a right-of-use
(ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12
months. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years,
with early adoption permitted. A modified retrospective transition approach is required for lessees with capital and operating leases
existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. In January 2018,
the FASB issued Accounting Standards Update No. 2018-01, Leases (Topic 842): Land Easement Practical Expedient for Transition to
Topic 842, which permits an entity to elect an optional transition practical expedient to not evaluate land easements under Topic 842. In
July 2018, the FASB issued Accounting Standards Updates No. 2018-11 and 2018-10, Leases (Topic 842): Targeted Improvements and
Codification Improvements to Topic 842, Leases. Both of these ASUs are effective at the same time as when we adopt ASU 2016-02. We
are currently evaluating the impact of the adoption of ASU 2016-02 and the related Updates on our consolidated financial statements.
In June 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments – Credit Losses (Topic 326) (ASU 2016-
13), which requires the measurement of all expected credit losses for financial assets held at the reporting date to be based on historical
experience, current conditions as well as reasonable and supportable forecasts. ASU 2016-13 is effective for fiscal years beginning after
December 15, 2019 including interim periods within those fiscal years, with early adoption permitted. We are currently evaluating the
impact of the adoption of ASU 2016-13 on our consolidated financial statements.
In August 2016, the FASB issued Accounting Standards Update No. 2016-15, Statement of Cash Flows (Topic 230): Classification of
Certain Cash Receipts and Cash Payments (ASU 2016-15), which will make eight targeted changes to how cash receipts and cash
payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for Perceptron beginning on July 1, 2018
and requires us to utilize a retrospective adoption unless it is impracticable for us to apply, in which case, we would be required to apply
the amendment prospectively as of the earliest date practicable. ASU 2016-15 is not expected to have a significant impact on our
consolidated financial statements or disclosures.
40
In October 2016, the FASB issued Accounting Standards Update No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets
Other Than Inventory (ASU 2016-16), which requires that an entity should recognize the income tax consequences of an intra-entity
transfer of an asset other than inventory when the transfer occurs. ASU 2016-16 is effective for annual reporting periods beginning after
December 15, 2017, with early adoption permitted as of the beginning of an annual reporting period for which financial statements (interim
or annual) have not been issued or made available for issuance. ASU 2016-16 is effective for Perceptron on July 1, 2018 and is not
expected to have a significant impact on our consolidated financial statements.
In November 2016, the FASB issued Accounting Standards Update No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash
(ASU 2016-18), which requires a company to present their Statement of Cash Flows including amounts generally described as restricted
cash or restricted cash equivalents with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total
amounts shown on the statement of cash flows. ASU 2016-18 is effective for annual reporting periods beginning after December 15, 2017,
with early adoption permitted. We hold restricted cash in short-term bank guarantees to provide financial assurance that we will fulfill
certain customer obligations in China. These balances are currently part of ‘Short-term investments’ on our Consolidated Balance Sheet
and the movement is part of ‘Purchases of short-term investments’ and ‘Sales of short-term investments’ in the investing activities section
of our Consolidated Statement of Cash Flow. This balance will be reclassified into “Cash and cash equivalents” on our Consolidated
Balance Sheet as of July 1, 2018 and will no longer be considered an investing activity on our Consolidated Statement of Cash Flow.
In January 2017, the FASB issued Accounting Standards Update No. 2017-01, Business Combinations (Topic 805): Clarifying the
Definition of a Business (ASU 2017-01), which clarifies the definition of a business with the objective of adding guidance to assist entities
with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 is
effective for Perceptron on July 1, 2018 and is not expected to have a significant impact on our consolidated financial statements or
disclosures.
In February 2017, the FASB issued Accounting Standards Update No. 2017-05, Other Income—Gains and Losses from the Derecognition
of Nonfinancial Assets (ASU 2017-05), which clarifies the scope of Subtopic 610-20 and adds guidance for partial sales of nonfinancial
assets. Subtopic 610-20, which was issued in May 2014 as a part of Accounting Standards Update No. 2014-09, provides guidance for
recognizing gains and losses from the transfer of nonfinancial assets in contracts with noncustomers. ASU 2017-05 is effective for annual
reporting periods beginning after December 15, 2017, including interim periods within that reporting period with early application
permitted only as of annual reporting periods beginning after December 15, 2016. We do not expect ASU 2017-05 to have a significant
impact on our consolidated financial statements or disclosures.
In May 2017, the FASB issued Accounting Standards Update No. 2017-09, Compensation—Stock Compensation (Topic 718): Scope of
Modification Accounting (ASU 2017-09), which provide clarity and reduce both (1) diversity in practice and (2) cost and complexity when
applying the guidance in Topic 718, Compensation—Stock Compensation, to a change to the terms or conditions of a share-based payment
award. ASU 2017-09 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017.
We do not expect ASU 2017-09 to have a significant impact on our consolidated financial statements or disclosures.
In February 2018, the FASB issued Accounting Standards Update 2018-02—Income Statement—Reporting Comprehensive Income (Topic
220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (ASU 2018-02), which allows for a
reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and
Jobs Act. ASU 2018-02 is effective for Perceptron on July 1, 2019 and is not expected to have a significant impact on our consolidated
financial statements or disclosures.
In July 2018, the FASB issued Accounting Standards Update No. 2018-09, Codification Improvements (ASU 2018-09), which clarifies,
corrects and makes minor improvements a wide variety of Topics in the Codification. The amendments make the Codification easier to
understand and apply by eliminating inconsistencies and providing clarifications. The transition and effective dates is based on the facts
and circumstances of each amendment, including some amendments that will be effective upon issuance of the Update and many of them
will be effective for annual periods beginning after December 31, 2018. We are currently evaluating the impact of the adoption of ASU
2018-09 on our consolidated financial statements and disclosures.
Recently Adopted Accounting Pronouncements
In July 2015, the FASB issued Accounting Standards Update No. 2015-11, Simplifying the Measurement of Inventory (ASU 2015-11),
which requires an entity to measure inventory at the lower of cost and net realizable value. Net realizable value is defined as the estimated
selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. We adopted
this standard on July 1, 2017. Adoption of this guidance did not have a material impact on our consolidated financial statements.
In November 2015, the FASB issued Accounting Standards Update No. 2015-17, Balance Sheet Classification of Deferred Taxes (ASU
2015-17), which requires all deferred tax assets and liabilities, including related valuation allowances, be classified as non-current on our
consolidated balance sheets. We adopted this standard on July 1, 2017, and as a result, reclassified $438,000 of previously “Short-term
deferred income tax assets” to “Long-Term Deferred Income Tax Asset” and reclassified $752,000 of previously “Short-term deferred
income tax liability” to “Long-Term Deferred Income Tax Liability” on our consolidated balance sheet. Our Consolidated Balance Sheets
as of June 30, 2017 and 2016 were not retrospectively adjusted.
41
In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation - Stock Compensation (Topic 718) (ASU
2016-09), which simplifies several aspects of accounting for share-based payment award transactions, including income tax consequences,
classification of awards as either equity or liabilities and classification on the statement of cash flows. Certain of these changes are required
to be applied retrospectively, while other changes are required to be applied prospectively. We adopted this standard on July 1, 2017. ASU
2016-09 requires prospective recognition of excess tax benefits and deficiencies in the income statement. Due to the fact that our U.S.
Federal Deferred Taxes have a full valuation allowance, there was no net impact to our consolidated financial statements related to our
adoption of ASU 2016-09. We elected to continue to estimate forfeiture rates at the time of grant, instead of accounting for them as they
occur. Finally, as excess tax benefits are no longer recognized in additional paid-in capital, we excluded the excess tax benefits from the
assumed proceeds available to repurchase shares in the computation of diluted earnings per share for the fiscal year ended June 30, 2018.
In January 2017, the FASB issued Accounting Standards Update No. 2017-04, Intangibles—Goodwill and Other: Simplifying the Test for
Goodwill Impairment (ASU 2017-04). ASU. 2017-04 simplified wording and removes Step 2 of the Goodwill Impairment Test. A
goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying
amount of goodwill. ASU 2017-04 is effective for annual reporting periods beginning after December 15, 2019 with early adoption
permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We adopted this standard on
April 1, 2018, in conjunction with our annual goodwill impairment test for fiscal 2018. Adoption of this guidance did not have a material
impact on our consolidated financial statements.
2.
Information About Major Customers
Our sales efforts for in-line and near-line products are led by account teams that focus on automotive OEMs. These products are typically
purchased for installation in connection with retooling programs undertaken by these companies. Because sales are dependent on the
timing of customers’ retooling programs, sales by customer vary significantly from year to year, as do our largest customers.
For the fiscal years 2018, 2017 and 2016, approximately 41%, 36% and 34%, respectively, of our “Net Sales” on our Consolidated
Statements of Operations were derived from sales directly to our four largest automotive end-user customers. We also sell to
manufacturing line builders, system integrators or assembly equipment manufacturers, who in turn sell to our automotive customers. For
the fiscal years 2018, 2017 and 2016, approximately 7%, 11% and 8%, respectively, of net sales were to manufacturing line builders,
system integrators and original equipment manufacturers for the benefit of the same four largest automotive end user customers in each
respective year. During the fiscal years ended June 30, 2018, 2017 and 2016, direct sales to General Motors Company accounted for
approximately 17%, 14% and 12%, respectively of our total net sales and Volkswagen Group accounted for approximately 15%, 16% and
17%, respectively of our total net sales.
3.
Allowance for Doubtful Accounts
Changes in our allowance for doubtful accounts are as follows (in thousands):
Fiscal year ended June 30, 2018
Fiscal year ended June 30, 2017
Fiscal year ended June 30, 2016
4.
Inventory
Beginning Costs and
Balance
Expenses
$
$
$
253
269
214
$
$
$
195
22
137
Ending
Charge-offs Balance
(44 )
(38 )
(82 )
$
$
$
$
$
$
404
253
269
Inventory, net of reserves of $2,115,000 and $1,918,000 at June 30, 2018 and June 30, 2017, respectively, is comprised of the following (in
thousands):
Component parts
Work in process
Finished goods
Total
Changes in our reserve for obsolescence is as follows (in thousands):
Fiscal year ended June 30, 2018
Fiscal year ended June 30, 2017
Fiscal year ended June 30, 2016
June 30,
2018
June 30,
2017
$
$
5,156 $
3,525
5,148
13,829 $
4,445
3,864
3,157
11,466
Beginning Costs and
Balance
Expenses
$
$
$
1,918
1,608
1,436
$
$
$
785
375
465
Ending
Charge-offs Balance
(588 )
(65 )
(293 )
$
$
$
$
$
2,115
1,918
1,608
42
5.
Intangibles
Our intangible assets as of June 30, 2018 and 2017 are as follows (in thousands):
June 30, 2018
June 30, 2017
Customer/Distributor Relationships
Trade Name
Software
Other
Total
Net
Gross
Gross
Carrying Accumulated Carrying Carrying Accumulated Carrying
Amount Amortization Amount Amount Amortization Amount
1,739
$
1,942
365
27
4,073
(1,524 ) $
(591 )
(312 )
(94 )
(2,521 ) $
(2,219 ) $
(862 )
(504 )
(124 )
(3,709 ) $
3,329 $
2,586
1,490
124
7,529 $
3,263 $
2,533
677
121
6,594 $
1,110 $
1,724
986
—
3,820 $
Net
$
Amortization expense for the fiscal years ended June 30, 2018, 2017 and 2016 was $1,168,000, $1,073,000 and $1,121,000, respectively.
The estimated amortization of the remaining intangible assets by year is as follows (in thousands):
Years Ending June 30,
2019
2020
2021
2022
2023
after 2023
Amount
1,229
865
421
421
377
507
3,820
$
Collectively, the weighted average amortization period of intangible assets subject to amortization is approximately 3.1 years. The
intangible assets are amortized over the period of economic benefit or on a straight line basis.
6.
Short-Term and Long-Term Investments
As of June 30, 2018 and 2017, we held restricted cash in short-term bank guarantees. The restricted cash provides financial assurance that
we will fulfill certain customer obligations in China. The cash is restricted as to withdrawal or use while the related bank guarantee is
outstanding. Interest is earned on the restricted cash and recorded as interest income. As of June 30, 2018 and June 30, 2017 we had short-
term bank guarantees of $166,000 and $239,000 respectively.
At June 30, 2018, we held a long-term investment in preferred stock that is not registered under the Securities Act of 1933, as amended and
may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. The preferred
stock investment is currently recorded at $725,000 after consideration of impairment charges recorded in fiscal 2008 and 2009. We
estimated that the fair market value of this investment at June 30, 2018 exceeded $725,000 based on an internal valuation model which
included the use of a discounted cash flow model. The fair market analysis considered the following key inputs:
the underlying structure of the security;
(i)
(ii) the present value of the future principal discounted at rates considered to reflect current market conditions; and
(iii) the time horizon that the market value of the security could return to its cost and be sold.
Under ASC 820, “Fair Value Measurements” (“ASC 820”) such valuation assumptions are defined as Level 3 inputs.
43
The following table presents our Short-Term and Long-Term Investments by category at June 30, 2018 and 2017 (in thousands):
Short-Term Investments
Bank Guarantees
Mutual Funds
Time/Fixed Deposits
Total Short-Term Investments
Long-Term Investments
Preferred Stock
Total Long-Term Investments
Total Investments
Short-Term Investments
Bank Guarantees
Time/Fixed Deposits
Total Short-Term Investments
Long-Term Investments
Preferred Stock
Total Long-Term Investments
Total Investments
7.
Financial Instruments
Cost
June 30, 2018
Fair Value or
Carrying Value
166
23
688
877
166 $
23
688
877 $
3,700 $
3,700 $
725
725
4,577 $
1,602
Cost
June 30, 2017
Fair Value or
Carrying Value
239
1,333
1,572
239 $
1,333
1,572 $
3,700 $
3,700 $
725
725
5,272 $
2,297
$
$
$
$
$
$
$
$
$
$
The following table presents our investments at June 30, 2018 and 2017 that are measured and recorded at fair value on a recurring basis
consistent with the fair value hierarchy provisions of ASC 820 (in thousands). The fair value of our short-term investments approximates
their cost basis.
Description
Mutual funds
Time/Fixed Deposits and Bank Guarantees
Preferred Stock
Total
Description
Time/Fixed Deposits and Bank Guarantees
Preferred Stock
Total
$
$
$
$
June 30,
2018
Level 1
Level 2
23 $
854
725
1,602 $
23 $
-
-
23 $
Level 3
- $
854
-
854 $
-
-
725
725
June 30,
2017
Level 1
1,572 $
725
2,297 $
Level 3
Level 2
- $
-
- $
1,572 $
-
1,572 $
-
725
725
Fair value estimates are made at a specific point in time based on relevant market information and information about the financial
instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore, cannot be
determined with precision. Changes in assumptions could significantly affect these estimates. During fiscal years 2018 and 2017, we did
not record any other-than-temporary impairments on our financial assets required to be measured on a recurring basis.
44
8.
Warranties
Changes to our warranty reserve is as follows (in thousands):
Fiscal year ended June 30, 2018
Fiscal year ended June 30, 2017
Fiscal year ended June 30, 2016
9.
Property and Equipment
Beginning
Balance
$
$
$
548 $
370 $
192 $
Accruals -
Current Year (in cash or in kind) Currency
Settlements/Claims Effect of Foreign Ending
Balance
844 $
631 $
451 $
(1,006 ) $
(453 ) $
(272 ) $
5 $
— $
(1 ) $
391
548
370
Our property and equipment consisted of the following as of June 30, 2018 and 2017 (in thousands):
Building and Land
Machinery and Equipment
Furniture and Fixtures
Total Property and Equipment, gross
Less: Accumulated Depreciation
Total Property and Equipment, net
June 30,
2018
June 30,
2017
7,844 $
14,578
1,060
23,482
(16,869 )
6,613 $
7,788
16,414
1,054
25,256
(17,879 )
7,377
$
$
Depreciation expense for the years ended June 30, 2018, 2017, and 2016 was $1,108,000, $1,121,000, and $1,016,000, respectively.
10.
Severance, Impairment and Other Charges
During the third quarter of fiscal 2016, we announced a financial improvement plan that resulted in a reduction in global headcount of
approximately 11%. This plan was implemented to re-align our fixed costs with our near-to mid-term expectations for our business. In
addition, during the first quarter of fiscal 2017, we decided to terminate production and marketing of a specific product line due to
limitations in its design. Since this decision was made, we have written off $290,000, net related to inventory and impaired certain
customer receivable balances in the amount of $127,000. By the second quarter of fiscal 2018, we had substantially completed the plan that
was announced; we incurred total pre-tax cash and non-cash charges related to the original restructuring plan, as well as the additional
charges from the terminated product line, of $3,531,000.
In July 2017, we entered into an agreement to settle the civil suit that was filed by 3CEMS, a Cayman Island and People’s Republic of
China corporation, in January 2015 (see Note 14 “Commitments and Contingencies – Legal Proceedings” for further discussion). The
settlement of $1,000,000 was recorded as expense in fiscal 2017.
In January 2018, a judge in a trade secrets case brought by Perceptron granted the defendants’ motions for recovery of their attorney fees
(see Note 14 “Commitments and Contingencies – Legal Proceedings” for further discussion relating to this matter). A charge in the
amount of $675,000 was recorded as a liability in the second quarter of fiscal 2018. We have appealed the court’s decision to grant
summary disposition and the award of the attorney fees.
The charges recorded as Severance, Impairment and Other Charges are as follows (in thousands):
Severance and Related Costs
Court Award
Legal Settlement
Impairment
Inventory Write-Off
Total
2018
Fiscal Years Ended June 30,
2017
2016
(13 ) $
675
-
(42 )
(17 )
603 $
301 $
-
1,000
169
307
1,777 $
1,968
-
-
694
164
2,826
$
$
Severance expense for the fiscal year ended June 30, 2018 was associated with adjustments at our China (income of $15,000) and U.S.
(expense of $2,000) locations as we reached final settlements related to several individuals impacted by the reduction in force. The
decrease in the impairment for the fiscal year ended June 30, 2018 was due to a collection of an accounts receivable balance that was
previously written off. The decrease of the inventory write-off was due to finding other uses for some of the inventory originally designated
as impaired.
45
Severance expense for the fiscal year ended June 30, 2017 was associated with adjustments at our U.S. location (expense of $312,000), our
China location (expense of $82,000) and our German location (income of $93,000), primarily as we reached final settlements related to
several individuals impacted by the reduction in force.
Severance expense for the fiscal year ended June 30, 2016 was associated with a reduction in force at our U.S. location ($1,395,000), our
German location ($472,000) and our China location ($101,000). We also recorded an impairment charge of previously capitalized software
and wrote-off inventory in the amount of $858,000 related to a product line that was discontinued in the third quarter of fiscal 2016.
The following table reconciles the activity for the Reserve for Restructuring and Other Charges (in thousands):
Balance at June 30
Accruals - Severance Related
Accruals - Court Award
Accruals - Legal Settlement
Payments
Balance at June 30,
2018
2017
1,113 $
(13 )
675
-
(1,100 )
675 $
814
301
-
1,000
(1,002 )
1,113
$
$
The remaining accrued balance at June 30, 2018 is the accrual for the judgment related to the trade secrets case. Due to our appeal of the
court decisions in this case, the timing of any payments related to this matter is unknown to us at this time.
11.
Credit Facilities
We had approximately $175,000 and $1,705,000 outstanding under our lines of credit and short-term notes payable at June 30, 2018 and
2017, respectively. In addition, we had zero and $171,000 in long-term debt outstanding included in ‘Other Long-Term Liabilities’ at
June 30, 2018 and 2017, respectively, on our Consolidated Balance Sheet.
On December 4, 2017, we entered into a Loan Agreement (the “Loan Agreement”) with Chemical Bank (“Chemical”), and related
documents, including a Promissory Note. The Loan Agreement is an on-demand line of credit and is cancelable at any time by either
Perceptron or Chemical and any amounts outstanding would be immediately due and payable. The Loan Agreement is guaranteed by our
U.S. subsidiaries. The Loan Agreement allows for maximum permitted borrowings of $8.0 million. The borrowing base is calculated at
the lesser of (i) $8.0 million or (ii) the sum of 80% of eligible accounts receivable balances of U.S. customers, and subject to limitations,
certain foreign customers, plus the lesser of 50% of eligible inventory or $3.0 million. At June 30, 2018, our additional available
borrowing under this facility was approximately $6.8 million. Security for the Loan Agreement is substantially all of our assets in the U.S.
Interest is calculated at 2.65% above the 30 day LIBOR Rate. We are not allowed to pay cash dividends under the Loan Agreement. We
had zero in borrowings outstanding under the Loan Agreement at June 30, 2018.
Prior to December 4, 2017, we were party to an Amended and Restated Credit Agreement with Comerica Bank. We had $1,500,000
outstanding at June 30, 2017 under this agreement. On December 4, 2017, in connection with entering into the Loan Agreement, we repaid
in full and terminated our Amended and Restated Credit Agreement with Comerica Bank and related documents. There were no
prepayment fees payable in connection with the repayment of the loan.
During the third quarter of fiscal 2016, our Italian subsidiary, Coord3, exercised an option to purchase their current manufacturing facility.
The total remaining principal payments of €150,000 (equivalent to approximately $175,000) payable over the next 10 months at a 7.0%
annual interest rate are recorded in “Lines of credit and short-term notes payable” on our Consolidated Balance Sheet at June 30, 2018.
Our Brazilian subsidiary (“Brazil”) has a credit line and overdraft facility with their local bank. Brazil can borrow a total of B$200,000
(equivalent to approximately $52,000). This Brazil facility is cancelable at any time by either Brazil or the bank and any amount then
outstanding would become immediately due and payable. The monthly interest rate for the current facility is 12.30%. Brazil previously
had two additional credit lines that were cancelled in June 2018. We had no borrowings under these facilities at June 30, 2018 and 2017,
respectively.
12.
Current and Long-Term Taxes Payable
We acquired current and long-term taxes payable as part of the purchase of Coord3. The tax liabilities represent income and payroll related
taxes that are payable in accordance with government authorized installment payment plans. These installment plans require varying
monthly payments through January 2021.
13.
Other Long-Term Liabilities
Other long-term liabilities at June 30, 2018 and 2017 include $601,000 and $614,000, respectively for long-term contractual and statutory
severance liabilities acquired as part of the purchase of Coord3 that represent amounts that will be payable to employees upon termination
of employment.
46
14.
Commitments and Contingencies
Leases
We lease building space, office equipment and motor vehicles under operating leases. Lease terms generally cover periods from two to
five years and may contain renewal options. The following is a summary, as of June 30, 2018, of the future minimum annual lease
payments required under our operating leases having initial or remaining non-cancelable terms in excess of one year (in thousands):
Years Ending June 30,
2019
2020
2021
2022
2023 and beyond
Minimum
Rentals
966
573
371
177
-
2,087
$
$
Rental expenses for operating leases in the fiscal years ended June 30, 2018, 2017 and 2016 were $884,000, $943,000 and $1,097,000,
respectively.
Legal Proceedings
We may, from time to time, be subject to litigation and other claims in the ordinary course of our business. We accrue for estimated losses
arising from such litigation or claims if it is probable that an asset has been impaired or a liability has been incurred and the amount of the
loss can be reasonably estimated. To estimate whether a loss contingency should be accrued by a charge to income, we evaluate, among
other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of the loss.
Since the outcome of litigation and claims is subject to significant uncertainty, changes in the factors used in our evaluation could
materially impact our financial position or results of operations.
We were a party to a civil suit filed by 3CEMS, a Cayman Islands and People’s Republic of China corporation, in the U.S. District Court
for the Eastern District of Michigan and served on us on or about January 7, 2015. The suit alleged that we breached our contractual
obligations by failing to pay for component parts to be used to manufacture optical video scopes for our discontinued Commercial Products
Business Unit. 3CEMS alleged that it purchased the component parts in advance of the receipt of orders based upon instructions they
claimed to have received from us. The suit alleged damages of not less than $4.0 million. In July 2017, we entered into an agreement with
3CEMS to settle this suit and recorded the expense in the fourth quarter of fiscal 2017. As part of the settlement, we agreed to pay 3CEMS
$1,000,000 in four equal payments of $250,000 each over a period of ten months beginning in August 2017. As of June 30, 2018, this
settlement was paid in full (see Note 10 ‘Severance, Impairment and Other Charges’ for further discussion).
We are currently unaware of any significant pending litigation affecting us other than the matters set forth below.
In May 2017, a judge in a trade secrets case brought by Perceptron granted the defendants’ motions for summary disposition. Furthermore,
in January 2018 the judge granted the defendants’ motions for recovery of their attorney fees in the amount of $675,000, plus interest. We
are appealing the court’s decision to grant summary disposition and the award of the attorney fees. In the second quarter of fiscal 2018, we
recorded a charge in the amount of $675,000 relating to this matter (see Note 10 ‘Severance, Impairment and Other Charges’ for further
discussion). Due to our appeal of the court decisions in the trade secrets case, the timing of any payments related to this matter is unknown
to us at this time.
As part of routine evaluation procedures, we identified a potential concern regarding the employment status and withholding for several
individuals in one of our foreign jurisdictions. During fiscal 2015, we estimated a range of the potential financial liability related to this
matter of €486,000 to €1 million. We were not able to reasonably estimate the amount within this range that we would be required to pay
for this matter. As a result, in fiscal 2015, we recorded a reserve of €486,000 (equivalent to approximately $582,000) representing the
minimum amount we estimated would be paid. In the fourth quarter of fiscal 2016, we received the final notice regarding this issue, and as
a result, we recorded an additional expense of €227,000 (equivalent to approximately $272,000). To date, we have paid €677,000
(equivalent to approximately $810,000). We believe that the Slovakian authorities have closed this issue and therefore, in the second
quarter of fiscal 2018, we reversed the remaining accrual.
In the third quarter of fiscal 2018, the Canadian Revenue Agency (“CRA”) completed a Goods and Services Tax/Harmonized Sales Tax
Returns (GST/HST) audit. Based on this audit, the CRA preliminarily proposed to assess us approximately CAD $1,218,000 (equivalent to
approximately $923,000) in taxes plus interests and penalties related to sales from 2013 through 2018. CRA has indicated that we are
entitled to invoice our customers to recover this amount and our customers are required to remit payment. Our response to the CRA
preliminary assessment was delivered in April 2018. In June 2018, we received the final assessment, which confirmed the preliminary
assessment. In August 2018, we filed a formal appeal request and posted a surety bond as security for this claim. We have not recorded an
accrual related to this preliminary audit finding because we are disputing several of the CRA’s conclusions, and, in addition, if our dispute
is not resolved to our satisfaction, we expect to ultimately receive the funds from our customers (excluding any interest or penalties),
although there may be a timing difference between when we must pay the CRA and when we collect the funds from our customers.
47
15.
401(k) Plan
We have a 401(k) tax deferred savings plan that covers all eligible employees based in the U.S. As part of our financial improvement plan
announced in the third quarter of fiscal 2016, we ceased making discretionary contributions at that time. In December 2016, we reinstated
discretionary contributions which we expect to continue into our fiscal year 2019. Our contributions during fiscal years 2018, 2017 and
2016 were $281,000, $171,000 and $385,000, respectively.
16.
Employee Stock Purchase Plan
We have an Employee Stock Purchase Plan for all U.S.-based employees meeting certain eligibility criteria. Under the Plan, eligible
employees may purchase shares of our common stock at 85% of the market value at the beginning of a six-month election period.
Purchases are limited to 10% of an employee's eligible compensation and the shares purchased are restricted from being sold for one year
from the purchase date. At June 30, 2018, 124,433 shares remained available under the Plan.
Activity under this Plan is shown in the following table (in thousands, except per share amount):
Non-cash stock based compensation expense
Common shares purchased
Average purchase price per share
17.
Stock Based Compensation
Purchase Period Ended
June 30,
2017
2016
2018
$
$
10 $
5
5.95 $
4 $
4
3.86 $
19
2
8.50
We maintain a 2004 Stock Incentive Plan (“2004 Plan”) covering substantially all company employees, non-employee directors and certain
other key persons. All Options previously granted under a 1998 Global Team Member Stock Option Plan (“1998 Plan”) were exercised,
cancelled or expired before March 31, 2017. The 2004 Plan is administered by a committee of our Board of Directors: The Management
Development, Compensation and Stock Option Committee (“MDCSOC”).
Awards under the 2004 Plan may be in the form of stock options, stock appreciation rights, restricted stock or restricted stock units,
performance share awards, director stock purchase rights and deferred stock units; or any combination thereof. The terms of the awards are
determined by the MDCSOC, except as otherwise specified in the 2004 Plan.
Stock Options
Options outstanding under the 2004 Plan generally become exercisable at 25% or 33 1/3 % per year beginning one year after the date of
grant and expire ten years after the date of grant. Option prices from options granted under this plan must not be less than fair market value
of our stock on the date of grant. We use the Black-Scholes model for determining stock option valuations. The Black-Scholes model
requires subjective assumptions, including future stock price volatility and expected time to exercise, which affect the calculated values.
The expected term of option exercises is derived from historical data regarding employee exercises and post-vesting employment
termination behavior. The risk-free rate of return is based on published U.S. Treasury rates in effect for the corresponding expected term.
The expected volatility is based on historical volatility of our stock price. These factors could change in the future, which would affect the
stock-based compensation expense in future periods.
We recognized operating expense for non-cash stock-based compensation costs related to stock options in the amount of $336,000,
$374,000 and $428,000 for the fiscal years ended June 30, 2018, 2017 and 2016, respectively. As of June 30, 2018, the total remaining
unrecognized compensation cost related to non-vested stock-based compensation amounted to $292,000. We expect to recognize this cost
over a weighted average vesting period of 1.8 years.
We received $458,000 in cash from option exercises under all stock option payment arrangements for the twelve months ended June 30,
2018. The actual tax benefit realized related to tax deductions for non-qualified options exercised and disqualifying dispositions under all
stock option payment arrangements totaled approximately $87,000 for fiscal 2018.
48
Activity under these Plans is shown in the following tables:
Fiscal Year 2018
Weighted Aggregate
Average
Exercise
Intrinsic
Value (1)
Fiscal Year 2017
Weighted Aggregate
Average
Exercise
Intrinsic
Value (1)
Shares subject to option
Outstanding at beginning of period
Shares
Price
($000)
Shares
Price
($000)
622,636 $
7.26
635,158 $
7.53
New Grants (based on fair value of
common stock at dates of grant)
Exercised
Expired
Forfeited
100,000 $
(52,000 ) $
(34,000 ) $
(1,600 ) $
7.95
8.81
9.99
10.55
166,500 $
(28,916 ) $
(115,635 ) $
(34,471 ) $
6.63
4.89
8.28
7.69
Outstanding at end of period
Exercisable at end of period
635,036 $
384,805 $
7.02 $
6.87 $
2,269
1,445
622,636 $
336,022 $
7.26 $
7.50 $
279
279
Fiscal Year 2016
Weighted Aggregate
Average
Exercise
Intrinsic
Value (1)
Shares subject to option
Outstanding at beginning of period
Shares
Price
($000)
658,641 $
8.53
New Grants (based on fair value
of common stock at dates of grant)
Exercised
Expired
Forfeited
511,197 $
(9,748 ) $
(123,833 ) $
(401,099 ) $
7.35
5.92
9.08
8.48
Outstanding at end of period
Exercisable at end of period
635,158 $
329,210 $
7.53 $
7.78 $
54
54
(1) The intrinsic value of a stock option is the amount by which the current market value of the underlying stock exceeds the exercise
price of the option. The total intrinsic value of stock options exercised during the fiscal years ended June 30, 2018, 2017 and 2016,
were $87,000, $58,000 and $24,000, respectively. The total fair value of shares vested during the fiscal years ended June 30, 2018,
2017 and 2016, were $400,000, $409,000 and $323,000, respectively.
The estimated fair value as of the date options were granted during the periods presented using the Black-Scholes option-pricing model,
was as follows:
Weighted average estimated fair value per
share of options granted during the period
Assumptions:
Dividend yield
Common stock price volatility
Risk free rate of return
Expected option term (in years)
2018
2017
2016
$
3.96 $
3.02 $
2.94
-
49.01 %
1.81 %
5.4
-
48.25 %
1.81 %
5.5
-
45.43 %
1.55 %
5.7
49
The following table summarizes information about stock options at June 30, 2018:
Range of Exercise Prices
Shares
Options Outstanding
Weighted
Average
Remaining
Contractual Life
Weighted
Average
Exercise
Price
Options Exercisable
Weighted
Average
Exercise
Price
Shares
$ 2.80 to $
5.70 to
8.94 to
$ 2.80 to $
4.87
8.81
14.01
14.01
40,400
555,136
39,500
635,036
4.20 $
7.31 $
5.20 $
6.98 $
3.95
6.94
11.25
7.02
33,733 $
311,572 $
39,500 $
384,805 $
3.77
6.65
11.25
6.87
Restricted Stock and Restricted Stock Units
Our restricted stock and restricted stock units under the 2004 Plan generally have been awarded by four methods as follows:
(1) Awards that are earned based on achieving certain individual and financial performance goals during the initial fiscal year with either
a subsequent one-year service vesting period or with a one-third vesting requirement on the first, second and third anniversaries of
the issuance, provided the individual’s employment has not terminated prior to the vesting date and are freely transferable after
vesting;
(2) Awards that are earned based on achieving certain revenue and operating income results with a subsequent one-third vesting
requirement on the first, second and third anniversaries of the issuance, provided the individual’s employment has not terminated
prior to the vesting date and are freely transferable after vesting;
(3) Awards to non-management members of our Board of Directors with a subsequent one-third vesting requirement on the first, second
and third anniversaries of the issuance provided the service of the non-management member of our Board of Directors has not
terminated prior to the vesting date and are freely transferable after vesting; and
(4) Awards that are granted with a one-third vesting requirement on the first, second and third anniversaries of the issuance provided the
individual’s employment has not terminated prior to the vesting date and are freely transferable after vesting, including restricted
stock units granted as part of the Fiscal Year 2018 Long-Term Incentive Compensation Plan.
The grant date fair value associated with the restricted stock is calculated in accordance with ASC 718 “Compensation – Stock
Compensation”. Compensation expense related to restricted stock awards is based on the closing price of our Common Stock on the grant
date authorized by our MDCSOC, multiplied by the number of restricted stock and restricted stock unit award expected to be issued and
vested and is amortized over the combined performance and service periods. The non-cash stock-based compensation expense recorded for
restricted stock and restricted stock unit awards for the fiscal years ended June 30, 2018, 2017 and 2016 was $186,000, $145,000 and
$221,000, respectively. As of June 30, 2018, the total remaining unrecognized compensation cost related to restricted stock and restricted
stock unit awards is approximately $251,000. We expect to recognize this cost over a weighted average vesting period of 2.3 years.
A summary of the status of restricted stock and restricted stock unit awards issued at June 30, 2018 is presented in the table below:
Nonvested at June 30, 2017
Granted
Vested
Forfeited or expired
Nonvested at June 30, 2018
Performance Stock Units
Nonvested
Shares
11,776 $
88,112
(21,518 )
(800 )
77,570 $
Weighted
Average
Grant Date
Fair Value
8.08
7.72
7.75
7.95
7.77
During the second quarter of fiscal 2018, the MDCSOC granted certain employees 40,150 shares of Performance Share Units (“PSUs”) as
part of the Fiscal Year 2018 Long-Term Incentive Compensation Plan. The Performance Measures were defined by the MDCSOC as a
specific Target level of Revenue and Operating Income for each of the following: fiscal year 2018, fiscal year 2019 and fiscal year 2020.
Up to one-third of the PSUs can be earned each year based upon actual performance levels achieved in that fiscal year. One half of the
award earned each fiscal year is based upon the achievement of the two Performance Targets in that fiscal year, provided that a minimum
level of Operating Income is achieved for that fiscal year. The actual award level for each fiscal year can range from 50% to 150% (for
Revenue Target) or 75% to 200% (for Operating Income Target) of the target awards depending on actual performance levels achieved in
each fiscal year compared to that year’s target. The non-cash stock-based compensation expense recorded for performance share unit
awards for the fiscal years ended June 30, 2018 was $165,000. As of June 30, 2018, the total remaining unrecognized compensation cost
related to performance share unit awards is approximately $213,000. We expect to recognize this cost over a weighted average vesting
period of 1.5 years.
50
Board of Directors Fees
Our Board of Directors’ fees are typically payable in cash on September 1, December 1, March 1, and June 1 of each fiscal year; however,
under our 2004 Plan each director can elect to receive our stock in lieu of cash on a calendar year election. Each of our Directors elected
stock for the calendar year of 2017 and cash for calendar year of 2018. We issued 29,527 shares to our directors and recorded expense of
$257,000 related to the portion of our fiscal year 2018 that fell in calendar year 2017.
Available Shares
At June 30, 2018, the 2004 Plan had 883,229 shares available for future grants.
18.
Income Taxes
Income (loss) from our operations before income taxes for U.S. and foreign operations was as follows (in thousands):
U.S.
Foreign
Total
2018
2017
2016
$
$
2,228 $
2,261
4,489 $
(732 ) $
1,994
1,262 $
(5,828 )
(3,389 )
(9,217 )
The income tax (provision) benefit reflected in the statement of income consists of the following (in thousands):
Current (provision) benefit:
U.S. Federal, State & Other
Foreign
Deferred taxes
U.S.
Foreign
Total (provision) benefit
The components of deferred taxes were as follows (in thousands):
Benefit of net operating losses
Tax credit carry-forwards
Deferred revenue
Impaired investment
Property and intangible assets
Other
Deferred tax asset
Valuation allowance
Total deferred tax assets
Deferred tax liabilities - basis difference and amortization
Net deferred taxes
2018
2017
2016
(75 ) $
(1,213 )
308
207
(773 ) $
(127 ) $
(727 )
—
(576 )
(1,430 ) $
(116 )
(185 )
(11,349 )
(1,246 )
(12,896 )
2018
2017
2016
7,334 $
7,475
1,668
677
61
1,885
19,100
(17,845 )
1,255
(1,917 )
(662 ) $
8,787 $
5,284
2,073
1,054
187
2,161
19,546
(19,099 )
447
(1,623 )
(1,176 ) $
9,268
5,451
1,434
1,060
242
3,029
20,484
(19,453 )
1,031
(1,631 )
(600 )
$
$
$
$
The reconciliation of income tax rate to effective tax rate was as follows (in thousands):
Provision at U.S. statutory rate
Net effect of taxes on foreign activities
Tax effect of U.S. permanent differences
State taxes and other, net
Stock based compensation
Other
Valuation allowance
Effective tax rate
2018
2017
2016
28.1 %
8.4 %
0.5 %
0.2 %
1.3 %
(6.2 %)
(15.1 %)
17.2 %
34.0 %
49.5 %
14.7 %
4.9 %
56.9 %
(1.3 %)
(45.6 %)
113.1 %
34.0 %
(5.9 %)
2.6 %
(1.5 %)
0.0 %
3.8 %
(172.9 %)
(139.9 %)
51
On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was enacted by the U.S. The Act implements comprehensive tax legislation
which, among other changes, reduces the federal statutory corporate tax rate from 35% to 21% and implements a territorial tax system that
eliminates the ability to credit certain foreign taxes. Additionally, in December 2017, the Securities and Exchange Commission staff issued
Staff Accounting Bulletin No. 118 (“SAB 118”), which addresses how a company recognizes provisional amounts when a company does
not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting
for the effect of the changes in the Tax Act. The measurement period, as defined in SAB 118, ends when a company has obtained, prepared
and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year.
As we have a June 30 fiscal year end, the lower income tax rates will be phased in, resulting in a blended rate for fiscal 2018 and a 21%
rate for years thereafter. Based on the provisions of the Act, we re-measured our U.S. deferred tax assets and related valuation allowance at
the date of enactment. The re-measurement of U.S. deferred tax assets and related valuation allowance at the lower enacted corporate tax
rate resulted in a net change of zero.
Furthermore, the new Act repeals the Alternative Minimum Tax (“AMT”) on corporations. Any AMT credit carryforwards can be used to
offset regular tax for any tax year and is refundable, subject to limitation in 2018 - 2021. With this change, we expect to be able to use or
monetize the AMT credit in the next four years, and therefore, the valuation allowance recorded against the credit was removed. As a
result, we recorded a tax benefit in the amount of $279,000 in the second quarter of fiscal 2018.
The Act also imposes a tax on the untaxed foreign earnings of foreign subsidiaries of U.S. companies by deeming those earnings to be
repatriated (the “Transition Tax”). Generally, foreign earnings held in the form of cash and cash equivalents are taxed by the U.S. at a
15.5% rate and the remaining earnings are taxed at an 8% rate. The Transition Tax generally may be paid in installments over an eight-
year period. At the date of enactment, we were not in a position to present either a final or provisional estimate with respect to the
Transition Tax. As of June 30, we have estimated the impact of the Transition Tax by incorporating assumptions made based upon our
current interpretation and analysis to-date of the Act and have determined that our foreign tax credits would completely offset any
Transition Tax calculated, and therefore, we do not expect to make any cash payments related to the Transition Tax. The actual impact of
the Act may differ from our estimates due to, among other things, further refinement of our calculations as allowed under SAB 118,
changes in interpretations and assumptions we have made, guidance that may be issued and actions we may take as a result of the Act.
At June 30, 2018, we had net operating loss carry-forwards for U.S. federal income tax purposes of $25.8 million that expire in the years
2022 through 2036 and tax credit carry-forwards of $7.5 million of which $5.0 million expire in the years 2019 through 2036. Included in
the U.S. federal net operating loss carry-forward is $8.3 million from the exercise of employee stock options, the tax benefit of which was
recognized on July 1, 2017 in accordance with ASU 2016-09. A corresponding valuation allowance was also recorded.
Our deferred tax assets are substantially represented by the tax benefit of U.S. net operating losses “(NOL’s”), tax credit carry-forwards
and the tax benefit of future deductions represented by timing differences for deferred revenue, inventory obsolescence, allowances for bad
debts, warranty expenses and unrealized losses on investments. We assess the realizability of the NOL’s and tax credit carry-forwards
based on a number of factors including our net operating history, the volatility of our earnings, our accuracy of forecasted earnings for
future periods and the general business climate. We also have a deferred tax liability related to the basis difference in the Coord3
intangible assets acquired.
As of the end of our fiscal year 2016, we had been in a three-year cumulative loss position in the U.S., therefore, at that time, we
determined that it was not more likely than not that any of our U.S. deferred tax assets would be realized as benefits in the future.
Accordingly, we established a full valuation allowance against our U.S. net deferred tax assets as of June 30, 2016 and this valuation
allowance remains at June 30, 2018. Additionally, during fiscal years 2016 and 2017, we established full valuation allowances against our
Germany, Japan, Singapore and Brazil net deferred tax assets for similar reasons. While our U.S. and Germany locations had pre-tax
income during fiscal year 2018, both are still in a three-year cumulative loss position as of June 30, 2018 and we have determined that it is
not likely than not that any of our deferred tax assets, except for the U.S. AMT credit, will be realized as benefits in the future. The net
change in the total valuation allowance for the fiscal years ended June 30, 2018, 2017 and 2016 was ($1,254,000), ($354,000), and
$16,349,000, respectively.
On June 30, 2018 and 2017, we had $73,000 and $120,000 of unrecognized tax benefits that would affect the effective tax rate if
recognized absent valuation considerations. Our policy is to classify interest and penalties related to unrecognized tax benefits as interest
expense and income tax expense, respectively. As of June 30, 2018, there was no accrued interest or penalties related to uncertain tax
positions recorded on our Consolidated Balance Sheets or Consolidated Statements of Operations. For U.S. federal income tax purposes,
the tax years 2015 through 2018 remain open to examination by government tax authorities. For German income tax purposes, tax years
2014 through 2018 remain open to examination by government tax authorities. For our China income tax purposes, tax years 2015 through
2018 remain open to examination by government tax authorities generally.
The aggregate changes in the balance of unrecognized tax benefits were as follows (in thousands):
Balance, at June 30, 2017
Increases for tax positions related to the current year
Decreases for tax positions related to the prior year
Balance, at June 30, 2018
52
$
$
2018
120
-
(47 )
73
19.
Segment and Geographic Information
We manage our business under three operating segments: Americas, Europe and Asia. All of our operating segments rely on our core
technologies and sell the same products primarily in the global automotive industry. The segments also possess similar economic
characteristics, resulting in similar long-term expected financial performance. In addition, we sell to the same customers in all of our
operating segments. Accordingly, our operating segments are aggregated into one reportable segment.
We account for geographic sales based on the country from which the sale is invoiced rather than the country to which the product is
shipped. We operate in three geographic areas: The Americas (substantially all of which is the United States, with less than 10% from net
sales in Brazil), Europe and Asia. Sales and Long-lived assets, net by our geographical regions are as follows (in thousands):
Geographical Regions
Twelve months ended June 30, 2018
Net sales
Long-lived assets, net
Twelve months ended June 30, 2017
Net sales
Long-lived assets, net
Twelve months ended June 30, 2016
Net sales
Long-lived assets, net
Americas
Europe (1)
Asia (2)
Consolidated
$
$
$
34,720 $
5,608
33,492 $
1,541
16,481 $
189
84,693
7,338
30,311 $
6,202
32,139 $
1,638
15,497 $
262
77,947
8,102
22,523 $
6,607
31,087 $
1,696
15,525 $
393
69,135
8,696
(1) Our German subsidiary had net external sales of $23.2 million, $21.8 million and $19.7 million in the fiscal years ended June 30,
2018, 2017 and 2016, respectively. Long-lived assets, net of our German subsidiary were $173,000, $285,000 and $395,000 as of
June 30, 2018, 2017 and 2016, respectively. Our Italian subsidiary had net external sales of $10.3 million, $10.3 million, and $11.4 in
the fiscal years ended June 30, 2018, 2017 and 2016, respectively. Long-lived assets, net of our Italian subsidiary were $1,263,000,
$1,245,000 and $1,201,000 as of June 30, 2018, 2017 and 2016, respectively.
(2) Our Chinese subsidiary had net external sales of $14.0 million, $11.5 million and $11.8 million in the fiscal years ended June 30,
2018, 2017 and 2016, respectively. Long-lived assets, net of our Chinese subsidiary were $71,000, $165,000 and $295,000 as of
June 30, 2018, 2017 and 2016, respectively.
We have three major product lines: Measurement Solutions, 3D Scanning Solutions and Value Added Services. Sales by our product lines
are as follows (in thousands):
Product Lines
Measurement Solutions
3D Scanning Solutions
Value Added Service
Total Net Sales
2018
Fiscal Year Ended, June 30,
2017
2016
$
$
77,235
2,729
4,729
84,693
$
$
69,731
5,490
2,726
77,947
$
$
62,268
3,936
2,931
69,135
53
20.
Selected Quarterly Financial Data (Unaudited)
Selected unaudited quarterly financial data for the fiscal years ended June 30, 2018 and 2017 are as follows (in thousands, except per share
amounts):
Quarter Ended
3/31/2018
6/30/2018
12/31/2017
$
20,433
7,407
366
$
$
21,397
7,922
1,020
0.04
0.04
0.11
0.11
23,594
9,021
772
0.08
0.08
12/31/2016
$
21,751
9,444
2,524
$
0.27
0.27
3/31/2017
6/30/2017
$
16,325
5,190
(598 )
(0.06 )
(0.06 )
22,351
8,561
261
0.03
0.03
Fiscal Year 2018
Net Sales
Gross Profit
Net Income
Net Income Per Common Share
Basic
Diluted
Fiscal Year 2017
Net Sales
Gross Profit
Net (Loss) Income
Net (Loss) Income Per Common Share
Basic
Diluted
$
$
9/30/2017
19,269
7,650
1,558
0.16
0.16
9/30/2016
17,520
4,574
(2,355 )
(0.25 )
(0.25 )
54
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES
None.
ITEM 9A: CONTROLS AND PROCEDURES
Evaluation Of Disclosure Controls And Procedures
We 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, 2018, 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 we file or submit 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.
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 the Company’s internal control over financial reporting as of June 30, 2018. 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 control over financial reporting was effective as of June 30, 2018.
BDO USA LLP, the independent registered public accounting firm that audited the financial statements included in this Annual Report on
Form 10-K for the fiscal year ended June 30, 2018, has issued an audit report on the effectiveness of our internal control over financial
reporting as of June 30, 2018. Such report appears immediately below.
55
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Perceptron, Inc.
Plymouth, Michigan
Opinion on Internal Control over Financial Reporting
We have audited Perceptron, Inc.’s (the “Company’s”) internal control over financial reporting as of June 30, 2018, based on criteria
established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the “COSO criteria”). In our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of June 30, 2018, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”),
the consolidated balance sheets of the Company and subsidiaries as of June 30, 2018 and 2017, the related consolidated statements of
operations, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended June 30, 2018, and
the related notes and our report dated August 30, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Report of Management on Internal
Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting
based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting
was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s 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 the company; (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 of the company are being made only in accordance with authorizations
of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
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.
/s/ BDO USA, LLP
Troy, Michigan
August 30, 2018
56
Changes In Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting during the quarter ended June 30, 2018 identified in connection
with our evaluation that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B: OTHER INFORMATION
None.
PART III
ITEM 10: DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
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 2018 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 “Corporate 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 “Corporate Governance”.
ITEM 11: EXECUTIVE COMPENSATION
The information contained under the captions “Matters to Come Before the Meeting – Proposal 1: Election of Directors – Director
Compensation for Fiscal 2018”, “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.
57
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, 2018, including the 2004 Stock Incentive Plan and the Employee Stock
Purchase Plan (together, the “Plans”):
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
(a)
Weighted
average exercise
price of
outstanding
options,
warrants and
rights
(b)
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
(c)
Plan Category
Equity compensation plans approved by shareholders:
2004 Stock Incentive Plan
Employee Stock Purchase Plan
Total equity compensation plans approved
by shareholders
635,036 (1) $
- (2)
635,036
$
7.02
-
7.02
883,229
122,564
1,005,793
(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.
(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, 2018 until December 31, 2018, which will not be issued until January 2019.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
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.
ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES
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.
58
ITEM 15: EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
(a) (1) Financial Statements
See Item 8 of this report.
(2) Financial Statement Schedules
Financial statement schedules have been omitted since they are either not required, not applicable, or the information is otherwise
included.
(3) Exhibits
We will furnish the list of exhibits filed with our Form 10-K without charge and will make available to shareholders the exhibits
upon payment of a fee of $.10 per page for photocopying, postage and handling expenses and upon written request made to
Investor Relations, Perceptron, Inc., 47827 Halyard Drive, Plymouth, MI 48170.
59
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.
SIGNATURES
Date: August 30, 2018
Perceptron, Inc.
(Registrant)
By: /s/ David L. Watza
David L. Watza
President, Chief Executive Officer and Chief Financial Officer
(Principal Executive and 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.
Signatures
Title
/s/ David L. Watza
David L. Watza
/s/ Michelle O. Wright
Michelle O. Wright
/s/ W. Richard Marz
W. Richard Marz
/s/ John F. Bryant
John F. Bryant
/s/ C. Richard Neely, Jr.
C. Richard Neely, Jr.
/s/ Robert S. Oswald
Robert S. Oswald
/s/ James A. Ratigan
James A. Ratigan
/s/ William C. Taylor
William C. Taylor
President, Chief Executive Officer, Chief Financial Officer
and Director (Principal Executive and Financial Officer)
Corporate Controller and Chief Accounting Officer
(Principal Accounting Officer)
Chairman of the Board
Director
Director
Director
Director
Director
Date
August 30, 2018
August 30, 2018
August 30, 2018
August 30, 2018
August 30, 2018
August 30, 2018
August 30, 2018
August 30, 2018
60
PERCEPTRON PROFILE
Perceptron 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. Global automotive, aerospace 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, USA, Perceptron has subsidiary operations in
Brazil, China, Czech Republic, France, Germany, India, Italy, Japan, Slovakia, Spain and the United Kingdom.
CORPORATE INFORMATION
Board of Directors
W. Richard Marz
Chairman of the Board
President, MMW Group
Shareholder Information
Inquiries concerning lost stock certificates, change of address,
account status, or other questions regarding your stock in
Perceptron, Inc. should be directed to the Company’s Transfer
Agent.
John F. Bryant
Director & Co-Portfolio Manager, Harbert Discovery Fund GP, LLC
Transfer Agent:
American Stock Transfer & Trust Company
C. Richard Neely, Jr.
Financial Consultant
Robert S. Oswald
Chief Executive Officer, Paice, LLC
James A. Ratigan
Adjunct Professor at Delaware Valley University
William C. Taylor
President, Economic Development Partnership of Alabama
David L. Watza
Chief Executive Officer, President & Chief Financial Officer
Executive Team
David L. Watza
Chief Executive Officer, President & Chief Financial Officer
Carlo Cibien
Vice President & Managing Director, Coord3
John Kearney
Vice President & Managing Director, EMEA
Rick Van Valkenburg
Vice President, Global Sales & Marketing
Heribert Viehweber
Vice President, Global Operations & Quality
James K. West
Vice President, Engineering
Operations Center
6201 15th Avenue
Brooklyn, NY 11219
800-937-5449
Independent Registered Public Accounting Firm:
BDO USA, LLP
Troy, MI
Legal Counsel:
Dykema Gossett PLLC
Detroit, MI
The Company’s annual reports on Form 10-K and quarterly
reports on Form 10-Q filed with the SEC are available
without charge upon request by accessing the Company’s
web site at: www.perceptron.com or by contacting:
Investor Relations
47827 Halyard Drive
Plymouth, MI 48170
investors@perceptron.com
734-414-6100
© 2018 Perceptron, Inc. The Perceptron Logo is a registered trademark of Perceptron, Inc. For a listing of other trademarks and
registrations, please see Item 1 of the Company’s Annual Report on Form 10-K. All other marks are trademarks of their respective holders.
61
GLOBAL SOLUTIONS
LOCAL SUPPORT
Perceptron North America
Perceptron, Inc.
47827 Halyard Drive
Plymouth, MI 48170
U.S.A.
Tel: +1 734 414 6100
info@perceptron.com
Perceptron Italy
Coord3 Italia S.r.l.
Strada Statale 25, n°3
10050 Bruzolo (TO) - Italy
Tel: +39 011 9635511
italy@perceptron.com
Perceptron South America
Perceptron do Brasil Ltda.
Rua Helena 218, Suite 205
Vila Olimpia
São Paulo, Brazil 04552-050
Tel: +55 11 3044 1950
brazil@perceptron.com
Perceptron EMEA
(Europe, Middle East, Africa)
Perceptron GmbH
Stahlgruberring 7
D–81829 München
Germany
Tel: +49 89 960 980
emea@perceptron.com
Perceptron United Kingdom
Perceptron Metrology UK Ltd.
Fort Dunlop, Fort Parkway
Birmingham B24 9FE, UK
Tel: +44 121 6297794
uk@perceptron.com
Perceptron India
Perceptron Non-Contact
Metrology Solutions Pvt. Ltd.
12/2, McNichols Road
Chetpet, Chennai 600 031
India
Tel +91 44 4284 9610
india@perceptron.com
Perceptron China
Perceptron Trading (Shanghai) Co., Ltd.
Room 1005, Building 22
No. 368 Zhangjiang Road
Pudong New District
Shanghai 201203, China
Tel: +86 21 3393 2262
china@perceptron.com
Perceptron Japan
Perceptron Asia Pacific, Ltd.
Twin Truss Building 1F
1-4-4 Yanagibashi, Taito-ku, Tokyo
111-0052, Japan
Tel: +81 3 6240 9177
japan@perceptron.com
Visit our web site
www.perceptron.com
47827 Halyard Drive
Plymouth, MI 48170
Tel: +1 734 414 6100
info@perceptron.com
www.perceptron.com