Toggle SGML Header (+)


Section 1: 10-Q (10-Q)

20141231 10Q Q2 FY15

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

 

FORM 10-Q

 

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended December  31, 2014.

 

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

(Address of Principal Executive Offices)

48170-2461

(Zip Code)

 

(734) 414-6100

(Registrant’s Telephone Number, Including Area Code)

 

Not Applicable

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

 

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 corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

 

 

 

Yes 

No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

 

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

(Do not check if a smaller reporting company)

Smaller reporting company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

 

 

 

 

Yes

No 

 

The number of shares outstanding of each of the issuer’s classes of common stock as of February 3, 2015, was:

 

 

 

 

Common Stock, $0.01 par value

 

9,259,685

Class

 

Number of shares

 

1


 

 

 

PERCEPTRON, INC. AND SUBSIDIARIES

INDEX TO FORM 10-Q

For the Quarter Ended December 31, 2014

 

 

 

 

 

 

 

Page
Number

COVER 

1

INDEX 

2

PART I.  FINANCIAL INFORMATION 

 

Item 1.    Financial Statements 

3

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations 

13

Item 3.  Quantitative and Qualitative Disclosures about Market Risk 

19

Item 4.  Controls and Procedures 

19

PART II.  OTHER INFORMATION 

 

Item 1.    Legal Proceedings 

20

Item 1A.  Risk Factors 

20

Item 6.   Exhibits 

21

SIGNATURES 

23

 

2


 

+

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PERCEPTRON, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

 

 

December 31,

 

June 30,

(In Thousands, Except Per Share Amount)

 

2014

 

2014

 

 

(unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

27,008 

 

$

23,070 

Short-term investments

 

 

4,965 

 

 

10,822 

Receivables:

 

 

 

 

 

 

Billed receivables, net of allowance for doubtful accounts

 

 

20,254 

 

 

19,185 

of $159 and $146, respectively

 

 

 

 

 

 

Other receivables

 

 

271 

 

 

276 

Inventories, net of reserves of $1,078 and $1,185, respectively

 

 

8,246 

 

 

7,049 

Deferred taxes

 

 

1,687 

 

 

1,687 

Other current assets

 

 

1,309 

 

 

1,651 

Total current assets

 

 

63,740 

 

 

63,740 

 

 

 

 

 

 

 

Property and Equipment

 

 

 

 

 

 

Building and land

 

 

6,431 

 

 

6,438 

Machinery and equipment

 

 

14,218 

 

 

13,916 

Furniture and fixtures

 

 

1,130 

 

 

1,156 

 

 

 

21,779 

 

 

21,510 

Less  -  Accumulated depreciation and amortization

 

 

(15,933)

 

 

(15,970)

Net property and equipment

 

 

5,846 

 

 

5,540 

 

 

 

 

 

 

 

Long-Term Investments

 

 

778 

 

 

725 

Other Long-Term Assets

 

 

510 

 

 

 -

Deferred Tax Asset

 

 

10,540 

 

 

10,061 

 

 

 

 

 

 

 

Total Assets

 

$

81,414 

 

$

80,066 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

Accounts payable

 

$

3,455 

 

$

2,081 

Accrued liabilities and expenses

 

 

4,645 

 

 

4,287 

Accrued compensation

 

 

1,538 

 

 

1,630 

Income taxes payable

 

 

1,272 

 

 

1,717 

Deferred revenue

 

 

8,083 

 

 

7,571 

Total current liabilities

 

 

18,993 

 

 

17,286 

 

 

 

 

 

 

 

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 9,251 and 9,149, respectively

 

 

92 

 

 

91 

Accumulated other comprehensive income (loss)

 

 

(939)

 

 

573 

Additional paid-in capital

 

 

44,013 

 

 

43,600 

Retained earnings

 

 

19,255 

 

 

18,516 

Total shareholders' equity

 

 

62,421 

 

 

62,780 

 

 

 

 

 

 

 

Total Liabilities and Shareholders' Equity

 

$

81,414 

 

$

80,066 

 

 

 

 

 

 

 

The notes to the consolidated financial statements are an integral part of these statements.

 

 

 

3


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PERCEPTRON, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

December 31,

 

December 31,

(In Thousands, Except Per Share Amounts)

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

$

23,566 

 

$

12,519 

 

$

34,783 

 

$

24,891 

Cost of Sales

 

 

12,253 

 

 

7,543 

 

 

20,363 

 

 

15,628 

Gross Profit

 

 

11,313 

 

 

4,976 

 

 

14,420 

 

 

9,263 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

4,926 

 

 

3,598 

 

 

9,040 

 

 

7,074 

Engineering, research and development

 

 

1,999 

 

 

1,642 

 

 

3,700 

 

 

3,296 

Total operating expenses

 

 

6,925 

 

 

5,240 

 

 

12,740 

 

 

10,370 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Income (Loss)

 

 

4,388 

 

 

(264)

 

 

1,680 

 

 

(1,107)

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Income and (Expenses)

 

 

 

 

 

 

 

 

 

 

 

 

Interest income, net

 

 

76 

 

 

51 

 

 

154 

 

 

63 

Foreign currency loss

 

 

(376)

 

 

(246)

 

 

(930)

 

 

(249)

Other income

 

 

58 

 

 

 

 

123 

 

 

 -

Total other income (expense)

 

 

(242)

 

 

(194)

 

 

(653)

 

 

(186)

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (Loss) Before Income Taxes

 

 

4,146 

 

 

(458)

 

 

1,027 

 

 

(1,293)

 

 

 

 

 

 

 

 

 

 

 

 

 

Income Tax Benefit (Expense)

 

 

(1,367)

 

 

51 

 

 

(288)

 

 

298 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income (Loss)

 

$

2,779 

 

$

(407)

 

$

739 

 

$

(995)

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (Loss) Per Common Share

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.30 

 

$

(0.05)

 

$

0.08 

 

$

(0.11)

Diluted

 

 

0.30 

 

 

(0.05)

 

 

0.08 

 

 

(0.11)

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Common Shares Outstanding

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

9,218 

 

 

8,972 

 

 

9,185 

 

 

8,827 

Dilutive effect of stock options

 

 

145 

 

 

 -

 

 

160 

 

 

 -

Diluted

 

 

9,363 

 

 

8,972 

 

 

9,345 

 

 

8,827 

 

 

 

 

 

 

 

 

 

 

 

 

 

The notes to the consolidated financial statements are an integral part of these statements.

 

 

4


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PERCEPTRON, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

December 31,

 

December 31,

(In Thousands)

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income (Loss)

 

$

2,779 

 

$

(407)

 

$

739 

 

$

(995)

Other Comprehensive Income (Loss):

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(621)

 

 

315 

 

 

(1,512)

 

 

883 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive Income (Loss)

 

$

2,158 

 

$

(92)

 

$

(773)

 

$

(112)

 

 

 

 

 

 

 

 

 

 

 

 

 

The notes to the consolidated financial statements are an integral part of these statements.

 

 

 

 

 

 

 

5


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PERCEPTRON, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOW

(UNAUDITED)

 

 

Six Months Ended

 

 

December 31,

(In Thousands)

 

2014

 

2013

 

 

 

 

 

 

 

Cash Flows from Operating Activities

 

 

 

 

 

 

Net income (loss)

 

$

739 

 

$

(995)

Adjustments to reconcile net income (loss) to net cash provided from  

 

 

 

 

 

 

(used for) operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

370 

 

 

331 

Stock compensation expense

 

 

245 

 

 

240 

Deferred income taxes

 

 

(692)

 

 

95 

Disposal of assets and other

 

 

586 

 

 

(189)

Allowance for doubtful accounts

 

 

18 

 

 

(75)

Changes in assets and liabilities

 

 

 

 

 

 

Receivables, net

 

 

(3,427)

 

 

9,929 

Inventories

 

 

(1,505)

 

 

(1,302)

Accounts payable

 

 

3,429 

 

 

(857)

Other current assets and liabilities

 

 

1,498 

 

 

(3,323)

Net cash provided from operating activities

 

 

1,261 

 

 

3,854 

 

 

 

 

 

 

 

Cash Flows from Financing Activities

 

 

 

 

 

 

Proceeds from stock plans

 

 

169 

 

 

3,050 

Net cash provided from financing activities

 

 

169 

 

 

3,050 

 

 

 

 

 

 

 

Cash Flows from Investing Activities

 

 

 

 

 

 

Purchases of short-term investments

 

 

(3,074)

 

 

(15,844)

Sales of short-term investments

 

 

8,575 

 

 

13,788 

Capital expenditures

 

 

(677)

 

 

(319)

Other long-term assets

 

 

(562)

 

 

 -

Net cash provided from (used for) investing activities

 

 

4,262 

 

 

(2,375)

 

 

 

 

 

 

 

Effect of Exchange Rate Changes on Cash and Cash Equivalents

 

 

(1,754)

 

 

228 

 

 

 

 

 

 

 

Net Increase in Cash and Cash Equivalents

 

 

3,938 

 

 

4,757 

Cash and Cash Equivalents, July 1

 

 

23,070 

 

 

13,364 

Cash and Cash Equivalents, December 31

 

$

27,008 

 

$

18,121 

 

 

 

 

 

 

 

The notes to the consolidated financial statements are an integral part of these statements.

 

 

 

6


 

PERCEPTRON, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

1.Basis of Presentation

 

The accompanying Consolidated Financial Statements should be read in conjunction with the Company’s 2014 Annual Report on Form 10-K.  In the opinion of management, the unaudited information furnished herein reflects all adjustments necessary for a fair presentation of the financial statements for the periods presented. The results of operations for any interim period are not necessarily indicative of the results of operations for a full year.

 

2.New Accounting Pronouncements

 

In March 2013, the Financial Accounting Standards Board, (“FASB”), issued Accounting Standards Update No. 2013-05, Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets with a Foreign Entity or an Investment in a Foreign Entity (ASU 2013-05)This new guidance requires that the parent release any related cumulative translation adjustment into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. ASU 2013-05 was effective for the Company beginning July 1, 2014 and did not have a material impact on the Company’s financial statements.

 

In April 2014, the FASB issued Accounting Standards Update No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (ASU 2014-08), which provides guidance regarding the definition of a discontinued operation and the required disclosures.  The new guidance defines a discontinued operation as a component or group of components that is disposed of or is classified as held for sale and represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results.  A strategic shift could include a disposal of (1) a major geographical area of operations, (2) a major line of business, (3) a major equity method investment, or (4) other major parts of an entity.  In addition, having significant continuing involvement with a component after a disposal or failing to eliminate the operations or cash flows of a disposed component from an entity’s ongoing operations will no longer preclude presentation as a discontinued operation.  There will be new disclosures required related to discontinued operations and to disposals of individually significant components that do not qualify as discontinued operations.  ASU 2014-08 is effective for the Company beginning July 1, 2015 and applies prospectively to new disposals of components and new classifications as held for sale and is not expected to have a significant impact on the presentation of the Company’s financial statements or disclosures.

 

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP.  The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services.  ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP.  The standard will be effective for annual periods beginning after December 15, 2016, 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 are currently evaluating the impact of our pending adoption of ASU 2014-09 on our consolidated financial statements and have not yet determined the method by which we will adopt the standard in fiscal year 2018.

 

In August 2014, the FASB issued Accounting Standards Update No. 2015-15, Presentation of Financial Statements – Going Concern, (ASU 2014-15), requiring management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date of issuance of the entity’s financial statements.  The entity must provide certain disclosures if “conditions or events raise substantial doubt about the entity’s ability to continue as a going concern.”  The disclosure requires identifying the principal conditions and events contributing to the “doubt” to continue as a going concern, as well as management’s evaluations and plans to try to alleviate these uncertainties.  ASU 2014-15 is effective for the Company beginning July 1, 2015 and is not expected to have a significant impact on the Company’s disclosures.

 

On November 18, 2014, the FASB issued Accounting Standards Update No. 2014-17, Pushdown Accounting, which provides an acquired entity with the option to apply pushdown accounting in its separate financial statements upon occurrence of an event in which an acquirer obtains control of the acquired entity.  ASU 2014-17 was effective for the Company beginning November 18, 2014 and did not have a material impact on the Company’s financial statements.

 

3.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. 

 

7


 

The Company also has multiple element arrangements in its Measurement Solutions product line that 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, the Company allocates 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, the Company attempts to establish the selling price of each element based on relevant third-party evidence.  Because the Company’s products contain a significant level of proprietary technology, customization or differentiation such that comparable pricing of products with similar functionality cannot be obtained, the Company uses, in these cases, its best estimate of selling price (“BESP”).  The Company determines 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, the Company defers 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, the Company limits 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 Company’s completion of all elements in the arrangement or when the customer’s final acceptance is received.  The Company recognizes 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 the Company rigorously tests equipment prior to shipment to ensure it will function in the 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.

 

The Company’s Measurement Solutions products 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. The Company does not have price protection agreements or requirements to buy back inventory.  The Company’s history demonstrates that sales returns have been insignificant.

 

4.Financial Instruments

 

For a discussion on the Company’s fair value measurement policies for Financial Instruments, refer to Note 1 to the Consolidated Financial Statements, “Summary of Significant Accounting Policies – Financial Instruments”, of the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2014.

 

The Company has not changed its valuation techniques in measuring the fair value of any financial assets and liabilities during the period.

 

The following table presents the Company’s investments at December  31, 2014 and June 30, 2014 that are measured and recorded at fair value on a recurring basis consistent with the fair value hierarchy provisions of ASC 820, “Fair Value Measurements and Disclosures” (in thousands).  The fair value of the Company’s investments approximates their cost basis.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Description

December 31, 2014

 

Level 1

 

Level 2

 

Level 3

Mutual funds

$

123 

 

$

123 

 

$

 -

 

$

 -

Fixed deposits and certificates of deposit

 

4,412 

 

 

 -

 

 

4,412 

 

 

 -

Variable rate demand notes

 

430 

 

 

 -

 

 

430 

 

 

 -

Repurchase agreements

 

 -

 

 

 -

 

 

 -

 

 

 -

Total

$

4,965 

 

$

123 

 

$

4,842 

 

$

 -

 

 

 

 

 

 

 

 

 

 

 

 

Description

June 30, 2014

 

Level 1

 

Level 2

 

Level 3

Mutual funds

$

96 

 

$

96 

 

$

 -

 

$

 -

Fixed deposits and certificates of deposit

 

9,165 

 

 

 -

 

 

9,165 

 

 

 -

Variable rate demand notes

 

1,325 

 

 

 -

 

 

1,325 

 

 

 -

Repurchase agreements

 

236 

 

 

 -

 

 

236 

 

 

 -

Total

$

10,822 

 

$

96 

 

$

10,726 

 

$

 -

 

 

 

 

 

 

 

 

 

 

 

 

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.

 

5.Inventory

 

8


 

Inventory is stated at the lower of cost or market.  The cost of inventory is determined by the first-in, first-out (“FIFO”) method.  The Company provides 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.  Inventory, net of reserves of $1,078,000 and $1,185,000 at December  31, 2014 and June 30, 2014, respectively, is comprised of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

June 30,

Inventory

2014

 

2014

Component parts

$

3,316 

 

$

2,813 

Work in process

 

838 

 

 

562 

Finished goods

 

4,092 

 

 

3,674 

Total

$

8,246 

 

$

7,049 

 

 

 

 

 

 

 

 

6.Short-Term and Long-Term Investments

 

The Company accounts for its investments in accordance with ASC 320, “Investments – Debt and Equity Securities.”   Investments with a maturity of greater than three months to one year are classified as short-term investments. Investments with maturities beyond one year may be classified as short-term if the Company reasonably expects the investment to be realized in cash or sold or consumed during the normal operating cycle of the business. Investments available for sale are recorded at market value using the specific identification method. Investments expected to be held to maturity or until market conditions improve are measured at amortized cost in the statement of financial position if it is the Company’s intent and ability to hold those securities long-term. Each balance sheet date, the Company evaluates its investments for possible other-than-temporary impairment which involves significant judgment. In making this judgment, management reviews 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 the Company’s ability and intent to hold the investment for a period of time which may be sufficient for recovery of the cost basis. Any unrealized gains and losses on securities are reported as other comprehensive income as a separate component of shareholders’ equity until realized or until a decline in fair value is determined to be other than temporary. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded in the income statement. If market, industry, and/or investee conditions deteriorate, future impairments may be incurred.

 

At December 31, 2014, the Company had $5.0 million of short-term investments that primarily represented $4.4 million in time deposits or certificates of deposit and $430,000 in variable rate demand notes.  Included in short-term investments is restricted cash that serves as collateral for bank guarantees that provide financial assurance that the Company will fulfill certain customer obligations in China.  The cash is restricted as to withdrawal or use while the related bank guarantees are outstanding.  Interest is earned on the restricted cash and recorded as interest income. At December  31, 2014 and June 30, 2014, restricted cash in short-term investments was $59,000 and $520,000, respectively.

 

At December  31, 2014, the Company held 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. The preferred stock investment is currently recorded at $725,000 after consideration of impairment charges recorded in fiscal years 2008 and 2009.  The Company estimated that the fair market value of this investment at December 31, 2014 exceeded $725,000 based on observable market activity and an internal valuation model which included the use of a discounted cash flow model. The fair market analysis considered the following key inputs, (i) the underlying structure of the security; (ii) the present value of the future principal, discounted at rates considered to reflect current market conditions; and (iii) the time horizon that the market value of the security could return to its cost and be sold. Under ASC 820, “Fair Value Measurements”, such valuation assumptions are defined as Level 3 inputs.  The Company also held a long-term time deposit for $53,000.  This time deposit serves as collateral for a bank guarantee that provides financial assurance that the Company 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.    

 

 

7.Credit Facilities    

 

The Company had no debt outstanding at December 31, 2014 and June 30, 2014.

 

The Company has a $6.0 million secured credit agreement with Comerica Bank (“Credit Agreement”) which expires on November 2, 2015.    Proceeds under the Credit Agreement may be used for working capital and capital expenditures.  Security for the Credit Agreement is substantially all non-real estate assets of the Company held in the United States.  Borrowings are designated as a Libor-based Advance or as a Prime-based Advance if the Libor-based Advance is not available.  Interest on Libor-based Advances is calculated at 2.35% above the Libor Rate offered at the time for the period chosen, and is payable on the last day of the applicable period.  Quarterly, the Company pays a commitment fee of 0.15% per annum on the average daily unused portion of the revolving credit commitment.  The Credit Agreement requires

9


 

the Company to maintain a minimum Tangible Net Worth of not less than $33.2 million.  The Company was in compliance with this financial covenant at December 31, 2014.  The Company is permitted to declare dividends of up to $2.5 million in any fiscal year provided the Company maintains the required minimum Tangible Net Worth.  The Company is also required to have no advances outstanding under the Credit Agreement for 30 days (which need not be consecutive) during each calendar year.  On January 29, 2015, the Company entered into a Seventh Amendment to the Credit Agreement which provides for Comerica Bank’s consent to the acquisitions announced by the Company on January 29, 2015, reduces the minimum Tangible Net Worth requirement to $31.0 million and provides an Advance Formula Agreement for borrowings under the Credit Agreement.   The Advance Formula Agreement limits borrowings to the lesser of $6.0 million or 80% of eligible accounts receivable.  At December 31, 2014, if the Advance Formula Agreement had been in effect, the Company would have been able to borrow $3.7 million. See Note 11 of the Notes to the Consolidated Financial Statements, “Subsequent Events”.

 

At December 31, 2014, the Company's German subsidiary (“GmbH”) had an unsecured credit facility totaling 350,000 Euros (equivalent to approximately $425,000).  The facility allows 100,000 Euros to be used to finance working capital needs and equipment purchases or capital leases.  The facility allows up to 250,000 Euros to be used for providing bank guarantees.  Any borrowings for working capital needs will bear interest at 4.25%.  Any outstanding bank guarantees will bear interest at 2.0%.  The GmbH credit facility is cancelable at any time by either GmbH or the bank and any amounts then outstanding would become immediately due and payable.  At December 31, and June 30, 2014, GmbH had no borrowings or bank guarantees outstanding.

 

8.Stock-Based Compensation 

 

The Company maintains a 2004 Stock Incentive Plan (“2004 Plan”) covering substantially all company employees, non-employee directors and certain other key persons.  Options previously granted under a 1998 Global Team Member Stock Option Plan (“1998 Plan”) and a Directors Stock Option Plan (“Directors Plan”) will continue to be maintained until all options are exercised, cancelled or expire.  No further grants are permitted to be made under the terms of the 1998 and Directors Plans.  The 2004 and Directors Plans are administered by a committee of the Board of Directors, the Management Development, Compensation and Stock Option Committee.  The 1998 Plan is administered by the President of the Company.

 

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 will be determined by the Management Development, Compensation and Stock Option Committee, except as otherwise specified in the 2004 Plan. 

 

Stock Options

 

Options outstanding under the 2004 Plan generally become exercisable at 25% per year beginning one year after the date of grant and expire ten years after the date of grant.  Beginning in January 2015, new options granted to officers of the Company become exercisable at one third per year beginning one year after the date of grant. All options outstanding under the 1998 and Directors Plans are vested and expire ten years from the date of grant.  Option prices from options granted under these plans must not be less than fair market value of the Company’s stock on the date of grant.  The Company uses the Black-Scholes model for determining stock option valuations.  The Black-Scholes model requires subjective assumptions, including future stock price volatility and expected time to exercise, which affect the calculated values.  The expected term of option exercises is derived from historical data regarding employee exercises and post-vesting employment termination behavior.  The risk-free rate of return is based on published U.S. Treasury rates in effect for the corresponding expected term.  The expected volatility is based on historical volatility of the Company’s stock price.  These factors could change in the future, which would affect the stock-based compensation expense in future periods. 

 

The Company recognized operating expense for non-cash stock-based compensation costs related to stock options in the amount of $74,000 and $159,000 in the three and six months ended December 31, 2014, respectively.  The Company recognized operating expense for non-cash stock-based compensation costs related to stock options in the amount of $65,000 and $149,000 in the three and six months ended December 31, 2013, respectively.  As of December 31, 2014, the total remaining unrecognized compensation cost related to non-vested stock options amounted to $814,827.  The Company expects to recognize this cost over a weighted average vesting period of 3.06 years.

 

The estimated fair value as of the date options were granted during the periods presented, using the Black-Scholes option-pricing model, is shown in the table below.  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Three Months Ended

 

Six Months Ended

 

Six Months Ended

 

12/31/2014

 

12/31/2013

 

12/31/2014

 

12/31/2013

Weighted average estimated fair value per

 

 

 

 

 

 

 

 

 

 

 

share of options granted during the period

$

4.09 

 

$

2.90 

 

$

4.11 

 

$

2.99 

Assumptions:

 

 

 

 

 

 

 

 

 

 

 

Dividend yield

$

1.20 

 

$

2.10 

 

$

1.20 

 

$

2.10 

Common stock price volatility

 

46.85% 

 

 

38.88% 

 

 

46.85% 

 

 

38.88% 

Risk free rate of return

 

1.66% 

 

 

1.43% 

 

 

1.67% 

 

 

1.54% 

Expected option term (in years)

 

 

 

 

 

 

 

10


 

 

 

 

 

 

 

 

 

 

 

 

 

The Company received approximately $151,000 and $153,000 in cash from option exercises under all share-based payment arrangements for the three and six months ended December  31, 2014, respectivelyThe Company received approximately $1,543,000 and $3,012,000 in cash from option exercises under all share-based payment arrangements for the three and six months ended December 31, 2013, respectively.

 

Restricted Stock and Restricted Stock Units

 

The Company’s restricted stock and restricted stock units under the 2004 Plan have been awarded by three methods as follows:  One, awards that are earned based on an individual’s achievement of performance goals during the initial fiscal year with a subsequent one year service vesting period and are freely transferable after vesting provided the individual’s employment has not terminated prior to the vesting date; two, awards that are earned based on the Company achieving certain revenue and operating income results with a subsequent one-third vesting requirement on the first, second and third anniversary of the issuance and are freely transferable after vesting provided the individual’s employment has not terminated prior to the vesting date; and three, awards to non-management members of the Board of Directors with a subsequent one-third vesting requirement on the first, second and third anniversary of the issuance and are freely transferable after vesting provided the service of the non-management member of the Board of Directors has not terminated prior to the vesting date.   The grant date fair value associated with restricted stock and restricted stock unit awards is calculated in accordance with ASC 718 “Compensation – Stock Compensation”.  Compensation expense related to restricted stock and restricted stock unit awards is based on the closing price of the Company’s Common Stock on the grant date authorized by the Company’s Board of Directors, multiplied by the number of restricted stock and restricted stock unit awards expected to be issued and vested and is amortized over the combined performance,  service and vesting periods as applicable.  The non-cash stock based compensation expense recorded for restricted stock and restricted stock unit awards for the three and six months ended December 31, 2014 was $21,000 and $86,000, respectively.  The non-cash stock based compensation expense recorded for restricted stock awards for the three and six months ended December 31, 2013 was $43,000 and $57,000, respectively.  As of December 31, 2014, the total remaining unrecognized compensation cost related to restricted stock and restricted stock unit awards amounted to $560,197.

 

A summary of the status of restricted stock and restricted stock unit awards issued at December  31, 2014 is presented in the table below.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-vested

 

Weighted Average

 

Restricted

 

Grant Date

 

Shares

 

Fair Value

Non-vested at June 30, 2014

 

44,450 

 

$

10.04 

Granted

 

54,614 

 

 

9.55 

Vested

 

(17,950)

 

 

5.39 

Forfeited or expired

 

(8,800)

 

 

10.11 

Non-vested at December 31, 2014

 

72,314 

 

$

10.82 

 

 

 

 

 

 

 

 

9.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, 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.

 

Options to purchase 313,250 and 178,000 shares of common stock outstanding in the three months ended December 31, 2014 and 2013,  respectively, were not included in the computation of diluted EPS because the effect would have been anti-dilutive.  Options to purchase 286,516 and 134,000 shares of common stock outstanding in the six months ended December 31, 2014 and 2013, respectively, were not included in the computation of diluted EPS because the effect would have been anti-dilutive.

 

10.Commitments and Contingencies

 

The Company may, from time to time, be subject to litigation and other claims in the ordinary course of its business.  The Company accrues for estimated losses arising from such litigation or claims if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. To estimate whether a loss contingency should be accrued by a charge to income, the Company evaluates, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of the loss. Since the outcome of litigation and claims is subject to significant uncertainty, changes in the factors used in the Company’s evaluation could materially impact the Company’s financial position or results of operations.

 

Management is currently unaware of any significant pending litigation affecting the Company other than the matter set forth below

 

11


 

The Company is 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 the Company on or about January 7, 2015.    The suit alleges that the Company breached its contractual obligations by failing to pay for component parts to be used to manufacture optical video scopes for the Company’s discontinued Commercial Products Business Unit.  3CEMS alleged that it purchased the component parts in advance of the receipt of orders from the Company based upon instructions they claimed to have received from the Company.  The suit alleged damages of not less than $4.0 million.  See also Note 5 of the Notes to the Consolidated Financial Statements, “Contingencies”, of the Company’s Annual Report on Form 10-K for fiscal year 2014, for a discussion regarding a previous civil suit filed against the Company by 3CEMS, on July 19, 2013, which was dismissed effective December 6, 2013 and a Tolling Agreement entered into between the Company and 3CEMS that terminated on December 31, 2014.  The Company intends to vigorously defend against 3CEMS’ claims.

 

Because of the inherent uncertainty of litigation and claims such as the 3CEMS Matter, the Company is unable to reasonably estimate a possible loss or range of loss relating to the 3CEMS Matter.

 

As part of routine evaluation procedures, the Company identified a potential concern regarding the employment status and withholding for several individuals in one of the Company’s foreign jurisdictions.  The Company has begun a review of the matter, and expects resolution in the next few months. At this time, because the Company has not completed its evaluation, the Company is not able to determine an amount or range of its financial liability relating to this matter.  The Company does not expect that the resolution of this matter will have a detrimental effect on the conduct of the Company’s business in this foreign jurisdiction.

 

11.  Subsequent Events

 

On January 29, 2015, the Company announced that it had reached agreement to acquire the businesses of two European metrology companies.  The total value of the transactions will be approximately $15.7 million.  On January 29, 2015, the Company acquired all of the share capital of  Next Metrology Software s.r.o. a Czech Republic company that develops operating software for coordinate measuring machines, for $2.1 million in cash at closing, $295,000 in cash contingent upon the closing of the Coord3 Transaction, and deferred payments of $230,000 due 12 months from closing.  The Company expects to close on the acquisition of the coordinate measuring machine business of Coord3 Industries s.r.l. by the end of February, 2015, subject to customary closing conditions, for $2.0 million in cash at closing, deferred payments of $350,000 due 18 months from closing and assumed debt of $10.7 million.  Coord3 Industries s.r.l. is an Italian based designer and manufacturer of a full range of coordinate measuring machines.  The purchase transactions are denominated in Euros and have been converted to U.S dollars using an assumed 1.17 exchange rate.  See the Liquidity and Capital Resources section of Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in this Quarterly Report on Form 10-Q, for further information regarding these acquisitions.

 

On January 29, 2015, the Company also entered into a Seventh Amendment to the Company’s $6.0 million secured credit agreement with Comerica Bank (“Credit Agreement”).  The Seventh Amendment provides for Comerica Bank’s consent to the acquisitions referred to above, reduces the minimum Tangible Net Worth requirement to $31.0 million and provides an Advance Formula Agreement for borrowings under the Credit Agreement.   The Advance Formula Agreement limits borrowings to the lesser of $6.0 million or 80% of eligible accounts receivable.  At December 31, 2014, if the Advance Formula Agreement had been in effect, the Company would have been able to borrow $3.7 million. 

 

 

12


 

 

ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS

 

SAFE HARBOR STATEMENT

 

We make statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations that may be “forward-looking statements” within the meaning of the Securities Exchange Act of 1934, including the Company’s expectation as to its fiscal year 2015 and future new order bookings, revenue, expenses, net income and backlog levels, future dividend payments, trends affecting its future revenue levels, the rate of new orders, the timing of revenue and net income increases from new products which we have recently released or have not yet released, the timing of the introduction of new products, our ability to fund our fiscal year 2015 and future cash flow requirements, the Company’s expectation as to its ability to close, and the timing of the closing of, the Coord3 Industries s.r.l. (“Coord3”) acquisition, the revenue and income levels of the businesses of Coord3 and Next Metrology Software s.r.o. (“NMS”) following the acquisition and when they will be accretive to the Company, and the Company’s ability to expand its share of the CMM market.  We may also make forward-looking statements in our press releases or other public or shareholder communications.  When we use words such as “will,” “should,” “believes,” “expects,” “anticipates,” “estimates,” “prospects” “outlook” or similar expressions, we are making forward-looking statements.  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 reports filed with the Securities and Exchange Commission, including those listed in “Part I, Item 1A – Risk Factors” in the Company’s Annual Report on Form 10-K, for fiscal year 2014, the risk that the Coord3 acquisition does not close, any difficulties in integrating the businesses of Coord3 and NMS into the Company’s operations, and the possibility that anticipated benefits of the acquisition of the businesses of Coord3 and NMS may not materialize as expected.  Other factors not currently anticipated by management may also materially and adversely affect our financial condition, liquidity or results of operations.  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.  The Company's expectations regarding future bookings and revenues are projections developed by the Company based upon information from a number of sources, including, but not limited to, customer data and discussions.  These projections are subject to change based upon a wide variety of factors, a number of which are discussed above.  Certain of these new orders have been delayed in the past and could be delayed in the future.  Because the Company's products are typically integrated into larger systems or lines, the timing of new orders is dependent on the timing of completion of the overall system or line.  In addition, because the Company's products have shorter lead times than other components and are required later in the process, orders for the Company's products tend to be given later in the integration process.  A significant portion of the Company’s projected revenues and net income may depend upon the Company’s ability to successfully develop and introduce new products, expand into new geographic markets or continue sales with current and future customers.  Because a significant portion of the Company’s revenues are denominated in foreign currencies and are translated for financial reporting purposes into U.S. dollars, the level of the Company’s reported net sales, operating profits and net income are affected by changes in currency exchange rates, principally between U.S. Dollar, Euro, Chinese Yuan and Japanese Yen.  Currency exchange rates are subject to significant fluctuations, due to a number of factors beyond the control of the Company, including general economic conditions in the United States and other countries.  Because the Company’s expectations regarding future revenues, order bookings, backlog and operating results are based upon assumptions as to the levels of such currency exchange rates, actual results could differ materially from the Company’s expectations.

 

OVERVIEW

 

Perceptron, Inc. (“Perceptron” or the “Company”) develops, produces and sells non-contact measurement and inspection solutions for industrial applications.  The Company’s primary operations are in North America, Europe and Asia.  While the Company has one operating segment, its non-contact measurement solutions are divided into In Process and Offline Measurement Solutions and 3D Scanning Products.  In Process and Offline Measurement Solutions consist of a number of complete metrology systems for industrial process control including, AutoGauge, AutoGauge Plus, AutoFit, AutoScan, AutoGuide and Helix®  systems.  These products are primarily used by the Company’s customers to improve product quality, shorten product launch cycles, reduce overall manufacturing costs, and manage complex manufacturing processes.  3D Scanning Products include ScanWorks®, ScanWorks®xyz, and WheelWorks® products that target the digitizing, reverse engineering, inspection and original equipment manufacturers wheel alignment markets.  Additionally, the Company provides a number of Value Added Services that are primarily related to In Process and Offline Measurement Solutions.  The largest market served by the Company is the automotive market.

 

New vehicle tooling programs represent the most important selling opportunity for the Company’s automotive-related sales.  The number and timing of new vehicle tooling programs varies in accordance with individual automotive manufacturers’ plans.  The existing installed base of In Process and Offline Measurement Solutions also provides a continuous revenue stream in the form of system additions, upgrades, modifications, and Value Added Services such as customer training and support.  Opportunities for 3D Scanning Products include growth from reverse engineering and inspection markets using coordinate measuring machines.

 

13


 

In fiscal 2014, the Company added new members to its management team and put in place a strategic plan designed to expand revenues and increase shareholder value over the longer term.  The four elements of the plan are: continuing to expand profitability in core markets, pursuing prudent diversification, extending technological leadership, and maintaining fiscal discipline to ensure strong profitability.

 

On January 29, 2015, the Company announced that it had reached agreement to acquire the businesses of two European metrology companies.  The total value of the transactions will be approximately $15.7 million.  On January 29, 2015, the Company acquired all of the share capital of  Next Metrology Software s.r.o. for $2.1 million in cash at closing, $295,000 in cash contingent upon the closing of the Coord3 Transaction, and deferred payments of $230,000 due 12 months from closing.  Next Metrology Software is a Czech Republic company that develops operating software for coordinate measuring machines.    The Company expects to close on the acquisition of the coordinate measuring machine business of Coord3 Industries s.r.l. by the end of February, 2015, subject to customary closing conditions, for $2.0 million in cash at closing, deferred payments of $350,000 due 18 months from closing and assumed debt of $10.7 million.  Coord3 Industries s.r.l. is a designer and manufacturer of a full range of coordinate measuring machines and is based in Italy.  The purchase transactions are denominated in Euros and have been converted to U.S dollars using an assumed 1.17 exchange rate.  See the Liquidity and Capital Resources section below for further information regarding these acquisitions.

 

RESULTS OF OPERATIONS

 

Three Months Ended December  31, 2014 Compared to Three Months Ended December  31, 2013

 

Overview – The Company reported net income of $2.8 million, or $.30 per diluted share, for the second quarter of fiscal 2015 compared with a net loss of $407,000, or $.05 per diluted share, for the second quarter of fiscal 2014.  The Company’s quarterly results vary from quarter to quarter and are dependent upon delivery and installation schedules determined by our customers.  These schedules are subject to change by the customer and are not controlled by the Company.   Specific line item results are described below.

 

Bookings – Bookings represent new orders received from customers.  It should be noted that the Company’s level of new orders fluctuates from quarter to quarter and the amount of new order bookings during any particular period is not necessarily indicative of the future operating performance of the Company.  The following table sets forth comparison data for the Company’s bookings by geographic location.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bookings (by location)

Second Quarter

Second Quarter

 

 

 

 

 

(in millions)

2015

2014

Increase/(Decrease)

Americas

 

$

4.3 

 

33.9% 

 

 

$

6.4 

 

37.6% 

 

 

$

(2.1)

(32.8)%

 

Europe

 

 

3.7 

 

29.1% 

 

 

 

5.4 

 

31.8% 

 

 

 

(1.7)

(31.5)%

 

Asia

 

 

4.7 

 

37.0% 

 

 

 

5.2 

 

30.6% 

 

 

 

(0.5)

(9.6)%

 

Totals

 

$

12.7 

 

100.0% 

 

 

$

17.0 

 

100.0% 

 

 

$

(4.3)

(25.3)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bookings decreased $4.3 million, or 25.3%, from the level achieved a year ago due to lower bookings for Measurement Solutions, and to a lesser extent lower Value Added Services orders, in all three geographic regions.   Higher 3D Scanning orders in Europe and Asia were offset by lower 3D Scanning orders in the Americas.  Additionally, bookings in Europe decreased $926,000 as a result of re-valuing the European backlog to reflect the lower Euro rate at December 31, 2014 from the rate in effect at September 30, 2014. 

 

BacklogBacklog represents orders or bookings received by the Company that have not yet been filled.  It should be noted that the level of backlog during any particular period is not necessarily indicative of the future operating performance of the Company.  Most of the backlog is subject to cancellation by the customer.  The Company expects to be able to fill substantially all of the orders in the backlog during the following twelve months.  The following table sets forth comparison data for the Company’s backlog by geographic location.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Backlog (by location)

Second Quarter

Second Quarter

 

 

 

 

 

(in millions)

2015

2014

Increase/(Decrease)

Americas

 

$

10.8 

 

27.7% 

 

 

$

9.1 

 

22.5% 

 

 

$

1.7 
18.7% 

 

Europe

 

 

14.2 

 

36.4% 

 

 

 

17.9 

 

44.3% 

 

 

 

(3.7)

(20.7)%

 

Asia

 

 

14.0 

 

35.9% 

 

 

 

13.4 

 

33.2% 

 

 

 

0.6 
4.5% 

 

Totals

 

$

39.0 

 

100.0% 

 

 

$

40.4 

 

100.0% 

 

 

$

(1.4)

(3.5)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Company’s $39.0 million backlog at December 31, 2014 decreased $1.4 million or 3.5% from the backlog at December 31, 2013 due to lower orders for Measurement Solutions in all three geographic regions.  Partially mitigating the decrease was higher 3D Scanning orders in Europe and Asia.  The re-valuation effect of the lower Euro at December 31, 2014 versus September 30, 2014, reduced backlog approximately $926,000.    

 

14


 

Sales – Sales of $23.6 million for the second quarter of fiscal 2015 increased $11.1 million, or 88.8%, when compared to the same period a year ago.  The following table sets forth comparison data for the Company’s net sales by geographic location.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales (by location)

Second Quarter

Second Quarter

 

 

 

(in millions)

2015

2014

Increase/(Decrease)

Americas

 

$

8.3 

 

35.2% 

 

 

$

4.4 

 

35.2% 

 

 

$

3.9 
88.6% 

 

Europe

 

 

10.8 

 

45.7% 

 

 

 

5.7 

 

45.6% 

 

 

 

5.1 
89.5% 

 

Asia

 

 

4.5 

 

19.1% 

 

 

 

2.4 

 

19.2% 

 

 

 

2.1 
87.5% 

 

Totals

 

$

23.6 

 

100.0% 

 

 

$

12.5 

 

100.0% 

 

 

$

11.1 
88.8% 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The sales increase of $11.1 million primarily represented higher sales of Measurement Solutions in all three geographic regions.  Partially mitigating this increase were lower sales of 3D Scanning Products in all three geographic regions.  Changes in sales levels reflect normal quarter to quarter fluctuations as a result of requested delivery and installation schedules from our customers, including a previously reported delay in the shipment of a large order from the first quarter of fiscal 2015 into the second quarter of fiscal 2015. The effect of the weaker Euro during the current quarter compared to a year ago reduced sales by approximately $1.1million.  

 

Gross Margin – The Company’s gross margin percentage was 48.0% in the second quarter of fiscal 2015 compared to 39.7% in the same quarter a year ago.  The higher gross margin percentage in the fiscal 2015 quarter was primarily the result of the significantly higher sales in the quarter compared to the fiscal 2014 quarter.  Additionally, cost of sales was lower as a percent of revenue due to product mix and the absorption of fixed labor costs.  The effect of the weaker Euro in the current quarter compared to the fiscal 2014 quarter reduced gross margin by approximately $680,000.

 

Selling, General and Administrative (SG&A) Expenses – SG&A expenses were approximately $4.9 million, an increase of $1.3 million compared to the second quarter of fiscal year 2014.  The increase in fiscal 2015 was primarily due to $675,000 of acquisition costs related to the NMS Transactions and the Coord3 Transaction.   See Note 11 of the Notes to the Consolidated Financial Statements, “Subsequent Events” and “Liquidity and Capital Resources” below.  Also contributing to the increase in costs in the fiscal 2015 quarter compared to a year ago were higher employee costs for bonuses, salaries and commissions totaling approximately $585,000 and higher building, equipment maintenance and bad debts totaling approximately $147,000.  The effect of the weaker Euro during the current quarter compared to the quarter a year ago reduced costs by approximately $130,000.

 

Engineering, Research and Development (R&D) Expenses – Engineering, research and development expenses of $2.0 million increased $357,000 over the second quarter last year.  The increase in costs related to higher bonus and salary costs of approximately $188,000 and higher engineering materials costs of approximately $147,000 to support new product development in the current quarter when compared to the same quarter a year ago

 

Interest Income, net – Net interest income was $76,000 in the second quarter of fiscal year 2015 compared with net interest income of $51,000 in the second quarter of fiscal year 2014.  The increase in interest income was primarily the result of higher interest rates in fiscal year 2015 when compared to fiscal year 2014.

 

Foreign Currency – There was a net foreign currency loss of $376,000 in the second quarter of fiscal year 2015 compared with a net foreign currency loss of $246,000 a year ago.  The unfavorable change in foreign currency was primarily related to unfavorable changes in the Brazilian Real, Euro, and to a lesser extent the Indian Rupee to the U.S. Dollar. 

 

Other Income  The increase in other income in the second quarter of fiscal 2015, represents dividend income received on the Company’s long term investments.

 

Income TaxesThe effective tax rate for the second quarter of fiscal year 2015 was 33.0% compared to 11.1% in the second quarter of fiscal year 2014.  The effective rate in both fiscal quarters primarily reflects the effect of the mix of pre-tax income and loss across the Company’s various tax jurisdictions and their respective tax rates. Affecting the unusual effective tax rate in the fiscal 2014 quarter was the fact that the United States had pre-tax income at an effective tax rate of 30.3% that was partially offset by a foreign pre-tax loss at a lower effective tax rate of 23.9%.  

 

Outlook –  Sales in the second quarter recovered due to a combination of project timing, which affected first quarter revenue, as well as the momentum of the previous record backlog that is working its way through revenue.  Customer related project timing issues for the Company’s Measurement Solutions products will continue to be a significant part of the Company’s business for the foreseeable future.   With the current backlog of $39.0 million, the Company continues to expect strong, organic revenue growth for fiscal 2015 from its existing product lines.

 

15


 

Six Months Ended December 31, 2014 Compared to Six Months Ended December 31, 2013

 

Overview – For the first half of fiscal 2015, the Company reported net income of $739,000 or $0.08 per diluted share, compared to a loss of $995,000 or ($0.11) per diluted share, for the first half of fiscal 2014.

 

Bookings – Bookings represent new orders received from customers.  New order bookings for the six months ended December 31, 2014 were $34.4 million compared to $34.9 million for the same period one year ago.  It should be noted that historically, the Company’s level of new orders has varied from period to period and the amount of new order bookings during any particular period is not necessarily indicative of the future operating performance of the Company.  The following tables set forth comparison data for the Company’s bookings by geographic location.    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bookings (by location)

Six Months

Six Months

 

 

 

 

 

(in millions)

Ended 12/31/14

Ended 12/31/13

Increase/(Decrease)

Americas

 

$

14.2 

 

41.3% 

 

 

$

10.1 

 

28.9% 

 

 

$

4.1 
40.6% 

 

Europe

 

 

10.7 

 

31.1% 

 

 

 

15.1 

 

43.3% 

 

 

 

(4.4)

(29.1)%

 

Asia

 

 

9.5 

 

27.6% 

 

 

 

9.7 

 

27.8% 

 

 

 

(0.2)

(2.1)%

 

Totals

 

$

34.4 

 

100.0% 

 

 

$

34.9 

 

100.0% 

 

 

$

(0.5)

(1.4)%