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Section 1: 10-K (10-K)

20160630 10K FY_Taxonomy2016

 



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_______________________________________________

FORM 10-K

(Mark One)



 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the fiscal year ended June 30, 2016

OR





 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the transition period from ________ to ________.



Commission File Number: 0-20206

_______________________________________________

PERCEPTRON, INC.

(Exact Name of Registrant as Specified in Its Charter)





 

 

 

 



Michigan

 

38-2381442

 



(State or Other Jurisdiction of

 

(I.R.S. Employer Identification No.)

 



Incorporation or Organization)

 

 

 



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

 

Name of Each Exchange on Which Registered

 



Common Stock, $0.01 par value

 

The NASDAQ Stock Market LLC

 



Rights to Purchase Preferred Stock

 

(NASDAQ Global Market)

 



Securities registered pursuant to section 12(g) of the Act:  None

_______________________________________________



Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes      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, or a smaller reporting company. See the definition of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large Accelerated Filer           Accelerated Filer        Non-Accelerated Filer            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 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, 2015, as reported by the NASDAQ Global Market, was approximately $69,000,000 (assuming, but not admitting for any purpose, that all directors and executive officers of the registrant are affiliates).



The number of shares of Common Stock, $0.01 par value, issued and outstanding as of September 2, 2016, was 9,370,996.

_______________________________________________



DOCUMENTS INCORPORATED BY REFERENCE



Portions of the following document, to the extent specified in this report, are incorporated by reference in Part III of this report:



 

 

Document

 

Incorporated by reference in:

Proxy Statement for 2016

 

 

Annual Meeting of Shareholders

 

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, Singapore, 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 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, 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 3-dimensional measurement on coordinate measuring machines (“CMM”) for the reverse engineering and automated component inspection markets;

·

Laser scanning sensors for 3-dimensional scanning on portable CMMs for the reverse engineering and manual component inspection markets; and

·

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 servicing the global automotive manufacturing market with technology that we believe is applicable to a full spectrum of other manufacturing industries including aerospace and white goods.  In fiscal 2014, we embarked upon a diversification strategy and as a result, in fiscal 2016 automotive sales represented approximately 65% of total sales, down from approximately 80% of total sales in fiscal 2015.  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.

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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 line of Coordinate Measuring Machines (“CMMs”) and measuring software.  Measurement Solutions in fiscal 2016, 2015, and 2014 represented 90%, 89% and 85% of total sales, respectively.



In-Line and Near-Line



AutoGauge®: These 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.  AutoGauge® can be installed with fixed-mounted sensors, with robot-mounted sensors, or as a hybrid system using both fixed and robot-mounted sensors.  This capability provides manufacturers with the flexibility to measure multiple part types on a single manufacturing line while maintaining high-speed production rates.



AutoFit®: These systems are primarily used in automotive manufacturing plants to contain, correct and control the fit of exterior body panels. The system automatically measures, records and displays the gap and flushness of parts most visible to the automobile consumer such as gaps between front and rear doors, hoods and fenders and 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® has the ability to measure vehicles while in motion along the assembly line or in a stationary position.



AutoScan®:  These systems are used by manufacturing companies to contain, correct and control the quality of manufactured components. These systems use robot-mounted sensors to scan a part as the robot moves through its path. The AutoScan® system collects the “point cloud data” required for contour analysis and dimensional feature extraction. This allows the part’s shape, geometric features and measurements to be automatically scanned and captured as well as compared to design requirements



AutoGuide®:  These 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 and 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.



Helix®:  Helix® is a 3D metrology sensor that enables manufacturers to perform their most challenging measurement tasks with greater ease and precision. Helix®  solutions offer Intelligent Illumination® allowing the user to choose the quantity, density and orientation of the sensor's laser lines on an individual inspection point level without moving the sensor. By customizing the sensor's laser lines through a simple user interface, image acquisition is optimized on a feature-by-feature basis. The user can configure tightly spaced laser lines for small, complex features, increase the number of laser lines to robustly measure challenging materials and alter the orientation of the laser lines to accommodate the differences between multiple parts manufactured on the same assembly line. 



Off-Line



Coord3®:   The Coord3 CMM line includes bridge, gantry and horizontal style machines and includes a range from bench-top CMMs for small part inspection to very large CMMs used in aerospace, defense and heavy equipment industries.  CMMs can be equipped with tactile scanning probes, our ScanR™ laser scanning sensors and 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.  We have integrated TouchDMIS™ with our ScanR™ laser scanning sensor for reverse engineering and production part automated inspection applications, and we have incorporated automatic feature extraction intellect from our ScanWorks toolkit.



3D Scanning Solutions



3D Scanning Solutions in fiscal 2016, 2015, and 2014 represented 6%, 7% and 10% of total sales, respectively.



ScanWorks®:  Perceptron provides ScanWorks® products to the digitizing, reverse engineering and inspection markets, among others, through direct sales, resellers and third party original equipment manufacturers.  ScanWorks® is a hardware/software component set that allows customers to add digitizing capabilities to their machines or systems. The use of ScanWorks® software and the ScanR sensor enables technicians to collect, display, manipulate and export point cloud and meshed data from portable optical tracking devices, portable CMMs or CMMs.  The majority of ScanWorks® sales occur outside of the automotive industry.



ScanRRepresenting the sixth generation of CMM laser scanners from Perceptron, this sensor extends the range of engineered materials that can be laser-scanned. With the fast-growing application of 3D laser scanning for reverse engineering, production part dimensional

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inspection, and as a compliment to 3D printing, Perceptron has introduced the world’s first green laser-line scanner that is able to scan highly reflective materials such as machined aluminum and carbon fiber composites.



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 fiscal 2016, 2015, and 2014 represented 4%, 4% and 5% 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 products directly to end user customers and through manufacturing line builders, system integrators, value-added resellers and assembly or original equipment manufacturers. 



Our automotive sales are primarily managed by key account managers who develop close consultative selling relationships with our customers.  Perceptron’s principal customers have historically been automotive manufacturing companies that we either sell to directly or through manufacturing line builders, system integrators or assembly equipment manufacturers.  Our 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 the fiscal years 2016, 2015 and 2014, approximately 34%, 40% and 43%, 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 2016, 2015 and 2014, approximately 8%, 10% and 16%, 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, 2016, 2015 and 2014, direct sales to Volkswagen Group accounted for approximately 17%, 20% and 30%, respectively, and General Motors Company accounted for approximately 12%, 12% and less than 10%, respectively, of our total net sales. 

 

To support sales of our CMM, 3D and Near-Line products and to diversify our customer and industry bases, we have implemented and continue to expand a non-key account sales force led by Regional Sales Managers who have responsibility for all direct and reseller sales activity in their region.  Regional Sales Managers are active in the US, Southeast Asia, China, Italy, United Kingdom and Germany.



Manufacturing and Suppliers



Our manufacturing operations consist primarily of final assembly and calibration of hardware components and the testing and integration of our software with the hardware components.  We build our products from a combination of commercially available parts and uniquely designed 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 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 are readily available.  Component supply shortages in certain industries, including the electronics industry, have occurred in the past and are possible in the future due to imbalances in supply and demand.  We use global purchasing sources to minimize the risk of part shortages.  We have not experienced significant component supply shortages from single source suppliers in recent years. Significant delays or interruptions in the delivery of components, assemblies or products by suppliers, or difficulties or delays in shifting manufacturing capacity to new suppliers, could have a material adverse effect on us. 



International Operations



Europe:  Our European operations contributed approximately 45%, 40% and 47%, of our net sales during the fiscal years ended June 30, 2016, 2015, and 2014, 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”).  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 Velizy Villacoublay, France, Barcelona, Spain, Birmingham, UK and Bratislava, Slovakia.  We own a CMM designer and manufacturer, Coord3 s.r.l in Torino, Italy and a software development company, Next Metrology Software s.r.o in Prague, Czech Republic.  At June 30, 2016, we had 134 employees in our European operations. 



Asia:  Our Asian operations contributed approximately 22%, 22% and 23% of our net sales during the fiscal years ended June 30, 2016, 2015, and 2014, respectively. We own subsidiaries that operate direct sales, application and support offices in Tokyo, Japan; Shanghai and Beijing, China; Singapore; and Delhi and Chennai, India to service our customers in Asia.  At June 30, 2016, we had 62 employees in our Asian operations.

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South America:  We have a direct sales, application and support office in Sao Paulo, Brazil to service customers in South America. At June 30, 2016, 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 13 of the Notes to the Consolidated Financial Statements, “Segment and Geographic Information”, included in Item 8 of this report.



Competition



We believe that our products provide a 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 we are more advanced in the development of our technology for certain of our products 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 that there may be other entities, some of which may be larger and have greater resources than we do, that could develop technology and products, which could prove to be competitive with us.   We also believe that certain existing or potential customers may be capable of internally developing their own technology.  See Item 1A: “Risk Factors” titled “There are a number of companies offering competitive products in our markets, or developing products to compete with our products, which could result in a reduction in our revenues through lost sales or a reduction in prices”.



Backlog



As of June 30, 2016, we had a backlog of $40.6 million, compared to $38.9 million at June 30, 2015.  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.  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, 2017.



Research and Development



During fiscal 2016, our research and development was focused on expanding the areas of application for our unique technologies within the automotive industry as well as in white goods, aerospace and other industries.  Development accomplishments included: enhancing the accuracy and dynamic range of the ScanR laser scanner, developing our Helix® technology platform for non-contact wheel alignment and software development to expand our application footprint in Automotive Final Assembly.  Additionally, multiple efforts were launched to reduce costs of hardware elements as well as software improvements to increase the efficiency of our system installations.  We believe these developments will provide ongoing competitive advantages in our core business while supporting our penetration into other manufacturing verticals.



As of June 30, 2016, 34 of our employees were focused primarily on research, development and engineering.  For the fiscal years ended June 30, 2016, 2015 and 2014, our research, development and engineering expenses were $7.4 million, $7.9 million and $6.7 million, respectively.



Patents, Trade Secrets and Confidentiality Agreements



As of June 30, 2016, we own 20 U.S. patents that have been granted to us which relate to various products and processes manufactured, used, and/or sold.  We also own 4 foreign patents that have been granted to us in Europe, China and Japan and we have 6 patent applications pending in foreign locations.  The U.S. and foreign patents expire from 2016 through 2031.  In addition, we hold perpetual licenses to more than 25 other U.S. patents including rights to practice 7 U.S. patents for non-forest product related applications that were assigned to USNR in conjunction with the sale of the Forest Products business unit in 2002, and rights to practice 9 U.S. patents that were sold in conjunction with the sale of CBU in August 2012.  The expiration dates for these licensed patents range from 2017 to 2032.



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®, Smart3D™, Intelligent Illumination®, ScanR™, 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.



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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



In March 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.



As of June 30, 2016, we have 323 employees; 322 of whom were employed on a full-time basis with 121 located in North America and the remainder distributed across the globe as identified above in International Operations.  In Italy, we have 64 employees covered by Italy’s National Collective Bargaining Agreement for employees in the mechanical engineering industry.  The agreement was signed in December 2012 and expired on December 31, 2015.  This Italian government is currently in the process of renegotiating this agreement, but at the time of this report, no such agreement is in place.  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 “Investors” 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.  We have embarked on a diversification strategy to expand into non-automotive markets through our existing and new products.  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

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·

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.



We may need 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 current credit facilities in the U.S. and Germany are on-demand facilities and may be cancelled by either party at any time.  We may need to seek additional financing for our general corporate purposes. For example, we may need to increase our investment in research and development activities or need funds to support working capital or capital expenditure needs.  We may be unable to obtain any desired 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 and ability to pay dividends due to restrictive covenants.



We may not be able to complete business opportunities and acquisitions 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 due diligence and legal costs with no assurance that an acquisition or business opportunity will be consummated after incurring these costs.  If we are unable to identify and complete acquisitions that fit our strategic plans, we may not be able to fully implement our expansion plans.



There is also no assurance that we will be able to effectively integrate businesses that we may acquire due to the significant challenges in consolidating functions and integrating procedures, personnel, product lines, technologies and operations in a timely and efficient manner.  The integration process may require significant attention from management and devotion of resources.  Because of the small size of our management team, this could result in the diversion of management’s attention from day-to-day operations and impair our relationships with current employees and customers.



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.  We could use a significant portion of our available cash on hand and incur substantial debt or other contingent liabilities in connection with these acquisition opportunities.  The issuance of additional equity securities to finance an acquisition could be substantially dilutive to our current stockholders.  In addition, our profitability may suffer because of acquisition-related costs, debt service requirements or amortization costs for acquired intangible assets.  In addition, if the business opportunities do not perform as expected, we could incur impairment charges related to goodwill or other intangibles we acquire.  If we are not successful in generating additional profits from these transactions, this dilution and these additional costs could cause our Common Stock price to drop.



We are expanding our foreign operations, 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 and are currently implementing a strategy to expand our global operations.



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. 



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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 2016 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 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 substantially 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.



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.



8 


 

 

 

 

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 have embarked on a strategy to grow our business through diversification into other non-automotive manufacturing sectors where we believe significant opportunity exists for our existing and new products.  Because of the inherent difficulties in diversification, we may not be successful in our efforts.  See “Our future success is dependent upon our ability to implement our long-term growth strategy.”



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 2016, only 32% 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.



If the subcontractors we rely on for component parts or products delay deliveries or fail to deliver parts or products meeting our requirements, 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.



Finally, although we believe that alternative suppliers are available, difficulties or delays may arise if we shift manufacturing capacity to new suppliers.



Our ability to increase sales of our new product lines 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 CMMs.  We market our line of CMMs 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.



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 sometimes 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 prices of our products 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 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, 2016, we had $7.5 million of net goodwill and $5.0 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

9 


 

 

 

 

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.



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.



We are subject to risks related to litigation.



From time to time, we are subject to lawsuits and other claims arising out of our business operations.  Adverse judgments in one or more of these lawsuits could require us to pay significant damage amounts.  The outcome of lawsuits is inherently uncertain and typically a loss cannot be reasonably estimated or accrued by us.  Accordingly, if the outcome of a legal proceeding is adverse to us, we would have to record a charge for the matter at the time the legal proceeding is resolved and generally in the full amount at which it is resolved.  In addition, the expenses related to these lawsuits may be significant.  Lawsuits can have a material adverse effect on our business and operating results, particularly where we have not established an accrual or a sufficient accrual for damages, settlements or expenses.  See “Item 3 – Legal Proceedings” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies – Litigation and Other Contingencies” below for a discussion of our policies in accounting for lawsuits and other claims.



We could become involved in costly litigation alleging patent infringement.



In the past, we had been informed that certain of our customers have received allegations of possible patent infringement involving processes and methods used in our products.  Certain of these customers, including a  customer who was a party to a patent infringement suit relating to this matter, settled such claims.  We believe that the processes used in our products were independently developed without utilizing any previous patented process or technology.  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.



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, or FCPA, which generally prohibits companies and their intermediaries from making improper payments to foreign officials for the purpose of obtaining or keeping business or other benefits.  As a result of our foreign operations, we may have contact with persons who are considered foreign officials under the FCPA, putting us at an increased risk of potential FCPA violations.



Our failure or inability to comply with any of these laws, rules or regulations could subject us to civil or criminal penalties, other remedial measures or financial or regulatory obligations that may adversely affect our results of operations, financial position, reputation or ability to conduct business.  We may receive audit notices or other inquiries from governmental or regulatory authorities, and we may participate in voluntary disclosure programs, related to legal, regulatory or tax compliance matters.  These audits, inquiries or disclosure programs or any non-compliance with applicable laws, rules or regulations could result in our incurring material expense, including investigation costs, defense costs, assessments and penalties, or other consequences that could have a materially adverse effect on our results of operations, financial position, reputation or ability to conduct business.



10 


 

 

 

 

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 many 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.  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. 



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, technical, 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.



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.



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.



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.



11 


 

 

 

 

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.



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;

·

announcements by our largest customers that have a significant impact on their operations

·

market conditions and stock prices in general; and

·

the volume of our Common Stock traded.



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.



Current levels of market volatility adversely impact 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.



12 


 

 

 

 



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 Torino, Italy.  We lease a 1,576 square meter facility in Munich, Germany, a 209 square meter facility in Prague, Czech Republic, and office space in Sao Paulo, Brazil; Tokyo, Japan; Singapore; Shanghai and Beijing, China; and Chennai, India.  We believe that our current facilities are sufficient to accommodate our requirements through fiscal 2017.



ITEM 3:LEGAL PROCEEDINGS



We are 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 alleges that Perceptron breached its 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 from us based upon instructions they claimed to have received from us.  The suit alleged damages of not less than $4.0 million.  We intend to vigorously defend against 3CEMS’ claims.  See Note 6 of the Notes to the Consolidated Financial Statements, “Contingencies” in Item 8 of this Annual Report on Form 10-K.



ITEM 4:MINE SAFETY DISCLOSURES



Not applicable.



13 


 

 

 

 



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 2016 and 2015:





 

 

 

 

 



 

 

 

 

 



Prices

Fiscal 2016

High

 

Low

Quarter through September 30, 2015

$

10.68 

 

$

7.59 

Quarter through December 31, 2015

$

8.86 

 

$

7.28 

Quarter through March 31, 2016

$

7.83 

 

$

4.75 

Quarter through June 30, 2016

$

5.29 

 

$

4.20 



 

 

 

 

 

Fiscal 2015

High

 

Low

Quarter through September 30, 2014

$

13.46 

 

$

9.61 

Quarter through December 31, 2014

$

10.90 

 

$

8.34 

Quarter through March 31, 2015

$

13.55 

 

$

9.73 

Quarter through June 30, 2015

$

14.21 

 

$

9.25 



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 2016.  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. 



See “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations, Liquidity and Capital Resources” – for restrictions on our ability to pay dividends in our Amended and Restated Credit Agreement.



The approximate number of shareholders of record on September 2, 2016, was 130.



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 9 of the Notes to the Consolidated Financial Statements, “Stock Based Compensation”, included 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, 2011 and that all dividends were reinvested.

14 


 

 

 

 



COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*

Among Perceptron, Inc., the Nasdaq U.S. Index,

and a Peer Group Index



Picture 1

* $100 invested on June 30, 2011 in stock or index, including reinvestment of dividends. Fiscal year ending June 30.







 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

CUMULATIVE TOTAL RETURN



6/30/2011

 

6/30/2012

 

6/30/2013

 

6/30/2014

 

6/30/2015

 

6/30/2016

Perceptron, Inc.

100.00 

 

86.48 

 

129.47 

 

213.17 

 

178.91 

 

79.29 

Nasdaq U.S. Index

100.00 

 

108.88 

 

128.17 

 

167.42 

 

192.03 

 

191.78 

Peer Group Index

100.00 

 

93.35 

 

120.50 

 

158.86 

 

168.65 

 

182.19 



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.



The Peer Group consists of the following companies: Schmitt Industries, Inc. (SMIT), Esterline Technologies Corp. (ESL), MKS Instruments, Inc. (MKSI), Sensata Technologies Holding NV (ST), Hurco Companies Inc. (HURC), Abaxis, Inc. (ABAX), II-VI Inc. (IIVI), Electro-Sensors, Inc. (ELSE), KLA–Tencor Corp. (KLAC), Orbotech Ltd. (ORBK), Mocon Inc. (MOCO), Thermo Fisher Scientific, Inc. (TMO), Nova Measuring Instruments Ltd. (NVMI), Sypris Solutions Inc. (SYPR), Camtek, Ltd (CAMT), Mesa Laboratories Inc. (MLAB), Rudolph Technologies Inc. (RTEC), Cognex Corp. (CGNX), Faro Technologies Inc. (FARO), Clearsign Combustion Corp. (CLIR), Keysight Technologies, Inc. (KEYS), Geospace Technologies Corporation (GEOS), Rockwell Automation Inc. (ROK), Cubic Corporation (CUB), Landauer Inc. (LDR), Trimble Navigation Limited (TRMB), MTS Systems Corporation (MTSC), CyberOptics Corp. (CYBE), Sequenom Inc. (SQNM), Danaher Corp. (DHR), Image Sensing Systems, Inc. (ISNS) and Nanometrics Incorporated (NANO), International Isotopes, Inc. (INIS), Implant Sciences Corp. (IMSC), Hickok, Inc. (HICKA), Integral Vision, Inc. (INVI), ProPhotonix Limited (STKR), Elbit Vision Systems Ltd. (EVSNF), Mechanical Technology, Incorporated (MKTY), Universal Dectection Technology (UNDT), Sierra Monitor Corp. (SRMC), Cemtrex Inc. (CETX), Roper Technologies Inc. (ROP) and Mikros Systems Corp (MKRS).



The following company that was included in the Peer Group used in preparing the Stock Price Performance Graph contained in the Company’s 2015 Form 10-K were excluded from the Peer Group used in preparing the graph displayed above: none.

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.















 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Fiscal Years Ended June 30,

Statement of Operations Data

2016

 

2015 (1)

 

2014

 

2013

 

2012

 



(In Thousands, Except Per Share Amounts)

 

Net sales

$

69,135 

 

$

74,405 

 

$

59,612 

 

$

60,886 

 

$

57,379 

 

Gross profit

 

21,139 

 

 

28,271 

 

 

24,849 

 

 

28,120 

 

 

24,170 

 

Operating income (loss)

 

(9,384)

 

 

(37)

 

 

2,942 

 

 

6,866 

 

 

5,596 

 

Income (loss) from continuing operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

before income taxes

 

(9,217)

 

 

(835)

 

 

3,002 

 

 

7,531 

 

 

5,375 

 

Income (loss) from continuing operations

 

(22,113)

 

 

(461)

 

 

2,427 

 

 

6,130 

 

 

2,827 

 

Discontinued operations

 

 -

 

 

 -

 

 

 -

 

 

80 

 

 

(3,160)

 

Net income (loss)

 

(22,113)

 

 

(461)

 

 

2,427 

 

 

6,210 

 

 

(333)

 

Earnings (loss) per basic share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

$

(2.36)

 

$

(0.05)

 

$

0.27 

 

$

0.72 

 

$

0.34 

 

Discontinued operations

 

 -

 

 

 -

 

 

 -

 

 

0.01 

 

 

(0.38)

 

Net income (loss)

$

(2.36)

 

$

(0.05)

 

$

0.27 

 

$

0.73 

 

$

(0.04)

 

Earnings (loss) per diluted share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

$

(2.36)

 

$

(0.05)

 

$

0.26 

 

$

0.71 

 

$

0.34 

 

Discontinued operations

 

 -

 

 

 -

 

 

 -

 

 

0.01 

 

 

(0.38)

 

Net income (loss)

$

(2.36)

 

$

(0.05)

 

$

0.26 

 

$

0.72 

 

$

(0.04)

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

9,360 

 

 

9,252 

 

 

8,983 

 

 

8,512 

 

 

8,433 

 

Diluted

 

9,360 

 

 

9,252 

 

 

9,210 

 

 

8,588 

 

 

8,433 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



As of June 30,

Balance Sheet Data

2016

 

2015

 

2014

 

2013

 

2012

 



(In Thousands, Except Per Share Amounts)

Working capital

$

21,326 

 

$

32,978 

 

$

46,454 

 

$

41,294 

 

$

35,923 

 

Total assets

 

67,922 

 

 

94,938 

 

 

80,066 

 

 

73,639 

 

 

66,259 

 

Long-term taxes payable

 

1,714 

 

 

3,056 

 

 

 -

 

 

 -

 

 

 -

 

Shareholders' equity

 

38,554 

 

 

60,792 

 

 

62,780 

 

 

56,895 

 

 

52,259 

 

Annual dividend declared per common share

$

 -

 

$

 -

 

$

0.15 

 

$

0.15 

 

$

 -

 

Special dividend declared per common share

 

 -

 

 

 -

 

 

 -

 

 

0.25 

 

 

 -

 

Total dividends declared per common share

$

 -

 

$

 -

 

$

0.15 

 

$

0.40 

 

$

 -

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) In the third quarter of fiscal 2015, we acquired NMS and Coord3 (see Note 2 in Item 8 of this Annual Report on Form 10-K).

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

















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 2017 and future results, cost savings from our financial improvement plan, operating data, new order bookings, revenue, expenses, net income and backlog levels, trends affecting our future revenue levels, the rate of new orders, the timing of revenue and net income increases from new products which we have recently released or have not yet released, the timing of the introduction of new products and our ability to fund our fiscal year 2017 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,” “believes,” “expects,” “anticipates,” “estimates,” “prospects,” “outlook” 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, disruptions to our operations due to our financial improvement plan and related headcount reductions and position eliminations, risks associated with changes in our sales strategy and structure, including the impact of such changes on booking and revenue levels and customer purchase decisions, the risk that actual charges from the financial improvement plan differ from the assumptions used in estimating the charges and 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.  We have one operating segment, because all of our products rely on our core laser technology.  However, our products are divided into the following:

·

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 varies based on the plans of the individual automotive manufacturers.  The existing installed base of In-Line and Near-Line Measurement Solutions also provides a continuous revenue stream in the form of system additions, upgrades and modifications as well as Value Added Services such as customer training and support. 



Our Off-Line Measurement and 3D Scanning Solutions are used by and targeted to a wide variety of industrial customers, with the automotive industry representing the largest market for industrial metrology products.  We have developed a number of new products in the past year for the 3D Scanning and Off-Line Measurement markets. 



In fiscal 2014, we developed a strategic plan designed to expand revenues and increase shareholder value over the longer term.  In fiscal 2015, 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 business.



In fiscal 2016, we implemented a broadly focused financial improvement plan that was designed to reduce fixed costs, improve our profitability and cash flow as well as improve our ability to capture the value of the business diversification strategy we started in fiscal 2014.  We expect to realize annual pre-tax savings in the amount of $4.5 million due to our financial improvement plan.

17 


 

 

 

 



Results of Operations



Fiscal Year Ended June 30, 2016, Compared to Fiscal Year Ended June 30, 2015





Overview –We reported a net loss of $22.1 million, or $2.36 per diluted share, for the fiscal year ended June 30, 2016 compared with net loss of $0.5 million, or $0.05 per diluted share, for the fiscal year ended June 30, 2015. 



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 Year Ended June 30,

 

 

 

 

 

 



 

2016

 

2015

 

Increase/(Decrease)

 

Geographic Region

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas

 

$

24.2 

 

34.2% 

 

$

28.5 

 

41.2% 

 

$

(4.3)

 

(15.1%)

 

Europe

 

 

35.6 

 

50.3% 

 

 

22.9 

 

33.1% 

 

 

12.7 

 

55.5% 

 

Asia

 

 

11.0 

 

15.5% 

 

 

17.7 

 

25.7% 

 

 

(6.7)

 

(37.9%)

 

Totals

 

$

70.8 

 

100.0% 

 

$

69.1 

 

100.0% 

 

$

1.7 

 

2.5% 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



We achieved a record bookings level in fiscal 2016, despite unfavorable currency impact of $0.8 million, primarily due to including a full year of bookings from our CMM products related to our acquisition of the Coord3 brand in the third quarter of fiscal 2015, as well as an increase in Value Added Services.  These increases were partially offset by declines in our In-Line and Near-Line Measurement Solutions as well as 3D Scanning Solutions.  On a geographic basis, bookings in Europe increased primarily due to a $7.9 million increase resulting from the inclusion of CMM bookings for the entire fiscal year compared to only four months in our fiscal year 2015, an increase in our In-Line and Near-Line Measurement Solutions, partially offset by a decrease in our 3D Scanning Solutions.  The decrease in bookings for the Americas was primarily due to a decline in In-Line and Near-Line Measurement Solutions of $6.6 million, partially offset by $2.3 million increase in CMM products.  Bookings in Asia decreased primarily due to a decline in In-Line and Near-Line Measurement Solutions of $6.7 million, an unfavorable currency impact and a decline in 3D Scanning Solutions, partially offset by a $1.3 million increase due to the inclusion of CMM bookings for the entire fiscal year and an increase in Value Added Services of $0.2 million.



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:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

As of June 30,

 

 

 

 

 

 



 

2016

 

2015

 

Increase/(Decrease)

 

Geographic Region

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas

 

$

12.1 

 

29.8% 

 

$

10.4 

 

26.7% 

 

$

1.7 

 

16.3% 

 

Europe

 

 

19.9 

 

49.0% 

 

 

15.4 

 

39.6% 

 

 

4.5 

 

29.2% 

 

Asia

 

 

8.6 

 

21.2% 

 

 

13.1 

 

33.7% 

 

 

(4.5)

 

(34.4%)

 

Totals

 

$

40.6 

 

100.0% 

 

$

38.9 

 

100.0% 

 

$

1.7 

 

4.4% 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The current year ending backlog increased by $1.7 million or 4.4% compared to the ending backlog at June 30, 2015.  The increase in our backlog was primarily due to the increase in our CMM products of $1.1 million, an increase in our Value Added Services of $0.4 million and an increase in our In-Line and Near-Line Measurement Solutions of $0.4 million, partially offset by a decrease in our 3D Scanning Solutions of $0.2 million.  On a geographic basis, the increase in our Europe region’s backlog is primarily as a result of timing of several large orders from our traditional automotive customers for our Measurement Solutions.  The increase in our Americas region is primarily the result of receiving our first orders for our Measurement Solutions in new industries, specifically white goods and aerospace.  The decrease in Asia’s backlog was primarily due to orders being deferred due to the soft economic conditions, primarily in China.

18 


 

 

 

 

A summary of our operating results is shown below:





 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Fiscal Year Ended June 30,

(in millions)

 

2016

 

 

% of Sales

 

2015

 

 

% of Sales



 

 

 

 

 

 

 

 

 

 

 

 

 Americas Sales

 

$

22.5 

 

 

32.6% 

 

$

28.4 

 

 

38.2% 

 Europe Sales

 

 

31.1 

 

 

45.0% 

 

 

29.7 

 

 

39.9% 

 Asia Sales

 

 

15.5 

 

 

22.4% 

 

 

16.3 

 

 

21.9% 

Net Sales

 

$

69.1 

 

 

100.0% 

 

$

74.4 

 

 

100.0% 



 

 

 

 

 

 

 

 

 

 

 

 

Cost of Sales

 

 

48.0 

 

 

69.5% 

 

 

46.1 

 

 

62.0% 



 

 

 

 

 

 

 

 

 

 

 

 

Gross Profit

 

 

21.1 

 

 

30.5% 

 

 

28.3 

 

 

38.0% 



 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 Selling, General and Administrative

 

 

20.3 

 

 

29.4% 

 

 

20.4 

 

 

27.4% 

 Engineering, Research and Development

 

 

7.4 

 

 

10.7% 

 

 

7.9 

 

 

10.6% 

 Severance, Impairment and Other Charges

 

 

2.8 

 

 

4.0% 

 

 

 -

 

 

0.0% 



 

 

 

 

 

 

 

 

 

 

 

 

Operating Loss

 

 

(9.4)

 

 

(13.6%)

 

 

 -

 

 

0.0% 



 

 

 

 

 

 

 

 

 

 

 

 

Other Income and (Expenses), net

 

 

 

 

 

 

 

 

 

 

 

 

 Interest Income (Expense), net

 

 

(0.1)

 

 

(0.1%)

 

 

0.1 

 

 

0.1% 

 Foreign Currency Income (Loss), net

 

 

0.1 

 

 

0.1% 

 

 

(1.2)

 

 

(1.6%)

 Other Income and (Expense), net

 

 

0.2 

 

 

0.3% 

 

 

0.3 

 

 

0.4% 



 

 

 

 

 

 

 

 

 

 

 

 

Loss Before Income Taxes

 

 

(9.2)

 

 

(13.3%)

 

 

(0.8)

 

 

(1.1%)

Income Tax (Expense) Benefit

 

 

(12.9)

 

 

(18.7%)

 

 

0.3 

 

 

0.4% 



 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

$

(22.1)

 

 

(32.0%)

 

$

(0.5)

 

 

(0.7%)





Sales – Net sales of $69.1 million for fiscal 2016 decreased $5.3 million, or 7.1%, including an unfavorable currency impact of $2.5 million, compared to an extremely strong fiscal 2015 due to several non-recurring large projects that impacted fiscal year 2015 sales.  CMM product sales increased $9.4 million due to the timing of the acquisition of Coord3 during the third quarter of our fiscal year 2015, while our traditional products decreased $14.7 million.  The $5.9 million decrease in the Americas was primarily due to decreases in our In-Line and Near-Line Measurement Solutions of $8.1 million, a decrease in our 3D Scanning Solutions of $0.5 million and a decrease in our Value Added Services of $0.2 million,  partially offset by an increase in our CMM product sales of $2.9 million.  The $1.4 million increase in our Europe region sales was primarily related to an increase in our CMM products of $5.8 million, as well as an increase in our 3D Scanning Solutions of $0.3 million, partially offset by a decrease in our In-Line and Near-Line Measurement Solutions of $4.6 million and a decrease in our Value Added Services of $0.1 million.  The $0.8 million decrease in our Asia region sales was primarily due to a decrease in our In-Line and Near-Line Measurement Solutions of $0.8 million, a decrease in our 3D Scanning Solutions of $0.5 million and a decrease in our Value Added Services of $0.3 million, partially offset by an increase in our CMM products of $0.8 million.



Gross Profit – Gross profit was $21.1 million, or 30.5% of sales, in the fiscal year ended June 30, 2016, as compared to $28.3 million, or 38.0% of sales, in the fiscal year ended June 30, 2015.  The decrease in gross margin percentage was primarily due to the inclusion of the lower-margin CMM product line for a full year in fiscal 2016 as compared to four months in our fiscal year 2015, reduced sales from our higher-margin In-Line and Near-Line Measurement Solutions, as well as the impact of fixed overhead costs on the lower sales levels, partially offset by $0.5 million gain from a settlement received in fiscal year 2016 from one of our service providers as well as $0.4 million in savings realized from our financial improvement plan announced in the third quarter of fiscal 2016.



Selling, General and Administrative (SG&A) Expenses – SG&A expenses of $20.3 million in fiscal 2016, or 29.4% of total sales, were flat compared to SG&A in fiscal 2015 but 27.4% as a percent of sales.  Each year was affected by several significant items.  In fiscal year 2016, the full year inclusion of the CMM product line compared with four months in our fiscal year 2015 increased our SG&A costs by $2.3 million.  Also in fiscal year 2016, we incurred $1.2 million in legal fees on pending legal cases compared to $0.6 million in fiscal 2015.  These items were partially offset by $0.7 million in savings realized from our financial improvement plan announced in the third quarter of fiscal 2016 as well as a  $0.2 million gain from a settlement received in fiscal year 2016 from one of our service providers.  In our fiscal 2015, we incurred $1.6 million in one-time costs related to legal and consulting fees resulting from the acquisitions completed in that fiscal year.  Finally, in our fiscal year 2015, we incurred $0.5 million related to the launch of our new ERP.



Engineering, Research and Development (R&D) Expenses  Engineering and R&D expenses were $7.4 million in fiscal 2016, compared with $7.9 million in fiscal 2015.  The $0.5 million decrease in fiscal 2016 primarily related to $0.4 million in savings from our financial improvement plan announced in the third quarter of fiscal 2016 as well as a  $0.3 million gain from a settlement received in fiscal year 2016

19 


 

 

 

 

from one of our service providers, partially offset by an increase of $0.1 million related to product development efforts for our CMM products.



Severance, Impairment and Other Charges – Severance, impairment and other charges for fiscal 2016 were approximately $2.8 million and relate to the financial improvement plan that we announced in the third quarter of fiscal 2016.  This amount primarily related to severance charges from our U.S., Germany and China locations as well as an impairment charge related to capitalized software and related inventory write-down in the combined amount of $0.9 million.  We continue to estimate that the total expenses related to this financial improvement plan will be approximately $3.0 million.



Interest Income (Expense), net  Net interest expense was $0.1 million in fiscal 2016, compared with net interest income of $0.1 million in fiscal 2015.  This change was due to a decrease in interest income, because of lower invested cash balances in fiscal 2016 compared to fiscal 2015, as well as the addition of interest expense on liabilities acquired in the Coord3 acquisition and the borrowings required in the U.S. during the fourth quarter of fiscal 2016.



Foreign Currency Gain (Loss) – Foreign currency gain (loss) was a net gain of $0.1 million in fiscal 2016 compared with a loss of $1.2 million in fiscal 2015.  The loss in fiscal 2015 related primarily to the Japanese Yen, Brazilian Real and Euro.  Foreign currency effects are primarily due to the difference in foreign exchange rates between the time our non-U.S. subsidiaries receive material or services denominated in U.S. dollars and when their local funds are converted to U.S. dollars to remit payment for the material or services received. 



Income Tax Expense – Our loss before income taxes was $9.2 million during the fiscal year ended June 30, 2016 compared to loss before income taxes of $0.8 million during the fiscal year ended June 30, 2015.  Our effective tax rate for fiscal year ended June 30, 2016 was (139.9)% on pre-tax loss of $9.2 million resulting in an income tax expense of $12.9 million. Our effective tax rate for fiscal year ended June 30, 2015 was 44.7% on pre-tax loss of $0.8 million resulting in an income tax benefit of $0.3 million. Our fiscal year 2016 effective tax rate is primarily driven by the establishment of a full valuation allowance against our U.S. federal net deferred tax assets in the current year of $14.3 million, and to a lesser extent, the establishment of valuation allowances in Germany and Brazil totaling $2.0 million.  The need for these valuation allowances is described in Note 10 of the Notes to the Consolidated Financial Statements, “Income Taxes”, included in Item 8 of this Annual Report on Form 10-K.





20 


 

 

 

 



Results of Operations



Fiscal Year Ended June 30, 2015, Compared to Fiscal Year Ended June 30, 2014





Overview – Fiscal 2015 was a transition year that included the acquisition of two companies during the third quarter of fiscal 2015.  As a result, our fiscal 2015 had expenditures for large, one-time acquisition-related costs and only a partial year of operations for the two acquired companies.    We reported a net loss of $0.5 million, or $0.05 per diluted share, for the fiscal year ended June 30, 2015 compared with net income of $2.4 million, or $0.26 per diluted share, for the fiscal year ended June 30, 2014. 



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:





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Fiscal Year Ended June 30,

 

 

 

 

 



 

2015

 

2014

 

Increase/(Decrease)

 

Geographic Region

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas

 

$

28.5 

 

41.2% 

 

$

20.4 

 

29.8% 

 

$

8.1  39.7% 

 

Europe

 

 

22.9 

 

33.1% 

 

 

31.9 

 

46.6% 

 

 

(9.0) (28.2%)

 

Asia

 

 

17.7 

 

25.7% 

 

 

16.2 

 

23.6% 

 

 

1.5  9.3% 

 

Totals

 

$

69.1 

 

100.0% 

 

$

68.5 

 

100.0% 

 

$

0.6  0.9% 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



During fiscal 2015, we had a record setting level for bookings from our current operations, with bookings totaling $69.1 million.  This compared with $68.5 million in fiscal 2014, which, at the time, had been the second highest year of bookings from current operations in our history. 



The record bookings level in fiscal 2015 was achieved despite a $3.5 million reduction in bookings as a result of re-valuing the European backlog to reflect the lower Euro exchange rate in fiscal 2015 compared to fiscal 2014.  Bookings for fiscal 2015 included $4.6 million for CMM products related to our newly acquired Coord3 brand.   The increase in bookings for the Americas and Asia represented higher orders for our Measurement Solutions.  Asia also had a second year in a row of record bookings.  Bookings in Europe were severely impacted by the lower Euro exchange rate this year versus fiscal 2014.  Europe’s $9.0 million decrease from the record level set in fiscal 2014 was primarily due to lower orders for our In-Line and Near-Line Measurement Solutions, partially offset by $3.8 million in orders from our CMM product line.  



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 were:



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

As of June 30,

 

 

 

 

 



 

2015

 

2014

 

Increase/(Decrease)

 

Geographic Region

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas

 

$

10.4 

 

26.7% 

 

$

10.3 

 

26.2% 

 

$

0.1  1.0% 

 

Europe

 

 

15.4 

 

39.6% 

 

 

17.3 

 

44.0% 

 

 

(1.9) (11.0%)

 

Asia

 

 

13.1 

 

33.7% 

 

 

11.7 

 

29.8% 

 

 

1.4  12.0% 

 

Totals

 

$

38.9 

 

100.0% 

 

$

39.3 

 

100.0% 

 

$

(0.4) (1.0%)

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Our backlog was $38.9 million at June 30, 2015 and was our second highest fiscal year ending backlog.  This compares with a backlog of $39.3 million at June 30, 2014, which was, at that time, a record fiscal year ending backlog for us.  The June 30, 2015 ending backlog was down slightly from the June 30, 2014 ending backlog.  The backlog of new CMM product orders was $3.8 million and offset a decrease in other Measurement Solutions of $3.7 million.  Lower Value Added Services and other 3D Scanning Solutions also contributed to the decrease.  Asia’s backlog increased as a result of higher orders for Measurement Solutions.  Europe’s backlog decreased primarily as a result of the re-valuation effect of the lower Euro in fiscal 2015 versus fiscal 2014, which reduced orders in the European backlog by approximately $3.5 million.  Partially offsetting the decrease in Europe were the inclusion of orders for CMM products as a result of the acquisition of Coord3 in February 2015.





21 


 

 

 

 

A summary of our operating results is shown below:





 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Fiscal Year Ended June 30,

(in million)

 

2015

 

 

% of Sales

 

2014

 

 

% of Sales



 

 

 

 

 

 

 

 

 

 

 

 

 Americas Sales

 

$

28.4 

 

 

38.2% 

 

$

18.3 

 

 

30.7% 

 Europe Sales

 

 

29.7 

 

 

39.9% 

 

 

27.8 

 

 

46.6% 

 Asia Sales

 

 

16.3 

 

 

21.9% 

 

 

13.5 

 

 

22.7% 

Net Sales

 

$

74.4 

 

 

100.0% 

 

$

59.6 

 

 

100.0% 



 

 

 

 

 

 

 

 

 

 

 

 

Cost of Sales

 

 

46.1 

 

 

62.0% 

 

 

34.8 

 

 

58.4% 



 

 

 

 

 

 

 

 

 

 

 

 

Gross Profit

 

 

28.3 

 

 

38.0% 

 

 

24.8 

 

 

41.6% 



 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 Selling, General and Administrative

 

 

20.4 

 

 

27.4% 

 

 

15.2 

 

 

25.5% 

 Engineering, Research and Development

 

 

7.9 

 

 

10.6% 

 

 

6.7 

 

 

11.2% 

 Severance, Impairment and Other Charges

 

 

 -

 

 

0.0% 

 

 

 -

 

 

0.0% 



 

 

 

 

 

 

 

 

 

 

 

 

Operating Income

 

 

 -

 

 

0.0% 

 

 

2.9 

 

 

4.9% 



 

 

 

 

 

 

 

 

 

 

 

 

Other Income and (Expenses), net

 

 

 

 

 

 

 

 

 

 

 

 

 Interest Income (Expense), net

 

 

0.1 

 

 

0.1% 

 

 

0.2 

 

 

0.3% 

 Foreign Currency Income (Loss), net

 

 

(1.2)

 

 

(1.6%)

 

 

(0.1)

 

 

(0.2%)

 Other Income and (Expense), net

 

 

0.3 

 

 

0.4% 

 

 

 -

 

 

0.0% 



 

 

 

 

 

 

 

 

 

 

 

 

(Loss) Income Before Income Taxes

 

 

(0.8)

 

 

(1.1%)

 

 

3.0 

 

 

5.0% 

Income Tax Benefit (Expense)

 

 

0.3 

 

 

0.4% 

 

 

(0.6)

 

 

(1.0%)



 

 

 

 

 

 

 

 

 

 

 

 

Net (Loss) Income

 

$

(0.5)

 

 

(0.7%)

 

$

2.4 

 

 

4.0% 







Sales – Net sales of $74.4 million for fiscal 2015 increased $14.8 million, or 24.8%, compared with the same period in the prior year.  New CMM product sales represented $5.8 million of the $14.8 million improvement over fiscal 2014.  The balance of $9.0 million came from strong global growth in our traditional products.  Sales in fiscal 2015 also increased in all geographic locations over fiscal 2014.  The sales increase in the Americas and Asia was primarily from higher sales of In-Line and Near-Line Measurement Solutions.  Partially offsetting increased sales for the new CMM products in Europe were lower sales of In-Line and Near-Line Measurement Solutions.  The weaker Euro exchange rate in fiscal 2015 compared to fiscal 2014 had the effect of decreasing European sales by approximately $3.4 million. 



Gross Profit – Gross profit was $28.3 million, or 38.0% of sales, in our fiscal year ended June 30, 2015, as compared to $24.8 million, or 41.6% of sales, in our fiscal year ended June 30, 2014.    The lower gross margin percent in fiscal year 2015 versus fiscal year 2014 included the effect of the lower Euro exchange rate, which reduced gross profit approximately $1.7 million dollars.  In fiscal 2015, we also had additional costs related to an accrual of $0.5 million relating to employment status and withholding in a foreign jurisdiction.  Product mix also affected the comparison as the new CMM product sales in fiscal 2015 are at a lower gross margin percentage than our traditional products.



Selling, General and Administrative (SG&A) Expenses – SG&A expenses of $20.4 million in fiscal 2015 were $5.2 million higher than SG&A costs in fiscal 2014.  The increase represented one-time costs totaling $1.6 million for legal and consulting fees related to the acquisitions of Coord3 and NMS by the Company in the third quarter of fiscal 2015.  Also contributing to the increase was $1.4 million related to SG&A activities of these two new businesses since they were acquired.  Costs related to implementing our new ERP system in the U.S. were $0.5 million and will continue into fiscal 2016 as the new ERP system is rolled out globally.  The balance of the cost increase related to higher professional services for legal and consulting and higher personnel related costs.  The weaker Euro exchange rate in fiscal 2015 compared to fiscal 2014 decreased costs in fiscal 2015 by approximately $0.7 million. 



Engineering, Research and Development (R&D) Expenses  Engineering and R&D expenses were $7.9 million in fiscal 2015, compared with $6.7 million in fiscal 2014.  The $1.2 million increase in fiscal 2015 primarily related to a $0.5 million for higher engineering materials in support of product development efforts, $0.3 million related to activities of Coord3 and NMS and the balance of the increase related to higher salary, bonus and other personnel related costs.



Interest Income, net  Net interest income was $0.1 million in fiscal 2015, compared with $0.2 million in fiscal 2014.  The decrease in interest income for fiscal year 2015 compared to fiscal 2014 was principally due to higher interest expense related to debt acquired as part of the acquisition of Coord3.  Also contributing to the lower interest income was lower average invested cash balances in 2015 compared to fiscal 2014.

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