NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31,
2017
,
2016
and
2015
(in thousands, except share and per share data or as otherwise noted)
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
—FARO Technologies, Inc. and its subsidiaries (collectively “FARO,” the “Company,” “us,” “we” or “our”) design, develop, manufacture, market and support software driven, three-dimensional (“3D”) measurement, imaging and realization systems. This technology permits high-precision 3D measurement, imaging and comparison of parts and complex structures within production and quality assurance processes. Our devices are used for inspection of components and assemblies, rapid prototyping, reverse engineering, documenting large volume or structures in 3D, surveying and construction as well as for investigation and reconstruction of accident sites or crime scenes. We sell the majority of our products through a direct sales force across a broad number of customers in a range of manufacturing, industrial, architecture, surveying, building information modeling, construction, public safety forensics, cultural heritage and other applications. Our FaroArm®, FARO ScanArm
®
, FARO Gage
®
, FARO Laser Tracker
TM
, FARO Cobalt Array Imager, FARO Laser Projector, and their companion CAM2
®
, BuildIT, and RayTracer
TM
software solutions, provide for Computer-Aided Design (“CAD”) based inspection, factory-level statistical process control, high-density surveying and laser-guided assembly and production. Together, these products integrate the measurement, quality inspection, and reverse engineering functions with CAD and 3D software to improve productivity, enhance product quality, and decrease rework and scrap in the manufacturing process, mainly supporting applications in our Factory Metrology vertical. Our FARO Focus and FARO Scanner Freestyle
3D
X laser scanners, and their companion FARO SCENE, FARO PointSense, and FARO Zone public safety forensics software offerings, are utilized for a wide variety of 3D modeling, documentation and high-density surveying applications in our Construction Building Information Modeling-Construction Information Management (“Construction BIM-CIM”) and Public Safety Forensics verticals. Our FARO ScanArm
®
, FARO Cobalt Array Imager, FARO Scanner Freestyle
3D
X laser scanners and their companion SCENE software also enable a fully digital workflow used to capture real world geometry for the purpose of empowering design, enabling innovation, and speeding up the design cycle, supporting our Product Design vertical. FARO Visual Inspect
TM
enables large, complex 3D CAD data to be transferred to a tablet device and then used for mobile visualization and comparison to real world conditions, facilitating in-process inspection, assembly, guidance and positioning for applications in our Factory Metrology and Construction BIM-CIM verticals. Our line of galvanometer-based scan heads and laser scan controllers are used in a variety of laser applications and are integrated into larger components and systems.
Reportable Segments
—During fiscal 2016, we evaluated our reportable segment structure based on our new management organization and the changes implemented in connection with our initiatives to reorganize our business around certain vertical markets. As a result of this assessment, we report our activities in the following
three
reportable segments:
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The Factory Metrology segment provides solutions for manual and automated measurement and inspection in an industrial or manufacturing environment. Applications include alignment, part inspection, dimensional analysis, first article inspection, incoming and in-process inspection, machine calibration, non-contact inspection, robot calibration, tool building and set-up, and assembly guidance.
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The Construction BIM-CIM segment provides solutions for as-built data capturing and 3D visualization in building information modeling and construction information management applications, allowing our customers in our architecture, engineering and construction markets to quickly and accurately extract 2D and 3D measurement points. Applications include as-built documentation, construction monitoring, surveying, asset and facility management, and heritage preservation.
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The Other segment includes our Product Design, Public Safety Forensics and 3D Machine Vision operating segments. Our Product Design operating segment provides advanced 3D solutions to assist in the engineering or design of a movable object, enabling a full digital workflow for applications that include reverse engineering and virtual simulation. Our Public Safety Forensics operating segment provides solutions to public safety officials and professionals to capture environmental or situational scenes in 2D and 3D for crime, crash and fire scene investigations and environmental safety evaluations. Our 3D Machine Vision operating segment provides solutions to customers who require customized 3D measurement and realization solutions not otherwise addressed by our off-the-shelf product offerings.
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All operating segments that do not meet the criteria to be reportable segments are aggregated in the Other category and have been combined based on the aggregation criteria and quantitative thresholds in accordance with the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 280, “
Segment Reporting
” (“FASB ASC Topic 280”). Our reportable segments have been determined in accordance with our internal management structure, which is based on operating activities. We evaluate business performance based upon several metrics, using profitable revenue growth and segment profit as the primary financial measure.
We report our segment information in accordance with the provisions of FASB ASC Topic 280. See Note 16, “Segment Reporting” for further information.
Principles of Consolidation
—Our consolidated financial statements include the accounts of FARO Technologies, Inc. and its subsidiaries, all of which are wholly owned. All intercompany transactions and balances have been eliminated. The financial statements of our foreign subsidiaries are translated into U.S. dollars using exchange rates in effect at period-end for assets and liabilities and average exchange rates during each reporting period for results of operations. Adjustments resulting from financial statement translations are reflected as a separate component of accumulated other comprehensive loss. Foreign currency transaction gains and losses are included in net (loss) income.
Revenue Recognition, Product Warranty and Extended Warranty Contracts
—Revenue is recognized when the price is fixed, collectability is reasonably assured, the title and risks and rewards of ownership have passed to the customer, and the earnings process is complete. Revenue related to our measurement, imaging, and realization equipment and related software is generally recognized upon shipment, as we consider the earnings process complete as of the shipping date. The related software sold with our equipment function together and deliver the tangible product’s essential functionality. Fees billed to customers associated with the distribution of products are classified as revenue. We warrant our products against defects in design, materials and workmanship for
one
year. A provision for estimated future costs relating to warranty expense is recorded when products are shipped. We separately sell extended warranties. Extended warranty revenues are recognized on a straight-line basis over the term of the warranty. Costs relating to extended warranties are recognized as incurred. Revenue from sales of software only is recognized when no further significant production, modification or customization of the software is required and when the following criteria are met: persuasive evidence of a sales agreement exists, delivery has occurred, and the sales price is fixed or determinable and deemed collectible. These software arrangements generally include short-term maintenance that is considered post-contract support (“PCS”). We generally establish vendor-specific objective evidence (VSOE) of fair value for this PCS component based on our maintenance renewal rate. Maintenance renewals, when sold, are recognized on a straight-line basis over the term of the maintenance agreement. Revenues resulting from sales of comprehensive support, training and technology consulting services are recognized as such services are performed and are deferred when billed in advance of the performance of services. Revenues are presented net of sales-related taxes.
Cash and Cash Equivalents
—We consider cash on hand and amounts on deposit with financial institutions with maturities of
three
months or less when purchased to be cash and cash equivalents. We have deposits with foreign banks totaling
$98.8 million
and
$87.3 million
as of
December 31, 2017
and
2016
, respectively.
Accounts Receivable and Related Allowance for Doubtful Accounts
—Credit is extended to customers based on an evaluation of a customer’s financial condition and, generally, collateral is not required. Accounts receivable are generally due within
30
to
90 days
and are stated at amounts due from customers, net of an allowance for doubtful accounts. Accounts outstanding longer than the contractual payment terms are considered past due. We make judgments as to the collectability of accounts receivable based on historical trends and future expectations. Management estimates an allowance for doubtful accounts, which adjusts gross trade accounts receivable to its net realizable value. The allowance for doubtful accounts is based on an analysis of all receivables for possible impairment issues and historical write-off percentages. We write off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts. We do not generally charge interest on past due receivables.
Inventories
—Inventories are stated at the lower of cost or net realizable value using the first-in first-out (“FIFO”) method. Shipping and handling costs are classified as a component of cost of sales in the consolidated statements of operations. Sales demonstration inventory is comprised of measuring, imaging and realization devices utilized by sales representatives to present our products to customers. Management expects sales demonstration inventory to be held by our sales representatives for up to
three years
, at which time it is refurbished and transferred to finished goods as used equipment, stated at the lower of cost or net realizable value. Management expects these refurbished units to remain in finished goods inventory and be sold within
12 months
at prices that produce reduced gross margins. Sales demonstration inventory remains classified as inventory, as it is available for sale and any required refurbishment prior to sale is minimal.
Service inventory is typically used to provide a temporary replacement product to a customer covered by a premium warranty when the customer’s unit requires service or repair and as training equipment. Service inventory is available for sale; however, management does not expect service inventory to be sold within
12 months
and, as such, classifies this inventory as a long-term asset. Service inventory that we utilize for training or repairs which we deem as no longer available for sale is transferred to fixed assets at the lower of cost or net realizable value and depreciated over its remaining useful life, typically
three years
. See Note 5, "Inventories" for further information regarding inventories.
Reserve for Excess and Obsolete Inventory—
Since the value of inventory that will ultimately be realized cannot be known with exact certainty, we rely upon both past sales history and future sales forecasts to provide a basis for the determination of the reserve. Inventory is considered potentially obsolete if we have withdrawn those products from the market or had no sales of the product for the past 12 months and have no sales forecasted for the next 12 months. Inventory is considered potentially excess if the quantity on hand exceeds 12 months of expected remaining usage. The resulting obsolete and excess parts are then reviewed to determine if a substitute usage or a future need exists. Items without an identified current or future usage are reserved in an amount equal to
100%
of the FIFO cost of such inventory. Our products are subject to changes in technologies that may make certain of our products or their components obsolete or less competitive, which may increase our historical provisions to the reserve.
Property and Equipment
—Property and equipment purchases exceeding a thousand dollars are capitalized and recorded at cost. Depreciation is computed beginning on the date that the asset is placed into service using the straight-line method over the estimated useful lives of the various classes of assets as follows:
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Machinery, equipment and software
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2 to 5 years
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Furniture and fixtures
|
3 to 10 years
|
Leasehold improvements are amortized on a straight-line basis over the lesser of the life of the asset or the remaining term of the lease.
Depreciation expense was
$12.3
million,
$10.9
million and
$9.2
million in
2017
,
2016
and
2015
, respectively. Accelerated methods of depreciation are used for income tax purposes in contrast to book purposes, and as a result, appropriate provisions are made for the related deferred income taxes.
Business Combinations
—We allocate the fair value of purchase consideration to the assets acquired and liabilities assumed based on their fair values at the acquisition date. The excess of the fair value of purchase consideration over the fair value of these assets acquired and liabilities assumed is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions, especially with respect to intangible assets. Critical estimates in valuing intangible assets include, but are not limited to, expected future cash flows, which includes consideration of future growth rates and margins, customer attrition rates, future changes in technology and brand awareness, loyalty and position, and discount rates. Fair value estimates are based on the assumptions management believes a market participant would use in pricing the asset or liability. Amounts recorded in a business combination may change during the measurement period, which is a period not to exceed
one
year from the date of acquisition, as additional information about conditions existing at the acquisition date becomes available.
Goodwill and Intangible Assets
—
Goodwill represents the excess cost of a business acquisition over the fair value of the net assets acquired. We do not amortize goodwill; however, we perform an annual review each year, or more frequently if indicators of potential impairment exist, to determine if the carrying value of the recorded goodwill or indefinite lived intangible assets is impaired. We have historically evaluated goodwill for impairment annually as of December 31, or when an indicator of impairment exists. During 2017, we changed the date of annual impairment assessment for our reporting units to October 1. This voluntary change in the annual goodwill testing date is a change in accounting policy, which we concluded is preferable as it better aligns the timing of the assessment with our annual budgeting process. This change in the date of the annual impairment assessment was applied prospectively and did not accelerate, delay or avoid a potential impairment charge. If an asset is impaired, the difference between the value of the asset reflected in the financial statements and its current fair value is recognized as an expense in the period in which the impairment occurs.
See Note 6, "Goodwill" and Note 7, "Intangible Assets" for further information regarding goodwill and intangible assets, respectively.
Each period, and for any of our reporting units, we can elect to perform a qualitative assessment to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. If we believe, as a result of our qualitative assessment, that it is not more likely than not that the fair value of a reporting unit containing goodwill is less than its carrying amount, then the first and second steps of the quantitative goodwill impairment test are unnecessary. If we elect to bypass the qualitative assessment option, or if the qualitative assessment was performed and resulted in the Company being unable to conclude that it is not more likely than not that the fair value of a reporting unit containing goodwill is greater than its carrying amount, we will perform the two-step quantitative goodwill impairment test. We perform the first step of the two-step quantitative goodwill impairment test by calculating the fair value of the reporting unit using a discounted cash flow method and market approach method, and then comparing the respective fair value with the carrying amount of the reporting unit. If the carrying amount of the reporting unit exceeds its fair value, we perform the second step of the quantitative goodwill impairment test to measure the amount of the impairment loss, if any. Management has concluded there was no goodwill impairment for the years ended December 31, 2017, 2016 and 2015.
Other intangible assets principally include patents, existing product technology and customer relationships that arose in connection with our acquisitions. Other intangible assets are recorded at fair value at the date of acquisition and are amortized over their estimated useful lives of
3
to
20
years. As of
December 31, 2017
and 2016, there were
no
indefinite-lived intangible assets.
Product technology and patents are recorded at cost. Amortization is computed using the straight-line method over the lives of the product technology and patents of
7
to
20
years.
The remaining weighted-average amortization period for all our intangible assets is
eight
years.
Long-Lived Assets
—Long-lived assets, other than goodwill, are evaluated for impairment when events or changes in business circumstances indicate that the carrying amount of an asset group may not be fully recoverable, comparing projected undiscounted future cash flows to the carrying value of the asset group. Management has concluded that there were
no
indicators of impairment of these assets during the years ended
December 31, 2017
,
2016
and
2015
.
Research and Development
—Research and development costs incurred in the discovery of new knowledge and the resulting translation of this new knowledge into plans and designs for new products, prior to the attainment of the related products’ technological feasibility, are recorded as expenses in the period incurred. To date, the time incurred between the attainment of the related products' technological feasibility and general release to customers has been short.
Reserve for Warranties
—We establish at the time of sale a liability for the
one year
warranty included with the initial purchase price of our products, based upon an estimate of the repair expenses likely to be incurred for the warranty period. The warranty period is measured in installation-months for each major product group. The warranty reserve is included in accrued liabilities in the accompanying consolidated balance sheets. The warranty expense is estimated by applying the actual total repair expenses for each product group in the prior period and determining a rate of repair expense per installation-month. This repair rate is multiplied by the number of installation-months of warranty for each product group to determine the provision for warranty expenses for the period. We evaluate our exposure to warranty costs at the end of each period using the estimated expense per installation-month for each major product group, the number of units remaining under warranty, and the remaining number of months each unit will be under warranty. We have a history of new product introductions and enhancements to existing products, which may result in unforeseen issues that increase our warranty costs. While such expenses have historically been within expectations, we cannot guarantee this will continue in the future.
Income Taxes
—We review our deferred tax assets on a regular basis to evaluate their recoverability based upon expected future reversals of deferred tax assets and liabilities, projections of future taxable income, and tax planning strategies that we might employ to utilize such assets, including net operating loss carryforwards. Based on the positive and negative evidence for recoverability, we establish a valuation allowance against the net deferred tax assets of a taxing jurisdiction in which we operate unless it is “more likely than not” that we will recover such assets through the above means. In the future, our evaluation of the need for the valuation allowance will be significantly influenced by our ability to maintain profitability and our ability to predict and achieve future projections of taxable income over at least a two-year period.
We recognize tax benefits related to uncertain tax positions only if it is more likely than not that the tax position will be sustained upon examination by taxing authorities. For those positions where it is not more likely than not that a tax benefit will be sustained, no tax benefit has been recognized in the financial statements. In the ordinary course of business, we are examined by various federal, state, and foreign tax authorities. We regularly assess the potential outcomes of these examinations and any future examinations for the current or prior years in determining the adequacy of our provision for income taxes. See Note 11, "Income Taxes" for further information regarding income taxes.
(Loss) Earnings Per Share (EPS)
—Basic (loss) earnings per share is computed by dividing net (loss) income by the weighted average number of shares outstanding. Diluted earnings per share is computed by also considering the impact of potential common stock on both net income and the weighted average number of shares outstanding. Our potential common stock consists of employee stock options, restricted stock, restricted stock units and performance-based awards. Our potential common stock is excluded from the basic earnings per share calculation and is included in the diluted earnings per share calculation when doing so would not be anti-dilutive. Performance-based awards are included in the computation of diluted earnings per share only to the extent that the underlying performance conditions (and any applicable market condition) (i) are satisfied as of the end of the reporting period or (ii) would be considered satisfied if the end of the reporting period were the end of the related contingency period and the result would be dilutive under the treasury stock method. When we report a loss for the period presented, the diluted loss per share calculation does not include our potential common stock as the inclusion of these shares in the calculation would have an anti-dilutive effect. A reconciliation of the number of common shares used in the calculation of basic and diluted EPS is presented in Note 14, “(Loss) Earnings Per Share.”
Accounting for Stock-Based Compensation
—We have
two
stock-based employee and director compensation plans, which are described more fully in Note 13, “Stock Compensation Plans.”
We measure and record compensation expense using the applicable accounting guidance for share-based payments related to stock options, restricted stock, and performance-based awards granted to our directors and employees. The fair value of stock options, including performance awards, without a market condition is estimated, at the date of grant, using the Black-Scholes option-pricing model. The fair value of restricted stock awards and stock options with a market condition is estimated, at the date of grant, using the Monte Carlo Simulation model. The Black-Scholes and Monte Carlo Simulation valuation models incorporate assumptions as to stock price volatility, the expected life of options or awards, a risk-free interest rate and dividend yield. In valuing our stock options, significant judgment is required in determining the expected volatility of our common stock and the expected life that individuals will hold their stock options prior to exercising. Expected volatility for stock options is based on the historical and implied volatility of our own common stock while the volatility for our restricted stock units with a market condition is based on the historical volatility of our own stock and the stock of companies within our defined peer group. The expected life of stock options is derived from the historical actual term of option grants and an estimate of future exercises during the remaining contractual period of the option. While volatility and estimated life are assumptions that do not bear the risk of change subsequent to the grant date of stock options, these assumptions may be difficult to measure as they represent future expectations based on historical experience. Further, our expected volatility and expected life may change in the future, which could substantially change the grant-date fair value of future awards of stock options and, ultimately, the expense we record. The fair value of restricted stock, including performance awards, without a market condition is estimated using the current market price of our common stock on the date of grant.
We expense stock-based compensation for stock options, restricted stock awards, and performance awards over the requisite service period. For awards with only a service condition, we expense stock-based compensation using the straight-line method over the requisite service period for the entire award. For awards with both performance and service conditions, we expense the stock-based compensation on a straight-line basis over the requisite service period for each separately vesting portion of the award, taking into account the probability that we will satisfy the performance conditions. Furthermore, we expense awards with a market condition over the
three
-year vesting period regardless of the value that the award recipients ultimately receive. Effective January 1, 2017, we adopted Accounting Standards Update (“ASU”) No. 2016-09,
Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
(“ASU 2016-09”), simplifying several aspects of the accounting for share-based payment transactions, including the income tax consequences, classifications of awards as either equity or liabilities, and classification on the statement of cash flows. The impacts of adopting ASU 2016-09 are described more fully within the
Impact of Recently Adopted Accounting Standards
section below.
Concentration of Credit Risk
—Financial instruments that expose us to concentrations of credit risk consist principally of short-term investments and operating demand deposit accounts. Our policy is to place our operating demand deposit accounts with high credit quality financial institutions, the balances of which at times may exceed federally insured limits. We continually monitor our banking relationships and believe we are not exposed to any significant credit risk on our operating demand deposit accounts.
Estimates
—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Impact of Recently Adopted Accounting Standards
— In January 2017, the FASB issued Accounting Standards Update ("ASU") No. 2017-01,
Business Combinations (Topic 805): Clarifying the Definition of a Business
(“ASU 2017-01”) in order to clarify the definition of a business and provide additional guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Currently, ASC Topic 805 recognizes three elements of a business: inputs, processes, and outputs. While an integrated set of assets and activities (collectively referred to as a “set”) that is a business usually has outputs, outputs are not required to be present. Additionally, all the inputs and processes that a seller uses in operating a set are not required if market participants can acquire the set and continue to produce outputs. ASU 2017-01 provides a screen to determine when a set is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. If the screen is not met, the new guidance (1) requires that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and (2) removes the evaluation of whether a market participant could replace missing elements. The new guidance provides a framework to assist entities in evaluating whether both an input and a substantive process are present. This framework includes two sets of criteria to consider that depend on whether a set has outputs. Although outputs are not required for a set to be a business, outputs generally are a key element of a business. ASU 2017-01 provides more stringent criteria for sets without outputs and more narrowly defines the term output. ASU 2017-01 became effective for us on January 1, 2018 and was applied prospectively. Our adoption of the new guidance did not have a material impact on our consolidated financial statements.
In October 2016, the FASB issued ASU No. 2016-16,
Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory
(“ASU 2016-16”), which removes the prohibition in ASC 740 against the immediate recognition of the current and deferred income tax effects of intra-entity transfers of assets other than inventory. This ASU requires the tax effects of intercompany transactions, other than sales of inventory, to be recognized when the transfer occurs, instead of deferred until the transferred asset is sold to a third party or otherwise recovered through use of the asset. The new guidance must be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption and is effective for annual periods beginning after December 15, 2017, and interim period therein. ASU 2016-16 became effective for us on January 1, 2018 and was applied on a modified retrospective basis. Our adoption of the new guidance did not have a material impact on our consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15,
Statement of Cash Flows (Topic 230)
: Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which clarifies how companies present and classify certain cash receipts and cash payments in the statement of cash flows. ASU 2016-15 became effective for us on January 1, 2018 and was applied on a modified retrospective basis. Our adoption of the new guidance did not have a material impact on our consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers:
(Topic 606)
(“ASU 2014-09”), amending its accounting guidance related to revenue recognition. Under this ASU and subsequently issued amendments, revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additional disclosures are required to provide the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract.
We have evaluated the effect that this guidance will have on our consolidated financial statements by analyzing both transactional and analytical data for each of our revenue streams. The following is a status of our evaluation of impacts by significant revenue stream:
• Measurement equipment and related software: Under the prior accounting guidance, sales of measurement, imaging and realization equipment and related software sales were generally recognized upon shipment, as we considered the earnings process complete as of the shipping date. The related software sold with our measurement, imaging and realization equipment functions together with such equipment to deliver the tangible product’s essential functionality. Our adoption of the new guidance did not result in material changes to our accounting for revenue related to our measurement, imaging and realization equipment and related software.
• Extended warranties: Under the prior accounting guidance, extended warranty sales were recognized on a straight-line basis over the term of the warranty. Our adoption of the new guidance did not result in material changes to our accounting for revenue related to extended warranties.
• Software: Under the prior accounting guidance, software only sales were recognized when no further significant production, modification or customization of the software was required and when the following criteria were met: persuasive evidence of a sales agreement existed, delivery had occurred, and the sales price was fixed or determinable and deemed collectible. These software arrangements generally include short-term maintenance that is considered post-contract support. Maintenance renewals, when sold, were recognized on a straight-line basis over the term of the maintenance agreement. Our adoption of the new guidance did not result in material changes to our accounting for revenue related to software only sales and maintenance renewals.
Under the prior accounting guidance, we recognized sales commission expense as incurred. Under the new guidance, we will capitalize the commission expense for those sales arrangements that extend beyond one year and amortize such costs ratably over the term of the contract. As a result, we will recognize a deferred cost asset on our consolidated balance sheet upon the adoption of the new guidance; however, the impact of this change on our consolidated balance sheet is not material. The adoption of the new guidance did not have a material change to our results of operations or cash flows. We adopted this guidance utilizing the modified retrospective method but are applying it only to contracts that are not completed as of the date of initial adoption, an option that is available under ASC Topic 606.
In March 2016, the FASB issued ASU 2016-09,
Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
(“ASU 2016-09”), which is intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 became effective for annual periods beginning after December 15, 2016, and interim periods therein (our fiscal year 2017). We adopted ASU 2016-09 effective January 1, 2017. Under the new guidance, excess tax benefits that were not previously recognized because the related tax deduction had not reduced current taxes payable are to be recorded on a modified retrospective basis. This is achieved through a cumulative-effect adjustment to retained earnings as of the beginning of the period in which the new guidance is adopted. Historically, we recognized all excess tax benefits when an option was exercised or a share vested since we did not have a U.S. net operating loss carryforward. Therefore, the tax benefit will be allowed under the current guidance and no adjustment to retained earnings is required.
Under the new guidance, all tax-related cash flows resulting from share-based payments are reported as operating activities in the statement of cash flows. Effective January 1, 2017, we adopted this portion of the guidance on a prospective basis. This approach incorporates the net of the inflow and outflow from all tax-related cash flows resulting from share-based payments in the deferred income tax (benefit) expense line item and presents it along with other income tax cash flows as operating activities in the statement of cash flows.
We also elected to account for forfeitures related to the service condition-based awards as they occur effective January 1, 2017, which is a change from our treatment of estimating forfeitures in previous years. However, we continue to assess performance condition-based awards quarterly as required. In adopting the new policy using a modified retrospective approach, we assessed the cumulative effect adjustment and recorded to retaining earnings the difference between the amount of compensation cost previously recorded and the amount that would have been recorded without assuming forfeitures. The cumulative effect adjustment recorded to retained earnings was not material. We will continue to assess the impact of the adopted guidance on a quarterly basis and do not expect the adoption of this guidance will have a material impact on our consolidated financial statements.
In July 2015, the FASB issued ASU 2015-11,
Inventory (Topic 330): Simplifying the Measurement of Inventory
(“ASU 2015-11”), which changes the measurement principle for inventory from the lower of cost or market to the lower of cost and net realizable value. ASU 2015-11 defines net realizable value as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The new guidance must be applied on a prospective basis. We adopted ASU 2015-11 effective January 1, 2017. The adoption of this guidance did not have a material impact on our consolidated financial statements.
In November 2015, the FASB issued ASU 2015-17,
Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes
(“ASU 2015-17”), which requires that deferred tax liabilities and assets be classified as non-current in a classified balance sheet. ASU 2015-17 became effective for us on January 1, 2017. We adopted this guidance on a retrospective basis, which resulted in the reclassification of current deferred tax assets totaling approximately
$7.6 million
as of December 31, 2016 from current to non-current in our consolidated financial statements.
Impact of Recently Issued Accounting Standards
—In January 2017, the FASB issued ASU No. 2017-04,
Intangible - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
(“ASU 2017-04”), which is intended to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under the current guidance, performance of Step 2 requires us to calculate the implied fair value of goodwill by following procedures that would be required to determine the fair value of assets acquired and liabilities assumed in a business combination. Under the new guidance, we will perform our goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge will be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value up to the amount of the goodwill allocated to the reporting unit. The new guidance also eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform Step 2 of the goodwill impairment test if it fails the qualitative assessment. As a result, all reporting units will be subject to the same impairment assessment. We will still have the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. ASU 2017-04 becomes effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019, with early adoption permitted for annual or any interim goodwill impairment tests after January 1, 2017. The amendments in this ASU will be applied on a prospective basis. Disclosure of the nature and reason for the change in accounting principle is required upon transition. This disclosure is required in the first annual period and in the interim period within the first annual period when we initially adopt the amendments in this ASU. We plan to adopt this guidance for our fiscal year ending December 31, 2020. We do not expect that the adoption of this guidance will have a material impact on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
(“ASU 2016-02”), which is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements to enable users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. ASU 2016-02 must be applied on a modified retrospective basis and is effective for fiscal years beginning after December 15, 2018, and interim periods within those years, with early adoption permitted. We plan to adopt ASU 2016-02 in the first quarter of 2019. Although we are in the process of evaluating the impact of adoption of this ASU on our consolidated financial statements, we currently believe the most significant changes will be related to the recognition of new right-of-use assets and lease liabilities on our balance sheet for real estate operating leases.
Reclassifications
—Certain prior year amounts have been reclassified in the accompanying consolidated financial statements to conform to the current period presentation. For example:
|
|
•
|
Deferred income tax assets, net were reclassified from current to non-current in our consolidated balance sheet as of December 31, 2016 as a result of adopting ASU No. 2015-17
.
|
|
|
•
|
Certain reclassifications were made between reporting segments for segment profit during the year ended December 31, 2016 in Note 16, “Segment Reporting” as a result of changes to our methodology for allocating manufacturing variances to our segments. These reclassifications only impacted our segment reporting footnote disclosure.
|
2. SUPPLEMENTAL CASH FLOW INFORMATION
Selected cash payments and non-cash activities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
2017
|
|
2016
|
|
2015
|
Supplemental cash flow information:
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
9
|
|
|
$
|
28
|
|
|
$
|
55
|
|
Cash paid for income taxes
|
|
$
|
2,488
|
|
|
$
|
2,576
|
|
|
$
|
4,682
|
|
Supplemental noncash investing and financing activities:
|
|
|
|
|
|
|
Transfer of service and sales demonstration inventory to fixed assets
|
|
$
|
2,844
|
|
|
$
|
511
|
|
|
$
|
2,979
|
|
3. ALLOWANCE FOR DOUBTFUL ACCOUNTS
Activity in the allowance for doubtful accounts was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
2017
|
|
2016
|
|
2015
|
Balance, beginning of year
|
|
$
|
1,829
|
|
|
$
|
1,417
|
|
|
$
|
1,844
|
|
Provision (net of recovery)
|
|
370
|
|
|
898
|
|
|
346
|
|
Amounts written off, net of recoveries
|
|
(242
|
)
|
|
(486
|
)
|
|
(773
|
)
|
Balance, end of year
|
|
$
|
1,957
|
|
|
$
|
1,829
|
|
|
$
|
1,417
|
|
4. SHORT-TERM INVESTMENTS
Short-term investments at
December 31, 2017
consisted of U.S Treasury Bills totaling
$11.0 million
that matured through
January 11, 2018
. Short-term investments at
December 31, 2016
consisted of U.S. Treasury Bills totaling
$42.9 million
that matured through
June 15, 2017
. The interest rate on the U.S. Treasury Bills is less than
one
percent. The investments are classified as held-to-maturity and recorded at cost plus accrued interest, which approximates fair value. We do not intend to sell our short-term investments and it is not more likely than not that we will be required to sell such investments before recovery of their amortized cost bases, which may be maturity. The fair value of the U.S. Treasury Bills at
December 31, 2017
and
December 31, 2016
were classed as Level 1 as they are traded with sufficient frequency and volume to enable us to obtain pricing information on an ongoing basis. For further discussion of fair value, refer to Note 9, “Fair Value Measurements.”
5. INVENTORIES
Inventories are stated at the lower of cost or net realizable value using the first-in first-out (FIFO) method. We have three principal categories of inventory: 1) manufactured product to be sold; 2) sales demonstration inventory - completed product used to support our sales force and demonstrations; and 3) service inventory - completed product and parts used to support our service department. Shipping and handling costs are classified as a component of cost of sales in our consolidated statements of operations. Sales demonstration inventory is held by our sales representatives for up to three years, at which time it is refurbished and transferred to finished goods as used equipment, stated at the lower of cost or net realizable value. Management expects these refurbished units to remain in finished goods inventory and to be sold within 12 months at prices that produce reduced gross margins. Service inventory is used to provide a temporary replacement product to a customer covered by a premium warranty when the customer’s unit requires service or repair and as training equipment. Service inventory is available for sale; however, management does not expect service inventory to be sold within 12 months and, as such, classifies this inventory as a long-term asset. Service inventory that we utilize for training or repairs and which we deem as no longer available for sale is transferred to fixed assets at the lower of cost or net realizable value and depreciated over the remaining life, typically
three
years.
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
December 31, 2016
|
Raw materials
|
|
$
|
36,328
|
|
|
$
|
36,760
|
|
Finished goods
|
|
17,458
|
|
|
15,126
|
|
Inventories, net
|
|
$
|
53,786
|
|
|
$
|
51,886
|
|
Service and sales demonstration inventory, net
|
|
$
|
39,614
|
|
|
$
|
29,136
|
|
6. GOODWILL
Our goodwill at
December 31, 2017
and
2016
is related to our acquisitions. We evaluate each reporting unit’s fair value as compared to its carrying value on October 1st of each year or more frequently if events or changes in circumstances indicate that the carrying value may exceed the fair value. Prior to 2017, we evaluated each reporting unit's fair value as compared to its carrying value on December 31, 2017. During Step 1 of the quantitative goodwill impairment test, the fair value of the reporting units is measured using a discounted cash flow model incorporating discount rates commensurate with the risks involved for each reporting unit and a market approach. The key assumptions used in the discounted cash flow model include discount rates, growth rates, cash flow projections and terminal value rates. These rates are susceptible to change and require significant management judgment. The market approach relies on an analysis of publicly-traded companies similar to us and derives a range of revenue and profit multiples. The publicly-traded companies used in the market approach are selected based on our defined peer group. The resulting multiples are then applied to each reporting unit to determine fair value. Impairments to goodwill are charged against earnings in the period the impairment is identified.
During 2016, we realigned our organizational structure to focus on
five
operating segments: Factory Metrology, Construction BIM-CIM, Product Design, Public Safety Forensics, and 3D Machine Vision. As a result of the change to our operating segments in 2016, we realigned our reporting units for which goodwill was tested as of
December 31, 2016
: Factory Metrology, Construction BIM-CIM and Public Safety Forensics as shown in the table below.
As of
December 31, 2017
and
2016
, we did not have any goodwill that was identified as impaired. The increase in goodwill during
2017
and
2016
reflected the acquisitions completed in those periods and changes in foreign exchange rates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
Beginning
Balance
|
|
Additions
|
|
Foreign
Currency
Translation
|
|
Ending
Balance
|
Factory Metrology
|
|
$
|
37,861
|
|
|
$
|
2,357
|
|
|
$
|
2,941
|
|
|
$
|
43,159
|
|
Construction BIM-CIM
|
|
6,078
|
|
|
—
|
|
|
443
|
|
|
6,521
|
|
Public Safety Forensics
|
|
$
|
2,805
|
|
|
$
|
55
|
|
|
$
|
210
|
|
|
$
|
3,070
|
|
Total
|
|
$
|
46,744
|
|
|
$
|
2,412
|
|
|
$
|
3,594
|
|
|
$
|
52,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Beginning
Balance
|
|
Additions
|
|
Foreign
Currency
Translation
|
|
Ending
Balance
|
Factory Metrology
|
|
$
|
21,360
|
|
|
$
|
16,709
|
|
|
$
|
(208
|
)
|
|
$
|
37,861
|
|
Construction BIM-CIM
|
|
3,429
|
|
|
2,682
|
|
|
(33
|
)
|
|
6,078
|
|
Public Safety Forensics
|
|
$
|
1,582
|
|
|
$
|
1,238
|
|
|
$
|
(15
|
)
|
|
$
|
2,805
|
|
Total
|
|
$
|
26,371
|
|
|
$
|
20,629
|
|
|
$
|
(256
|
)
|
|
$
|
46,744
|
|
7. INTANGIBLE ASSETS
Intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2017
|
|
|
Carrying Value
|
|
Accumulated
Amortization
|
|
Net Intangible
|
Amortizable intangible assets:
|
|
|
|
|
|
|
Product technology
|
|
$
|
19,459
|
|
|
$
|
10,885
|
|
|
$
|
8,574
|
|
Patents and trademarks
|
|
13,948
|
|
|
5,720
|
|
|
8,228
|
|
Customer relationships
|
|
5,889
|
|
|
1,685
|
|
|
4,204
|
|
Other
|
|
7,443
|
|
|
5,909
|
|
|
1,534
|
|
Total
|
|
$
|
46,739
|
|
|
$
|
24,199
|
|
|
$
|
22,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
|
|
|
Carrying Value
|
|
Accumulated
Amortization
|
|
Net Intangible
|
Amortizable intangible assets:
|
|
|
|
|
|
|
Product technology
|
|
$
|
15,700
|
|
|
$
|
7,614
|
|
|
$
|
8,086
|
|
Patents and trademarks
|
|
13,328
|
|
|
4,927
|
|
|
8,401
|
|
Customer relationships
|
|
5,466
|
|
|
837
|
|
|
4,629
|
|
Other
|
|
8,013
|
|
|
6,850
|
|
|
1,163
|
|
Total
|
|
$
|
42,507
|
|
|
$
|
20,228
|
|
|
$
|
22,279
|
|
Amortization expense was
$4.5
million,
$2.9
million and
$2.0
million in
2017
,
2016
and
2015
, respectively. The estimated amortization expense for each of the years 2018 through 2022 and thereafter is as follows:
|
|
|
|
|
|
|
Years ending December 31,
|
Amount
|
2018
|
$
|
4,022
|
|
2019
|
3,770
|
|
2020
|
3,311
|
|
2021
|
2,880
|
|
2022
|
2,015
|
|
Thereafter
|
6,542
|
|
|
|
|
$
|
22,540
|
|
|
|
8. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2017
|
|
2016
|
Accrued compensation and benefits
|
|
$
|
16,144
|
|
|
$
|
13,649
|
|
Accrued warranties
|
|
2,628
|
|
|
2,594
|
|
Professional and legal fees
|
|
1,541
|
|
|
1,775
|
|
Taxes other than income
|
|
3,787
|
|
|
4,026
|
|
Other accrued liabilities
|
|
3,262
|
|
|
2,528
|
|
|
|
$
|
27,362
|
|
|
$
|
24,572
|
|
Activity related to accrued warranties was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
2017
|
|
2016
|
|
2015
|
Balance, beginning of year
|
|
$
|
2,594
|
|
|
$
|
2,309
|
|
|
$
|
2,719
|
|
Provision for warranty expense
|
|
4,045
|
|
|
3,544
|
|
|
3,597
|
|
Fulfillment of warranty obligations
|
|
(4,011
|
)
|
|
(3,259
|
)
|
|
(4,007
|
)
|
Balance, end of year
|
|
$
|
2,628
|
|
|
$
|
2,594
|
|
|
$
|
2,309
|
|
9. FAIR VALUE MEASUREMENTS
The guidance on fair value measurements and disclosures defines fair value, establishes a framework for measuring fair value, and requires enhanced disclosures about assets and liabilities measured at fair value. Fair value is defined as the price at which an asset could be exchanged in a current transaction between knowledgeable, willing parties. A liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are used to determine fair value. These models employ valuation techniques that involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity.
Assets and liabilities recorded at fair value on a recurring basis in our consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels, defined by the guidance on fair value measurements, are directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities and are as follows:
Level 1 - Valuation is based upon quoted market price for identical instruments traded in active markets.
Level 2 - Valuation is based on quoted market prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
Level 3 - Valuation is generated from model-based techniques that use significant assumptions not observable in the market. Valuation techniques include use of discounted cash flow models and similar techniques.
Fair Value on a Recurring Basis
Assets and liabilities measured at fair value on a recurring basis are categorized in the tables below based upon the lowest level of significant input to the valuations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets:
|
|
|
|
|
|
|
Short-term investments (1)
|
|
$
|
10,997
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Total
|
|
$
|
10,997
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
Contingent consideration (2)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
412
|
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
412
|
|
|
|
December 31, 2016
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets:
|
|
|
|
|
|
|
Short-term investments (1)
|
|
$
|
42,942
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Total
|
|
$
|
42,942
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
Contingent consideration (2)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,100
|
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,100
|
|
|
|
(1)
|
Short-term investments in the accompanying consolidated balance sheets are six-month U.S. Treasury Bills. The fair values of these assets are based on Level 1 inputs in the fair value hierarchy.
|
|
|
(2)
|
Contingent consideration liability represents arrangements to pay the former owners of certain companies we acquired. For the year ended
December 31, 2017
, we paid
$0.5 million
as part of these arrangements. For the year ended December 31, 2016, we paid
$0.8 million
as part of these arrangements. The remaining change in the fair value of the contingent consideration from December 31, 2016 to December 31, 2017 was related to a
$1.3 million
decrease due to the expiration of the contingent consideration period for one of our acquisitions and changes in foreign currency exchange rates.
|
10. OTHER (INCOME) EXPENSE, NET
Other (income) expense, net consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
2017
|
|
2016
|
|
2015
|
Foreign exchange transaction (gains) losses
|
|
$
|
(162
|
)
|
|
$
|
1,356
|
|
|
$
|
377
|
|
Other
|
|
(28
|
)
|
|
(534
|
)
|
|
(6
|
)
|
Total other (income) expense, net
|
|
$
|
(190
|
)
|
|
$
|
822
|
|
|
$
|
371
|
|
11. INCOME TAXES
Income (loss) before income tax expense (benefit) consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
2017
|
|
2016
|
|
2015
|
Domestic
|
|
$
|
2,468
|
|
|
$
|
(1,527
|
)
|
|
$
|
(144
|
)
|
Foreign
|
|
3,359
|
|
|
14,153
|
|
|
12,950
|
|
Income before income taxes
|
|
$
|
5,827
|
|
|
$
|
12,626
|
|
|
$
|
12,806
|
|
The components of the income tax expense (benefit) for income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
2017
|
|
2016
|
|
2015
|
Current:
|
|
|
|
|
|
|
Federal
|
|
$
|
18,951
|
|
|
$
|
409
|
|
|
$
|
199
|
|
State
|
|
507
|
|
|
40
|
|
|
78
|
|
Foreign
|
|
2,072
|
|
|
3,482
|
|
|
562
|
|
Current income tax expense
|
|
21,530
|
|
|
3,931
|
|
|
839
|
|
Deferred:
|
|
|
|
|
|
|
Federal
|
|
1,038
|
|
|
(2,357
|
)
|
|
88
|
|
State
|
|
(580
|
)
|
|
(229
|
)
|
|
9
|
|
Foreign
|
|
(1,645
|
)
|
|
174
|
|
|
(943
|
)
|
Deferred income tax benefit
|
|
(1,187
|
)
|
|
(2,412
|
)
|
|
(846
|
)
|
Income tax expense (benefit)
|
|
$
|
20,343
|
|
|
$
|
1,519
|
|
|
$
|
(7
|
)
|
Reconciliations of the income tax expense at the U.S. federal statutory income tax rate compared to our actual income tax expense (benefit) are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
2017
|
|
2016
|
|
2015
|
Tax expense at statutory rate of 34%
|
|
$
|
1,981
|
|
|
$
|
4,427
|
|
|
$
|
4,354
|
|
State income taxes, net of federal benefit
|
|
81
|
|
|
(50
|
)
|
|
54
|
|
Foreign tax rate difference
|
|
(2,057
|
)
|
|
(1,939
|
)
|
|
(3,708
|
)
|
Research and development credit
|
|
(1,037
|
)
|
|
(917
|
)
|
|
(853
|
)
|
Change in valuation allowance
|
|
678
|
|
|
162
|
|
|
(28
|
)
|
Equity based compensation
|
|
33
|
|
|
(255
|
)
|
|
54
|
|
Manufacturing credit
|
|
(191
|
)
|
|
(61
|
)
|
|
11
|
|
Permanent impact of non-deductible cost
|
|
766
|
|
|
412
|
|
|
(14
|
)
|
Provision to return adjustments
|
|
777
|
|
|
(61
|
)
|
|
(59
|
)
|
Impact of Tax Cuts and Jobs Act of 2017
|
|
19,355
|
|
|
—
|
|
|
—
|
|
Other
|
|
(43
|
)
|
|
(199
|
)
|
|
182
|
|
Income tax expense (benefit)
|
|
$
|
20,343
|
|
|
$
|
1,519
|
|
|
$
|
(7
|
)
|
The components of our net deferred income tax asset and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2017
|
|
2016
|
Net deferred income tax asset - Non-current
|
|
|
|
|
Warranty cost
|
|
$
|
695
|
|
|
$
|
1,121
|
|
Inventory reserve
|
|
419
|
|
|
456
|
|
Unearned service revenue
|
|
5,364
|
|
|
7,088
|
|
Employee stock options
|
|
4,366
|
|
|
4,501
|
|
Tax Credits
|
|
1,785
|
|
|
2,035
|
|
Loss carryforwards
|
|
8,782
|
|
|
8,005
|
|
Other, net
|
|
1,479
|
|
|
1,213
|
|
Total deferred tax assets
|
|
22,890
|
|
|
24,419
|
|
Valuation Allowance
|
|
(1,631
|
)
|
|
(876
|
)
|
Total deferred tax assets net of valuation allowance
|
|
21,259
|
|
|
23,543
|
|
Net deferred income tax liability - Non-current
|
|
|
|
|
Bad debt reserve
|
|
(2
|
)
|
|
(159
|
)
|
Depreciation
|
|
(3,675
|
)
|
|
(6,799
|
)
|
Goodwill
|
|
(1,574
|
)
|
|
(2,279
|
)
|
Intangible assets
|
|
(1,097
|
)
|
|
(1,409
|
)
|
Total deferred tax liabilities
|
|
(6,348
|
)
|
|
(10,646
|
)
|
Net deferred tax assets
|
|
$
|
14,911
|
|
|
$
|
12,897
|
|
On December 22, 2017, the United States enacted the Tax Cuts Act, resulting in significant modifications to existing law. We follow the guidance in SEC Staff Accounting Bulletin 118 (“SAB 118”), which provides additional clarification regarding the application of ASC Topic 740 in situations where a company does not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income tax effects of the Tax Cuts Act for the reporting period in which the Tax Cuts Act was enacted. SAB 118 provides for a measurement period beginning in the reporting period that includes the Tax Cuts Act's December 2017 enactment date and ending when we have obtained, prepared, and analyzed the information needed in order to complete the accounting for such income tax effects, but in no circumstances will the measurement period extend beyond one year from the enactment date.
Under the Tax Cuts Act, changes include lowering the statutory corporate tax rate from 35% to 21%, eliminating certain deductions, imposing a mandatory tax on accumulated earnings in foreign subsidiaries, introducing new tax regimes, and changing how foreign earnings are subject to United States taxation. The statutory corporate tax rate reduction is effective for tax years beginning on or after January 1, 2018. Based on our best estimate, we have calculated the impact of the Tax Cuts Act in our current year-end provision in accordance with our understanding of the Tax Cuts Act and available guidance. As a result, we recorded an amount of
$19.4 million
as an additional income tax expense in the fourth quarter of 2017, the period in which the legislation was enacted. The portion of this provisional amount that related to the transition tax on the mandatory deemed repatriation of foreign earnings was
$17.4 million
based on our best estimate and guidance available as of the date of this filing. Additional work is necessary to perform a more detailed analysis of historical foreign earnings. Upon gathering all necessary data, interpreting any additional guidance from tax authorities, and completing the analysis, our provisional amount will be adjusted in the measurement period allowable in accordance with SAB 118. Our provisional amount relating to the transition tax may materially differ upon completing the analysis compared to the amount accrued as of December 31, 2017. The portion of the amount that related to the remeasurement of certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future was
$2.0 million
.
Our domestic entities had deferred income tax assets in the amount of
$7.7 million
and
$7.8 million
as of December 31, 2017 and December 31, 2016, respectively. At December 31, 2017 and 2016, our foreign subsidiaries had deferred tax assets primarily relating to net operating losses of
$7.9 million
and
$6.4 million
, respectively, some of which expire in the next
1
to
9
years and others which can be carried forward indefinitely. The valuation allowance for deferred tax assets as of December 31, 2017 and 2016 was
$1.6 million
and
$0.9 million
, respectively. The net change in the total valuation allowance for each of the years ended December 31, 2017, 2016 and 2015 was a
$0.7 million
and a
$0.1 million
increase, and
$1.0 million
decrease, respectively.
The valuation allowance as of December 31, 2017 and 2016 was primarily related to foreign net operating loss carryforwards that, in the judgment of management, were not more likely than not to be realized. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences are deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected taxable income, and tax-planning strategies in making this assessment.
Significant judgment is required in determining our worldwide provision for income taxes. In the ordinary course of a global business, there are many transactions for which the ultimate tax outcome is uncertain. We review our tax contingencies on a regular basis and make appropriate accruals as necessary.
We file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The table below summarizes the open tax years and ongoing tax examinations in major jurisdictions as of
December 31, 2017
:
|
|
|
|
|
|
Jurisdiction
|
|
Open Years
|
|
Examination
in Process
|
United States - Federal Income Tax
|
|
2014-2017
|
|
N/A
|
United States - various states
|
|
2013-2017
|
|
2014-2016
|
Germany
|
|
2013-2017
|
|
N/A
|
Switzerland
|
|
2017
|
|
N/A
|
Singapore
|
|
2013-2017
|
|
N/A
|
We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is not material. We do not currently anticipate that the total amount of unrecognized tax benefits will result in material changes to our financial position. We are subject to income taxes at the federal, state and foreign country level. Our tax returns are subject to examination at the U.S. federal level from 2014 forward and at the state level are subject to a
three
to
four
year statute of limitations depending on the state.
12. COMMITMENTS AND CONTINGENCIES
Leases –
We lease buildings and equipment under non-cancellable operating leases through
2026
. Some of these leases include cost-escalation clauses. Such cost-escalation clauses are recognized on a straight-line basis over the lease term. The following is a schedule of future minimum lease payments required under non-cancelable operating leases with initial terms in excess of one year, in effect at
December 31, 2017
:
|
|
|
|
|
|
|
Years ending December 31,
|
Amount
|
2018
|
$
|
6,563
|
|
2019
|
4,925
|
|
2020
|
3,123
|
|
2021
|
1,251
|
|
2022
|
1,213
|
|
Thereafter
|
3,564
|
|
Total future minimum lease payments
|
$
|
20,639
|
|
Rent expense for
2017
,
2016
, and
2015
was
$7.5
million,
$7.7
million and
$6.9
million, respectively.
Purchase Commitments
— We enter into purchase commitments for products and services in the ordinary course of business. These purchases generally cover production requirements for
60
to
120
days as well as materials necessary to service customer units through the product lifecycle and for warranty commitments. As of
December 31, 2017
, we had approximately
$53.3 million
in purchase commitments that are expected to be delivered within the next
12
months. To ensure adequate component availability in preparation for new product introductions, as of
December 31, 2017
, we also had
$0.7 million
in long-term commitments for purchases to be delivered after 12 months.
Legal Proceedings
— We are not involved in any legal proceedings other than routine litigation arising in the normal course of business, none of which we believe will have a material adverse effect on our business, financial condition or results of operations.
13. STOCK COMPENSATION PLANS
We have
two
compensation plans that provide for the granting of stock options and other share-based awards to key employees and non-employee members of the Board of Directors. The 2009 Equity Incentive Plan (“2009 Plan”), and the 2014 Equity Incentive Plan (“2014 Plan”) provide for granting options, restricted stock, restricted stock units or stock appreciation rights to employees and non-employee directors.
We were authorized to grant awards for up to
1,781,546
shares of common stock under the 2009 Plan, as well as any shares underlying awards outstanding under our 2004 Equity Incentive Plan (the "2004 Plan") as of the effective date of the 2009 Plan that thereafter terminated or expired unexercised or were canceled, forfeited or lapsed for any reason. There were
390,351
options outstanding at
December 31, 2017
under the 2009 Plan at exercise prices between
$35.90
and
$57.54
. The options outstanding under the 2009 Plan have a
10
-year term (
7
years on grants beginning in 2010) and vest over a
3
-year period.
In May 2014, our shareholders approved the 2014 Plan authorizing us to grant awards for up to
1,974,543
shares of common stock, as well as any shares underlying awards outstanding under the 2004 Plan and 2009 Plan as of the effective date of the 2014 Plan that thereafter terminate or expire unexercised or are canceled, forfeited or lapse for any reason. There were
766,912
options outstanding at
December 31, 2017
under the 2014 Plan at exercise prices between
$29.98
and
$59.97
. The options outstanding under the 2014 Plan have a
7
-year term and generally vest over a
3
-year period.
No
awards were outstanding under the 2004 Plan as of December 31, 2017, and we will not make any further grants under the 2004 Plan or the 2009 Plan.
Upon election to the Board, each non-employee director receives an initial equity grant of shares of restricted common stock with a value equal to
$100,000
, calculated using the closing share price on the date of the non-employee director’s election to the Board. The initial restricted stock grant vests on the third anniversary of the grant date, subject to the non-employee director’s continued membership on the Board. Annually, the non-employee directors are granted restricted shares equal to
50%
of their compensation on the first business day following the annual meeting of shareholders, calculated using the closing price of our common stock on that day. The shares of restricted stock vest on the day prior to the following year’s annual meeting date, subject to a non-employee director’s continued membership on the Board. We record compensation cost associated with our restricted stock grants on a straight-line basis over the vesting term.
Annually, upon approval by our Compensation Committee, we grant stock options and restricted stock units to certain employees. We also grant stock options and restricted stock units to certain new employees throughout the year. Prior to 2016, these awards vested in three equal annual installments beginning one year after the grant date. The fair value of these stock-based awards is determined by using (a) the current market price of our common stock on the grant date in the case of restricted stock units or (b) the Black-Scholes option valuation model in the case of stock options.
In 2015, we granted performance-based stock options and restricted stock units to certain executives. These awards vest in
three
annual installments beginning one year after the grant date if the applicable performance measures or strategic objectives are achieved. The related stock-based compensation expense is recognized over the requisite service period, taking into account the probability that we will satisfy the performance measures or strategic objectives. In addition to certain strategic objectives, the performance-based stock options and restricted stock units granted in 2015 are earned and vest based on (1) our achievement of specified revenue and EPS targets, and (2) our total shareholder return ("TSR") relative to the TSR attained by companies within our defined peer group.
Due to the TSR presence in certain performance-based grants, the fair value of these awards is determined using the Monte Carlo Simulation valuation model. We expense these market condition awards over the
three
-year vesting period regardless of the value that the award recipients ultimately receive. In February
2017
, our Compensation Committee determined the number of performance-based stock options and restricted stock units that were earned for the
2016
performance period. Based on the performance and strategic objectives achieved in
2016
,
8,590
stock options and
300
restricted stock units were earned and vested and
20,388
stock options and
604
restricted stock units were determined to be unearned, as the required metrics were not achieved.
We did
no
t grant performance-based stock options and restricted stock units to our employees during
2017
. Instead, our annual grant in March
2017
consisted of stock options and restricted stock units that are subject to only time-based vesting. The number of stock options and restricted stock units granted was based on the employee’s individual objectives, performance against operational metrics assigned to the employee, and overall contribution over the last year. The restricted stock unit awards vest in full on the
three
-year anniversary of the grant date. The stock options vest in three equal annual installments beginning one year after the grant date. The fair value of these stock-based awards is determined by using (a) the current market price of our common stock on the grant date in the case of restricted stock units or (b) the Black-Scholes option valuation model in the case of stock options.
The Black-Scholes option valuation model incorporates assumptions as to stock price volatility, the expected life of options or awards, a risk-free interest rate and dividend yield. The weighted-average grant-date fair value of the stock options that were granted during the years ended
December 31, 2017
,
2016
, and
2015
and valued using the Black-Scholes option valuation model was
$14.51
,
$12.90
and
$15.08
per option, respectively. For stock options granted during the years ended
December 31, 2017
,
2016
, and
2015
valued using the Black-Scholes option valuation model, we used the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
2017
|
|
2016
|
|
2015
|
Risk-free interest rate
|
|
1.88% - 2.02%
|
|
|
1.06% - 1.57%
|
|
|
0.80% - 1.21%
|
|
Expected dividend yield
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
Expected option life
|
|
5 years
|
|
|
4 years
|
|
|
3 years
|
|
Expected volatility
|
|
45.2
|
%
|
|
45.0% - 47.0%
|
|
|
42.3% - 48.5%
|
|
Weighted-average expected volatility
|
|
45.2
|
%
|
|
46.1
|
%
|
|
43.5
|
%
|
Historical information was the primary basis for the selection of the expected dividend yield, expected volatility and the expected lives of the options. The risk-free interest rate was based on the yields of U.S. zero coupon issues and U.S. Treasury issues, with a term equal to the expected life of the option being valued.
There were
no
market condition awards granted during the years ended
December 31, 2017
and 2016 and, as such, the Monte Carlo Simulation valuation model was not used to determine the fair value of the stock options and restricted stock units granted during
2017
. In 2015, we granted performance-based stock options and restricted stock units which included the presence of a market condition and were valued using the Monte Carlo Simulation model. This valuation model incorporates assumptions as to stock price volatility, the expected life of options or awards, a risk-free interest rate and dividend yield. The assumptions used to estimate the fair value of the performance-based stock options and restricted stock units granted during 2015 and valued under the Monte Carlo Simulation model were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2017
|
|
2016
|
|
2015
|
Risk-free interest rate
|
|
—
|
%
|
|
—
|
%
|
|
0.95% - 1.48%
|
|
Expected dividend yield
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
Expected option life
|
|
—
|
|
|
—
|
|
|
4 years
|
|
Expected volatility
|
|
—
|
%
|
|
—
|
%
|
|
44.5
|
%
|
Weighted-average expected volatility
|
|
—
|
%
|
|
—
|
%
|
|
44.5
|
%
|
A summary of stock option activity and weighted average exercise prices follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Weighted-
Average
Exercise Price
|
|
Weighted-Average
Remaining
Contractual Term
(Years)
|
|
Aggregate Intrinsic
Value as of
December 31, 2017
|
Outstanding at January 1, 2017
|
|
1,090,160
|
|
|
$
|
48.02
|
|
|
|
|
|
Granted
|
|
267,794
|
|
|
34.75
|
|
|
|
|
|
Forfeited
|
|
(84,591
|
)
|
|
44.39
|
|
|
|
|
|
Exercised
|
|
(96,212
|
)
|
|
37.05
|
|
|
|
|
|
Unearned performance-based options
|
|
(20,388
|
)
|
|
59.97
|
|
|
|
|
|
Outstanding at December 31, 2017
|
|
1,156,763
|
|
|
$
|
45.93
|
|
|
4.3
|
|
$
|
7,082
|
|
Options exercisable at December 31, 2017
|
|
914,941
|
|
|
$
|
42.20
|
|
|
2.3
|
|
$
|
2,369
|
|
The aggregate intrinsic value of stock options exercised during the years ended
December 31, 2017
,
2016
, and
2015
was
$1.2 million
,
$1.7 million
and
$1.7 million
, respectively. The total fair value of stock options vested during the years ended
December 31, 2017
,
2016
and
2015
was
$4.1 million
,
$3.8 million
and
$3.9 million
, respectively.
The following table summarizes the restricted stock and restricted stock unit activity and weighted average grant-date fair values for the year ended
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted-Average
Grant Date
Fair Value
|
Non-vested at January 1, 2017
|
|
150,682
|
|
|
$
|
33.39
|
|
Granted
|
|
155,975
|
|
|
35.79
|
|
Forfeited
|
|
(26,855
|
)
|
|
33.95
|
|
Vested
|
|
(21,706
|
)
|
|
34.55
|
|
Unearned performance-based awards
|
|
(604
|
)
|
|
52.83
|
|
Non-vested at December 31, 2017
|
|
257,492
|
|
|
$
|
34.75
|
|
We recorded total stock-based compensation expense associated with our stock incentive plans of
$6.5 million
,
$5.4 million
and
$4.3 million
in
2017
,
2016
and
2015
, respectively.
As of
December 31, 2017
, there was
$9.4 million
in total unrecognized stock-based compensation expense related to non-vested stock-based compensation arrangements. The expense is expected to be recognized over a weighted average period of
1.9 years
.
14. (LOSS) EARNINGS PER SHARE
Basic (loss) earnings per share is computed by dividing net income by the weighted average number of shares outstanding. Diluted earnings per share is computed by also considering the impact of potential common stock on both net income and the weighted average number of shares outstanding. Our potential common stock consists of employee stock options, restricted stock, restricted stock units and performance-based awards. Our potential common stock is excluded from the basic earnings per share calculation and is included in the diluted earnings per share calculation when doing so would not be anti-dilutive. Performance-based awards are included in the computation of diluted earnings per share only to the extent that the underlying performance conditions (and any applicable market condition) (i) are satisfied as of the end of the reporting period or (ii) would be considered satisfied if the end of the reporting period were the end of the related contingency period and the result would be dilutive under the treasury stock method. When we report a loss for the period presented, the diluted loss per share calculation does not include our potential common stock as the inclusion of these shares in the calculation would have an anti-dilutive effect. A reconciliation of the number of common shares used in the calculation of basic and diluted (loss) earnings per share is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2017
|
|
2016
|
|
2015
|
|
|
Shares
|
|
Per-Share
Amount
|
|
Shares
|
|
Per-Share
Amount
|
|
Shares
|
|
Per-Share
Amount
|
Basic (loss) earnings per share
|
|
16,711,534
|
|
|
$
|
(0.87
|
)
|
|
16,654,786
|
|
|
$
|
0.67
|
|
|
17,288,665
|
|
|
$
|
0.74
|
|
Effect of dilutive securities
|
|
—
|
|
|
—
|
|
|
26,924
|
|
|
—
|
|
|
100,808
|
|
|
—
|
|
Diluted (loss) earnings per share
|
|
16,711,534
|
|
—
|
|
$
|
(0.87
|
)
|
|
16,681,710
|
|
|
$
|
0.67
|
|
|
17,389,473
|
|
|
$
|
0.74
|
|
Securities excluded from the determination of weighted average shares for the calculation of diluted (loss) earnings per share, as they were potentially antidilutive
|
|
1,049,563
|
|
|
|
|
1,046,947
|
|
|
|
|
870,421
|
|
|
|
15. EMPLOYEE RETIREMENT BENEFIT PLAN
We maintain a 401(k) defined contribution retirement plan for our eligible U.S. employees. Costs charged to operations in connection with the 401(k) plan during
2017
,
2016
, and
2015
aggregated
$1.7
million,
$1.4
million, and
$1.3
million, respectively.
16. SEGMENT REPORTING
We have
three
reportable segments: Factory Metrology, Construction BIM-CIM, and Other. These segments are based upon the vertical markets that we currently serve. Business activities that do not meet the criteria to be reportable segments are aggregated in the Other category.
We develop, manufacture, market, support and sell CAD-based quality assurance products integrated with CAD-based inspection and statistical process control software, and three-dimensional documentation systems in each of these reportable segments. These activities represent more than
99%
of consolidated sales.
Our Chief Operating Decision Maker (CODM), our Chief Executive Officer, evaluates segment performance and allocates resources based upon profitable growth. We use segment profit to evaluate the performance of our reportable segments. Segment profit is calculated as gross profit, net of selling and marketing expenses, for the reporting segment. Our definition of segment profit may not be comparable to similarly titled measures reported by other companies.
The following tables present information about our reportable segments for the years ended
December 31, 2017
,
2016
, and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Factory
Metrology
|
|
Construction
BIM-CIM
|
|
Other
|
|
Total
|
2017
|
|
|
|
|
|
|
|
|
Net sales to external customers
|
|
$
|
245,114
|
|
|
$
|
86,349
|
|
|
$
|
29,454
|
|
|
$
|
360,917
|
|
Segment profit
|
|
$
|
78,857
|
|
|
$
|
21,077
|
|
|
$
|
1,159
|
|
|
$
|
101,093
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
|
|
|
|
|
43,807
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
16,588
|
|
Research and development
|
|
|
|
|
|
|
|
35,376
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
|
|
|
|
|
$
|
5,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Factory
Metrology
|
|
Construction
BIM-CIM
|
|
Other
|
|
Total
|
2016
|
|
|
|
|
|
|
|
|
Net sales to external customers
|
|
$
|
236,313
|
|
|
$
|
65,056
|
|
|
$
|
24,215
|
|
|
$
|
325,584
|
|
Segment profit
|
|
$
|
73,656
|
|
|
$
|
14,799
|
|
|
$
|
9,635
|
|
|
$
|
98,090
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
|
|
|
|
|
40,813
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
13,868
|
|
Research and development
|
|
|
|
|
|
|
|
30,125
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
|
|
|
|
|
$
|
13,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Factory
Metrology
|
|
Construction
BIM-CIM
|
|
Other
|
|
Total
|
2015
|
|
|
|
|
|
|
|
|
Net sales to external customers
|
|
$
|
222,745
|
|
|
$
|
70,849
|
|
|
$
|
23,954
|
|
|
$
|
317,548
|
|
Segment profit
|
|
$
|
63,463
|
|
|
$
|
16,299
|
|
|
$
|
7,637
|
|
|
$
|
87,399
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
|
|
|
|
|
36,370
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
11,217
|
|
Research and development
|
|
|
|
|
|
|
|
26,690
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
|
|
|
|
|
$
|
13,122
|
|
Net sales to external customers is based upon the geographic location of the customer.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
2017
|
|
2016
|
|
2015
|
Net sales to external customers
|
|
|
|
|
|
|
United States
|
|
$
|
141,595
|
|
|
$
|
133,924
|
|
|
$
|
131,670
|
|
Americas-Other
|
|
13,531
|
|
|
11,815
|
|
|
11,718
|
|
Germany
|
|
49,860
|
|
|
44,041
|
|
|
41,151
|
|
Europe-Other
|
|
65,201
|
|
|
57,710
|
|
|
62,032
|
|
Japan
|
|
35,270
|
|
|
32,530
|
|
|
24,018
|
|
Asia-Other
|
|
55,460
|
|
|
45,564
|
|
|
46,959
|
|
|
|
$
|
360,917
|
|
|
$
|
325,584
|
|
|
$
|
317,548
|
|
Long-lived assets consist primarily of property, plant, and equipment, goodwill, and intangible assets, and are attributed to the geographic area in which they are located or originated, as applicable.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2017
|
|
2016
|
|
2015
|
Long-Lived Assets
|
|
|
|
|
|
|
United States
|
|
$
|
54,703
|
|
|
$
|
54,157
|
|
|
$
|
39,973
|
|
Americas-Other
|
|
13,834
|
|
|
13,486
|
|
|
9,447
|
|
Germany
|
|
26,611
|
|
|
23,734
|
|
|
24,637
|
|
Europe-Other
|
|
9,124
|
|
|
6,949
|
|
|
1,146
|
|
Japan
|
|
558
|
|
|
460
|
|
|
517
|
|
Asia-Other
|
|
2,246
|
|
|
1,915
|
|
|
2,582
|
|
|
|
$
|
107,076
|
|
|
$
|
100,701
|
|
|
$
|
78,302
|
|
17. BUSINESS COMBINATIONS
In April 2017, we completed the acquisition of substantially all of the assets of Instrument Associates, LLC d/b/a Nutfield Technology (“Nutfield”), a component technology business located in Hudson, New Hampshire, which specializes in the design and manufacture of advanced galvanometer-based optical scanners, scan heads and laser kits, for a total purchase price of approximately
$5.5 million
. This acquisition supports our long-term strategy to expand our presence in key markets and improve our existing product lines with innovative technology. The results of the acquired business’ operations as of and after the date of acquisition have been included in our consolidated financial statements for the year ended December 31, 2017.
In December 2016, we acquired MWF-technology, GmbH (“MWF”) for a purchase price, net of cash acquired, of approximately
$6.6 million
, paid with cash on hand. MWF, an innovator in mobile augmented reality solutions located near Frankfurt, Germany, provides technology that enables large, complex 3D CAD data to be transferred to a tablet device for use in mobile visualization and comparison to real world conditions. This enables real time, actionable manufacturing insight for in-process inspection, assembly, guidance and positioning.
In August 2016, we acquired Laser Projection Technologies, Inc. (“LPT”) for a purchase price, net of cash acquired, of approximately
$17.2 million
, paid with cash on hand. LPT, located in Londonderry, New Hampshire, specializes in laser projection and measurement systems used throughout manufacturing environments around the globe to maximize productivity and efficiency. The acquisition enhances our portfolio of 3D measurement solutions and supports our long-term strategy to expand our presence in key markets.
In July 2016, we acquired BuildIT Software & Solutions Ltd. (“BuildIT”) for a purchase price, net of cash acquired, of approximately
$3.9 million
, paid with cash on hand. BuildIT, a software solutions business located in Montreal, Canada, specializes in process-configurable 3D metrology software solutions with hardware agnostic interfaces. The addition of BuildIT enhances our metrology portfolio, providing customers greater software options to use in a variety of applications to reduce inspection and assembly times and increase productivity.
The acquisitions of Nutfield, MWF, LPT, and BuildIT constitute business combinations as defined by FASB ASC Topic 805,
Business Combinations
. Accordingly, the assets acquired and liabilities assumed were recorded at their fair values on the date of acquisition.
Following is a summary of our allocations of the purchase price to the fair values of the assets acquired and liabilities assumed as of the date of each acquisition:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BuildIt
|
|
LPT
|
|
MWF
|
|
Nutfield
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
237
|
|
|
$
|
54
|
|
|
$
|
150
|
|
|
$
|
160
|
|
Inventory
|
|
—
|
|
|
322
|
|
|
—
|
|
|
539
|
|
Other assets
|
|
36
|
|
|
160
|
|
|
666
|
|
|
96
|
|
Deferred income tax assets
|
|
—
|
|
|
1,112
|
|
|
—
|
|
|
131
|
|
Intangible assets
|
|
1,015
|
|
|
5,474
|
|
|
1,816
|
|
|
2,329
|
|
Goodwill (1)
|
|
3,393
|
|
|
11,922
|
|
|
5,364
|
|
|
2,357
|
|
Accounts payable and accrued liabilities
|
|
(95
|
)
|
|
(747
|
)
|
|
(700
|
)
|
|
(12
|
)
|
Other liabilities
|
|
(471
|
)
|
|
(1,086
|
)
|
|
(345
|
)
|
|
(104
|
)
|
Deferred income tax liabilities
|
|
(205
|
)
|
|
—
|
|
|
(364
|
)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total purchase price, net of cash acquired
|
|
$
|
3,910
|
|
|
$
|
17,211
|
|
|
$
|
6,587
|
|
|
$
|
5,496
|
|
|
|
(1)
|
The goodwill arising from the acquisitions consists largely of the expected synergies from combining operations as well as the value of the workforce. A portion of the goodwill is expected to be tax deductible for both the LPT and Nutfield acquisitions.
|
Following are the details of the purchase price allocated to the intangible assets acquired for the acquisitions noted above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BuildIt
|
|
LPT
|
|
MWF
|
|
Nutfield
|
|
|
Amount
|
Weighted Average Life
|
|
Amount
|
Weighted Average Life
|
|
Amount
|
Weighted Average Life
|
|
Amount
|
Weighted Average Life
|
Trade name
|
|
$
|
346
|
|
7
|
|
$
|
64
|
|
1
|
|
$
|
36
|
|
1
|
|
$
|
29
|
|
1
|
Non-competition agreement
|
|
31
|
|
5
|
|
—
|
|
0
|
|
3
|
|
2
|
|
144
|
|
5
|
Technology
|
|
361
|
|
7
|
|
4,260
|
|
7
|
|
951
|
|
5
|
|
1,970
|
|
10
|
Customer relationships
|
|
277
|
|
7
|
|
1,150
|
|
7
|
|
826
|
|
5
|
|
95
|
|
10
|
Favorable in-place lease
|
|
—
|
|
0
|
|
—
|
|
0
|
|
—
|
|
0
|
|
91
|
|
12
|
Fair value of intangible
assets acquired
|
|
$
|
1,015
|
|
7
|
|
$
|
5,474
|
|
7
|
|
$
|
1,816
|
|
5
|
|
$
|
2,329
|
|
10
|
The goodwill for the Nutfield acquisition has been allocated to the Factory Metrology reporting segment. The goodwill for the BuildIT, LPT and MWF acquisitions was allocated to the appropriate operating segments using the relative fair value approach in 2016. Acquisition and integration costs are not included as components of consideration transferred, but are recorded as expense in the period in which such costs are incurred. To date, we have incurred approximately
$0.9 million
in acquisition and integration costs for the BuildIT, LPT, MWF and Nutfield acquisitions. Pro forma financial results for BuildIT, LPT, MWF and Nutfield have not been presented because the effects of these transactions, individually and in the aggregate, were not material to our consolidated results of operations.
18. QUARTERLY RESULT OF OPERATIONS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended
|
|
March 31,
2017
|
|
June 30,
2017
|
|
September 30,
2017
|
|
December 31,
2017
|
Sales
|
|
$
|
81,562
|
|
|
$
|
82,682
|
|
|
$
|
90,250
|
|
|
$
|
106,423
|
|
Gross profit
|
|
43,749
|
|
|
46,760
|
|
|
52,034
|
|
|
62,094
|
|
Net (loss) income
|
|
(1,461
|
)
|
|
(3,625
|
)
|
|
1,628
|
|
|
(11,058
|
)
|
Net (loss) income per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.09
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
0.10
|
|
|
$
|
(0.66
|
)
|
Diluted
|
|
$
|
(0.09
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
0.10
|
|
|
$
|
(0.66
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended
|
|
March 31,
2016
|
|
June 30,
2016
|
|
September 30,
2016
|
|
December 31,
2016
|
Sales
|
|
$
|
75,748
|
|
|
$
|
78,538
|
|
|
$
|
79,600
|
|
|
$
|
91,698
|
|
Gross profit
|
|
42,671
|
|
|
43,934
|
|
|
42,678
|
|
|
48,677
|
|
Net income
|
|
3,080
|
|
|
3,392
|
|
|
1,090
|
|
|
3,545
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.19
|
|
|
$
|
0.20
|
|
|
$
|
0.07
|
|
|
$
|
0.21
|
|
Diluted
|
|
$
|
0.19
|
|
|
$
|
0.20
|
|
|
$
|
0.07
|
|
|
$
|
0.21
|
|