e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 for the
quarterly period ended March 31, 2008.
Commission file number: 0-20206
PERCEPTRON, INC.
(Exact Name of Registrant as Specified in Its Charter)
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Michigan
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38-2381442 |
(State or Other Jurisdiction of
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(I.R.S. Employer |
Incorporation or Organization)
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Identification No.) |
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47827 Halyard Drive, Plymouth, Michigan
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48170-2461 |
(Address of Principal Executive Offices)
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(Zip Code) |
(734) 414-6100
(Registrants Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer þ
(Do not check if a smaller reporting company)
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ
The number of shares outstanding of each of the issuers classes of common stock as of May 07,
2008, was:
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Common Stock, $0.01 par value
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8,822,957 |
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Class
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Number of shares |
PERCEPTRON, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
For the Quarter Ended March 31, 2008
2
PERCEPTRON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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March 31, |
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June 30, |
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(In Thousands, Except Per Share Amount) |
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2008 |
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2007 |
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(Unaudited) |
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As Restated |
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(Note 13) |
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ASSETS |
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Current Assets |
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Cash and cash equivalents |
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$ |
19,852 |
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$ |
10,878 |
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Short-term investments |
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6,300 |
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Receivables: |
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Billed receivables, net of allowance for doubtful accounts
of $413 and $673, respectively |
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16,850 |
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21,287 |
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Unbilled receivables |
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4,308 |
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2,858 |
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Other receivables |
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444 |
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799 |
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Inventories, net of reserves of $1,231 and $911, respectively |
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8,854 |
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7,625 |
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Deferred taxes |
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1,243 |
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1,243 |
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Other current assets |
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4,952 |
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3,025 |
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Total current assets |
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56,503 |
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54,015 |
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Property and Equipment |
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Building and land |
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6,013 |
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5,984 |
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Machinery and equipment |
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13,349 |
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11,952 |
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Furniture and fixtures |
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1,074 |
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1,133 |
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20,436 |
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19,069 |
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Less Accumulated depreciation and amortization |
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(13,191 |
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(12,012 |
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Net property and equipment |
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7,245 |
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7,057 |
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Long-Term Investments |
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3,231 |
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Deferred Tax Asset |
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5,068 |
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4,384 |
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Total Assets |
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$ |
72,047 |
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$ |
65,456 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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Current Liabilities |
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Accounts payable |
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$ |
3,237 |
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$ |
3,446 |
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Accrued liabilities and expenses |
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3,285 |
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2,764 |
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Accrued compensation |
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1,781 |
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1,075 |
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Income taxes payable |
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1,479 |
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883 |
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Deferred revenue |
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3,335 |
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3,483 |
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Total current liabilities |
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13,117 |
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11,651 |
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Shareholders Equity |
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Preferred stock no par value, authorized 1,000 shares, issued none |
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Common stock, $0.01 par value, authorized 19,000 shares, issued
and outstanding 8,706 and 8,142, respectively |
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87 |
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81 |
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Accumulated other comprehensive income |
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2,278 |
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869 |
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Additional paid-in capital |
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39,586 |
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36,346 |
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Retained earnings |
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16,979 |
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16,509 |
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Total shareholders equity |
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58,930 |
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53,805 |
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Total Liabilities and Shareholders Equity |
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$ |
72,047 |
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$ |
65,456 |
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The notes to the consolidated financial statements are an integral part of these statements.
3
PERCEPTRON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
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Three Months Ended |
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Nine Months Ended |
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March 31, |
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March 31, |
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(In Thousands, Except Per Share Amounts) |
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2008 |
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2007 |
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2008 |
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2007 |
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Net Sales |
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$ |
18,203 |
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$ |
15,954 |
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$ |
54,986 |
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$ |
38,898 |
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Cost of Sales |
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10,265 |
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8,697 |
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31,106 |
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22,608 |
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Gross Profit |
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7,938 |
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7,257 |
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23,880 |
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16,290 |
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Operating Expenses |
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Selling, general and administrative |
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5,821 |
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4,219 |
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14,833 |
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12,284 |
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Engineering, research and development |
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2,135 |
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2,043 |
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6,532 |
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5,687 |
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Total operating expenses |
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7,956 |
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6,262 |
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21,365 |
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17,971 |
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Operating Income (Loss) |
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(18 |
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995 |
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2,515 |
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(1,681 |
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Other Income and (Expenses) |
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Interest income, net |
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267 |
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188 |
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811 |
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767 |
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Foreign currency gain (loss) |
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249 |
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(2 |
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430 |
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(23 |
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Impairment on long-term investment |
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(2,614 |
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Other |
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2 |
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8 |
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5 |
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Total other income (expenses) |
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518 |
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186 |
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(1,365 |
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749 |
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Income (Loss) Before Income Taxes |
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500 |
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1,181 |
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1,150 |
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(932 |
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Income Tax Expense (Benefit) |
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289 |
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490 |
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680 |
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(118 |
) |
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Net Income (Loss) |
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$ |
211 |
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$ |
691 |
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$ |
470 |
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$ |
(814 |
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Earnings (Loss) Per Common Share |
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Basic |
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$ |
0.02 |
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$ |
0.09 |
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$ |
0.06 |
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($0.10 |
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Diluted |
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$ |
0.02 |
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$ |
0.08 |
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$ |
0.05 |
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($0.10 |
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Weighted Average Common Shares Outstanding |
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Basic |
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8,549 |
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7,950 |
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8,387 |
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8,143 |
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Dilutive effect of stock options |
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461 |
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683 |
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557 |
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Diluted |
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9,010 |
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8,633 |
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8,944 |
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8,143 |
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The notes to the consolidated financial statements are an integral part of these statements.
4
PERCEPTRON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
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Nine Months Ended |
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March 31, |
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(In Thousands) |
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2008 |
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2007 |
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Cash Flows from Operating Activities |
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Net income (loss) |
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$ |
470 |
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$ |
(814 |
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Adjustments to reconcile net income (loss) to net cash provided from
(used for) operating activities: |
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Depreciation and amortization |
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960 |
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960 |
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Stock compensation expense |
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467 |
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645 |
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Deferred income taxes |
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(624 |
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(550 |
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Impairment on long-term investments |
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2,614 |
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Allowance for doubtful accounts |
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(310 |
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56 |
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Other |
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92 |
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121 |
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Changes in assets and liabilities, exclusive of changes shown
separately |
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2,281 |
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(5,194 |
) |
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Net cash provided from (used for) operating activities |
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5,950 |
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(4,776 |
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Cash Flows from Financing Activities |
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Revolving credit borrowings |
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10 |
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1,028 |
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Revolving credit repayments |
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(10 |
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(1,028 |
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Proceeds from stock plans |
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2,779 |
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1,267 |
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Repurchase of company stock |
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(5,184 |
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Net cash provided from (used for) financing activities |
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2,779 |
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(3,917 |
) |
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Cash Flows from Investing Activities |
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Capital expenditures |
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(1,055 |
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(945 |
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Sales of investments |
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1,025 |
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Net cash (used for) provided from investing activities |
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(1,055 |
) |
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80 |
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Effect of Exchange Rate Changes on Cash and Cash Equivalents |
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1,300 |
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330 |
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Net Increase (Decrease) in Cash and Cash Equivalents |
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8,974 |
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(8,283 |
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Cash and Cash Equivalents, Beginning of Period |
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10,878 |
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17,963 |
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Cash and Cash Equivalents, Ending of Period |
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$ |
19,852 |
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$ |
9,680 |
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Changes in Assets and Liabilities, Exclusive of Changes Shown Separately |
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Receivables, net |
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$ |
5,397 |
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$ |
(361 |
) |
Inventories |
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(654 |
) |
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(4,424 |
) |
Accounts payable |
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(757 |
) |
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|
465 |
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Other current assets and liabilities |
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(1,705 |
) |
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(874 |
) |
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$ |
2,281 |
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|
$ |
(5,194 |
) |
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The notes to the consolidated financial statements are an integral part of these statements.
5
PERCEPTRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The accompanying consolidated financial statements should be read in conjunction with the Companys
2007 Annual Report on Form 10-K/A-1. In the opinion of management, the unaudited information
furnished herein reflects all adjustments necessary, including the Companys reclassification of
December 31, 2006 investments from cash and cash equivalents to short-term investments, see Notes 2
and 13, for a fair presentation of the financial statements for the periods presented. The results
of operations for any interim period are not necessarily indicative of the results of operations
for a full year.
2. Long and Short-Term Investments
The Companys investments with a maturity of greater than three months to one year are classified
as short-term investments. Investments with maturities beyond one year may be classified as
short-term if the Company reasonably expects the investment to be realized in cash or sold or
consumed during the normal operating cycle of the business. Investments available for sale are
recorded at market value using the specific identification method. Investments expected to be held
to maturity or until market conditions improve are measured at amortized cost in the statement of
financial position if it is the Companys intent and ability to hold those securities long-term.
Each balance sheet date, the Company evaluates its investments for possible other-than-temporary
impairment by reviewing factors such as the length of time and extent to which fair value has been
below the cost basis, the anticipated recovery period, the financial condition of the issuer, the
credit rating of the instrument and the Companys ability and intent to hold the investment for a
period of time which may be sufficient for recovery of the cost basis. Any unrealized gains and
losses on securities are reported as other comprehensive income as a separate component of
shareholders equity until realized or until a decline in fair value is determined to be
other-than-temporary. If an impairment is deemed to be other-than-temporary, it is recorded in the
income statement.
As of March 31, 2008, the Company holds investments totaling $6.3 million (at cost) in investment
grade auction rate securities. An auction is held every 28 days to provide holders of these
auction rate securities the opportunity to increase (buy), decrease (sell) or hold their
investment. Auctions for the Companys investments in auction rate securities have been
unsuccessful since August 2007. The unsuccessful auctions have resulted in the interest rate on
these securities resetting at a premium interest rate every 28 days. In the event the Company
needs to access funds invested in these auction rate securities, the Company would not be able to
liquidate these securities until a future auction of these securities is successful or a buyer is
found outside of the auction process.
The continued unsuccessful auctions have caused the Company to reevaluate the liquidity and fair
value of these auction rate securities. The Company believes that the anticipated recovery period
for these investments is likely to be longer than twelve months and as a result has recorded the
investments at March 31, 2008 as long-term assets. To date, the Company has received all
interest payments on these investments every 28 days. The Company has determined that its
investment in Blue Water Trust I, with a cost of $3.7 million, has been other-than-temporarily
impaired. Blue Water Trust I (Blue Water) is a Money Market Committed Preferred Custodial Trust
Security (CPS Security) that invests in investment grade commercial paper and which has entered
into a Put Agreement with RAM Reinsurance Company Ltd. (Ram Re), a wholly owned subsidiary of RAM
Holdings Ltd., principally engaged in underwriting financial guaranty insurance. In the event Ram
Re exercises its put option, Blue Water is required to purchase perpetual non-cumulative redeemable
preference shares of Ram Re.
6
During the
second quarter of fiscal 2008, based on estimated fair values provided by the Companys broker,
the Company recorded a $2.6 million other-than-temporary non-cash decline in the market value of this
investment as Impairment of Long-Term Investment in the income statement. During the nine months
ended March 31, 2008, based on estimated fair values provided by the Companys broker, the Company also
recorded a temporary non-cash decline of $99,000 in the market value
of this investment and a temporary non-cash
decline of $427,000 in the market value of two other investments with a cost of $2.6 million in
Other Comprehensive Income on the Balance Sheet. These other two investments are custodial
receipts for separate series of Floating Rate Cumulative Preferred Securities issued by Primus
Financial Products, LLC, an indirect subsidiary of Primus Guaranty, Ltd., principally engaged in
selling credit swaps against credit obligations of corporate and sovereign issuers. The Company
evaluates these investments at each balance sheet date. There is risk that evaluations based on
factors existing at future balance sheet dates could require the recording of additional temporary
declines in Other Comprehensive Income on the Balance Sheet or could ultimately result in a
determination that there is a decline in value that is other than temporary and a loss would be
recognized in the income statement at that time.
3. Inventory
Inventory is stated at the lower of cost or market. The cost of inventory is determined by the
first-in, first-out (FIFO) method. The Company provides a reserve for obsolescence to recognize
the effects of engineering change orders, age and use of inventory that affect the value of the
inventory. When the related inventory is disposed of, the obsolescence reserve is reduced. A
detailed review of the inventory is performed yearly with quarterly updates for known changes that
have occurred since the annual review. Inventory, net of reserves of $1,231,000 and $911,000 at
March 31, 2008 and June 30, 2007, respectively, is comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
Component parts |
|
$ |
3,000 |
|
|
$ |
2,900 |
|
Work in process |
|
|
294 |
|
|
|
355 |
|
Finished goods |
|
|
5,560 |
|
|
|
4,370 |
|
|
|
|
|
|
|
|
Total |
|
$ |
8,854 |
|
|
$ |
7,625 |
|
|
|
|
|
|
|
|
4. Earnings Per Share
Basic earnings per share (EPS) is calculated by dividing net income by the weighted average
number of common shares outstanding during the period. Other obligations, such as stock options,
are considered to be potentially dilutive common shares. Diluted EPS assumes the issuance of
potential dilutive common shares outstanding during the period and adjusts for any changes in
income and the repurchase of common shares that would have occurred from the assumed issuance,
unless such effect is anti-dilutive. Effective with the adoption of Statement of Financial
Accounting Standards No. 123 (revised 2004), Share-Based Payment, (SFAS 123R), the calculation of
diluted shares also takes into effect the average unrecognized non-cash stock-based compensation
expense and additional adjustments for tax benefits related to non-cash stock-based compensation
expense.
Options to purchase 299,000 and 326,000 shares of common stock outstanding in the three months
ended March 31, 2008 and 2007, respectively, were not included in the computation of diluted EPS
because the effect would have been anti-dilutive. Options to purchase 246,000 and 338,000 shares
of common stock outstanding in the nine months ended March 31, 2008 and 2007, respectively, were
not included in the computation of diluted EPS because the effect would have been anti-dilutive.
7
5. Foreign Exchange Contracts
The Company may use, from time to time, a limited hedging program to minimize the impact of foreign
currency fluctuations. These transactions involve the use of forward contracts, typically mature
within one year and are designed to hedge anticipated foreign currency transactions. The Company
may use forward exchange contracts to hedge the net assets of certain of its foreign subsidiaries
to offset the translation and economic exposures related to the Companys investment in these
subsidiaries.
At March 31, 2008, the Company had forward exchange contracts to sell 5.0 million Euros ($7.6
million equivalent) at a weighted average settlement rate of 1.52 Euros to the United States
Dollar. The contracts outstanding at March 31, 2008 mature through May 30, 2008. The objective of
the hedge transactions is to protect designated portions of the Companys net investment in its
foreign subsidiary against adverse changes in the Euro/U.S. Dollar exchange rate. The Company
assesses hedge effectiveness based on overall changes in fair value of the forward contract. Since
the critical risks of the forward contract and the net investment coincide, there was no
ineffectiveness. The accounting for the hedges is consistent with translation adjustments where
any gains and losses are recorded to other comprehensive income. The Company recognized a charge
of approximately $385,000 and $727,000 in other comprehensive income (loss) for the unrealized
change in value of the forward exchange contracts during the three and nine months ended March 31,
2008, respectively. Offsetting this amount in other comprehensive income (loss) was the
translation effect of the Companys foreign subsidiary. There was no gain or loss recognized in
earnings because the forward contracts were effective. The Companys forward exchange contracts do
not subject it to material risk due to exchange rate movements because gains and losses on these
contracts offset losses and gains on the assets, liabilities, and transactions being hedged.
At March 31, 2007, the Company had approximately $4.0 million of forward exchange contracts between
the United States Dollar and the Euro with a weighted average settlement price of 1.32 Euros to the
United States Dollar. The Company recognized a charge of approximately $23,000 and $47,000 in
other comprehensive income (loss) for the unrealized change in value of the forward exchange
contracts during the three and nine months ended March 31, 2007.
6. Comprehensive Income
Comprehensive income is defined as the change in common shareholders equity during a period from
transactions and events from non-owner sources, including net income. Other items of comprehensive
income include revenues, expenses, gains and losses that are excluded from net income. Total
comprehensive income, net of tax, for the applicable periods is as follows (in thousands):
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
2008 |
|
|
2007 |
|
Net Income |
|
$ |
211 |
|
|
$ |
691 |
|
Other Comprehensive Income (Loss): |
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
1,206 |
|
|
|
151 |
|
Temporary impairment on investment |
|
|
(420 |
) |
|
|
0 |
|
Forward contracts |
|
|
(385 |
) |
|
|
(23 |
) |
|
|
|
|
|
|
|
Total Comprehensive Income |
|
$ |
612 |
|
|
$ |
819 |
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
Nine Months Ended March 31, |
|
2008 |
|
|
2007 |
|
Net Income (Loss) |
|
$ |
470 |
|
|
$ |
(814 |
) |
Other Comprehensive Income (Loss): |
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
2,662 |
|
|
|
807 |
|
Temporary impairment on investment |
|
|
(526 |
) |
|
|
0 |
|
Forward contracts |
|
|
(727 |
) |
|
|
(47 |
) |
|
|
|
|
|
|
|
Total Comprehensive Income (Loss) |
|
$ |
1,879 |
|
|
$ |
(54 |
) |
|
|
|
|
|
|
|
7. Credit Facilities
The Company had no debt outstanding at March 31, 2008.
The Company has a $6.0 million secured Credit Agreement with Comerica Bank, which expires on
November 1, 2009. Proceeds under the Credit Agreement may be used for working capital and capital
expenditures. The security for the loan is substantially all non real estate assets of the Company
held in the United States. Borrowings are designated as a Prime-based Advance or as a
Eurodollar-based Advance. Interest on Prime-based Advances is payable on the last day of each
month and is calculated daily at the greater of 1/2% below prime rate or 1% above the Federal Funds
Rate. Interest on Eurodollar-based Advances is calculated at 1.88% above the Eurodollar Rate
offered at the time and for the period chosen and is payable on the last day of the applicable
period. Quarterly, the Company pays a commitment fee of .075% on the daily unused portion of the
Credit Agreement. The Credit Agreement prohibits the Company from paying dividends. In addition,
the Credit Agreement requires the Company to maintain a Tangible Net Worth, as defined in the
Credit Agreement, of not less than $41.3 million as of March 31, 2008 and to have no advances
outstanding for 30 consecutive days each calendar year.
At March 31, 2008, the Companys German subsidiary (GmbH) had an unsecured credit facility totaling
500,000 Euros (equivalent to $790,000 at March 31, 2008). The facility may be used to finance
working capital needs and equipment purchases or capital leases. Any borrowings for working
capital needs will bear interest at 9.0% on the first 100,000 Euros of borrowings and 2.0% for
borrowings over 100,000 Euros. The German credit facility is cancelable at any time by either GmbH
or the bank and any amounts then outstanding would become immediately due and payable. At March
31, 2008, GmbH had no borrowings outstanding. At March 31, 2008, the facility supported
outstanding letters of credit totaling 79,135 Euros (equivalent to approximately $125,000).
8. Stock-Based Compensation
The Company adopted SFAS 123R, effective July 1, 2005. SFAS 123R requires the recognition of the
fair value of stock-based compensation in the Companys financial statements. Prior to July 1,
2005, the Company applied the requirements of APB Opinion No. 25 (APB 25), Accounting for Stock
Issued to Employees, and related interpretations in accounting for its stock-based plans. Under
APB 25, generally no compensation expense was recognized for the Companys stock-based plans since
the exercise price of granted employee stock options was greater than or equal to the market value
of the underlying common stock on the date of grant.
The Company elected the modified prospective transition method for adopting SFAS 123R. Under this
method, the provisions of SFAS 123R apply to all awards granted or modified after the date of
adoption. The Company continues to use the Black Scholes model for determining stock option
valuations. The Black Scholes model requires subjective assumptions, including future stock price
volatility and expected time to exercise, which affect the calculated values. The expected term of
option exercises is derived from historical data regarding employee exercises and post-vesting
employment termination behavior.
9
The risk-free rate of return is based on published U.S. Treasury rates in effect for the
corresponding expected term. The expected volatility is based on historical volatility of the
Companys stock price. These factors could change in the future, which would affect the
stock-based compensation expense in future periods. The provisions of SFAS 123R also apply to
awards granted prior to July 1, 2005 that did not vest before July 1, 2005 (transition awards).
The compensation cost for the portion of the transition awards that had not vested by July 1, 2005
is based on the grant-date fair value of these transition awards as calculated for pro forma
disclosures under the provisions of SFAS 123. Compensation cost for these transition awards are
attributed to periods beginning July 1, 2005 and use the Black Scholes method used under SFAS 123,
except that an estimate of expected forfeitures is used rather than actual forfeitures.
The Company recognized as an operating expense non-cash stock-based compensation cost in the amount
of $144,000 and $467,000 in the three and nine months ended March 31, 2008, respectively. This had
the effect of decreasing net income by $104,000, or $0.01 per diluted share, and $347,000, or $0.04
per diluted share, for the three and nine months ended March 31, 2008, respectively. The Company
recognized as an operating expense non-cash stock-based compensation cost in the amount of $194,000
and $645,000 in the three and nine months ended March 31, 2007, respectively. This had the effect
of decreasing net income by $163,000, or $0.02 per diluted share, and $519,000, or $0.06 per
diluted share, for the three and nine months ended March 31, 2007, respectively. As of March 31,
2008, the total remaining unrecognized compensation cost related to non-vested stock options
amounted to $1.5 million. The Company expects to recognize this cost over a weighted average
vesting period of 2.88 years.
The Company maintains a 1992 Stock Option Plan (1992 Plan) and a 1998 Global Team Member Stock
Option Plan (1998 Plan) covering substantially all company employees and certain other key
persons and a Directors Stock Option Plan (Directors Plan) covering all non-employee directors.
During fiscal 2005, shareholders approved a new 2004 Stock Incentive Plan that replaced the 1992
and Directors Stock Option Plans as to future grants. The 1998 Plan expired in February 2008. The
Options previously granted under the 1992, 1998 and Directors Stock Option Plans will continue to
be maintained until all options are executed, cancelled or expire. The 2004, 1992 and Directors
Plans are administered by a committee of the Board of Directors, the Management Development
Compensation and Stock Option Committee (the Management Development Committee). The 1998 Plan is
administered by the President of the Company.
Awards under the 2004 Stock Incentive Plan may be in the form of stock options, stock appreciation
rights, restricted stock or restricted stock units, performance share awards, director stock
purchase rights and deferred stock units; or any combination thereof. The terms of the awards will
be determined by the Management Development Committee, unless specified in the 2004 Stock Incentive
Plan. As of December 31, 2007, the Company has only issued awards in the form of stock options.
Options outstanding under the 2004 Stock Incentive Plan and the 1992 and 1998 Plans generally
become exercisable at 25% per year beginning one year after the date of grant and expire ten years
after the date of grant. Options outstanding under the Directors Stock Option Plan are either an
initial option or an annual option. Prior to December 7, 2004, under the Directors Stock Option
Plan, annual options of 3,000 shares were granted as of the date of the respective annual meeting
to each non-employee director serving at least six months prior to the annual meeting and become
exercisable in three annual increments of 33 1/3% after the date of grant. Options under the
Directors Stock Option Plan expire ten years from the date of grant. Option prices for options
granted under these plans must not be less than fair market value of the Companys stock on the
date of grant.
10
The estimated fair value as of the date options were granted during the periods presented, using
the Black-Scholes option-pricing model, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
Three Months |
|
Nine Months |
|
Nine Months |
|
|
Ended |
|
Ended |
|
Ended |
|
Ended |
|
|
3/31/2008 |
|
3/31/2007 |
|
3/31/2008 |
|
3/31/2007 |
Weighted Average Estimated Fair
Value Per Share of Options
Granted During the Period |
|
$ |
3.24 |
|
|
$ |
3.05 |
|
|
$ |
3.50 |
|
|
$ |
3.04 |
|
Assumptions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized Dividend Yield |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock Price Volatility |
|
|
33.72 |
% |
|
|
31.10 |
% |
|
|
32.79 |
% |
|
|
31.56 |
% |
Risk Free Rate of Return |
|
|
3.63 |
% |
|
|
4.63 |
% |
|
|
4.02 |
% |
|
|
4.76 |
% |
Expected Option Term (in years) |
|
|
5 |
|
|
|
5 |
|
|
|
5 |
|
|
|
5 |
|
The Company received approximately $1.3 million and $2.6 million in cash from option exercises
under all share-based payment arrangements during the three and nine months ended March 31, 2008,
respectively. The Company also received approximately $50,000 and $209,000 in cash from its other
share-based payment arrangements during the three and nine months ended March 31, 2008,
respectively.
9. Income Taxes
On July 1, 2007, the Company adopted the provisions of Financial Accounting Standards Board
(FASB) Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes an
interpretation of FASB Statement No. 109. Previously, the Company had accounted for tax
contingencies in accordance with Statement of Financial Accounting Standards 5, Accounting for
Contingencies. FIN 48 prescribes a recognition threshold and a measurement attribute for the
financial statement reporting of tax positions taken in tax returns. For financial reporting
purposes, the Company can recognize only tax benefits from an uncertain tax position if it is more
likely than not that the tax position will be sustained on examination by the taxing authorities.
FIN 48 also provides guidance on derecognition of income tax assets and liabilities, classification
of current and deferred income tax assets and liabilities, accounting for interest and penalties
associated with tax positions and income tax disclosures.
Adopting FIN 48 did not result in any material adjustment in the liability for unrecognized income
tax benefits. On July 1, 2007, the Company had $1.6 million of unrecognized tax benefits, of which
$844,000 would affect the effective tax rate if recognized. The Company expects no significant
increases or decreases in unrecognized tax benefits due to changes in tax positions within the next
twelve months. The Companys policy is to classify interest and penalties related to unrecognized
tax benefits as interest expense and income tax expense, respectively. As of July 1, 2007 there
was no accrued interest or penalties related to uncertain tax positions recorded on the Companys
financial statements. For U.S. Federal income tax purposes, the tax years 1999 2006 remain open
to examination by government tax authorities as a result of the Companys net operating loss
carryforward. For German income tax purposes, the tax years 2004 2006 remain open to
examination by government tax authorities.
In July 2007, the State of Michigan signed into law the Michigan Business Tax Act, replacing the
Michigan single business tax with a business income tax and modified gross receipts tax. These new
taxes took effect on January 1, 2008, and, because they are based on or derived from income-based
measures, the provisions of SFAS No. 109, Accounting for Income Taxes, apply as of the enactment
date. In September 2007, an amendment to the Michigan Business Tax Act was also signed into law
establishing a deduction to the business income tax base if temporary
differences result in a deferred tax liability as measured at
December 31, 2007. In December 2007, another modification was
passed by the legislature to add a surcharge that effectively
increased the tax rate. The Company has a
small net deferred tax asset as of March 31, 2008.
11
10. Commitments and Contingencies
Management is currently unaware of any significant pending litigation affecting the Company, other
than the matters set forth below.
The Company is a party to a suit filed by Industries GDS, Inc., Bois Granval GDS Inc., and Centre
de Preparation GDS, Inc. (collectively, GDS) on or about November 21, 2002 in the Superior Court
of the Judicial District of Quebec, Canada against the Company, Carbotech, Inc. (Carbotech), and
U.S. Natural Resources, Inc. (USNR), among others. The suit alleges that the Company breached
its contractual and warranty obligations as a manufacturer in connection with the sale and
installation of three systems for trimming and edging wood products. The suit also alleges that
Carbotech breached its contractual obligations in connection with the sale of equipment and the
installation of two trimmer lines, of which the Companys systems were a part, and that USNR, which
acquired substantially all of the assets of the Forest Products business unit from the Company, was
liable for GDS damages. USNR has sought indemnification from the Company under the terms of
existing contracts between the Company and USNR. GDS seeks compensatory damages against the
Company, Carbotech and USNR of approximately $6.5 million using a March 31, 2008 exchange rate.
GDS and Carbotech have filed for bankruptcy protection in Canada. The Company intends to
vigorously defend GDS claims.
The Company has been informed that certain of its customers have received allegations of possible
patent infringement involving processes and methods used in the Companys products. Certain of
these customers, including one customer who was a party to a patent infringement suit relating to
this matter, have settled such claims. Management believes that the processes used in the
Companys products were independently developed without utilizing any previously patented process
or technology. Because of the uncertainty surrounding the nature of any possible infringement and
the validity of any such claim or any possible customer claim for indemnity relating to claims
against the Companys customers, it is not possible to estimate the ultimate effect, if any, of
this matter on the Companys financial statements.
The Company may, from time to time, be subject to other claims and suits in the ordinary course of
its business.
To estimate whether a loss contingency should be accrued by a charge to income, the Company
evaluates, among other factors, the degree of probability of an unfavorable outcome and the ability
to make a reasonable estimate of the amount of the loss. Since the outcome of claims and litigation
is subject to significant uncertainty, changes in these factors could materially impact the
Companys financial position or results of operations.
11. New Accounting Pronouncements
In March 2008, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 161, Disclosures about Derivative Instruments and Hedging
Activities (SFAS No. 161). SFAS No. 161 amends and expands the disclosure requirements of SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities, and requires entities to
provide enhanced qualitative disclosures about objectives and strategies for using derivatives,
quantitative disclosures about fair values and amounts of gains and losses on derivative contracts,
and disclosures about credit-risk-related contingent features in derivative agreements. SFAS No.
161 is effective for fiscal years and interim periods beginning after November 15, 2008. The
impact of adopting this statement on the Companys financial statements has not yet been evaluated.
12
In December 2007, FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial
Statements an amendment of Accounting Research Bulletin No. 51 (SFAS 160), which establishes
accounting and reporting standards for ownership interests in subsidiaries held by parties other
than the parent, the amount of consolidated net income attributable to the parent and to the
noncontrolling interest, changes in a parents ownership interest and the valuation of retained
noncontrolling equity investments when a subsidiary is deconsolidated. The Statement also
establishes reporting requirements that provide sufficient disclosures that clearly identify and
distinguish between the interests of the parent and the interests of the non-controlling owners.
SFAS No. 160 is effective for fiscal years beginning after December 15, 2008. Because the Company
does not have any minority interest subsidiaries, there is no impact of adopting this statement on
the Companys financial statements.
In December 2007, the FASB issued SFAS No. 141R (revised 2007), Business Combinations, which
replaces SFAS No 141. The statement retains the purchase method of accounting for acquisitions,
but requires a number of changes, including changes in the way assets and liabilities are
recognized in the purchase accounting. It also changes the recognition of assets acquired and
liabilities assumed arising from contingencies, requires the capitalization of in-process research
and development at fair value, and requires the expensing of acquisition-related costs as incurred.
SFAS No. 141R is effective for the Company beginning July 1, 2009 and will apply prospectively to
business combinations completed on or after that date.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities. This Statement permits entities to choose to measure many financial
instruments and certain other items at fair value. This statement is effective for fiscal years
beginning after November 15, 2007. The impact of adopting this statement on the Companys
financial statements has not yet been evaluated.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. This statement defines
fair value, establishes a framework for measuring fair value in generally accepted accounting
principles (GAAP), and expands disclosures about fair value measurements. This statement does not
require any new fair value measurements, but does provide guidance on how to measure fair value by
providing a fair value hierarchy used to classify the source of the information. This statement is
effective for fiscal years beginning after November 15, 2007. The impact of adopting this
statement on the Companys financial statements has not yet been evaluated.
12. Segment Information
Effective April 1, 2007, the Company organized its business into two operating segments, Automated
Systems and Technology Products. The Companys reportable segments are strategic business units
that have separate management teams focused on different marketing strategies. The Automated
Systems segment primarily sells its products to automotive companies either directly or through
manufacturing line builders, system integrators or original equipment manufacturers (OEMs). The
Companys Automated Systems products are primarily custom-designed systems typically purchased for
installation in connection with new model retooling programs. The Automated Systems segment
includes value added services that are primarily related to Automated Systems products. The
Technology Products segment sells its products to a variety of markets through OEMs, system
integrators, value-added resellers and distributors. The Companys Technology Products target the
digitizing, reverse engineering and inspection markets and include products that are sold as whole
components ready for use.
The accounting policies of the segments are the same as those described in the summary of
significant policies. The Company evaluates performance based on operating income, excluding
unusual items. Company-wide costs are allocated between segments based on revenues and/or labor as
deemed appropriate.
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automated |
|
Technology |
|
|
Reportable Segments ($000) |
|
Systems |
|
Products |
|
Consolidated |
Three months ended March 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
11,100 |
|
|
$ |
7,103 |
|
|
$ |
18,203 |
|
Operating income (loss) |
|
|
305 |
|
|
|
(323 |
) |
|
|
(18 |
) |
Assets |
|
|
48,696 |
|
|
|
23,351 |
|
|
|
72,047 |
|
Accum. depreciation and amortization |
|
|
8,333 |
|
|
|
4,858 |
|
|
|
13,191 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
11,650 |
|
|
$ |
4,304 |
|
|
$ |
15,954 |
|
Operating
income (loss) |
|
|
1,461 |
|
|
|
(466 |
) |
|
|
995 |
|
Assets |
|
|
39,112 |
|
|
|
19,688 |
|
|
|
58,800 |
|
Accum. depreciation and amortization |
|
|
7,697 |
|
|
|
4,444 |
|
|
|
12,141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended March 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
29,837 |
|
|
$ |
25,149 |
|
|
$ |
54,986 |
|
Operating income |
|
|
258 |
|
|
|
2,257 |
|
|
|
2,515 |
|
Assets |
|
|
46,732 |
|
|
|
25,315 |
|
|
|
72,047 |
|
Accum. depreciation and amortization |
|
|
8,029 |
|
|
|
5,162 |
|
|
|
13,191 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended March 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
28,614 |
|
|
$ |
10,284 |
|
|
$ |
38,898 |
|
Operating income (loss) |
|
|
253 |
|
|
|
(1,934 |
) |
|
|
(1,681 |
) |
Assets |
|
|
38,936 |
|
|
|
19,864 |
|
|
|
58,800 |
|
Accum. depreciation and amortization |
|
|
7,907 |
|
|
|
4,234 |
|
|
|
12,141 |
|
13. Restatement of Previously Issued Consolidated Financial Statements
Subsequent to filing the Companys Form 10-K for the fiscal year ended June 30, 2007, the Company
determined that its previously issued Consolidated Balance Sheets had short-term investments
incorrectly identified and reported with cash and cash equivalents. As a result, the Consolidated
Statements of Cash Flow did not reflect the purchases and sales activity of the short-term
investments. The restatement did not have any effect on the Income Statement in any year. The
effects of the restatement on the Consolidated Balance Sheet at June 30, 2007, and the Consolidated
Statement of Cash Flow for the nine months ended March 31, 2007 are reflected in the following
tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2007 |
Effect on Balance Sheet |
|
As Reported |
|
Adjustment |
|
As Restated |
Cash and cash equivalents |
|
$ |
17,178 |
|
|
$ |
(6,300 |
) |
|
$ |
10,878 |
|
Short-term investments |
|
|
|
|
|
|
6,300 |
|
|
|
6,300 |
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended |
|
|
|
March 31, 2007 |
|
Effect on Cash Flow Statement |
|
As Reported |
|
|
Adjustment |
|
|
As Restated |
|
Cash Flows from Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for operating activities |
|
$ |
(4,776 |
) |
|
$ |
|
|
|
$ |
(4,776 |
) |
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for financing activities |
|
|
(3,917 |
) |
|
|
|
|
|
|
(3,917 |
) |
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of investments |
|
|
|
|
|
|
|
|
|
|
|
|
Sales of investments |
|
|
|
|
|
|
1,025 |
|
|
|
1,025 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided from (used for) investing activities |
|
|
(945 |
) |
|
|
1,025 |
|
|
|
80 |
|
Effect of Exchange Rate changes on Cash and Cash Equivalents |
|
|
330 |
|
|
|
|
|
|
|
330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Cash and Cash Equivalents |
|
|
(9,308 |
) |
|
|
1,025 |
|
|
|
(8,283 |
) |
Cash and Cash Equivalents, July 1 |
|
|
25,188 |
|
|
|
(7,225 |
) |
|
|
17,963 |
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents, March 31 |
|
$ |
15,880 |
|
|
$ |
(6,200 |
) |
|
$ |
9,680 |
|
|
|
|
|
|
|
|
|
|
|
14. Accrued Compensation
On January 21, 2008 the Company announced the retirement of Alfred A. Pease as President and Chief
Executive Officer. In addition, on January 21, 2008, the Company and Mr. Pease entered into an
Employment and Amended and Restated Severance Agreement (the Employment Agreement). Pursuant to
the Employment Agreement, Mr. Pease will receive his base salary through June 30, 2009, is eligible
for a bonus under the Companys Fiscal Year 2008 Profit Sharing Plan, supplemental compensation
based upon the number of days that he provides services to the Company following his retirement,
health benefits until he becomes eligible for Medicare coverage and welfare benefits and certain
other benefits during the salary continuation period. Mr. Pease will maintain an advisory role to
Mr. Rittenour, the newly appointed President and Chief Executive Officer. During the third quarter
of fiscal 2008, the Company accrued an expense of approximately $600,000, representing certain of
the amounts due to Mr. Pease pursuant to the Employment Agreement. As of March 31, 2008, $511,000
of this accrual is classified in Accrued Compensation on the balance sheet.
15
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SAFE HARBOR STATEMENT
We make statements in this Managements Discussion and Analysis of Financial Condition and Results
of Operations and Note 2 to the Consolidated Financial Statements that may be forward-looking
statements within the meaning of the Securities Exchange Act of 1934, including the Companys
expectation as to its fiscal years 2008 and 2009 future new order bookings, revenue, expenses, net
income and backlog levels, trends affecting its future revenue levels, the rate of new orders, the
timing of revenue and net income increases from new products which we have recently released or
have not yet released and from our plans to make important new investments, largely for personnel,
for newly introduced products and geographic growth opportunities in the U.S., Europe, Eastern
Europe, Asia, the timing of the introduction of new products and our ability to fund our fiscal
year 2008 and 2009 and future cash flow requirements. We may also make forward-looking statements
in our press releases or other public or shareholder communications. When we use words such as
will, should, believes, expects, anticipates, estimates or similar expressions, we are
making forward-looking statements. We claim the protection of the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995 for all of our
forward-looking statements. While we believe that our forward-looking statements are reasonable,
you should not place undue reliance on any such forward-looking statements, which speak only as of
the date made. Because these forward-looking statements are based on estimates and assumptions
that are subject to significant business, economic and competitive uncertainties, many of which are
beyond our control or are subject to change, actual results could be materially different. Factors
that might cause such a difference include, without limitation, the risks and uncertainties
discussed from time to time in our reports filed with the Securities and Exchange Commission,
including those listed in Item 1A Risk Factors of the Companys Annual Report on Form 10-K/A-1
for fiscal year 2007. Other factors not currently anticipated by management may also materially
and adversely affect our financial condition, liquidity or results of operations. Except as
required by applicable law, we do not undertake, and expressly disclaim, any obligation to publicly
update or alter our statements whether as a result of new information, events or circumstances
occurring after the date of this report or otherwise. The Companys expectations regarding future
bookings and revenues are projections developed by the Company based upon information from a number
of sources, including, but not limited to, customer data and discussions. These projections are
subject to change based upon a wide variety of factors, a number of which are discussed above.
Certain of these new orders have been delayed in the past and could be delayed in the future.
Because the Companys Automated Systems segment products are typically integrated into larger
systems or lines, the timing of new orders is dependent on the timing of completion of the overall
system or line. In addition, because the Companys Automated Systems segment products have shorter
lead times than other components and are required later in the process, orders for the Companys
Automated Systems segment products tend to be given later in the integration process. The
Companys Technology Products segment products are subject to the timing of firm orders from its
customers, which may change on a monthly basis. In addition, because the Companys Technology
Products segment products require short lead times from firm order to delivery, the Company
purchases long lead time components before firm orders are in hand. A significant portion of the
Companys projected revenues and net income depends upon the Companys ability to successfully
develop and introduce new products and expand into new geographic markets. Because a significant
portion of the Companys revenues are denominated in foreign currencies and are translated for
financial reporting purposes into U.S. Dollars, the level of the Companys reported net sales,
operating profits and net income are affected by changes in currency exchange rates, principally
between U.S. Dollars and Euros. Currency exchange rates are subject to significant fluctuations,
due to a number of factors beyond the control of the Company, including general economic conditions
in the United States and other countries. Because the Companys expectations regarding future
revenues, order
bookings, backlog and operating results are based upon assumptions as to the levels of such
currency exchange rates, actual results could differ materially from the Companys expectations.
16
OVERVIEW
Perceptron, Inc. (Perceptron or the Company) develops and produces its products in two distinct
segments:
Its Automated Systems segment products provide non-contact metrology solutions for manufacturing
process control as well as sensor and software technologies for non-contact measurement and
inspection applications. These offerings are designed to improve quality, increase productivity
and decrease costs in manufacturing and product development. The principal products in the
Automated Systems segment are AutoGaugeâ, AutoFitâ, AutoScanâ, and
AutoGuideâ products and Value Added Services for consulting, training and non-warranty
support services.
The products in the Companys Technology Products segment are sold to industrial, professional and
consumer users and offer innovative technology solutions for scanning, alignment and visual
inspection applications. The principal products in the Technology Products segment are
ScanWorksâ, Non-Contact Wheel Alignment (WheelWorksâ), TriCamâ sensors for the
forest products industry, components for
ScanTrak and commercial product.
The Company services multiple markets, with the largest being the automotive industry. The
Companys primary operations are in the Americas, Europe and Asia.
In the
quarter ended March 31, 2008, the Company began selling
components for a new product named ScanTrak to Northern Digital
Inc. (NDI). ScanTrak is an integration of Perceptrons
ScanWorks V5 laser scanner with NDIs OPTOTRAK PROseries optical tracker that NDI sells worldwide.
ScanTrak allows an operator to easily scan large parts, such as complete car bodies or aerospace
assemblies.
In March 2007, the Company launched its first commercial product which is designed to be used by
professional trade persons as well as individual consumers. The product is sold to Ridge Tool
pursuant to a long-term supply agreement which requires Ridge Tool to purchase certain minimum
levels of product to maintain exclusivity. Ridge markets the current product under the name
SeeSnakeâ micro. The SeeSnakeâ micro is an optical technology tool that allows its
user to see in unreachable places, via a liquid crystal display screen on a hand held unit. It is
used to detect and diagnose problems a tradesperson or consumer may have beneath, behind, or
in-between places that cannot otherwise be seen such as around machinery, inside pipes, behind
walls, inside ductwork, etc. Attachments also allow the user to retrieve loose objects via a hook
or magnet. During the quarter ended December 31, 2007, the SeeSnakeâ micro first became
available for sale at the Professional Desk at The Home Depot.
The Company expects to introduce additional optical technology products for the professional trades
market in the quarter ending June 30, 2008 as well as in the future. During the quarter ended
December 31, 2007, the Company signed a strategic supplier agreement with Snap-on Logistics
Company, a subsidiary of Snap-on Incorporated (Snap-on) to provide Snap-on with optical
technology tools for sale to technicians on a world-wide basis. The Company anticipates developing
and manufacturing a series of products of varying levels of technological sophistication for
Snap-on distribution and sales globally. The first of these products is expected to be delivered to
Snap-on in the quarter ending June 30, 2008.
New vehicle tooling programs represent the most important selling opportunity for the Companys
Automated Systems products. The number and timing of new vehicle tooling programs varies in
accordance with individual automotive manufacturers plans and is also influenced by the state of
the economy.
17
The Company is continuing its efforts to expand its sales opportunities in both its Automated
Systems and Technology Products segments. In the near-term, the Company intends to focus on the
development, production and release of an expanded family of optical technology products for sale
through its customers and on its previously announced Automated Systems growth strategy in new
geographic markets, principally in Asia.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2008 Compared to Three Months Ended March 31, 2007
Overview For the third quarter of fiscal 2008, the Company reported revenue growth of 14% to
$18.2 million, an operating loss of $18,000 and net income of $211,000, or $0.02 per diluted share. This compares to revenue of
$16.0 million, operating income of $995,000 and net income of $691,000 or $0.08 per diluted share, for the third quarter of
fiscal 2007. Increases in selling, general and
administrative costs in the quarter relating to the retirement of the Companys CEO, Sarbanes Oxley
404 internal control requirements and increased professional fees were the principal reasons for
the decline in operating income and net income. Specific line item results are described below.
Sales Net sales were $18.2 million for the third quarter of fiscal 2008 compared to net sales of
$16.0 million for the same period one year ago. The following tables set forth comparison data
for the Companys net sales by segment and geographic location.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third |
|
|
Third |
|
|
|
|
Sales (by segment) |
|
Quarter |
|
|
Quarter |
|
|
|
|
(in millions) |
|
2008 |
|
|
2007 |
|
|
Increase/(Decrease) |
|
Automated Systems |
|
$ |
11.1 |
|
|
|
61.0 |
% |
|
$ |
11.7 |
|
|
|
73.1 |
% |
|
$ |
(0.6 |
) |
|
|
(5.1 |
)% |
Technology Products |
|
|
7.1 |
|
|
|
39.0 |
% |
|
|
4.3 |
|
|
|
26.9 |
% |
|
|
2.8 |
|
|
|
65.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
18.2 |
|
|
|
100.0 |
% |
|
$ |
16.0 |
|
|
|
100.0 |
% |
|
$ |
2.2 |
|
|
|
13.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third |
|
|
Third |
|
|
|
|
Sales (by location) |
|
Quarter |
|
|
Quarter |
|
|
|
|
(in millions) |
|
2008 |
|
|
2007 |
|
|
Increase/(Decrease) |
|
Americas |
|
$ |
8.8 |
|
|
|
48.4 |
% |
|
$ |
7.4 |
|
|
|
46.3 |
% |
|
$ |
1.4 |
|
|
|
18.9 |
% |
Europe |
|
|
8.1 |
|
|
|
44.5 |
% |
|
|
8.0 |
|
|
|
50.0 |
% |
|
|
0.1 |
|
|
|
1.3 |
% |
Asia |
|
|
1.3 |
|
|
|
7.1 |
% |
|
|
0.6 |
|
|
|
3.7 |
% |
|
|
0.7 |
|
|
|
116.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
18.2 |
|
|
|
100.0 |
% |
|
$ |
16.0 |
|
|
|
100.0 |
% |
|
$ |
2.2 |
|
|
|
13.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Technology Product sales increase was primarily the result of higher sales of the Companys
commercial product compared to the third quarter of fiscal 2007. Increased sales of the Companys
commercial product was also the primary reason for the increase in sales in the Americas and more
than offset a decline in Automated Systems sales in the Americas due to weak economic conditions
in the U.S. domestic automotive market. The positive impact of the stronger Euro compared to the
third quarter of fiscal 2007 increased sales in Europe by
$1.1 million and offset a decline in sales, primarily in
Automated Systems. Asian sales increased
primarily due to sales of the Companys Automated Systems products. In the recent past, nearly
all of Asias revenue came from sales in Technology Products. This represents an important change
in the product mix in Asian sales and is a reflection of the investment the Company has been
making in Asia.
18
Bookings Bookings represent new orders received from customers. The Company had new order
bookings during the quarter of $20.6 million compared with new order bookings of $20.0 million for
the third quarter ended March 31, 2007. The amount of new order bookings during any particular
period is
not necessarily indicative of the future operating performance of the Company. The following
tables set forth comparison data for the Companys bookings by segment and geographic location.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third |
|
|
Third |
|
|
|
|
Bookings (by segment) |
|
Quarter |
|
|
Quarter |
|
|
|
|
(in millions) |
|
2008 |
|
|
2007 |
|
|
Increase/(Decrease) |
|
Automated Systems |
|
$ |
11.8 |
|
|
|
57.3 |
% |
|
$ |
10.3 |
|
|
|
51.5 |
% |
|
$ |
1.5 |
|
|
|
14.6 |
% |
Technology Products |
|
|
8.8 |
|
|
|
42.7 |
% |
|
|
9.7 |
|
|
|
48.5 |
% |
|
|
(0.9 |
) |
|
|
(9.3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
20.6 |
|
|
|
100.0 |
% |
|
$ |
20.0 |
|
|
|
100.0 |
% |
|
$ |
0.6 |
|
|
|
3.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third |
|
|
Third |
|
|
|
|
Bookings (by location) |
|
Quarter |
|
|
Quarter |
|
|
|
|
(in millions) |
|
2008 |
|
|
2007 |
|
|
Increase/(Decrease) |
|
Americas |
|
$ |
11.3 |
|
|
|
54.8 |
% |
|
$ |
14.1 |
|
|
|
70.5 |
% |
|
$ |
(2.8 |
) |
|
|
(19.9 |
)% |
Europe |
|
|
7.6 |
|
|
|
36.9 |
% |
|
|
5.6 |
|
|
|
28.0 |
% |
|
|
2.0 |
|
|
|
35.7 |
% |
Asia |
|
|
1.7 |
|
|
|
8.3 |
% |
|
|
0.3 |
|
|
|
1.5 |
% |
|
|
1.4 |
|
|
|
466.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
20.6 |
|
|
|
100.0 |
% |
|
$ |
20.0 |
|
|
|
100.0 |
% |
|
$ |
0.6 |
|
|
|
3.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys level of new orders fluctuates from quarter to quarter. Automated Systems bookings
increased in the third quarter of 2008 compared to 2007 primarily from orders taken in Asia and
Europe. The decrease in new order bookings for Technology Products was primarily due to the
Companys commercial product and reflects the fact that the
third quarter of fiscal 2007 was the initial launch of the product and had a
high level of orders received to fill distribution lines. The decrease in bookings in the
commercial product was also the primary reason for the decrease in bookings in the Americas.
Mitigating the decrease in commercial product were higher bookings received across all three
geographic locations of the Companys other Technology Products such as Non-Contact Wheel
Alignment,
ScanWorks®
and components for ScanTrak.
Backlog Backlog represents orders or bookings received by the Company that have not yet been
filled. The Companys backlog was $23.7 million as of March 31, 2008 compared with $26.6 million
as of March 31, 2007. The following tables set forth comparison data for the Companys backlog by
segment and geographic location.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third |
|
|
Third |
|
|
|
|
Backlog (by segment) |
|
Quarter |
|
|
Quarter |
|
|
|
|
(in millions) |
|
2008 |
|
|
2007 |
|
|
Increase/(Decrease) |
|
Automated Systems |
|
$ |
15.3 |
|
|
|
64.6 |
% |
|
$ |
17.5 |
|
|
|
65.8 |
% |
|
$ |
(2.2 |
) |
|
|
(12.6 |
)% |
Technology Products |
|
|
8.4 |
|
|
|
35.4 |
% |
|
|
9.1 |
|
|
|
34.2 |
% |
|
|
(0.7 |
) |
|
|
(7.7 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
23.7 |
|
|
|
100.0 |
% |
|
$ |
26.6 |
|
|
|
100.0 |
% |
|
$ |
(2.9 |
) |
|
|
(10.9 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third |
|
|
Third |
|
|
|
|
Backlog (by location) |
|
Quarter |
|
|
Quarter |
|
|
|
|
(in millions) |
|
2008 |
|
|
2007 |
|
|
Increase/(Decrease) |
|
Americas |
|
$ |
15.0 |
|
|
|
63.3 |
% |
|
$ |
16.8 |
|
|
|
63.1 |
% |
|
$ |
(1.8 |
) |
|
|
(10.7 |
)% |
Europe |
|
|
7.3 |
|
|
|
30.8 |
% |
|
|
9.5 |
|
|
|
35.7 |
% |
|
|
(2.2 |
) |
|
|
(23.2 |
)% |
Asia |
|
|
1.4 |
|
|
|
5.9 |
% |
|
|
0.3 |
|
|
|
1.2 |
% |
|
|
1.1 |
|
|
|
366.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
23.7 |
|
|
|
100.0 |
% |
|
$ |
26.6 |
|
|
|
100.0 |
% |
|
$ |
(2.9 |
) |
|
|
(10.9 |
)% |
|
|
|
|
|
|
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The Companys backlog of $26.6 million at March 31, 2007 was the highest backlog the Company has
had since 1999. The $23.7 million backlog at March 31, 2008 is the second highest quarter ending
backlog in the last 5 years. The Company expects to be able to fill substantially all of the
orders in the backlog at March 31, 2008 during the following twelve months. The level of backlog
during any particular period is not necessarily indicative of the future operating performance of
the Company.
Gross Profit Gross profit was $7.9 million, or 43.6% of sales, in the third quarter of fiscal
year 2008, as compared to $7.3 million, or 45.5% of sales, in the third quarter of fiscal year
2007. The gross profit margin decrease was due to the mix of product sales that included the
higher volume commercial product this quarter which has a lower gross margin than the Companys
other products. The stronger Euro in the quarter ended March 31,
2008 mitigated the lower gross margin impact.
Selling, General and Administrative (SG&A) Expenses SG&A expenses were $5.8 million in the
quarter ended March 31, 2008 compared to $4.2 million in the third quarter a year ago. The
increase was primarily due to: costs related to the retirement of the Companys CEO totaling
approximately $600,000; an increase of approximately $260,000 in the cost of outside professional
services for accounting and audit fees primarily related to compliance with Sarbanes Oxley Section
404 internal control requirements that were not incurred in the third quarter of fiscal 2007;
approximately $250,000 in additional legal fees and board expenses
primarily related to the change in senior management that occurred
during the quarter; approximately $220,000
principally for personnel additions and co-op advertising expenses related to the Companys new
commercial product; approximately $100,000 in additional personnel and related expenses incurred in
connection with the Companys expanded sales efforts in Asia and approximately $200,000 related to
the stronger Euro in the fiscal 2008 quarter compared to the fiscal 2007 quarter.
Engineering, Research and Development (R&D) Expenses Engineering and R&D expenses were $2.1
million in the quarter ended March 31, 2008 compared to $2.0 million in the third quarter a year
ago. The increase was primarily due to approximately $250,000 in engineering materials and
personnel costs related to commercial product development efforts that were offset by lower
engineering and R&D expenses for the Companys other products.
Interest Income, net Net interest income was $267,000 in the third quarter of fiscal 2008
compared with net interest income of $188,000 in the third quarter of fiscal 2007. The increase
was primarily due to higher interest rates on average invested cash balances compared to one year
ago.
Foreign Currency There was a net foreign currency gain of $249,000 in the third quarter of fiscal
2008 compared with a net loss of $2,000 a year ago and represents foreign currency changes,
particularly the Yen, within the respective periods.
Income Taxes The effective tax rate for the third quarter of fiscal 2008 was 57.8% compared to
41.5% in the third quarter of fiscal 2007. The fiscal 2007 quarter included a one-time tax benefit
of approximately $98,000 recorded by the Companys German subsidiary that related to new corporate
tax
20
legislation. The benefit had the effect of reducing the effective tax rate for the fiscal 2007
third quarter by 8.3%. Excluding this benefit, the effective tax rate would have been 49.8% for
fiscal 2007 compared to 57.8% for fiscal 2008 and difference from quarter to quarter primarily
reflects the effect of the mix of pretax profit and loss among the Companys various operating
entities and their respective tax rates.
Outlook The Company continues to expect that sales and operating income will show growth for the
full year of fiscal 2008 over fiscal 2007, primarily from growth within the Technology Products
segment, particularly from new commercial product offerings. The Companys sales in the fourth
quarter of fiscal 2008, however, are expected to be similar to sales in the third quarter of fiscal
2008. The Company expects to incur higher SG&A expenses in the fourth quarter of fiscal 2008
compared to 2007 due to implementation and audit fees related to compliance with
Sarbanes Oxley Section 404 internal control requirements. The Company anticipates revenue growth
in fiscal 2009 over fiscal 2008 based on the positive trends shown from the investments the Company
has made in Asia, existing and new Technology Products.
Nine Months Ended March 31, 2008 Compared to Nine Months Ended March 31, 2007
Overview The Company reported revenue growth of 41% to $55.0 million and net income of $470,000,
or $0.05 per diluted share, for the nine months ended March 31, 2008. This compares to revenue of
$38.9 million and a net loss of $814,000, or $0.10 per diluted share for the nine months ended
March 31, 2007. Significantly affecting the fiscal 2008 results was a $2.6 million impairment
charge on a long-term investment recorded in the second quarter of fiscal 2008. See Note 2 to the
Consolidated Financial Statements, Long and Short-Term Investments and Item 2 Managements
Discussion and Analysis of Financial Condition and Results of Operations Results of Operations
Nine Months Ended March 31, 2008 Compared to Nine Months Ended March 31, 2007 Impairment on
Long-Term Investment below. Specific line item results for the nine-month periods ended March
31, 2008 and 2007 are described below.
Sales Net sales in the first nine months of fiscal 2008 were $55.0 million, compared to $38.9
million for the nine months ended March 31, 2007. The following tables set forth comparison data
for the Companys net sales by segment and geographic location.
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Sales (by segment) |
|
Nine Months |
|
|
Nine Months |
|
|
|
|
(in millions) |
|
Ended 3/31/08 |
|
|
Ended 3/31/07 |
|
|
Increase/(Decrease) |
|
Automated Systems |
|
$ |
29.8 |
|
|
|
54.2 |
% |
|
$ |
28.7 |
|
|
|
73.8 |
% |
|
$ |
1.1 |
|
|
|
3.8 |
% |
Technology Products |
|
|
25.2 |
|
|
|
45.8 |
% |
|
|
10.2 |
|
|
|
26.2 |
% |
|
|
15.0 |
|
|
|
147.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
55.0 |
|
|
|
100.0 |
% |
|
$ |
38.9 |
|
|
|
100.0 |
% |
|
$ |
16.1 |
|
|
|
41.4 |
% |
|
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|
Sales (by location) |
|
Nine Months |
|
|
Nine Months |
|
|
|
|
(in millions) |
|
Ended 3/31/08 |
|
|
Ended 3/31/07 |
|
|
Increase/(Decrease) |
|
Americas |
|
$ |
33.0 |
|
|
|
60.0 |
% |
|
$ |
18.7 |
|
|
|
48.1 |
% |
|
$ |
14.3 |
|
|
|
76.5 |
% |
Europe |
|
|
18.6 |
|
|
|
33.8 |
% |
|
|
18.4 |
|
|
|
47.3 |
% |
|
|
0.2 |
|
|
|
1.1 |
% |
Asia |
|
|
3.4 |
|
|
|
6.2 |
% |
|
|
1.8 |
|
|
|
4.6 |
% |
|
|
1.6 |
|
|
|
88.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
55.0 |
|
|
|
100.0 |
% |
|
$ |
38.9 |
|
|
|
100.0 |
% |
|
$ |
16.1 |
|
|
|
41.4 |
% |
|
|
|
|
|
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|
The increase in Automated Systems sales was primarily due to increased sales in Asia. The sales
increase in Technology Products was primarily due to higher sales of the Companys commercial
product which was initially introduced in the third quarter of fiscal 2007. Increased sales of the
Companys commercial product was also the primary reason for the increase in sales in the Americas
and more than
21
offset a decline in Automated Systems sales in the Americas. Asias revenue increased primarily in
the Automated Systems segment. In the recent past, Asias revenue came primarily from sales in
Technology Products. The effect of the stronger Euro in fiscal 2008 compared to 2007 increased
sales in Europe by $2.1 million.
Bookings Bookings represent new orders received from customers. New order bookings for the nine
months ended March 31, 2008 were $55.7 million compared to $46.7 million for the same period one
year ago. The amount of new order bookings during any particular period is not necessarily
indicative of the future operating performance of the Company. The following tables set forth
comparison data for the Companys bookings by segment and geographic location.
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|
Bookings (by segment) |
|
Nine Months |
|
|
Nine Months |
|
|
|
|
(in millions) |
|
Ended 3/31/08 |
|
|
Ended 3/31/07 |
|
|
Increase/(Decrease) |
|
Automated Systems |
|
$ |
32.0 |
|
|
|
57.5 |
% |
|
$ |
29.2 |
|
|
|
62.5 |
% |
|
$ |
2.8 |
|
|
|
9.6 |
% |
Technology Products |
|
|
23.7 |
|
|
|
42.5 |
% |
|
|
17.5 |
|
|
|
37.5 |
% |
|
|
6.2 |
|
|
|
35.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
55.7 |
|
|
|
100.0 |
% |
|
$ |
46.7 |
|
|
|
100.0 |
% |
|
$ |
9.0 |
|
|
|
19.3 |
% |
|
|
|
|
|
|
|
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|
|
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|
|
|
|
|
|
|
Bookings (by location) |
|
Nine Months |
|
|
Nine Months |
|
|
|
|
(in millions) |
|
Ended 3/31/08 |
|
|
Ended 3/31/07 |
|
|
Increase/(Decrease) |
|
Americas |
|
$ |
31.7 |
|
|
|
56.9 |
% |
|
$ |
27.4 |
|
|
|
58.7 |
% |
|
$ |
4.3 |
|
|
|
15.7 |
% |
Europe |
|
|
19.6 |
|
|
|
35.2 |
% |
|
|
17.6 |
|
|
|
37.7 |
% |
|
|
2.0 |
|
|
|
11.4 |
% |
Asia |
|
|
4.4 |
|
|
|
7.9 |
% |
|
|
1.7 |
|
|
|
3.6 |
% |
|
|
2.7 |
|
|
|
158.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
55.7 |
|
|
|
100.0 |
% |
|
$ |
46.7 |
|
|
|
100.0 |
% |
|
$ |
9.0 |
|
|
|
19.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in new order bookings for Automated Systems during the nine months ended March 31,
2008 was primarily due to increased bookings in Asia and Europe, more than offsetting a decline in
the Americas. The increase in new order bookings in the Technology Products Group for the fiscal
2008 nine-month period was primarily due to orders for the Companys commercial product. The
increase in new order bookings for the Companys commercial product was also the primary reason
for the increased bookings in the Americas. Historically, the Companys rate of new orders has
varied from quarter to quarter.
Gross Profit Gross profit was $23.9 million, or 43.4% of sales, for the nine months ended March
31, 2008, as compared to $16.3 million, or 41.9% of sales, for the nine months ended March 31,
2007. The gross profit margin increase was primarily due to the
higher sales level in fiscal 2008 compared to fiscal 2007 with
relatively fixed labor costs. Partially offsetting the increase was
the effect of the mix of product sales that included the higher
volume commercial product this period which has lower gross margin
than the Companys other products. The stronger Euro in fiscal
2008 also favorably affected gross margin.
Selling, General and Administrative (SG&A) Expenses SG&A expenses were $14.8 million for the nine
months ended March 31, 2008 compared to $12.3 million in the same period one year ago. The
increase was primarily due to: costs related to the retirement of the Companys CEO totaling
approximately $600,000; expenses of approximately $600,000 principally for personnel additions and
co-op advertising expenses related to the Companys new commercial product; increased benefit
expenses of approximately $190,000; an increase of approximately $440,000 in the cost of outside
professional services for accounting and audit fees primarily related to compliance with Sarbanes
Oxley Section 404 internal control requirements that were not incurred in fiscal 2007, and
approximately $300,000 in additional legal fees and board expenses
primarily related to the change in senior management that occurred
during the third quarter of fiscal 2008. Lower expenses in Europe were
offset by approximately a $450,000 increase related to the stronger Euro in the fiscal 2008 period
compared to the fiscal 2007 period.
22
Engineering, Research and Development (R&D) Expenses Engineering and R&D expenses were $6.5
million for the nine months ended March 31, 2008 compared to $5.7 million for the nine-month period
a year ago. The increase was principally due to approximately $800,000 for engineering materials
and personnel costs related to commercial product development efforts.
Interest Income, net Net interest income was $811,000 in the nine months ended March 31, 2008
compared with net interest income of $767,000 in the nine months ended March 31, 2007. The increase
was primarily due to higher interest rates on average invested cash balances compared to one year
ago.
Foreign
Currency There was a net foreign currency gain of $430,000 in the fiscal nine-month
period compared with a net loss of $23,000 a year ago and represents foreign currency changes,
particularly the Euro and Yen, within the respective periods.
Impairment on Long-Term Investment In the quarter ended December 31, 2007, the Company determined
that one of its investments in auction rate securities had been other-than-temporarily impaired and
based on fair values provided by the Companys broker, recorded a $2.6 million other-than-temporary
decline in the market value of this investment. See Note 2 of the Notes to the Consolidated
Financial Statements, Long and Short-Term Investments.
Income Taxes The effective tax rate for the nine months ended March 31, 2008 was 59.1% compared
to 12.7% in the nine months ended March 31, 2007. The effective rate in both 2008 and 2007
primarily reflected the effect of the mix of operating profit and loss among the Companys various
operating entities and their countries respective tax rates. The large impairment charge recorded
in the second quarter of fiscal 2008 resulted in a taxable loss in the United States that offset
taxable income in other countries with higher tax rates. The effective tax rate for the fiscal
2008 nine-month period would have been approximately 41.7% without the impairment charge. Also
affecting the effective tax rate comparison was a one time tax benefit of approximately $98,000
recorded by the Companys German subsidiary in fiscal 2007 that related to new corporate tax
legislation. The benefit had the effect of reducing the effective tax rate for the nine-month
period by 10.5%. Excluding this benefit, the effective tax rate for the fiscal 2007 nine-month
period would have been 2.2% and primarily reflected the effect of pretax losses in North America
being offset by pretax income in the Companys European subsidiaries which are taxed at higher
rates.
LIQUIDITY AND CAPITAL RESOURCES
The Companys cash and cash equivalents were $19.9 million at March 31, 2008, compared to $10.9
million at June 30, 2007. The cash increase of $9.0 million for the nine months ended March 31,
2008 resulted primarily from $6.0 million of cash generated from operations, $2.8 million received
from the Companys stock plans and $1.3 million from the favorable effect of exchange rate changes
on cash balances held in foreign currencies. Mitigating these increases were capital expenditures
of $1.1 million.
The $6.0 million increase in cash provided from operations was primarily generated from $3.7
million of net income including the add back of non-cash operating items such as impairment on
long-term investments, depreciation, stock compensation expense and change in deferred income taxes
and $2.3 million from changes in net working capital. Net working capital is defined as changes in
assets and liabilities, exclusive of changes shown separately on the Consolidated Statements of
Cash Flow. The net working capital change resulted primarily from reductions of receivables of
$5.4 million offset by a change in other current assets and liabilities of $1.7 million, a
reduction in accounts payable of $757,000, and an increase in inventory of $654,000. The $5.4
million reduction in receivables primarily related to cash collections during the period. The
change in other current assets and liabilities primarily represented the increase in deposits to
purchase commercial product inventory.
23
The Company provides a reserve for obsolescence to recognize the effects of engineering changes
that render certain parts obsolete, age and use of inventory that affect the value of the
inventory. A detailed review of the inventory is performed yearly with quarterly updates for known
changes that have occurred since the annual review. When inventory is deemed to have no further
use or value, the Company disposes of the inventory and the reserve for obsolescence is reduced.
During the nine months ended March 31, 2008, the Company increased the reserve for obsolescence by
$328,000 and disposals netted with the foreign currency translation effect of the Euro decreased
the reserve $8,000.
The Company determines its allowance for doubtful accounts by considering a number of factors,
including the length of time trade accounts receivable are past due, the Companys previous loss
history, the customers current ability to pay its obligation to the Company, and the condition of
the general economy and the industry as a whole. The Company writes-off accounts receivable when
they become uncollectible, and payments subsequently received on such receivables are credited to
the allowance for doubtful accounts. The Company decreased its allowance for doubtful accounts by
$22,000 and wrote off $238,000 of receivables during the nine months ended March 31, 2008. The
write-off of $250,000 primarily related to two European customers.
The Company had no debt outstanding at March 31, 2008. The Company has a $6.0 million secured
Credit Agreement with Comerica Bank, which expires on November 1, 2009. Proceeds under the Credit
Agreement may be used for working capital and capital expenditures. The security for the loan is
substantially all non real estate assets of the Company held in the United States. Borrowings are
designated as a Prime-based Advance or as a Eurodollar-based Advance. Interest on Prime-based
Advances is payable on the last day of each month and is calculated daily at the greater of 1/2%
below prime rate or 1% above the Federal Funds Rate. Interest on Eurodollar-based Advances is
calculated at 1.88% above the Eurodollar Rate offered at the time and for the period chosen and is
payable on the last day of the applicable period. Quarterly, the Company pays a commitment fee of
..075% on the daily unused portion of the Credit Agreement. The Credit Agreement prohibits the
Company from paying dividends. In addition, the Credit Agreement requires the Company to maintain
a Tangible Net Worth, as defined in the Credit Agreement, of not less than $41.3 million as of
March 31, 2008 and to have no advances outstanding for 30 consecutive days each calendar year.
At March 31, 2008, the Companys German subsidiary (GmbH) had an unsecured credit facility totaling
500,000 Euros (equivalent to $790,000 at March 31, 2008). The facility may be used to finance
working capital needs and equipment purchases or capital leases. Any borrowings for working
capital needs will bear interest at 9.0% on the first 100,000 Euros of borrowings and 2.0% for
borrowings over 100,000 Euros. The German credit facility is cancelable at any time by either GmbH
or the bank and any amounts then outstanding would become immediately due and payable. At March
31, 2008, GmbH had no borrowings outstanding. At March 31, 2008, the facility supported
outstanding letters of credit totaling 79,135 Euros (equivalent to approximately $125,000).
See Note 10 to the Consolidated Financial Statements, Commitments and Contingencies, contained in
this Quarterly Report on Form 10-Q, Item 3, Legal Proceedings and Note 6 to the Consolidated
Financial Statements, Contingencies, of the Companys Annual Report on Form 10-K/A-1 for fiscal
year 2007, for a discussion of certain contingencies relating to the Companys liquidity, financial
position and results of operations. See also, Item 7, Managements Discussion and Analysis of
Financial Condition and Results of Operations Critical Accounting Policies Litigation and Other
Contingencies of the Companys Annual Report on Form 10-K/A-1 for fiscal year 2007.
The Company expects to spend approximately $1.7 million during fiscal year 2008 for capital
expenditures, although there is no binding commitment to do so.
24
As of March 31, 2008, the Company holds long-term investments totaling $6.3 million (at cost) in
investment grade auction rate securities. An auction is held every 28 days to provide holders of
these auction rate securities the opportunity to increase (buy), decrease (sell) or hold their
investment. Auctions for the Companys investments in auction rate securities have been
unsuccessful since August 2007. The unsuccessful auctions have resulted in the interest rate on
these securities resetting at a premium interest rate every 28 days. In the event the Company
needs to access funds invested in these auction rate securities, the Company would not be able to
liquidate these securities until a future auction of these securities is successful or a buyer is
found outside of the auction process.
The continued unsuccessful auctions have caused the Company to re-evaluate the liquidity and fair
value of these investments. The Company believes that the anticipated recovery period for these
investments is likely to be longer than twelve months and as a result has recorded these
investments at March 31, 2008 as long-term assets. To date, the Company has received all interest
payments on these investments every 28 days. The Company has determined that its investment in
Blue Water Trust I, with a cost of $3.7 million, has been other-than-temporarily impaired. Blue
Water Trust I (Blue Water) is a Money Market Committed Preferred Custodial Trust Security (CPS
Security) that invests in investment grade commercial paper and which has entered into a Put
Agreement with RAM Reinsurance Company Ltd. (Ram Re), a wholly owned subsidiary of RAM Holdings
Ltd., principally engaged in underwriting financial guaranty insurance. In the event Ram Re
exercises its put option, Blue Water is required to purchase perpetual non-cumulative redeemable
preference shares of Ram Re. During the nine months ended March 31, 2008, based on fair values
provided by the Companys broker, the Company recorded a
$2.6 million other-than-temporary non-cash decline
in the market value of this investment as Impairment of Long-Term Investment in the income
statement. During the nine months ended March 31, 2008, based on fair values provided by the
Companys broker, the Company recorded a temporary non-cash decline of $99,000 in the market value of this
investment and a temporary non-cash decline of $427,000 in the market value of two other investments with a
cost of $2.6 million in Other Comprehensive Income on the Balance Sheet. These other two
investments are custodial receipts for separate series of Floating Rate Cumulative Preferred
Securities issued by Primus Financial Products, LLC, an indirect subsidiary of Primus Guaranty,
Ltd., principally engaged in selling credit swaps against credit obligations of corporate and
sovereign issuers. The Company evaluates these investments at each balance sheet date. There is
risk that evaluations based on factors existing at future balance sheet dates could require the
recording of additional temporary declines in Other Comprehensive Income on the Balance Sheet or
could ultimately result in a determination that there is a decline in value that is other than
temporary and a loss would be recognized in the income statement at that time.
Based on the Companys current business plan, cash and cash equivalents of $19.9 million at March
31, 2008 and its existing unused credit facilities, the Company does not currently anticipate that
the lack of liquidity on these investments will affect the Companys ability to operate or fund its
currently anticipated fiscal 2008 and 2009 cash flow requirements.
Also based upon the Companys current business plan, the Company believes that available cash on
hand and existing credit facilities will be sufficient to fund its cash flow requirements for at
least the next few years, except to the extent that the Company implements new business development
opportunities, which would be financed as discussed below. The Company does not believe that
inflation has significantly impacted historical operations and does not expect any significant
near-term inflationary impact.
The Company periodically evaluates business opportunities that fit its strategic plans. There can
be no assurance that the Company will identify any opportunities that fit its strategic plans or
will be able to enter into agreements with identified business opportunities on terms acceptable to
the Company. The Company would expect to finance any such business opportunities from available
cash on hand, existing
credit facilities, issuance of additional shares of its stock or additional sources of financing,
as circumstances warrant.
25
CRITICAL ACCOUNTING POLICIES
A summary of critical accounting policies is presented in Item 7, Managements Discussion and
Analysis of Financial Condition and Results of Operations Critical Accounting Policies of the
Companys Annual Report on Form 10-K/A-1 for fiscal year 2007. The Company also considers the
following accounting policy on Long and Short-Term Investments a significant policy involving
managements most difficult, subjective or complex judgments or involving the greatest uncertainty.
Long and Short-Term Investments. The Companys accounts for its investments in accordance
with Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities and SEC topics and guidance. Investments with a maturity of greater
than three months to one year are classified as short-term investments. Investments with
maturities beyond one year may be classified as short-term if the Company reasonably expects the
investment to be realized in cash or sold or consumed during the normal operating cycle of the
business. Investments available for sale are recorded at market value using the specific
identification method. Investments expected to be held to maturity or until market conditions
improve are measured at amortized cost in the statement of financial position if it is the
Companys intent and ability to hold those securities long-term. Each balance sheet date, the
Company evaluates its investments for possible other-than-temporary impairment which involves
significant judgment. In making this judgment, management reviews factors such as the length of
time and extent to which fair value has been below the cost basis, the anticipated recovery period,
the financial condition of the issuer, the credit rating of the instrument and the Companys
ability and intent to hold the investment for a period of time which may be sufficient for recovery
of the cost basis. Any unrealized gains and losses on securities are reported as other
comprehensive income as a separate component of shareholders equity until realized or until a
decline in fair value is determined to be other than temporary. Once a decline in fair value is
determined to be other-than-temporary, an impairment charge is recorded in the income statement.
If market, industry, and/or investee conditions deteriorate, future impairments may be incurred.
MARKET RISK INFORMATION
The Companys primary market risk is related to foreign exchange rates and uncertainties in the
credit markets. The foreign exchange risk is derived from the operations of its international
subsidiaries, which are primarily located in Germany and for which products are produced in the
United States. The credit market risk is derived from the Companys investments in auction rate
securities. The Company may from time to time have interest rate risk in connection with its
investment of its cash.
Foreign Currency Risk
The Company has foreign currency exchange risk in its international operations arising from the
time period between sales commitment and delivery for contracts in non-United States currencies.
For sales commitments entered into in non-United States currencies, the currency rate risk exposure
is predominantly less than one year with the majority in the 120 to 150 day range. At March 31,
2008, the Companys percentage of sales commitments in non-United States currencies was
approximately 32.1% or $7.6 million, compared to 39.5% or $10.5 million at March 31, 2007.
The Company may use, from time to time, a limited hedging program to minimize the impact of foreign
currency fluctuations. These transactions involve the use of forward contracts, typically mature
within one year and are designed to hedge anticipated foreign currency transactions. The Company
may use
forward exchange contracts to hedge the net assets of certain of its foreign subsidiaries to offset
the translation and economic exposures related to the Companys investment in these subsidiaries.
26
At March 31, 2008, the Company had forward exchange contracts to sell 5.0 million Euros ($7.6
million equivalent) at a weighted average settlement rate of 1.52 Euros to the United States
Dollar. The contracts outstanding at March 31, 2008 mature through May 30, 2008. The objective of
the hedge transactions is to protect designated portions of the Companys net investment in its
foreign subsidiary against adverse changes in the Euro/U.S. Dollar exchange rate. The Company
assesses hedge effectiveness based on overall changes in fair value of the forward contract. Since
the critical risks of the forward contract and the net investment coincide, there was no
ineffectiveness. The accounting for the hedges is consistent with translation adjustments where
any gains and losses are recorded to other comprehensive income. The Company recognized a charge
of approximately $385,000 and $727,000 in other comprehensive income (loss) for the unrealized
change in value of the forward exchange contracts during the three and nine months ended March 31,
2008, respectively. Offsetting this amount in other comprehensive income (loss) was the
translation effect of the Companys foreign subsidiary. Because the forward contracts were
effective, there was no gain or loss recognized in earnings. The Companys forward exchange
contracts do not subject it to material risk due to exchange rate movements because gains and
losses on these contracts offset losses and gains on the assets, liabilities, and transactions
being hedged.
At March 31, 2007, the Company had $4.0 million of forward exchange contracts between the United
States Dollar and the Euro with a weighted average settlement price of 1.32 Euros to the United
States Dollar. The Company recognized a charge of approximately $23,000 and $47,000 in other
comprehensive income (loss) for the unrealized change in value of the forward exchange contracts
during the three and nine months ended March 31, 2007.
The Companys potential loss in earnings that would have resulted from a hypothetical 10% adverse
change in quoted foreign currency exchange rates related to the translation of foreign denominated
revenues and expenses into U.S. dollars for the three and nine months ended March 31, 2008 would
have been approximately $86,000 and $119,000, respectively. The potential loss in earnings for the
comparable periods in fiscal 2007 would have been approximately $99,000 and $48,000, respectively.
Uncertainties in the Credit Markets
As of March 31, 2008, the Company holds long-term investments totaling $6.3 million (at cost) in
investment grade auction rate securities. An auction is held every 28 days to provide holders of
these auction rate securities the opportunity to increase (buy), decrease (sell) or hold their
investment. Auctions for the Companys investments in auction rate securities have been
unsuccessful since August 2007. The unsuccessful auctions have resulted in the interest rate on
these securities resetting at a premium interest rate every 28 days. In the event the Company
needs to access funds invested in these auction rate securities, the Company would not be able to
liquidate these securities until a future auction of these securities is successful or a buyer is
found outside of the auction process.
The continued unsuccessful auctions have caused the Company to re-evaluate the liquidity and fair
value of these investments. The Company believes that the anticipated recovery period for these
investments is likely to be longer than twelve months and as a result has recorded the investments
at March 31, 2008 as long-term assets. To date, the Company has received all interest payments on
these investments every 28 days. The Company has determined that its investment in Blue Water
Trust I, with a cost of $3.7 million, has been other-than-temporarily impaired. Blue Water Trust I
(Blue Water) is a Money Market Committed Preferred Custodial Trust Security (CPS Security) that
invests in investment grade commercial paper and which has entered into a Put Agreement with RAM
Reinsurance Company Ltd.
27
(Ram Re), a wholly owned subsidiary of RAM Holdings Ltd., principally engaged in underwriting
financial guaranty insurance. In the event Ram Re exercises its put option, Blue Water is required
to purchase perpetual non-cumulative redeemable preference shares of Ram Re. During the nine
months ended March 31, 2008, based on fair values provided by the Companys broker, the Company
recorded a $2.6 million other-than-temporary non-cash decline in the market value of this investment as
Impairment of Long-Term Investment in the income statement. During the nine months ended March 31,
2008, based on fair values provided by the Companys broker, the
Company recorded a non-cash temporary
decline of $99,000 in the market value of this investment and a
temporary non-cash decline of $427,000 in
the market value of two other investments with a cost of $2.6 million in Other Comprehensive Income
on the Balance Sheet. These other two investments are custodial receipts for separate series of
Floating Rate Cumulative Preferred Securities issued by Primus Financial Products, LLC, an indirect
subsidiary of Primus Guaranty, Ltd., principally engaged in selling credit swaps against credit
obligations of corporate and sovereign issuers. The Company evaluates these investments at each
balance sheet date. There is risk that evaluations based on factors existing at future balance
sheet dates could require the recording of additional temporary declines in Other Comprehensive
Income on the Balance Sheet or could ultimately result in a determination that there is a decline
in value that is other than temporary and a loss would be recognized in the income statement at
that time.
Based on the Companys current business plan, cash and cash equivalents of $19.9 million at March
31, 2008 and its existing unused credit facilities, the Company does not currently anticipate that
the lack of liquidity on these investments will affect the Companys ability to operate or fund its
currently anticipated fiscal 2008 and 2009 cash flow requirements.
Interest Rate Risk
The Company invests its cash and cash equivalents in high quality, short-term investments with
primarily a term of three months or less. The Companys long-term investments at March 31, 2008
consist of investment grade auction rate securities on which the yield is reset every 28 days.
Given the short maturities and the 28 day yield reset cycles, a 100 basis point rise in interest
rates would not have been expected to have a material adverse impact on the fair value of the
Companys cash and cash equivalents and long-term investments at March 31, 2008. As a result, the
Company does not currently hedge these interest rate exposures.
New Accounting Pronouncements
For a discussion of new accounting pronouncements, see Note 11 to the Consolidated Financial
Statements, New Accounting Pronouncements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information required pursuant to this item is incorporated by reference herein from Item 2
Managements Discussion and Analysis of Financial Condition and Results of Operations Market
Risk Information.
ITEM 4. CONTROLS AND PROCEDURES
The Company carried out an evaluation, under the supervision and with the participation of the
Companys management, including its Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of the Companys disclosure controls and procedures
pursuant to Rule 13a-15 of the Securities Exchange Act of 1934 (the 1934 Act). Based upon that
evaluation, the Companys Chief Executive Officer and Chief Financial Officer concluded that, as of
March 31, 2008,
28
the Companys disclosure controls and procedures were not effective. Rule 13a-15(e) of the 1934
Act defines disclosure controls and procedures as controls and other procedures of the Company
that are designed to ensure that information required to be disclosed by the Company in the reports
that it files or submits under the 1934 Act is recorded, processed, summarized and reported, within
the time periods specified in the Securities and Exchange Commissions rules and forms. Disclosure
controls and procedures include, without limitation, controls and procedures designed to ensure
that information required to be disclosed by the Company in the reports that it files or submits
under the 1934 Act is accumulated and communicated to the Companys management, including its Chief
Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding
required disclosure.
As previously reported, during the first quarter of fiscal year 2008, the Company identified a
material weakness in the Companys internal control over financial reporting related to the
identification and reporting of certain short-term investments as cash and cash equivalents. This
deficiency resulted from the misclassification of these investments as cash equivalents and an
error in applying generally accepted accounting principals in the classification of certain of the
Companys investments. The investments were primarily in investment grade auction rate securities.
An auction is held every 28 days to provide holders of the investment the opportunity to increase
(buy), decrease (sell) or hold their investment. In the past the Company identified and reported
its auction rate securities as cash equivalents. Further review by the Company of these investments
together with applicable accounting and SEC literature has determined that the Company made an
error in classifying these short-term investments as a cash equivalent. As a result, the Company
restated its Balance Sheet, Cash Flow Statements and related disclosures on Form 10-K/A-1 dated
November 16, 2007 to reflect the short-term investments separately from cash and cash equivalents.
See Item 1, Note 13 to the Consolidated Financial Statements, Restatement of Previously Issued
Consolidated Financial Statements of this Form 10-Q for details of the restatements. The Company
believes it remediated the material weakness during the second quarter of fiscal 2008, by
implementing additional review and oversight procedures within its treasury function to evaluate
proper classification of all cash and cash equivalents and long and short-term investments in order
to ensure compliance with generally accepted accounting principles and is in the process of
revising its investment policy.
As previously reported, during the quarter ended June 30, 2007, in connection with the audit of the
Companys consolidated financial statements as of June 30, 2007, the Company identified a material
weakness in the Companys internal control over financial reporting related to the calculation and
review of income taxes. This deficiency resulted from an ineffective review process. As a result
of this deficiency, there were errors in the accounting for the provision for income taxes,
deferred income taxes, and current income taxes payable, primarily related to the Companys foreign
operations, which were detected and remedied in connection with the preparation of the Companys
consolidated financial statements as of June 30, 2007. The Company has engaged external tax
advisors to assist in the review of the Companys income tax calculations to remediate the weakness
and ensure compliance with generally accepted accounting principles. This is an annual control
procedure and will be tested at the end of fiscal 2008.
Except as discussed above, there have been no changes in the Companys internal controls over
financial reporting during the quarter ended March 31, 2008 identified in connection with the
Companys evaluation that has materially affected, or is reasonably likely to materially affect,
the Companys internal controls over financial reporting.
29
PART II. OTHER INFORMATION
ITEM 1A. RISK FACTORS
No material changes were made to the risk factors listed in Item 1A Risk Factors of the
Companys Annual Report on Form 10-K/A-1 for fiscal year 2007.
ITEM 6. EXHIBITS
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4.13 |
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Amendment to Rights Agreement, dated as of March 17, 2008, between
Perceptron, Inc. and American Stock Transfer & Trust Company, as Rights Agent
(filed as Exhibit 3 to the Companys Form 8-A/A filed on March 20, 2008, and
incorporated herein by reference). |
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4.14 |
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Form of certificate representing Rights (included as Exhibit B to the
Amendment to Rights Agreement filed as Exhibit 3 to the Companys Form 8-A/A filed
on March 20, 2008, and incorporated herein by reference). Pursuant to the Rights
Agreement, Rights Certificates will not be mailed until after the earlier of (i)
the tenth business day after the Shares Acquisition Date (or, if such Shares
Acquisition Date results from the consummation of a Permitted Offer, such later
date as may be determined by the Board of Directors, with the concurrence of a
majority of the Continuing Directors), or (ii) the tenth business day (or such
later date as may be determined by the Board of Directors, with the concurrence of
a majority of the Continuing Directors, prior to such time as any person becomes an
Acquiring Person) after the date of the commencement of, or first public
announcement of the intent to commence, a tender or exchange offer by any person
if, upon consummation thereof, such person would be an Acquiring person, other than
as a result of a Permitted Offer. |
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10.49 |
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Ninth Amendment to Credit Agreement dated October 24, 2002, between
Perceptron, Inc. and Comerica Bank. |
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31.1 |
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Certification by the Chief Executive Officer of the Company pursuant to
Rule 13a 14(a) and Rule 15d 14(a). |
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31.2 |
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Certification by the Chief Financial Officer of the Company pursuant to
Rule 13a 14(a) and Rule 15d 14(a). |
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32.1 |
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Certification by the Chief Executive Officer of the Company pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. |
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32.2 |
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Certification by the Chief Financial Officer of the Company pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. |
30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Perceptron, Inc.
(Registrant)
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Date: May 14, 2008 |
By: |
/S/ Harry T. Rittenour
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Harry T. Rittenour |
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President and Chief Executive Officer |
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Date: May 14, 2008 |
By: |
/S/ John H. Lowry III
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John H. Lowry III |
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Vice President and Chief Financial Officer
(Principal Financial Officer) |
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Date: May 14, 2008 |
By: |
/S/ Sylvia M. Smith
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Sylvia M. Smith |
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Controller and Chief Accounting Officer
(Principal Accounting Officer) |
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31