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 December 31, 2007.
Commission file number: 0-20206
PERCEPTRON, INC.
(Exact Name of Registrant as Specified in Its Charter)
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Michigan
(State or Other Jurisdiction of
Incorporation or Organization)
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38-2381442
(I.R.S. Employer
Identification No.) |
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47827 Halyard Drive, Plymouth, Michigan
(Address of Principal Executive Offices)
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48170-2461
(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.
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
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
The number of shares outstanding of each of the issuers classes of common stock as of February 8,
2008, was:
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Common Stock, $0.01 par value |
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8,441,039 |
Class |
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Number of shares |
PERCEPTRON, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
For the Quarter Ended December 31, 2007
2
PERCEPTRON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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December 31, |
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June 30, |
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(In Thousands, Except Per Share Amount) |
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2007 |
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2007 |
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(Unaudited) |
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As Restated |
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(Note 13) |
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ASSETS |
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Current Assets |
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Cash and cash equivalents |
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$ |
17,411 |
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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 $377 and $673, respectively |
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18,518 |
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21,287 |
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Unbilled receivables |
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3,776 |
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2,858 |
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Other receivables |
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426 |
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799 |
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Inventories, net of reserves of $1,058 and $911, respectively |
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8,455 |
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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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3,388 |
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3,025 |
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Total current assets |
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53,217 |
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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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12,728 |
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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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19,815 |
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19,069 |
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Less Accumulated depreciation and amortization |
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(12,805 |
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(12,012 |
) |
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Net property and equipment |
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7,010 |
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7,057 |
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Long-Term Investments |
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3,579 |
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Deferred Tax Asset |
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4,614 |
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4,384 |
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Total Assets |
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$ |
68,420 |
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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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$ |
2,849 |
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$ |
3,446 |
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Accrued liabilities and expenses |
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2,629 |
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2,764 |
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Accrued compensation |
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1,022 |
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1,075 |
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Income taxes payable |
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1,071 |
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883 |
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Deferred revenue |
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4,021 |
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3,483 |
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Total current liabilities |
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11,592 |
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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, $0.01 par value, authorized 19,000 shares, issued
and outstanding 8,428 and 8,142, respectively |
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84 |
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81 |
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Accumulated other comprehensive income (loss) |
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1,877 |
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869 |
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Additional paid-in capital |
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38,099 |
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36,346 |
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Retained earnings |
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16,768 |
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16,509 |
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Total shareholders equity |
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56,828 |
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53,805 |
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Total Liabilities and Shareholders Equity |
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$ |
68,420 |
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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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Six Months Ended |
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December 31, |
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December 31, |
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(In Thousands, Except Per Share Amounts) |
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2007 |
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2006 |
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2007 |
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2006 |
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Net Sales |
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$ |
19,117 |
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$ |
12,234 |
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$ |
36,783 |
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$ |
22,944 |
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Cost of Sales |
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10,276 |
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7,688 |
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20,841 |
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13,911 |
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Gross Profit |
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8,841 |
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4,546 |
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15,942 |
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9,033 |
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Operating Expenses |
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Selling, general and administrative |
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4,609 |
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4,178 |
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9,012 |
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8,065 |
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Engineering, research and development |
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2,202 |
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1,912 |
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4,397 |
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3,644 |
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Total operating expenses |
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6,811 |
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6,090 |
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13,409 |
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11,709 |
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Operating Income (Loss) |
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2,030 |
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(1,544 |
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2,533 |
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(2,676 |
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Other Income and (Expenses) |
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Interest income, net |
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329 |
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265 |
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544 |
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579 |
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Foreign currency gain (loss) |
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50 |
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(16 |
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181 |
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(21 |
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Impairment on long-term investment |
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(2,614 |
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(2,614 |
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Other |
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5 |
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6 |
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5 |
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Total other income (expenses) |
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(2,230 |
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249 |
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(1,883 |
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563 |
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Income (Loss) Before Income Taxes |
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(200 |
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(1,295 |
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650 |
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(2,113 |
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Income Tax Expense (Benefit) |
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(12 |
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(431 |
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391 |
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(608 |
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Net Income (Loss) |
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$ |
(188 |
) |
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$ |
(864 |
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$ |
259 |
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$ |
(1,505 |
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Earnings (Loss) Per Common Share |
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Basic |
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($0.02 |
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($0.11 |
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$ |
0.03 |
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($0.18 |
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Diluted |
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($0.02 |
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($0.11 |
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$ |
0.03 |
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($0.18 |
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Weighted Average Common Shares Outstanding |
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Basic |
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8,405 |
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8,136 |
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8,305 |
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8,239 |
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Dilutive effect of stock options |
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607 |
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Diluted |
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8,405 |
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8,136 |
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8,912 |
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8,239 |
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The notes to the consolidated financial statements are an integral part of these statements.
4
PERCEPTRON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
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Six Months Ended |
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December 31, |
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(In Thousands) |
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2007 |
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2006 |
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As Restated |
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(Note 13) |
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Cash Flows from Operating Activities |
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Net income (loss) |
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$ |
259 |
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$ |
(1,505 |
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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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649 |
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685 |
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Stock compensation expense |
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323 |
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451 |
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Deferred income taxes |
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(201 |
) |
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(425 |
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Impairment on long-term investment |
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2,614 |
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Allowance for doubtful accounts |
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(325 |
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35 |
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Other |
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24 |
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69 |
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Changes in assets and liabilities, exclusive of changes shown
separately |
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1,662 |
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(1,700 |
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Net cash provided from (used for)
operating activities |
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5,005 |
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(2,390 |
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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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543 |
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Revolving credit repayments |
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(10 |
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(543 |
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Proceeds from stock plans |
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1,434 |
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487 |
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Repurchase of company stock |
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(3,701 |
) |
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Net cash provided from (used for)
financing activities |
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1,434 |
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(3,214 |
) |
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Cash Flows from Investing Activities |
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Capital expenditures |
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(543 |
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(791 |
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Sales of investments |
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25 |
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Net cash used for investing activities |
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(543 |
) |
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(766 |
) |
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Effect of Exchange Rate Changes on Cash and Cash Equivalents |
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637 |
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252 |
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Net Increase (Decrease) in Cash and Cash Equivalents |
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6,533 |
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(6,118 |
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Cash and Cash Equivalents, July 1 |
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10,878 |
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17,963 |
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Cash and Cash Equivalents, December 31 |
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$ |
17,411 |
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$ |
11,845 |
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Changes in Assets and Liabilities, Exclusive of Changes Shown Separately |
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Receivables, net |
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$ |
3,497 |
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$ |
2,617 |
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Inventories |
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(497 |
) |
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(4,021 |
) |
Accounts payable |
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(839 |
) |
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|
770 |
|
Other current assets and liabilities |
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(499 |
) |
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(1,066 |
) |
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|
$ |
1,662 |
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|
$ |
(1,700 |
) |
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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 December 31, 2007, 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 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 December 31, 2007 as long-term assets. To date, the Company has received all distribution
payments on these investments on a monthly basis. 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. Upon exercise of the put
option by Ram Re, Blue Water is required to purchase perpetual non-cumulative redeemable preference
shares of Ram Re. During the second quarter of fiscal 2008, based on fair values provided by the Companys broker, the Company recorded a
6
$2.6 million other-than-temporary decline in the market value of this investment as Impairment of
Long-Term Investment in the income statement, and a temporary decline
of $106,000 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 $1,058,000 and $911,000 at
December 31, 2007 and June 30, 2007, respectively, is comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
June 30, |
|
|
|
2007 |
|
|
2007 |
|
Component parts |
|
$ |
3,031 |
|
|
$ |
2,900 |
|
Work in process |
|
|
186 |
|
|
|
355 |
|
Finished goods |
|
|
5,238 |
|
|
|
4,370 |
|
|
|
|
|
|
|
|
Total |
|
$ |
8,455 |
|
|
$ |
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 77,000 and 944,000 shares of common stock outstanding in the three months ended
December 31, 2007 and 2006, respectively, were not included in the computation of diluted EPS
because the effect would have been anti-dilutive. Options to purchase 118,000 and 930,000 shares
of common
7
stock outstanding in the six months ended December 31, 2007 and 2006, respectively, were
not included in the computation of diluted EPS because the effect would have been anti-dilutive.
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 December 31, 2007, the Company had forward exchange contracts to sell 5.0 million Euros ($7.3
million equivalent) at a weighted average settlement rate of 1.45 Euros to the United States
Dollar. The contracts outstanding at December 31, 2007, 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
loss of approximately $106,000 and $342,000 in other comprehensive income (loss) for the unrealized
change in value of the forward exchange contracts during the three and six months ended December
31, 2007, 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 December 31, 2006, the Company had approximately $7.8 million of forward exchange contracts
between the United States Dollar and the Euro with a weighted average settlement price of 1.30
Euros to the United States Dollar. The Company recognized a charge of approximately $97,000 and
$24,000 in other comprehensive income (loss) for the unrealized change in value of the forward
exchange contracts during the three and six months ended December 31, 2006.
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 for the applicable periods is as follows (in thousands):
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, |
|
2007 |
|
|
2006 |
|
Net Income (Loss) |
|
$ |
(188 |
) |
|
$ |
(864 |
) |
Other Comprehensive Income (Loss): |
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
544 |
|
|
|
506 |
|
Temporary impairment on investment |
|
|
(106 |
) |
|
|
0 |
|
Forward contracts |
|
|
(106 |
) |
|
|
(97 |
) |
|
|
|
|
|
|
|
Total Comprehensive Income (Loss) |
|
$ |
144 |
|
|
$ |
(455 |
) |
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
Six Months Ended December 31, |
|
2007 |
|
|
2006 |
|
Net Income (Loss) |
|
$ |
259 |
|
|
$ |
(1,505 |
) |
Other Comprehensive Income (Loss): |
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
1,456 |
|
|
|
656 |
|
Temporary impairment on investment |
|
|
(106 |
) |
|
|
0 |
|
Forward contracts |
|
|
(342 |
) |
|
|
(24 |
) |
|
|
|
|
|
|
|
Total Comprehensive Income (Loss) |
|
$ |
1,267 |
|
|
$ |
(873 |
) |
|
|
|
|
|
|
|
7. Credit Facilities
The Company had no debt outstanding at December 31, 2007.
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 $41.2 million as of December 31, 2007 and to have no advances
outstanding for 30 consecutive days each calendar year.
At December 31, 2007, the Companys German subsidiary (GmbH) had an unsecured credit facility
totaling 500,000 Euros (equivalent to approximately $736,500 at December 31, 2007). 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 December 31, 2007, GmbH had no borrowings outstanding. At December 31, 2007, the
facility supported outstanding letters of credit totaling 79,000 Euros (equivalent to approximately
$116,000).
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 $155,000 and $323,000 in the three and six months ended December 31, 2007, respectively. This
had the effect of decreasing net income by $106,000, or $0.01 per diluted share, and $243,000, or
$0.03 per diluted share, for the three and six months ended December 31, 2007, respectively. The
Company recognized as an operating expense non-cash stock-based compensation cost in the amount of
$176,000 and $451,000 in the three and six months ended December 31, 2006, respectively. This had
the effect of decreasing net income by $137,000, or $0.02 per diluted share, and $356,000, or $0.04
per diluted share, for the three and six months ended December 31, 2006, respectively. As of
December 31, 2007, the total remaining unrecognized compensation cost related to non-vested stock
options amounted to $1.2 million. The Company expects to recognize this cost over a weighted
average vesting period of 2.64 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. Options previously granted under the 1992
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, 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.
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:
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
Three Months |
|
Six Months |
|
Six Months |
|
|
Ended |
|
Ended |
|
Ended |
|
Ended |
|
|
12/31/2007 |
|
12/31/2006 |
|
12/31/2007 |
|
12/31/2006 |
Weighted Average Estimated Fair
Value Per Share of Options
Granted During the Period |
|
$ |
5.03 |
|
|
|
|
|
|
$ |
4.06 |
|
|
$ |
3.03 |
|
Assumptions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized Dividend Yield |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock Price Volatility |
|
|
32.16 |
% |
|
|
|
|
|
|
30.8 |
% |
|
|
32.78 |
% |
Risk Free Rate of Return |
|
|
4.25 |
% |
|
|
|
|
|
|
4.86 |
% |
|
|
5.13 |
% |
Expected Option Term (in years) |
|
|
5 |
|
|
|
|
|
|
|
5 |
|
|
|
5 |
|
The Company received approximately $300,000 and $1.3 million in cash from option exercises under
all share-based payment arrangements during the three and six months ended December 31, 2007,
respectively. The company also received approximately $118,000 and
$158,000 in cash from its other share-based payment arrangements
during the three and six months ended December 31, 2007, 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 take 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 associated with
certain assets result in a net deferred tax liability as of December 31, 2007. The Company has a
small net deferred tax asset. Therefore, this deduction does not apply.
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 $6.8 million using a December 31, 2007 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 December 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (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 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.
12
In December 2007, the FASB issued SFAS No. 141 (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 product 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable Segments ($000) |
|
Automated Systems |
|
Technology Products |
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
10,624 |
|
|
$ |
8,493 |
|
|
$ |
19,117 |
|
|
|
|
|
Operating income |
|
|
860 |
|
|
|
1,170 |
|
|
|
2,030 |
|
|
|
|
|
Assets |
|
|
43,856 |
|
|
|
24,564 |
|
|
|
68,420 |
|
|
|
|
|
Accum. depreciation and amortization |
|
|
7,802 |
|
|
|
5,003 |
|
|
|
12,805 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended December 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
9,142 |
|
|
$ |
3,092 |
|
|
$ |
12,234 |
|
|
|
|
|
Operating loss |
|
|
(521 |
) |
|
|
(1,023 |
) |
|
|
(1,544 |
) |
|
|
|
|
Assets |
|
|
44,880 |
|
|
|
13,681 |
|
|
|
58,561 |
|
|
|
|
|
Accum. depreciation and amortization |
|
|
9,615 |
|
|
|
2,390 |
|
|
|
12,005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
18,738 |
|
|
$ |
18,045 |
|
|
$ |
36,783 |
|
|
|
|
|
Operating income |
|
|
25 |
|
|
|
2,508 |
|
|
|
2,533 |
|
|
|
|
|
Assets |
|
|
43,156 |
|
|
|
25,264 |
|
|
|
68,420 |
|
|
|
|
|
Accum. depreciation and amortization |
|
|
5,769 |
|
|
|
7,036 |
|
|
|
12,805 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended December 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
16,964 |
|
|
$ |
5,980 |
|
|
$ |
22,944 |
|
|
|
|
|
Operating loss |
|
|
(1,304 |
) |
|
|
(1,372 |
) |
|
|
(2,676 |
) |
|
|
|
|
Assets |
|
|
44,860 |
|
|
|
13,701 |
|
|
|
58,561 |
|
|
|
|
|
Accum. depreciation and amortization |
|
|
9,554 |
|
|
|
2,451 |
|
|
|
12,005 |
|
|
|
|
|
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 six months ended December 31, 2006 are reflected in the following
tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2007 |
|
|
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 Six Months Ended |
|
|
|
December 31, 2006 |
|
|
|
As Reported |
|
|
Adjustment |
|
|
As Restated |
|
Cash Flows from Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided from operating activities |
|
$ |
(2,390 |
) |
|
$ |
|
|
|
$ |
(2,390 |
) |
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for financing activities |
|
|
(3,214 |
) |
|
|
|
|
|
|
(3,214 |
) |
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of investments |
|
|
|
|
|
|
|
|
|
|
|
|
Sales of investments |
|
|
|
|
|
|
25 |
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used for investing activities |
|
|
(791 |
) |
|
|
25 |
|
|
|
(766 |
) |
Effect of Exchange Rate changes on Cash and Cash Equivalents |
|
|
252 |
|
|
|
|
|
|
|
252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Cash and Cash Equivalents |
|
|
(6,143 |
) |
|
|
25 |
|
|
|
(6,118 |
) |
Cash and Cash Equivalents, July 1 |
|
|
25,188 |
|
|
|
(7,225 |
) |
|
|
17,963 |
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents, December 31 |
|
$ |
19,045 |
|
|
$ |
(7,200 |
) |
|
$ |
11,845 |
|
|
|
|
|
|
|
|
|
|
|
14. Subsequent Event
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 and 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 expects to accrue an expense of approximately
$600,000, representing certain of the amounts due to Mr. Pease pursuant to the Employment Agreement.
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 fiscal 2008 and 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
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 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 products have shorter lead times than other components and are required later
in the process, orders for the Companys products tend to be given later in the integration
process. 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, produces and markets non-contact
metrology solutions for manufacturing process control as well as sensor and software technologies
for non-contact measurement and inspection applications. Perceptrons product offerings are
designed to improve quality, increase productivity and decrease costs in manufacturing and product
development. Perceptron also produces innovative technology solutions for scanning and inspection,
serving industrial, trade and consumer applications. The solutions offered by the Company are
divided into two segments: 1) The Automated Systems segment made up of AutoGaugeâ,
AutoFitâ, AutoScanâ, and AutoGuideâ products and Value Added Services for
consulting, training and non-warranty support services; and 2) The Technology Products segment made
up of ScanWorksâ, Non-Contact Wheel Alignment (WheelWorksâ), TriCamâ sensors
for the forest products industry, and commercial products. The Company services multiple markets,
with the largest being the automotive industry. The Companys primary operations are in the
Americas, Europe and Asia.
In March 2007, the Company launched its first commercial product, the SeeSnakeâ micro,
designed to be used by professional tradespersons as well as individual homeowners. 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 homeowner 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. 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. During the Companys second fiscal
quarter, the SeeSnakeâ micro first became available for sale at the Professional Desk at The
Home Depot.
The Company also expects to introduce additional optical technology products for the professional
trades market in fiscal 2008 and future years. 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 fiscal year 2008.
New vehicle tooling programs represent the most important selling opportunity for the Companys
automotive related sales. 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.
The Company is continuing its efforts to expand its opportunities outside the automotive industry,
principally through new commercial product development efforts in its Technology Products segment.
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 automotive growth strategy in new geographic markets, principally in Asia. The Company
continues to expect sales from its Technology Products segment to become a greater percentage of
overall revenue in fiscal 2008 compared to fiscal 2007, in large part due to anticipated growth in
commercial products.
17
RESULTS OF OPERATIONS
Three Months Ended December 31, 2007 Compared to Three Months Ended December 31, 2006
Overview The Company experienced strong growth in revenue in the second quarter of fiscal 2008
compared to fiscal year 2007. For the second quarter of fiscal 2008, the Company reported revenue
growth of 56% to $19.1 million and a net loss of $188,000, or $0.02 per diluted share. This
compares to revenue of $12.2 million and a net loss of $864,000 or $0.11 per diluted share, for the
second quarter of fiscal 2007. Revenue growth occurred in both of the Companys reporting segments
- Automated Systems and Technology Products. Significantly affecting the fiscal 2008 results was a
$2.6 million impairment charge on a long-term investment. 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 Three Months Ended
December 31, 2007 Compared to Three Months Ended December 31, 2006 Impairment on Long-Term
Investment below.
Sales Net sales were $19.1 million for the second quarter of fiscal 2008 compared to net sales
of $12.2 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second |
|
|
Second |
|
|
|
|
Sales (by segment) |
|
Quarter |
|
|
Quarter |
|
|
|
|
(in millions) |
|
2008 |
|
|
2007 |
|
|
Increase/(Decrease) |
|
Automated Systems |
|
$ |
10.6 |
|
|
|
55.5 |
% |
|
$ |
9.1 |
|
|
|
74.6 |
% |
|
$ |
1.5 |
|
|
|
16.5 |
% |
Technology Products |
|
|
8.5 |
|
|
|
44.5 |
% |
|
|
3.1 |
|
|
|
25.4 |
% |
|
|
5.4 |
|
|
|
174.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
19.1 |
|
|
|
100.0 |
% |
|
$ |
12.2 |
|
|
|
100.0 |
% |
|
$ |
6.9 |
|
|
|
56.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second |
|
|
Second |
|
|
|
|
Sales (by location) |
|
Quarter |
|
|
Quarter |
|
|
|
|
(in millions) |
|
2008 |
|
|
2007 |
|
|
Increase/(Decrease) |
|
Americas |
|
$ |
11.2 |
|
|
|
58.6 |
% |
|
$ |
6.9 |
|
|
|
56.6 |
% |
|
$ |
4.3 |
|
|
|
62.3 |
% |
Europe |
|
|
6.6 |
|
|
|
34.6 |
% |
|
|
4.8 |
|
|
|
39.3 |
% |
|
|
1.8 |
|
|
|
37.5 |
% |
Asia |
|
|
1.3 |
|
|
|
6.8 |
% |
|
|
0.5 |
|
|
|
4.1 |
% |
|
|
0.8 |
|
|
|
160.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
19.1 |
|
|
|
100.0 |
% |
|
$ |
12.2 |
|
|
|
100.0 |
% |
|
$ |
6.9 |
|
|
|
56.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in Automated Systems sales was primarily due to increased sales in Europe and to a
lesser extent, increased sales in Asia, that was slightly mitigated by lower sales in the
Americas. The Technology Product sales increase was primarily the result of sales of the
Companys commercial products which were not introduced until the third quarter of fiscal 2007.
Increased sales of the Companys commercial products were also the primary reason for the increase
in sales in the Americas. The increase in Europe was primarily due to sales of Automated Systems
products. Additionally, European sales increased approximately $700,000 as a result of the
stronger Euro this quarter compared to second quarter fiscal 2007. Asian sales increased
primarily due to sales of the Companys Automated Systems products. In the recent past, Asias
revenue came primarily from sales in Technology Products.
Bookings Bookings represent new orders received from customers. The Company had new order
bookings during the quarter of $17.6 million compared with new order bookings of $17.5 million in
the first quarter of fiscal 2008 and $17.2 million for the second quarter ended December 31, 2006.
The amount of new order bookings during any particular period is not necessarily indicative of
the future
18
operating performance of the Company. The following tables set forth comparison data for the
Companys bookings by segment and geographic location.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second |
|
|
Second |
|
|
|
|
Bookings (by segment) |
|
Quarter |
|
|
Quarter |
|
|
|
|
(in millions) |
|
2008 |
|
|
2007 |
|
|
Increase/(Decrease) |
|
Automated Systems |
|
$ |
8.5 |
|
|
|
48.3 |
% |
|
$ |
12.4 |
|
|
|
72.1 |
% |
|
$ |
(3.9 |
) |
|
|
(31.5 |
)% |
Technology Products |
|
|
9.1 |
|
|
|
51.7 |
% |
|
|
4.8 |
|
|
|
27.9 |
% |
|
|
4.3 |
|
|
|
89.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
17.6 |
|
|
|
100.0 |
% |
|
$ |
17.2 |
|
|
|
100.0 |
% |
|
$ |
0.4 |
|
|
|
2.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second |
|
|
Second |
|
|
|
|
Bookings (by location) |
|
Quarter |
|
|
Quarter |
|
|
|
|
(in millions) |
|
2008 |
|
|
2007 |
|
|
Increase/(Decrease) |
|
Americas |
|
$ |
10.5 |
|
|
|
59.7 |
% |
|
$ |
7.1 |
|
|
|
41.3 |
% |
|
$ |
3.4 |
|
|
|
47.9 |
% |
Europe |
|
|
5.7 |
|
|
|
32.4 |
% |
|
|
9.2 |
|
|
|
53.5 |
% |
|
|
(3.5 |
) |
|
|
(38.0 |
)% |
Asia |
|
|
1.4 |
|
|
|
7.9 |
% |
|
|
0.9 |
|
|
|
5.2 |
% |
|
|
0.5 |
|
|
|
55.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
17.6 |
|
|
|
100.0 |
% |
|
$ |
17.2 |
|
|
|
100.0 |
% |
|
$ |
0.4 |
|
|
|
2.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys level of new orders, particularly as they relate to the Automated Systems segment,
fluctuates from quarter to quarter. Automated Systems bookings declined in the second quarter of
2008 compared to 2007 primarily in Europe and to a lesser extent in the Americas and were
partially offset by increased bookings in Asia. The increase in new order bookings for Technology
Products was primarily due to orders for the Companys commercial products and was partially
offset by a decline in orders for the other Technology Products. The increase in orders in
commercial products was the primary reason for the increase in orders in the Americas.
Backlog Backlog represents orders or bookings received by the Company that have not yet been
filled. The Companys backlog was $21.3 million as of December 31, 2007 compared with $22.8
million as of September 30, 2007 and $22.6 million as of December 31, 2006. The following tables
set forth comparison data for the Companys backlog by segment and geographic location.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second |
|
|
Second |
|
|
|
|
Backlog (by segment) |
|
Quarter |
|
|
Quarter |
|
|
|
|
(in millions) |
|
2008 |
|
|
2007 |
|
|
Increase/(Decrease) |
|
Automated Systems |
|
$ |
14.7 |
|
|
|
69.0 |
% |
|
$ |
19.0 |
|
|
|
84.0 |
% |
|
$ |
(4.3 |
) |
|
|
(22.6 |
)% |
Technology Products |
|
|
6.6 |
|
|
|
31.0 |
% |
|
|
3.6 |
|
|
|
16.0 |
% |
|
|
3.0 |
|
|
|
83.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
21.3 |
|
|
|
100.0 |
% |
|
$ |
22.6 |
|
|
|
100.0 |
% |
|
$ |
(1.3 |
) |
|
|
(5.8 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second |
|
|
Second |
|
|
|
|
Backlog (by location) |
|
Quarter |
|
|
Quarter |
|
|
|
|
(in millions) |
|
2008 |
|
|
2007 |
|
|
Increase/(Decrease) |
|
Americas |
|
$ |
12.5 |
|
|
|
58.7 |
% |
|
$ |
10.1 |
|
|
|
44.7 |
% |
|
$ |
2.4 |
|
|
|
23.8 |
% |
Europe |
|
|
7.7 |
|
|
|
36.2 |
% |
|
|
11.9 |
|
|
|
52.6 |
% |
|
|
(4.2 |
) |
|
|
(35.3 |
)% |
Asia |
|
|
1.1 |
|
|
|
5.1 |
% |
|
|
0.6 |
|
|
|
2.7 |
% |
|
|
0.5 |
|
|
|
83.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
21.3 |
|
|
|
100.0 |
% |
|
$ |
22.6 |
|
|
|
100.0 |
% |
|
$ |
(1.3 |
) |
|
|
(5.8 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
The Company expects to be able to fill substantially all of the orders in backlog at December 31,
2007 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 $8.8 million, or 46.2% of sales, in the second quarter of fiscal
year 2008, as compared to $4.5 million, or 37.2% of sales, in the second quarter of fiscal year
2007. The gross profit margin was higher this quarter primarily due to the relationship between
the significantly higher revenue in the second quarter to the Companys relatively fixed
installation and manufacturing costs. The stronger Euro also had a positive impact of
approximately $500,000, or 2.8% of sales. The balance of the improvement this quarter was due to a
favorable product mix compared with the second quarter of fiscal 2007.
Selling, General and Administrative (SG&A) Expenses SG&A expenses were $4.6 million in the
quarter ended December 31, 2007 compared to $4.2 million in the second quarter a year ago. The
increase was primarily due to: increased expenses of approximately
$200,000 principally for
personnel additions and co-op advertising expenses related to the Companys new commercial
products; $170,000 in additional personnel and related expenses
incurred in connection with the Company's expanded sales efforts in
Asia and an increase of approximately $230,000 in the cost of outside
professional services for accounting fees related to compliance with Sarbanes Oxley Section 404 internal control requirements that were
not incurred in the second quarter of fiscal 2007 and legal services. Offsetting these increases
was approximately $160,000 in lower SG&A expenses in Europe.
Engineering, Research and Development (R&D)
Expenses Engineering and R&D expenses were $2.2
million in the quarter ended December 31, 2007 compared to $1.9 million in the second quarter a
year ago. The $290,000 increase was primarily due to increases in engineering materials and
personnel costs related to commercial product development efforts.
Interest Income, net Net interest income was $329,000 in the second quarter of fiscal 2008
compared with net interest income of $265,000 in the second quarter of fiscal 2007. The increase
was primarily due to higher interest rates on higher average invested cash balances compared to one
year ago.
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 second quarter of fiscal 2008
was 6.0% compared to
33.3% in the second quarter of fiscal 2007. The effective rate in both 2008 and 2007 primarily
reflects the effect of the mix of pre-tax 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 second quarter of fiscal 2008 would have been
approximately 37% without the impairment charge.
Outlook The Company expects to show quarter over quarter revenue growth throughout fiscal 2008
and continues to expect that sales and operating income will show growth for the full year of
fiscal 2008 over fiscal 2007. New orders, sales, and operating income growth in fiscal 2008,
compared to fiscal 2007, is expected to be primarily from growth within the Technology Products
segment, particularly from new commercial products offerings. The Company anticipates operating
income as a percentage of sales will increase during fiscal 2008 because the incremental sales
growth in Technology Products is expected to be accompanied by relatively small increases in
Engineering, R&D, and SG&A costs related to Technology Products. The Company also expects higher
operating expenses of approximately $600,000 in the third quarter of fiscal 2008 primarily due to costs associated with the
recently announced leadership changes.
20
The
Company also expects to incur higher costs due to the implementation
project related to compliance with Sarbanes Oxley Section 404
internal control requirements of approximately $400,000 that will be
incurred over the next three quarters. See Note
14 to the Consolidated Financial Statements, Subsequent Event.
Six Months Ended December 31, 2007 Compared to Six Months Ended December 31, 2006
Overview The Company reported net income of $259,000, or $0.03 per diluted share, for the first
half of fiscal 2008, compared with a net loss of $1.5 million, or $0.18 per diluted share for the
six months ended December 31, 2006. Significantly affecting the fiscal 2008 results was a $2.6
million impairment charge on a long-term investment. 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 Six Months Ended December
31, 2007 Compared to Six Months Ended December 31, 2006 Impairment on Long-Term Investment
below.
Sales Net sales in the first six months of fiscal 2008 were $36.8 million, compared to $22.9
million for the six months ended December 31, 2006. The following tables set forth comparison
data for the Companys net sales by segment and geographic location.
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|
Sales (by segment) |
|
Six Months |
|
|
Six Months |
|
|
|
|
(in millions) |
|
Ended 12/31/07 |
|
|
Ended 12/31/06 |
|
|
Increase/(Decrease) |
|
Automated Systems |
|
$ |
18.7 |
|
|
|
50.8 |
% |
|
$ |
16.9 |
|
|
|
73.8 |
% |
|
$ |
1.8 |
|
|
|
10.7 |
% |
Technology Products |
|
|
18.1 |
|
|
|
49.2 |
% |
|
|
6.0 |
|
|
|
26.2 |
% |
|
|
12.1 |
|
|
|
201.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
36.8 |
|
|
|
100.0 |
% |
|
$ |
22.9 |
|
|
|
100.0 |
% |
|
$ |
13.9 |
|
|
|
60.7 |
% |
|
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|
|
|
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|
|
Sales (by location) |
|
Six Months |
|
|
Six Months |
|
|
|
|
(in millions) |
|
Ended 12/31/07 |
|
|
Ended 12/31/06 |
|
|
Increase/(Decrease) |
|
Americas |
|
$ |
24.1 |
|
|
|
65.5 |
% |
|
$ |
11.4 |
|
|
|
49.8 |
% |
|
$ |
12.7 |
|
|
|
111.4 |
% |
Europe |
|
|
10.6 |
|
|
|
28.8 |
% |
|
|
10.4 |
|
|
|
45.4 |
% |
|
|
0.2 |
|
|
|
1.9 |
% |
Asia |
|
|
2.1 |
|
|
|
5.7 |
% |
|
|
1.1 |
|
|
|
4.8 |
% |
|
|
1.0 |
|
|
|
90.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
36.8 |
|
|
|
100.0 |
% |
|
$ |
22.9 |
|
|
|
100.0 |
% |
|
$ |
13.9 |
|
|
|
60.7 |
% |
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
The increase in Automated Systems sales was primarily due to increased sales in the Americas and
Asia. The sales increase in Technology Products was primarily due to higher sales of the Companys
commercial products which were not introduced until the third quarter of fiscal 2007. Increased
sales of the Companys commercial products were also the primary reason for the increase in sales
in the Americas. Asias revenue increased in both segments indicating that our investment efforts
in Asia are beginning to gain traction. In the recent past, Asias revenue came primarily from
sales in Technology Products. Lower sales in Europe for the six months of fiscal 2008 were more
than offset by the favorable strengthening of the Euro during the first half of fiscal 2008.
Bookings Bookings represent new orders received from customers. New order bookings for the six
months ended December 31, 2008 were $35.1 million compared to $26.7 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.
21
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|
|
Bookings (by segment) |
|
Six Months |
|
|
Six Months |
|
|
|
|
(in millions) |
|
Ended 12/31/07 |
|
|
Ended 12/31/06 |
|
|
Increase/(Decrease) |
|
Automated Systems |
|
$ |
20.3 |
|
|
|
57.8 |
% |
|
$ |
18.9 |
|
|
|
70.8 |
% |
|
$ |
1.4 |
|
|
|
7.4 |
% |
Technology Products |
|
|
14.8 |
|
|
|
42.2 |
% |
|
|
7.8 |
|
|
|
29.2 |
% |
|
|
7.0 |
|
|
|
89.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
35.1 |
|
|
|
100.0 |
% |
|
$ |
26.7 |
|
|
|
100.0 |
% |
|
$ |
8.4 |
|
|
|
31.5 |
% |
|
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|
|
|
|
|
Bookings (by location) |
|
Six Months |
|
|
Six Months |
|
|
|
|
(in millions) |
|
Ended 12/31/07 |
|
|
Ended 12/31/06 |
|
|
Increase/(Decrease) |
|
Americas |
|
$ |
20.3 |
|
|
|
57.8 |
% |
|
$ |
13.3 |
|
|
|
49.8 |
% |
|
$ |
7.0 |
|
|
|
52.6 |
% |
Europe |
|
|
12.0 |
|
|
|
34.2 |
% |
|
|
11.9 |
|
|
|
44.6 |
% |
|
|
0.1 |
|
|
|
0.8 |
% |
Asia |
|
|
2.8 |
|
|
|
8.0 |
% |
|
|
1.5 |
|
|
|
5.6 |
% |
|
|
1.3 |
|
|
|
86.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
35.1 |
|
|
|
100.0 |
% |
|
$ |
26.7 |
|
|
|
100.0 |
% |
|
$ |
8.4 |
|
|
|
31.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in new order bookings for Automated Systems during the first half of fiscal 2008 was
primarily due to increased bookings in Asia. The increase in new order bookings in the Technology
Products Group during the first half of fiscal 2008 was primarily due to orders for our initial
commercial product. The Company had received its first order of $900,000 for its new commercial
product in the second quarter of fiscal 2007. The increase in new order bookings for the
Companys commercial products 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 $15.9 million, or 43.3% of sales, in the first half of fiscal year
2008, as compared to $9.0 million, or 39.4% of sales, in the first half of fiscal year 2007. The
gross profit margin increase was primarily due to relatively fixed installation labor and
manufacturing costs on a higher revenue base in fiscal 2008. The stronger Euro also had a positive
impact of approximately $700,000, or 1.9% of sales.
Selling, General and Administrative (SG&A) Expenses SG&A expenses were $9.0 million in the first
half of fiscal 2008 compared to $8.1 million in the same period one year ago. The increase was
primarily due to: increased expenses of approximately $380,000 primarily for personnel additions
and co-op advertising expenses related to the Companys commercial products; $380,000 in
additional personnel and related expenses incurred in connection with
the Companys expanded sales efforts in Asia; approximately
$220,000 related to salary and benefit increases and an increase of approximately $190,000 in the
cost of outside professional services for accounting fees related to compliance with Sarbanes Oxley Section
404 internal control requirements that were not incurred in the first half of fiscal 2007.
Offsetting these increases was approximately $190,000 in lower SG&A expenses in Europe.
Engineering, Research and Development (R&D) Expenses Engineering and R&D expenses were $4.4
million for the six months ended December 31, 2007 compared to $3.6 million for the six-month
period a year ago. The increase was principally due to approximately $590,000 for engineering
materials and personnel costs related to commercial product
development efforts and higher benefit
expenses of approximately $140,000.
22
Interest Income, net Net interest income was $544,000 in the first half of fiscal 2008 compared
with net interest income of $579,000 in the first half of fiscal 2007. The decrease was due to
higher cash balances in the first quarter of fiscal 2007 compared to the first quarter of fiscal
2008 partially offset by higher net interest income in the second quarter of fiscal 2008 due to
higher interest rates than one year ago.
Foreign Currency There was a net foreign currency gain of $181,000 in the first half of fiscal
2008 compared with a net loss of $21,000 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 six months ended December 31, 2007 was 60.2%
compared to 28.8% in the first half of fiscal 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 second half of fiscal 2008 would have been
approximately 40% without the impairment charge.
LIQUIDITY AND CAPITAL RESOURCES
The Companys cash and cash equivalents were $17.4 million at December 31, 2007, compared to $10.9
million at June 30, 2007. The cash increase of $6.5 million for the six months ended December 31,
2007 resulted primarily from $5.0 million of cash generated from operations and $1.4 million
received from the Companys stock plans, which were offset by $543,000 used for capital
expenditures.
The $5.0 million increase in cash provided from operations was primarily generated from $3.3
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 changes in net working capital of $1.7 million. 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
$3.5 million offset by a reduction in accounts payable of $839,000, an increase in inventory of
$497,000 and a decline in other current assets and liabilities of $499,000. The $3.5 million
reduction in receivables primarily related to cash collections during the period. Inventory
increased $497,000 due to purchases of long lead time items required to fill anticipated orders.
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. 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 first half of fiscal 2008,
the Company increased the reserve for obsolescence by $144,000 and disposals netted with the
foreign currency translation of the Euro increased the reserve $3,000.
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
23
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 $46,000 and
wrote off $250,000 of receivables during the first half of fiscal 2008. The write-off of $250,000
primarily related to two European customers.
The Company had no debt outstanding at December 31, 2007. 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 $41.2 million as of
December 31, 2007 and to have no advances outstanding for 30 consecutive days each calendar year.
At December 31, 2007, the Companys German subsidiary (GmbH) had an unsecured credit facility
totaling 500,000 Euros (equivalent to approximately $736,500 at December 31, 2007). 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 December 31, 2007, GmbH had no borrowings outstanding. At December 31, 2007, the
facility supported outstanding letters of credit totaling 79,700 Euros (equivalent to approximately
$116,000).
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 $1.5 million during fiscal year 2008 for capital
expenditures, although there is no binding commitment to do so.
As of December 31, 2007, 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 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 December 31,
24
2007 as
long-term assets. To date, the Company has received all distribution payments on these
investments on a monthly basis. 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. Upon exercise of the put option by Ram Re,
Blue Water is required to purchase perpetual non-cumulative redeemable preference shares of Ram Re.
During the second quarter of fiscal 2008, based on fair values provided by the Companys broker, the Company recorded a $2.6 million other-than-temporary decline in the market value of this
investment as Impairment of Long-Term Investment in the income
statement, and a temporary decline of $106,000 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 $17.4 million at
December 31, 2007 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 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 intends 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.
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.
25
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 December 31,
2007, the Companys percentage of sales commitments in non-United States currencies was
approximately 37.6% or $8.0 million, compared to 58.9% or $13.3 million at December 31, 2006.
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 December 31, 2007, the Company had forward exchange contracts to sell 5.0 million Euros ($7.3
million equivalent) at a weighted average settlement rate of 1.45 Euros to the United States
Dollar. The contracts outstanding at December 31, 2007, 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
26
comprehensive income. The Company recognized a loss of approximately $106,000 and $342,000 in
other comprehensive income (loss) for the unrealized change in value of the forward exchange
contracts during the three and six months ended December 31, 2007, 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 December 31, 2006, the Company had $7.8 million of forward exchange contracts between the United
States Dollar and the Euro with a weighted average settlement price of 1.30 Euros to the United
States Dollar. The Company recognized a charge of approximately $97,000 and $24,000 in other
comprehensive income (loss) for the unrealized change in value of the forward exchange contracts
during the three and six months ended December 31, 2006.
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 six months ended December 31, 2007 would
have been approximately $73,000 and $33,000, respectively. The potential loss in earnings for the
comparable periods in fiscal 2007 would have been approximately $51,000 and $69,000, respectively.
Uncertainties in the Credit Markets
As of December 31, 2007, 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 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 December 31, 2007 as long-term assets. To date, the Company has received all distribution
payments on these investments on a monthly basis. 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. Upon exercise of the put
option by Ram Re, Blue Water is required to purchase perpetual non-cumulative redeemable preference
shares of Ram Re. During the second quarter of fiscal 2008, based on fair values provided by the Companys broker, the Company recorded a $2.6 million other-than-temporary decline in the market
value of this investment as Impairment of Long-Term Investment in the income statement, and a temporary decline of $106,000 in the market value of the 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
27
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 $17.4 million at
December 31, 2007 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 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 December 31, 2007
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 December 31, 2007. 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
December 31, 2007, 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.
28
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. During the
second quarter of fiscal 2008, the Company believes it has remediated the material weakness 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 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 December 31, 2007 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.
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Shareholders on November 12, 2007 at which the following
action was taken:
29
1. The Shareholders elected the following persons as the Companys Board of Directors, and the
results of the vote on this matter were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Name |
|
For |
|
Withheld |
|
Broker Non-Votes |
|
|
|
|
|
|
|
|
|
|
|
|
|
David J. Beattie |
|
|
7,177,377 |
|
|
|
18,332 |
|
|
|
|
|
Kenneth R. Dabrowski |
|
|
7,179,927 |
|
|
|
15,782 |
|
|
|
|
|
Philip J. DeCocco |
|
|
7,156,777 |
|
|
|
38,932 |
|
|
|
|
|
W. Richard Marz |
|
|
7,179,377 |
|
|
|
16,332 |
|
|
|
|
|
Robert S. Oswald |
|
|
7,082,962 |
|
|
|
112,747 |
|
|
|
|
|
Alfred A. Pease |
|
|
7,084,402 |
|
|
|
111,307 |
|
|
|
|
|
James A. Ratigan |
|
|
6,893,364 |
|
|
|
302,345 |
|
|
|
|
|
Terryll R. Smith |
|
|
7,003,094 |
|
|
|
192,615 |
|
|
|
|
|
ITEM 6. EXHIBITS
|
10.47. |
|
Employment and Amended and Restated Severance Agreement dated January 21, 2008
between Perceptron, Inc. and Alfred A. Pease is incorporated by reference to
Exhibit 10.1 of the Companys Report on Form 8-K filed on January 21, 2008. |
|
|
10.48 |
|
Eighth Amendment to Credit Agreement dated October 24, 2002, between
Perceptron, Inc. and Comerica Bank is incorporated by reference to Exhibit 10.1 of
the Companys Report on Form 8-K filed on December 21, 2007. |
|
|
31.1 |
|
Certification by the Chief Executive Officer of the Company pursuant to
Rule 13a 14(a) and Rule 15d 14(a). |
|
|
31.2 |
|
Certification by the Chief Financial Officer of the Company pursuant to
Rule 13a 14(a) and Rule 15d 14(a). |
|
|
32.1 |
|
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. |
|
|
32.2 |
|
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.
|
|
|
|
|
|
Perceptron, Inc.
(Registrant)
|
|
Date: February 14, 2008 |
By: |
/S/ Harry T. Rittenour
|
|
|
|
Harry T. Rittenour |
|
|
|
President and Chief Executive Officer |
|
|
|
|
|
Date: February 14, 2008 |
By: |
/S/ John H. Lowry III
|
|
|
|
John H. Lowry III |
|
|
|
Vice President and Chief Financial Officer
(Principal Financial Officer) |
|
|
|
|
|
Date: February 14, 2008 |
By: |
/S/ Sylvia M. Smith
|
|
|
|
Sylvia M. Smith |
|
|
|
Controller and Chief Accounting Officer
(Principal Accounting Officer) |
|
|
31