Attached files
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EX-32 - EXHIBIT 32 - PERCEPTRON INC/MI | c17226exv32.htm |
EX-31.2 - EXHIBIT 31.2 - PERCEPTRON INC/MI | c17226exv31w2.htm |
EX-31.1 - EXHIBIT 31.1 - PERCEPTRON INC/MI | c17226exv31w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly
report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period ended
March 31, 2011.
Commission file number: 0-20206
PERCEPTRON, INC.
(Exact Name of Registrant as Specified in Its Charter)
Michigan | 38-2381442 | |
(State or Other Jurisdiction of | (I.R.S. Employer | |
Incorporation or Organization) | Identification No.) | |
47827 Halyard Drive, Plymouth, Michigan | 48170-2461 | |
(Address of Principal Executive Offices) | (Zip Code) |
(734) 414-6100
(Registrants Telephone Number, Including Area Code)
(Registrants Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T(§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company þ | |||
(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). Yes o No þ
The number of shares outstanding of each of the issuers classes of common stock as of May 10, 2011, was:
Common Stock, $0.01 par value | 8,661,447 | |
Class | Number of shares |
PERCEPTRON, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
For the Quarter Ended March 31, 2011
INDEX TO FORM 10-Q
For the Quarter Ended March 31, 2011
Page | ||||||||
Number | ||||||||
COVER |
1 | |||||||
INDEX |
2 | |||||||
3 | ||||||||
13 | ||||||||
21 | ||||||||
21 | ||||||||
22 | ||||||||
22 | ||||||||
23 | ||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32 |
2
Table of Contents
PERCEPTRON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS
March 31, | June 30, | |||||||
(In Thousands, Except Per Share Amount) | 2011 | 2010 | ||||||
(Unaudited) | ||||||||
ASSETS |
||||||||
Current Assets |
||||||||
Cash and cash equivalents |
$ | 9,642 | $ | 9,789 | ||||
Short-term investments |
14,291 | 10,278 | ||||||
Receivables: |
||||||||
Billed receivables, net of allowance for doubtful accounts
of $166 and $138, respectively |
13,618 | 15,207 | ||||||
Unbilled receivables |
580 | 616 | ||||||
Other receivables |
633 | 916 | ||||||
Inventories, net of reserves of $1,783 and $1,413, respectively |
7,350 | 6,551 | ||||||
Deferred taxes |
2,876 | 2,877 | ||||||
Other current assets |
1,348 | 1,288 | ||||||
Total current assets |
50,338 | 47,522 | ||||||
Property and Equipment |
||||||||
Building and land |
6,096 | 6,095 | ||||||
Machinery and equipment |
14,119 | 13,057 | ||||||
Furniture and fixtures |
870 | 870 | ||||||
21,085 | 20,022 | |||||||
Less Accumulated depreciation and amortization |
(15,010 | ) | (14,091 | ) | ||||
Net property and equipment |
6,075 | 5,931 | ||||||
Long-Term Investments |
2,192 | 2,192 | ||||||
Deferred Tax Asset |
8,477 | 9,008 | ||||||
Total Assets |
$ | 67,082 | $ | 64,653 | ||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||
Current Liabilities |
||||||||
Accounts payable |
$ | 2,494 | $ | 3,741 | ||||
Accrued liabilities and expenses |
3,105 | 2,932 | ||||||
Accrued compensation |
890 | 1,222 | ||||||
Income taxes payable |
330 | 98 | ||||||
Deferred revenue |
4,436 | 3,184 | ||||||
Total current liabilities |
11,255 | 11,177 | ||||||
Shareholders Equity |
||||||||
Preferred stock no par value, authorized 1,000 shares, issued none |
| | ||||||
Common stock, $0.01 par value, authorized 19,000 shares, issued
and outstanding 8,767 and 8,961, respectively |
88 | 90 | ||||||
Accumulated other comprehensive income (loss) |
746 | (1,505 | ) | |||||
Additional paid-in capital |
40,538 | 41,717 | ||||||
Retained earnings |
14,455 | 13,174 | ||||||
Total shareholders equity |
55,827 | 53,476 | ||||||
Total Liabilities and Shareholders Equity |
$ | 67,082 | $ | 64,653 | ||||
The notes to the consolidated financial statements are an integral part of these statements.
3
Table of Contents
PERCEPTRON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended | Nine Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
(In Thousands, Except Per Share Amounts) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Net Sales |
$ | 14,134 | $ | 13,544 | $ | 43,228 | $ | 36,108 | ||||||||
Cost of Sales |
7,671 | 8,550 | 24,927 | 22,378 | ||||||||||||
Gross Profit |
6,463 | 4,994 | 18,301 | 13,730 | ||||||||||||
Operating Expenses |
||||||||||||||||
Selling, general and administrative |
3,486 | 3,591 | 10,558 | 11,221 | ||||||||||||
Engineering, research and development |
2,134 | 1,762 | 6,224 | 5,045 | ||||||||||||
Total operating expenses |
5,620 | 5,353 | 16,782 | 16,266 | ||||||||||||
Operating Income (Loss) |
843 | (359 | ) | 1,519 | (2,536 | ) | ||||||||||
Other Income and (Expenses) |
||||||||||||||||
Interest income, net |
59 | 48 | 160 | 176 | ||||||||||||
Foreign currency gain (loss) |
43 | (17 | ) | 254 | 158 | |||||||||||
Other |
| 1 | | 3 | ||||||||||||
Total other income |
102 | 32 | 414 | 337 | ||||||||||||
Income (Loss) Before Income Taxes |
945 | (327 | ) | 1,933 | (2,199 | ) | ||||||||||
Income Tax Benefit (Expense) |
(339 | ) | 196 | (652 | ) | 841 | ||||||||||
Net Income (Loss) |
$ | 606 | $ | (131 | ) | $ | 1,281 | $ | (1,358 | ) | ||||||
Earnings (Loss) Per Common Share |
||||||||||||||||
Basic |
$ | 0.07 | $ | (0.01 | ) | $ | 0.14 | $ | (0.15 | ) | ||||||
Diluted |
$ | 0.07 | $ | (0.01 | ) | $ | 0.14 | $ | (0.15 | ) | ||||||
Weighted Average Common Shares Outstanding |
||||||||||||||||
Basic |
8,888 | 8,949 | 8,953 | 8,913 | ||||||||||||
Dilutive effect of stock options |
177 | | 165 | | ||||||||||||
Diluted |
9,065 | 8,949 | 9,118 | 8,913 | ||||||||||||
The notes to the consolidated financial statements are an integral part of these statements.
4
Table of Contents
PERCEPTRON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
Nine Months Ended | ||||||||
March 31, | ||||||||
(In Thousands) | 2011 | 2010 | ||||||
Cash Flows from Operating Activities |
||||||||
Net income (loss) |
$ | 1,281 | $ | (1,358 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided from
(used for) operating activities: |
||||||||
Depreciation and amortization |
796 | 932 | ||||||
Stock compensation expense |
350 | 409 | ||||||
Deferred income taxes |
697 | (1,049 | ) | |||||
Disposal of assets and other |
(21 | ) | (17 | ) | ||||
Allowance for doubtful accounts |
(2 | ) | (433 | ) | ||||
Changes in assets and liabilities |
||||||||
Receivables, net |
2,618 | (1,532 | ) | |||||
Inventories |
(504 | ) | 1,227 | |||||
Accounts payable |
(1,798 | ) | (378 | ) | ||||
Other current assets and liabilities |
933 | (62 | ) | |||||
Net cash provided from (used for) operating activities |
4,350 | (2,261 | ) | |||||
Cash Flows from Financing Activities |
||||||||
Proceeds from stock plans |
306 | 247 | ||||||
Repurchase of company stock |
(1,837 | ) | | |||||
Net cash provided from (used for) financing activities |
(1,531 | ) | 247 | |||||
Cash Flows from Investing Activities |
||||||||
Purchases of short-term investments |
(30,881 | ) | (13,123 | ) | ||||
Sales of short-term investments |
28,198 | 2,486 | ||||||
Capital expenditures |
(899 | ) | (511 | ) | ||||
Net cash used for investing activities |
(3,582 | ) | (11,148 | ) | ||||
Effect of Exchange Rate Changes on Cash and Cash Equivalents |
616 | (455 | ) | |||||
Net Decrease in Cash and Cash Equivalents |
(147 | ) | (13,617 | ) | ||||
Cash and Cash Equivalents, July 1 |
9,789 | 22,654 | ||||||
Cash and Cash Equivalents, December 31 |
$ | 9,642 | $ | 9,037 | ||||
The notes to the consolidated financial statements are an integral part of these statements.
5
Table of Contents
PERCEPTRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The accompanying Consolidated Financial Statements should be read in conjunction with the Companys
2010 Annual Report on Form 10-K. In the opinion of management, the unaudited information furnished
herein reflects all adjustments necessary for a fair presentation of the financial statements for
the periods presented. The results of operations for any interim period are not necessarily
indicative of the results of operations for a full year.
2. New Accounting Pronouncements
In January 2010, the Financial Accounting Standards Board (FASB) issued guidance to amend the
disclosure requirements related to fair value measurements. The guidance requires the disclosure of
roll forward activities on purchases, sales, issuance, and settlements of the assets and
liabilities measured using significant unobservable inputs (Level 3 fair value measurements). The
guidance will become effective for us with the reporting period beginning July 1, 2011. Other than
requiring additional disclosures, the adoption of this new guidance will not have a material impact
on our financial statements.
Beginning July 1, 2010, the Company adopted Accounting Standards Update (ASU) 2009-13,
Multiple-Deliverable Revenue Arrangements, (amendments to Accounting Standards Codification
(ASC) Topic 605, Revenue Recognition (ASU 2009-13) (formerly Emerging Issues Task Force
(EITF) Issue 08-1) on a prospective basis. The new standard requires the Company to determine
its best estimate of selling price in a manner that is consistent with that used to determine the
price to sell the deliverable on a stand-alone basis. The standard also eliminates the residual
method of allocation and provides for expanded disclosures. See Note 3 Revenue Recognition
below which encompasses the additional expanded disclosures. Adoption of this standard does not
have a material effect on the Companys financial statements because no significant change was
required in the Companys process of allocating arrangement consideration to the units of
accounting under the new standard.
3. Revenue Recognition
Revenue related to products is recognized upon shipment when title and risk of loss has passed to
the customer, there is persuasive evidence of an arrangement, the sales price is fixed or
determinable, collection of the related receivable is reasonably assured and customer acceptance
criteria have been successfully demonstrated. Revenue related to services is recognized upon
completion of the service.
The Company also has multiple element arrangements in its Automated Systems product line that may
include purchase of equipment, labor support and/or training. Each element has value on a
stand-alone basis. For multiple element arrangements, the Company defers from revenue recognition
the greater of the fair value of any undelivered elements of the contract or the portion of the
sales price of the contract that is not payable until the undelivered elements are completed.
Delivered items are not contingent upon the delivery of any undelivered items nor do the delivered
items include general rights of return.
When available, the Company allocates arrangement consideration to each element based upon vendor
specific objective evidence (VSOE) of fair value of the respective elements. When VSOE cannot be
established, the Company attempts to establish the selling price of each element based on relevant
third-party evidence. Because the Companys offerings contain a significant level of proprietary
technology, customization or differentiation such that comparable pricing of products with similar
functionality cannot be obtained, the Company primarily uses its best estimate of selling price
(BESP) in the Companys allocation of arrangement consideration. The Company determines the BESP
for a product or service by considering multiple factors including, but not limited to, pricing
practices, internal costs, geographies and gross margin.
The Companys Automated Systems products are made to order systems that are designed and configured
to meet each customers specific requirements. Timing for the delivery of each element in the
arrangement is primarily determined by the customers requirements and the number of elements
ordered. Delivery of all of the multiple elements in an order will typically occur over a three to
15 month period after the order is received.
6
Table of Contents
The Company does not have price protection agreements or requirements to buy back inventory. The
Companys history demonstrates that sales returns have been insignificant.
4. Financial Instruments
For a discussion on the Companys fair value measurement policies for Financial Instruments, refer
to the Companys Annual Report on Form 10-K for the fiscal year ended June 30, 2010.
The Company has not changed its valuation techniques in measuring the fair value of any financial
assets and liabilities during the period.
The following table presents the Companys investments at March 31, 2011 and June 30, 2010 that are
measured and recorded at fair value on a recurring basis consistent with the fair value hierarchy
provisions of ASC 820, Fair Value Measurements and Disclosures (in thousands).
Description | March 31, 2011 | Level 1 | Level 2 | Level 3 | ||||||||||||
Short-Term Investments |
$ | 2,188 | $ | 73 | $ | 2,115 | | |||||||||
Long-Term Investments |
$ | 2,192 | | | $ | 2,192 |
Description | June 30, 2010 | Level 1 | Level 2 | Level 3 | ||||||||||||
Short-Term Investments |
$ | 7 | $ | 7 | | | ||||||||||
Long-Term Investments |
$ | 2,192 | | | $ | 2,192 |
The Companys Level 3 investments consist of preferred stock investments (see Note 6 Short-Term
and Long-Term Investments) and are measured at fair value on a recurring basis using significant
unobservable inputs (Level 3) as defined in ASC 820.
Fair value estimates are made at a specific point in time based on relevant market information and
information about the financial instrument. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore, cannot be determined with
precision. Changes in assumptions could significantly affect these estimates.
5. Inventory
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 annually with quarterly updates for known changes
that have occurred since the annual review. Inventory, net of reserves of $1,783,000 and
$1,413,000 at March 31, 2011 and June 30, 2010 respectively, is comprised of the following (in
thousands):
March 31, | June 30, | |||||||
Inventory | 2011 | 2010 | ||||||
Component parts |
$ | 2,462 | $ | 1,507 | ||||
Work in process |
400 | 238 | ||||||
Finished goods |
4,488 | 4,806 | ||||||
Total |
$ | 7,350 | $ | 6,551 | ||||
7
Table of Contents
6. Short-Term and Long-Term Investments
The Company accounts for its investments in accordance with ASC 320, Investments Debt and
Equity Securities. Investments with a maturity of greater than three months to one year are
classified as short-term investments. Investments with maturities beyond one year may be classified
as short-term if the Company reasonably expects the investment to be realized in cash or sold or
consumed during the normal operating cycle of the business. Investments available for sale are
recorded at market value using the specific identification method. Investments expected to be
held to maturity or until market conditions improve are measured at amortized cost in the statement
of financial position if it is the Companys intent and ability to hold those securities long-term.
At 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.
At March 31, 2011, the Company had $12.1 million of short-term investments in time deposits.
At March 31, 2011, the Company holds long-term investments in preferred stock investments that are
not registered under the Securities Act of 1933 and may not be offered or sold in the United States
absent registration or an applicable exemption from registration requirements. The Company
estimated that the fair market value of these investments at March 31, 2011 was $2.2 million based
on limited market inputs, an independent valuation performed by an external valuation firm in March
2009, together with managements judgment of the market. The fair market analysis considered the
following key inputs, (i) the underlying structure of each security; (ii) the present value of the
future principal and dividend payments if any discounted at rates considered to reflect current
market conditions; and (iii) the time horizon that the market value of each security could return
to its cost and be sold. Under ASC 820, Fair Value Measurements, such valuation assumptions are
defined as Level 3 inputs.
The following table summarizes the Companys long-term investments (in thousands):
Long-Term Investments | March 31, 2011 | June 30, 2010 | ||||||
Cost |
$ | 6,300 | $ | 6,300 | ||||
Unrealized Losses |
(4,108 | ) | (4,108 | ) | ||||
Estimated Fair Value |
$ | 2,192 | $ | 2,192 | ||||
7. 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 have involved the use of forward contracts that
typically mature within one year and were designed to hedge anticipated foreign currency
transactions. The Company has used forward exchange contracts to hedge the net assets of certain
of its foreign subsidiaries to offset the translation and economic exposures related to the
Companys investment in these subsidiaries.
At March 31, 2011 and 2010 the Company had no forward exchange contracts outstanding.
8. Comprehensive Income
Comprehensive income is defined as the change in common shareholders equity during a period from
transactions and events from non-owner sources, including net income. Other items of comprehensive
income include revenues, expenses, gains and losses that are excluded from net income. Total
comprehensive income, net of tax, for the applicable periods is as follows (in thousands):
Three Months Ended March 31, | 2011 | 2010 | ||||||
Net Income (Loss) |
$ | 606 | $ | (131 | ) | |||
Other Comprehensive Income (Loss): |
||||||||
Foreign currency translation adjustments |
1,028 | (969 | ) | |||||
Total Comprehensive Income (Loss) |
$ | 1,634 | $ | (1,100 | ) | |||
8
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Nine Months Ended March 31, | 2011 | 2010 | ||||||
Net Income (Loss) |
$ | 1,281 | $ | (1,358 | ) | |||
Other Comprehensive Income (Loss): |
||||||||
Foreign currency translation adjustments |
2,251 | (786 | ) | |||||
Total Comprehensive (Loss) |
$ | 3,532 | $ | (2,144 | ) | |||
9. Credit Facilities
The Company had no debt outstanding at March 31, 2011 and June 30, 2010.
On November 16, 2010, the Company entered into an Amended and Restated Credit Agreement (New
Credit Agreement) with Comerica Bank which replaced the Credit Agreement dated October 24, 2002
and its thirteen amendments. The secured New Credit Agreement provides for borrowings of up to
$6.0 million and expires on November 1, 2012. Proceeds under the New Credit Agreement may be used
for working capital and capital expenditures. Security under the New Credit Agreement is
substantially all non-real estate assets of the Company held in the United States. Borrowings are
designated as a Libor-based Advance or as a Prime-based Advance if the Libor-based Advance is not
available. Interest on Libor-based Advances is calculated currently at 2.35% above the Libor Rate
offered at the time for the period chosen, and is payable on the last day of the applicable period.
The Company may not select a Prime-based rate for Advances except during a period of time during
which the Libor-based rate is not available as the applicable interest rate. Interest on
Prime-based Advances is payable on the first business day of each month commencing on the first
business day following the month during which such Advance is made and at maturity and is
calculated daily, using the interest rate established by Comerica Bank as its prime rate for its
borrowers. Quarterly, the Company pays a commitment fee of 0.15% per annum on the average daily
unused portion of the revolving credit commitment. The New Credit Agreement prohibits the Company
from paying dividends but permits the Company to repurchase up to $5.0 million of its common stock
through December 31, 2011. In addition, the New Credit Agreement requires the Company to maintain
a minimum Tangible Net Worth, as defined in the New Credit Agreement, of not less than $36.5
million as of October 18, 2010, with a further reduction to $35.5 million on June 30, 2011, minus
the aggregate amount paid by the Company to redeem its shares of its common stock during the period
beginning October 18, 2010 and ending December 31, 2011. The New Credit Agreement also requires
the Company to have no advances outstanding for 30 days each calendar year. At March 31, 2011, the
New Credit Agreement required a Tangible Net Worth of not less than $35.5 million and supported
outstanding letters of credit totaling $1.4 million.
At March 31, 2011, the Companys German subsidiary (GmbH) had an unsecured credit facility totaling
300,000 euros (equivalent to approximately $423,000). The facility may be used to finance working
capital needs and equipment purchases or capital leases. Any borrowings for working capital needs
will bear interest at 9.0% on the first 100,000 euros of borrowings and 2.0% for borrowings over
100,000 euros. The German credit facility is cancelable at any time by either GmbH or the bank and
any amounts then outstanding would become immediately due and payable. At March 31, 2011, GmbH had
no borrowings outstanding. At March 31, 2011, the facility supported outstanding letters of credit
totaling 62,552 euros (equivalent to approximately $88,000).
10. Stock-Based Compensation
The Company uses the Black-Scholes model for determining stock option valuations. The
Black-Scholes model requires subjective assumptions, including future stock price volatility and
expected time to exercise, which affect the calculated values. The expected term of option
exercises is derived from historical data regarding employee exercises and post-vesting employment
termination behavior. The risk-free rate of return is based on published U.S. Treasury rates in
effect for the corresponding expected term. The expected volatility is based on historical
volatility of the Companys stock price. These factors could change in the future, which would
affect the stock-based compensation expense in future periods.
The Company recognized operating expense for non-cash stock-based compensation costs in the amount
of $113,000 and $350,000 in the three and nine months ended March 31, 2011, respectively. The
Company recognized operating expense for non-cash stock-based compensation costs in the amount of
$108,000 and $409,000 in the three and nine months ended March 31, 2010, respectively. As of March
31, 2011, the total remaining unrecognized compensation
cost related to non-vested stock options amounted to $314,000. The Company expects to recognize
this cost over a weighted average vesting period of 1.28 years.
9
Table of Contents
The Company maintains a 1992 Stock Option Plan (1992 Plan) and 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 Plans as to future grants. No further grants are permitted to be made under the
terms of the 1998 Plan. Options previously granted under the 1992, Directors and 1998 Plans will
continue to be maintained until all options are exercised, 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 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, Compensation and Stock Option Committee, except as
otherwise specified in the 2004 Stock Incentive Plan. As of March 31, 2010, the Company has only
issued awards in the form of stock options. Options outstanding under the 2004 Stock Incentive
Plan generally become exercisable at 25% per year beginning one year after the date of grant and
expire ten years after the date of grant. All options outstanding under the 1992 and Directors
Plans are vested and 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 Company did not grant any stock options during the three and nine months ended March 31, 2011.
The estimated fair value as of the date options were granted during the three and nine month
periods ended March 31 2010, using the Black-Scholes option-pricing model, was as follows:
Three Months | Nine Months | |||||||
Ended | Ended | |||||||
3/31/2010 | 3/31/2010 | |||||||
Weighted Average Estimated Fair Value Per
Share of Options Granted During the Period |
| $ | 1.38 | |||||
Assumptions: |
||||||||
Amortized Dividend Yield |
| | ||||||
Common Stock Price Volatility |
| 47.35 | % | |||||
Risk Free Rate of Return |
| 2.38 | % | |||||
Expected Option Term (in years) |
| 5 |
The Company received approximately $48,000 and $161,000, respectively, in cash from option
exercises under all share-based payment arrangements for the three and nine months ended March 31,
2011.
11. Earnings Per Share
Basic earnings per share (EPS) is calculated by dividing net income by the weighted average
number of common shares outstanding during the period. Other obligations, such as stock options,
are considered to be potentially dilutive common shares. Diluted EPS assumes the issuance of
potential dilutive common shares outstanding during the period and adjusts for any changes in
income and the repurchase of common shares that would have occurred from the assumed issuance,
unless such effect is anti-dilutive. The calculation of diluted shares also takes into effect the
average unrecognized non-cash stock-based compensation expense and additional adjustments for tax
benefits related to non-cash stock-based compensation expense.
Options to purchase 794,000 and 931,000 shares of common stock outstanding in the three months
ended March 31, 2011 and 2010, respectively, were not included in the computation of diluted EPS
because the effect would have been anti-dilutive. Options to purchase 813,000 and 973,000 shares
of common stock outstanding in the nine months ended March 31, 2011 and 2010, respectively, were
not included in the computation of diluted EPS because the effect would have been anti-dilutive.
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12. 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 $6.9 million using a March 31, 2011 exchange rate.
GDS and Carbotech have filed for bankruptcy protection in Canada. Discovery is complete in this
matter and the parties are awaiting a trial date. The Company intends to vigorously defend against
GDS claims.
The Company is a party to a suit filed by i-CEM Service, Inc. and 3CEMS Prime (collectively
3CEMS) on or about July 1, 2010 in the Federal Court for the Northern District of Illinois. The
suit alleges that the Company breached its contractual and common law indemnification obligations
by failing to pay for component parts used to manufacture optical video scopes. The suit seeks
damages of not less than $4 million. The Company intends to vigorously defend against 3CEMS
claims.
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.
13. Segment Information
The Companys reportable segments are strategic business units that have separate management teams
focused on different marketing strategies. The Industrial Business Unit (IBU) segment markets
its products primarily to industrial companies directly or through manufacturing line builders,
system integrators, original equipment manufacturers (OEMs) and value-added resellers (VARs).
Products sold by IBU include Automated Systems products consisting of AutoGaugeâ,
AutoGaugeâ Plus, AutoFitâ, AutoScanâ, and AutoGuideâ that are primarily
custom-configured systems typically purchased for installation in connection with new automotive
model retooling programs, value added services that are primarily related to Automated Systems
products, and Technology Components consisting of ScanWorks®, ScanWorks®xyz,
Toolkit, WheelWorks® and Multi-line Sensor products that target the digitizing, reverse
engineering, inspection and original equipment manufacturers wheel alignment markets. The
Commercial Products Business Unit (CBU) segment products are designed for sale to professional
tradesmen in the commercial market and are sold to and distributed through strategic partners.
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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.
Commercial | ||||||||||||
Industrial | Products Business | |||||||||||
Reportable Segments ($000) | Business Unit | Unit | Consolidated | |||||||||
Three months ended March 31, 2011 |
||||||||||||
Net sales |
$ | 11,587 | $ | 2,547 | $ | 14,134 | ||||||
Operating income (loss) |
1,307 | (464 | ) | 843 | ||||||||
Assets |
50,545 | 16,537 | 67,082 | |||||||||
Accumulated depreciation and amortization |
14,388 | 622 | 15,010 | |||||||||
Three months ended March 31, 2010 |
||||||||||||
Net sales |
$ | 10,218 | $ | 3,326 | $ | 13,544 | ||||||
Operating income (loss) |
448 | (807 | ) | (359 | ) | |||||||
Assets |
37,431 | 24,698 | 62,129 | |||||||||
Accumulated depreciation and amortization |
13,689 | 784 | 14,473 |
Commercial | ||||||||||||
Industrial | Products Business | |||||||||||
Reportable Segments ($000) | Business Unit | Unit | Consolidated | |||||||||
Nine months ended March 31, 2011 |
||||||||||||
Net sales |
$ | 36,684 | $ | 6,544 | $ | 43,228 | ||||||
Operating income (loss) |
3,541 | (2,022 | ) | 1,519 | ||||||||
Assets |
50,326 | 16,756 | 67,082 | |||||||||
Accumulated depreciation and amortization |
14,388 | 622 | 15,010 | |||||||||
Nine months ended March 31, 2010 |
||||||||||||
Net sales |
$ | 28,172 | $ | 7,936 | $ | 36,108 | ||||||
Operating loss |
(97 | ) | (2,439 | ) | (2,536 | ) | ||||||
Assets |
39,273 | 22,856 | 62,129 | |||||||||
Accumulated depreciation and amortization |
13,725 | 748 | 14,473 |
14. Subsequent Events
The Company has evaluated subsequent events through the date that the consolidated financial
statements were issued. No events have taken place that meet the definition of a subsequent event
that requires disclosure in this filing.
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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 that may be forward-looking statements within the meaning of the Securities
Exchange Act of 1934, including the Companys expectation as to its fiscal year 2011, fiscal 2012
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, the timing of the
introduction of new products and our ability to fund our fiscal year 2011 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 in the Companys Annual Report on Form 10K for fiscal year 2010. 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 Industrial
Business Unit segment products are typically integrated into larger systems or lines, the timing of
new orders is dependent on the timing of completion of the overall system or line. In addition,
because the Companys Industrial Business Unit segment products have shorter lead times than other
components and are required later in the process, orders for the Companys Industrial Business Unit
segment products tend to be given later in the integration process. The Companys Commercial
Products Business Unit segment products are subject to the timing of firm orders from its
customers, which may change on a monthly basis. In addition, because the Companys Commercial
Products Business Unit segment products require short lead times from firm order to delivery, the
Company purchases long lead time components before firm orders are in hand. A significant portion
of the Companys projected revenues and net income depends upon the Companys ability to
successfully develop and introduce new products, expand into new geographic markets and
successfully negotiate new sales or supply agreements with new customers. 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.
OVERVIEW
Perceptron, Inc. (Perceptron or the Company) develops, produces and sells non-contact
measurement and inspection solutions for industrial and commercial applications. The Company has
two operating segments, the IBU and the CBU. The IBUs non-contact measurement solutions are
further segmented into Automated Systems and Technology Components. Automated Systems products
consist of a number of complete metrology solutions for industrial process control
AutoGaugeâ, AutoGaugeâ Plus, AutoFitâ, AutoScanâ, and AutoGuideâ -
that are primarily used by the Companys customers to improve product quality, shorten product
launch cycles, reduce overall
manufacturing costs, and manage complex manufacturing processes. Technology Components products
include ScanWorks®, ScanWorks®xyz, Toolkit, WheelWorks® and Multi-line Sensor products that target
the digitizing, reverse engineering, inspection and original equipment manufacturers (OEMs) wheel
alignment markets. Additionally, the IBU provides a number of Value Added Services that are
primarily related to the Automated Systems line of products. The largest market served by IBU is
the automotive market.
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The products of the CBU segment are designed for sale to professional tradesmen in four specific
strategic commercial markets. These products are sold to and distributed through leading strategic
partners in each of these markets. The four strategic market verticals include the electrical,
mechanical, plumbing, and construction markets. All CBU sales are recorded in the Americas.
In the IBU segment, 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. The existing installed base
of Automated Systems products provides a continuous revenue stream in the form of system additions,
upgrades and modifications, and Value Added Services such as customer training and service.
Opportunities for Technology Component products include the expansion of the ScanWorks® reseller
channel as well as new OEM customers for WheelWorks®. The recently released multi-line WheelWorks®
sensor provides a more scalable and flexible solution for OEM manufacturers of production wheel
alignment systems. Furthermore, the ScanWorks®xyz product opens up a new market
opportunity by allowing customers to add scanning capability to their existing coordinate measuring
machines.
In October 2010, the Companys IBU segment announced the groundbreaking Helix 3D Metrology
Solution. Helix is an innovative and versatile 3D metrology platform that enables manufacturers
to perform their most challenging measurement tasks with unparalleled ease and precision. It
combines more than 25 years of laser-triangulation and 3D metrology experience with recent
technological advances to create the most unique and powerful solution in the market. Helix
solutions offer the worlds only sensors with Intelligent Illumination, a patent-pending
breakthrough that allows users to control virtually every aspect of the sensors calibrated light
source. By customizing the quantity, density, and orientation of the sensors laser lines through a
simple user interface, image acquisition is optimized on a feature-by-feature basis. The user can
configure tightly spaced laser lines for small, complex features, increase the number of laser
lines to robustly measure challenging materials, and alter the orientation of the laser lines to
accommodate the differences between multiple parts manufactured on the same assembly line.
Currently, Helix beta system testing is being done with automotive customers.
In April 2011, the Companys CBU segment announced that its customer, Rothenberger Werkzeuge GmbH of
Kelkheim, Germany (Rothenberger), launched two new
products that utilize the modular Roscope 1000
handheld inspection device at the 2011 ISH Trade Fair in Frankfurt Germany. The first product is a new 16
meter Imager Reel 25/16, and the second product is the new ROLOC Plus Line Detector,
that is used to detect and locate the exact
position of the sonde transmitter on the 25/16 imager cable. These new products are built on the
modular platform of the Roscope 1000, and provide the plumbing technician with a comprehensive
means of diagnosis in the field, at an extremely competitive system price. Both work in conjunction
with the Roscope 1000, the handheld inspection device launched with Rothenberger last year. The 16
meter Imager Reel reflects a refined mechanical design and adjusted imager length based on direct
feedback from tradespeople in the field. It also supports an integrated transmitting sonde device.
In April 2011, the Companys partner in the Construction vertical, Bosch, made available the
Perceptron designed and developed PS90 and PS91 products. These products offer best in class image
quality, and maximum flexibility with a market leading imager head design. These products are
available in both commercial retail outlets, as well as a wide variety of online stores. During the third quarter of fiscal 2011
these Bosch products were shipped to both North American and European markets.
IBU sales in the third quarter of fiscal 2011 were $11.6 million and improved by $1.4 million, or
13.7%, over sales in the third quarter of fiscal 2010. This improvement was primarily due to increased
Technology Components products sales.
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CBU had sales of $2.5 million in the third quarter of fiscal 2011, which decreased $800,000, or
24.2%, from sales in the third quarter of fiscal 2010. Sales in CBU have been lower in recent
quarters reflecting the transition that has occurred from fiscal 2010. In fiscal 2010, sales were
to one established partner and last time buys to a second discontinued partner. In fiscal 2011
the Company has sales from one established partner and is in the startup stage with three new
partners.
The Companys financial base remains strong with no debt and approximately $23.9 million of cash
and short-term investments at March 31, 2011 to support growth plans. The Company is currently
focused on the successful production and release of its expanded line of commercial inspection
products, the launch of its new Helix 3D Metrology Solution and continued growth in new geographic
markets, principally in Asia.
Outlook The high level of bookings experienced in the IBU segment during the third quarter
resulted in an IBU backlog of $25.7 million at March 31, 2011. This backlog is the highest level
IBU has had in over a decade.
In the CBU segment, while CBU did not compare favorably with the third quarter of last year, it has
showed progress in its quarter over quarter bookings and backlog for the past two quarters. CBU
expects to have a small shipment of its first product in the electrical market in the fourth
quarter of this fiscal year. In addition, two new products in the plumbing market will begin
shipping either in the fourth quarter of this fiscal year or in the first quarter of fiscal 2012.
In the fourth quarter of fiscal 2011 the Company anticipates total revenue to be at a similar level
to the first quarter of fiscal 2011. The Company also expects profits from operations in fiscal
2011 and in fiscal 2012, with revenue growth of about 10% in fiscal 2012.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2011 Compared to Three Months Ended March 31, 2010
Overview For the third quarter of fiscal 2011, the Company reported net income of $606,000 or
$0.07 per diluted share, compared to a net loss of $131,000, or $0.01 per diluted share for the
third quarter of fiscal 2010. Specific line item results are described below.
Sales Net sales in the third quarter of fiscal 2011 were $14.1 million, compared to $13.5
million for the quarter ended March 31, 2010. The following tables set forth comparison data for
the Companys net sales by segment and geographic location.
Third | Third | |||||||||||||||||||||||
Sales (by segment) | Quarter | Quarter | ||||||||||||||||||||||
(in millions) | 2011 | 2010 | Increase/(Decrease) | |||||||||||||||||||||
Industrial Business Unit |
$ | 11.6 | 82.3 | % | $ | 10.2 | 75.6 | % | $ | 1.4 | 13.7 | % | ||||||||||||
Commercial Products Business Unit |
2.5 | 17.7 | % | 3.3 | 24.4 | % | (0.8 | ) | (24.2 | )% | ||||||||||||||
Totals |
$ | 14.1 | 100.0 | % | $ | 13.5 | 100.0 | % | $ | 0.6 | 4.4 | % | ||||||||||||
Third | Third | |||||||||||||||||||||||
Sales (by location) | Quarter | Quarter | ||||||||||||||||||||||
(in millions) | 2011 | 2010 | Increase/(Decrease) | |||||||||||||||||||||
Americas |
$ | 8.2 | 58.2 | % | $ | 6.2 | 45.9 | % | $ | 2.0 | 32.3 | % | ||||||||||||
Europe |
4.4 | 31.2 | % | 5.6 | 41.5 | % | (1.2 | ) | (21.4 | )% | ||||||||||||||
Asia |
1.5 | 10.6 | % | 1.7 | 12.6 | % | (0.2 | ) | (11.8 | )% | ||||||||||||||
Totals |
$ | 14.1 | 100.0 | % | $ | 13.5 | 100.0 | % | $ | 0.6 | 4.4 | % | ||||||||||||
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Sales in the IBU segment increased $1.4 million, primarily due to increased sales of Technology
Components product sales. Sales in the CBU segment decreased by approximately $800,000 primarily
due to lower sales in the plumbing market, partially offset by initial sales in the construction
market. The increase in sales in the Americas reflected an increase in Automated System sales in
the IBU segment offset by lower sales in the commercial products segment. Sales in Europe were down $1.2 million primarily due to lower Automated System
sales. Sales in Asia were approximately $200,000 lower primarily due to lower IBU sales of
Automated Systems products.
Bookings Bookings represent new orders received from customers. The Company had new order
bookings during the quarter of $18.0 million compared to $14.6 million for the third quarter ended
March 31, 2010. It should be noted that the Companys level of new orders fluctuates from quarter
to quarter and the amount of new order bookings during any particular period is not necessarily
indicative of the future operating performance of the Company. The following tables set forth
comparison data for the Companys bookings by segment and geographic location.
Third | Third | |||||||||||||||||||||||
Bookings (by segment) | Quarter | Quarter | ||||||||||||||||||||||
(in millions) | 2011 | 2010 | Increase/(Decrease) | |||||||||||||||||||||
Industrial Business Unit |
$ | 14.8 | 82.2 | % | $ | 9.4 | 64.4 | % | $ | 5.4 | 57.4 | % | ||||||||||||
Commercial Products
Business Unit |
3.2 | 17.8 | % | 5.2 | 36.6 | % | (2.0 | ) | (38.5 | )% | ||||||||||||||
Totals |
$ | 18.0 | 100.0 | % | $ | 14.6 | 100.0 | % | $ | 3.4 | 23.3 | % | ||||||||||||
Third | Third | |||||||||||||||||||||||
Bookings (by location) | Quarter | Quarter | ||||||||||||||||||||||
(in millions) | 2011 | 2010 | Increase/(Decrease) | |||||||||||||||||||||
Americas |
$ | 11.1 | 61.7 | % | $ | 9.8 | 67.1 | % | $ | 1.3 | 13.3 | % | ||||||||||||
Europe |
4.3 | 23.9 | % | 3.5 | 24.0 | % | 0.8 | 22.9 | % | |||||||||||||||
Asia |
2.6 | 14.4 | % | 1.3 | 8.9 | % | 1.3 | 100.0 | % | |||||||||||||||
Totals |
$ | 18.0 | 100.0 | % | $ | 14.6 | 100.0 | % | $ | 3.4 | 23.3 | % | ||||||||||||
IBU bookings increased $5.4 million primarily as a result of higher bookings of Automated Systems
products. CBU bookings decreased $2.0 million primarily due to declines in orders in the plumbing
and mechanics markets, partially offset by an increase in orders in the construction market. In the
third quarter of fiscal year 2010 CBU bookings included significant orders from a discontinued
customer at discounted margins. The increase in bookings in all three geographic locations was
primarily the result of increased IBU bookings for Automated Systems products.
Backlog Backlog represents orders or bookings received by the Company that have not yet been
filled. The Companys backlog was $27.9 million as of March 31, 2011 compared with $20.5 million
as of March 31, 2010. It should be noted that the level of backlog during any particular period is
not necessarily indicative of the future operating performance of the Company. Most of the backlog
is subject to cancellation by the customer. The Company expects to be able to fill substantially
all of the orders in backlog during the following twelve months. The following tables set forth
comparison data for the Companys backlog by segment and geographic location.
Third | Third | |||||||||||||||||||||||
Backlog (by segment) | Quarter | Quarter | ||||||||||||||||||||||
(in millions) | 2011 | 2010 | Increase/(Decrease) | |||||||||||||||||||||
Industrial Business Unit |
$ | 25.7 | 92.1 | % | $ | 16.8 | 82.0 | % | $ | 8.9 | 53.0 | % | ||||||||||||
Commercial Products
Business Unit |
2.2 | 7.9 | % | 3.7 | 18.0 | % | (1.5 | ) | (40.5 | )% | ||||||||||||||
Totals |
$ | 27.9 | 100.0 | % | $ | 20.5 | 100.0 | % | $ | 7.4 | 36.1 | % | ||||||||||||
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Third | Third | |||||||||||||||||||||||
Backlog (by location) | Quarter | Quarter | ||||||||||||||||||||||
(in millions) | 2011 | 2010 | Increase/(Decrease) | |||||||||||||||||||||
Americas |
$ | 13.3 | 47.5 | % | $ | 9.9 | 48.3 | % | $ | 3.4 | 34.3 | % | ||||||||||||
Europe |
9.3 | 33.2 | % | 6.9 | 33.7 | % | 2.4 | 34.8 | % | |||||||||||||||
Asia |
5.3 | 19.3 | % | 3.7 | 18.0 | % | 1.6 | 43.2 | % | |||||||||||||||
Totals |
$ | 27.9 | 100.0 | % | $ | 20.5 | 100.0 | % | $ | 7.4 | 36.1 | % | ||||||||||||
IBU backlog increased $8.9 million, primarily in Automated Systems orders. IBUs backlog of $25.7
million at March 31, 2011 is the highest in over 10 years. CBU backlog decreased $1.5 million
primarily due to a reduction in the level of new orders in the plumbing market. The increase in
all three geographic locations related to an increase in Automated Systems orders.
Gross Profit Gross profit was $6.5 million, or 45.7% of sales, in the third quarter of fiscal
2011, as compared to $5.0 million, or 36.9% of sales, in the third quarter of fiscal 2010. The
gross margin percentage increased in both business units compared to the same quarter last year.
IBUs margin percentage improved on both material and labor content while CBUs improvement
occurred principally because sales last year were at discounted margins to reduce its inventory
with a discontinued customer.
Selling, General and Administrative (SG&A) Expenses SG&A expenses decreased $105,000 to $3.5
million compared to $3.6 million in the quarter ended March 31, 2010. The decrease was primarily
due to lower sales and marketing expenses in Europe compared to the fiscal 2010 quarter.
Engineering, Research and Development (R&D) Expenses Engineering and R&D expenses were $2.1
million in the quarter ended March 31, 2011 compared to $1.8 million in the third quarter a year
ago. The $372,000 increase was primarily due to an increase in salary and employee related costs
in IBU and higher contractor costs in IBU and CBU, partially offsetting these higher costs were
lower salary and related costs in CBU.
Interest Income, net Net interest income was $59,000 in the third quarter of fiscal 2011
compared with net interest income of $48,000 in the third quarter of fiscal 2010. The increase of
$11,000 was related to higher average cash and investment balances and higher interest rates
compared to one year ago.
Foreign Currency There was a net foreign currency gain of $43,000 in the fiscal 2011 quarter
compared with a loss of $17,000 a year ago and represents foreign currency changes, primarily
related to the euro and to a lesser extent the Yen within the respective periods.
Income Taxes The effective tax rate for the third quarter of fiscal 2011 was 35.9% compared to
59.9% in the third quarter of fiscal 2010. The effective tax rate in both 2011 and 2010 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 effective tax rate in the United States
was 31.9% on pretax income in fiscal 2011 and 31.9% on a pretax loss in 2010. The foreign
subsidiaries combined effective tax rate was 29.7% and 20.0% on a combined pretax loss in fiscal
2011 and combined pretax income in 2010, respectively.
Nine Months Ended March 31, 2011 Compared to Nine Months Ended March 31, 2010
Overview The Company reported net income of $1.3 million, or $0.14 per diluted share, for the
first nine months of fiscal 2011, compared with a net loss of $1.4 million, or $0.15 per diluted
share for the nine months ended March 31, 2010. Specific line item results are described below.
17
Table of Contents
Sales Net sales in the first nine months of fiscal 2011 were $43.2 million, compared to $36.1
million for the nine months ended March 31, 2010. The following tables set forth comparison data
for the Companys net sales by segment and geographic location.
Sales (by segment) | Nine Months | Nine Months | ||||||||||||||||||||||
(in millions) | Ended 3/31/11 | Ended 3/31/10 | Increase/(Decrease) | |||||||||||||||||||||
Industrial Business Unit |
$ | 36.7 | 85.0 | % | $ | 28.2 | 78.1 | % | $ | 8.5 | 30.1 | % | ||||||||||||
Commercial Products Business Unit |
6.5 | 15.0 | % | 7.9 | 21.9 | % | (1.4 | ) | (17.7 | )% | ||||||||||||||
Totals |
$ | 43.2 | 100.0 | % | $ | 36.1 | 100.0 | % | $ | 7.1 | 19.7 | % | ||||||||||||
Sales (by location) | Nine Months | Nine Months | ||||||||||||||||||||||
(in millions) | Ended 3/31/11 | Ended 3/31/10 | Increase/(Decrease) | |||||||||||||||||||||
Americas |
$ | 20.9 | 48.4 | % | $ | 16.7 | 46.3 | % | $ | 4.2 | 25.1 | % | ||||||||||||
Europe |
16.8 | 38.9 | % | 16.5 | 45.7 | % | 0.3 | 1.8 | % | |||||||||||||||
Asia |
5.5 | 12.7 | % | 2.9 | 8.0 | % | 2.6 | 89.7 | % | |||||||||||||||
Totals |
$ | 43.2 | 100.0 | % | $ | 36.1 | 100.0 | % | $ | 7.1 | 19.7 | % | ||||||||||||
Sales in the IBU segment increased $8.5 million due to higher sales in Technology Components
products and, to a lesser extent, Automated Systems products. Sales in the CBU segment decreased
by $1.4 million primarily due to lower sales in the plumbing market that were partially offset by
initial sales in the general construction market. Total sales in the Americas increased by $4.2
million due entirely to IBU, which had increased sales in Automated Systems products and, to a
lesser extent, higher Technology Components products. Total sales in Europe increased in Technology Components products, but were offset by the decrease in Automated Systems products. Year-to-date sales in Europe were relatively flat in U.S.
dollars, but increased in euros by approximately 1.0 million. The euro was weaker on average
against the dollar for the first nine months of fiscal year 2011 compared to the nine months ending
March 31, 2010 and had the effect of reducing European sales in dollars by approximately $1.2
million. Sales in Asia increased to $5.5 million from $2.9 million primarily all in Automated
Systems.
Bookings Bookings represent new orders received from customers. New order bookings for the nine
months ended March 31, 2011 were $51.2 million compared to $39.1 million for the same period one
year ago. It should be noted that historically, the Companys level of new orders has varied from
period to period and the amount of new order bookings during any particular period is not
necessarily indicative of the future operating performance of the Company. The following tables
set forth comparison data for the Companys bookings by segment and geographic location.
Bookings (by segment) | Nine Months | Nine Months | ||||||||||||||||||||||
(in millions) | Ended 3/31/11 | Ended 3/31/10 | Increase/(Decrease) | |||||||||||||||||||||
Industrial Business Unit |
$ | 45.6 | 89.1 | % | $ | 29.4 | 75.2 | % | $ | 16.2 | 55.1 | % | ||||||||||||
Commercial Products
Business Unit |
5.6 | 10.9 | % | 9.7 | 24.8 | % | (4.1 | ) | (42.3 | )% | ||||||||||||||
Totals |
$ | 51.2 | 100.0 | % | $ | 39.1 | 100.0 | % | $ | 12.1 | 30.9 | % | ||||||||||||
Bookings (by location) | Nine Months | Nine Months | ||||||||||||||||||||||
(in millions) | Ended 3/31/10 | Ended 3/31/09 | Increase/(Decrease) | |||||||||||||||||||||
Americas |
$ | 25.6 | 50.0 | % | $ | 20.9 | 53.4 | % | $ | 4.7 | 22.5 | % | ||||||||||||
Europe |
18.0 | 35.2 | % | 12.3 | 31.5 | % | 5.7 | 46.3 | % | |||||||||||||||
Asia |
7.6 | 14.8 | % | 5.9 | 15.1 | % | 1.7 | 28.8 | % | |||||||||||||||
Totals |
$ | 51.2 | 100.0 | % | $ | 39.1 | 100.0 | % | $ | 12.1 | 30.9 | % | ||||||||||||
The increase in IBU bookings of $16.2 million for the nine-month period of fiscal 2011 related
primarily to an increased number of orders for Automated Systems products and, to a lesser extent,
higher Technology Components products. CBU bookings decreased by $4.1 million primarily due to
lower bookings in the plumbing market and, to
a lesser extent, lower bookings in the mechanics market. Americas and Europe bookings increased
primarily due to higher Automated Systems products and, to a lesser extent, Technology Components
products. The increase in Asian bookings was primarily for Technology Components products.
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Gross Profit Gross profit was $18.3 million, or 42.3% of sales, in the nine months ended March
31, 2011, as compared to $13.7 million, or 38% of sales, in the comparable period of fiscal 2010.
The increase in gross profit was primarily due to higher sales in IBU at higher gross profit
percentages compared to fiscal year 2010. CBU had a significantly higher gross profit percentage
compared to last year and contributed more gross profit dollars on lower sales than fiscal year
2010 because sales last year were at discounted margins to reduce inventory with a discontinued
customer. The increase in the gross profit percentage reflected improvements in margins in both
business units, as well as the change in the mix of sales between IBU and CBU. The effect of the
lower euro against the dollar in the first nine months of fiscal 2011, compared to the prior year,
decreased gross profit by approximately $800,000.
Selling, General and Administrative (SG&A) Expenses SG&A expenses were $10.6 million for the
nine months ended March 31, 2011 compared to $11.2 million in the same period one year ago. The
decrease of approximately $663,000 was primarily due to decreases in both IBUs and CBUs sales and
marketing costs and a reduction in depreciation expense, partially offset by an increase in G&A
costs in subsidiary locations.
Engineering, Research and Development (R&D) Expenses Engineering and R&D expenses were $6.2
million for the nine months ended March 31, 2011 compared to $5.0 million for the nine-month period
a year ago. The $1.2 million increase was primarily due to the use of outside contractors on the
development of IBUs new Helix metrology solution throughout fiscal 2011 compared to the cost only
beginning in the third quarter last year, higher other outside contractors costs in CBU and
spending on engineering material costs for new product development.
Interest Income, net Net interest income was $160,000 in the nine months ended March 31, 2011
compared with net interest income of $176,000 in the nine months ended March 31, 2010. The decrease
was principally due to lower interest rates on average, and to a lesser extent, lower cash and
investment balances in the fiscal 2011 nine-month period compared to the same period in fiscal
2010.
Foreign Currency There was a net foreign currency gain of $254,000 in the fiscal nine-month
period compared with a net gain of $158,000 a year ago and represents foreign currency changes,
particularly related to the Real, Yen and euro within the respective periods.
Income Taxes The effective tax rate for the first nine months of fiscal 2011 was 33.7% compared
to 38.2% in the first nine months of fiscal 2010. The effective tax rate in both 2011 and 2010
periods 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 effective tax rate in
the United States was 31.9% on pretax income in the fiscal 2011 period and 33.2% on a pretax loss in the fiscal 2010 period.
The foreign subsidiaries combined
effective tax rate was 34.9% and 27.9% on combined pretax income in fiscal 2011 and 2010,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Companys cash and cash equivalents were $9.6 million at March 31, 2011, compared to $9.8
million at June 30, 2010. Cash provided from operations of $4.4 million was used to purchase
additional short-term investments of $2.7 million, for capital expenditures of $899,000 and for
repurchases of the Companys common stock of $1.8 million. Cash also increased from proceeds
received from employee and director stock purchases of $306,000 and from a $616,000 favorable
foreign exchange rate change on cash and cash equivalents.
Of the $4.4 million in cash provided from operations, $1.3 million was provided from net working
capital and $3.1 million was from net income of $1.3 million plus the add back of non-cash items
totaling $1.8 million. The favorable net working capital change resulted primarily from
collections of receivables of $2.6 million and a favorable change in other current assets and
liabilities of $933,000 which were offset by a decrease in accounts payable of $1.8 million and
increased inventory of $504,000. The favorable change in other current assets and liabilities
primarily represented higher accrued liabilities and deferred revenue and to a lesser extent lower
prepaid
expenses that were offset by lower accrued compensation. The decrease in accounts payable related
to normal fluctuations in the timing of payments.
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The Company provides a reserve for obsolescence to recognize the effects of engineering changes and
other matters that affect the value of the inventory. A detailed review of the inventory is
performed yearly with quarterly updates for known changes that have occurred since the annual
review. When inventory is deemed to have no further use or value, the Company disposes of the
inventory and the reserve for obsolescence is reduced. During the nine months ended March 31,
2011, the Company increased the reserve for obsolescence by $633,000, and disposals combined with
the foreign currency translation effect of the euro decreased the reserve $263,000. The net
$370,000 increase in the reserve primarily related to a provision for potential obsolescence in the IBU
segment.
The Company determines its allowance for doubtful accounts by considering a number of factors,
including the length of time trade accounts receivable are past due, the Companys previous loss
history, the customers current ability to pay its obligation to the Company, and the condition of
the general economy and the industry as a whole. The Company writes-off accounts receivable when
they become uncollectible, and payments subsequently received on such receivables are credited to
the allowance for doubtful accounts. The Company increased its allowance for doubtful accounts by
$170,000 and write offs netted with the foreign currency translation effect of the euro decreased
the reserve $142,000 during the nine months ended March 31, 2011, resulting in a net increase of
$28,000.
The Company had no debt outstanding at March 31, 2011. On November 16, 2010, the Company entered
into an Amended and Restated Credit Agreement (New Credit Agreement) with Comerica Bank which
replaced the Credit Agreement dated October 24, 2002 and its thirteen amendments. The secured New
Credit Agreement provides for borrowings of up to $6.0 million and expires on November 1, 2012.
Proceeds under the New Credit Agreement may be used for working capital and capital expenditures.
Security under the New Credit Agreement is substantially all non-real estate assets of the Company
held in the United States. Borrowings are designated as a Libor-based Advance or as a Prime-based
Advance if the Libor-based Advance is not available. Interest on Libor-based Advances is
calculated currently at 2.35% above the Libor Rate offered at the time for the period chosen, and
is payable on the last day of the applicable period. The Company may not select a Prime-based rate
for Advances except during a period of time during which the Libor-based rate is not available as
the applicable interest rate. Interest on Prime-based Advances is payable on the first business
day of each month commencing on the first business day following the month during which such
Advance is made and at maturity and is calculated daily, using the interest rate established by
Comerica Bank as its prime rate for its borrowers. Quarterly, the Company pays a commitment fee of
0.15% per annum on the average daily unused portion of the revolving credit commitment. The New Credit Agreement
prohibits the Company from paying dividends but permits the Company to repurchase up to $5.0
million of its common stock through December 31, 2011. In addition, the New Credit Agreement
requires the Company to maintain a minimum Tangible Net Worth, as defined in the New Credit
Agreement, of not less than $36.5 million as of October 18, 2010, with a further reduction to $35.5
million on June 30, 2011, minus the aggregate amount paid by the Company to redeem its shares of
its common stock during the period beginning October 18, 2010 and ending December 31, 2011. The
New Credit Agreement also requires the Company to have no advances outstanding for 30 days each
calendar year. At March 31, 2011, the New Credit Agreement required a Tangible Net Worth of not
less than $35.5 million and supported outstanding letters of credit totaling $1.4 million.
At March 31, 2011, the Companys German subsidiary (GmbH) had an unsecured credit facility totaling
300,000 euros (equivalent to approximately $423,000 at March 31, 2011). The facility may be used
to finance working capital needs and equipment purchases or capital leases. Any borrowings for
working capital needs will bear interest at 9.0% on the first 100,000 euros of borrowings and 2.0%
for borrowings over 100,000 euros. The German credit facility is cancelable at any time by either
GmbH or the bank and any amounts then outstanding would become immediately due and payable. At
March 31, 2011, GmbH had no borrowings outstanding. At March 31, 2011, the facility supported
outstanding letters of credit totaling 62,552 euros (equivalent to approximately $88,000).
On October 19, 2010, the Companys Board of Directors (Board) approved a stock repurchase program
authorizing the Company to repurchase up to $5.0 million of the Companys Common Stock through
December 31, 2011. See also, Part II Item 2, Unregistered Sales of Equity Securities and Use of
Proceeds of this Quarterly Report on Form 10-Q for further information on this program. Pursuant
to the authorization, the Company has repurchased 306,225 shares of Common Stock at an average
price of $5.95 per share during the nine months ended March 31, 2011 for total cash of $1,837,000
which includes commissions and fees.
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For a discussion of certain contingencies relating to the Companys liquidity, financial position
and results of operations, see Note 12 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 for fiscal year 2010. 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 for fiscal year 2010.
At March 31, 2011, the Company had short-term investments totaling $14.3 million and long-term
investments valued at $2.2 million. See Note 6 to the Consolidated Financial Statements,
Short-Term and Long-Term Investments, for further information on the Companys investments and
their current valuation. The market for the long-term investments is currently illiquid. Based on
the Companys current business plan, cash, cash equivalents and short-term investments of $23.9
million at March 31, 2011 and its existing unused credit facilities, the Company does not currently
anticipate that the lack of liquidity on these long-term investments will affect the Companys
ability to operate or fund its currently anticipated fiscal 2011 and 2012 cash flow requirements.
The Company expects to spend between $1.2 million and $1.7 million during fiscal year 2011 for
capital equipment, although there is no binding commitment to do so. Based on the Companys
current business plan, the Company believes that available cash on hand and existing credit
facilities will be sufficient to fund anticipated fiscal year 2011 and 2012 cash flow requirements. The
Company does not believe that inflation has significantly impacted historical operations and does
not expect any significant near-term inflationary impact
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 for fiscal year 2010.
New Accounting Pronouncements
For a discussion of new accounting pronouncements, see Note 2 to the Consolidated Financial
Statements, New Accounting Pronouncements.
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(b) of the Securities Exchange Act of 1934 (the 1934 Act). Based upon
that evaluation, the Companys Chief Executive Officer and Chief Financial Officer concluded that,
as of March 31, 2011, the Companys disclosure controls and procedures were 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.
There have been no changes in the Companys internal controls over financial reporting during the
quarter ended March 31, 2011 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 |
There have been no material changes made to the risk factors listed in Item 1A Risk Factors of
the Companys Annual Report on Form 10-K for fiscal year 2010.
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ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
The following table sets forth information concerning the Companys repurchases of its Common Stock
during the quarter ended March 31, 2011. All shares were purchased pursuant to the Companys stock
repurchase program described below.
(c) Total Number | ||||||||||||||||
of Shares | (d) Approximate | |||||||||||||||
(a) Total | Purchased as | Dollar Value of Shares | ||||||||||||||
Number of | (b) Average | Part of Publicly | that May Yet Be | |||||||||||||
Shares | Price Paid | Announced | Purchased Under the | |||||||||||||
Period | Purchased | per Share | Program | Program | ||||||||||||
January 1-31, 2011 |
62,042 | $ | 5.19 | 62,042 | $ | 4,330,414 | ||||||||||
February 1-28, 2011 |
74,870 | $ | 6.61 | 74,870 | $ | 3,835,171 | ||||||||||
March 1-31, 2011 |
100,141 | $ | 6.55 | 100,141 | $ | 3,178,933 | ||||||||||
Total |
237,053 | $ | 6.21 | 237,053 | $ | 3,178,933 | ||||||||||
On October 19, 2010, the Companys Board of Directors (Board) approved a stock repurchase program
authorizing the Company to repurchase up to $5.0 million of the Companys Common Stock through
December 31, 2011. The Company was authorized to buy shares of its Common Stock on the open market
or in privately negotiated transactions from time to time, based on market prices. The program may
be discontinued at any time. The Company also announced that it had entered into a Rule 10b5-1
trading plan (Repurchase Plan) with Barrington Research Associates, Inc. to purchase up to $5.0
million of the Companys Common Stock through December 31, 2011 (less the dollar amount of
purchases by the Company outside the Repurchase Plan), in open market or privately negotiated
transactions, in accordance with the requirements of Rule 10b-18. Pursuant to the authorization,
the Company repurchased 306,225 shares of Common Stock at an average price of $5.95 per share
during the nine months ended March 31, 2011.
ITEM 6. | EXHIBITS |
31.1 | Certification by the Chief Executive Officer of the Company pursuant to Rule 13a
14(a) of the Securities Exchange Act of 1934. |
|||
31.2 | Certification by the Chief Financial Officer of the Company pursuant to Rule 13a
14(a) of the Securities Exchange Act of 1934. |
|||
32 | Certification pursuant to 18 U.S.C. Section 1350 and Rule 13a 14(b) of the
Securities Exchange Act of 1934. |
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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: May 13, 2011 | By: | /S/ Harry T. Rittenour | ||
Harry T. Rittenour | ||||
President and Chief Executive Officer | ||||
Date: May 13, 2011 | By: | /S/ John H. Lowry III | ||
John H. Lowry III | ||||
Vice President and Chief Financial Officer (Principal Financial Officer) | ||||
Date: May 13, 2011 | By: | /S/ Sylvia M. Smith | ||
Sylvia M. Smith | ||||
Controller and Chief Accounting Officer (Principal Accounting Officer) |
23