FORM 10-Q
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, 2008.
Commission file number: 0-20206
PERCEPTRON, INC.
(Exact Name of Registrant as Specified in Its Charter)
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Michigan
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38-2381442 |
(State or Other Jurisdiction of
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(I.R.S. Employer |
Incorporation or Organization)
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Identification No.) |
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47827 Halyard Drive, Plymouth, Michigan
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48170-2461 |
(Address of Principal Executive Offices)
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(Zip Code) |
(734) 414-6100
(Registrants Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
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Large accelerated filer o |
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Accelerated filer þ |
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Non-accelerated filer o
(Do not check if a smaller reporting company) |
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Smaller Reporting Company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes
o No þ
The number of shares outstanding of each of the issuers classes of common stock as of February 3,
2009, was:
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Common Stock, $0.01 par value
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8,869,834 |
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Class
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Number of shares |
PERCEPTRON, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
For the Quarter Ended December 31, 2008
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Page |
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Number |
COVER |
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1 |
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INDEX |
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2 |
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PART I. FINANCIAL INFORMATION |
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Item 1. Financial Statements |
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3 |
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16 |
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28 |
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28 |
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28 |
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29 |
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29 |
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30 |
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EX-31.1 |
EX-31.2 |
EX-32 |
2
PERCEPTRON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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December 31, |
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June 30, |
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2008 |
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2008 |
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(In Thousands, Except Per Share Amount) |
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(Unaudited) |
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ASSETS
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Current Assets |
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Cash and cash equivalents |
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$ |
23,273 |
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$ |
22,157 |
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Receivables: |
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Billed receivables, net of allowance for doubtful accounts
of $200 and $228, respectively |
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18,236 |
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16,948 |
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Unbilled receivables |
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3,361 |
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5,044 |
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Other receivables |
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320 |
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398 |
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Inventories, net of reserves of $1,121 and $1,034, respectively |
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8,491 |
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8,285 |
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Deferred taxes |
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2,655 |
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2,655 |
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Other current assets |
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2,945 |
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4,315 |
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Total current assets |
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59,281 |
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59,802 |
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Property and Equipment |
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Building and land |
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6,013 |
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6,013 |
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Machinery and equipment |
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13,768 |
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13,581 |
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Furniture and fixtures |
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1,077 |
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1,074 |
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20,858 |
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20,668 |
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Less Accumulated depreciation and amortization |
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(13,935 |
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(13,407 |
) |
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Net property and equipment |
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6,923 |
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7,261 |
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Long-Term Investments |
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2,919 |
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3,104 |
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Deferred Tax Asset |
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4,327 |
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5,026 |
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Total Assets |
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$ |
73,450 |
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$ |
75,193 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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Current Liabilities |
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Accounts payable |
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$ |
5,162 |
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$ |
2,257 |
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Accrued liabilities and expenses |
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3,061 |
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4,867 |
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Accrued compensation |
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1,205 |
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1,785 |
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Income taxes payable |
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38 |
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1,066 |
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Deferred revenue |
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4,087 |
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4,594 |
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Total current liabilities |
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13,553 |
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14,569 |
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Long-term Liabilities |
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Accrued taxes |
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765 |
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765 |
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Total liabilities |
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14,318 |
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15,334 |
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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, $0.01 par value, authorized 19,000 shares, issued
and outstanding 8,853 and 8,844, respectively |
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89 |
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88 |
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Accumulated other comprehensive income |
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59 |
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2,232 |
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Additional paid-in capital |
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40,421 |
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40,035 |
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Retained earnings |
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18,563 |
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17,504 |
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Total shareholders equity |
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59,132 |
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59,859 |
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Total Liabilities and Shareholders Equity |
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$ |
73,450 |
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$ |
75,193 |
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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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2008 |
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2007 |
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2008 |
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2007 |
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Net Sales |
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$ |
19,851 |
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$ |
19,117 |
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$ |
39,116 |
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$ |
36,783 |
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Cost of Sales |
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12,214 |
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10,436 |
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24,677 |
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21,188 |
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Gross Profit |
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7,637 |
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8,681 |
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14,439 |
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15,595 |
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Operating Expenses |
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Selling, general and administrative |
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4,477 |
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4,449 |
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8,960 |
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8,665 |
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Engineering, research and development |
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2,008 |
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2,202 |
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4,309 |
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4,397 |
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Total operating expenses |
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6,485 |
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6,651 |
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13,269 |
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13,062 |
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Operating Income |
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1,152 |
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2,030 |
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1,170 |
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2,533 |
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Other Income and (Expenses) |
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Interest income, net |
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241 |
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329 |
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474 |
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544 |
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Foreign currency gain |
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282 |
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50 |
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218 |
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181 |
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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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3 |
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5 |
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5 |
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6 |
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Total other income (expenses) |
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526 |
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(2,230 |
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697 |
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(1,883 |
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Income (Loss) Before Income Taxes |
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1,678 |
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(200 |
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1,867 |
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650 |
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Income Tax Expense (Benefit) |
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587 |
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(12 |
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808 |
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391 |
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Net Income (Loss) |
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$ |
1,091 |
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$ |
(188 |
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$ |
1,059 |
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$ |
259 |
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Earnings (Loss) Per Common Share |
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Basic |
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$ |
0.12 |
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($0.02 |
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$ |
0.12 |
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$ |
0.03 |
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Diluted |
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$ |
0.12 |
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($0.02 |
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$ |
0.12 |
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$ |
0.03 |
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Weighted Average Common Shares Outstanding |
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Basic |
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8,851 |
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8,405 |
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8,849 |
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8,305 |
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Dilutive effect of stock options |
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91 |
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134 |
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607 |
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Diluted |
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8,942 |
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8,405 |
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8,983 |
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8,912 |
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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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2008 |
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2007 |
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Cash Flows from Operating Activities |
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Net income |
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$ |
1,059 |
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$ |
259 |
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Adjustments to reconcile net income to net cash provided from
(used for) operating activities: |
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Depreciation and amortization |
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764 |
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649 |
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Stock compensation expense |
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333 |
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323 |
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Deferred income taxes |
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718 |
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(201 |
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Impairment on long-term investments |
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2,614 |
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Disposal of Assets |
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(52 |
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24 |
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Allowance for doubtful accounts |
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(9 |
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(325 |
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Changes in assets and liabilities, exclusive of changes shown separately |
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(421 |
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1,662 |
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Net cash provided from operating activities |
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2,392 |
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5,005 |
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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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Revolving credit repayments |
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(10 |
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Proceeds from stock plans |
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53 |
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1,434 |
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Net cash provided from financing activities |
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53 |
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1,434 |
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Cash Flows from Investing Activities |
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Capital expenditures |
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(462 |
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(543 |
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Net cash used for investing activities |
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(462 |
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(543 |
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Effect of Exchange Rate Changes on Cash and Cash Equivalents |
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(867 |
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637 |
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Net Increase in Cash and Cash Equivalents |
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1,116 |
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6,533 |
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Cash and Cash Equivalents, July 1 |
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22,157 |
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10,878 |
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Cash and Cash Equivalents, December 31 |
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$ |
23,273 |
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$ |
17,411 |
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Changes in Assets and Liabilities, Exclusive of Changes Shown Separately |
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Receivables, net |
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$ |
(814 |
) |
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$ |
3,497 |
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Inventories |
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(592 |
) |
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(497 |
) |
Accounts payable |
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2,914 |
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(839 |
) |
Other current assets and liabilities |
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(1,929 |
) |
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(499 |
) |
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$ |
(421 |
) |
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$ |
1,662 |
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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
2008 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, including certain reclassifications between selling, general and
administrative and cost of sales to conform to the current presentation. The results of operations
for any interim period are not necessarily indicative of the results of operations for a full year.
2. Financial Instruments
Effective July 1, 2008, the Company adopted Statement of Financial Accounting Standards (SFAS)
No. 157, Fair Value Measurements for all financial assets and liabilities and nonfinancial assets
and liabilities that are recognized or disclosed at fair value in the financial statements on a
recurring basis. SFAS No. 157, defines fair value, establishes a framework for measuring fair
value and expands disclosures about fair value measurements. Financial instruments held by the
Company at December 31, 2008 include investments classified as held for sale and money market
funds.
SFAS No. 157 specifies a hierarchy of valuation techniques based upon whether the inputs to those
valuation techniques reflect assumptions other market participants would use based upon market data
obtained from independent sources (observable inputs), or reflect the Companys own assumptions of
market participant valuation (unobservable inputs). These two types of inputs create the following
fair value hierarchy:
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Level 1 Quoted prices in active markets that are unadjusted and accessible at the
measurement date for identical, unrestricted assets or liabilities. |
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Level 2 Quoted prices for identical assets and liabilities in markets that are not
active, quoted prices for similar assets and liabilities in active markets or financial
instruments for which significant inputs are observable, either directly or indirectly. |
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Level 3 Prices or valuations that require inputs that are both significant to the
fair value measurement and unobservable and reflect managements estimates and assumptions. |
SFAS No. 157 requires the use of observable market data if such data is available without undue
cost and effort.
The following table presents the Companys investments at December 31, 2008 that are measured and
recorded at fair value on a recurring basis consistent with the fair value hierarchy provisions of
SFAS No. 157.
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(in thousands) |
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Description |
|
December 31, 2008 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Cash Equivalents |
|
$ |
12,919 |
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|
$ |
12,919 |
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|
Long Term Investments |
|
$ |
2,919 |
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$ |
2,919 |
|
6
The fair value of the Companys money market fund investments was determined based on quoted prices
in active markets for identical assets.
Through August 31, 2008, the Company valued its long-term investments based on fair values provided
by the Companys broker, Lehman Brothers. In September 2008, Barclays Capital replaced Lehman
Brothers as the Companys broker but did not provide the Company with the fair values of these
investments. Due to this and recent events in the United States credit markets, the Company did
not have readily available market-based observable inputs to determine fair value at December 31,
2008. As a result, the Company used internally developed discounted cashflow valuation models and
judgment to determine fair value as of December 31, 2008.
The following table presents the changes in the Companys assets measured at fair value on a
recurring basis using significant unobservable inputs (Level 3) as defined in SFAS No. 157 for the
three month period ended December 31, 2008. The Companys Level 3 investments consist of
available-for-sale auction rate securities (see Note 4 Long-Term Investments) with temporary
changes in fair values included in other comprehensive income.
|
|
|
|
|
(in thousands) |
|
Auction Rate Securities |
|
Balance at September 30, 2008 |
|
$ |
2,919 |
|
Unrealized
loss included in accumulated other comprehensive income |
|
|
|
|
|
|
|
|
Balance at December 31, 2008 |
|
$ |
2,919 |
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
Auction Rate Securities |
|
Balance at June 30, 2008 |
|
$ |
3,104 |
|
Unrealized
loss included in accumulated other comprehensive income |
|
|
(185 |
) |
|
|
|
|
Balance at December 31, 2008 |
|
$ |
2,919 |
|
|
|
|
|
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.
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 $1.1 million and $1.3 million
at December 31, 2008 and June 30, 2008, respectively, is comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
June 30, |
|
Inventory |
|
2008 |
|
|
2008 |
|
Component parts |
|
$ |
2,842 |
|
|
$ |
2,831 |
|
Work in process |
|
|
209 |
|
|
|
227 |
|
Finished goods |
|
|
5,440 |
|
|
|
5,227 |
|
|
|
|
|
|
|
|
Total |
|
$ |
8,491 |
|
|
$ |
8,285 |
|
|
|
|
|
|
|
|
7
4. Long-Term Investments
The Company accounts for its investments in accordance with SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities and SEC topics and guidance. Investments with a maturity
of 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.
At December 31, 2008, the Company holds available for sale long-term investments in auction rate
securities. An auction is scheduled 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
maximum contractual interest rate every 28 days. To date, the Company has received all interest
payments on these investments when due. 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.
Blue Water Trust I (Blue Water) is a Money Market Committed Preferred Custodial Trust Security
(CPS Security) that invests in investment grade commercial paper and which has entered into a Put
Agreement with RAM Reinsurance Company Ltd. (Ram Re), a wholly owned subsidiary of RAM Holdings
Ltd., principally engaged in underwriting financial guaranty insurance. In the event Ram Re
exercises its put option, Blue Water is required to purchase perpetual non-cumulative redeemable
preference shares of Ram Re. During the quarter ended September 30, 2008, the Company recorded a
temporary non-cash decline of $185,000 in the market value of this investment. During the quarter
ended December 31, 2008, there was no observable change in the market value of this investment.
See Note 15 of the Notes to the Consolidated Financial Statements, Subsequent Events for
information on Ram Res February 4, 2009 announcement of its intent to exercise its put option.
During the quarter ended December 31, 2008, there was no observable change in the market value of
the Companys two other investments. 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
8
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. The following table summarizes the Companys
long-term investments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
June 30, |
|
Long-Term Investments |
|
2008 |
|
|
2008 |
|
Cost |
|
$ |
6,300 |
|
|
$ |
6,300 |
|
Unrealized (Losses) |
|
|
(3,381 |
) |
|
|
(3,196 |
) |
|
|
|
|
|
|
|
Estimated Fair Value |
|
$ |
2,919 |
|
|
$ |
3,104 |
|
|
|
|
|
|
|
|
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 the Blue
Water Trust I investment as Impairment of Long-Term Investment in the Consolidated Statements of
Income.
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, 2008, the Company had no forward exchange contracts outstanding. During the six
months ended December 31, 2008, the Company recognized a loss of approximately $19,000 in other
comprehensive income (loss) for the unrealized and realized change in value of the forward exchange
contracts that matured on July 1, 2008. The objective of the hedge transactions was 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, the forward contracts were effective. The accounting for
the hedges is consistent with translation adjustments where any gains and losses are recorded to
other comprehensive income.
At December 31, 2007, the Company had approximately $7.3 million of forward exchange contracts
between the United States Dollar and the Euro with a weighted average settlement price of 1.45
Euros to the United States Dollar. 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.
9
6. Comprehensive Income
Comprehensive income is defined as the change in common shareholders equity during a period from
transactions and events from non-owner sources, including net income. Other items of comprehensive
income include revenues, expenses, gains and losses that are excluded from net income. Total
comprehensive income, net of tax, for the applicable periods is as follows (in thousands):
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, |
|
2008 |
|
|
2007 |
|
Net Income (Loss) |
|
$ |
1,091 |
|
|
$ |
(188 |
) |
Other Comprehensive Income (Loss): |
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
(367 |
) |
|
|
544 |
|
Temporary impairment on investment |
|
|
|
|
|
|
(106 |
) |
Forward contracts |
|
|
|
|
|
|
(106 |
) |
|
|
|
|
|
|
|
Total Comprehensive Income |
|
$ |
724 |
|
|
$ |
144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended December 31, |
|
2008 |
|
|
2007 |
|
Net Income (Loss) |
|
$ |
1,059 |
|
|
$ |
259 |
|
Other Comprehensive Income (Loss): |
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
(1,969 |
) |
|
|
1,456 |
|
Temporary impairment on investment |
|
|
(185 |
) |
|
|
(106 |
) |
Forward contracts |
|
|
(19 |
) |
|
|
(342 |
) |
|
|
|
|
|
|
|
Total Comprehensive Income (Loss) |
|
$ |
(1,114 |
) |
|
$ |
1,267 |
|
|
|
|
|
|
|
|
7. Credit Facilities
The Company had no debt outstanding at December 31, 2008.
The Company has a $6.0 million secured Credit Agreement with Comerica Bank, which expires on
November 1, 2010. 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 Eurodollar-based Advance or as a
Prime-based Advance if the Eurodollar-based Advance is not available. Interest on Eurodollar-based
Advances is calculated currently 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. The Company may not select
a Prime-based rate for Advances except during any period of time during which the Eurodollar-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, currently at the greater
of 1/4% above prime rate or 1% above the Federal Funds Rate. Quarterly, the Company pays a
commitment fee of .075% per annum 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
$42.2 million as of December 31, 2008 and to have no advances outstanding for 30 consecutive days
each calendar year.
At December 31, 2008, the Companys German subsidiary (GmbH) had an unsecured credit facility
totaling 500,000 Euros (equivalent to $705,000 at December 31, 2008). The facility may be used to
finance working capital needs and equipment purchases or capital leases. Any borrowings for
working capital needs will bear interest at 9.0% on the first 100,000 Euros of borrowings and 2.0%
for borrowings over 100,000 Euros. The German credit facility is cancelable at any time by either
GmbH or the bank and any amounts then outstanding would become immediately due and payable. At
December 31, 2008, GmbH had no borrowings outstanding. At December 31, 2008, the facility
supported outstanding letters of credit totaling 79,135 Euros (equivalent to approximately
$112,000).
10
8. Accrued Compensation
Included in accrued compensation are certain costs related to the January 21, 2008 Employment and
Amended and Restated Severance Agreement (the Employment Agreement) entered into between the
Company and Alfred A. Pease, former President and Chief Executive Officer in connection with his
retirement. Pursuant to the Employment Agreement, Mr. Pease will receive his base salary through
June 30, 2009, 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 currently maintains an advisory role to the Company. During the third quarter of fiscal
2008, the Company accrued an expense of approximately $600,000, representing certain of the amounts
due to Mr. Pease pursuant to the Employment Agreement. As of December 31, 2008, $218,000 of this
accrual remains in accrued compensation on the balance sheet. In addition, the Company paid Mr.
Pease approximately $284,000 related to supplemental compensation for services rendered in calendar
year 2008 and as a result there was no accrual for supplemental compensation to Mr. Pease as of
December 31, 2008.
9. 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 $103,000 and $333,000 in the three and six months ended December 31, 2008, respectively. This
had the effect of decreasing net income by $55,000, or $0.01 per diluted share, and $220,000, or
$0.02 per diluted share, for the three and six months ended December 31, 2008, respectively. The
Company recognized operating expense for non-cash stock-based compensation costs 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. As of
December 31, 2008, 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 2.40 years.
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. Under the terms of the 1998 Plan, no further grants are
permitted to be made under the 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
11
Management Development, Compensation and Stock Option Committee, except as otherwise specified in
the 2004 Stock Incentive Plan. As of June 30, 2008, 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 Plan are either
an initial option or an annual option. Prior to December 7, 2004, initial options of 15,000 shares
were granted as of the date the non-employee director was first elected to the Board of Directors
and became exercisable in full on the first anniversary of the date of grant. 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 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
Three Months |
|
Six Months |
|
Six Months |
|
|
Ended |
|
Ended |
|
Ended |
|
Ended |
|
|
12/31/2008 |
|
12/31/2007 |
|
12/31/2008 |
|
12/31/2007 |
Weighted Average Estimated Fair
Value Per Share of Options
Granted During the Period |
|
$ |
1.84 |
|
|
$ |
5.03 |
|
|
$ |
2.16 |
|
|
$ |
4.06 |
|
Assumptions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized Dividend Yield |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock Price Volatility |
|
|
36.46 |
% |
|
|
32.16 |
% |
|
|
36.13 |
% |
|
|
30.8 |
% |
Risk Free Rate of Return |
|
|
3.13 |
% |
|
|
4.25 |
% |
|
|
3.19 |
% |
|
|
4.86 |
% |
Expected Option Term (in years) |
|
|
5 |
|
|
|
5 |
|
|
|
5 |
|
|
|
5 |
|
The Company received $4,000 and $53,000 in cash from option exercises under all share-based payment
arrangements for the three and six months ended December 31, 2008.
10. 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 1,018,000 and 77,000 shares of common stock outstanding in the three months
ended December 31, 2008 and 2007, respectively, were not included in the computation of diluted EPS
because the effect would have been anti-dilutive. Options to purchase 962,000 and 118,000 shares
of common stock outstanding in the six months ended December 31, 2008 and 2007, respectively, were
not included in the computation of diluted EPS because the effect would have been anti-dilutive.
12
11. Income Taxes
The Company had long-term tax contingencies of $765,000 as of December 31, 2008 and June 30, 2008.
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 $5.5 million using a December 31, 2008 exchange rate.
GDS and Carbotech filed and subsequently emerged from bankruptcy protection in Canada. The Company
intends to vigorously defend GDS 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. New Accounting Pronouncements
On July 1, 2008, the Company adopted Financial Accounting Standards Board (FASB) SFAS No. 157,
Fair Value Measurements for all financial assets and liabilities and nonfinancial assets and
liabilities that are recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually). SFAS No. 157 defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles, and expands disclosures about
fair value measurements. This statement does not require any new fair value measurements, but
provides guidance on how to measure fair value by providing a fair value hierarchy used to classify
the source of the information. See Note 2 Financial Instruments.
In February 2008, the FASB issued FASB Staff Position 157-2, Effective Date of FASB Statement No.
157, which delays the effective date of SFAS No. 157 for the Company to July 1, 2009, for all
nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed
at fair value in the financial statements on a recurring basis (at least annually). The Company
believes the adoption of the delayed items of SFAS No. 157 will not have a material impact on its
financial statements.
13
On October 10, 2008, the FASB issued FASB Staff Position (FSB) 157-3, determining the Fair Value of
a Financial Asset When the Market for That Asset Is Not Active, which addresses the application of
SFAS No.157 for illiquid financial instruments. FSP FAS 157-3 clarifies that approaches to
determining fair value other than the market approach may be appropriate when the market for a
financial asset is not active. The Company does not expect the adoption of FSP FAS 157-3 to have a
material effect on its consolidated financial statements.
14. Segment and Geographic Information
The Companys business is organized 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 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automated |
|
Technology |
|
|
Reportable Segments ($000) |
|
Systems |
|
Products |
|
Consolidated |
|
Three months ended December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
9,156 |
|
|
$ |
10,695 |
|
|
$ |
19,851 |
|
Operating income (loss) |
|
|
(134 |
) |
|
|
1,286 |
|
|
|
1,152 |
|
Assets |
|
|
38,479 |
|
|
|
34,970 |
|
|
|
73,450 |
|
Accum. depreciation and amortization |
|
|
10,097 |
|
|
|
3,838 |
|
|
|
13,935 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
10,624 |
|
|
$ |
8,493 |
|
|
$ |
19,117 |
|
Operating income |
|
|
860 |
|
|
|
1,170 |
|
|
|
2,030 |
|
Assets |
|
|
38,867 |
|
|
|
29,553 |
|
|
|
68,420 |
|
Accum. depreciation and amortization |
|
|
9,366 |
|
|
|
3,439 |
|
|
|
12,805 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
17,676 |
|
|
$ |
21,440 |
|
|
$ |
39,116 |
|
Operating income (loss) |
|
|
(1,910 |
) |
|
|
3,080 |
|
|
|
1,170 |
|
Assets |
|
|
38,686 |
|
|
|
34,764 |
|
|
|
73,450 |
|
Accum. depreciation and amortization |
|
|
10,230 |
|
|
|
3,705 |
|
|
|
13,935 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
18,738 |
|
|
$ |
18,045 |
|
|
$ |
36,783 |
|
Operating income |
|
|
25 |
|
|
|
2,508 |
|
|
|
2,533 |
|
Assets |
|
|
37,838 |
|
|
|
30,582 |
|
|
|
68,420 |
|
Accum. depreciation and amortization |
|
|
9,164 |
|
|
|
3,641 |
|
|
|
12,805 |
|
14
15. Subsequent Events
On February 2, 2009, the Company announced a significant cost reduction plan for its Automated
Systems business. The cost reduction actions were taken in response to recent, negative trends in
the automotive market and their effect on the Companys business. The actions did not affect the
commercial products portion of the Companys business. Most of the cost reduction actions took
place in North America with a smaller amount in Europe. The actions included reducing personnel,
benefits, contract services and other related expenses that are expected to decrease annual costs
by approximately $4.7 million in fiscal 2010 and are intended to result in operating income for the
Companys Automated Systems business in fiscal 2010. The Company expects to record a
restructuring charge of approximately $1.0 million related to severance and other related costs in
the third quarter of fiscal 2009.
On February 4, 2009, a Current Report on Form 8-K was filed by RAM Holdings Ltd. (RAM) announcing
that RAM Reinsurance Company Ltd. (RAM Re), the operating subsidiary of RAM had exercised its put
option under the terms of RAM Res Put Option Agreement, dated as of December 23, 2003, which was
entered into in connection with RAMs contingent capital facility with Blue Water Trust I. See
Note 4 of the Notes to the Consolidated Financial Statements, Long-Term Investments for further
detail on the Companys investment in Blue Water Trust I. Pursuant to the exercise of the put
option, RAM Re expects to issue 500.01 perpetual non-cumulative, redeemable Class B preference
shares to Blue Water Trust I in return for approximately $50 million in cash. The Class B
preference shares will not be 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 filer indicates that RAM expects to close on the transaction on February 17,
2009. Following the closing of the transaction, the Company will evaluate its holding in Blue Water
Trust I for possible other-than-temporary impairment as a result of the exercise of the put option.
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 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 2009 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, our ability to fund our fiscal year 2009 and future cash flow requirements and the
amount of cost reductions from recently announced cost reduction actions. 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 this
report and in the Companys Annual Report on Form 10-K for fiscal year 2008 and Quarterly Report on
Form 10-Q for the quarter ended September 30, 2008. Other factors not currently anticipated by
management may also materially and adversely affect our financial condition, liquidity or results
of operations. Except as required by applicable law, we do not undertake, and expressly disclaim,
any obligation to publicly update or alter our statements whether as a result of new information,
events or circumstances occurring after the date of this report or otherwise. The Companys
expectations regarding future bookings and revenues are projections developed by the Company based
upon information from a number of sources, including, but not limited to, customer data and
discussions. These projections are subject to change based upon a wide variety of factors, a
number of which are discussed above. Certain of these new orders have been delayed in the past and
could be delayed in the future. Because the Companys Automated Systems segment products are
typically integrated into larger systems or lines, the timing of new orders is dependent on the
timing of completion of the overall system or line. In addition, because the Companys Automated
Systems segment products have shorter lead times than other components and are required later in
the process, orders for the Companys Automated Systems segment products tend to be given later in
the integration process. The Companys Technology Products segment products are subject to the
timing of firm orders from its customers, which may change on a monthly basis. In addition,
because the Companys Technology Products segment products require short lead times from firm order
to delivery, the Company purchases long lead time components before firm orders are in hand. A
significant portion of the Companys projected revenues and net income depends upon the Companys
ability to successfully develop and introduce new products and expand into new geographic markets.
Because a significant portion of the Companys revenues are denominated in foreign currencies and
are translated for financial reporting purposes into U.S. Dollars, the level of the Companys
reported net sales, operating profits and net income are affected by changes in currency exchange
rates, principally between U.S. Dollars and Euros. Currency exchange rates are subject to
significant fluctuations, due to a number of factors beyond the control of the Company, including
general economic conditions in the United States and other
16
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 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 groups: 1) The Automated Systems Group made up of AutoGaugeâ,
AutoFitâ, AutoScanâ, and AutoGuideâ products and training, consulting and
non-warranty support services; and 2) The Technology Products Group made up of ScanWorksâ,
Non-Contact Wheel Alignment (WheelWorksâ), TriCamâ sensors for the forest products
industry, and commercial products. The Company services multiple markets and its primary
operations are in North America, Europe and Asia.
The Company expects sales from its Technology Products segment, in large part due to anticipated
growth in commercial products, to continue to become a greater percentage of overall revenue in
fiscal 2009. The Company continued to see robust sales of its commercial product sold by Snap-on
Tool Company under the BK5500 name. .During the second quarter of fiscal 2009, the Company began
shipments of a new product sold by Ridge Tool Company under the name, microEXPLORER Digital
Inspection Camera. This product utilizes significantly more advanced and sophisticated technology
than the SeeSnakeâ microÔ. The microEXPLORER has a self-leveling feature for a
consistently upright picture, has zoom capabilities, is water proof, is able to save images and
video to a SD Card, and can transfer files to a computer. In addition, during the second quarter,
the Company began shipments to North America and Europe of the second generation of the new 9.5
millimeter and 17 millimeter imager head See Snake® micro sold by Ridge Tool.
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 has been seeing changes in new tooling programs, including reductions in
scope and timing, which have resulted in some of the Companys orders being cancelled or delayed.
Although the Company expects the turbulent economic conditions in the automotive industry to
continue in fiscal year 2009, the Company believes there are opportunities as the automobile
manufacturers transition to production of new models that are more fuel efficient. The Company has
continued its plans to open an office in India and has temporarily delayed adding additional
resources in other parts of Asia while turbulence remains in the global automotive markets. The
Company believes growth in Asia will recover earlier than in other areas and expects to be in
position to take advantage of sales growth opportunities in these markets. The Company has seen a
trend toward more robot-based Automated Systems that have lower hardware content and increased
labor content. Also, due to plant closings and faster turnaround of new models, the Company has
experienced an increase in Automated Systems orders to refurbish and reconfigure the customers
existing equipment.
The Companys financial base remains strong with no debt and approximately $23.3 million of cash at
December 31, 2008 available to support its growth plans. Near-term the Company will continue to
focus on the successful production and release of an expanded line of commercial electronic
inspection products. In response to recent reductions in the level of new orders and the negative
outlook for the automotive industry in the next twelve to eighteen months, the Company also
undertook a significant cost
17
reduction plan during the third quarter of fiscal 2009 that is expected to reduce costs by
approximately $4.7 million in fiscal 2010. During the third quarter of fiscal 2009, the Company
expects to record a charge of approximately $1.0 million related to severance and other related
costs. The cost reductions occurred primarily in the Companys North American Automated Systems business in response to the economic environment affecting the automotive market, with smaller reductions in Europe. In planning
and implementing these cost reductions, the Company focused on maintaining sufficient resources to
continue growth in its Technology Products segment and develop new, advanced technologies for its
Automated Systems segment. The Company did not make any reductions in its personnel in Asia but
did delay adding additional resources until growth resumes in this area.
RESULTS OF OPERATIONS
Three Months Ended December 31, 2008 Compared to Three Months Ended December 31, 2007
Overview For the second quarter of fiscal 2009, the Company reported net income of $1.1 million,
or $0.12 per diluted share, compared to a net loss of $188,000 or $0.02 per diluted share, for the
second quarter of fiscal 2008. Specific line item results are described below.
Sales Net sales were $19.9 million for the second quarter of fiscal 2009 compared to net sales
of $19.1 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) |
|
2009 |
|
|
2008 |
|
|
Increase/(Decrease) |
|
Automated Systems |
|
$ |
9.2 |
|
|
|
46.2 |
% |
|
$ |
10.6 |
|
|
|
55.5 |
% |
|
$ |
(1.4 |
) |
|
|
(13.2 |
)% |
Technology Products |
|
|
10.7 |
|
|
|
53.8 |
% |
|
|
8.5 |
|
|
|
44.5 |
% |
|
|
2.2 |
|
|
|
25.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
19.9 |
|
|
|
100.0 |
% |
|
$ |
19.1 |
|
|
|
100.0 |
% |
|
$ |
0.8 |
|
|
|
4.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second |
|
|
Second |
|
|
|
|
Sales (by location) |
|
Quarter |
|
|
Quarter |
|
|
|
|
(in millions) |
|
2009 |
|
|
2008 |
|
|
Increase/(Decrease) |
|
Americas |
|
$ |
12.5 |
|
|
|
62.8 |
% |
|
$ |
11.2 |
|
|
|
58.6 |
% |
|
$ |
1.3 |
|
|
|
11.6 |
% |
Europe |
|
|
5.9 |
|
|
|
29.7 |
% |
|
|
6.6 |
|
|
|
34.6 |
% |
|
|
(0.7 |
) |
|
|
(10.6 |
)% |
Asia |
|
|
1.5 |
|
|
|
7.5 |
% |
|
|
1.3 |
|
|
|
6.8 |
% |
|
|
0.2 |
|
|
|
15.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
19.9 |
|
|
|
100.0 |
% |
|
$ |
19.1 |
|
|
|
100.0 |
% |
|
$ |
0.8 |
|
|
|
4.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in Automated Systems sales was primarily due to decreased sales in the Americas.
Spending by North American automotive companies has decreased due to the current economic
conditions. The Technology Product sales increase was primarily the result of higher sales of the
Companys commercial products that were mitigated by lower WheelWorks® and ScanWorks® sales,
primarily sold to the automotive industry. The increase in sales of the Companys commercial
products was primarily due to products the Company began shipping this fiscal year, in particular
the BK5500 sold to Snap-on and the micro EXPLORER Digital Inspection Camera sold to Ridge Tool.
Increased sales of the Companys commercial products were also the primary reason for the increase
in sales in the Americas. European sales decreased primarily in the Technology Products segment
and the weaker Euro this quarter compared to the second quarter of fiscal 2008 reduced sales by
approximately $600,000. Asian sales increased primarily due to sales of the Companys Automated
Systems products.
18
Bookings Bookings represent new orders received from customers. The Company had new order
bookings during the quarter of $12.4 million compared with new order bookings of $17.6 million for
the second quarter ended December 31, 2007. The amount of new order bookings during any
particular period is not necessarily indicative of the future operating performance of the
Company. The following tables set forth comparison data for the Companys bookings by segment and
geographic location.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second |
|
|
Second |
|
|
|
|
Bookings (by segment) |
|
Quarter |
|
|
Quarter |
|
|
|
|
(in millions) |
|
2009 |
|
|
2008 |
|
|
Increase/(Decrease) |
|
Automated Systems |
|
$ |
6.6 |
|
|
|
53.2 |
% |
|
$ |
8.5 |
|
|
|
48.3 |
% |
|
$ |
(1.9 |
) |
|
|
(22.4 |
)% |
Technology Products |
|
|
5.8 |
|
|
|
46.8 |
% |
|
|
9.1 |
|
|
|
51.7 |
% |
|
|
(3.3 |
) |
|
|
(36.3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
12.4 |
|
|
|
100.0 |
% |
|
$ |
17.6 |
|
|
|
100.0 |
% |
|
$ |
(5.2 |
) |
|
|
(29.5 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second |
|
|
Second |
|
|
|
|
Bookings (by location) |
|
Quarter |
|
|
Quarter |
|
|
|
|
(in millions) |
|
2009 |
|
|
2008 |
|
|
Increase/(Decrease) |
|
Americas |
|
$ |
7.1 |
|
|
|
57.3 |
% |
|
$ |
10.5 |
|
|
|
59.7 |
% |
|
$ |
(3.4 |
) |
|
|
(32.4 |
)% |
Europe |
|
|
4.8 |
|
|
|
38.7 |
% |
|
|
5.7 |
|
|
|
32.4 |
% |
|
|
(0.9 |
) |
|
|
(15.8 |
)% |
Asia |
|
|
0.5 |
|
|
|
4.0 |
% |
|
|
1.4 |
|
|
|
7.9 |
% |
|
|
(0.9 |
) |
|
|
(64.3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
12.4 |
|
|
|
100.0 |
% |
|
$ |
17.6 |
|
|
|
100.0 |
% |
|
$ |
(5.2 |
) |
|
|
(29.5 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys level of new orders fluctuates from quarter to quarter. Bookings in both segments
declined in the second quarter of 2009 compared to 2008 due to current economic conditions.
Additionally, the decrease in new order bookings for Technology Products was primarily due to
orders for the Companys commercial products which reflected the fact that the second quarter of
fiscal 2008 had a high level of orders needed to fill the pipeline for large distribution
customers. Decreased bookings of WheelWorks® and ScanWorks® also contributed to the decrease in
Technology Products. The decrease in orders in commercial products for the quarter was the
primary reason for the decrease in orders in the Americas. The decrease in Europe bookings was
primarily from lower Automated Systems orders. The decrease in Asia bookings was primarily from
Automated Systems orders with lower Technology Products bookings contributing to the decrease.
Backlog Backlog represents orders or bookings received by the Company that have not yet been
filled. The Companys backlog was $19.1 million as of December 31, 2008 compared with $21.3
million as of December 31, 2007. 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) |
|
2009 |
|
|
2008 |
|
|
Increase/(Decrease) |
|
Automated Systems |
|
$ |
16.2 |
|
|
|
84.8 |
% |
|
$ |
14.7 |
|
|
|
69.0 |
% |
|
$ |
1.5 |
|
|
|
10.2 |
% |
Technology Products |
|
|
2.9 |
|
|
|
15.2 |
% |
|
|
6.6 |
|
|
|
31.0 |
% |
|
|
(3.7 |
) |
|
|
(56.1 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
19.1 |
|
|
|
100.0 |
% |
|
$ |
21.3 |
|
|
|
100.0 |
% |
|
$ |
(2.2 |
) |
|
|
(10.3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second |
|
|
Second |
|
|
|
|
Backlog (by location) |
|
Quarter |
|
|
Quarter |
|
|
|
|
(in millions) |
|
2009 |
|
|
2008 |
|
|
Increase/(Decrease) |
|
Americas |
|
$ |
8.0 |
|
|
|
41.9 |
% |
|
$ |
12.5 |
|
|
|
58.7 |
% |
|
$ |
(4.5 |
) |
|
|
(36.0 |
)% |
Europe |
|
|
10.5 |
|
|
|
55.0 |
% |
|
|
7.7 |
|
|
|
36.2 |
% |
|
|
2.8 |
|
|
|
36.4 |
% |
Asia |
|
|
0.6 |
|
|
|
3.1 |
% |
|
|
1.1 |
|
|
|
5.1 |
% |
|
|
(0.5 |
) |
|
|
(45.5 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
19.1 |
|
|
|
100.0 |
% |
|
$ |
21.3 |
|
|
|
100.0 |
% |
|
$ |
(2.2 |
) |
|
|
(10.3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
The Company expects to be able to fill substantially all of the orders in backlog during the
following twelve months. The increase in Automated Systems backlog was principally due to higher
orders for new systems and system upgrade orders. The decrease in Technology Products backlog was
primarily due to commercial products which reflected lower bookings in the quarter. 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.
Gross Profit Gross profit was $7.6 million, or 38.5% of sales, in the second quarter of fiscal
year 2009, as compared to $8.7 million, or 45.4% of sales, in the second quarter of fiscal year
2008. The decrease of $1.1 million in gross profit this quarter was primarily due to lower
Automated Systems sales in fiscal 2009 compared to the fiscal 2008 quarter which resulted in under
absorbed fixed installation labor and manufacturing costs. Also affecting the gross margin
percentage decline in the current quarter was the product mix, which reflected a higher percentage
of commercial products in the Technology Products segment and a higher percentage of high labor content sales in the Automated Systems products both of which are at lower
margins than a new Automated System sale that includes higher margin equipment. Of the $1.1 million decline in
gross profit, the weaker Euro also had a negative impact of approximately $400,000.
Selling, General and Administrative (SG&A) Expenses SG&A expenses were essentially flat at $4.4
million quarter over quarter. There was a decrease of approximately $240,000 related to audit and
contract services related to the fiscal 2008 SOX 404 implementation and legal fees. Offsetting
this decrease were higher costs related to the Companys commercial products of approximately
$140,000, primarily related to higher co-op advertising and in Europe
and Asia, increased salary and other costs of approximately $90,000.
Engineering, Research and Development (R&D) Expenses Engineering and R&D expenses were $2.0
million in the quarter ended December 31, 2008 compared to $2.2 million in the second quarter a
year ago. The $194,000 decrease was primarily due to lower engineering materials in the fiscal
2009 quarter primarily related to spending on commercial product development efforts.
Interest Income, net Net interest income was $241,000 in the second quarter of fiscal 2009
compared with net interest income of $329,000 in the second quarter of fiscal 2008. The decrease
was primarily due to lower interest rates on higher average invested cash balances compared to one
year ago.
Foreign Currency There was a net foreign currency gain of $282,000 in the fiscal 2009 quarter
compared with a gain of $50,000 a year ago and represents foreign currency changes, particularly
related to the Yen and to a lesser extent the Real and Euro 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-
20
temporary decline in the market value of this investment. See Note 4 of the Notes to the
Consolidated Financial Statements, Long-Term Investments.
Income Taxes The effective tax rate for the second quarter of fiscal 2009 was 35.0% compared to
6.0% in the second quarter of fiscal 2008. The effective rate in both 2009 and 2008 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 Recent negative trends in the automotive market have had an effect on the Companys
business outlook. Revenue in fiscal 2009 is still expected to grow compared to fiscal 2008,
however, not at the double digit rate previously anticipated. As a result, the Company announced a
significant cost reduction plan for its Automated Systems business. The actions did not affect the
commercial products portion of the Companys business. Most of the cost reduction actions took
place in North America with a smaller amount in Europe. The actions included reducing personnel,
benefits, contract services and other related expenses that are expected to decrease annual costs
by approximately $4.7 million in fiscal 2010 and are intended to result in operating income for the
Companys Automated Systems business in fiscal 2010. The Company expects to record a
restructuring charge of approximately $1.0 million related to severance and other related costs in
the third quarter of fiscal 2009. The Company believes that the cost reduction actions
will improve the gross profit percentage in future quarters.
Six Months Ended December 31, 2008 Compared to Six Months Ended December 31, 2007
Overview The Company reported net income of $1.1 million, or $0.12 per diluted share, for the
first half of fiscal 2009, compared with net income of $259,000, or $0.03 per diluted share for the
six months ended December 31, 2007. Specific line item results are described below.
Sales Net sales in the first six months of fiscal 2009 were $39.1 million, compared to $36.8
million for the six months ended December 31, 2007. The following tables set forth comparison
data for the Companys net sales by segment and geographic location.
|
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|
|
Sales (by segment) |
|
Six Months |
|
|
Six Months |
|
|
|
|
(in millions) |
|
Ended 12/31/08 |
|
|
Ended 12/31/07 |
|
|
Increase/(Decrease) |
|
Automated Systems |
|
$ |
17.7 |
|
|
|
45.3 |
% |
|
$ |
18.7 |
|
|
|
50.8 |
% |
|
$ |
(1.0 |
) |
|
|
(5.3 |
)% |
Technology Products |
|
|
21.4 |
|
|
|
54.7 |
% |
|
|
18.1 |
|
|
|
49.2 |
% |
|
|
3.3 |
|
|
|
18.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
39.1 |
|
|
|
100.0 |
% |
|
$ |
36.8 |
|
|
|
100.0 |
% |
|
$ |
2.3 |
|
|
|
6.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
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|
|
|
|
|
Sales (by location) |
|
Six Months |
|
|
Six Months |
|
|
|
|
(in millions) |
|
Ended 12/31/08 |
|
|
Ended 12/31/07 |
|
|
Increase/(Decrease) |
|
Americas |
|
$ |
26.0 |
|
|
|
66.5 |
% |
|
$ |
24.1 |
|
|
|
65.5 |
% |
|
$ |
1.9 |
|
|
|
7.9 |
% |
Europe |
|
|
10.8 |
|
|
|
27.6 |
% |
|
|
10.6 |
|
|
|
28.8 |
% |
|
|
0.2 |
|
|
|
1.9 |
% |
Asia |
|
|
2.3 |
|
|
|
5.9 |
% |
|
|
2.1 |
|
|
|
5.7 |
% |
|
|
0.2 |
|
|
|
9.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
39.1 |
|
|
|
100.0 |
% |
|
$ |
36.8 |
|
|
|
100.0 |
% |
|
$ |
2.3 |
|
|
|
6.3 |
% |
|
|
|
|
|
|
|
|
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|
21
The decrease in Automated Systems was primarily due to lower sales in the Americas mitigated by
increased sales in Europe and Asia. Spending by North American automotive companies has decreased
due to the current economic conditions. The sales increase in Technology Products was primarily
due to higher sales of the Companys commercial products that were mitigated by lower sales of
WheelWorks® which is primarily sold to the automotive industry. Increased sales of the Companys
commercial products were also the primary reason for the increase in sales in the Americas. Europe
and Asias sales increased primarily in Automated Systems products reduced by lower sales of
Technology Products. For the six-month period, the weakening of the Euro exchange rate during the
second quarter of fiscal 2009 more than offset the effect of the stronger Euro on sales in the
first quarter of fiscal 2009.
Bookings Bookings represent new orders received from customers. New order bookings for the six
months ended December 31, 2008 were $32.8 million compared to $35.1 million for the same period one
year ago. The amount of new order bookings during any particular period is not necessarily
indicative of the future operating performance of the Company. The following tables set forth
comparison data for the Companys bookings by segment and geographic location.
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|
|
|
Bookings (by segment) |
|
Six Months |
|
|
Six Months |
|
|
|
|
(in millions) |
|
Ended 12/31/08 |
|
|
Ended 12/31/07 |
|
|
Increase/(Decrease) |
|
Automated Systems |
|
$ |
16.2 |
|
|
|
49.4 |
% |
|
$ |
20.3 |
|
|
|
57.8 |
% |
|
$ |
(4.1 |
) |
|
|
(20.2 |
)% |
Technology Products |
|
|
16.6 |
|
|
|
50.6 |
% |
|
|
14.8 |
|
|
|
42.2 |
% |
|
|
1.8 |
|
|
|
12.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
32.8 |
|
|
|
100.0 |
% |
|
$ |
35.1 |
|
|
|
100.0 |
% |
|
$ |
(2.3 |
) |
|
|
(6.6 |
)% |
|
|
|
|
|
|
|
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|
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|
|
|
|
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|
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|
|
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|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
Bookings (by location) |
|
Six Months |
|
|
Six Months |
|
|
|
|
(in millions) |
|
Ended 12/31/8 |
|
|
Ended 12/31/07 |
|
|
Increase/(Decrease) |
|
Americas |
|
$ |
19.1 |
|
|
|
58.2 |
% |
|
$ |
20.3 |
|
|
|
57.8 |
% |
|
$ |
(1.2 |
) |
|
|
(5.9 |
)% |
Europe |
|
|
12.6 |
|
|
|
38.4 |
% |
|
|
12.0 |
|
|
|
34.2 |
% |
|
|
0.6 |
|
|
|
5.0 |
% |
Asia |
|
|
1.1 |
|
|
|
3.4 |
% |
|
|
2.8 |
|
|
|
8.0 |
% |
|
|
(1.7 |
) |
|
|
(60.7 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
32.8 |
|
|
|
100.0 |
% |
|
$ |
35.1 |
|
|
|
100.0 |
% |
|
$ |
(2.3 |
) |
|
|
(6.6 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in new order bookings for Automated Systems during the first half of fiscal 2009 was
primarily due to decreased bookings in the Americas with lower bookings in Asia contributing to
the decrease. Increased Automated Systems bookings in Europe mitigated this decrease. Spending
by North American automotive companies has decreased due to current economic conditions. The
increase in new order bookings in the Technology Products Group during the first half of fiscal
2009 was primarily due to increased orders for commercial products mitigated by lower bookings in
the other Technology Products. Historically, the Companys rate of new orders has varied from
quarter to quarter.
Gross Profit Gross profit was $14.4 million, or 36.9% of sales, in the first half of fiscal
2009, as compared to $15.6 million, or 42.4% of sales, in the first half of fiscal 2008. The $1.2
million gross profit decrease was primarily due to higher material and labor costs in Europe and under absorbed fixed installation labor in the Americas and Asia contributing to
the decrease. Also affecting the gross margin
percentage decline in the current period was the product mix, which reflected a higher percentage
of commercial products in the Technology Products segment and a higher percentage of high labor content sales in the Automated Systems products both of which are at lower
margins than a new Automated System sale that includes higher margin equipment.
Selling, General and Administrative (SG&A) Expenses SG&A expenses were $9.0 million in the first
half of fiscal 2009 compared to $8.7 million in the same period one year ago. The increase of
approximately $295,000 was primarily due to higher costs in Europe of approximately $300,000 and
22
increased personnel and related costs to support the growth in Technology Products of approximately
$175,000. Mitigating these increases were lower audit and contract services related to the fiscal
2008 SOX 404 implementation of approximately $150,000.
Engineering, Research and Development (R&D) Expenses Engineering and R&D expenses were $4.3
million for the six months ended December 31, 2008 compared to $4.4 million for the six-month
period a year ago. The $88,000 decrease was principally due to lower engineering materials,
primarily related to spending on commercial product development efforts.
Interest Income, net Net interest income was $474,000 in the first half of fiscal 2009 compared
with net interest income of $544,000 in the first half of fiscal 2008. The decrease was due to
lower interest rates on higher cash balances in the first half of fiscal 2009 compared to the first
half of fiscal 2008.
Foreign Currency There was a net foreign currency gain of $218,000 in the first half of fiscal
2008 compared with a gain of $181,000 a year ago and represents foreign currency changes,
particularly related to the Yen and Real and to a lesser extent the Euro 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 4 of the Notes to
the Consolidated Financial Statements, Long-Term Investments.
Income Taxes The effective tax rate for the six months ended December 31, 2008 was 43.3%
compared to 60.2% in the first half of fiscal 2008. The effective rate in both 2009 and 2008
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 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 $23.3 million at December 31, 2008, compared to $22.2
million at June 30, 2008. The cash increase of $1.1 million for the six months ended December 31,
2008 resulted primarily from $2.4 million of cash generated from operations, which was offset by
$462,000 used for capital expenditures and $867,000 for the effect of exchange rate changes on cash
and cash equivalents.
The $2.4 million in cash provided from operations was primarily generated from net income of $1.1
million and the add back of non-cash items totaling $1.8 million which were reduced by net working
capital uses of $421,000. 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 an unfavorable change of $1.9 million in other current
assets and liabilities, increased receivables and inventory of $814,000 and $592,000, respectively,
offset by an increase of $2.9 million in accounts payable. The $814,000 increase in receivables
primarily related to higher sales during the second quarter of fiscal 2009 compared to the fourth
quarter of fiscal 2008. The increase in accounts payable related to normal fluctuations in the
timing of payments. The change in other current assets and liabilities represented lower accrued
liabilities including taxes and compensation and lower deferred revenue which were offset by lower
prepaid expenses.
23
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 first half of fiscal 2009, the
Company increased the reserve for obsolescence by $182,000 and disposals, netted with the foreign
currency translation effect of the Euro, decreased the reserve $365,000.
The Company determines its allowance for doubtful accounts by considering a number of factors,
including the length of time trade accounts receivable are past due, the Companys previous loss
history, the customers current ability to pay its obligation to the Company, and the condition of
the general economy and the industry as a whole. The Company writes-off accounts receivable when
they become uncollectible, and payments subsequently received on such receivables are credited to
the allowance for doubtful accounts. The Company increased its allowance for doubtful accounts by
$12,000 and wrote off $40,000 of receivables during the first half of fiscal 2009.
The Company had no debt outstanding at December 31, 2008. The Company has a $6.0 million secured
Credit Agreement with Comerica Bank, which expires on November 1, 2010. 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 Eurodollar-based Advance or as a Prime-based Advance if the Eurodollar-based
Advance is not available. Interest on Eurodollar-based Advances is calculated currently 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. The Company may not select a Prime-based rate for Advances except
during any period of time during which the Eurodollar-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, currently at the greater of 1/4% above prime rate or 1% above the
Federal Funds Rate. Quarterly, the Company pays a commitment fee of .075% per annum 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 $42.2 million as of December 31, 2008
and to have no advances outstanding for 30 consecutive days each calendar year.
At December 31, 2008, the Companys German subsidiary (GmbH) had an unsecured credit facility
totaling 500,000 Euros (equivalent to $705,000 at December 31, 2008). The facility may be used to
finance working capital needs and equipment purchases or capital leases. Any borrowings for
working capital needs will bear interest at 9.0% on the first 100,000 Euros of borrowings and 2.0%
for borrowings over 100,000 Euros. The German credit facility is cancelable at any time by either
GmbH or the bank and any amounts then outstanding would become immediately due and payable. At
December 31, 2008, GmbH had no borrowings outstanding. At December 31, 2008, the facility
supported outstanding letters of credit totaling 79,135 Euros (equivalent to approximately
$112,000).
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
2008, 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 for fiscal year 2008.
24
At December 31, 2008, the Company holds available for sale long-term investments in auction rate
securities. An auction is scheduled 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
maximum contractual interest rate every 28 days. To date, the Company has received all interest
payments on these investments when due. 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.
Blue Water Trust I (Blue Water) is a Money Market Committed Preferred Custodial Trust Security
(CPS Security) that invests in investment grade commercial paper and which has entered into a Put
Agreement with RAM Reinsurance Company Ltd. (Ram Re), a wholly owned subsidiary of RAM Holdings
Ltd., principally engaged in underwriting financial guaranty insurance. In the event Ram Re
exercises its put option, Blue Water is required to purchase perpetual non-cumulative redeemable
preference shares of Ram Re. During the quarter ended September 30, 2008, the Company recorded a
temporary non-cash decline of $185,000 in the market value of this investment. During the quarter
ended December 31, 2008 there was no observable change in the market value of this investment. During the quarter
ended December 31, 2007, the Company recorded a $2.6 million other-than-temporary decline in the
market value as Impairment of Long-Term Investment in the income statement. See Note 15 of the
Notes to the Consolidated Financial Statements, Subsequent Events for information on Ram Res
February 4, 2009 announcement of its intent to exercise its put option.
During the quarter ended December 31, 2008, there was no observable change in the market value of
the Companys two other investments. 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. See Item 1A, Risk Factors and Note 1 to the Consolidated Financial Statements, Summary of
Significant Accounting Policies Long-term Investments of the Companys 2008 Annual Report on Form 10K.
Based on the Companys current business plan, cash and cash equivalents of $23.3 million at
December 31, 2008 and its existing unused credit facilities, the Company does not currently
anticipate that the lack of liquidity on these investments will affect the Companys ability to
operate or fund its currently anticipated fiscal 2009 cash flow requirements.
The Company may spend up to approximately $2.0 million during fiscal year 2009 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 2009 cash flow requirements, except to the extent
that the Company implements new business development opportunities, which would likely 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 will consider evaluating 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
25
Company anticipates that it would finance any such business opportunities from a combination of
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 for fiscal year 2008.
MARKET RISK INFORMATION
The Companys primary market risk is related to foreign exchange rates. 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 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,
2008, the Companys percentage of sales commitments in non-United States currencies was
approximately 57.6% or $11.0 million, compared to 37.6% or $8.0 million at December 31, 2007.
The Company may use, from time to time, a limited hedging program to minimize the impact of foreign
currency fluctuations. These transactions involve the use of forward contracts, typically mature
within one year and are designed to hedge anticipated foreign currency transactions. The Company
may use forward exchange contracts to hedge the net assets of certain of its foreign subsidiaries
to offset the translation and economic exposures related to the Companys investment in these
subsidiaries.
At December 31, 2008, the Company had no forward exchange contracts outstanding. During the
quarter ended September 30, 2008, the Company recognized a loss of approximately $19,000 in other
comprehensive income (loss) for the unrealized and realized change in value of the forward exchange
contracts that matured on July 1, 2008. The objective of the hedge transactions was 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, the forward contracts were effective. The accounting for
the hedges is consistent with translation adjustments where any gains and losses are recorded to
other comprehensive income.
At December 31, 2007, the Company had approximately $7.3 million of forward exchange contracts
between the United States Dollar and the Euro with a weighted average settlement price of 1.45
Euros to the United States Dollar. 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.
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, 2008 would
have been approximately $11,000 and $59,000, respectively. The potential loss in earnings for the
comparable periods in fiscal 2008 would have been approximately $73,000 and $33,000, respectively.
26
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, 2008
consisted of auction rate securities for which the yields are reset every 28 days. Given the 28
day cycles in which the yields on these investments are reset, at December 31, 2008, a 100 basis
point rise in interest rates would not be expected to have a material adverse impact on the fair
value of the Companys cash and cash equivalents and long-term investments. As a result, the
Company does not currently hedge these interest rate exposures.
Uncertainties in Credit Markets
The Companys long-term investments are also subject to risk due to a decline in value of the
investment. At December 31, 2008, the Company holds available for sale long-term investments in
auction rate securities. An auction is scheduled 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 maximum contractual interest rate every 28 days. To date, the Company has received
all interest payments on these investments when due. 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.
Blue Water Trust I (Blue Water) is a Money Market Committed Preferred Custodial Trust Security
(CPS Security) that invests in investment grade commercial paper and which has entered into a Put
Agreement with RAM Reinsurance Company Ltd. (Ram Re), a wholly owned subsidiary of RAM Holdings
Ltd., principally engaged in underwriting financial guaranty insurance. In the event Ram Re
exercises its put option, Blue Water is required to purchase perpetual non-cumulative redeemable
preference shares of Ram Re. During the quarter ended September 30, 2008, the Company recorded a
temporary non-cash decline of $185,000 in the market value of this investment. During the quarter
ended December 31, 2008, there was no observable change in the market value of this investment.
During the quarter ended December 31, 2007, the Company recorded a $2.6 million
other-than-temporary decline in the market value as Impairment of Long-Term Investment in the
income statement. See Note 15 of the Notes to the Consolidated Financial Statements, Subsequent
Events for information on Ram Res February 4, 2009 announcement of its intent to exercise its put
option.
During the quarter ended December 31, 2008, there was no observable change in the market value of
the Companys two other investments. 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. See Item 1A, Risk Factors and Note 1 to the
Consolidated Financial Statements, Summary of Significant Accounting Policies Long-term
Investments of the Companys 2008 Annual Report on Form 10K.
Based on the Companys current business plan, cash and cash equivalents of $23.3 million at
December 31, 2008 and its existing unused credit facilities, the Company does not currently
anticipate that the lack
27
of liquidity on these investments will affect the Companys ability to operate or fund its
currently anticipated fiscal 2009 cash flow requirements.
New Accounting Pronouncements
For a discussion of new accounting pronouncements, see Note 13 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 (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 December 31, 2008, 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 December 31, 2008 identified in connection with the Companys evaluation that has
materially affected, or is reasonably likely to materially affect, the Companys internal controls
over financial reporting.
PART II. OTHER INFORMATION
ITEM 1A. RISK FACTORS
Except for the addition of the risk factors set forth below, 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 2008 and Quarterly Report on Form 10-Q for the quarter ended September 30,
2008.
Recently implemented cost reduction actions may not be sufficient to improve profitability in
the event sales for Automated Systems products continue to decline.
The cost reduction plan implemented in the quarter ended March 31, 2009 may not be sufficient to
offset continued declines in sales resulting from the current economic decline, particularly in the
automotive industry, and return the Automated Systems segment to profitability. In that case,
further cost reductions may be required, although because of certain fixed costs associated with
some of our operations, the
28
extent of future cost reductions may be limited. While we have attempted to implement cost
reductions that will not be disruptive to the Companys operations, the cost reductions implemented
to date could have an unanticipated negative impact on the Companys operations or financial
results. In addition, the charges associated with the cost reduction actions and the anticipated amount of cost
savings from such actions are only estimates. Actual charges could be greater and actual cost savings could be less due to a number of factors, including unanticipated costs of implementing the cost reduction actions and
the inability to reduce expenses to the level originally anticipated without disrupting the Companys operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Shareholders on November 18, 2008 at which the following
action was taken:
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 |
|
|
4,324,912 |
|
|
|
2,899,959 |
|
|
|
|
|
Kenneth R. Dabrowski |
|
|
4,282,909 |
|
|
|
2,941,962 |
|
|
|
|
|
Philip J. DeCocco |
|
|
4,278,309 |
|
|
|
2,946,562 |
|
|
|
|
|
W. Richard Marz |
|
|
4,328,012 |
|
|
|
2,896,859 |
|
|
|
|
|
Robert S. Oswald |
|
|
4,325,212 |
|
|
|
2,899,659 |
|
|
|
|
|
James A. Ratigan |
|
|
4,323,212 |
|
|
|
2,901,659 |
|
|
|
|
|
Harry T. Rittenour |
|
|
4,327,312 |
|
|
|
2,897,559 |
|
|
|
|
|
Terryll R. Smith |
|
|
4,280,899 |
|
|
|
2,943,972 |
|
|
|
|
|
2. The Shareholders approved the Amendment to the 2004 Stock Incentive Plan which increased the
shares of Common Stock available under the plan by 400,000 and Re-Approved the Section 162(m)
performance goals under such plan. As to this proposal, 4,444,680 voted for, 357,675 shares
voted against, 40,691 shares abstained and 2,381,825 shares were broker non-votes.
ITEM 6. EXHIBITS
10.1 |
|
Severance Agreement dated December 18, 2008 between the Company and
Harry T. Rittenour is incorporated by reference to Exhibit 10.1 of the Companys
Current Report on Form 8-K filed on December 24, 2008. |
|
10.2 |
|
Severance Agreement dated December 18, 2008 between the Company and
John H. Lowry III is incorporated by reference to Exhibit 10.2 of the Companys
Current Report on Form 8-K filed on December 24, 2008. |
|
10.3 |
|
Severance Agreement dated December 18, 2008 between the Company and
Mark S. Hoefing is incorporated by reference to Exhibit 10.3 of the Companys
Current Report on Form 8-K filed on December 24, 2008. |
|
10.4 |
|
Severance Agreement dated December 31, 2008 between the Company and
Paul J. Eckhoff is incorporated by reference to Exhibit 10.1 of the Companys
Current Report on Form 8-K filed on January 8, 2009. |
|
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. |
29
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 6, 2009 |
By: |
/S/ Harry T. Rittenour
|
|
|
|
Harry T. Rittenour |
|
|
|
President and Chief Executive Officer |
|
|
|
|
|
Date: February 6, 2009 |
By: |
/S/ John H. Lowry III
|
|
|
|
John H. Lowry III |
|
|
|
Vice President and Chief Financial Officer
(Principal Financial Officer) |
|
|
|
|
|
Date: February 6, 2009 |
By: |
/S/ Sylvia M. Smith
|
|
|
|
Sylvia M. Smith |
|
|
|
Controller and Chief Accounting Officer
(Principal Accounting Officer) |
|
|
30