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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 2002 OR [ ] TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
TRANSITION PERIOD FROM ________ TO ________.
COMMISSION FILE NUMBER: 0-20206
PERCEPTRON, INC.
(Exact name of registrant as specified in its charter)
Michigan 38-2381442
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
47827 Halyard Drive
Plymouth, Michigan 48170-2461
(734) 414-6100
(Registrant's telephone number, including area code)
Securities registered pursuant to section 12(b) of the act: None
Securities registered pursuant to section 12(g) of the act:
COMMON STOCK, $0.01 PAR VALUE
RIGHTS TO PURCHASE PREFERRED STOCK
(TITLE OF CLASS)
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 X No
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Indicate by check mark if disclosure of delinquent filers pursuant to item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing sale price of the Common Stock on September
17, 2002, as reported by The Nasdaq Stock Market, was approximately $11,100,000
(assuming, but not admitting for any purpose, that all directors and executive
officers of the registrant are affiliates).
The number of shares of Common Stock, $0.01 par value, issued and outstanding as
of September 17, 2002, was 8,244,453.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following document, to the extent specified in this report, are
incorporated by reference in Part III of this report:
Document Incorporated by reference in:
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Proxy Statement for 2002
Annual Meeting of Shareholders Part III, Items 10-13
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PART I
ITEM 1: DESCRIPTION OF BUSINESS
GENERAL
Perceptron, Inc. ("Perceptron" or the "Company") designs, develops, manufactures
and markets information-based measurement and inspection solutions for process
improvement. Perceptron's product offerings are designed to improve quality,
increase productivity and decrease costs in manufacturing and product
development. Among the solutions offered by the Company are: 1) Laser-based
gauging systems that provide 100% inline measurement for reduction of process
variation; 2) Systems that guide robots in a variety of automated assembly
applications; 3) Systems that inspect the quality of painted surfaces, and; 4)
Technology components and software for the Coordinant Measurement Machine (CMM),
portable CMM, wheel alignment, reverse engineering, digitizing, and forest
products industry.
The Company's current principal products are based upon proprietary
three-dimensional image processing and feature extraction software algorithms
combined with two distinct three-dimensional object imaging technologies:
TriCam(TM) and LASAR(TM). TriCam(TM) technology uses structured laser light
triangulation techniques to obtain accurate three-dimensional measurements.
TriCam(TM) systems are used to measure formed parts for reduction of process
variation, to provide robot guidance sensing for automated assembly tasks and to
improve the speed and lower the cost of wheel alignment in final assembly
operations. LASAR(TM) provides accurate three-dimensional measurements of a full
scene over a larger field of view than does TriCam(TM).
On March 15, 2002, the Company sold substantially all of the assets of its
Forest Products business unit for $4.6 million in cash at closing and a
promissory note for approximately $343,000. The purchaser also assumed certain
liabilities of the Forest Products business unit. Historical financial
information included in the Form 10K for 2002 and prior periods has been
restated to present the Forest Products business unit as a discontinued
operation. The Company will continue to manufacture and supply sensors ordered
by the Purchaser. Other information, such as bookings and backlog, has been
restated to reflect only the Company's continuing operations.
The Company was incorporated in Michigan in 1981 and is headquartered at 47827
Halyard Drive, Plymouth, Michigan 48170-2461, (734) 414-6100. The Company also
has operations in Munich, Germany; Rotterdam, The Netherlands; Quimper, France;
Sao Paulo, Brazil and Tokyo, Japan.
MARKETS
The Company services multiple markets, with the largest being the automotive
industry. The Company has product offerings encompassing virtually the entire
automobile manufacturing process, including product development, stamping,
general assembly, paint, trim and final assembly. The Company believes there are
numerous applications for its three-dimensional measurement systems in other
industrial and commercial applications. The foregoing statement is a "forward
looking statement" within the meaning of the Securities Exchange Act of 1934, as
amended ("Exchange Act"). See Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Safe Harbor Statement".
PRODUCTS AND APPLICATIONS
AutoGauge(TM): These systems are used in the assembly and fabrication plants of
many of the world's leading auto manufacturers and their suppliers to contain,
correct and control the quality of body structures. AutoGauge(TM) systems are
placed directly in-line to automatically measure critical dimensional
characteristics of automotive vehicles, sub-assemblies and parts using
non-contact, laser-based sensors.
More recently, AutoGauge(TM) technology has been ported to a new computing and
communication platform called IPNet(TM). The IPNet(TM) platform uses Internet
technology to disseminate critical manufacturing and quality information on a
real-time basis throughout a plant or enterprise. IPNet(TM) also communicates to
wireless devices such as Palm(TM) Pilots and web phones. Other advantages of the
IPNet(TM) platform include: A Windows based architecture allowing integration of
3rd party hardware and software, a new graphics based user interface, and
greater flexibility to distribute sensors throughout the manufacturing process
at lower cost.
AutoGauge(TM) has been enhanced with the ability to provide hybrid-systems
containing both fixed mounted sensors and robot-mounted sensors. This ability
provides automotive manufacturers with the flexibility to measure multiple
vehicle styles on a single assembly line while maintaining their high-speed
production rates.
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AutoFit(TM): These systems are used in automotive assembly plants to contain,
correct and control the fit of exterior body panels. The system automatically
measures, records and displays the gap and flushness of parts most visible to
the automobile consumer such as gaps between front and rear doors, hoods and
fenders, and deck lids and rear quarter panels. The TriCam(R) sensor has been
enhanced to enable gap and flushness to be measured in several parts of the
manufacturing process: in the body shop during assembly of non-painted vehicles,
and in the final assembly area after the vehicle has been painted. AutoFit(TM)
has the ability to measure vehicles while in motion along the assembly line or
in a stationary position.
AutoScan(TM): These systems provide a fast, non-contact method of gathering data
for the analysis of the surface contour of a part or product. These systems use
a robot mounted ContourProbe(TM) sensor specifically designed to "scan" a part
as the robot moves throughout its path. The AutoScan(TM) system measures and
collects the "point cloud data" required for contour analysis by third party
analysis software. This allows the part's shape to be automatically scanned and
compared to a computer-generated design.
AutoSpect(R): These in-line, non-contact systems are used in auto assembly
plants to monitor and measure the quality of the vehicle's paint finish. The
system measures and generates objective, repeatable, reproducible ratings of the
painted surface. AutoSpect(R) systems are fully automatic and monitor 100% of
painted vehicle production. AutoSpect(R) measures the key elements of a paint
finish most visible to the consumer: gloss, orange peel, and DORI (distinctness
of reflected image). The AutoSpect(R) system has been upgraded to the IPNet(TM)
control and communication platform and shares many of the same components as the
AutoGauge(TM) system. Perceptron also offers a portable, battery powered paint
quality measurement system.
AutoGuide(TM): These robot guidance systems were developed in response to the
increasing use of robots for flexible, automated assembly applications. These
systems utilize Perceptron sensors and measurement technology to improve the
accuracy of robotic assembly operations. AutoGuide(TM) systems calculate the
difference between theoretical and actual relationships of a robot and the part
being assembled and send compensation data, in six axes, to the robot. Robotic
applications supported by AutoGuide(TM) include windshield insertion, roof
loading, seat loading, hinge mounting, door attachment and sealant applications.
ScanWorks(TM): The Company provides ScanWorks(TM) products to a variety of
markets through third party original equipment manufacturers ("OEMs"), system
integrators and value-added resellers ("VARs"). These products target the
digitizing, reverse engineering, and inspection markets.
ScanWorks(TM) is a hardware/software component set that allows customers to add
digitizing capabilities to their machines or systems. The use of the
ScanWorks(TM) software and the ContourProbe(TM) sensor enables users to collect,
display, manipulate and export large sets of "point cloud data" from portable
CMMs.
ToolKit is a software solution enabler used by CMM manufacturers, system
integrators and application software developers. It enables the integration of
Perceptron's laser-based scanning technology into their proprietary systems.
Non-Contact Wheel Alignment Components (NCA): NCA components include
WheelWorks(R) software and sensors based upon the TriCam(R) design. These
technology components offer a fast, accurate, non-contact method of aligning
wheels during the automotive assembly process. The Company supplies NCA
components to multiple wheel alignment machine OEMs in Europe, Asia and North
America.
LASAR(R) is based upon proprietary three-dimensional image processing and
feature extraction software algorithms combined with a three-dimensional object
imaging technology. LASAR(R) provides accurate three-dimensional measurements of
a full scene over a large field of view. The LASAR(R) product is currently used
by the Forest Products industry for the three-dimensional measurement of stems,
logs and cants.
SALES AND MARKETING
The Company markets its systems directly to end users, and through system
integrators, VARs and OEMs.
The Company's direct sales efforts are led by the Company's account executives.
These account executives develop a close consultative selling relationship with
the Company's customers. Perceptron's senior management works in close
collaboration with customers' executives. The Company also provides technology
components to selected system integrators, OEMs and VARs that integrate the
Company's products into their systems for sales to end user customers.
3
The Company's principal customers have historically been automotive companies
that the Company either sells to directly or through system integrators or OEMs.
The Company's products are typically purchased for installation in connection
with new model re-tooling programs undertaken by these companies. Because sales
are dependent on the timing of customers' re-tooling programs, sales by customer
vary significantly from year to year, as do the Company's largest customers. For
the fiscal years ended June 30, 2002, 2001 and 2000, approximately 44%, 35% and
49%, respectively, of total revenues from continuing operations were derived
from the Company's four largest automotive customers (General Motors, Ford,
DaimlerChrysler and Volkswagen). For the fiscal years ended June 30, 2002, 2001
and 2000, approximately, 19%, 20% and 13%, respectively, of net sales from
continuing operations, were to system integrators and OEMs for the benefit of
the same four automotive customers. These numbers reflect consolidations that
have occurred within the automotive industry. During the fiscal year ended June
30, 2002, sales to General Motors and Volkswagen were 21.9% and 11.9%,
respectively, of the Company's total net sales from continuing operations.
As part of the sale of substantially all of the assets of the Forest Products
business unit, the Company and the purchaser also entered into a Covenant Not to
Compete dated March 13, 2002. The Company agreed, among other matters, for a
period of ten years not to compete with the purchaser in any business in which
the Forest Products business unit was engaged at any time during the three-year
period prior to the closing of the transaction, and for so long as the purchaser
is a customer of the Company, not to sell products or services intended
primarily for operators of wood processing facilities or license any
intellectual property to any third party primarily for use in any wood
processing facility.
MANUFACTURING AND SUPPLIERS
The Company's manufacturing operations consist primarily of final assembly,
testing and integration of the Company's software with individual components
such as, printed circuit boards manufactured by third parties according to the
Company's designs. The Company believes a low level of vertical integration
gives it significant manufacturing flexibility and minimizes total product
costs.
The Company purchases a number of component parts and assemblies from single
source suppliers. Although the Company believes that alternative suppliers are
available for most of its components, component supply shortages in certain
industries, including the electronics industry, have occurred in the past and
are possible in the future due to imbalances in supply and demand. Significant
delays or interruptions in the delivery of components or assemblies by
suppliers, or difficulties or delays in shifting manufacturing capacity to new
suppliers, could have a material adverse effect on the Company.
INTERNATIONAL OPERATIONS
Europe: The Company's European operations contributed approximately 36%, 43%,
and 28%, of the Company's revenues from continuing operations during the fiscal
years ended June 30, 2002, 2001 and 2000, respectively. The Company's
wholly-owned subsidiary, Perceptron Europe B.V. ("Perceptron B.V."), is located
in Rotterdam, The Netherlands. Perceptron B.V. holds a 100% equity interest in
Perceptron (Europe) GmbH ("Perceptron GmbH"), which is located in Munich,
Germany and a 100% interest in Perceptron E.U.R.L. located in Quimper, France.
At June 30, 2002, the Company employed 59 people in its European operations.
Asia: The Company operates a direct sales, application and support office in
Tokyo, Japan to service customers in Asia.
South America: The Company has a direct sales, application and support office in
Sao Paulo, Brazil to service customers in South America.
The Company's foreign operations are subject to certain risks typically
encountered in such operations, including fluctuations in foreign currency
exchange rates and controls, expropriation and other economic and local policies
of foreign governments, and the laws and policies of the U.S. and local
governments affecting foreign trade and investment. For information regarding
net sales and identifiable assets of the Company's foreign operations, see Note
14 to the Consolidated Financial Statements, "Segment and Geographic
Information".
COMPETITION
The Company believes that it provides the best and most complete solutions to
its customers in terms of system capabilities and support, at a competitive
price for the value provided, which it believes are the principal competitive
4
factors in these markets. There are a number of companies that sell similar
and/or alternative technologies and methods into the same markets as the
Company.
The Company believes that there may be other entities, some of which may be
substantially larger and have substantially greater resources than the Company,
which may be engaged in the development of technology and products, which could
prove to be competitive with those of the Company. In addition, the Company
believes that certain existing and potential customers may be capable of
internally developing their own technology. There can be no assurance that the
Company will be able to successfully compete with any such entities, or that any
competitive pressures will not result in price erosion or other factors, which
will adversely affect the Company's financial performance.
BACKLOG
As of June 30, 2002, the Company had a backlog from continuing operations of
$15.2 million, compared to $19.8 million at June 30, 2001. The June 30, 2001
backlog number was adjusted to include $2.1 million of deferred revenue that
resulted from the adoption of the Securities and Exchange Commission's Staff
Accounting Bulletin No. 101 ("SAB 101") guidelines on revenue recognition. See
also Note 3, "Change in Accounting Principle" in the Notes to the Consolidated
Financial Statements. Most of the backlog is subject to cancellation by the
customer. The level of order backlog at any particular time is not necessarily
indicative of the future operating performance of the Company. The Company
expects to be able to fill substantially all of the orders in its backlog by
June 30, 2003.
RESEARCH AND DEVELOPMENT
As of June 30, 2002, 45 persons employed by the Company were focused primarily
on research, development and engineering relating to three-dimensional machine
vision systems, and related software. For the fiscal years ended June 30, 2002,
2001 and 2000, the Company's research, development and engineering expenses were
$6.2 million, $10.0 million, and $10.4 million, respectively.
The Company engages in research and development ("R&D") to enhance its existing
products, to adapt existing products to new applications and to develop new
products to meet new market opportunities. The Company is involved in a
continuous product improvement program for its products intended to enhance
performance, reduce costs and incorporate new technological advances. To this
end, the Company is engaged in strategic alliances with a number of research and
development institutions. Recent customer recognition of the power of Web-based
or Web-like informational navigation for manufacturing operations has involved
the Company in pilot projects for widely distributed measurement systems and
remote information accessibility.
The Company recently completed a National Institute for Science and Technology -
Advanced Technology Program award to participate in a joint venture to develop a
robot guidance system for powertrain assembly automation. The Company's in-kind
development contribution, net of reimbursements, was approximately $618,000 over
a four and a half year period that began in 1998. The joint venture was
administered by the National Center for Manufacturing Sciences and included a
major automotive manufacturer.
PATENTS, TRADE SECRETS AND CONFIDENTIALITY AGREEMENTS
The Company owns nineteen U.S. patents and has pending thirteen U.S. patent
applications, which relate to various products and processes manufactured, used,
and/or sold by the Company. The Company also owns thirteen foreign patents in
Canada, Europe and Japan and has eight patent applications pending in foreign
locations. The U.S. patents expire from 2004 through 2019 and the Company's
existing foreign patent rights expire from 2008 through 2012. In addition, the
Company holds perpetual licenses to thirty-five other U.S. patents including
rights to practice six patents for non-forest product related applications that
were assigned to U.S. Natural Resources, Inc. in conjunction with the sale of
the Forest Products business unit. The expiration dates for these licensed
patents range from 2002 to 2020.
The Company has registered, and continues to register, various trade names and
trademarks including Perceptron(R), AutoSpect(R), LASAR(R), OptiFlex(R),
TriCam(R), Veristar(R) and WheelWorks(R), among others, which are used in
connection with the conduct of its business. Trademarks that have been approved
for registration and are awaiting issuance include AutoGauge(TM), AutoGuide(TM),
AutoScan(TM), AutoSolve(TM) and Visual Fixturing(TM). Other trademarks awaiting
issuance include IPNet(TM), AutoFit(TM) and ScanWorks(TM).
The Company's software products are copyrighted and generally licensed to
customers pursuant to license agreements that restrict the use of the products
to the customer's own internal purposes on designated Perceptron equipment.
5
The Company has been informed that certain of its customers have received
allegations of possible patent infringement involving processes and methods used
in the Company's products. Certain of these customers, including one customer
who was a party to a patent infringement suit relating to this matter, have
settled such claims. Management believes, however, that the processes used in
the Company's products were independently developed without utilizing any
previously patented process or technology. Because of the uncertainty
surrounding the nature of any possible infringement and the validity of any such
claim or any possible customer claim for indemnity relating to claims against
these customers, it is not possible to estimate the ultimate effect, if any, of
this matter on the Company's financial statements.
In connection with the settlement of certain litigation filed by the Company
against Fori Automation alleging infringement of certain of the Company's
patents relating to non-contact wheel alignment systems, the Company has
licensed such patents to Fori on a non-exclusive basis.
EMPLOYEES
As of June 30, 2002, the Company employed 218 persons. None of the employees is
covered by a collective bargaining agreement and the Company believes its
relations with its employees to be good.
ITEM 2: FACILITIES
Perceptron's principal domestic facilities consist of a 70,000 square foot
building located in Plymouth, Michigan, owned by the Company. In addition, the
Company leases a 1,500 square meter facility in Munich, Germany; a 150 square
meter facility in Rotterdam, The Netherlands; offices in Quimper, France; Sao
Paulo, Brazil and Tokyo, Japan. The Company believes that its current facilities
are sufficient to accommodate its requirements through the year 2003.
ITEM 3: LEGAL PROCEEDINGS
On September 25, 1998, the U.S. District Court for the Eastern District of
Michigan dismissed, with prejudice, a suit filed against the Company by Speroni,
S.p.A. ("Speroni") which alleged tortious interference in conjunction with
exclusive distributorship contracts covering the sale of the P-1000(TM) products
in Italy and France. Speroni's appeal of the dismissal was denied by the Federal
Court of Appeals. The suit alleged tortious interference in conjunction with
exclusive distributorship contracts covering the sale of P-1000(TM) products in
Italy and France between Perceptron B.V., a wholly-owned subsidiary of the
Company, and Speroni. Perceptron B.V. terminated the exclusive distributorship
contracts in 1997 for breach of contract by Speroni and has sought arbitration
of this matter with the International Chamber of Commerce International Court of
Arbitration ("ICC"), to confirm the terminations and to award damages. Speroni
filed counterclaims with the ICC alleging breach of the exclusive
distributorship contracts and seeking damages of $6.5 million. On February 12,
2001, the arbitrator determined that 1) Speroni breached its duty to properly
inform Perceptron B.V., but did not act in bad faith, and so Perceptron B.V. did
not satisfy the conditions required under French law and Italian law to
rightfully terminate the distributorship agreements without prior notice; and 2)
Perceptron B.V. did not breach its agreements with Speroni by providing certain
information to a customer of both Perceptron B.V. and Speroni and by submitting
a bid to a customer of both Perceptron B.V. and Speroni outside of Speroni's
territories, but did not act in good faith in not informing Speroni of these
activities. Damages, if any, on the claims on which the arbitrator found in
favor of Speroni are to be decided in the second phase of the arbitration
proceeding which was completed on April, 4, 2002. The arbitrator has not yet
issued a ruling.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No response to Item 4 is required.
6
PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
Perceptron's Common Stock is traded on The Nasdaq Stock Market's National Market
under the symbol "PRCP". The following table shows the reported high and low
sales prices of Perceptron's Common Stock for the fiscal year periods indicated:
Prices
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Low High
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Fiscal 2001
Quarter through September 30, 2000 $3.00 $3.94
Quarter through December 31, 2000 $1.25 $3.63
Quarter Ended March 31, 2001 $1.25 $2.38
Quarter Ended June 30, 2001 $1.25 $1.98
Fiscal 2002
Quarter through September 30, 2001 $0.92 $1.58
Quarter through December 31, 2001 $0.87 $1.80
Quarter through March 31, 2002 $1.19 $1.85
Quarter through June 30, 2002 $1.39 $1.98
Fiscal 2003
Quarter through September 17, 2002 $1.33 $1.49
No cash dividends or distribution on Perceptron's Common Stock have been paid
and it is not anticipated that any will be paid in the foreseeable future. In
addition, the payment of cash dividends or other distributions is prohibited
under the terms of Perceptron's revolving credit agreement with its bank. See
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Liquidity and Capital Resources", for a discussion of other
restrictions on the payment of dividends.
The approximate number of shareholders of record on September 17, 2002, was 237.
The information pertaining to the securities the Company has authorized for
issuance under equity compensation plans is hereby incorporated by reference to
Item 12, "Security Ownership of Certain Beneficial Owners and Management".
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ITEM 6: SELECTED CONSOLIDATED FINANCIAL INFORMATION
PERCEPTRON, INC. AND SUBSIDIARIES
(In thousands, except per share amounts)
TWELVE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, JUNE 30, DECEMBER 31,
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STATEMENT OF OPERATIONS DATA:(1),(2) 2002 2001(3) 2000 1999(4) 1998 1997
Net sales $ 43,943 $ 40,430 $ 57,347 $ 17,977 $ 39,555 $ 55,472
Gross profit 22,587 20,119 31,866 9,126 20,859 34,161
Operating income (loss) 1,170 (4,046) 4,231 (4,090) (5,580) 12,852
Income (loss) before income taxes 759 (4,647) 3,973 (4,765) (6,518) 13,744
Income (loss) from continuing operations 942 (2,549) 2,369 (3,370) (4,285) 9,151
Discontinued operations (4,644) (3,656) (512) (1,490) 946 1,655
Cumulative effect of change in accounting principle -- (1,333) -- -- -- --
Net income (loss) (3,702) (7,538) 1,857 (4,860) (3,339) 10,806
Earnings (loss) per diluted share:
Continuing operations $ 0.11 $ (0.31) $ 0.29 $ (0.41) $ (0.52) $ 1.09
Discontinued operations (0.56) (0.45) (0.06) (0.18) 0.11 0.19
Cumulative effect of change in accounting
principle -- (0.16) -- -- -- --
Net income (loss) (0.45) (0.92) 0.23 (0.59) (0.41) 1.28
Weighted average common shares
outstanding - diluted 8,213 8,178 8,199 8,185 8,239 8,412
AS OF JUNE 30, AS OF DECEMBER 31,
--------------------------------------------------- ----------------------
BALANCE SHEET DATA: 2002 2001(3) 2000 1999(4) 1998 1997
Working capital $ 24,824 $ 25,559 $ 42,849 $ 37,202 $ 42,854 $ 46,392
Total assets 54,693 66,247 65,105 59,867 64,785 66,423
Long-term liabilities 1,040 1,040 4,595 4,265 1,040 --
Shareholders' equity 39,211 40,295 49,569 48,064 54,852 57,879
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(1) No cash dividends have been declared or paid during the periods
presented.
(2) In fiscal 2002, the Company sold substantially all of the assets of its
Forest Products business unit. See also Note 2, "Discontinued
Operations", in the Notes to the Consolidated Financial Statements.
Accordingly, historical financial information has been restated to
present the Forest Products business unit as a discontinued operation.
(3) In fiscal 2001, the Company implemented the Securities and Exchange
Commission's Staff Accounting Bulletin 101 ("SAB 101") guidelines on
revenue recognition. See also Note 3, "Change in Accounting Principle",
in the Notes to the Consolidated Financial Statements.
(4) In 1999, the Company elected to change its reporting period from a
calendar year ending December 31 to a fiscal year ending June 30. As a
result, 1999 represents a six-month transition period.
8
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Perceptron, Inc. ("Perceptron" or the "Company") designs, develops, manufactures
and markets information-based measurement and inspection focused solutions for
process improvement. The Company's current principal products are based upon
proprietary three-dimensional image processing and feature extraction software
algorithms combined with two distinct three-dimensional object imaging
technologies: TriCam(TM) and LASAR(TM). TriCam(TM) technology uses structured
laser light triangulation techniques to obtain accurate three-dimensional
measurements. TriCam(TM) systems are used to measure formed parts for reduction
of process variation, to provide robot guidance sensing for automated assembly
tasks and to improve the speed and lower the cost of wheel alignment in final
assembly operations. LASAR(TM) provides accurate three-dimensional measurements
of a full scene over a larger field of view than does TriCam(TM).
On March 15, 2002 the Company announced the sale of its Forest Products business
unit (FPBU) pursuant to a certain Asset Purchase Agreement by and among U.S.
Natural Resources, Inc. (the "Purchaser"), Nanoose Systems Corporation, Trident
Systems Inc. and the Company, dated March 13, 2002. Details of the sale are
disclosed in the Form 8-K submitted by the Company to the Securities and
Exchange Commission on March 29, 2002. The Company received $4.6 million in cash
at closing and a promissory note for approximately $343,000. The Purchaser also
assumed certain liabilities of the Forest Products business unit. See also Note
2, "Discontinued Operations" in the Notes to the Consolidated Financial
Statements. The disposal of the Forest Products business unit resulted in an
after-tax loss of approximately $1.4 million. The operations of the Forest
Products business unit have been reported separately as a component of
discontinued operations. Prior year consolidated financial statements have been
restated to present the Forest Products business unit as a discontinued
operation. As a result, the Company's remaining business is in the global
automotive market and its business segment is the automotive industry.
During the fourth quarter of fiscal 2001, the Company implemented the Securities
and Exchange Commission's Staff Accounting Bulletin No. 101 (SAB 101) guidelines
on revenue recognition. Under the new accounting method adopted retroactive to
July 1, 2000, the Company recognizes the portion of revenue from the sales of
products upon shipment when both title and risk of loss pass to the customer and
defers the greater of the fair value or the contractual holdback of any
undelivered elements, such as installation services, until the undelivered
elements are completed. Historically, the Company recognized revenue from the
sales of products upon shipment, and accrued for any costs of installation not
completed. The Company previously accounted for contractual acceptance terms
based upon probable achievement of meeting the acceptance criteria. See also
Note 3, "Change in Accounting Principle" in the Notes to the Consolidated
Financial Statements.
RESULTS OF OPERATIONS
FISCAL YEAR ENDED JUNE 30, 2002, COMPARED TO FISCAL YEAR ENDED JUNE 30, 2001
Overview. The Company reported income from continuing operations of $942,000, or
$0.11 per share, for the fiscal year ended June 30, 2002 compared with a loss
from continuing operations of $2.5 million, or $0.31 per share, for the fiscal
year ended June 30, 2001. Discontinued operations represented the operating
losses of the Company's FPBU which were $3.2 million and $3.7 million for fiscal
years 2002 and 2001, respectively. In addition, the Company recorded a loss of
$1.4 million related to the sale of FPBU in fiscal 2002. See also Note 2,
"Discontinued Operations" in the Notes to the Consolidated Financial Statements.
The Company reported a net loss of $3.7 million or $0.45 per share compared to a
net loss of $7.5 million or $0.92 per share for fiscal 2001. The net loss for
fiscal 2001 includes a charge to income of $1.3 million (net of income taxes of
$764,000) for the cumulative effect of a change in accounting principle related
to the Company's implementation of the Securities and Exchange Commission's
Staff Accounting Bulletin No. 101 (SAB 101) guidelines on revenue recognition.
See also Note 3, "Change in Accounting Principle" in the Notes to the
Consolidated Financial Statements.
Sales. Subsequent to the sale of FPBU the Company's remaining business is
substantially all in the global automotive market, and its business segment is
the automotive industry. Net sales of $43.9 million for the year ended June 30,
2002 were up $3.5 million, or 9%, compared with sales for the year ended June
30, 2001 of $40.4 million. The sales increase was due to the following changes
by systems and components product category: AutoGauge(TM) sales of $28.4 million
were up $1.4 million and accounted for 65% of sales in fiscal 2002 compared with
67% of sales in fiscal 2001, AutoGuide(TM) sales of $1.6 million were down
$600,000 and accounted for 4% of sales in fiscal 2002 compared with 5% of sales
in fiscal 2001, AutoSpect(TM) sales of $1.5 million were down $500,000 and
accounted for 3% of sales in fiscal
9
2002 compared with 5% of sales in fiscal 2001, NCA sales of $5.2 million were up
$1.0 million and accounted for 12% of sales in fiscal 2002 compared with 10% of
sales in fiscal 2001, ScanWorks(TM) sales of $2.8 million were up $1.0 million
and accounted for 6% of sales in fiscal year 2002 as compared to 4% of sales in
fiscal 2001. ScanWorks(TM) was a new component product introduced in late 2000,
and fiscal 2002 growth reflected the acceptance of this product, particularly in
the Japanese market. Service, training and other miscellaneous product sales
accounted for the remainder of sales in both years. The increase in 2002 sales
was primarily due to an increased number of tooling programs in North America.
Bookings & Backlog. New order bookings for the fiscal year ended June 30, 2002
were $40.6 million compared with $39.2 million for the fiscal year ended June
30, 2001. Fiscal 2002 bookings by product category were comparable to sales by
product category. The new order bookings, net of sales, resulted in a backlog at
June 30, 2002 of $15.2 million compared to $19.8 million at June 30, 2001. The
June 30, 2001 backlog number was adjusted to include $2.1 million of deferred
revenue that resulted from the adoption of SAB 101. See also Note 3, "Change in
Accounting Principle" in the Notes to the Consolidated Financial Statements. The
amount of new order bookings and the level of backlog during any particular
period are not necessarily indicative of the future operating performance of the
Company.
Gross Profit. Gross profit was $22.6 million, or 51.4% of sales, in the fiscal
year ended June 30, 2002, as compared to $20.1 million, or 49.8% of sales, in
the fiscal year ended June 30, 2001. The increase in the gross profit percentage
primarily reflected higher margins related to a favorable product mix and
reduced manufacturing labor and overhead costs that resulted from the
restructuring implemented in the fourth quarter of fiscal 2001.
Selling, General and Administrative (SG&A) Expenses. SG&A expenses during fiscal
2002 were $15.0 million, compared with $13.7 million during fiscal 2001. The
increase primarily reflected higher selling expenses of approximately $700,000
related to developing the North American market for ScanWorks and in Europe
related to establishing local offices in Spain and Slovakia to support new
business opportunities in these countries. The cost of relocating to a new
office in Munich, Germany and supporting a broader geographic base also caused
SG&A to increase in Europe. In addition, legal expenses were approximately
$200,000 higher, both domestically to litigate certain lawsuits and in Europe to
reorganize the structure of the subsidiaries.
Engineering, Research and Development (R&D) Expenses. Engineering and R&D
expenses were $6.2 million for the fiscal year ended June 30, 2002, compared
with $10.0 million for fiscal 2001. Approximately $2.7 million of the decrease
in expenses was related to significant reductions in personnel and engineering
material costs. The balance of the decrease reflected certain reserves
established in fiscal 2001 of approximately $1.1 million for inventory and
capital assets related to product development projects that were put on hold and
for which it was determined that no alternative uses were available. The Company
believes that the current level of Engineering and R&D expenses will enable it
to sustain support for core products and selective development of new products
with strong growth potential.
Restructuring Charge. The Company recorded in the third quarter of fiscal 2002 a
restructuring charge of $251,000 for estimated employee separation costs
associated with a work force reduction of 22 employees at the Company's Plymouth
headquarters. The Company expects this restructuring to reduce annual operating
expenses by approximately $1.5 million and to position the Company to be
profitable at a lower sales level. The foregoing statement is a "forward-looking
statement" within the meaning of the Securities Exchange Act of 1934, as
amended. See Item 2 "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Safe Harbor Statement" for a discussion of a number
of uncertainties which could cause actual results to differ materially from
those set forth in the forward-looking statement. During the third and fourth
quarters of fiscal 2001, the Company executed a restructuring plan that included
a work force reduction of 34 employees and the closing of certain offices. The
restructuring expense of $495,000 in fiscal 2001 was comprised of approximately
$205,000 recorded during the third quarter related primarily to closing certain
leased facilities and $290,000 recorded during the fourth quarter related
primarily to employee separation costs.
Other Income and Deductions. Other income and deductions, losses of $162,000 and
$252,000 in fiscal 2002 and 2001 respectively, were primarily the result of net
foreign currency losses related to the Euro and Yen.
Interest Expense, net. Net interest expense was $249,000 in fiscal 2002,
compared with $349,000 in fiscal 2001. The decrease reflected lower borrowings
and interest rates on the Company's revolving line of credit.
Income Taxes. The income tax benefit from continuing operations for both fiscal
2002 and 2001 reflected the effect of the mix of operating profit and loss among
the Company's various operating entities and their countries' respective tax
rates. Both periods also included tax credits associated with a dividend
distribution within the Company's European
10
subsidiary. During fiscal year 2002, the Company completed an examination with
the Internal Revenue Service that covered the years 1996 through 1998. The
examination resulted in a net refund to the Company of approximately $429,000
and re-established tax credits that had previously been utilized. The Company
established a valuation allowance for the tax credit carryforwards and other
items where it was more likely than not that these items would either expire or
not be deductible before the Company was able to realize their benefit. See Note
13 of Notes to Consolidated Financial Statements, "Income Taxes".
Outlook. The sale of FPBU has enabled the Company to focus on its core business,
and the restructuring program implemented during the second half of fiscal 2001,
and the additional restructuring actions taken in the third quarter of fiscal
2002, have lowered operating expenses and the level of operation required for
the Company to break-even. Based on the backlog as of June 30, 2002 and the
anticipated timing of new orders, the Company expects sales in the first half of
fiscal 2003 to be at levels approximating sales in the last six months of fiscal
2002 and sales in the second half of fiscal 2003 to show improvement over the
first half of fiscal 2003 with full year sales for fiscal 2003 comparable to
fiscal 2002. As a result, the Company expects operating results for fiscal 2003
to approximate fiscal 2002. The foregoing statements contain "forward-looking
statements" within the meaning of the Securities Exchange Act of 1934. Actual
results could differ materially from those in the forward-looking statements due
to a number of uncertainties, including those described under Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Safe Harbor Statement", below.
FISCAL YEAR ENDED JUNE 30, 2001, COMPARED TO FISCAL YEAR ENDED JUNE 30, 2000
Overview. Fiscal 2001 results reflect a change in accounting principle for
revenue recognition based on the new guidelines of SAB 101 (see Note 3 of Notes
to Consolidated Financial Statements) and have also been restated to show the
Forest Products business unit as a discontinued operation (see Note 2 of Notes
to Consolidated Financial Statements). The Company reported a loss from
continuing operations of $2.5 million, or $0.31 per share, for the fiscal year
ended June 30, 2001 compared with income from continuing operations of $2.4
million, or $0.29 per share, in the fiscal year ended June 30, 2000. Income from
continuing operations for fiscal year 2000 would have been $2.2 million, or
$0.26 per share on a pro forma basis reflecting the new accounting method. The
cumulative effect of the change in accounting principle on prior years resulted
in a charge to income of $1.3 million (net of income taxes of $764,000) or $0.16
per share. Discontinued operations resulted in a loss of $3.7 million in fiscal
year 2001 compared to a loss of $512,000 in fiscal year 2000. The net loss for
fiscal year 2001 was $7.5 million or $0.92 per share as compared to net income
of $1.9 million or $0.23 per share for fiscal year 2000. Net income for fiscal
year 2000 would have been $1.4 million, or $0.17 per share on a pro forma basis
reflecting the new accounting method. The overall impact of SAB 101 on income
before the cumulative effect of the accounting change for fiscal 2001 was a
decrease of $192,000.
Sales. Net sales of $40.4 million for the fiscal year ended June 30, 2001 were
down $16.9 million, or 29.5%, compared with sales of $57.3 million for fiscal
2000. The fiscal 2001 sales include $1.7 million that is included in the
cumulative effect adjustment. Implementing SAB 101 also had the effect of
deferring sales of $1.6 million that historically would have been recorded in
fiscal 2001. Sales for fiscal 2000 would have been $56.8 million on a proforma
basis reflecting the new accounting method. Net Domestic sales were $20.7
million for the year ended June 30, 2001 as compared to $40.9 million for the
year ended June 30, 2000. Net International sales were $19.7 million for the
year ended June 30, 2001 compared to $16.4 million for the year ended June 30,
2000. The sales decrease of $16.9 million for the fiscal year ended June 30,
2001 compared with the same period one year ago was due to the following changes
by systems and components product categories: AutoGauge(TM) sales of $27.0
million were down $12.7 million and accounted for 67% of sales in fiscal 2001
compared with 70% of sales in fiscal 2000, AutoGuide(TM) sales of $2.2 million
were down $3.3 million and accounted for 5% of sales in fiscal 2001 compared
with 10% of sales in fiscal 2000. The decline in AutoGauge(TM) and AutoGuide(TM)
sales was primarily due to the downturn in the North American automotive market
and our customers' decision to postpone capital spending coupled with fewer new
tooling programs. AutoSpect(R) sales of $2.0 million were up $600,000 and
accounted for 5% of sales in fiscal 2001 compared with 2% of sales in fiscal
2000. The AutoSpect(R) sales improvement was primarily due to customer
acceptance of the new web-based system for measuring the quality of finished
painted surfaces. NCA sales of $4.2 million were down $1.1 million and accounted
for 10% of sales in fiscal 2001 compared with 9% of sales in fiscal 2000.
ScanWorks(TM) sales of $1.8 million were up $600,000 and accounted for 4% of
sales in fiscal 2001 compared with 2% of sales in fiscal 2000. ScanWorks(TM) is
a new product and the increase year over year represents new product sales
growth. Service, training and other miscellaneous product sales accounted for
the remainder of sales in both years.
Bookings & Backlog. New order bookings for the fiscal year ended June 30, 2001
were $39.2 million compared with $53.9 million for the fiscal year ended June
30, 2000. The decrease in bookings of $14.7 million primarily reflected lower
AutoGauge(TM) bookings of $27.0 million in fiscal 2001 compared with bookings of
$40.8 million in fiscal 2000. The decrease in bookings in fiscal 2001 was
primarily due to the declining automotive market that caused customers to
11
delay placing orders for capital equipment. The new order bookings, net of
sales, resulted in a backlog at June 30, 2001 of $17.7 million compared to $19.4
million at June 30, 2000. The June 30, 2001 backlog number was subsequently
adjusted to $19.8 million to include $2.1 million of deferred revenue that
resulted from the adoption of SAB 101. See also Note 3, "Change in Accounting
Principle" in the Notes to the Consolidated Financial Statements. The amount of
new order bookings and the level of backlog during any particular period are not
necessarily indicative of the future operating performance of the Company.
Gross Profit. Gross profit was $20.1 million, or 49.8% of sales, in the fiscal
year ended June 30, 2001, as compared to $31.9 million, or 55.6% of sales, in
the fiscal year ended June 30, 2000. The gross profit rate for fiscal year 2000
would have been 55.3% on a pro forma basis reflecting the new accounting method.
The decrease in gross profit margin percentage was primarily due to the
following factors: unabsorbed fixed overhead related to lower volumes accounted
for approximately half of the rate decline and the effect of currency declines
principally in the Euro and competitive pricing pressure in Europe accounted for
the balance of the rate decline.
Selling, General and Administrative (SG&A) Expenses. SG&A expenses during fiscal
2001 were $13.7 million, compared with $17.3 million during fiscal 2000. The
decrease primarily reflected lower personnel costs related to the restructuring
program implemented during the second half of fiscal 2001 and no bonus awards in
fiscal 2001 compared with bonus expense that resulted from favorable operating
performance in fiscal 2000. Legal and recruiting expenses were also down
compared with fiscal 2000. These reductions were partially offset by a $470,000
charge in 2001 for reserves related to accounts receivable primarily held by the
Company's international subsidiaries.
Engineering, Research and Development (R&D) Expenses. Engineering and R&D
expenses were $10.0 million for the fiscal year ended June 30, 2001, compared
with $10.4 million in fiscal 2000. The decrease in expenses was primarily due to
lower personnel and engineering material costs related to the restructuring
program implemented during the second half of fiscal 2001. The decrease was
partially offset by expenses recorded for certain reserves of approximately $1.1
million for inventory and capital assets related to product development projects
that were put on hold and for which it was determined that no alternative uses
were available.
Restructuring Charge. During the third and fourth quarter of fiscal 2001, the
Company executed a restructuring plan that included a work force reduction of 34
employees and the closing of certain offices. The restructuring expense of
$495,000 in fiscal 2001 was comprised of approximately $205,000 recorded during
the third quarter related primarily to closing certain leased facilities and
$290,000 recorded during the fourth quarter related primarily to employee
separation costs.
Other Income and Deductions. The change in other income and deductions
year-over-year included an unfavorable change in foreign currency of $259,000
principally due to the decline in the Euro in 2001 and a loss on disposal of
machinery and equipment of $102,000 in fiscal 2000.
Interest Expense, net. Net interest expense was $349,000 in fiscal 2001,
compared with $165,000 in fiscal 2000. The increase of $184,000 resulted from
higher borrowings under the Company's revolving line of credit required to fund
operating losses.
Income Taxes. Income tax benefit for fiscal 2001 reflected the effect of the mix
of operating profit and loss among the Company's various operating entities and
the effective tax rates in those countries. See Note 13 of Notes to Consolidated
Financial Statements, "Income Taxes".
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents were $8.1 million at June 30, 2002,
compared to $6.7 million at June 30, 2001. The cash increase of $1.4 million for
the fiscal year ended June 30, 2002, resulted primarily from $5.1 million of
cash generated from continuing operations. Cash generated was used to pay down
approximately $3.1 million on the Company's revolving line of credit, $771,000
for capital expenditures and $712,000 to fund discontinued operations. During
the 2002 period, $4.6 million of cash received from the sale of the Company's
Forest Product business unit was used to pay down borrowings under the Company's
revolving credit line.
The $5.1 million in cash provided from continuing operations was primarily
generated from decreases in working capital requirements of $4.7 million.
Inventories were reduced $5.5 million primarily as a result of a concentrated
inventory management plan the Company implemented at the end of fiscal 2001.
This plan involved, among other things, limiting inventory purchases for
forecasted orders before receipt of final specifications, reducing the time
between inventory receipt and shipment, and qualifying new suppliers with
shorter delivery times. During fiscal year 2002, the
12
Company disposed of $1.6 million of inventory that had been reserved for at June
30, 2001. Receivables were reduced $1.4 million primarily from increased
collections. During fiscal year 2002, the Company decreased its reserve for
allowance for doubtful accounts by a net amount of $82,000. This amount is made
up of an approximately $189,000 increase in the reserve for doubtful accounts
and approximately $271,000 of receivables that were written-off. Approximately
50% of the receivable balances that were written off related to DaimlerChrysler
Corporation's decision to reduce its payments to its vendors by 5%. Other
current assets and liabilities were reduced $185,000 primarily as a result of a
$429,000 cash refund received for Federal income taxes. These reductions in
working capital requirements totaled $7.1 million and were offset by a $2.4
million reduction in accounts payable.
In conjunction with the sale of the Company's Forest Product business unit, the
Company amended its Credit Agreement with Bank One, dated September 24, 2001 to
allow for the sale of assets to the Purchaser and to reduce the aggregate
principal amount of the Credit Agreement from $18.5 million to $13.5 million.
At June 30, 2002, the Company had two collateral-based Revolving Credit
Facilities ("Revolver"): "Facility A" in the principal amount of $12.0 million
that expires on August 31, 2003 and "Facility B" in the principal amount of $1.5
million that expired on August 31, 2002. At June 30, 2002, the Company's
borrowing base under Facility B was $307,000 of which none was outstanding.
Proceeds under Facility A may be used for working capital and general corporate
purposes. The aggregate principal amount outstanding at any one time under
Facility A cannot exceed the lesser of $12.0 million or the Facility A borrowing
base which is comprised of 80% of eligible accounts receivable billed in the
United States, aged up to 180 days, 35% of raw material located in the United
States, and $4.8 million representing 80% of the appraised value of the
Company's real property located in Plymouth, Michigan. The collateral for
Facility A is substantially all U.S. assets of the Company and a pledge of 65%
of the common stock of Perceptron B.V. owned by the Company.
Facility A can be designated as a Floating Rate Loan with interest calculated
daily at 1/2% below the bank's prime rate which was 4.75% as of September 15,
2002 or as a Eurodollar Rate Loan when the Company achieves a ratio of funded
debt to earnings before interest, taxes, depreciation, and amortization of less
than 5:1. Quarterly, the Company pays a commitment fee of 1/4% per annum on the
daily unused portion of Facility A. The Credit Agreement prohibits the Company
from paying dividends. In addition, the Revolver contains various financial
covenants that, among other things, restrict dividend payments by requiring the
Company to maintain a Fixed Charge Coverage Ratio and a Total Liabilities to
Tangible Net Worth Ratio and require the Company to maintain certain levels of
earnings before interest, taxes, depreciation and amortization, ("EBITDA). The
Company's EBITDA for the fiscal year ended June 30, 2002 was below the level
required by the Revolver and resulted in the Funded Debt to EBITDA Ratio and the
Fixed Charge Ratio falling below the financial covenants. The Company's bank
waived the covenant defaults through June 30, 2002. In the event that the
Company failed to satisfy the covenants contained in, or there was an event of
default under, the Revolver, the lender has the right to not make further
advances under, and to require the repayment of, the Revolver. At June 30, 2002,
the Company's borrowing base under Facility A was $11.4 million of which $5.8
million was outstanding.
See Item 3, "Legal Proceedings" and Note 9 to the Consolidated Financial
Statements, "Contingencies", for a discussion of certain contingencies relating
to the Company's liquidity, financial position and results of operations,
including the outcome of the damages phase of a pending arbitration matter
involving claims on which the arbitrator found in favor of Speroni, S. p. A., a
former distributor of the Company.
The Company expects to spend approximately $1.0 million during fiscal year 2003
for capital equipment, although there is no binding commitment to do so. The
Company believes that available cash on hand and existing credit facilities will
be sufficient to fund anticipated fiscal year 2003 cash flow requirements. The
Company does not believe that inflation has significantly impacted historical
operations and does not expect any significant near-term inflationary impact.
The foregoing statements are "forward-looking statements" within the meaning of
the Securities Act of 1934, as amended. See Item 2, "Management's Discussion and
Analysis of Financial Condition and Results of Operations-Safe Harbor Statement"
for a discussion of a number of uncertainties which could cause actual results
to differ materially from those set forth in the forward-looking statement.
MARKET RISK INFORMATION
Perceptron's primary market risks are related to foreign exchange rates and
interest rate risk in connection with its borrowings. The foreign exchange risk
is derived from sales by its international operations, which are primarily
located in Germany and The Netherlands and for which products are produced in
the U.S. During the periods presented the Company did not use any market risk
instruments for trading purposes.
13
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-U.S. currencies. For sales commitments entered into in the non-U.S.
currencies, the currency rate risk exposure is predominantly less than one year
with the majority in the 120 to 150 day range. At June 30, 2002, the Company's
percentage of sales commitments in non-U.S. currencies was approximately 52.6%
or $8.0 million.
The Company may use, from time to time, a limited hedging program to minimize
the impact of foreign currency fluctuations. As the Company exports products, it
may enter into limited hedging transactions relating to the accounts receivable
arising as a result of such shipment. These transactions involve the use of
forward contracts. During the periods presented the Company did not engage in
any hedging activities.
INTEREST RATE RISK
The Company is subject to interest rate risk in connection with borrowings under
its variable rate revolving line of credit and from fixed rate debt assumed in
conjunction with the purchase of ultrasound intellectual property in October
1998. The Company's exposure to interest rate risk arises primarily from changes
in the prime rate and changes in Eurodollar rates in the London interbank
market. The Company would not expect its operating results or cash flows to be
affected to any significant degree by a hypothetical 10 percent change in market
interest rates. See Note 6 of Notes to Consolidated Financial Statements for a
description of the Company's outstanding debt.
NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Intangible
Assets", which supersedes Accounting Principles Board ("APB") Opinion No. 17,
"Intangible Assets". Under the new rules, goodwill and intangible assets deemed
to have indefinite lives will no longer be amortized but will be subject to
annual impairment tests in accordance with the statements. Other intangible
assets will continue to be amortized over their useful lives. SFAS 142 will
apply to goodwill and intangible assets arising from transactions completed
before and after the Statement's effective date. SFAS 142 is effective for
fiscal years beginning after December 15, 2001, but earlier adoption is
permitted. Management believes that the adoption of this statement will not
impact the Company's consolidated financial statements.
In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations", which is effective for years beginning after June 15, 2002. SFAS
143 addresses financial accounting and reporting for obligations associated with
the retirement of tangible long-lived assets and the associated asset retirement
costs. Management believes that the adoption of this pronouncement will not have
a material impact on the Company's consolidated financial statements.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets", which addresses issues relating to the
implementation of SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," and develops a single
accounting model, based on the framework established in SFAS 121, for long-lived
assets to be disposed of by sale, whether previously held and used or newly
acquired. SFAS 144 is effective for fiscal years beginning after December 15,
2001, but earlier adoption is permitted. Management believes that the adoption
of this statement will not impact the Company's consolidated financial
statements.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities", which is effective for exit or disposal
activities that are initiated after December 31, 2002. This Statement addresses
financial accounting and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS
146 requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. Under Issue 94-3, a
liability for an exit cost as defined in Issue 94-3 was recognized at the date
of an entity's commitment to an exit plan. Management believes that the adoption
of this statement will not have a material impact on the Company's consolidated
financial statements.
SAFE HARBOR STATEMENT
Certain statements in Item 1, "Description of Business", and in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations may be "forward-looking statements" within the meaning of the
Securities
14
Exchange Act of 1934, including the Company's expectation as to fiscal 2003 and
future revenue, order booking levels and earnings levels, the impact of the
Company's cost reduction initiatives, the ability of the Company to fund its
cash flow requirements and the number of applications for the Company's systems.
The Company assumes no obligation for updating any such forward-looking
statements to reflect actual results, changes in assumptions or changes in other
factors affecting such forward-looking statements. Actual results could differ
materially from those in the forward-looking statements due to a number of
uncertainties, including, but not limited to, the dependence of the Company's
revenue on a number of sizable orders from a small number of customers, the
timing of orders and shipments which can cause the Company to experience
significant fluctuations in its quarterly and annual revenue and operating
results, timely receipt of required supplies and components which could result
in delays in anticipated shipments, general product demand and market acceptance
risks, the ability of the Company to successfully compete with alternative and
similar technologies, the timing and continuation of the Automotive industry's
retooling programs, the ability of the Company to resolve technical issues
inherent in the development of new products and technologies, the ability of the
Company to identify and satisfy market needs, general product development and
commercialization difficulties, the ability of the Company to attract and retain
key personnel, especially technical personnel, the quality and cost of
competitive products already in existence or developed in the future, the level
of interest existing and potential new customers may have in new products and
technologies generally, rapid or unexpected technological changes, the effect of
economic conditions, particularly economic conditions in the domestic and
worldwide Automotive industry, which has from time to time been subject to
cyclical downturns due to the level of demand for, or supply of, the products
produced by companies in this industry, the continued availability of the
Company's current line of credit and the lender's continued willingness to waive
violations of financial covenants under the line of credit in the event that the
Company's future results do not satisfy such covenants, the level of the damage
award in a pending arbitration matter with a former distributor of the Company,
variations in the amount of cost savings anticipated from the cost reduction
initiatives and the impact of cost reduction initiatives on the Company's
revenues, order bookings and earnings. The Company's expectations regarding
future bookings are based upon oral discussions with customers and are subject
to change based upon a wide variety of factors, including economic conditions
and system implementation delays. Certain of these new orders have been delayed
in the past and could be delayed in the future. Because the Company's 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 Company's products have shorter lead times than other
components and are required later in the process, orders for the Company's
products tend to be given later in the integration process.
ITEM 7A: QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Information required pursuant to this item is incorporated by reference herein
from Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Market Risk Information".
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
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Reports of Independent Accountants 16
Consolidated Financial Statements:
Balance Sheets - June 30, 2002 and 2001 18
Statements of Income for the fiscal years ended June 30, 2002, 2001 and 2000 19
Statements of Cash Flows for the fiscal years ended June 30, 2002, 2001 and 2000 20
Statements of Shareholders' Equity for the fiscal years ended June 30, 2002, 2001 and 2000 21
Notes to Consolidated Financial Statements 22
15
[GRANT THORNTON LETTERHEAD]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Perceptron, Inc.
We have audited the accompanying consolidated balance sheet of Perceptron, Inc.
and Subsidiaries as of June 30, 2002 and the related consolidated statements of
income, shareholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe our audit provides a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Perceptron, Inc. and Subsidiaries as of June 30, 2002, and the consolidated
results of their operations and their consolidated cash flows for the year then
ended, in conformity with accounting principles generally accepted in the United
States of America.
We have also audited Schedule II for the year ended June 30, 2002. In our
opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.
Grant Thornton LLP
Southfield, Michigan
August 14, 2002
16
[PRICEWATERHOUSECOOPERS LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Perceptron, Inc.:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, shareholders' equity and cash flows present
fairly, in all material respects, the financial position of Perceptron, Inc. and
its subsidiaries ("the Company") at June 30, 2001 and the results of their
operations and their cash flows for the years ended June 30, 2001 and June 30,
2000 in conformity with accounting principles generally accepted in the United
States of America. In addition, in our opinion, the financial statement schedule
referred to in item 14(A)(2) for the years ended June 30, 2001 and June 30, 2000
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
These financial statements and financial statement schedule are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As discussed in Note 3 to the consolidated financial statements, during the year
ended June 30, 2001, the Company changed its method of recognizing revenue.
PricewaterhouseCoopers LLP
Detroit, Michigan
August 15, 2001 except as to Note 2 for which the date
is March 15, 2002.
17
PERCEPTRON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Per Share Amount)
AS OF JUNE 30, 2002 2001
-------- --------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 8,143 $ 6,680
Receivables:
Billed receivables, net of allowance for doubtful accounts
of $652 and $734, respectively 20,458 17,334
Unbilled and other receivables 1,041 3,645
Inventories, net of reserves of $1,173 and $2,038, respectively 7,751 15,136
Net assets of discontinued operations -- 6,547
Deferred taxes and other current assets 1,873 1,129
-------- --------
Total current assets 39,266 50,471
-------- --------
PROPERTY AND EQUIPMENT
Building and land 6,004 6,004
Machinery and equipment 8,690 7,954
Furniture and fixtures 1,061 1,061
-------- --------
15,755 15,019
Less - Accumulated depreciation and amortization (7,272) (6,193)
-------- --------
Net property and equipment 8,483 8,826
-------- --------
OTHER ASSETS
Intangible assets, net of accumulated amortization
of $0 and $28, respectively -- 47
Deferred tax asset and other 6,944 6,903
-------- --------
Total other assets 6,944 6,950
-------- --------
TOTAL ASSETS $ 54,693 $ 66,247
======== ========
LIABILITIES AND COMMON SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,600 $ 5,062
Accrued liabilities and expenses 3,236 3,551
Deferred revenue (Note 3) 1,997 2,069
Notes payable (Note 6) 5,833 13,615
Income taxes payable 352 273
Accrued compensation 424 342
-------- --------
Total current liabilities 14,442 24,912
-------- --------
LONG-TERM LIABILITIES
Notes payable (Note 6) 1,040 1,040
-------- --------
Total long-term liabilities 1,040 1,040
-------- --------
Total Liabilities 15,482 25,952
-------- --------
SHAREHOLDERS' EQUITY
Preferred stock - no par value, authorized 1,000 shares, issued none
Common stock, $0.01 par value, authorized 19,000 shares, issued
and outstanding 8,232 and 8,185, respectively 82 82
Accumulated other comprehensive loss (2,951) (5,505)
Additional paid-in capital 41,120 41,056
Retained earnings 960 4,662
-------- --------
Total shareholders' equity 39,211 40,295
-------- --------
TOTAL LIABILITIES AND COMMON SHAREHOLDERS' EQUITY $ 54,693 $ 66,247
======== ========
The notes to the consolidated financial statements are an integral part of these
statements.
18
PERCEPTRON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
YEARS ENDED JUNE 30, 2002 2001 2000
-------- -------- --------
NET SALES $ 43,943 $ 40,430 $ 57,347
COST OF SALES 21,356 20,311 25,481
-------- -------- --------
GROSS PROFIT 22,587 20,119 31,866
-------- -------- --------
OPERATING EXPENSES
Selling, general and administrative 14,977 13,662 17,250
Engineering, research and development 6,189 10,008 10,385
Restructuring charge (Note 4) 251 495 --
-------- -------- --------
Total operating expenses 21,417 24,165 27,635
-------- -------- --------
OPERATING INCOME (LOSS) 1,170 (4,046) 4,231
-------- -------- --------
OTHER INCOME AND (DEDUCTIONS)
Interest expense (522) (568) (334)
Interest income 273 219 169
Foreign currency gain (loss) (161) (250) 9
Other (1) (2) (102)
-------- -------- --------
Total other income (deductions) (411) (601) (258)
-------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 759 (4,647) 3,973
INCOME TAX EXPENSE (BENEFIT) (183) (2,098) 1,604
-------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS 942 (2,549) 2,369
-------- -------- --------
DISCONTINUED OPERATIONS
Income (loss) from Forest Products business unit, net of
$1,038, $1,708 and $167, of taxes, respectively (Note 2) (3,236) (3,656) (512)
Loss on sale of Forest Products business unit, net of
$678 of taxes (Note 2) (1,408) -- --
-------- -------- --------
Total discontinued operations (4,644) (3,656) (512)
-------- -------- --------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE (3,702) (6,205) 1,857
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE,
NET OF $764 OF TAXES, INCLUDING $340 RELATED TO DISCONTINUED
OPERATIONS (NOTE 3) -- (1,333) --
-------- -------- --------
NET INCOME (LOSS) $ (3,702) $ (7,538) $ 1,857
======== ======== ========
BASIC EARNINGS (LOSS) PER COMMON SHARE
Continuing operations $ 0.11 $ (0.31) $ 0.29
Discontinued operations (0.56) (0.45) (0.06)
Change in accounting principle -- (0.16) --
-------- -------- --------
Net income (loss) $ (0.45) $ (0.92) $ 0.23
======== ======== ========
DILUTED EARNINGS (LOSS) PER COMMON SHARE
Continuing operations $ 0.11 $ (0.31) $ 0.29
Discontinued operations (0.56) (0.45) (0.06)
Change in accounting principle -- (0.16) --
-------- -------- --------
Net income (loss) $ (0.45) $ (0.92) $ 0.23
======== ======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic 8,209 8,178 8,170
Dilutive effect of stock options 4 -- 29
-------- -------- --------
Diluted 8,213 8,178 8,199
======== ======== ========
The notes to the consolidated financial statements are an integral part of these
statements.
19
PERCEPTRON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(In Thousands)
YEARS ENDED JUNE 30, 2002 2001 2000
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Income (loss) from continuing operations $ 942 $ (2,549) $ 2,369
Adjustments to reconcile income (loss) from continuing operations
to net cash provided from (used for) operating activities:
Cumulative effect of change in accounting principle -- (993) --
Depreciation and amortization 1,187 1,421 1,676
Deferred income taxes (1,646) (4,931) 2,325
Other (27) 72 (32)
Changes in assets and liabilities, exclusive of changes shown separately 4,656 2,205 (2,320)
-------- -------- --------
Net cash provided from (used for) operating activities 5,112 (4,775) 4,018
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Revolving credit borrowings 26,684 27,060 17,585
Revolving credit repayments (34,466) (17,000) (17,255)
Proceeds from stock plans 65 46 31
-------- -------- --------
Net cash provided from (used for) financing activities (7,717) 10,106 361
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (771) (837) (1,221)
Proceeds from sale of Forest Products assets (Note 2) 4,607 -- --
-------- -------- --------
Net cash provided from (used for) investing activities 3,836 (837) (1,221)
-------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 944 (561) (300)
-------- -------- --------
NET CASH USED FOR DISCONTINUED OPERATIONS (712) (3,200) (1,116)
-------- -------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,463 733 1,742
CASH AND CASH EQUIVALENTS, JULY 1 6,680 5,947 4,205
-------- -------- --------
CASH AND CASH EQUIVALENTS, JUNE 30 $ 8,143 $ 6,680 $ 5,947
======== ======== ========
CHANGES IN ASSETS AND LIABILITIES, EXCLUSIVE OF CHANGES SHOWN SEPARATELY
Receivables, net $ 1,432 $ 5,078 $ (6,723)
Inventories 5,501 (3,163) 132
Accounts payable (2,462) 1,113 559
Other current assets and liabilities 185 (823) 3,712
-------- -------- --------
$ 4,656 $ 2,205 $ (2,320)
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest $ 826 $ 714 $ 371
Cash paid during the year for income taxes 140 230 1,031
The notes to the consolidated financial statements are an integral part of these
statements.
20
PERCEPTRON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(In Thousands)
ACCUMULATED
OTHER ADDITIONAL RETAINED TOTAL
COMMON STOCK COMPREHENSIVE PAID-IN EARNINGS SHAREHOLDERS'
SHARES AMOUNT INCOME (LOSS) CAPITAL (DEFICIT) EQUITY
----------------- -------------- ----------- ---------- -------------
BALANCES, JULY 1, 1999 8,169 $82 $ (3,340) $40,979 $10,343 $48,064
Comprehensive income (loss)
Net income 1,857 1,857
Other comprehensive income
Foreign currency translation adjustments (383) (383)
-------
Total comprehensive income (loss) 1,474
-------
Stock plans 1 - 31 31
-----------------------------------------------------------------------
BALANCES, JUNE 30, 2000 8,170 $82 $(3,723) $41,010 $12,200 $49,569
=======================================================================
Comprehensive income (loss)
Net loss (7,538) (7,538)
Other comprehensive income
Foreign currency translation adjustments (1,782) (1,782)
-------
Total comprehensive income (loss) (9,320)
-------
Stock plans 15 - 46 46
-----------------------------------------------------------------------
BALANCES, JUNE 30, 2001 8,185 $82 $(5,505) $41,056 $4,662 $40,295
=======================================================================
Comprehensive income (loss)
Net loss (3,702) (3,702)
Other comprehensive income
Foreign currency translation adjustments 2,554 2,554
-------
Total comprehensive income (loss) (1,148)
-------
Stock plans 47 - 64 64
-----------------------------------------------------------------------
BALANCES, JUNE 30, 2002 8,232 $82 $(2,951) $41,120 $960 $39,211
=======================================================================
The notes to the consolidated financial statements are an integral part of these
statements.
21
PERCEPTRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS
Perceptron, Inc. and its wholly-owned subsidiaries (collectively, the "Company")
are involved in the design, development, manufacture, and marketing of
information-based measurement and inspection focused solutions for process
improvements primarily for the automotive industry.
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
On March 15, 2002, the Company sold substantially all of the assets of its
Forest Products business unit. See also Note 2, "Discontinued Operations".
Accordingly, historical financial information included in the Form 10-K for 2002
and prior periods has been restated to present the Forest Products business unit
as a discontinued operation.
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. Certain amounts for prior
periods have been reclassified to conform to the current period presentation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenue related to products is recognized upon shipment when title and risk of
loss has passed to the customer, there is persuasive evidence of an arrangement,
the sales price is fixed or determinable, collection of the related receivable
is reasonably assured and customer acceptance criteria have been successfully
demonstrated. For multiple element arrangements, the Company defers the greater
of the fair value of any undelivered elements of the contract, such as
installation services, or the portion of the sales price of the contract which
is not payable until the undelivered elements are completed. See also Note 3,
"Change in Accounting Principle".
RESEARCH AND DEVELOPMENT
Research and development costs, including software development costs, are
expensed as incurred.
FOREIGN CURRENCY TRANSLATION
The financial statements of the Company's wholly-owned foreign subsidiaries have
been translated in accordance with Statement of Financial Accounting Standards
("SFAS") No. 52, with the functional currency being the local currency in the
foreign country. Under this standard, translation adjustments are accumulated in
a separate component of shareholders' equity. Gains and losses on foreign
currency transactions are included in the consolidated statement of income under
"Other Income and Deductions".
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases, and the effects of operating losses and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. A valuation allowance is provided for
deferred tax assets if it is more likely than not that these items will either
expire before the Company is able to realize their benefit, or future
deductibility is uncertain.
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 and warrants, are considered to be
22
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.
Options to purchase 1,749,000, 1,426,000, and 1,161,000 shares of common stock
were outstanding in the fiscal years ended June 30, 2002, 2001 and 2000,
respectively, and were not included in the computation of diluted EPS because
the effect would have been anti-dilutive.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with maturities of
three months or less to be cash equivalents. Fair value approximates carrying
value because of the short maturity of the cash equivalents. Those with a
greater life are recorded as marketable securities.
CONCENTRATION OF CREDIT RISK
The Company markets and sells its products primarily to automotive assembly
companies and to system integrators or original equipment manufacturers
("OEMs"), that in turn sell to automotive assembly companies. The Company's
accounts receivable are principally from a small number of large customers. The
Company performs ongoing credit evaluations of its customers. To date, the
Company has not experienced any significant losses related to the collection of
accounts receivable.
PROPERTY, EQUIPMENT AND INTANGIBLE ASSETS
Property and equipment are recorded at cost. Depreciation related to machinery
and equipment and furniture and fixtures is primarily computed on a
straight-line basis over estimated useful lives ranging from 3 to 10 years.
Depreciation on buildings is computed on a straight-line basis over 40 years.
Intangible assets are being amortized generally over 5 years.
When assets are retired, the costs of such assets and related accumulated
depreciation or amortization are eliminated from the respective accounts, and
the resulting gain or loss is reflected in the consolidated statement of income.
INVENTORIES
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
and other matters that affect the value of the inventory. When the related
inventory is disposed of, the obsolescence reserve is released. Inventory, net
of reserves, is comprised of the following (in thousands):
AT JUNE 30,
2002 2001
------- -------
Component parts $ 4,190 $ 7,791
Work in process 851 1,627
Finished goods 2,710 5,718
------- -------
Total $ 7,751 $15,136
======= =======
IMPAIRMENT OF LONG-LIVED ASSETS AND CERTAIN IDENTIFIABLE INTANGIBLES
The Company evaluates the carrying value of long-lived and intangible assets and
long-lived assets to be disposed of for potential impairment on an ongoing
basis. The Company considers projected future undiscounted cash flows or fair
values, as appropriate, compared with carrying amounts, trends and other
circumstances in making such estimates and evaluations. If an impairment is
indicated, the carrying amount of the asset or intangible is adjusted based on
its fair value.
FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments, which include cash,
marketable securities, accounts receivable, accounts payable, and amounts due to
banks or other lenders, approximate their fair values at June 30,
23
2002 and 2001. Fair values have been determined through information obtained
from market sources and management estimates.
WARRANTY
Automotive industry systems carry a three-year warranty for parts and a one-year
warranty for labor and travel related to warranty. Components sales to the
Forest Products industry carry a three-year warranty for TriCam(R) sensors and a
one-year warranty for LASAR(R) scanners. Component sales of ScanWorks(TM) and
ScanWorks(TM) ToolKit have a one-year warranty for parts; sales of NCA products
have a two-year warranty for parts. The Company provides a reserve for warranty
based on its experience. If a special circumstance arises requiring a higher
level of warranty, the Company would make a special warranty provision
commensurate with the facts.
2. DISCONTINUED OPERATIONS
On March 15, 2002, the Company sold substantially all of the assets of its
Forest Products business unit for $4.6 million in cash at closing and a
promissory note for approximately $343,000. The purchaser also assumed certain
liabilities of the Forest Products business unit. The operations of the Forest
Products business unit have been reported separately as a component of
discontinued operations. Prior year consolidated financial statements have been
restated to present the Forest Products business unit as a discontinued
operation. During the fiscal years ended June 30, 2002, 2001 and 2000 the Forest
Products business unit had sales of $4.4 million, $10.3 million and $12.5
million, respectively. Corporate interest expense has been allocated to
discontinued operations based on the ratio of the net assets of the Forest
Products business unit to the consolidated net assets of the Company plus
consolidated debt, excluding the net assets of the European subsidiaries. The
European subsidiaries were excluded because they were cash flow positive and did
not directly use the proceeds from the debt outstanding during the periods
covered by the financial statements. The interest allocation had the effect of
increasing the net loss from discontinued operations for the fiscal years ended
June 30, 2002, 2001 and 2000 by $73,000, $132,000 and $56,000, respectively. As
of June 30, 2001, net assets of discontinued operations totaled $6,547,000 as
detailed below:
Receivables $ 4,437,000
Other current assets 991,000
Property, plant & equipment, net 1,396,000
Other non-current assets, net 995,000
-----------
Total assets 7,819,000
-----------
Current liabilities (1,272,000)
-----------
Net assets of discontinued operations $ 6,547,000
===========
3. CHANGE IN ACCOUNTING PRINCIPLE
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101, ("SAB 101") "Revenue Recognition in Financial
Statements". SAB 101 summarizes certain areas of the Staff's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. Historically, the Company recognized revenue from the sales of
products upon shipment, and accrued for any costs of installation not completed.
The Company accounted for contractual acceptance terms based upon probable
achievement of meeting the acceptance criteria. Under the new accounting method
adopted retroactive to July 1, 2000, the Company recognizes the portion of
revenue from the sales of products upon shipment when both title and risk of
loss pass to the customer and defers the greater of the fair value or the
contractual holdback of any undelivered elements, such as installation services,
until the undelivered elements are completed. During the fourth quarter of
fiscal 2001, the Company implemented the SEC's SAB 101 guidelines, retroactive
to the beginning of the year. This was reported as a cumulative effect of a
change in accounting principle as of July 1, 2000. The cumulative effect of the
change in accounting principle on prior years resulted in a charge to income of
$1.3 million (net of income taxes of $764,000) or $.16 per diluted share which
has been included in income for the fiscal year ending June 30, 2001. The
portion of the cumulative effect related to discontinued operations was
$340,000. For the fiscal year ending June 30, 2001, the Company recognized $2.1
million in revenue ($1.7 million from continuing operations and $0.4 million
from discontinued operations) that is included in the cumulative effect
adjustment as of July 1, 2000. Implementing SAB 101 also had the effect of
deferring sales of $1.9 million ($1.6 million from continuing operations and
$0.3 million from discontinued operations) that historically would have been
recorded in fiscal 2001. The overall impact of SAB 101 on income before the
cumulative effect of the accounting change for
24
fiscal 2001 was a decrease of $192,000. The results for the first three-quarters
of the fiscal year ending June 30, 2001 were restated in accordance with SAB 101
(see Note 15, Selected Quarterly Financial Data). Actual and pro forma amounts
for fiscal year 2000 are shown below for comparative purposes.
FISCAL YEAR ENDED
JUNE 30, 2000
(in thousands, except per share amounts) REPORTED PRO FORMA
-------- ---------
Net sales $ 57,347 $ 56,829
Gross profit 31,866 31,426
Income from continuing operations before income taxes 3,973 3,533
Income tax expense 1,604 1,378
Income from continuing operations 2,369 2,155
Discontinued operations (512) (744)
Net income 1,857 1,411
Earnings per share from continuing operations:
Basic $ 0.29 $ 0.26
Diluted 0.29 0.26
Earnings per share:
Basic $ 0.23 $ 0.17
Diluted 0.23 0.17
4. RESTRUCTURING CHARGE
The Company recorded a $251,000 restructuring charge during the third quarter of
fiscal 2002 for the estimated separation costs associated with a work force
reduction of 22 employees at the Company's Plymouth headquarters. In fiscal
2001, the Company recorded a $2.2 million restructuring charge, of which $1.6
million was related to continuing operations and approximately $605,000 related
to the discontinued operations of the Forest Products business unit.
Approximately $1.1 million of the continuing operations charge was recorded to
engineering, research and development and related to a reserve for write-offs of
inventory and capital assets that were purchased to support product development
projects that were either stopped or put on hold and for which it was determined
that alternative uses were no longer available. The balance totaling $495,000
was recorded as a restructuring charge, of which approximately 60% represented
accrued separation costs for 34 employees and 40% related primarily to closing
leased facilities. At June 30, 2002, there was no balance left in the
restructuring reserve established in fiscal 2001. Of the $605,000 charged to
discontinued operations, approximately 43% related to accrued separation costs
for 25 employees, 33% related to write-offs of product development inventory and
approximately 24% related to closing a leased facility.
5. LEASES
The following is a summary, as of June 30, 2002, of the future minimum annual
lease payments required under the Company's operating leases having initial or
remaining non-cancelable terms in excess of one year:
FISCAL YEAR OPERATING
----------- ----------
2003 $ 795,925
2004 591,192
2005 433,225
2006 187,475
2007 29,680
----------
Total minimum lease payments $2,037,497
==========
Rental expenses for operating leases in the fiscal years ended June 30, 2002,
2001, and 2000 were $1,201,000, $946,000, and $1,179,000, respectively.
6. SHORT-TERM AND LONG-TERM NOTES PAYABLE
In conjunction with the sale of the Company's Forest Product business unit, the
Company amended its Credit Agreement with Bank One, dated September 24, 2001 to
allow for the sale of assets to the Purchaser and to reduce the aggregate
principal amount of the Credit Agreement from $18.5 million to $13.5 million.
25
At June 30, 2002, the Company had two collateral-based Revolving Credit
Facilities ("Revolver"): "Facility A" in the principal amount of $12.0 million
that expires on August 31, 2003 and "Facility B" in the principal amount of $1.5
million that expired on August 31, 2002. At June 30, 2002, the Company's
borrowing base under Facility B was $307,000 of which none was outstanding.
Proceeds under Facility A may be used for working capital and general corporate
purposes. The aggregate principal amount outstanding at any one time under
Facility A cannot exceed the lesser of $12.0 million or the Facility A borrowing
base which is comprised of 80% of eligible accounts receivable billed in the
United States, aged up to 180 days, 35% of raw material located in the United
States, and $4.8 million representing 80% of the appraised value of the
Company's real property located in Plymouth, Michigan. The collateral for
Facility A is substantially all U.S. assets of the Company and a pledge of 65%
of the common stock of Perceptron B.V. owned by the Company.
Facility A can be designated as a Floating Rate Loan with interest calculated
daily at 1/2% below the bank's prime rate which was 4.75% as of September 15,
2002 or as a Eurodollar Rate Loan when the Company achieves a ratio of funded
debt to earnings before interest, taxes, depreciation, and amortization of less
than 5:1. Quarterly, the Company pays a commitment fee of 1/4% per annum on the
daily unused portion of Facility A. The Credit Agreement prohibits the Company
from paying dividends. In addition, the Revolver contains various financial
covenants that, among other things, restrict dividend payments by requiring the
Company to maintain a Fixed Charge Coverage Ratio and a Total Liabilities to
Tangible Net Worth Ratio and require the Company to maintain certain levels of
earnings before interest, taxes, depreciation and amortization, ("EBITDA). The
Company's EBITDA for the fiscal year ended June 30, 2002 was below the level
required by the Revolver and resulted in the Funded Debt to EBITDA Ratio and the
Fixed Charge Ratio falling below the financial covenants. The Company's bank
waived the covenant default through June 30, 2002. In the event that the company
failed to satisfy the covenants contained in, or there was an event of default
under, the Revolver, the lender has the right to not make further advances
under, and to require the repayment of, the Revolver. At June 30, 2002, the
Company's borrowing base under Facility A was $11.4 million of which $5.8
million was outstanding.
The Company has a long-term note payable totaling $1,040,000 that is payable in
full on November 1, 2003 and requires quarterly payments of interest at 7.5% per
annum on the outstanding principal balance. The note may be prepaid without
penalty in whole or in part at anytime.
7. COMMITMENTS AND OTHER
As part of the purchase of intellectual property from Sonic Industries, Inc. and
Sonic Technologies, Inc., ("Sonic"), in 1998, the Company agreed to pay
contingent royalty payments on sales using the Sonic technology over a five-year
period beginning October 1, 1998. The purchase agreement was amended in October
2000 to extend the contingent royalty period by one year to October 1, 2004. The
maximum total amount of royalties is capped at $6 million on sales of $90
million. The Company has prepaid approximately $1.9 million of the contingent
royalty payments generally through the assumption of liabilities in connection
with the acquisition of the Sonic assets. These prepaid royalties generally
offset the first contingent royalties due. As part of the sale of substantially
all of the assets of the Forest Products business unit in March 2002, including
substantially all of the Sonic intellectual property (see Note 2), the purchaser
agreed to make contingent payments to the Company in addition to the purchase
price if the purchaser's sales of products based on Sonic intellectual property
result in required royalty payments to Sonic in excess of the amount of the
Company's prepaid royalty payments.
The Company may use, from time to time, a limited hedging program to minimize
the impact of foreign currency fluctuations. As the Company exports product, it
may enter into limited hedging transactions relating to the accounts receivable
arising as a result of such shipment. These transactions involve the use of
forward contracts. During the periods presented, the Company did not engage in
any hedging activities.
8. INFORMATION ABOUT MAJOR CUSTOMERS
The Company sells its products directly to both domestic and international
automotive assembly companies. The Company's products are typically purchased
for installation in connection with new model re-tooling programs undertaken by
these companies. Because sales are dependent on the timing of customers'
re-tooling programs, sales by customer vary significantly from year to year, as
do the Company's largest customers. For the fiscal years ended June 30, 2002,
2001 and 2000, approximately 44%, 35% and 49%, respectively, of total revenues
from continuing operations were derived from the Company's four largest
automotive customers (General Motors, Ford, DaimlerChrysler and Volkswagen). The
Company also sells to system integrators or OEMs, who in turn sell to these same
automotive companies. For the fiscal years ended June 30, 2002, 2001 and 2000,
approximately, 19%, 20%
26
and 13%, respectively, of net sales from continuing operations, were to system
integrators and OEMs for the benefit of the same four automotive companies.
These numbers reflect consolidations that have occurred within the Company's
four largest automotive customers. During the fiscal year ended June 30, 2002,
sales to General Motors and Volkswagen were 21.9% and 11.9%, respectively, of
the Company's total net sales from continuing operations. At June 30, 2002,
accounts receivable from General Motors and Volkswagen totaled approximately
$2.5 million and $3.4 million, respectively.
9. CONTINGENCIES
The Company may, from time to time, be subject to legal proceedings and claims.
Litigation involves many uncertainties. Management is currently unaware of any
significant pending litigation affecting the Company, other than the matters
discussed below.
On December 11, 1998, a jury in a civil case in the U.S. District Court for the
Eastern District of Michigan returned a favorable judgement for the Company and
awarded damages of over $732,000. The suit, filed by the Company in June 1996,
charged Sensor Adaptive Machines, Inc. ("SAMI") with violation of a covenant not
to compete. SAMI filed counterclaims against the Company alleging, in part, that
the Company was engaged in unlawful monopolization and tortious interference
with business practice and sought damages. In response to a motion for summary
disposition filed by the Company, the counterclaim for unlawful monopolization
was dismissed by the court in June 1998. The jury found that the remaining
counterclaims were without merit. On March 4, 1999, the Company's motion for
interest was granted. SAMI's appeal of the judgement including the counterclaims
against the Company was denied by the U.S. Court of Appeals for the Sixth
Circuit. The Company has instituted legal action to collect the judgement. SAMI
is subject to bankruptcy proceedings in Canada.
On September 25, 1998, the U.S. District Court for the Eastern District of
Michigan dismissed, with prejudice, a suit filed against the Company by Speroni,
S.p.A. ("Speroni") which alleged tortious interference in conjunction with
exclusive distributorship contracts covering the sale of the P-1000(TM) products
in Italy and France. Speroni's appeal of the dismissal was denied by the Federal
Court of Appeals. The suit alleged tortious interference in conjunction with
exclusive distributorship contracts covering the sale of P-1000(TM) products in
Italy and France between Perceptron B.V., a wholly-owned subsidiary of the
Company, and Speroni. Perceptron B.V. terminated the exclusive distributorship
contracts in 1997 for breach of contract by Speroni and has sought arbitration
of this matter with the International Chamber of Commerce International Court of
Arbitration ("ICC"), to confirm the terminations and to award damages. Speroni
filed counterclaims with the ICC alleging breach of the exclusive
distributorship contracts and seeking damages of $6.5 million. On February 12,
2001, the arbitrator determined that 1) Speroni breached its duty to properly
inform Perceptron B.V., but did not act in bad faith, and so Perceptron B.V. did
not satisfy the conditions required under French law and Italian law to
rightfully terminate the distributorship agreements without prior notice; and 2)
Perceptron B.V. did not breach its agreements with Speroni by providing certain
information to a customer of both Perceptron B.V. and Speroni and by submitting
a bid to a customer of both Perceptron B.V. and Speroni outside of Speroni's
territories, but did not act in good faith in not informing Speroni of these
activities. Damages, if any, on the claims on which the arbitrator found in
favor of Speroni are to be decided in the second phase of the arbitration
proceeding, which was completed on April, 4, 2002. The arbitrator has not yet
issued a ruling.
The Company has been informed that certain of its customers have received
allegations of possible patent infringement involving processes and methods used
in the Company's products. Certain of these customers, including one customer
who was a party to a patent infringement suit relating to this matter, have
settled such claims. Management believes, however, that the processes used in
the Company's products were independently developed without utilizing any
previously patented process or technology. Because of the uncertainty
surrounding the nature of any possible infringement and the validity of any such
claim or any possible customer claim for indemnity relating to claims against
these customers, it is not possible to estimate the ultimate effect, if any, of
this matter on the Company's financial statements.
10. 401(K) PLAN
The Company has a 401(k) tax deferred savings plan that covers all eligible
employees. The Company may make discretionary contributions to the plan. The
Company's contributions related to continuing operations during the fiscal years
ended June 30, 2002, 2001 and 2000, were $0, $251,349 and $409,673,
respectively.
27
11. EMPLOYEE STOCK PURCHASE PLAN
The Company has an Employee Stock Purchase Plan for all employees meeting
certain eligibility criteria. Under the Plan, eligible employees may purchase
shares of the Company's common stock at 85% of its market value at the beginning
of the six-month election period. Purchases are limited to 10% of an employee's
eligible compensation and the shares purchased are restricted from being sold
for one year from the purchase date. At June 30, 2002, 130,185 shares remained
available under the Plan. During fiscal years 2002, 2001 and 2000, 12,312, 2,793
and 1,056 shares, respectively, were issued to employees. The average purchase
price per share was $1.30, $3.35 and $3.95 in fiscal years 2002, 2001 and 2000,
respectively. No compensation expense is recognized for the difference in the
price paid by employees and the fair market value of the Company's common stock.
12. STOCK OPTION PLANS
The Company maintains 1992 and 1998 Stock Option Plans covering substantially
all company employees and certain other key persons and a Director Stock Option
Plan covering all non-employee directors. The 1992 and Director Plans are
administered by a committee of the Board of Directors. The 1998 Plan is
administered by the President of the Company. Activity under these Plans is
shown in the following table:
FISCAL YEAR 2002 FISCAL YEAR 2001 FISCAL YEAR 2000
------------------ ------------------ ------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ------- ------ ------- ------ -------
Shares subject to option
Outstanding at beginning of period 1,926,649 $ 9.46 1,345,258 $ 14.77 1,286,391 $ 17.56
New grants (based on fair value of
common stock at dates of grant) 415,425 $ 1.25 835,916 $ 1.80 375,625 $ 3.92
Exercised - - - - - -
Terminated and expired (329,367) $ 6.29 (254,525) $ 12.07 (316,758) $ 13.22
Outstanding at end of period 2,012,707 $ 8.26 1,926,649 $ 9.48 1,345,258 $ 14.77
Exercisable at end of period 1,063,301 $ 13.83 799,726 $ 17.98 669,410 $ 20.88
The following table summarizes information about stock options at June 30, 2002:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------- --------------------------------
WEIGHTED AVERAGE
RANGE OF REMAINING WEIGHTED AVERAGE WEIGHTED AVERAGE
EXERCISE PRICES SHARES CONTRACTUAL LIFE EXERCISE PRICE SHARES EXERCISE PRICE
-------------------- --------- ------------------ ----------------- ----------- -------------------
$ 0.91 to $ 1.42 382,575 9.47 $ 1.24 11,625 $ 1.27
$ 1.44 to $ 1.53 490,408 8.24 $ 1.53 146,720 $ 1.52
$ 1.72 to $ 4.65 421,742 7.40 $ 3.63 232,081 $ 3.85
$ 5.05 to $ 23.50 480,756 4.63 $ 15.06 435,649 $ 15.98
$ 25.79 to $ 33.96 237,226 4.76 $ 27.90 237,226 $ 27.90
------------------- --------- ---- ------- --------- -------
$ 0.91 to $ 33.96 2,012,707 7.03 $ 8.26 1,063,301 $ 13.83
=================== ========= ==== ======= ========= =======
Option prices for options granted under these Plans must not be less than fair
market value of the Company's stock on the date of grant. At June 30, 2002,
options covering 1,063,301 shares were exercisable and options covering 604,142
shares were available for future grants under these plans.
Options outstanding under the 1992 and 1998 Stock Option 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 Director
Stock Option Plan are either an initial option or an annual option. Initial
options of 15,000 shares are granted as of the date the non-employee director is
first elected to the Board of Directors and become exercisable in full on the
first anniversary of the date of grant. Annual options are granted as of the
date of the respective annual meeting to each non-employee director serving at
least six months prior to the annual meeting and become exercisable in three
annual increments of 33 1/3% after the date of grant. Options under the
Directors Stock Option Plan expire ten years from the date of grant. In 1999,
the Directors Stock Option Plan was amended to increase the amount of the annual
28
options from 1,500 to 3,000 shares of Common Stock for grants beginning in the
year 2000, to eliminate the annual option grant for 1,500 shares in 1999 and to
provide for a one time grant to each Director at the time of the 1999 Annual
Meeting of an additional option to purchase 10,000 shares of Common Stock.
The estimated fair value as of the date options were granted during the fiscal
years ended June 30, 2002, 2001, and 2000, using the Black-Scholes
option-pricing model was as follows:
2002 2001 2000
---- ---- ----
Weighted average estimated fair value per share of
options granted during the year $0.93 $1.28 $3.44
Assumptions:
Amortized dividend yield - - -
Common stock price volatility 80.76% 121.36% 96.85%
Risk free rate of return 4.38% 4.63% 6.75%
Expected option term (in years) 5 5 5
The Company adopted the disclosure requirements of Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation," effective with the 1996 financial statements, but elected to
continue to measure compensation cost using the intrinsic value method, in
accordance with APB Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to
Employees." Accordingly, compensation cost for stock options has been recognized
under the provisions of APB 25. If compensation cost had been determined based
on the estimated fair value of options granted during the fiscal year,
consistent with the methodology in SFAS 123, the Company's net income and income
per share would have been adjusted to the pro forma amounts indicated below (in
thousands except per share amounts):
2002 2001 2000
---- ---- ----
Net income (loss)
As reported $ (3,702) $ (7,538) $ 1,857
Pro forma $ (4,230) $ (8,447) $ (111)
Earnings (loss) per share - diluted
As reported $ (0.45) $ (0.92) $ 0.23
Pro forma $ (0.52) $ (1.03) $ (0.01)
13. INCOME TAXES
Income from continuing operations before income taxes for U.S. and foreign
operations was as follows (in thousands):
2002 2001 2000
---- ---- ----
U.S $ (614) $(6,609) $ 684
Foreign 1,373 1,962 3,289
------- ------- ------
Total $ 759 $(4,647) $3,973
======= ======= ======
The income tax provision (benefit) reflected in the statement of income consists
of the following (in thousands):
2002 2001 2000
---- ---- ----
Current provision (benefit):
U.S. Federal $ -- $ -- $ 214
Foreign 75 (20) 1,390
Deferred taxes - U.S. (258) (2,078) --
------- ------- ------
Total provision (benefit) $ (183) $(2,098) $1,604
======= ======= ======
The Company's deferred tax assets are substantially represented by the tax
benefit of net operating losses and the tax benefit of future deductions
represented by reserves for bad debts, warranty expenses and inventory
obsolescence and tax credit carryforwards. During fiscal year 2002, the Company
completed an examination with the Internal Revenue Service that covered the
years 1996 through 1998. The examination resulted in a net refund to the company
of approximately $429,000 and re-established tax credits that had previously
been utilized. The Company established a valuation
29
allowance for the tax credit carryforwards and other items where it was more
likely than not that these items would either expire or not be deductible before
the Company was able to realize their benefit. The components of deferred tax
assets were as follows (in thousands):
2002 2001 2000
-------- -------- --------
Benefit of net operating losses $ 8,126 $ 6,831 $ 3,229
Tax credit carryforwards 2,382 -- --
Other, principally reserves 2,348 825 (734)
-------- -------- --------
Deferred tax asset 12,856 7,656 2,495
Valuation allowance (4,412) -- --
-------- -------- --------
Net deferred tax asset $ 8,444 $ 7,656 $ 2,495
======== ======== ========
Rate reconciliation:
Provision at U.S. statutory rate 34.0 % (34.0)% 34.0%
Net effect of taxes on foreign activities (52.0)% (4.0)% 9.6%
State taxes and other, net (6.0)% -- --
Adjustment of federal income taxes provided for in prior years 492.0 % -- --
Valuation allowance (492.0)% -- --
-------- -------- --------
Effective tax rate (24.0)% (38.0)% 43.6%
======== ======== ========
No provision was made with respect to retained earnings as of June 30, 2002 that
have been retained for use by foreign subsidiaries. It is not practicable to
estimate the amount of unrecognized deferred tax liability for the undistributed
foreign earnings. At June 30, 2002, the Company had net operating loss
carryforwards for Federal income tax purposes of $23.9 million that expire in
the years 2020 through 2023 and tax credit carryforwards of $2,382,000 that
expire in the years 2007 through 2017.
14. SEGMENT AND GEOGRAPHIC INFORMATION
In March 2002, the Company sold its Forest Products business unit, which was
essentially all of the operations reported previously under the Industrial
Businesses segment. As a result, the Company's remaining business is
substantially all in the global automotive market and its business segment is
the automotive industry. Previous periods have been restated on the face of the
financial statements to show the Forest Products business unit as a discontinued
operation. The Company primarily accounts for geographic sales and transfers
based on cost plus a transfer fee and/or royalty fees. The Company operates in
two primary geographic areas: Domestic (United States) and International
(primarily Europe, with limited operations in Canada, Asia and South America).
GEOGRAPHICAL REGIONS (000'S) DOMESTIC INTERNATIONAL(1) CONSOLIDATED
-------- --------------- ------------
FISCAL YEAR ENDED JUNE 30, 2002
Net external sales $24,911 $19,032 $43,943
Identifiable assets 31,463 23,230 54,693
FISCAL YEAR ENDED JUNE 30, 2001
Net external sales $20,710 $19,720 $40,430
Identifiable assets 42,819 23,428 66,247
FISCAL YEAR ENDED JUNE 30, 2000
Net external sales $40,948 $16,399 $57,347
Identifiable assets 46,692 18,413 65,105
(1) The Company's German subsidiary had net external sales of $10.4 million,
$13.2 million and $13.3 million in the fiscal years ended June 30, 2002,
2001, and 2000, respectively. Total assets of the Company's German
subsidiary were $10.8 million and $14.9 million as of June 30, 2002 and
2001, respectively.
30
15. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected unaudited quarterly financial data for the fiscal years ended June 30,
2002 and 2001, are as follows (in thousands, except per share amounts):
QUARTER ENDED
-------------------------------------------------------------
FISCAL YEAR 2002(1) 09/30/01 12/31/01 03/31/02 06/30/02
-------- -------- -------- --------
Net sales $ 10,431 $ 13,123 $ 9,846 $ 10,543
Gross profit 5,153 6,843 4,933 5,658
Income (loss) from continuing operations 168 711 (220) 283
Income (loss) from discontinued operations (1,479) (471) (2,694) -
Net income (loss) (1,311) 240 (2,914)(3) 283
Earnings (loss) per share from continuing
operations
Basic 0.02 0.09 (0.03) 0.03
Diluted 0.02 0.09 (0.03) 0.03
Earnings (loss) per share
Basic (0.16) 0.03 (0.35) 0.03
Diluted (0.16) 0.03 (0.35) 0.03
FISCAL YEAR 2001(1)&(2) 09/30/00 12/31/00 3/31/01 6/30/01
-------- -------- ------- -------
Net sales $ 6,617 $ 12,544 $ 8,790 $12,479
Gross profit 3,220 6,166 3,375 7,358
Income (loss) from continuing operations (1,500) 641 (2,465) 775
Income (loss) from discontinued operations (959) (231) (928) (1,538)
Cumulative effect of change in accounting
principle (1,333) - - -
Net income (loss) (3,792) 410 (3,393)(3) (763)(3)
Earnings (loss) per share from continuing
operations
Basic (0.18) 0.08 (0.30) 0.09
Diluted (0.18) 0.08 (0.30) 0.09
Earnings (loss) per share
Basic (0.46) 0.05 (0.41) (0.09)
Diluted (0.46) 0.05 (0.41) (0.09)
(1) During the third quarter of fiscal 2002, the Company sold substantially all
of the assets of its Forest Products business unit (see Note 2). Prior quarters
have been restated to reflect the operations of the Forest Products business
unit as discontinued.
(2) During the fourth quarter of fiscal 2001, the Company implemented the
Securities and Exchange Commission's Staff Accounting Bulletin 101 (SAB 101)
guidelines retroactive to the beginning of the year. As a result of this
implementation, the Company changed its method of revenue recognition and
reported a cumulative effect of a change in accounting as of July 1, 2000 (see
Note 3). The quarterly financial information for fiscal 2001 was restated in
accordance with SAB 101.
(3) In the third quarter of fiscal 2002, the Company recorded restructuring
charges of $251,000. In the third and fourth quarters of fiscal 2001, the
company recorded restructuring charges of $1.6 million and $0.6 million,
respectively (see Note 4).
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
No response to Item 9 is required.
31
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained under the captions "Matters to Come before the Meeting
- - Proposal 1: Election of Directors", "Further Information - Executive Officers"
and "Further Information - Share Ownership of Management and Certain
Shareholders - Beneficial Ownership by Directors and Executive Officers" and
"Further Information - Share Ownership of Management and Certain Shareholders -
Section 16 (a) Beneficial Ownership Reporting Compliance" of the registrant's
proxy statement for 2002 Annual Meeting of Shareholders (the "Proxy Statement")
is incorporated herein by reference.
ITEM 11: EXECUTIVE COMPENSATION
The information contained under the caption "Further Information - Compensation
of Directors and Executive Officers" of the Proxy Statement is incorporated
herein by reference.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained under the captions "Further Information - Share
Ownership of Management and Certain Shareholders - Principal Shareholders",
"Further Information - Share Ownership of Management and Certain Shareholders -
Beneficial Ownership by Directors and Executive Officers", "Further Information
- - Equity Compensation Plan Information" and "Further Information - Compensation
of Directors and Officers - Termination of Employment and Change of Control
Arrangements" of the Proxy Statement is incorporated herein by reference.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
No response to Item 13 is required.
32
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K
A. Financial Statements and Schedules Filed
1. Financial Statements - see Item 8 of this report.
2. Financial Statement Schedule - the schedule filed with this
report is listed on page 38.
3. Exhibits - the exhibits filed with this report are listed
on pages 39 through 42.
B. Reports on Form 8-K:
None
33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Annual Report on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized.
PERCEPTRON, INC.
(Registrant)
By: /S/ Alfred A. Pease
------------------------------------
Alfred A. Pease, Chairman, President
and Chief Executive Officer
Date: September 25, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
/S/ Alfred A. Pease Chairman of the Board, September 25, 2002
- ------------------------------------ President, Chief Executive Officer
Alfred A. Pease
/S/ John J. Garber Vice President and Chief September 25, 2002
- ------------------------------------ Financial Officer (Principal Financial Officer)
John J. Garber
/S/ Sylvia M. Smith Controller (Principal Accounting Officer) September 25, 2002
- ------------------------------------
Sylvia M. Smith
/S/ David J. Beattie Director September 25, 2002
- ------------------------------------
David J. Beattie
/S/ Kenneth R. Dabrowski Director September 25, 2002
- ------------------------------------
Kenneth R. Dabrowski
/S/ Philip J. DeCocco Director September 25, 2002
- ------------------------------------
Philip J. DeCocco
/S/ W. Richard Marz Director September 25, 2002
- ------------------------------------
W. Richard Marz
/S/ Robert S. Oswald Director September 25, 2002
- ------------------------------------
Robert S. Oswald
/S/ Terryll R. Smith Director September 25, 2002
- ------------------------------------
Terryll R. Smith
34
ANNUAL REPORT CERTIFICATION
I, Alfred A. Pease, certify that:
1. I have reviewed this annual report on Form 10-K of Perceptron, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
September 25, 2002 /s/ Alfred A. Pease
-------------------------------
Alfred A. Pease
Chairman of the Board, President
Chief Executive Officer
35
ANNUAL REPORT CERTIFICATION
I, John J. Garber, certify that:
1. I have reviewed this annual report on Form 10-K of Perceptron, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
September 25, 2002 /s/ John J. Garber
-----------------------
John J. Garber
Vice President and Chief Financial Officer
Principal Financial Officer
36
PERCEPTRON, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS SCHEDULE
Financial Statements Schedule:
Designation Description Page
- ----------- ----------- ----
Schedule II Valuation and qualifying accounts 38
The schedules not filed are omitted because they are not required, the
information required to be contained therein is disclosed elsewhere in the
financial statements or the amounts involved are not sufficient to require
submission.
37
PERCEPTRON, INC. AND SUBSIDIARIES
SCHEDULE II, VALUATION AND QUALIFYING ACCOUNTS
CHARGED TO
BEGINNING COSTS AND ENDING
BALANCE EXPENSES CHARGE-OFFS BALANCE
------- -------- ----------- -------
JUNE 30, 2000
Allowance for doubtful accounts $218,000 $194,000 $144,000 $268,000
Inventory reserves $600,000 $1,039,000 $439,000 $1,200,000
JUNE 30, 2001
Allowance for doubtful accounts $268,000 $469,000 $3,000 $734,000
Inventory reserves $1,200,000 $1,039,000 $201,000 $2,038,000
JUNE 30, 2002
Allowance for doubtful accounts $734,000 $189,000 $271,000 $652,000
Inventory reserves $2,038,000 $750,000 $1,615,000 $1,173,000
Tax valuation reserve $ __ $4,412,000 $ __ $4,412,000
38
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBITS
- ----------- -----------------------
2. Plan of acquisition, reorganization, arrangement,
liquidation and succession.
2.1 Asset Purchase Agreement by and among U.S. Natural
Resources, Inc., Nanoose Systems Corporation, Trident
Systems, Inc., and Perceptron, Inc., dated March 13, 2002,
is incorporated by reference to Exhibit 2.1 of the
Company's Report on Form 8-K filed March 29, 2002.
3. Restated Articles of Incorporation and Bylaws.
3.1 Restated Articles of Incorporation, as amended to date,
are incorporated herein by reference to Exhibit 3.1 of the
Company's Report on Form 10-Q for the Quarter Ended March
31, 1998.
3.2 Amended and Restated Bylaws, as amended to date, are
incorporated herein by reference to Exhibit 3.2 of the
Company's Form S-8 Registration Statement No. 333-55164.
4. Instruments Defining the Rights of Securities Holders.
4.1 Articles IV, V and VI of the Company's Restated Articles
of Incorporation are incorporated herein by reference to
Exhibit 3.1 of the Company's Report on Form 10-Q for the
Quarter Ended March 31, 1998.
4.2 Articles I, II, III, VI, VII, X and XI of the Company's
Amended and Restated Bylaws are incorporated herein by
reference to Exhibit 3.2 of the Company's Form S-8
Registration Statement No. 333-55164.
4.3 Credit Agreement dated September 24, 2001, between
Perceptron, Inc. and Bank One, Michigan is incorporated by
reference to Exhibit 4.9 of the Company's Report on Form
10-K for the Year Ended June 30, 2001.
Other instruments, notes or extracts from agreements
defining the rights of holders of long-term debt of the
Company or its subsidiaries have not been filed because
(i) in each case the total amount of long-term debt
permitted thereunder does not exceed 10% of the Company's
consolidated assets, and (ii) the Company hereby agrees
that it will furnish such instruments, notes and extracts
to the Securities and Exchange Commission upon its
request.
4.4 Form of certificate representing Rights (included as
Exhibit B to the Rights Agreement filed as Exhibit 4.5) is
incorporated herein by reference to Exhibit 2 of the
Company's Report on Form 8-K filed March 24, 1998.
Pursuant to the Rights Agreement, Rights Certificates will
not be mailed until after the earlier of (i) the tenth
business day after the Shares Acquisition Date (or, if the
tenth day after the Shares Acquisition Date occurs before
the Record Date, the close of business on the Record Date)
(or, if such Shares Acquisition Date results from the
consummation of a Permitted Offer, such later date as may
be determined before the Distribution Date, by action of
the Board of Directors, with the concurrence of a majority
of the Continuing Directors), or (ii) the tenth business
day (or such later date as may be determined by the Board
of Directors, with the concurrence of a majority of the
Continuing Directors, prior to such time as any person
becomes an Acquiring Person) after the date of the
commencement of, or first public announcement of the
intent to commence, a tender or exchange offer by any
person or group of affiliated or associated persons (other
than the Company or certain entities affiliated with or
associated with the Company), other than a tender or
exchange offer that is determined before the Distribution
Date to be a Permitted Offer, if, upon consummation
thereof, such person or group of affiliated or associated
persons would be the beneficial owner of 15% or more of
such outstanding shares of Common Stock.
39
4.5 Rights Agreement, dated as of March 24, 1998, between
Perceptron, Inc. and American Stock Transfer & Trust
Company, as Rights Agent, is incorporated herein by
reference to Exhibit 2 of the Company's Report on Form 8-K
filed March 24, 1998.
4.6 First Amendment to Credit Agreement, dated September 24,
2001 between Perceptron, Inc. and Bank One, Michigan dated
March 19, 2002 is incorporated by reference to Exhibit 4.1
of the Company's Report on Form 8-K filed March 29, 2002.
10. Material Contracts.
10.1 Registration Agreement, dated as of June 13, 1985, as
amended, among the Company and the Purchasers identified
therein, is incorporated by reference to Exhibit 10.3 of
the Company's Form S-1 Registration Statement (amended by
Exhibit 10.2) No. 33-47463.
10.2 Patent License Agreement, dated as of August 23, 1990,
between the Company and Diffracto Limited, is incorporated
herein by reference to Exhibit 10.10 of the Company's
Report on Form S-1 Registration Statement No. 33-47463.
10.3 Form of Proprietary Information and Inventions Agreement
between the Company and all of the employees of the
Company is incorporated herein by reference to Exhibit
10.11 of the Company's Form S-1 Registration Statement No.
33-47463.
10.4 Form of Confidentiality and Non-Disclosure Agreement
between the Company and certain vendors and customers of
the Company is incorporated herein by reference to Exhibit
10.12 of the Company's Form S-1 Registration Statement No.
33-47463.
10.5 Two Forms of Agreement Not to Compete between the Company
and certain officers of the Company, is incorporated
herein by reference to Exhibit 10.50 of the Company's
Report on Form 10-Q for the Quarter Ended June 30, 1996.
10.6@ Form of Non-Qualified Stock Option Agreements under 1998
Global Team Member Stock Option Plan after September 1,
1998 is incorporated by reference to Exhibit 10.6 of the
Company's Report on Form 10-K for the Year Ended December
31, 1998.
10.7@ Amended and Restated 1992 Stock Option Plan is
incorporated herein by reference to Exhibit 10.53 of the
Company's Report on Form 10-Q for the Quarter Ended
September 30, 1996.
10.8@ First Amendment to Amended and Restated 1992 Stock Plan is
incorporated by reference to Exhibit 10.39 of the
Company's Report on Form 10-Q for the Quarter Ended March
31, 1997.
10.9@ Form of Stock Option Agreements for July 1993 Stock Option
Grants is incorporated herein by reference to Exhibit
10.23 of the Company's Report on Form 10-Q for the Quarter
Ended September 30, 1993, and Exhibit 10.32 of the
Company's Report on Form 10-Q for the Quarter Ended March
31, 1994.
10.10@ Form of Stock Option Agreements for Performance Options is
incorporated herein by reference to Exhibit 10.27 of the
Company's Annual Report on Form 10-K for the Year Ended
December 31, 1993. The performance standards under these
options were waived effective March 2, 1994.
10.11@ First Amendments to Stock Option Agreements for
Performance Options is incorporated herein by reference to
Exhibit 10.20 of the Company's Annual Report on Form 10-K
for the Year Ended December 31, 1994.
40
10.12@ Form of Stock Option Agreements under 1992 Stock Option
Plan, (Team Members and Officers) prior to February 9,
1995, is incorporated herein by reference to Exhibit 10.28
of the Company's Annual Report on Form 10-K for the Year
Ended December 31, 1993.
10.13@ Forms of Master Amendments to Stock Option Agreements
(Team Members and Officers) under 1992 Stock Option Plan,
prior to February 9, 1995 is incorporated herein by
reference to Exhibit 10.22 to the Company's Annual Report
on Form 10-K for the Year Ended December 31, 1994.
10.14@ Forms of Incentive Stock Option Agreements (Team Members
and Officers) under 1992 Stock Option Plan after February
9, 1995 is incorporated by reference to Exhibit 10.23 to
the Company's Annual Report on Form 10-K for the Year
Ended December 31, 1994.
10.15@ Forms of Incentive Stock Option Agreements (Team Members
and Officers) and Non-Qualified Stock Option Agreements
under 1992 Stock Option Plan after January 1, 1997, and
Amendments to existing Stock Option Agreements under the
1992 Stock Option Plan is incorporated by reference to
Exhibit 10.22 to the Company's Annual Report on Form 10-K
for the Year Ended December 31, 1996.
10.16@ Incentive Stock Option Agreement, dated February 14, 1996,
between the Company and Alfred A. Pease is incorporated by
reference to Exhibit 10.29 of the Company's Annual Report
on Form 10-K for the Year Ended December 31, 1995.
10.17@ Non-Qualified Stock Option Agreement, dated February 14,
1996, between the Company and Alfred A. Pease is
incorporated by reference to Exhibit 10.30 of the
Company's Annual Report on Form 10-K for the Year Ended
December 31, 1995.
10.18@ Amended and Restated Directors Stock Option Plan is
incorporated by reference to Exhibit 10.56 to the
Company's Report on Form 10-Q for the Quarter Ended
September 30, 1996.
10.19@ Form of Non-Qualified Stock Option Agreements and
Amendments under the Director Stock Option Plan is
incorporated by reference to Exhibit 10.27 to the
Company's Annual Report on Form 10-K for the Year Ended
December 31, 1996.
10.20@ 1998 Global Team Member Stock Option Plan and Form of
Non-Qualified Stock Option Agreements under such Plan is
incorporated herein by reference to Exhibit 10.20 to the
Company's Annual Report on Form 10-K for the Year Ended
December 31, 1997.
10.21@ Amended and Restated Employee Stock Purchase Plan is
incorporated by reference to Exhibit 10.54 of the
Company's Report on Form 10-Q for the Quarter Ended
September 30, 1996.
10.22@ Letter Agreement, dated February 14, 1996, between the
Company and Alfred A. Pease is incorporated herein by
reference to Exhibit 10.36 to the Company's Annual Report
on Form 10-K for the Year Ended December 31, 1996.
10.23@ Forms of Incentive Stock Option Agreements (Officers) and
Non-Qualified Stock Option Agreements (Officers) under
1992 Stock Option Plan after September 1, 1998 is
incorporated by reference to Exhibit 10.25 of the
Company's Report on Form 10-K for the Year Ended December
31, 1998.
10.24@ Second Amendment to Amended and Restated 1992 Stock Option
Plan is incorporated by reference to Exhibit 10.26 of the
Company's Report on Form 10-Q for the Quarter Ended March
31, 1999.
10.25@ First Amendment to Amended and Restated Directors Stock
Option Plan is incorporated by reference to Exhibit 10.27
of the Company's Report on Form 10-Q for the Quarter Ended
March 31, 1999.
41
10.26@ First Amendment to the 1998 Global Team Member Stock
Option Plan is incorporated by reference to Exhibit 10.28
of the Company's Report on Form 10-K for the Transition
Period Ended June 30, 1999.
10.27@ Second Amendment to the 1998 Global Team Member Stock
Option Plan is incorporated by reference to Exhibit 10.29
of the Company's Report on Form 10-K for the Transition
Period Ended June 30, 1999.
10.28@ Forms of Incentive Stock Option Agreements (Officers) and
Non-Qualified Stock Option Agreements (Officers) under
1992 Stock Option Plan after September 1, 1999 is
incorporated by reference to Exhibit 10.30 of the
Company's Report on Form 10-Q for the Quarter Ended
September 30, 1999.
10.29@ Forms of Non-Qualified Stock Option Agreements under 1998
Global Team Member Stock Option Plan after September 1,
1999 is incorporated by reference to Exhibit 10.31 of the
Company's Report on Form 10-Q for the Quarter Ended
September 30, 1999.
10.30@ Forms of Non-Qualified Stock Option Agreements under the
Directors Stock Option Plan after September 1, 1999 is
incorporated by reference to Exhibit 10.32 of the
Company's Report on Form 10-Q for the Quarter Ended
December 31, 1999.
10.31@ Second Amendment to the Perceptron, Inc. Directors Stock
Option Plan (Amended and Restated October 31, 1996) is
incorporated by reference to Exhibit 10.33 of the
Company's Report on Form 10-Q for the Quarter Ended March
31, 2000.
10.32@ 2000 Management Bonus Plan is incorporated by reference to
Exhibit 10.34 of the Company's Report on Form 10-K for the
Year Ended June 30, 2000.
10.33@ Third Amendment to the 1998 Global Team Member Stock
Option Plan is incorporated by reference to Exhibit 99.6
of the Company's Form S-8 Registration Statement No.
333-55164.
10.34@ Third Amendment to Amended and Restated 1992 Stock Option
Plan is incorporated by reference to Exhibit 10.35 of the
Company's Report on Form 10-K for the Year Ended June 30,
2001.
10.35 Covenant Not to Compete between U.S. Natural Resources,
Inc., and Perceptron, Inc., dated March 13, 2002 is
incorporated by reference to Exhibit 2.1 of the Company's
Report on Form 8-K filed March 29, 2002.
10.36* Promissory Note, dated March 13, 2002, between U.S.
Natural Resources, Inc. and Perceptron, Inc.
10.37*@ Fourth Amendment to Amended and Restated 1992 Stock Option
Plan.
10.38@ Fourth Amendment to the 1998 Global Team Member Stock
Option Plan is incorporated by reference to Exhibit 99.7
of the Company's S-8 Registration Statement No. 333-76194.
21.* A list of subsidiaries of the Company.
23. Consent of Experts.
23.1* Consent of Grant Thornton LLP.
23.2* Consent of PricewaterhouseCoopers LLP.
- ----------------------
* Filed with the Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 2002.
@ Indicates a management contract, compensatory plan or arrangement.
42