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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the quarterly period ended September 30, 2002.
Commission file number: 0-20206
PERCEPTRON, INC.
(Exact name of registrant as specified in its charter)
Michigan 38-2381442
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
47827 Halyard Drive, Plymouth, Michigan 48170-2461
(Address of principal executive offices)
(734) 414-6100
(Registrant's telephone number, including area code)
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 proceeding 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
-------------- --------------
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes No X
-------------- --------------
The number of shares outstanding of each of the issuer's classes of common stock
as of November 8, 2002, was:
Common Stock, $0.01 par value 8,244,453
----------------------------- --------------------------
Class Number of shares
PERCEPTRON, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2002
PAGE
NUMBER
------
COVER 1
INDEX 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk 13
Item 4. Controls and Procedures 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 14
2
PERCEPTRON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, JUNE 30,
(In Thousands, Except Per Share Amount) 2002 2002
----------- -----------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 11,644 $ 8,143
Receivables:
Billed receivables, net of allowance for doubtful accounts
of $633 and $652, respectively 19,369 20,458
Unbilled and other receivables 868 1,041
Inventories, net of reserves of $693 and $1,173, respectively 7,720 7,751
Deferred taxes and other current assets 1,940 1,873
-------- --------
Total current assets 41,541 39,266
-------- --------
PROPERTY AND EQUIPMENT
Building and land 6,004 6,004
Machinery and equipment 8,999 8,690
Furniture and fixtures 1,061 1,061
-------- --------
16,064 15,755
Less - Accumulated depreciation and amortization (7,620) (7,272)
-------- --------
Net property and equipment 8,444 8,483
-------- --------
OTHER ASSETS
Deferred tax asset 6,806 6,944
-------- --------
Total other assets 6,806 6,944
-------- --------
TOTAL ASSETS $ 56,791 $ 54,693
======== ========
LIABILITIES AND COMMON SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,002 $ 2,600
Accrued liabilities and expenses 3,031 3,236
Deferred revenue 2,094 1,997
Notes payable (Note 6) 8,368 5,833
Income taxes payable 223 352
Accrued compensation 522 424
-------- --------
Total current liabilities 16,240 14,442
-------- --------
LONG-TERM LIABILITIES
Notes payable (Note 6) 1,040 1,040
-------- --------
Total long-term liabilities 1,040 1,040
-------- --------
Total liabilities 17,280 15,482
-------- --------
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 8,244 and 8,232, respectively 82 82
Accumulated other comprehensive loss (2,950) (2,951)
Additional paid-in capital 41,132 41,120
Retained earnings 1,247 960
-------- --------
Total shareholders' equity 39,511 39,211
-------- --------
TOTAL LIABILITIES AND COMMON SHAREHOLDERS' EQUITY $ 56,791 $ 54,693
======== ========
The notes to the consolidated financial statements are an integral part of these
statements.
3
PERCEPTRON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
(In Thousands, Except Per Share Amounts) 2002 2001
-------- --------
NET SALES $ 10,777 $ 10,431
COST OF SALES 6,081 5,842
-------- --------
GROSS PROFIT 4,696 4,589
-------- --------
OPERATING EXPENSES
Selling, general and administrative 2,553 2,553
Engineering, research and development 1,459 1,841
-------- --------
Total operating expenses 4,012 4,394
-------- --------
OPERATING INCOME 684 195
-------- --------
OTHER INCOME AND (DEDUCTIONS)
Interest expense (119) (187)
Interest income 67 20
Foreign currency and other (125) (15)
-------- --------
Total other income (deductions) (177) (182)
-------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 507 13
INCOME TAX EXPENSE (BENEFIT) 220 (155)
-------- --------
INCOME FROM CONTINUING OPERATIONS 287 168
DISCONTINUED OPERATIONS
Loss from Forest Products business unit,
net of $514 of taxes (Note 2) -- (1,479)
-------- --------
NET INCOME (LOSS) $ 287 $ (1,311)
======== ========
BASIC EARNINGS (LOSS) PER COMMON SHARE
Continuing operations $ 0.03 $ 0.02
Discontinued operations -- $ (0.18)
-------- --------
Net income (loss) $ 0.03 $ (0.16)
======== ========
DILUTED EARNINGS (LOSS) PER COMMON SHARE
Continuing operations $ 0.03 $ 0.02
Discontinued operations -- $ (0.18)
-------- --------
Net income (loss) $ 0.03 $ (0.16)
======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic 8,244 8,185
Dilutive effect of stock options 3 --
-------- --------
Diluted 8,247 8,185
======== ========
The notes to the consolidated financial statements are an integral part of these
statements.
4
PERCEPTRON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
(In Thousands) 2002 2001
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Income from continuing operations $ 287 $ 168
Adjustments to reconcile income from continuing operations
to net cash provided from (used for) operating activities:
Depreciation and amortization 330 303
Deferred income taxes 139 (476)
Other (2) 75
Changes in assets and liabilities, exclusive of changes shown
separately 537 (81)
-------- --------
Net cash provided from (used for) operating activities 1,291 (11)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Revolving credit borrowings 5,370 11,335
Revolving credit repayments (2,835) (11,139)
Proceeds from stock plans 12 --
-------- --------
Net cash provided from financing activities 2,547 196
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (307) (49)
-------- --------
Net cash used for investing activities (307) (49)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (30) 397
-------- --------
NET CASH USED FOR DISCONTINUED OPERATIONS -- (797)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,501 (264)
CASH AND CASH EQUIVALENTS, JULY 1 8,143 6,680
-------- --------
CASH AND CASH EQUIVALENTS, SEPTEMBER 30 $ 11,644 $ 6,416
======== ========
CHANGES IN ASSETS AND LIABILITIES, EXCLUSIVE OF CHANGES SHOWN SEPARATELY
Receivables, net $ 1,311 $ 1,742
Inventories 31 129
Accounts payable (598) (2,001)
Other current assets and liabilities (207) 49
-------- --------
$ 537 $ (81)
======== ========
The notes to the consolidated financial statements are an integral part of these
statements.
5
PERCEPTRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements should be read in conjunction
with the Company's 2002 Annual Report on Form 10-K. Certain reclassifications
may have been made to the prior year's financial statements to conform with the
fiscal year 2003 presentation. In the opinion of management, the unaudited
information furnished herein reflects all adjustments necessary, including
normal recurring adjustments and restatements for the effect of discontinued
operations (see Note 2 below), for a fair presentation of the financial
statements for the periods presented. The results of operations for any interim
period are not necessarily indicative of the results of operations for a full
year.
2. 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 first quarter of fiscal year 2002, the Forest Products
business unit had sales of $940,000. 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 first quarter of
fiscal year 2002 by $30,000.
3. INVENTORY
Inventory is stated at the lower of cost or market. The cost of inventory is
determined by the first-in, first-out ("FIFO") method. The Company provides a
reserve for obsolescence to recognize the effects of engineering change orders
and other matters that affect the value of the inventory. When the related
inventory is disposed of, the obsolescence reserve is released. During the first
quarter of fiscal 2003, the Company disposed of $480,000 of inventory that had
been reserved for at June 30, 2002. Inventory, net of reserves, is comprised of
the following (in thousands):
SEPTEMBER 30, JUNE 30,
2002 2002
------------- --------
Component Parts $4,271 $4,190
Work In Process 811 851
Finished Goods 2,638 2,710
------ ------
Total $7,720 $7,751
====== ======
6
4. EARNINGS PER SHARE
Basic earnings per share ("EPS") is calculated by dividing net income by the
weighted average number of common shares outstanding during the period. Other
obligations, such as stock options, are considered to be potentially dilutive
common shares. Diluted EPS assumes the issuance of potential dilutive common
shares outstanding during the period and adjusts for any changes in income and
the repurchase of common shares that would have occurred from the assumed
issuance unless such effect is anti-dilutive. Options to purchase 1,984,000 and
1,851,000 shares of common stock were outstanding in the three months ended
September 30, 2002 and 2001, respectively, and were not included in the
computation of diluted EPS because the effect would have been anti-dilutive.
5. COMPREHENSIVE INCOME
Comprehensive income is defined as the change in common shareholder's equity
during a period from transactions and events from non-owner sources, including
net income. Other items of comprehensive income include revenues, expenses,
gains and losses that are excluded from net income. Total comprehensive income
for the applicable periods is as follows (in thousands):
THREE MONTHS ENDED SEPTEMBER 30, 2002 2001
------- -------
Net Income (Loss) $ 287 $(1,311)
Other Comprehensive Income (Loss):
Foreign currency translation adjustments 1 1,015
------- -------
Total Comprehensive Income (Loss) $ 288 $ (296)
======= =======
6. CREDIT FACILITIES
At September 30, 2002, the Company had a $12.0 million collateral-based
Revolving Credit Facility ("Revolver") with Bank One, N.A. that expires on
August 31, 2003. The Revolver could be used to finance working capital needs and
for general corporate purposes. Any borrowings would bear interest at 1/2% below
the bank's prime rate, which was 4.75% as of October 24, 2002. At September 30,
2002, the Company's borrowing base under the Revolver was $12.0 million of which
$8.4 million was outstanding. During October 2002, the Company paid off the
Revolver by using $4.9 million from its European Subsidiary, cash collected from
accounts receivable collections and by borrowing approximately $700,000 from the
Company's new credit facility with Comerica Bank, described below.
On October 24, 2002, the Company entered into a new collateral-based Credit
Agreement with Comerica Bank and terminated its Revolver with Bank One, N.A. The
new Credit Agreement provides for borrowings of up to $7.5 million and expires
on November 1, 2004. Proceeds under the Credit Agreement may be used for working
capital, capital expenditures, to repay existing indebtedness owed to Bank One
and to repay amounts owing under a long-term note payable acquired in 1998 as
part of the Sonic transaction. The collateral for the loan is substantially all
U.S. assets of the Company. Borrowings are designated as a Prime-based Advance
or as a Eurodollar-based Advance. Interest on Prime-based Advances is payable on
the last day of each month and is calculated daily at a rate that ranges from a
1/2% below to a 1/4% above the bank's prime rate (4.75% as of November 4, 2002)
dependant upon the Company's ratio of funded debt to earnings before interest,
taxes, depreciation and amortization ("EBITDA"). Interest on Eurodollar-based
Advances is calculated at a specific margin above the Eurodollar Rate offered at
the time and for the period chosen (approximately 4.2% as of November 4, 2002)
dependant upon the Company's ratio of funded debt to EBITDA and is payable on
the last day of
7
the applicable period. Quarterly, the Company pays a commitment fee on the
daily unused portion of the Credit Agreement based on a percentage dependant
upon the Company's ratio of funded debt to EBITDA. The aggregate principal
amount outstanding at any one time cannot exceed the lesser of $7.5 million or
the borrowing base which is comprised of 80% of eligible accounts receivable
billed in the United States, aged up to 180 days, plus the lesser of 25% of raw
material located in the United States or $2,000,000, plus the lesser of 50% of
finished goods inventory or $750,000 plus an amount equal to 60% of the
appraised value of the Company's real property located in Plymouth, Michigan.
The new appraisal had not been completed at the time of this filing, however,
based upon an appraisal done within the last two years, it is expected to be
approximately $6.0 million. At October 31, 2002, the borrowing base was $7.5
million. The Credit Agreement prohibits the Company from paying dividends. In
addition, the Credit Agreement requires the Company to maintain a Tangible Net
Worth, as defined in the Credit Agreement, of not less than $29.0 million.
In October, the Company also paid-off its $1,040,000 long-term note payable from
proceeds received under the Company's new credit facility with Comerica Bank.
The note payable required quarterly payments of interest at 7.5% per annum on
the outstanding principal balance and was due in full on November 1, 2003 but
allowed for prepayments in whole or in part at anytime without penalty.
7. FOREIGN EXCHANGE CONTRACTS
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 shipments. These transactions involve the use of
forward contracts. During the periods presented, the Company did not engage in
any hedging activities.
8. COMMITMENTS AND 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 in the Company's 2002 Annual Report on Form 10-K.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Overview - The Company reported net income of $287,000, or $0.03 per share, for
the first quarter of fiscal 2003, compared to income from continuing operations
of $168,000, or $0.02 per share, for the first quarter of fiscal 2002. In the
third quarter of fiscal 2002, the Company sold substantially all of the assets
of its Forest Products business unit to U.S. Natural Resources ("USNR"). As a
result, financial results for the first quarter of fiscal year 2002 have been
restated to show the Forest Products business unit separately as a discontinued
operation. In the first quarter of fiscal year 2003, the Company's European
operation implemented a new accounting system, which greatly enhanced its
financial reporting capabilities. The new accounting system was better able to
segregate costs between cost of sales, engineering, research and development and
selling, general and administrative. For comparability purposes, the fiscal 2002
results were reclassified to conform with the 2003 presentation. As a result,
approximately $650,000 of costs previously reported as selling, general and
administrative, were reclassified to cost of sales for $500,000 and to
engineering, research and development for $150,000.
Sales - Net sales of $10.8 million for the first quarter of fiscal 2003 were up
approximately $400,000, compared with the same period one year ago. The increase
was primarily due to sales of $596,000 to USNR. Sales by region reflected a
slight improvement in North America that was offset by lower sales in Europe
while sales in Asia were flat. Sales of the Company's systems and technology
component product lines were as follows: AutoGauge(TM) sales of $6.4 million
were down $400,000 and accounted for approximately 59% of sales in the first
quarter of fiscal 2003 compared to approximately 65% for the same period one
year ago. AutoGuide(TM) sales of $300,000 were down $100,000 and accounted for
approximately 3% of sales in the first quarter of fiscal 2003 compared to
approximately 4% for the same period one year ago. AutoSpect(R) sales of
$200,000 were down $200,000 and accounted for approximately 2% of sales in the
first quarter of fiscal 2003 compared to approximately 4% for the same period
one year ago. NCA sales of $1.2 million were down $100,000 and accounted for
approximately 11% of sales in the first quarter of fiscal 2003 compared to
approximately 13% for the same period one year ago. ScanWorks(TM) sales of
$800,000 were up $200,000 and accounted for approximately 7% of sales in the
first quarter of fiscal 2003 compared to approximately 6% for the same period
one year ago. Service sales of $600,000 were up $400,000 and accounted for
approximately 6% of sales in the first quarter of fiscal 2003 compared to
approximately 2% of sales for the same period one year ago. Other product sales
including sensor sales to USNR and training accounted for the remainder of net
sales in both years. ScanWorks(TM) is a new product and the increase quarter
over quarter represented new product sales growth. The variance in other product
sales was attributable to the timing of customer orders.
Bookings & Backlog - New order bookings for the three months ended September 30,
2002, were $11.9 million compared to $12.8 million in 2001. The decrease of
$900,000 appeared to reflect the timing of customer decisions to place new
orders rather than economic conditions. Backlog at September 30, 2002, was $16.3
million compared to $20.1 million at September 30, 2001. The Company expects to
be able to fill substantially all of the orders in backlog during the following
twelve months. 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 $4.7 million, or 43.6% of sales, in the first
quarter of fiscal year 2003, as compared to $4.6 million, or 44.0% of sales, in
the first quarter of fiscal year 2002. The gross profit percentage for fiscal
year 2003 was affected by the sales to USNR which are at generally lower
margins.
9
When the sales and gross profit associated with this product line are
excluded from the gross profit percentage calculation, the gross profit margin
for this quarter would have been 46.0% compared with 44.0% last year. This
improvement reflected some of the benefits related to our cost reduction
programs.
Selling, General and Administrative (SG&A) Expenses - SG&A expenses of $2.5
million in the quarter ended September 30, 2002 were unchanged from the first
quarter a year ago. Manpower and spending levels were consistent for both
periods.
Engineering, Research and Development (R&D) Expenses - Engineering and R&D
expenses decreased $382,000 from $1,841,000 in the quarter ended September 30,
2001 to $1,459,000 million in the quarter ended September 30, 2002. The decrease
in expenses reflected the full benefit from manpower, contract design service
and engineering supply reductions that were implemented during fiscal year 2001
and fiscal year 2002.
Other Income and Deductions - Net interest expense was $52,000 in the first
quarter of fiscal 2003 compared with $167,000 in the first quarter of fiscal
2002. The reduction primarily reflected lower average borrowings related to the
pay-down of debt from proceeds of the sale of the Company's Forest Products
business unit. Foreign currency and other increased by $110,000 in the first
quarter of fiscal 2003 primarily due to reporting exchange losses not previously
recognized from the resolution of certain projects in the Company's European
operation and approximately one third due to the weakening of the Brazilian
Real.
Outlook - The operating results for the first quarter were somewhat better than
expected, and although the global economic outlook remains uncertain, the
Company's customers are planning many tooling programs that include allocations
for our process control systems. Unless these programs are postponed or
cancelled, new orders and sales are expected to continue at levels that will
enable the Company to report net income for fiscal year 2003. The foregoing
statements are "forward-looking statements" 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
statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents were $11.6 million at September 30,
2002, of which $11.2 million was in the Company's European subsidiaries,
compared to $8.1 million at June 30, 2002, of which $7.8 million was in the
Company's European subsidiaries. The favorable cash flow in Europe was
principally due to a $2.8 million reduction in accounts receivable resulting
primarily from improved collections. Use of cash resulted from a domestic
accounts receivable increase of $2.1 million as a result of revenues exceeding
collections during the quarter and a reduction in trade accounts payable and
other current assets and liabilities of $805,000 that was funded by operating
income and a $2.5 million increase in bank borrowings. Bank debt was $8.4
million as of September 30, 2002.
During October the Company transferred $4.9 million from its European
subsidiary. This cash and domestic accounts receivable collections in October
enabled the Company to pay down its bank debt to approximately $1.7 million as
of October 31, 2002, and also pay off a $1,040,000 long-term note related to the
purchase of assets from Sonic Industries, Inc. and Sonic Technologies, Inc. in
October of 1998.
10
Cash flow from operating activities of $1.3 million reflected net income from
the Company's operations, plus adjustments for non-cash items, including the use
of the Company's deferred tax assets to offset its domestic tax expense for the
quarter, and working capital reductions described above. During the quarter, the
Company's reserve for doubtful accounts remained essentially unchanged at
$633,000. During the first quarter of fiscal year 2003, the Company disposed of
$480,000 of inventory that had been reserved for at June 30, 2002.
Financing activities during the quarter reflected net working capital borrowings
of $2.5 million. At September 30, 2002, the Company had a $12.0 million
collateral-based Revolving Credit Facility ("Revolver") with Bank One, N.A. that
expires on August 31, 2003. The Revolver could be used to finance working
capital needs and for general corporate purposes. Any borrowings would bear
interest at 1/2% below the bank's prime rate, which was 4.75% as of October 24,
2002. At September 30, 2002, the Company's borrowing base under the Revolver was
$12.0 million, of which $8.4 million was outstanding.
On October 24, 2002, the Company entered into a new collateral-based Credit
Agreement with Comerica Bank and terminated its Revolver with Bank One, N.A. The
new Credit Agreement provides for borrowings of up to $7.5 million and expires
on November 1, 2004. Proceeds under the Credit Agreement may be used for working
capital, capital expenditures, to repay existing indebtedness owed to Bank One
and to repay amounts owing under a long-term note payable acquired in 1998 as
part of the Sonic transaction. The collateral for the loan is substantially all
U.S. assets of the Company. Borrowings are designated as a Prime-based Advance
or as a Eurodollar-based Advance. Interest on Prime-based Advances is payable on
the last day of each month and is calculated daily at a rate that ranges from a
1/2% below to a 1/4% above the bank's prime rate (4.75% as of November 4, 2002)
dependant upon the Company's ratio of funded debt to earnings before interest,
taxes, depreciation and amortization ("EBITDA"). Interest on Eurodollar-based
Advances is calculated at a specific margin above the Eurodollar Rate offered at
the time and for the period chosen (approximately 4.2% as of November 4, 2002)
dependant upon the Company's ratio of funded debt to EBITDA and is payable on
the last day of the applicable period. Quarterly, the Company pays a commitment
fee on the daily unused portion of the Credit Agreement based on a percentage
dependant upon the Company's ratio of funded debt to EBITDA. The aggregate
principal amount outstanding at any one time cannot exceed the lesser of $7.5
million or the borrowing base which is comprised of 80% of eligible accounts
receivable billed in the United States, aged up to 180 days, plus the lesser of
25% of raw material located in the United States or $2,000,000, plus the lesser
of 50% of finished goods inventory or $750,000 plus an amount equal to 60% of
the appraised value of the Company's real property located in Plymouth,
Michigan. The new appraisal had not been completed at the time of this filing,
however, based upon an appraisal done within the last two years, it is expected
to be approximately $6.0 million. At October 31, 2002, the borrowing base was
$7.5 million. The Credit Agreement prohibits the Company from paying dividends.
In addition, the Credit Agreement requires the Company to maintain a Tangible
Net Worth, as defined in the Credit Agreement, of not less than $29.0 million.
See Item 3, "Legal Proceedings" and Note 9 to the Consolidated Financial
Statements, "Contingencies", of the Company's Annual Report on Form 10-K for
fiscal year 2002, 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 believes that available cash on hand and existing credit facilities
will be sufficient to fund its currently anticipated fiscal 2003 cash flow
requirements. The Company does not believe that inflation has
11
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 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 statements.
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.
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 September 30, 2002, the
Company's percentage of sales commitments in non-U.S. currencies was 51.8% or
$8.4 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 Statements" for a
description of the Company's outstanding debt.
SAFE HARBOR STATEMENT
Certain statements 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 Exchange Act of 1934, including the Company's
expectation as to fiscal 2003 and future revenue, order booking levels and
earnings levels and the ability of the Company to fund its currently anticipated
fiscal 2003 cash flow requirements. 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
12
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 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 and revenues 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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information required pursuant to this item is incorporated by reference herein
from Item 2 "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Market Risk Information".
ITEM 4. CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this report, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including its Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of the Company's disclosure
controls and procedures pursuant to Rule 13a-15 of the Securities Exchange Act
of 1934. Based upon that evaluation, the Company's Chief Executive Officer and
Chief Financial Officer concluded that the Company's disclosure controls and
procedures are effective in causing the material information required to be
disclosed by the Company in the reports that it files or submits under the
Securities Exchange Act of 1934 to be recorded, processed, summarized and
reported, to the extent applicable, within the time periods required for the
Company to meet the Securities and Exchange Commission's ("SEC") filing
deadlines for these reports specified in the SEC's rules and forms. There have
been no significant changes in the Company's internal controls or in other
factors that could significantly affect internal controls subsequent to the date
the Company carried out its evaluation.
13
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
4.7 Credit Agreement between Perceptron, Inc. and Comerica Bank dated
October 24, 2002.
(B) Reports on Form 8-K
On September 27, 2002, the Company filed a Form 8-K under Item 9,
disclosing that certifications from the Company's Chief Executive
Officer and Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) had accompanied the
Company's Annual Report on Form 10-K for the year ended June 30, 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PERCEPTRON, INC.
(Registrant)
Date: November 08, 2002 By: /S/ Alfred A. Pease
------------------------------------------
Alfred A. Pease
President and Chief Executive Officer
Date: November 08, 2002 By: /S/ John J. Garber
------------------------------------------
John J. Garber
Vice President and Chief Financial Officer
(Principal Financial Officer)
Date: November 08, 2002 By: /S/ Sylvia M. Smith
------------------------------------------
Sylvia M. Smith
Controller and Chief Accounting Officer
(Principal Accounting Officer)
14
CERTIFICATIONS
I, Alfred A. Pease, Chief Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Perceptron, Inc.;
2. Based on my knowledge, this quarterly 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 quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002
/s/ Alfred A. Pease
--------------------------------
Alfred A. Pease
Chairman of the Board, President
Chief Executive Officer
15
I, John J. Garber, Chief Financial Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Perceptron, Inc.;
2. Based on my knowledge, this quarterly 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 quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 8, 2002
/s/ John J. Garber
------------------
John J. Garber
Vice President and Chief Financial Officer
Principal Financial Officer
16
Exhibit Index
NO. EXHIBIT
- --- -------
4.7 Credit Agreement between Perceptron Inc. and Comerica Bank
dated October 24, 2002