Back to GetFilings.com
- --------------------------------------------------------------------------------
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, 2003 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
(Address of Principal Executive Offices)
(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
----- ------
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
Yes No X
----- ------
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 as of the registrant's most
recently completed second fiscal quarter by non-affiliates of the registrant,
based upon the closing sale price of the Common Stock on December 31, 2002, as
reported by The Nasdaq Stock Market, was approximately $18,000,000 (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, 2003, was 8,540,676.
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:
-------- -----------------------------
Proxy Statement for 2003
Annual Meeting of Shareholders Part III, Items 10-13
- --------------------------------------------------------------------------------
PART I
ITEM 1: 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% in-line 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, inspection and
forest products industry.
The Company's current principal products are based upon proprietary
three-dimensional image processing and AutoSolve(TM) feature extraction software
algorithms combined with the TriCam(R) three-dimensional object imaging
technology. TriCam(R) technology uses structured laser light triangulation
techniques to obtain accurate three-dimensional measurements. TriCam(R) 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.
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 to U.S. Natural Resources, Inc.
("USNR"). USNR also assumed certain liabilities of the Forest Products business
unit. Historical financial information included in this Form 10-K for fiscal
year 2002 and prior periods has been restated to present the Forest Products
business unit as a discontinued operation. Other information, such as bookings
and backlog, has been restated to reflect only the Company's continuing
operations. The Company continues to manufacture and supply TriCam(R) sensors
ordered by USNR.
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; Voisins le Bretonneux, France; Vitoria,
Spain; 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, manufacturing
process development and implementation, stamping and fabrication, body shop,
paint shop, trim, chassis 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
AUTOMATED SYSTEMS
AutoGauge(R): 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(R) 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.
AutoGauge(R) is built on a hardware, software and communications platform called
IPNet(R). The IPNet(R) platform uses Internet technology to disseminate critical
manufacturing and quality information on a real-time basis throughout a plant or
enterprise. IPNet(R) also communicates to wireless devices such as Palm(TM)
Pilots and web phones. Other advantages of the IPNet(R) platform include: A
Windows-based architecture allowing integration of third party hardware and
software, a new graphics based user interface, and greater flexibility to
distribute sensors throughout the manufacturing process at lower cost.
AutoGauge(R) has 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.
2
AutoFit(R): 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(R)
has the ability to measure vehicles while in motion along the assembly line or
in a stationary position.
AutoScan(R): 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(R) 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)
platform and shares many of the same components as the AutoGauge(R) system.
Perceptron also offers a portable, battery powered version of the AutoSpect(R)
paint quality measurement system.
AutoGuide(R): 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(R) 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(R) include windshield insertion, roof
loading, seat loading, hinge mounting, door attachment and sealant applications.
TECHNOLOGY COMPONENTS
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. In August 2003, the Company ceased the manufacture of LASAR
sensors and, as required by the terms of an existing Sensor Supply and
Manufacturing License Agreement between the Company and USNR, the Company
granted a non-exclusive, perpetual worldwide license to USNR to manufacture
LASAR(R) sensors primarily intended for sale to operators of wood processing
facilities (e.g., sawmills, planer mills, panel mills, etc.).
VALUE ADDED SERVICES
The Company provides additional services, which include training, field service
and repair, launch support, upgrades, spare part sales and consulting.
SALES AND MARKETING
The Company markets its systems directly to end users, and through system
integrators, VARs and OEMs.
3
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.
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. The number and
timing of re-tooling programs vary from year to year and are subject to
postponement by customers due to economic conditions or otherwise. Because the
Company's annual sales are dependent on the timing of customers' re-tooling
programs, annual aggregate sales and sales by customer vary significantly from
year to year, as do the Company's largest customers. For the fiscal years ended
June 30, 2003, 2002 and 2001, approximately 33%, 44% and 35%, 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, 2003, 2002 and 2001,
approximately, 22%, 19% and 20%, 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, 2003,
sales to Volkswagen were 11.6% 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 USNR 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. With respect to most of its components, the Company believes
that alternate suppliers are readily available. 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 46%, 36%,
and 43%, of the Company's revenues from continuing operations during the fiscal
years ended June 30, 2003, 2002 and 2001, respectively. The Company's
wholly-owned subsidiary, Perceptron Europe B.V. ("Perceptron B.V."), formed in
The Netherlands, holds a 100% equity interest in Perceptron (Europe) GmbH
("Perceptron GmbH"). Perceptron GmbH is located in Munich, Germany and is the
operational headquarters for the European market. Perceptron GmbH holds a 100%
interest in Perceptron E.U.R.L. located in Voisins le Bretonneux, France and a
100% interest in Perceptron Iberica SL located in Vitoria, Spain. At June 30,
2003, the Company employed 54 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
15 to the Consolidated Financial Statements, "Geographic Information".
4
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
factors in these markets. There are a number of companies that sell similar
and/or alternative technologies and methods into the same markets and regions 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, that 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, 2003, the Company had a backlog from continuing operations of
$18.2 million, compared to $15.2 million at June 30, 2002. 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, 2004.
RESEARCH AND DEVELOPMENT
As of June 30, 2003, 48 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, 2003,
2002 and 2001, the Company's research, development and engineering expenses were
$6.3 million, $6.6 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 engaged in a program
of continuous product improvement that is intended to add new features and
functions, enhance performance, reduce costs and incorporate new technological
advances. The Company also has several major new product initiatives in process
to add completely new products to the Company's suite of products as well as
enhance and expand existing products.
In March 2003, Perceptron was selected as a winner in the 2003 Automotive News
Premier Automotive Suppliers' Contributions to Excellence (PACE) Awards
co-sponsored by Cap Gemini Ernst & Young. Perceptron was awarded the honor in
the category of Information Technology and Services for its AutoGauge(R) FMS
(Flexible Measurement System) manufacturing process improvement system. The
annual awards honor automotive supplier innovations in four categories:
Product-North America, Product-Europe, Manufacturing Process and Capital
Equipment, and Information Technology and Services.
PATENTS, TRADE SECRETS AND CONFIDENTIALITY AGREEMENTS
The Company owns twenty-four 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 fifteen foreign patents in
Canada, Europe and Japan and has twenty-one patent applications pending in
foreign locations. The U.S. patents expire from 2004 through 2021 and the
Company's existing foreign patent rights expire from 2008 through 2014. In
addition, the Company holds perpetual licenses to more than forty-two other U.S.
patents including rights to practice six patents for non-forest product related
applications that were assigned to USNR in conjunction with the sale of the
Forest Products business unit. The expiration dates for these licensed patents
range from 2004 to 2020.
The Company has registered, and continues to register, various trade names and
trademarks including Perceptron(R), AutoGauge(R), IPNet(R), AutoFit(R),
AutoGuide(R), AutoScan(R), AutoSpect(R), Contour Probe(R), OptiFlex(R),
TriCam(R), Veristar(R), WheelWorks(R), Visual Fixturing(R) and LASAR(R), among
others, which are used in connection with the conduct of its business.
Trademarks that have been approved for registration or are awaiting issuance
include AutoSolve(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. The
Company also uses non-disclosure agreements with employees, consultants and
other parties.
There can be no assurance that any of the above measures will be adequate to
protect the Company's intellectual property or other proprietary rights.
Effective patent, trademark, copyright and trade secret protection may be
unavailable in certain foreign countries.
5
The Company and one of its customers are currently defendants in a suit alleging
infringement involving processes and methods used in the Company's products
described under "Item 3. Legal Proceedings". Certain of the Company's other
customers have settled claims made against them by another party alleging
possible patent infringement involving processes and methods used in the
Company's products. Management believes that the processes and methods 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
the Company's customers, it is not possible to estimate the ultimate effect, if
any, of these matters on the Company's financial statements.
The Company has licensed certain of the Company's patents relating to
non-contact wheel alignment systems to another company on a non-exclusive basis.
EMPLOYEES
As of June 30, 2003, the Company employed 213 persons. None of the employees is
covered by a collective bargaining agreement and the Company believes its
relations with its employees to be good.
AVAILABLE INFORMATION
The Company's Internet address is www.perceptron.com. There the Company plans to
make available, free of charge, its annual report on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K and any amendments to those
reports, filed after the date of this form 10-K, as soon as reasonably
practicable after the Company files such material with, or furnishes it to, the
SEC. These reports can be accessed through the Company section of the website.
The information found on the Company's website is not part of this or any report
the Company files with or furnishes to the SEC.
ITEM 2: PROPERTIES
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; offices in
Voisins le Bretonneux, France; Sao Paulo, Brazil and Tokyo, Japan. The Company
believes that its current facilities are sufficient to accommodate its
requirements through the fiscal year 2004.
ITEM 3: LEGAL PROCEEDINGS
On September 25, 1998, the United States 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 between Perceptron B.V., a wholly-owned subsidiary
of the Company, and Speroni. Speroni's appeal of the dismissal was denied by the
Federal Court of Appeals. Perceptron B.V. terminated the exclusive
distributorship contracts in 1997 for breach of contract by Speroni and 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. On February 15, 2003, the French arbitrator awarded
damages in the amount of $2.4 million to Speroni and against Perceptron B.V.
Interest continues to accrue on the award at the rate of 5% per annum from that
date until paid. On July 21, 2003, Perceptron B.V.'s application for
correction/clarification of the arbitrator's award was denied. The Company is
considering an appeal to the arbitrator's decision in the French and Dutch
courts. There can be no assurance as to the outcome of an appeal of this matter
if undertaken.
The Company is a party to a suit filed by Industries GDS, Inc., Bois Granval GDS
Inc., and Centre de Preparation GDS, Inc. (collectively, "GDS") on or about
November 21, 2002 in the Superior Court of the Judicial District of Quebec,
Canada against the Company, Carbotech, Inc. ("Carbotech"), and U.S. Natural
Resources, Inc. ("USNR"), among others. The suit alleges that the Company
breached its contractual and warranty obligations as a manufacturer in
connection with the sale and installation of three systems for trimming and
edging wood products. The suit also alleges that Carbotech breached its
contractual obligations in connection with the sale of equipment and the
installation of two trimmer lines, of which the Company's systems were a part,
and that USNR, which acquired substantially all of the assets of the forest
products business unit from the Company, was liable for GDS' damages. USNR has
sought indemnification from the Company under the terms of existing contracts
between the Company and USNR. GDS seeks compensatory damages against the
Company, Carbotech and USNR of approximately $4.9 million using a June 30, 2003
exchange rate. The Company intends to vigorously defend GDS' claims.
6
The Company is a party to a suit filed by MERILab, Inc. ("MERILab") in the
United States District Court for the District of Colorado and served on the
Company on May 9, 2003. The suit seeks a declaratory judgment that three of the
Company's patents are invalid and void, that MERILab's products and conduct do
not infringe on the three patents and that MERILab has a license to practice two
of the three patents. The suit also seeks damages from the Company for an
alleged breach of an alleged contractual obligation in connection with an
alleged failure by the Company to sell the Company's products to MERILab. The
Company intends to vigorously defend against MERILab's claims.
On December 11, 1998, a jury in a civil case in the United States District Court
for the Eastern District of Michigan returned a favorable judgment for the
Company and awarded damages of over $732,000 against Sensor Adaptive Machines,
Inc. ("SAMI"), currently a wholly-owned subsidiary of LMI Technologies, Inc.
("LMI"). The suit, filed by the Company in June 1996, charged 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. In December 1998, the jury returned a verdict in favor of Perceptron and
against SAMI in the amount of $732,000 and also found that SAMI's remaining
counterclaims were without merit. On March 4, 1999, the Company's motion for
interest was granted. SAMI's appeal of the judgment 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 against SAMI to collect the
judgment as described below. SAMI is currently subject to bankruptcy proceedings
in Canada.
On May 10, 2002, the Company commenced an action against LMI (including
Diffracto Limited, which amalgamated with LMI on December 31, 1999) and SAMI in
the Ontario Superior Court of Justice-Commercial List. By amended statement of
claim issued on March 26, 2003, the Company added two principals of LMI, Leonard
Metcalfe and Neil Hummel, as defendants. In brief, the Company alleges that upon
issuance of the United States District Court judgment described above against
SAMI in December 1998, LMI caused SAMI (a subsidiary of LMI at that time) to
transfer all or substantially all of its assets to LMI and Diffracto (which was
also controlled by LMI) for no consideration, or consideration that was less
than the fair market value of the transferred assets. Such assets included,
among other things, the intellectual property at issue in the litigation that
has subsequently been instituted by LMI, described below. As a consequence, SAMI
was left unable to pay its creditors, including the Company. In this context,
the Company alleges that in causing SAMI and LMI to act in the manner described
above, Metcalfe and Hummel acted in a manner which was oppressive to the
reasonable expectations and interests of the Company, and thus are jointly and
severally liable with LMI to the Company. In this action the Company seeks an
order reversing specific transactions by which assets were transferred or
diverted to LMI and Diffracto, as well as an order requiring the defendants to
repay various funds that they received as a result of such transfers of assets.
The trial of this action is currently scheduled to commence in February 2004.
On February 21, 2003, the Company filed suit against LMI with a complaint
charging willful infringement by LMI of three of the Company's sensor
calibration and alignment patents. The suit is pending in the United States
District Court for the Eastern District of Michigan. The Company seeks
injunctive relief enjoining LMI from manufacturing and selling products that
infringe the Company's patents and treble damages.
The Company is a party to a suit filed by LMI on or about May 30, 2003 in the
United States District Court for the Eastern District of Michigan against the
Company and USNR. The suit alleges that the Company and USNR have willfully
infringed and are inducing others to infringe 40 patents purportedly owned by
LMI and received from SAMI as discussed above. LMI seeks injunctive relief
enjoining the Company and USNR from manufacturing and selling products that
infringe such patents and treble damages. USNR has sought indemnification from
the Company under the terms of existing contracts between the Company and USNR.
The Company intends to vigorously pursue its claims against SAMI and LMI and to
defend LMI's claims against the Company.
See Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Critical Accounting Policies - Litigation and Other
Contingencies" for a discussion of the Company's accounting policies regarding
legal proceedings and other contingencies.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 2003.
7
PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
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
FISCAL 2002 LOW HIGH
- ----------- --------- ---------
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 30, 2002 $0.97 $2.15
Quarter through December 31, 2002 $1.11 $2.25
Quarter through March 31, 2003 $2.10 $3.10
Quarter through June 30, 2003 $2.43 $6.08
FISCAL 2004
- -----------
Quarter through September 17, 2003 $7.30 $9.28
No cash dividends or distribution on Perceptron's Common Stock have been paid in
the past 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, 2003, 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 and
Related Stockholder Matters" - Equity Compensation Plan Information".
8
ITEM 6: SELECTED FINANCIAL DATA
PERCEPTRON, INC. AND SUBSIDIARIES
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
TWELVE MONTHS SIX MONTHS TWELVE MONTHS
ENDED ENDED ENDED
JUNE 30, JUNE 30, DECEMBER 31,
------------------------------------------------- ---------- --------------
STATEMENT OF OPERATIONS DATA:(1),(2) 2003 2002 2001(3) 2000 1999(4) 1998
Net sales $ 54,679 $ 43,943 $ 40,430 $ 57,347 $ 17,977 $ 39,555
Gross profit 27,534 19,641 17,085 28,697 7,378 16,717
Operating income (loss) 8,548 1,170 (4,046) 4,231 (4,090) (5,580)
Income (loss) before income taxes 6,124 759 (4,647) 3,973 (4,765) (6,518)
Income (loss) from continuing operations 3,582 942 (2,549) 2,369 (3,370) (4,285)
Discontinued operations - (4,644) (3,656) (512) (1,490) 946
Cumulative effect of change in
accounting principle - - (1,333) - - -
Net income (loss) 3,582 (3,702) (7,538) 1,857 (4,860) (3,339)
Earnings (loss) per diluted share:
Continuing operations $ 0.42 $ 0.11 $ (0.31) $ 0.29 $ (0.41) $ (0.52)
Discontinued operations - (0.56) (0.45) (0.06) (0.18) 0.11
Cumulative effect of change in
accounting principle - - (0.16) - - -
Net income (loss) 0.42 (0.45) (0.92) 0.23 (0.59) (0.41)
Weighted average common shares
outstanding -- diluted 8,622 8,213 8,178 8,199 8,185 8,239
AS OF
AS OF JUNE 30, DECEMBER 31,
--------------------------------------------------------------- ------------
BALANCE SHEET DATA: 2003 2002 2001(3) 2000 1999(4) 1998
Working capital $ 30,405 $ 24,824 $ 25,559 $ 42,849 $ 37,202 $ 42,854
Total assets 59,414 54,693 66,247 65,105 59,867 64,785
Long-term liabilities - 1,040 1,040 4,595 4,265 1,040
Shareholders' equity 44,945 39,211 40,295 49,569 48,064 54,852
- --------------------------
(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.
9
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 solutions for process
improvement. The Company's current principal products are based upon proprietary
three-dimensional image processing and AutoSolve(TM) feature extraction software
algorithms combined with the TriCam(R) three-dimensional object imaging
technology. TriCam(R) technology uses structured laser light triangulation
techniques to obtain accurate three-dimensional measurements. TriCam(R) 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.
In March 2002 the Company sold 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 were 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 FPBU. See also Note 2, "Discontinued Operations" in the Notes to the
Consolidated Financial Statements. The disposal of the FPBU 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 FPBU 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, 2003, COMPARED TO FISCAL YEAR ENDED JUNE 30, 2002
Overview. The Company reported net income of $3.6 million or $0.43 per share,
for the fiscal year ended June 30, 2003 compared with income from continuing
operations of $942,000, or $0.11 per share, for the fiscal year ended June 30,
2002. Fiscal year 2003 results were negatively impacted by a $2.4 million
pre-tax arbitration charge against the Company's wholly-owned subsidiary,
Perceptron B.V. Discontinued operations during fiscal year 2002 represented the
operating loss of the Company's FPBU which was $3.2 million, net of tax. In
addition, the Company recorded an after-tax 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. In the first quarter of fiscal
year 2003, the Company's European operation implemented a new accounting system
that 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, fiscal year 2002 results were reclassified to conform to the fiscal
year 2003 presentation. As a result, approximately $3.3 million of costs
previously reported as selling, general and administrative in fiscal year 2002,
were reclassified to cost of sales for $2.9 million and to engineering, research
and development for $380,000.
Sales. Net sales of $54.7 million for the year ended June 30, 2003 were up $10.8
million, or 25%, compared with sales for the year ended June 30, 2002 of $43.9
million. The sales increase was primarily due to significantly higher sales of
$9.8 million in the Company's Automated Systems products, which represented
sales of $41.4 million in fiscal year 2003 compared to $31.6 million in fiscal
year 2002. Technology Components sales increased to $9.3 million in fiscal year
2003 compared to $8.7 million in 2002. Value Added Services increased to $4.3
million in fiscal 2003 compared to $3.6 million in 2002. From a geographic
perspective the increase in 2003 sales was primarily due to higher sales in
Europe of $25.2 million that were up $9.3 million, or 58%, compared to fiscal
year 2002. European sales benefited from the strength of the Euro that based on
conversion rates in effect during fiscal 2003 generated approximately $4.1
million more in sales than the comparable rates in fiscal 2002 would have
yielded. Fiscal year 2003 sales in North America increased $2.2 million and
Asian sales decreased $700,000 from fiscal 2002.
The significant increase in the Automated Systems products was primarily the
result of sales of the Company's AutoGauge(R) product, which had sales of $38.3
million during fiscal year 2003 compared to $28.4 million of sales
10
during fiscal year 2002. The $9.9 million increase reflected several important
new vehicle tooling programs, particularly at Volkswagen. The Company's European
operation recorded AutoGauge(R) sales of approximately $20.6 million in fiscal
year 2003 compared to $11.3 million in fiscal 2002.
Bookings & Backlog. New order bookings for the fiscal year ended June 30, 2003
were $57.7 million compared with $40.6 million for the fiscal year ended June
30, 2002. The bookings increase was primarily due to higher orders for the
Company's Automated Systems products of $45.8 million in fiscal year 2003
compared to $28.5 million in fiscal 2002. Orders for Technology Components were
$9.6 million in fiscal 2003 compared to $9.1 million in fiscal 2002. Orders for
Value Added Services were $2.3 million in fiscal 2003 compared to $3.0 million
in fiscal 2002. The higher bookings for Automated Systems products primarily
represented higher orders for the Company's AutoGauge(R) product line of $43.2
million in fiscal 2003 compared to $25.2 million in fiscal 2002. The $18.0
million increase in AutoGauge(R) orders reflected several large new vehicle
tooling programs, particularly with one significant European customer and in
North America. The new order bookings, net of sales, resulted in a backlog at
June 30, 2003 of $18.2 million compared to $15.2 million at June 30, 2002. 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 $27.5 million, or 50.4% of sales, in the fiscal
year ended June 30, 2003, as compared to $19.6 million, or 44.7% of sales, in
the fiscal year ended June 30, 2002. The increase in the gross profit percentage
primarily reflected the benefit from incremental gross profit of approximately
$2.5 million, or 4.6% of sales, that resulted from the strong Euro when Euro
denominated sales were converted to U.S. Dollars while most of the material in
cost of sales was purchased from the United States under dollar denominated
contracts. Fixed overhead absorption at the higher sales level also contributed
to the gross profit margin percentage improvement.
Selling, General and Administrative (SG&A) Expenses. SG&A expenses during fiscal
2003 were $12.7 million, compared with $11.7 million during fiscal 2002. The
increase primarily reflected $1.2 million of accruals for reinstated Company
401K matching contributions and employee profit sharing and the impact of the
strong Euro of approximately $500,000 due to higher exchange conversion rates.
These increases were partially offset by cost reduction programs that were
implemented in prior periods.
Engineering, Research and Development (R&D) Expenses. Engineering and R&D
expenses were $6.3 million for the fiscal year ended June 30, 2003, compared
with $6.6 million for fiscal 2002. The decrease in expenses reflected the
benefit from manpower, contract design service, and other variable expense
reductions that were implemented in prior periods. This decrease was partially
offset by approximately $600,000 of accruals for reinstated Company 401K
matching contributions and employee profit sharing. 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. The
foregoing statement is a "forward-looking statements" within the meaning of the
Securities Exchange Act of 1934. Actual results could differ materially from
those in the forward-looking statement 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.
Restructuring Charge. There were no restructuring initiatives undertaken during
fiscal year 2003. The Company recorded a restructuring charge of $251,000 in the
third quarter of fiscal 2002 for estimated employee separation costs associated
with a work force reduction of 22 employees at the Company's Plymouth
headquarters. See Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Fiscal Year Ended June 30, 2002, Compared
to Fiscal Year Ended June 30, 2001 -- Restructuring Charge."
Arbitration Charge. In the third quarter of fiscal year 2003 the Company
recorded an arbitration charge of $2.4 million to reflect the arbitration award
against the Company's wholly-owned subsidiary, Perceptron B.V. See Part 1, Item
3, "Legal Proceedings" for a discussion of the arbitration.
Interest Income/Expense, net. Net interest income was $9,000 in fiscal 2003,
compared with net interest expense of $249,000 in fiscal 2002. The change
reflected lower average borrowings on the Company's revolving line of credit
during the first half of fiscal year 2003, the pay-off of all debt subsequent to
January 2003 and interest income earned on cash balances since the debt was paid
off.
Foreign Currency and Other. The foreign currency and other losses of $31,000 and
$162,000 in fiscal years 2003 and 2002, respectively, were primarily the result
of net foreign currency gains and losses related to the Euro, Yen and Canadian
dollar.
Income Taxes. Income taxes for both fiscal 2003 and 2002 reflected the effect of
the mix of operating profit and loss among the Company's various operating
entities and their countries' respective tax rates. 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 carry forwards and
11
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 14 of Notes to Consolidated Financial Statements, "Income
Taxes".
Outlook. Based on the backlog as of June 30, 2003, anticipated vehicle tooling
programs being considered by customers, the forecasted timing of those programs
and the absence of any anticipated large orders from a single customer such as
was experienced in fiscal year 2003, the Company expects that sales in fiscal
2004 may be ten to fifteen percent below fiscal 2003. The Company implemented
significant cost reduction programs during fiscal years 2001 and 2002 and plans
to maintain costs at those lower levels for fiscal year 2004 as it did during
fiscal 2003. Therefore, the Company expects that even at the lower sales levels
currently projected for fiscal 2004, operating results will remain positive. 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, 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 for fiscal
2002 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. In the first quarter of fiscal year 2003,
the Company's European operation implemented a new accounting system that
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,
results for fiscal years 2001 and 2002 were reclassified to conform to the
fiscal year 2003 presentation. As a consequence, approximately $3.3 and $3.4
million of costs previously reported as selling, general and administrative in
fiscal years 2002 and 2001 respectively, were reclassified to cost of sales for
$2.9 and $3.0 million and to engineering, research and development for $380,000
and $347,000 in fiscal years 2002 and 2001, respectively.
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. Sales in the Company's Automated Systems products
were $31.6 million in fiscal year 2002 compared to $32.0 million in fiscal year
2001. Technology Components sales totaled $8.7 million in fiscal year 2002
compared to $6.3 million in 2001. Value Added Services represented the balance
of sales in both years totaling $3.6 million in fiscal 2002 compared to $2.1
million in 2001. From a geographic perspective fiscal year 2002 sales in North
America increased $4.2 million, Asia sales increased $900,000 and European sales
decreased $1.6 million over fiscal 2001 sales.
Although the Company's Automated Systems products as a group were flat year over
year, the AutoGauge(R) product sales for fiscal year 2002 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. Other Automated Systems products were down due to
timing of orders. Technology Components sales where up $2.4 million, principally
due to sales of new products such as ScanWorks(TM), which was a new component
product introduced in late 2000. The fiscal 2002 growth reflected the acceptance
of this product, particularly in the Japanese market.
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 line were comparable to sales by
product line. 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 $19.6 million, or 44.7% of sales, in the fiscal
year ended June 30, 2002, as compared to $17.1 million, or 42.3% 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.
12
Selling, General and Administrative (SG&A) Expenses. SG&A expenses during fiscal
2002 were $11.7 million, compared with $10.3 million during fiscal 2001. The
increase primarily reflected higher selling expenses of approximately $700,000
related to developing the North American market for ScanWorks(TM) 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 $6.6 million for the fiscal year ended June 30, 2002, compared
with $10.4 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.
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 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 7 "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.
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.
Foreign Currency and Other. The foreign currency and other 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.
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 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 carry forwards 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 14 of Notes to Consolidated Financial
Statements, "Income Taxes".
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents were $11.1 million at June 30, 2003
compared to $8.1 million at June 30, 2002. The cash increase of $3.0 million for
the fiscal year ended June 30, 2003, resulted primarily from $9.8 million of
cash generated from continuing operations. Cash generated was used to pay off
the Company's revolving line of credit, which was $5.8 million at June 30, 2002,
to pay off a long-term note payable of $1.0 million and for capital expenditures
of $1.0 million.
The $9.8 million in cash provided from continuing operations was generated from
decreases in net working capital of $4.0 million, income from continuing
operations of $3.6 million, depreciation and amortization of $1.3 million and
deferred income taxes of $1.0 million. Net working capital is defined as Changes
in Assets and Liabilities, Exclusive of Changes Shown Separately on the
Consolidated Statements of Cash Flow. The net working capital decrease resulted
primarily from accrued expenses as follows: arbitration charge of $2.4 million,
401K matching and profit sharing of $2.8 million and increased accrued taxes of
$2.5 million. Inventory reductions accounted for a $505,000 decrease in net
working capital. Mitigating these decreases were net working capital uses for
increased receivables from higher sales of $2.3 million and increased payments
on accounts payable of $846,000. During fiscal year 2003, the Company decreased
its reserve for inventory obsolescence by a net amount of $604,000, which
resulted from the disposal of $804,000 of inventory that had been reserved for
at June 30, 2002 and $200,000 for additional reserves for obsolescence. 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 inventory is deemed to have no further use or value, the Company
disposes of the inventory and the reserve for obsolescence is reduced. During
fiscal year 2003, the Company increased its reserve for allowance for doubtful
accounts by a net amount of $22,000. This amount is made up of an approximately
$481,000 of additional reserves for doubtful accounts and approximately $459,000
for
13
receivables that were written off. The Company has not experienced any
significant losses related to the collection of accounts receivable. The
reserves and charge offs during fiscal year 2003 reflect settlement of aged
accounts and small customer bankruptcies.
Financing activities during the period primarily reflected net revolving credit
repayments of $5.8 million primarily as a result of $4.9 million transferred
from the Company's European subsidiary and collections on receivables. In
October 2002, the Company also paid off its $1.0 million long-term note payable
acquired in 1998 as part of an acquisition from proceeds received under the
Company's new credit facility with Comerica Bank. The long-term 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.
On October 24, 2002, the Company entered into a new collateral-based Credit
Agreement with Comerica Bank and terminated its previous $12.0 million
collateral-based Revolving Credit Facility ("Revolver") with Bank One, N.A. The
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, for 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 an acquisition. 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 1/2%
below to 1/4% above the bank's prime rate (4.00% as of September 10, 2003)
dependent 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 3.5% as of September 10, 2003)
dependent 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
dependent 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 $4.2 million representing
60% of the appraised value of the Company's real property located in Plymouth,
Michigan. 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 $30.6 million as of
June 30, 2003. The borrowing base at June 30, 2003 was $7.5 million with no
borrowings outstanding. At June 30, 2003, the facility supported one outstanding
letter of credit for $149,000.
At June 30, 2003, the Company's German subsidiary (GmbH) had an unsecured credit
facility totaling 500,000 Euros. The facility may be used to finance working
capital needs and equipment purchases or capital leases. Any borrowings for
working capital needs will bear interest at 9.0% on the first 100,000 Euros of
borrowings and 2.0% for borrowings over 100,000 Euros. The German credit
facility is cancelable at any time by either GmbH or the bank and any amounts
then outstanding would become immediately due and payable. At June 30, 2003,
GmbH had no borrowings outstanding. The facility supported outstanding letters
of credit totaling 47,000 Euros.
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. The
damage award against a wholly-owned subsidiary of the Company in the damages
phase of a pending arbitration matter involving claims on which the arbitrator
found in favor of Speroni, S.p.A. described in Item 3 has not been paid and is
included in the Company's accrued liabilities and expenses as of June 30, 2003.
The Company expects to spend approximately $1.0 million during fiscal year 2004
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 2004 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 7, "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.
CRITICAL ACCOUNTING POLICIES
The Company's discussion and analysis of its financial condition and results of
operations are based upon the Company's financial statements and accompanying
notes, which have been prepared in accordance with accounting principles
generally accepted in the United States. The Company's significant accounting
policies are discussed in Note 1 of Notes to Consolidated Financial Statements,
"Summary of Significant Accounting Policies". Certain of the Company's
significant accounting policies are subject to judgments and uncertainties,
which affect the application of these policies and require the Company to make
estimates based on assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses. The Company bases its estimates on
historical experience and on various assumptions that are believed to be
reasonable under the circumstances. On an on-going basis, the Company
14
evaluates its estimates and underlying assumptions. In the event estimates or
underlying assumptions prove to be different from actual amounts, adjustments
are made in the subsequent period to reflect more current information. The
Company believes that the following significant accounting policies involve
management's most difficult, subjective or complex judgments or involve the
greatest uncertainty.
ACCOUNTS RECEIVABLE AND CONCENTRATION OF CREDIT RISK. The Company monitors its
accounts receivable and charges to expense an amount equal to its estimate of
potential credit losses. The Company considers a number of factors in
determining its estimates, including, the length of time trade accounts
receivable are past due, the Company's previous loss history, the customer's
current ability to pay its obligation and the condition of the general economy
and the industry as a whole. The use of different estimates for future credit
losses would result in different charges to selling, general and administrative
expense in each period presented and could negatively affect the Company's
results of operations for the period.
INVENTORIES. Inventories are valued at the lower of cost or market; cost being
determined under the first in, first out method. Provision is made to reduce
inventories to net realizable value for excess and/or obsolete inventory. The
Company periodically reviews its inventory levels in order to identify obsolete
and slow-moving inventory. The Company estimates excess or obsolete inventory
based principally upon contemplated future customer demand for the Company's
products and the timing of product upgrades. The use of different assumptions in
determining slow-moving and obsolete inventories would result in different
charges to cost of sales in each period presented and could negatively affect
the Company's results of operations for the period.
DEFERRED TAX ASSETS. Deferred income tax assets and liabilities represent the
future income tax effect of temporary differences between the book and tax bases
of the Company's assets and liabilities, assuming they will be realized and
settled at the amounts reported in the Company's financial statements. The
Company records a valuation allowance to reduce its deferred tax assets to the
amount that it believes is more likely than not to be realized. This assessment
includes consideration for the scheduled reversal of temporary taxable
differences, projected future taxable income and the impact of tax planning. If
actual long-term future taxable income is lower than the Company's estimate, the
Company may be required to record material adjustments to the deferred tax
assets, resulting in a charge to income in the period of determination and
negatively impacting the Company's results of operations and financial position
for the period.
LITIGATION AND OTHER CONTINGENCIES. The Company is subject to various legal
proceedings and other contingencies, the outcomes of which are subject to
significant uncertainty. The Company accrues for estimated losses if it is
probable that an asset has been impaired or a liability has been incurred and
the amount of the loss can be reasonably estimated. The Company uses judgment
and evaluates, with the assistance of legal counsel, whether a loss contingency
arising from litigation should be disclosed or recorded. The outcome of legal
proceedings is inherently uncertain and so typically a loss cannot be reasonably
estimated. Accordingly, if the outcome of legal proceedings are different than
is anticipated by the Company, such as was the case in fiscal year 2003 with
respect to an arbitration award against the Company, described in Item 3, "Legal
Proceedings" the Company would have to record a charge for the matter, generally
in the full amount at which it was resolved, in the period resolved, negatively
impacting the Company's results of operations and financial position for the
period.
MARKET RISK INFORMATION
Perceptron's primary market risk is related to foreign exchange rates. The
foreign exchange risk is derived from the operations of its international
subsidiaries, which are primarily located in Germany and for which products are
produced in the U.S. The Company may from time to time have interest rate risk
in connection with its borrowings.
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, 2003, the Company's
percentage of sales commitments in non-U.S. currencies was approximately 43.2%
or $7.8 million.
The Company may use, from time to time, a limited hedging program to minimize
the impact of foreign currency fluctuations. These transactions involve the use
of forward contracts. These forward contracts, which typically mature within one
year, are designed to hedge anticipated foreign currency transactions. The
Company's forward exchange contracts do not subject it to material risk due to
exchange rate movements, because gains and losses on these contracts offset
losses and gains on the assets, liabilities, and transactions being hedged. The
Company may use forward exchange contracts to hedge the net assets of certain of
its foreign subsidiaries to offset the translation and economic exposures
related to the Company's investment in these subsidiaries.
At June 30, 2003, the Company had forward exchange contracts between the United
States Dollar and the Euro in the notional amount of $8.0 million. The forward
exchange contracts are accounted for as cash flow hedges and have a
15
weighted average settlement price of 1.11 Euros to the United States Dollar. The
contracts outstanding at June 30, 2003 mature through June 30, 2004 and are
intended to hedge the Company's investment in its German subsidiary. The Company
recognized a charge of $229,000 in other comprehensive income (loss) for the
unrealized change in value of these forward exchange contracts during the fiscal
year ended June 30, 2003. During fiscal years 2002 and 2001, the Company did not
engage in any hedging activities.
INTEREST RATE RISK
The Company is subject to interest rate risk in connection with any borrowings
under its variable and fixed rate revolving lines of credit. The Company's
exposure to interest rate risk would arise 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, "Short-term and
Long-term Notes Payable", for a description of the Company's outstanding debt.
NEW ACCOUNTING PRONOUNCEMENTS
For a discussion of new accounting pronouncements, see Note 12 to the
Consolidated Financial Statements, "New Accounting Pronouncements".
SAFE HARBOR STATEMENT
Certain statements in Item 1, "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 Exchange Act
of 1934, including the Company's expectation as to fiscal 2004 and future
revenue, order bookings, costs and earnings level, the ability of the Company to
fund its fiscal year 2004 cash flow requirements and the Company's ability to
sustain engineering and research and development support for its products. 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, including the risk that the Company's customers postpone new
tooling programs as a result of economic conditions or otherwise, 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 and 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 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 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".
16
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
----
Reports of Independent Accountants 18
Consolidated Financial Statements:
Balance Sheets -- June 30, 2003 and 2002 20
Statements of Income for the fiscal years ended June 30, 2003, 2002 and 2001 21
Statements of Cash Flows for the fiscal years ended June 30, 2003, 2002 and 2001 22
Statements of Shareholders' Equity for the fiscal years ended June 30, 2003, 2002 and 2001 23
Notes to Consolidated Financial Statements 24
17
[GRANT THORNTON LETTERHEAD]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Perceptron, Inc.
We have audited the accompanying consolidated balance sheets of Perceptron, Inc.
and Subsidiaries as of June 30, 2003 and 2002 and the related consolidated
statements of income, shareholders' equity and cash flows for the years 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 audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits 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 audits provide 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, 2003 and 2002, and the
consolidated results of their operations and their consolidated cash flows for
the years then ended, in conformity with accounting principles generally
accepted in the United States of America.
/S/ Grant Thornton LLP
Southfield, Michigan
August 8, 2003
18
[PRICEWATERHOUSECOOPERS LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Perceptron, Inc.:
In our opinion, the consolidated financial statements referred to in Item 8
present fairly, in all material respects, the results of operations and cash
flows for Perceptron, Inc. and its subsidiaries ("the Company") for the year
ended June 30, 2001, in conformity with accounting principles generally accepted
in the United States of America. 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
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
audit provides 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.
/S/ PricewaterhouseCoopers LLP
Detroit, Michigan
August 15, 2001 except as to Note 2 for which the date
is March 15, 2002.
19
PERCEPTRON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Per Share Amount)
AS OF JUNE 30, 2003 2002
------ ------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 11,101 $ 8,143
Receivables:
Billed receivables, net of allowance for doubtful accounts
of $674 and $652, respectively 22,955 19,379
Unbilled receivables 732 1,433
Other receivables 1,474 687
Inventories, net of reserves of $569 and $1,173, respectively 7,247 7,751
Deferred taxes and other current assets 1,365 1,873
-------- --------
Total current assets 44,874 39,266
-------- --------
PROPERTY AND EQUIPMENT
Building and land 6,004 6,004
Machinery and equipment 9,682 8,690
Furniture and fixtures 1,063 1,061
-------- --------
16,749 15,755
Less - Accumulated depreciation and amortization (8,459) (7,272)
-------- --------
Net property and equipment 8,290 8,483
-------- --------
Deferred tax asset 6,250 6,944
-------- --------
TOTAL ASSETS $ 59,414 $ 54,693
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,754 $ 2,600
Accrued liabilities and expenses 5,051 3,236
Deferred revenue 1,098 1,997
Notes payable (Note 6) - 5,833
Accrued compensation 3,707 424
Income taxes payable 2,859 352
-------- --------
Total current liabilities 14,469 14,442
-------- --------
LONG-TERM NOTES PAYABLE (Note 6) - 1,040
-------- --------
Total liabilities 14,469 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 8,342 and 8,232, respectively 83 82
Accumulated other comprehensive loss (961) (2,951)
Additional paid-in capital 41,281 41,120
Retained earnings 4,542 960
-------- --------
Total shareholders' equity 44,945 39,211
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 59,414 $ 54,693
======== ========
The notes to the consolidated financial statements are an integral part of these
statements.
20
PERCEPTRON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
YEARS ENDED JUNE 30, 2003 2002 2001
------ ------ ------
NET SALES $ 54,679 $ 43,943 $ 40,430
COST OF SALES 27,145 24,302 23,345
-------- -------- --------
GROSS PROFIT 27,534 19,641 17,085
-------- -------- --------
OPERATING EXPENSES
Selling, general and administrative 12,660 11,651 10,281
Engineering, research and development 6,326 6,569 10,355
Restructuring charge (Note 4) - 251 495
-------- -------- --------
Total operating expenses 18,986 18,471 21,131
-------- -------- --------
OPERATING INCOME (LOSS) 8,548 1,170 (4,046)
-------- -------- --------
OTHER INCOME AND (DEDUCTIONS)
Interest expense (149) (522) (568)
Interest income 158 273 219
Arbitration charge (Note 9) (2,402) - -
Foreign currency and other (31) (162) (252)
-------- -------- --------
Total other income (deductions) (2,424) (411) (601)
-------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 6,124 759 (4,647)
INCOME TAX EXPENSE (BENEFIT) 2,542 (183) (2,098)
-------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS 3,582 942 (2,549)
-------- -------- --------
DISCONTINUED OPERATIONS
Loss from Forest Products business unit, net of
$1,038 and $1,708 of taxes, respectively (Note 2) - (3,236) (3,656)
Loss on sale of Forest Products business unit, net of
$678 of taxes (Note 2) - (1,408) -
-------- -------- --------
Total discontinued operations - (4,644) (3,656)
-------- -------- --------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE 3,582 (3,702) (6,205)
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) $ 3,582 $ (3,702) $ (7,538)
======== ======== ========
BASIC EARNINGS (LOSS) PER COMMON SHARE
Continuing operations $ 0.43 $ 0.11 ($ 0.31)
Discontinued operations - (0.56) (0.45)
Change in accounting principle - - (0.16)
-------- -------- --------
Net income (loss) $ 0.43 ($ 0.45) ($ 0.92)
======== ======== ========
DILUTED EARNINGS (LOSS) PER COMMON SHARE
Continuing operations $ 0.42 $ 0.11 ($ 0.31)
Discontinued operations - (0.56) (0.45)
Change in accounting principle - - (0.16)
-------- -------- --------
Net income (loss) $ 0.42 ($ 0.45) ($ 0.92)
======== ======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic 8,284 8,209 8,178
Dilutive effect of stock options 338 4 -
-------- -------- --------
Diluted 8,622 8,213 8,178
======== ======== ========
The notes to the consolidated financial statements are an integral part of these
statements.
21
PERCEPTRON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(In Thousands)
YEARS ENDED JUNE 30, 2003 2002 2001
------ ------ ------
CASH FLOWS FROM OPERATING ACTIVITIES
Income (loss) from continuing operations $ 3,582 $ 942 $ (2,549)
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 1,295 1,187 1,421
Deferred income taxes 1,013 (1,646) (4,931)
Other (83) (27) 72
Changes in assets and liabilities, exclusive of changes shown separately 4,000 4,657 2,205
-------- -------- --------
Net cash provided from (used for) operating activities 9,807 5,113 (4,775)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Revolving credit borrowings 11,121 26,684 27,060
Revolving credit repayments (16,954) (34,466) (17,000)
Repayment of long-term note payable (1,040)
Proceeds from stock plans 162 64 46
-------- -------- --------
Net cash provided from (used for) financing activities (6,711) (7,718) 10,106
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (1,019) (771) (837)
Proceeds from sale of Forest Products assets (Note 2) - 4,607 -
-------- -------- --------
Net cash provided from (used for) investing activities (1,019) 3,836 (837)
-------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 881 944 (561)
-------- -------- --------
NET CASH USED FOR DISCONTINUED OPERATIONS - (712) (3,200)
-------- -------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,958 1,463 733
CASH AND CASH EQUIVALENTS, JULY 1 8,143 6,680 5,947
-------- -------- --------
CASH AND CASH EQUIVALENTS, JUNE 30 $ 11,101 $ 8,143 $ 6,680
======== ======== ========
CHANGES IN ASSETS AND LIABILITIES, EXCLUSIVE OF CHANGES SHOWN SEPARATELY
Receivables, net $ (2,324) $ 1,432 $ 5,078
Inventories 505 5,501 (3,163)
Accounts payable (846) (2,462) 1,113
Other current assets and liabilities 6,665 186 (823)
-------- -------- --------
$ 4,000 $ 4,657 $ 2,205
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest $ 201 $ 826 $ 714
Cash paid during the year for income taxes 856 140 230
The notes to the consolidated financial statements are an integral part of these
statements.
22
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, 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
========================================================================
Comprehensive income (loss)
Net income 3,582 3,582
Other comprehensive income
Foreign currency translation adjustments 2,219 2,219
Hedging (229) (229)
-------
Total comprehensive income (loss) 5,572
-------
Stock plans 110 1 161 162
------------------------------------------------------------------------
BALANCES, JUNE 30, 2003 $8,342 $83 $ (961) $41,281 $ 4,542 $44,945
========================================================================
The notes to the consolidated financial statements are an integral part of these
statements.
23
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 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 2003 Form 10-K for
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 that 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
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".
DEFERRED 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 carry forwards.
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
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.
24
Options to purchase 1,052,000, 1,749,000, and 1,426,000 shares of common stock
were outstanding in the fiscal years ended June 30, 2003, 2002 and 2001,
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.
ACCOUNTS RECEIVABLE AND 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. Accounts
receivable are generally due within 30 days and are stated at amounts due from
customers net of an allowance for doubtful accounts. Accounts outstanding longer
than the contractual payment terms are considered past due. The Company
determines its allowance by considering a number of factors, including the
length of time trade accounts receivable are past due, the Company's previous
loss history, the customer's current ability to pay its obligation to the
Company, and the condition of the general economy and the industry as a whole.
The Company writes-off accounts receivable when they become uncollectible, and
payments subsequently received on such receivables are credited to the allowance
for doubtful accounts. To date, the Company has not experienced any significant
losses related to the collection of accounts receivable. Changes in the
Company's allowance for doubtful accounts are as follows (in thousands):
BEGINNING COSTS AND LESS ENDING
BALANCE EXPENSES CHARGE-OFFS BALANCE
--------- --------- ----------- -------
Fiscal year ended June 30, 2002 $ 734 $ 189 $ 271 $ 652
Fiscal year ended June 30, 2003 $ 652 $ 481 $ 459 $ 674
PROPERTY AND EQUIPMENT
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.
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,
------------------------
2003 2002
------ ------
Component parts $3,525 $4,190
Work in process 954 851
Finished goods 2,768 2,710
------ ------
Total $7,247 $7,751
====== ======
Changes in the Company's reserves for obsolescence are as follows (in
thousands):
BEGINNING COSTS AND LESS ENDING
BALANCE EXPENSES CHARGE-OFFS BALANCE
--------- --------- ----------- -------
Fiscal year ended June 30, 2002 $ 2,038 $ 750 $ 1,615 $ 1,173
Fiscal year ended June 30, 2003 $ 1,173 $ 200 $ 804 $ 569
25
IMPAIRMENT OF LONG-LIVED ASSETS AND CERTAIN IDENTIFIABLE INTANGIBLES
The Company evaluates the carrying value of long-lived 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,
accounts receivable, accounts payable, forward exchange contracts and amounts
due to banks or other lenders, approximate their fair values at June 30, 2003
and 2002. Fair values have been determined through information obtained from
market sources and management estimates.
In the normal course of business, the Company may employ forward exchange
contracts to manage its exposure to fluctuations in foreign currency exchange
rates. Forward contracts for forecasted transactions are designated as cash flow
hedges and recorded as assets or liabilities on the balance sheet at their fair
value. Changes in the contract's fair value are recognized in accumulated other
comprehensive income until they are recognized in earnings at the time the
forecasted transaction occurs. If the forecasted transaction does not occur, or
it becomes probable that it will not occur, the gain or loss on the related cash
flow hedge is recognized in earnings at that time. The Company does not enter
into any derivative transactions for speculative purposes.
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. Factors affecting the Company's warranty liability
include the number of units in service and historical and anticipated rates of
claims and cost per claim. The Company periodically assesses the adequacy of its
warranty liability based on changes in these factors. If a special circumstance
arises requiring a higher level of warranty, the Company would make a special
warranty provision commensurate with the facts.
STOCK-BASED EMPLOYEE COMPENSATION
The Company has two employee stock option plans, which are described more fully
in Note 13. The Company applies APB Opinion No. 25 ("APB 25"), "Accounting for
Stock Issued to Employees," and related interpretations in accounting for these
plans. Accordingly, compensation cost for stock options has been recognized
under the provisions of APB 25. The following table illustrates the pro forma
effect on net income and earnings per share for the periods indicated if the
Company had applied the fair value recognition provisions of FASB Statement 123,
"Accounting for Stock-Based Compensation", to its employee stock option plans
using the assumptions described in Note 13 (in thousands except per share
amounts):
2003 2002 2001
----------- ----------- -----------
Net income (loss)
As reported $ 3,582 $ (3,702) $ (7,538)
Pro forma $ 3,234 $ (4,230) $ (8,447)
Earnings (loss) per share - basic
As reported $ 0.43 $ (0.45) $ (0.92)
Pro forma $ 0.39 $ (0.52) $ (1.03)
Earnings (loss) per share - diluted
As reported $ 0.42 $ (0.45) $ (0.92)
Pro forma $ 0.38 $ (0.52) $ (1.03)
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 historical operations of
the Forest Products business unit have been reported separately as a component
of discontinued operations. During the fiscal years ended June 30, 2002 and 2001
the Forest Products business unit had sales of $4.4 million and $10.3 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
26
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 and 2001 by $73,000 and
$132,000, respectively.
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 fiscal 2001 was a decrease of
$192,000.
4. RESTRUCTURING CHARGE
In fiscal 2002, the Company recorded a $251,000 restructuring charge during the
third quarter for the estimated separation costs associated with a work force
reduction of 22 employees at the Company's Plymouth headquarters. At June 30,
2003, the balance of the restructuring reserve was $78,000. 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. 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. At June 30, 2002, there was no balance
left in the restructuring reserve established in fiscal 2001.
5. LEASES
The following is a summary, as of June 30, 2003, 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:
YEAR MINIMUM RENTALS SUBLEASE RENTALS TOTAL
---- --------------- ---------------- -----
2004 $ 750,083 $ (100,450) $ 649,633
2005 585,479 (104,550) 480,929
2006 279,671 - 279,671
2007 52,430 - 52,430
2008 and beyond 8,330 - 8,330
---------- ---------- ----------
Total minimum lease payments $1,675,993 $ (205,000) $1,470,993
========== ========== ==========
Rental expenses for operating leases in the fiscal years ended June 30, 2003,
2002 and 2001 were $1,097,000, 1,201,000, and $946,000, respectively.
6. SHORT-TERM AND LONG-TERM NOTES PAYABLE
On October 24, 2002, the Company entered into a new collateral-based Credit
Agreement with Comerica Bank and terminated its previous $12.0 million
collateral-based Revolving Credit Facility ("Revolver") with Bank One, N.A. The
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, for capital expenditures, to repay existing indebtedness owed to
27
Bank One and to repay amounts owing under a long-term note payable acquired in
1998 as part of an acquisition. 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
1/2% below to 1/4% above the bank's prime rate (4.00% as of September 10, 2003)
dependent 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 3.5% as of September 10, 2003)
dependent 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
dependent 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 $4.2 million representing
60% of the appraised value of the Company's real property located in Plymouth,
Michigan. 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 $30.6 million as of
June 30, 2003. The borrowing base at June 30, 2003 was $7.5 million with no
borrowings outstanding. At June 30, 2003, the facility supported one outstanding
letter of credit for $149,000.
At June 30, 2003, the Company's German subsidiary (GmbH) had an unsecured credit
facility totaling 500,000 Euros. The facility may be used to finance working
capital needs and equipment purchases or capital leases. Any borrowings for
working capital needs will bear interest at 9.0% on the first 100,000 Euros of
borrowings and 2.0% for borrowings over 100,000 Euros. The German credit
facility is cancelable at any time by either GmbH or the bank and any amounts
then outstanding would become immediately due and payable. At June 30, 2003,
GmbH had no borrowings outstanding. The facility supported outstanding letters
of credit totaling 47,000 Euros.
In October 2002, the Company 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. 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. These transactions involve the use
of forward contracts, typically mature within one year and are designed to hedge
anticipated foreign currency transactions. The Company may use forward exchange
contracts to hedge the net assets of certain foreign subsidiaries to offset the
translation and economic exposures related to the Company's investment in these
subsidiaries. Changes in the fair value of these contracts are included in other
comprehensive income until they are recognized in earnings at the time the
forecasted transaction occurs.
At June 30, 2003, the Company had forward exchange contracts between the United
States Dollar and the Euro in the notional amount of $8.0 million. The hedges
are accounted for as cash flow hedges and have a weighted average settlement
price of 1.11 Euros to the United States Dollar. The contracts outstanding at
June 30, 2003, mature through June 30, 2004 and are intended to hedge the
Company's investment in its German subsidiary. The Company recognized a charge
of $229,000 in other comprehensive income (loss) for the unrealized change in
value of these forward exchange contracts during the fiscal year ended June 30,
2003. The Company's forward exchange contracts do not subject it to material
risk due to exchange rate movements because gains and losses on these contracts
offset losses and gains on the assets, liabilities, and transactions being
hedged. During fiscal years 2002 and 2001, 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
28
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, 2003, 2002 and 2001, approximately 33%, 44% and 35%, 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, 2003, 2002 and 2001,
approximately, 22%, 19% and 20%, 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, 2003, sales to Volkswagen were 11.6% of the Company's total net
sales from continuing operations. At June 30, 2003, accounts receivable from
Volkswagen totaled approximately $3.3 million.
9. CONTINGENCIES
On September 25, 1998, the United States 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 between Perceptron B.V., a wholly-owned subsidiary
of the Company, and Speroni. Speroni's appeal of the dismissal was denied by the
Federal Court of Appeals. Perceptron B.V. terminated the exclusive
distributorship contracts in 1997 for breach of contract by Speroni and 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. On February 15, 2003, the French arbitrator awarded
damages in the amount of $2.4 million to Speroni and against Perceptron B.V.
Interest continues to accrue on the award at the rate of 5% per annum from that
date until paid. On July 21, 2003, Perceptron B.V.'s application for
correction/clarification of the arbitrator's award was denied. The Company is
considering an appeal to the arbitrator's decision in the French and Dutch
courts. There can be no assurance as to the outcome of an appeal of this matter
if undertaken.
The Company is a party to a suit filed by Industries GDS, Inc., Bois Granval GDS
Inc., and Centre de Preparation GDS, Inc. (collectively, "GDS") on or about
November 21, 2002 in the Superior Court of the Judicial District of Quebec,
Canada against the Company, Carbotech, Inc. ("Carbotech"), and U.S. Natural
Resources, Inc. ("USNR"), among others. The suit alleges that the Company
breached its contractual and warranty obligations as a manufacturer in
connection with the sale and installation of three systems for trimming and
edging wood products. The suit also alleges that Carbotech breached its
contractual obligations in connection with the sale of equipment and the
installation of two trimmer lines, of which the Company's systems were a part,
and that USNR, which acquired substantially all of the assets of the Forest
Products business unit from the Company, was liable for GDS' damages. USNR has
sought indemnification from the Company under the terms of existing contracts
between the Company and USNR. GDS seeks compensatory damages against the
Company, Carbotech and USNR of approximately $4.9 million using a June 30, 2003
exchange rate. The Company intends to vigorously defend GDS' claims.
The Company is a party to a suit filed by MERILab, Inc. ("MERILab") in the
United States District Court for the District of Colorado and served on the
Company on May 9, 2003. The suit seeks a declaratory judgment that three of the
Company's patents are invalid and void, that MERILab's products and conduct do
not infringe on the three patents and that MERILab has a license to practice two
of the three patents. The suit also seeks damages from the Company for an
alleged breach of an alleged contractual obligation in connection with an
alleged failure by the Company to sell the Company's products to MERILab. The
Company intends to vigorously defend against MERILab's claims.
On December 11, 1998, a jury in a civil case in the United States District Court
for the Eastern District of Michigan returned a favorable judgment for the
Company and awarded damages of over $732,000 against Sensor Adaptive Machines,
Inc. ("SAMI"), currently a wholly-owned subsidiary of LMI Technologies, Inc.
("LMI"). The suit, filed by the Company in June 1996, charged 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. In December 1998, the jury returned a verdict in favor of Perceptron and
against SAMI in the amount of $732,000 and also found that SAMI's remaining
counterclaims were without merit. On March 4, 1999, the Company's motion for
interest was granted. SAMI's appeal of the judgment 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 against SAMI to collect the
judgment as described below. SAMI is currently subject to bankruptcy proceedings
in Canada.
29
On May 10, 2002, the Company commenced an action against LMI (including
Diffracto Limited, which amalgamated with LMI on December 31, 1999) and SAMI in
the Ontario Superior Court of Justice-Commercial List. By amended statement of
claim issued on March 26, 2003, the Company added two principals of LMI, Leonard
Metcalfe and Neil Hummel, as defendants. In brief, the Company alleges that upon
issuance of the United States District Court judgment described above against
SAMI in December 1998, LMI caused SAMI (a subsidiary of LMI at that time) to
transfer all or substantially all of its assets to LMI and Diffracto (which was
also controlled by LMI) for no consideration, or consideration that was less
than the fair market value of the transferred assets. Such assets included,
among other things, the intellectual property at issue in the litigation that
has subsequently been instituted by LMI, described below. As a consequence, SAMI
was left unable to pay its creditors, including the Company. In this context,
the Company alleges that in causing SAMI and LMI to act in the manner described
above, Metcalfe and Hummel acted in a manner which was oppressive to the
reasonable expectations and interests of the Company, and thus are jointly and
severally liable with LMI to the Company. In this action the Company seeks an
order reversing specific transactions by which assets were transferred or
diverted to LMI and Diffracto, as well as an order requiring the defendants to
repay various funds that they received as a result of such transfers of assets.
The trial of this action is currently scheduled to commence in February 2004.
On February 21, 2003, the Company filed suit against LMI with a complaint
charging willful infringement by LMI of three of the Company's sensor
calibration and alignment patents. The suit is pending in the United States
District Court for the Eastern District of Michigan. The Company seeks
injunctive relief enjoining LMI from manufacturing and selling products that
infringe the Company's patents and treble damages.
The Company is a party to a suit filed by LMI on or about May 30, 2003 in the
United States District Court for the Eastern District of Michigan against the
Company and USNR. The suit alleges that the Company and USNR have willfully
infringed and are inducing others to infringe 40 patents purportedly owned by
LMI and received from SAMI as discussed above. LMI seeks injunctive relief
enjoining the Company and USNR from manufacturing and selling products that
infringe such patents and treble damages. USNR has sought indemnification from
the Company under the terms of existing contracts between the Company and USNR.
The Company intends to vigorously pursue its claims against SAMI and LMI and to
defend LMI's claims against the Company.
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 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 the Company's
customers, it is not possible to estimate the ultimate effect, if any, of this
matter on the Company's financial statements.
The Company may, from time to time, be subject to other claims and suits in the
ordinary course of its business. To estimate whether a loss contingency should
be accrued by a charge to income, the Company evaluates, among other factors,
the degree of probability of an unfavorable outcome and the ability to make a
reasonable estimate of the amount of the loss. Since the outcome of litigation
is subject to significant uncertainty, changes in these factors could materially
impact the Company's financial position or results of operations.
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, 2003, 2002 and 2001, were $324,843, $0 and $251,349,
respectively.
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, 2003, 95,135 shares remained
available under the Plan. During fiscal years 2003, 2002 and 2001, 35,050,
12,312 and 2,793 shares, respectively, were issued to employees. The average
purchase price per share was $1.20, $1.30 and $3.35 in fiscal years 2003, 2002
and 2001, 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.
30
12. NEW ACCOUNTING PRONOUNCEMENTS
In December 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 148, "Accounting for
Stock-Based Compensation -- Transition and Disclosure", which amends SFAS No.
123, "Accounting for Stock-Based Compensation" to provide alternative transition
methods for a voluntary change to the fair value based method of accounting for
stock-based employee compensation. This statement is effective for financial
statements for fiscal years ending after December 15, 2002 and is effective for
financial reports for interim periods beginning after December 15, 2002. The
Company did not adopt SFAS 123 and at this time, does not plan to adopt the fair
value based method of accounting for stock-based employee compensation. The
Company is required to disclose stock-based compensation information in its
footnotes as if SFAS 123 had been adopted. SFAS 148 amends the disclosure
requirements of SFAS No. 123 and these disclosure requirements have been
included in the accompanying financial statements. See Note 1, "Summary of
Significant Accounting Policies" and Note 13, "Stock Option Plans", of the Notes
to Consolidated Financial Statements,
In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"), "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others". FIN 45 clarifies the requirements of SFAS
No. 5, "Accounting for Contingencies", relating to a guarantor's accounting for,
and disclosure of, the issuance of certain types of guarantees. For certain
guarantees issued after December 31, 2002, FIN 45 requires a guarantor to
recognize, upon issuance of a guarantee, a liability for the fair value of the
obligations it assumes under the guarantee. Guarantees issued prior to January
1, 2003, are not subject to liability recognition, but are subject to expanded
disclosure requirements. At June 30, 2003, the Company had no guarantees and
does not anticipate that FIN 45 will have a material effect on its consolidated
financial position or statement of operations.
In January 2003, the FASB issued Interpretation 46 ("FIN 46"), "Consolidation of
Variable Interest Entities". FIN 46 clarifies the application of Accounting
Research Bulletin 51, "Consolidated Financial Statements", for certain entities
that do not have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support from other parties
or in which equity investors do not have the characteristics of a controlling
financial interest ("variable interest entities"). Variable interest entities
within the scope of FIN 46 will be required to be consolidated by their primary
beneficiary. The primary beneficiary of a variable interest entity is determined
to be the party that absorbs a majority of the entity's expected losses,
receives a majority of its expected returns, or both. FIN 46 applies immediately
to variable interest entities created after January 31, 2003, and to variable
interest entities in which an enterprise obtains an interest after that date. It
applies in the first fiscal year or interim period beginning after June 15,
2003, to variable interest entities in which an enterprise holds a variable
interest that it acquired before February 1, 2003. The Company currently has no
variable interest entities and does not anticipate that FIN 46 will have a
material effect on its consolidated financial position or statement of
operations.
In November 2002, the Emerging Issues Task Force reached a consensus opinion on
EITF 00-21, "Revenue Arrangements with Multiple Deliverables". The consensus
provides that revenue arrangements with multiple deliverables should be divided
into separate units of accounting if certain criteria are met. The consideration
for the arrangement should be allocated to the separate units of accounting
based on their relative fair values, with different provisions if the fair value
of all deliverables are not known or if the fair value is contingent on delivery
of specified items or performance conditions. Applicable revenue recognition
criteria should be considered separately for each separate unit of accounting.
EITF 00-21 is effective for revenue arrangements entered into in fiscal periods
beginning after June 15, 2003. Entities may elect to report the change as a
cumulative effect adjustment in accordance with APB Opinion 20, Accounting
Changes. The Company believes its current revenue recognition policy is in
compliance with EITF 00-21 and therefore the adoption of EITF 00-21 will not
have a material effect on its consolidated financial position or statement of
operations.
In November 2002 the Emerging Issues Task Force reached a consensus opinion on
EITF 02-16, "Accounting by a Customer (including a reseller) for Certain
Consideration Received from a Vendor". EITF 02-16 requires that cash payments,
credits, or equity instruments received as consideration by a customer from a
vendor should be presumed to be a reduction of cost of sales when recognized by
the customer in the income statement. In certain situations, the presumption
could be overcome and the consideration recognized either as revenue or a
reduction of a specific cost incurred. The consensus should be applied
prospectively to new or modified arrangements entered into after December 31,
2002. The adoption of this pronouncement did not have a material impact on the
Company's financial statements.
In April 2003, the FASB issued Statement 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities". This Statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under FASB
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities". This Statement requires that contracts with comparable
characteristics be accounted for similarly. In particular, this Statement (1)
clarifies under what circumstances a contract with an initial net investment
meets the characteristic of a derivative discussed in Statement 133, (2)
clarifies when a derivative contains a financing component, (3) amends the
definition of underlying to conform it to language used in FASB Interpretation
No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others", and (4) amends
31
certain other existing pronouncements. Management does not believe the adoption
of this statement will have a material effect on the Company's financial
position.
In May 2003, the Financial Accounting Standards Board (FASB) issued Statement
150, "Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity". This Statement establishes standards for how an issuer
classifies and measures certain financial instruments with characteristics of
both liabilities and equity. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances). This Statement is effective for financial instruments entered
into or modified after May 31, 2003, and otherwise is effective at the beginning
of the first interim period beginning after June 15, 2003. Management does not
believe the adoption of this statement will have a material effect on the
Company's financial position.
13. STOCK OPTION PLANS
The Company maintains 1992 and 1998 Stock Option Plans covering substantially
all company employees and certain other key persons and a Directors Stock Option
Plan covering all non-employee directors. The 1992 and Directors 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 2003 FISCAL YEAR 2002 FISCAL YEAR 2001
----------------------- ------------------------ -----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
---------- ------- ---------- ------- ---------- -------
Shares subject to option
Outstanding at beginning of period 2,012,707 $ 8.26 1,926,649 $ 9.48 1,345,258 $ 14.77
New grants (based on fair value of
common stock at dates of grant) 305,600 $ 1.77 415,425 $ 1.25 835,916 $ 1.80
Exercised (35,535) $ 1.74 - - - -
Terminated and expired (106,486) $ 10.47 (329,367) $ 6.29 (254,525) $ 12.07
Outstanding at end of period 2,176,286 $ 7.37 2,012,707 $ 8.26 1,926,649 $ 9.48
Exercisable at end of period 1,285,227 $ 11.29 1,063,301 $ 13.83 799,726 $ 17.98
The following table summarizes information about stock options at June 30, 2003:
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 $ 1.53 961,623 7.98 $ 1.40 325,223 $ 1.45
$ 1.72 to $ 4.65 548,711 7.28 3.19 294,552 3.74
$ 5.00 to $26.55 571,702 3.69 17.60 571,202 17.61
$ 27.39 to $33.96 94,250 3.38 30.47 94,250 30.47
------------------ --------- ---- --------- --------- --------
$ 0.91 to $33.96 2,176,286 6.48 $ 7.37 1,285,227 $ 11.29
=================== ========= ==== ========= ========= ========
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, 2003,
options covering 1,285,227 shares were exercisable and options covering 955,028
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
Directors 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 of 3,000
shares 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.
The estimated fair value as of the date options were granted during the fiscal
years ended June 30, 2003, 2002 and 2001, using the Black-Scholes option-pricing
model, was as follows:
2003 2002 2001
------- ------- --------
Weighted average estimated fair value per share of
options granted during the year $ 1.23 $ 0.93 $ 1.28
Assumptions:
Amortized dividend yield - - -
Common stock price volatility 85.56% 80.76% 121.36%
Risk free rate of return 3.00% 4.38% 4.63%
Expected option term (in years) 5 5 5
32
14. INCOME TAXES
Income from continuing operations before income taxes for U.S. and foreign
operations was as follows (in thousands):
2003 2002 2001
------- ------- -------
U.S. $ 3,868 $ (614) $(6,609)
Foreign 2,256 1,373 1,962
------- ------- -------
Total $ 6,124 $ 759 $(4,647)
======= ======= =======
The income tax provision (benefit) reflected in the statement of income consists
of the following (in thousands):
2003 2002 2001
------- ------- -------
Current provision (benefit):
U.S. Federal $ - $ - $ -
Foreign 1,529 75 (20)
Deferred taxes
U.S 1,312 (258) (2,078)
Foreign (299) - -
------- ------- -------
Total provision (benefit) $ 2,542 $ (183) $(2,098)
======= ======= =======
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 carry forwards. 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
carry forwards and other items where it was more likely than not that these
items would 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):
2003 2002 2001
-------- -------- --------
Benefit of net operating losses $ 6,925 $ 8,126 $ 6,831
Tax credit carry forwards 2,588 2,382 -
Other, principally reserves 2,487 2,348 825
-------- -------- --------
Deferred tax asset 12,000 12,856 7,656
Valuation allowance (4,524) (4,412) -
-------- -------- --------
Net deferred tax asset $ 7,476 $ 8,444 $ 7,656
======== ======== ========
Rate reconciliation:
Provision at U.S. statutory rate 34.0 % 34.0 % (34.0)%
Net effect of taxes on foreign activities 7.5 % (52.0)% (4.0)%
State taxes and other, net (0.5)% (6.0)% -
Adjustment of federal income taxes provided for in prior years (1.3)% 492.0 % -
Valuation allowance 1.8 % (492.0)% -
-------- -------- --------
Effective tax rate 41.5 % (24.0)% (38.0)%
======== ======== ========
No provision was made with respect to retained earnings as of June 30, 2003 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, 2003, the Company had net operating loss carry
forwards for Federal income tax purposes of $20.4 million that expire in the
years 2020 through 2023 and tax credit carry forwards of $2,588,000 that expire
in the years 2007 through 2017.
33
15. GEOGRAPHIC INFORMATION
The Company's business is substantially all in the global automotive market and
its business segment is the automotive industry. 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, 2003
Net external sales $27,112 $27,567 $54,679
Identifiable assets 31,912 27,502 59,414
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
(1) The Company's German subsidiary had net external sales of $25.3
million, $10.4 million and $13.2 million in the fiscal years ended June
30, 2003, 2002 and 2001, respectively. Total assets of the Company's
German subsidiary were $21.0 million, $10.8 million and $14.9 million
as of June 30, 2003, 2002 and 2001, respectively.
16. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected unaudited quarterly financial data for the fiscal years ended June 30,
2003 and 2002, are as follows (in thousands, except per share amounts):
QUARTER ENDED
------------------------------------------------------------
FISCAL YEAR 2003 09/30/02 12/31/02 03/31/03 06/30/03
-------- -------- -------- --------
Net sales $ 10,777 $ 12,751 $ 15,967 $ 15,184
Gross profit 4,696 6,810 9,290 6,738
Net income 287 1,135 809(1) 1,351
Earnings per share
Basic 0.03 0.14 0.10 0.16
Diluted 0.03 0.14 0.09 0.15
FISCAL YEAR 2002 (2) 09/30/01 12/31/01 03/31/02 06/30/02
-------- -------- -------- ----------
Net sales $ 10,431 $ 13,123 $ 9,846 $ 10,543
Gross profit 4,589 6,138 4,186 4,728
Income (loss) from continuing operations 168 711 (220) 283
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
1. In the third quarter of fiscal 2003, the Company recorded an arbitration
charge of $2.4 million (see Note 9).
2. 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.
3. In the third quarter of fiscal 2002, the Company recorded a restructuring
charge of $251,000 (see Note 4).
34
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
No response to Item 9 is required.
ITEM 9A: CONTROLS AND PROCEDURES
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, as of June 30,
2003, the Company's disclosure controls and procedures were effective in causing
the material information required to be disclosed 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.
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 2003 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 AND
RELATED STOCKHOLDER MATTERS
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", and "Further
Information -- Compensation of Directors and Executive Officers -- Termination
of Employment and Change of Control Arrangements" of the Proxy Statement is
incorporated herein by reference.
35
EQUITY COMPENSATION PLAN INFORMATION
The following table gives information about the Company's Common Stock that may
be issued upon the exercise of options, warrants and rights under all of the
Company's existing equity compensation plans as of June 30, 2003, including the
1992 Stock Option Plan, the Directors Stock Option Plan, the 1998 Global Team
Member Stock Option Plan and the Employee Stock Purchase Plan (together, the
"Option Plans"):
NUMBER OF SECURITIES
NUMBER OF SECURITIES WEIGHTED-AVERAGE REMAINING AVAILABLE FOR
TO BE ISSUED UPON EXERCISE PRICE OF FUTURE ISSUANCE UNDER
EXERCISE OF OUTSTANDING EQUITY COMPENSATION PLANS
OUTSTANDING OPTIONS, OPTIONS, WARRANTS (EXCLUDING SECURITIES
PLAN CATEGORY WARRANTS AND RIGHTS AND RIGHTS REFLECTED IN COLUMN (a))
------------- ------------------- ---------- ------------------------
(a) (b) (c)
Equity compensation plans approved
by shareholders:
1992 Plan 1,243,881 $ 9.41 507,468
Directors Stock Option Plan 191,500 (1) 12.45 104,000
Employee Stock Purchase Plan 22,215 (2) 1.77 72,920
---------- ---------
Total of equity compensation plans
approved by shareholders 1,457,596 9.69 684,388
Equity compensation plans not approved by
shareholders: 1998 Global Team Member
Stock Option Plan 740,905 2.63 343,560
---------- ---------
Total: 2,198,501 7.31 1,027,948
========== =========
(1) Does not include 11,129 shares purchased under the Directors Stock
Purchase Plan but not yet issued.
(2) Does not include an undeterminable number of shares subject to a
payroll deduction election under the Employee Stock Purchase Plan for
the period from July 1, 2003 until December 31, 2003, which will not be
issued until January 2004.
1998 GLOBAL TEAM MEMBER STOCK OPTION PLAN
On February 26, 1998, the Company's Board approved the 1998 Global Team Member
Stock Option Plan (the "1998 Plan"), pursuant to which non-qualified stock
options may be granted to employees who are not officers or directors or subject
to Section 16 of the Securities Exchange Act of 1934. The 1998 Plan has been
amended by the Board on several occasions thereafter.
The purpose of the 1998 Plan is to promote the Company's success by linking the
personal interests of non-executive employees to those of the Company's
shareholders and by providing participants with an incentive for outstanding
performance. The 1998 Plan authorizes the granting of non-qualified stock
options only. The President of the Company administers the 1998 Plan and has the
power to set the terms of any grants under the 1998 Plan. The exercise price of
an option may not be less than the fair market value of the underlying stock on
the date of grant and no option may have a term of more than ten years. All of
the options that are currently outstanding under the 1998 Plan become
exercisable ratably over a four-year period beginning at the grant date and
expire ten years from the date of grant. If, for any reason, an option lapses,
expires or terminates without having been exercised in full, the unpurchased
shares covered thereby are again available for grants of options under the 1998
Plan. In addition, if the option is exercised by delivery to the Company of
shares previously acquired pursuant to options granted under the 1998 Plan, then
shares of Common Stock delivered in payment of the exercise price of an option
will again be available for grants of options under the 1998 Plan.
The exercise price is payable in full in cash at the time of exercise; or in
shares of Common Stock, (but generally, only if such shares have been owned for
at least six months or, if they have not been owned by the optionee for at least
six months, the optionee then owns, and has owned for at least six months, at
least an equal number of shares of Common Stock as the option shares being
delivered); or the exercise price may be paid by delivery to the Company of a
properly executed exercise notice, together with irrevocable instructions to the
participant's broker to deliver to the Company sufficient cash to pay the
exercise price and any applicable income and employment withholding taxes, in
accordance with a written agreement between the Company and the brokerage firm
("cashless exercise" procedure).
36
Generally, if the employment by the Company of any optionee who is an employee
terminates for any reason, other than by death or total and permanent
disability, any option which the optionee is entitled to exercise on the date of
employment termination may be exercised by the optionee at any time on or before
the earlier of the expiration date of the option or three months after the date
of employment termination, but only to the extent of the accrued right to
purchase at the date of such termination. In addition, the President of the
Company has the discretionary power to extend the date to exercise beyond three
months after the date of employment termination. If the employment of any
optionee who is an employee is terminated because of total and permanent
disability, the option may be exercised by the optionee at any time on or before
the earlier of the expiration date of the option or one year after the date of
termination of employment, but only to the extent of the accrued right to
purchase at the date of such termination. If any optionee dies while employed by
the Company and, if at the date of death, the optionee is entitled to exercise
an option, such option may be exercised by any person who acquires the option by
bequest or inheritance or by reason of the death of the optionee, or by the
executor or administrator of the estate of the optionee, at any time before the
earlier of the expiration date of the option or one year after the date of death
of the optionee, but only to the extent of the accrued right to purchase at the
date of death.
The 1998 Plan provides for acceleration of vesting of awards in the event of a
change of control of the Company. See "Further Information - Compensation of
Directors and Executive Officers - Termination of Employment and Change of
Control Arrangements" of the Proxy Statement for a definition of change of
control. The 1998 Plan will terminate automatically on February 25, 2008.
However, the Board may amend or terminate the 1998 Plan at any time without
shareholder approval, but no amendment or termination of the 1998 Plan or any
award agreement may adversely affect any award previously granted under the 1998
Plan without the consent of the participant.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
No response to Item 13 is required.
ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES
No response to Item 14 is required.
PART IV
ITEM 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
A. Financial Statements and Schedules Filed
Financial Statements - see Item 8 of this report. Financial
statement schedules have been omitted since they are either
not required, not applicable, or the information is otherwise
included.
B. Reports on Form 8-K:
On May 8, 2003, the Company furnished a Form 8-K under Item 9
-- "Regulation FD Disclosure" in accordance with the
Securities and Exchange Commission's Final Rule Release No.
33-8216 for filing items required to be disclosed pursuant to
Item 12 -- "Results of Operation and Financial Condition"
concerning the Company's press release announcing its
financial results for the third quarter ended March 31, 2003.
C. Exhibits:
Exhibits - the exhibits filed with this report are listed on
pages 37 through 41.
37
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 26, 2003
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 26, 2003
- ------------------------------------ President and Chief Executive Officer
Alfred A. Pease
/S/ John J. Garber Vice President and Chief Financial September 26, 2003
- ------------------------------------ Officer (Principal Financial Officer)
John J. Garber
/S/ Sylvia M. Smith Controller (Principal Accounting Officer) September 26, 2003
- ------------------------------------
Sylvia M. Smith
/S/ David J. Beattie Director September 26, 2003
- ------------------------------------
David J. Beattie
/S/ Kenneth R. Dabrowski Director September 26, 2003
- ------------------------------------
Kenneth R. Dabrowski
/S/ Philip J. DeCocco Director September 26, 2003
- ------------------------------------
Philip J. DeCocco
/S/ W. Richard Marz Director September 26, 2003
- ------------------------------------
W. Richard Marz
/S/ Robert S. Oswald Director September 26, 2003
- ------------------------------------
Robert S. Oswald
/S/ James A. Ratigan Director September 26, 2003
- ------------------------------------
James A. Ratigan
/S/ Terryll R. Smith Director September 26, 2003
- ------------------------------------
Terryll R. Smith
38
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBITS
----------- -----------------------
2. Plan of acquisition, reorganization, arrangement, liquidation
or 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 October 24, 2002, between Perceptron,
Inc. and Comerica is incorporated by reference to Exhibit 4.9
of the Company's Report on Form 10-Q for the Quarter Ended
September 30, 2002.
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.
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 there under 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.
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@ 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.
10.33@ 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.
10.34 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.
10.35@ Promissory Note dated March 13, 2002, between U.S. Natural
Resources, Inc. and Perceptron, Inc. is incorporated by
Reference to Exhibit 10.36 of the Company's Report on Form
10-K for the Year Ended June 30, 2002.
10.36@ Fourth Amendment to Amended and Restated 1992 Stock Option
Plan is incorporated by Reference to Exhibit 10.37 of the
Company's Report on Form 10-K for the Year Ended June 30,
2002.
10.37@ 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.
10.38@ Summary of 2003 Team Member 401K Restoration and Profit
Sharing Plan is incorporated by Reference to Exhibit 10.38 of
the Company's Report on Form 10-Q for the Quarter Ended
December 31, 2002.
21. A list of subsidiaries of the Company is incorporated by
reference to Exhibit 21 of the Company's Report on Form 10-K
for the Year Ended June 30, 2002.
23. Consent of Experts.
23.1* Consent of Grant Thornton LLP.
42
23.2* Consent of PricewaterhouseCoopers LLP.
31.1* Section 302 Certification of Chief Executive Officer
31.2* Section 302 Certification of Chief Financial Officer
32.1* Section 906 Certification of Chief Executive Officer
32.2* Section 906 Certification of Chief Financial Officer
- ----------------------
* Filed with the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 2003.
@ Indicates a management contract, compensatory plan or arrangement.
43