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EX-23 - EXHIBIT 23 - PERCEPTRON INC/MI | c06329exv23.htm |
EX-32.2 - EXHIBIT 32.2 - PERCEPTRON INC/MI | c06329exv32w2.htm |
EX-31.2 - EXHIBIT 31.2 - PERCEPTRON INC/MI | c06329exv31w2.htm |
EX-32.1 - EXHIBIT 32.1 - PERCEPTRON INC/MI | c06329exv32w1.htm |
EX-31.1 - EXHIBIT 31.1 - PERCEPTRON INC/MI | c06329exv31w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended June 30, 2010
OR
o | 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)
Plymouth, Michigan 48170-2461
(Address of Principal Executive Offices)
(734) 414-6100
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
Securities registered pursuant to section 12(b) of the Act:
Title of Each Class | Name of Each Exchange on Which Registered | |
Common Stock, $0.01 par value Rights to Purchase Preferred Stock |
The NASDAQ Stock Market LLC (NASDAQ Global Market) |
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act.
Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Exchange Act.
Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule
405 of Regulation S-T during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes o No o
Indicate by check mark 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 registrants 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. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definition of large accelerated
filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer o | Accelerated Filer o | Non-Accelerated Filer o | Smaller Reporting Company þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). |
Yes o No þ
The aggregate market value of the voting stock held as of the registrants 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, 2009, as reported by the NASDAQ Global Market, was approximately
$28,300,000 (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 20,
2010, was 8,988,233.
TABLE OF CONTENTS
Table of Contents
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 2010 |
||
Annual Meeting of Shareholders | Part III, Items 10-14 |
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Table of Contents
PART I
ITEM 1: BUSINESS
General
Perceptron, Inc. (Perceptron or the Company) develops, produces, and sells non-contact
measurement and inspection solutions for industrial and commercial applications. The products from
the Companys Industrial Business Unit (IBU) provide solutions for manufacturing process control
as well as sensor and software technologies for non-contact measurement, reverse engineering, and
inspection applications. Automotive and manufacturing companies throughout the world rely on
Perceptrons metrology solutions to help them manage their complex manufacturing processes to
improve quality, shorten product launch times and reduce overall manufacturing costs. IBU also
offers Value Added Services such as training and customer support services. Perceptrons Commercial
Products Business Unit (CBU) develops and manufactures a variety of handheld visual inspection
devices and add-on accessories for professional tradesmen that are sold to and marketed through
strategic partners.
Among the solutions offered by the Company are: 1) Laser-based, non-contact gauging systems that
provide 100% in-line measurement for reduction of process variation and containment of
non-conforming parts; 2) Laser-based, non-contact systems that guide robots in a variety of
automated assembly applications; 3) Laser-based, non-contact 3-D scanning systems that eliminate
costly and complex mechanical fixtures; 4) Technology products and software for the Coordinate
Measurement Machine (CMM), portable CMM, wheel alignment, reverse engineering, digitizing,
inspection and forest products applications; and 5) Electronic inspection products, distributed
through wholesale and retail distribution networks targeting professional tradesmen.
The Companys current principal IBU products are based upon proprietary three-dimensional image
processing and sophisticated feature extraction software algorithms combined with the Companys
three-dimensional object imaging family of sensors. The Companys technology uses structured laser
light and triangulation techniques to obtain accurate three-dimensional measurements.
The Companys current principal CBU products leverage the Companys strong technical expertise in
electronics, optics, and image processing.
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; Barcelona, Spain; Sao Paulo, Brazil; Tokyo, Japan; Shanghai, China;
Singapore and Chennai, India.
Markets
The Company services two major markets: manufacturing, primarily automotive, and the professional
tool market.
The Company has product offerings encompassing many manufacturing processes, including product
development, manufacturing process development and implementation, stamping, fabrication, welding,
and final assembly.
The Company has professional tool products targeting the mechanic, plumbing, electrical and
construction markets that are distributed through strategic partners.
Products and Applications
INDUSTRIAL BUSINESS UNIT (IBU)
IBU is organized into three product groups, Automated Systems, Technology Components and Value
Added Services. In fiscal 2011, IBU plans to introduce a new versatile metrology sensor technology
designed to dramatically increase system capability while at the same time reducing the complexity
of many applications. The Company believes that IBUs current Automated Systems products will be
significantly enhanced by this new technology and the scalability of this new technology will
facilitate the Companys efforts to move into non-automotive markets. The Company expects to
announce the new technology in the second quarter of fiscal 2011.
Automated Systems
All of the Automated Systems products are based on Perceptrons flexible and powerful Vector
software platform. Automated Systems sales in fiscal 2010, 2009, and 2008 represented 57%, 43% and
49% of total sales, respectively.
AutoGauge®: These systems are used in the assembly and fabrication plants of
many of the worlds leading automotive manufacturers to contain, correct and control the quality of
complex assemblies. AutoGauge® systems are placed directly in the manufacturing line or
near the line to automatically measure critical dimensional characteristics of parts using non-
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contact, laser triangulation sensors. AutoGauge® can be installed as a fixed system
with fixed-mounted sensors, as a hybrid system involving both fixed-mounted sensors and
robot-mounted sensors, or as a flexible system utilizing only robot-mounted sensors. This
ability provides manufacturers with the flexibility to measure multiple part types on a single
manufacturing line while maintaining high-speed production rates.
AutoGauge® Plus: This new product was released in December 2009 and is our
first in-process gauging system that offers freeform surface scanning and discrete feature
measurement in one solution. Users of AutoGauge® Plus can create a fully-customized
gauging solution that automatically converts from collecting precise, discrete measurements to
capturing complete 3D point clouds. AutoGauge® Plus delivers both speed of in-line
measurement and the data density of automated scanning.
AutoFit®: These systems are used in automotive manufacturing 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
Companys laser triangulation sensors have 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®
has the ability to measure vehicles while in motion along the assembly line or in a stationary
position.
AutoScan®: These systems provide a fast, non-contact method of gathering data
for the analysis of the surface contour of a part or product such as automotive closure panels
including doors, deck lids, and hoods. These systems use robot mounted sensors specifically
designed to scan a part as the robot moves throughout its path. The AutoScan® system
collects the point cloud data required for contour analysis and dimensional feature extraction.
This allows the parts shape to be automatically scanned and compared to a computer-generated
design and to report specific measurements on the part.
AutoGuide®: 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® 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® include windshield insertion,
roof loading, hinge mounting, door attachment, sealant application and many others.
Technology Components
Technology Components sales in fiscal 2010, 2009, and 2008 represented 14%, 13% and 21% of total
sales, respectively.
ScanWorks®: The Company provides ScanWorks® 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® is a hardware/software component set that allows
customers to add digitizing capabilities to their machines or systems. The use of the
ScanWorks® software and the Contour Probe® sensor enables technicians to
collect, display, manipulate and export large sets of point cloud data from optical tracking
devices, portable CMMs or CMMs. The majority of ScanWorks® sales occur outside of the
automotive industry.
ScanWorks®xyz: This new product was released in November 2009 and is a 3D
scanning solution designed for retrofitting 3-axis machines. It features all of the components
required to add non-contact scanning capability to 1-, 2- or 3-axis CMMs, computer numerical
controls, and layout machines in a cost effective manner. The retrofitting of these machines with
ScanWorks®xyz allows end users to repurpose their existing equipment and increase their
throughput by scanning more parts in less time.
ToolKit: is a software solution enabler used by CMM manufacturers, system integrators and
application software developers. It enables the integration of Perceptrons laser-based scanning
technology into their proprietary systems.
WheelWorks®: WheelWorks® software and sensors offer a fast,
accurate, non-contact method of measuring wheel position for use in automated or manual wheel
alignment machines in automotive assembly plants. The Company supplies sensors and software to
multiple wheel alignment machine OEMs in Europe, Asia and North America who sell to automotive
manufacturers.
Multi-line Sensor: This new multi-line, laser triangulation sensor was released in
September 2010 and is designed for use in automotive assembly plant wheel alignment systems. It
offers a scalable and flexible solution that can handle multiple car models with different wheel
sizes and tire profiles.
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Value Added Services
Value Added Services: The Company provides additional services including: training, field
service, launch support services, consulting services, maintenance agreements, repairs, and
software tools.
COMMERCIAL PRODUCTS BUSINESS UNIT (CBU)
Commercial Products: The Company designs and manufactures a family of products and
accessories designed for professional tradesmen that are distributed and sold through strategic
partners under their own brand names. These products leverage the Companys strong technical
expertise in electronics, optics, and image processing. Commercial Product sales in fiscal 2010,
2009 and 2008 represented 23%, 38% and 25% of total sales, respectively.
Mechanics market: The Companys partner for the Mechanics market is Snap-on Logistics Company
(Snap-on). The Company manufactures the following products sold under the Snap-on brand:
| The BK5500 Visual Inspection Device is a live video scope for use in inspection of small
openings in automobiles, trucks and many other applications. |
| The BK5500W adds wireless capability to the BK5500 line and provides a larger viewing
screen, greater flexibility and maneuverability for mechanics and technicians by allowing
them to perform their work up to 30 feet from the hand-held unit. |
| The BK6000 provides additional capabilities to the BK5500 line by being able to capture
digital photos and live video to an SD card or a transfer of the images through a USB
connection to a computer. |
The Company also manufactures accessories for Snap-on:
| The Digital Video Recorder has the capability to record and store images for users of
the BK5500 product. |
| A 5.5mm imager allows mechanics to see into diesel injector ports and glow plugs. |
Snap-ons distribution is principally through their network of franchisee trucks as well as their
industrial distribution network in the United States, Canada, Europe and Asia.
Plumbing market: During fiscal 2010, the Company transitioned from Ridge Tool Company (Ridge
Tool) to Rothenberger as its partner in the plumbing market. In June 2010, the Company began
shipments to Europe of the Roscope® 1000 which is marketed by Rothenberger. The
Roscope® 1000 is a visual inspection tool that has Perceptrons patented Up is Up
visualization technology, and backward compatibility to other Rothenberger imagers. The unit
displays live-video images, offers digital zoom, digital panning and captures digital still images
for transport to a computer via USB.
During fiscal 2010, there were two main products marketed by Ridge Tool. The SeeSnake®
microÔ and the microEXPLORERÔ.
| The SeeSnake® microÔ is an optical technology tool that allows its user
to see into unreachable places, via a liquid crystal display screen on a hand held unit.
Attachments allow the user to retrieve loose objects via a hook or magnet. |
| The microEXPLORERÔ adds the capability of capturing digital images. |
These products were sold by Ridge Tool to professional tradesmen through distribution channels in
the United States, Canada, Europe and Asia.
Construction and Electrical markets: In fiscal 2010, the Company entered into supply agreements
with two new partners that are in the construction and electrical markets. At this time the
identity of these partners is not disclosed pending the initial launch of products into their
respective markets.
For information regarding net sales, operating income and net assets of the Companys two business
segments, IBU and CBU, see Note 11 of the Notes to the Consolidated Financial Statements Segment
and Geographic Information.
Sales and Marketing
The Company markets its IBU products directly to end user customers, and through manufacturing line
builders, system integrators, VARs and OEMs. CBUs products are marketed through its strategic
partners.
The Companys Automated Systems sales efforts are led by account managers who develop a close
consultative selling relationship with the Companys customers. The Companys principal customers
for its Automated Systems (AutoGauge®, AutoFit®,
AutoScan®,
AutoGuide®) products have historically been automotive manufacturing companies that the
Company either sells to directly or through manufacturing line builders, system integrators or
OEMs. The Companys Automated Systems products are typically purchased for installation in
connection with retooling programs undertaken by these companies. Because sales are dependent on
the timing of customers re-tooling programs, sales by customer vary significantly from year to
year, as do the Companys largest customers. For the fiscal year ended June
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30, 2010, approximately 32% of total net sales were derived from the Companys four largest IBU
customers (Volkswagen Group, General Motors, BMW, and Ford Motor). For the fiscal year ended June
30, 2009 approximately 25% of total net sales were derived from the Companys four largest
automotive customers (Volkswagen Group, General Motors, Ford Motor, and BMW). For the fiscal year
ended June 30, 2008 approximately 26% of total net sales were derived from the Companys four
largest automotive customers (General Motors, Volkswagen Group, Chrysler, and BMW). The Company
also sells to manufacturing line builders, system integrators or OEMs, who in turn sell to these
same automotive companies. For the fiscal year ended June 30, 2010, 2009, and 2008, approximately
10%, 8% and 7%, respectively, of net sales were to manufacturing line builders, system integrators
and OEMs for the benefit of the same four automotive companies. These numbers reflect
consolidations that have occurred within the Companys four largest automotive customers. During
the fiscal year ended June 30, 2010, direct sales to Volkswagen Group accounted for approximately
23% of the Companys total net sales. At June 30, 2010, accounts receivable from Volkswagen Group
totaled approximately $2.7 million.
The Company provides its Technology Component products to selected system integrators, OEMs and
VARs that integrate them into their own systems and products for sales to end user customers.
These products target the digitizing, reverse engineering and inspection markets.
The Companys commercial products are sold to strategic partners who provide the distribution,
marketing and promotion of the products through their distribution networks. The Companys
commercial products sales in fiscal 2010 were primarily sold to Snap-on and Ridge Tool for
distribution through their wholesale and retail distribution networks. During fiscal 2010, the
Company entered into supply agreements with three new partners. Sales to one of the new partners,
Rothenberger, began in June 2010. Sales to the other two new partners are expected to begin in
fiscal 2011. The Companys supply agreement with Ridge Tool expired in fiscal 2010 and was not
renewed. During the fiscal year ended June 30, 2010, sales to Snap-on and Ridge Tool were
approximately 12% and 10%, respectively, of the Companys total net sales. During fiscal year
2009, sales to Snap-on and Ridge Tool were approximately 20% and 18%, respectively, of the
Companys total net sales. During fiscal year 2008, sales to Ridge Tool were 23% of the Companys
total net sales. At June 30, 2010, accounts receivable from Snap-on and Ridge Tool totaled
approximately $1.5 million and $1.6 million, respectively.
In fiscal year 2002, the Company sold substantially all of the assets of its Forest Products
business unit. As part of the sale, the Company and USNR 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 USNR 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 USNR
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 Companys manufacturing operations consist primarily of pre and final assembly of hardware
components and the testing and integration of the Companys software with the hardware components.
Individual components such as printed circuit boards are manufactured by third parties according to
the Companys designs. The Company believes a low level of vertical integration gives it
significant manufacturing flexibility and minimizes total product costs. The Companys commercial
products are manufactured for the Company by several subcontractors located in China and the United
States.
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, assemblies or products by
suppliers, or difficulties or delays in shifting manufacturing capacity to new suppliers, could
have a material adverse effect on the Company. The Company uses global purchasing sources to
minimize the risk of part shortages.
International Operations
Europe: The Companys European operations contributed approximately 39%, 31%, and 33%, of
the Companys net sales during the fiscal years ended June 30, 2010, 2009 and 2008, respectively.
The Companys 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 Barcelona, Spain. At
June 30, 2010, the Company employed 56 people in its European operations.
Asia: The Company operates direct sales, application and support offices in Tokyo, Japan,
Shanghai, China, Singapore, and Chennai, India to service customers in Asia.
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South America: The Company has a direct sales, application and support office in Sao
Paulo, Brazil to service customers in South America.
The Companys 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 Companys foreign operations, see Note 11 of the Notes to the
Consolidated Financial Statements, Segment and Geographic Information.
Competition
The Company believes that its IBU products provide the best and most complete solutions for its
customers in terms of system capabilities, levels of support, and at competitive prices for the
value provided, which it believes are the principal competitive factors.
The principal competitive factors for the Companys CBU Products are a competitive price for the
level of functionality and reliability provided. The Company believes its CBU Products are well
designed for professional and industrial use and use advanced technology to meet the targeted end
users requirements at a competitive price for the value provided.
The Company believes that there may be other entities, some of which may be substantially larger
and have substantially greater resources than the Company, which may be engaged in the development
of technology and products, which could prove to be competitive with those of the Company. In
addition, the Company believes that certain existing and potential customers may be capable of
internally developing their own technology. There can be no assurance that the Company will be
able to successfully compete with any such entities, or that any competitive pressures will not
result in price erosion or other factors, which will adversely affect the Companys financial
performance.
Backlog
As of June 30, 2010, the Company had a backlog of $20.0 million, compared to $17.4 million at June
30, 2009. Most of the backlog is subject to cancellation by the customer with penalty provisions.
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, 2011.
Research and Development
The Company has multiple development initiatives focused on new products to: increase market share
penetration in existing markets, expand into new adjacent markets, and to diversify into new,
non-adjacent markets. The Company also has multiple development initiatives focused on the
continuous improvement of our existing products and systems to: reduce material and installation
costs; enhance performance; add new features and functionality; and to incorporate appropriate new
technologies as they emerge.
Research and development efforts in the CBU include new commercial products that use advanced
technology and products for use in additional market verticals. The Companys IBU research,
development and engineering activities are currently focused on: high-accuracy, laser-based
sensors; high-accuracy, high-throughput scanning sensors; complex feature recognition algorithms;
specialized three-dimensional metrology software; manufacturing process display and analysis
software; control system and robotic interface software; and related cell and system hardware. As
of June 30, 2010, 45 persons employed by the Company were focused primarily on research,
development and engineering.
For the fiscal years ended June 30, 2010, 2009 and 2008, the Companys research, development and
engineering expenses were $7.3 million, $8.0 million and $8.6 million, respectively.
Patents, Trade Secrets and Confidentiality Agreements
As of June 30, 2010, the Company has been granted 31 U.S. patents and has pending 27 U.S. patent
applications, which relate to various products and processes manufactured, used, and/or sold by the
Company. The Company also has been granted 20 foreign patents in Canada, Europe, China and Japan
and has 10 patent applications pending in foreign locations. The U.S. patents expire from 2016
through 2028 and the Companys existing foreign patent rights expire from 2016 through 2029. In
addition, the Company holds perpetual licenses to more than 35 other U.S. patents including rights
to practice 6 patents for non-forest product related applications that were assigned to USNR in
conjunction with the sale of the Forest Products business unit in 2002. The expiration dates for
these licensed patents range from 2010 to 2020.
The Company has registered, and continues to register, various trade names and trademarks including
Perceptron®,
AutoGauge®,
IPNet®,
AutoFit®,
AutoGuide®,
AutoScan®,
AutoSolve®,
Contour
Probe®,
ScanWorks®,
TriCam®,
WheelWorks®, Visual
Fixturing® and
Optical Snaketm, among others, which are used in connection with the conduct of
its business.
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Perceptrons products include hardware (camera, lens, etc.) for scanning an image and imbedded
software (extraction software algorithms) to convey the results of the scan to the customer. The
hardware and software operate and are sold as one product. Perceptron generally does not market
its software algorithms as a separate item distinct from the scanning product. The Companys
software products are copyrighted and generally licensed to customers pursuant to license
agreements that restrict the use of the products to the customers own internal purposes on
designated Perceptron equipment. The licensing language conveys the proprietary nature of the
Companys product.
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 Companys
intellectual property or other proprietary rights. Effective patent, trademark, copyright and
trade secret protection may be unavailable in certain foreign countries.
In the past, the Company had been informed that certain of its customers had received allegations
of possible patent infringement involving processes and methods used in the Companys products.
Certain of these customers, including customers who were parties to patent infringement suits
relating to this matter, settled such claims. Management believes that the processes used in the
Companys products were independently developed without utilizing any previously patented process
or technology.
Employees
As of June 30, 2010, the Company employed 223 persons, all of whom were employed on a full-time
basis. 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 Companys Internet address is www.perceptron.com. There the Company makes 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, as soon as reasonably practicable after the Company
electronically files such material with, or furnishes it to, the Securities and Exchange Commission
(SEC). These reports can be accessed through the Investors section of the Companys website
under SEC Filings. The information found on the Companys website is not part of this or any
report the Company files with, or furnishes to, the SEC.
ITEM 1A: RISK FACTORS
An investment in our Common Stock involves numerous risks and uncertainties. You should carefully
consider the following information about these risks. Any of the risks described below could
result in a significant or material adverse effect on our future results of operations, cash flows
or financial condition. The risks and uncertainties described below are not the only ones we face.
Additional risks and uncertainties that we are unaware of, or that we currently deem immaterial,
also may become important factors that adversely affect our business in the future. We believe
that the most significant of the risks and uncertainties we face are as follows:
Our revenues are highly influenced by the sale of products for use in the global automotive
market, particularly by manufacturers based in the United States, China, and Western Europe. These
manufacturers have experienced periodic downturns in their businesses that could adversely affect
their level of purchases of our products.
Our revenues are highly influenced by the sale of products for use in the automotive industry,
particularly to manufacturers based in the United States, China and Western Europe. As a result,
our ability to sell our systems and solutions to automotive manufacturers and suppliers is affected
by periodic downturns in the global automotive industry.
New vehicle tooling programs are the most important selling opportunity for our automotive related
sales. The number and timing of new vehicle tooling programs can be influenced by a number of
economic factors. Our customers only launch a limited number of new car programs in any given year
because of the time and financial resources required. From a macro perspective we continue to
assess the global economy and its likely effect on our automotive customers and markets served. We
continue to view the automotive industrys focus on introducing new vehicles more frequently to
satisfy their customers changing requirements, as well as their continuing focus on improved
quality, as positive indicators for new business. However, because of periodic economic downturns
experienced by our customers, our customers could determine to reduce their number of new car
programs. We are experiencing continued pricing pressures from our customers, particularly our
automotive customers. These pricing pressures could adversely affect the margins we realize on the
sale of our products and, ultimately, our profitability.
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Because of the global economic crisis during the past two years, we have experienced a decline
in our profits.
Over the past two years, the Company has experienced lower orders generally from our commercial
products partners in fiscal 2010 and generally from our automotive
customers beginning in fiscal 2009 compared to prior periods because
of the global economic conditions.
Because of these decreases in sales, the Company has experienced a decline in its profits. While
the Company has implemented cost reduction plans to improve profitability, the Company still
experienced a loss for its fiscal year 2010. If the Companys sales do not increase, the Company
is likely to experience continued losses. In that case, further cost reductions may be required,
although because of certain fixed costs associated with some of our operations, the extent of
future cost reductions may be limited.
While we have attempted to implement cost reductions that will not be disruptive to the Companys
operations, cost reductions could have an unanticipated negative impact on the Companys operations
or financial results.
Current levels of market volatility are unprecedented and have adversely impacted the market
price of our Common Stock.
The capital and credit markets have been experiencing extreme volatility and disruption over the
past few years. During this period, the volatility and disruption reached unprecedented levels,
which have exerted downward pressures on stock prices, including the market price of our Common
Stock. Although there have been many widely reported government responses to these disruptions,
there can be no assurances that they will be effective in restoring stock prices in general or the
market price of our Common Stock.
Our future success is dependent upon our ability to implement our long-term growth
strategy.
We realize that we are vulnerable to fluctuations in the global automotive industry. Our future
success is dependent upon our ability to implement our long-term strategy to expand our customer
base in our automotive markets and to expand into new markets. Currently, we are focusing on our
plans to achieve sales growth in automotive markets through expansion in largely untapped
geographic sales areas, including automotive markets in Asia and the expansion of our business with
current customers in Japan. We also continue to explore opportunities for expansion into
non-automotive markets through our existing and new products, including our new commercial
products. However, there are a number of uncertainties involved in our long-term strategy over
which we have no or limited control, including:
| 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 our
existing and new products and technologies. |
||
| Our ability to resolve technical issues inherent in the development of new
products and technologies. |
||
| Our ability to identify and satisfy market needs. |
||
| Our ability to identify satisfactory distribution networks. |
||
| General product development and commercialization difficulties. |
||
| Rapid or unexpected technological changes. |
||
| General product demand and market acceptance risks. |
||
| Our ability to successfully compete with alternative and similar technologies. |
||
| Our ability to attract the appropriate personnel to effectively represent, install and
service our products. |
||
| The effect of economic conditions. |
Even if we are able to expand our customer base and markets, the new revenues we derive may not
offset declines in revenues from our current products, especially our AutoGauge®
products and other products sold to automotive customers. We also may not be able to generate
profits from these new customers or markets at the same level as we generate from our current
business. There can be no assurance that we will be able to expand our customer base and markets or
successfully execute our strategies in a fashion to maintain or increase our revenues and profits.
We have recently introduced a series of new products for sale in new markets. We could
experience unanticipated difficulties in bringing these products to market that would adversely
affect our financial results of operation and divert the attention of our management.
Since the end of fiscal year 2007, the Company has introduced a series of commercial products for
wholesale and retail distribution that are manufactured in China and the United States through
subcontractors. As a result, we could experience unforeseen difficulties including:
| Product quality problems and costs to correct those problems resulting from
design or manufacturing defects. |
| Warranty claims at greater levels than anticipated. |
| Product orders at significantly greater volumes than our subcontractors
current manufacturing capabilities. |
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| The speed at which competitors products may be brought to market. |
| The need and cost to revise our product offerings to respond to competitors
product introductions or unanticipated consumer preferences or negative reactions to
our products. |
Handling such unforeseen difficulties could require significant management time and could adversely
affect our operating results.
Since we are distributing these new products through a limited number of third party wholesale
distributors, the level of revenues we derive from these products will be dependent on the success
of these third parties in advertising, promoting and selling the products through their
distribution channels. In addition, competitive products exist in these markets and new product
offerings are being developed for these markets. The level of spending by our competitors in
advertising, promoting and selling their products could exceed the levels spent by our distributors
and could adversely impact sales of our products.
If our distributors ceased selling our products, we would have to find alternative wholesale
purchasers or distributors for our products, which could substantially reduce, at least in the
short-term, the revenues and profits anticipated to be derived by us from the products. See Item 7
Managements Discussion and Analysis of Financial Condition and Results of Operations
Overview.
A significant percentage of our revenues are derived from a small number of customers, so that
the loss of any one of these customers could result in a reduction in our revenues and profits.
A majority of our revenues are derived from the sale of systems and solutions to a small number of
customers that consist primarily of automotive manufacturers and suppliers in North America,
Western Europe and Asia. The remainder of our revenues are derived from the sale of commercial
products to a small number of large customers engaged in the global distribution of commercial
tools and products.
With such a large percentage of our revenues coming from such a small and highly concentrated group
of customers, we are susceptible to a substantial risk of losing revenues if these customers stop
purchasing our products or reduce their purchases of our products. In addition, we have no control
over whether these customers will continue to purchase our products, systems and solutions in
volumes or at prices sufficient to generate profits for us. We may also need to liquidate any
excess inventory at prices below our normal margins.
Our future commercial success depends upon our ability to maintain a competitive technological
position in our markets, which are characterized by continual technological change.
Technology plays a key role in the systems and solutions that we produce. Our ability to sell our
products to customers is directly influenced by the technology used in our systems and solutions.
With the rapid pace at which technology is changing, there is a possibility that our customers may
require more technologically advanced systems and solutions than what we may be capable of
producing.
Technological developments could render actual and proposed products or technologies of ours
uneconomical or obsolete.
There also is a possibility that we may not be able to keep pace with our competitors products.
In that case, our competitors may make technological improvements to their products that make them
more desirable than our products.
Our near-term focus for growth has been and will be on the successful introduction of new
commercial products, and the continued development of enhanced versions of our
ScanWorks® and
AutoGauge® product lines.
Our growth and future financial performance depend upon our ability to introduce new products and
enhance existing products that include the latest technological advances and customer requirements.
We may not be able to introduce new products successfully or achieve market acceptance for such
products. Any failure by us to anticipate or respond adequately to changes in technology and
customer preferences, or any significant delays in product development or introduction, could have
a material adverse effect on our business. Accordingly, we believe that our future commercial
success will depend upon our ability to develop and introduce new cost-effective products and
maintain a competitive technological position.
We are dependent on proprietary technology. If our competitors develop competing products that
do not violate our intellectual property rights or successfully challenge those rights, our
revenues and profits may be adversely affected.
Our products contain features that are protected by patents, trademarks, trade secrets, copyrights,
and contractual rights. Despite these protections, there is still a chance that competitors may use these protected
features in their products as a
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result of our inability to keep our trade secrets confidential, or in violation of our intellectual
property rights or following a successful challenge to those rights. The prosecution of
infringement claims against third parties and the defense of legal actions challenging our
intellectual property rights could be costly and require significant attention from management.
Because of the small size of our management team, this could result in the diversion of
managements attention from day-to-day operations.
There also is a chance that competitors may develop technology that performs the same functions as
our products without infringing upon our exclusive rights. It is possible that competitors may
reverse engineer those features of our products that are not protected by patents, trademarks and
trade secrets. If a competitor is able to reverse engineer an unprotected feature successfully,
the competitor may gain an understanding of how the feature works and introduce similar products to
compete with our products.
Because some of our new commercial products are manufactured in China, we are at risk of
competitors misappropriating our intellectual property included in those products or reverse
engineering those products. As a result, we may have a more limited ability, and significantly
greater costs, to enforce our intellectual property rights in those products. Constant
technological improvement of those products will be particularly important to keep the products
competitive in their markets.
We could become involved in costly litigation alleging patent infringement.
In the past, we had been informed that certain of our customers have received allegations of
possible patent infringement involving processes and methods used in our products. Certain of
these customers, including one customer who was a party to a patent infringement suit relating to
this matter, settled such claims. We believe that the processes used in our products were
independently developed without utilizing any previous patented process or technology. However, it
is possible that in the future we or our customers could receive allegations of possible patent
infringement or could be parties to patent infringement litigation relating to our products.
The defense of patent infringement litigation could be costly and require significant attention
from management. Because of the small size of our management team, this could result in the
diversion of managements attention from day-to-day operations.
There are a number of companies offering competitive products in our markets, or developing
products to compete with our products, which could result in a reduction in our revenues through
lost sales or a reduction in prices.
We are aware of a number of companies in our markets selling products using similar or alternative
technologies and methods. We believe that there may be other companies, some of whom may be
substantially larger and have substantially greater resources than us, which may be engaged in the
development of technology and products for some of our markets that could prove to be competitive
with ours. We believe that the principal competitive factor in our markets is the total capability
that a product offers as a process control system. In some markets, a competitive price for the
level of functionality and reliability provided are the principal competitive factors. While we
believe that our products compete favorably, it is possible that these new competitors could
capture some of our sales opportunities or force us to reduce prices in order to complete the sale.
We believe that certain existing and potential customers may be capable of internally developing
their own technology. This could cause a decline in sales of our products to those customers.
Our business depends on our ability to attract and retain key personnel.
Our success depends in large part upon the continued service of our executives and key employees,
including those in engineering, technical, sales and marketing positions, as well as our ability to
attract such additional employees in the future. At times and in certain geographic markets,
competition for the type of highly skilled employees we require can be significant. The loss of
key personnel or the inability to attract new qualified key employees could adversely affect our
ability to implement our long-term growth strategy and have a material adverse effect on our
business.
We may not be able to complete business opportunities and acquisitions and our profits could be
negatively affected if we do not successfully operate those that we do complete.
We will evaluate from time to time business opportunities that fit our strategic plans. There can
be no assurance that we will identify any opportunities that fit our strategic plans or will be
able to enter into agreements with identified business opportunities on terms acceptable to us.
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There is also no assurance that we will be able to effectively integrate businesses that we may
acquire due to the significant challenges in consolidating functions and integrating procedures,
personnel, product lines, technologies and operations in a timely and efficient manner. The
integration process may require significant attention from management and devotion of resources.
Because of the small size of our management team, this could result in the diversion of
managements attention from day to day operations and impair our relationships with current
employees and customers.
We intend to finance any such business opportunities from available cash on hand, existing credit
facilities, issuance of additional stock or additional sources of financing, as circumstances
warrant. The issuance of additional equity securities could be substantially dilutive to our
stockholders. In addition, our profitability may suffer because of acquisition-related costs, debt
service requirements or amortization costs for acquired intangible assets. If we are not
successful in generating additional profits from these transactions, this dilution and these
additional costs could cause our common stock price to drop.
We are expanding our foreign operations, increasing the possibility that our business could be
adversely affected by risks of doing business in foreign countries.
We have significant operations outside of the United States and are currently implementing a
strategy to expand our operations outside of the United States, especially in Asia.
Our foreign operations are subject to risks customarily encountered in such foreign operations.
For instance, we may encounter fluctuations in foreign currency exchange rates, differences in the
level of protection available for our intellectual property, the impact of differences in language
and local business and social customs on our ability to market and sell our products in these
markets, the inability to recruit qualified personnel in a specific country or region and
transportation delays from our Chinese subcontractors. In addition, we may be affected by U.S.
laws and policies that impact foreign trade and investment. Finally, we may be adversely affected
by laws and policies imposed by foreign governments in the countries where we have business
operations or sell our products. These laws and policies vary from jurisdiction to jurisdiction.
Because of our significant foreign operations, our revenues and profits can vary significantly
as a result of fluctuations in the value of the United States dollar against foreign
currencies.
Products that we sell in foreign markets are sometimes priced in currency of the country where the
customer is located. To the extent that the dollar fluctuates against these foreign currencies,
the prices of our products in U.S. dollars also will fluctuate. As a result, our return on the
sale of our products may vary based on these fluctuations. We 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. We may use forward exchange contracts
to hedge the net assets of certain of our foreign subsidiaries to offset the translation and
economic exposures related to our investment in these subsidiaries. There is no guarantee that
these hedging transactions will protect against the fluctuations in the value of the dollar.
Accordingly, we could experience unanticipated foreign currency gains or losses that could have a
material impact on our results of operations.
Because a large portion of our revenues are generated from a limited number of sizeable orders,
our revenues and profits may vary widely from quarter to quarter and year to year.
A large portion of our revenues are generated from a limited number of sizeable orders that are
placed by a small number of customers. If the timing of these orders is delayed from one quarter
to the next or from one year to the next, we may experience fluctuations in our quarterly and
annual revenues and operating results. Because our order terms vary from project to project, the
application of the Companys revenue recognition accounting policies to those orders can cause the
timing for our recognition of revenue from an order to vary significantly between orders. This may
cause our revenues and operating results to vary significantly from quarter to quarter and year to
year.
The amount of revenues that we earn in any given quarter may vary based in part on the timing of
new vehicle programs in the global automotive industry. In contrast, many of our operating
expenses are fixed and will not vary from quarter to quarter. As a result, our operating results
may vary significantly from quarter to quarter and from year to year.
We could experience losses in connection with sales of our investments.
During the fiscal year ended June 30, 2009, our long-term investments in auction rate securities
were exchanged for preferred stock of a financial services company and a reinsurance company.
These investments have not been registered under the Securities Act of 1933 and may not be offered
or sold in the United States absent registration or an
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applicable exemption from the registration requirements. The issuers of these securities are not
obligated to register these securities. There is no regular trading market for these securities.
As a result, we will have limited ability to liquidate these investments. This lack of liquidity,
as well as negative changes in the financial condition of the issuers of these securities and their
credit ratings, has adversely impacted the value of these securities. In the event that the
financial condition of these issuers should continue to deteriorate and/or the issuers are unable
to continue to pay interest/dividends in the future, we may have to record additional impairment
charges relating to these securities, which would negatively impact our stockholders equity and
net income. See Item 7 Managements Discussion and Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources.
The trading price of our stock has been volatile.
The following factors may affect the market price of our Common Stock, which can vary widely over
time:
| announcements of new products by us; |
||
| announcements of new products by our competitors; |
||
| variations in our operating results; |
||
| market conditions in the electronic and sensing industry; |
||
| market conditions and stock prices in general; and |
||
| the volume of our Common Stock traded. |
Because of the limited trading in our Common Stock, it may be difficult for shareholders to
dispose of a large number of shares of our Common Stock in a short period of time or at then
current prices.
Because of the limited number of shares of our Common Stock outstanding and the limited number of
holders of our Common Stock, only a limited number of shares of our Common Stock trade on a daily
basis. This limited trading in our Common Stock makes it difficult to dispose of a large number of
shares in a short period of time. In addition, it is likely that the sale by a shareholder of a
large number of shares of our Common Stock over an extended period would depress the price of our
Common Stock.
We are restricted under our loan agreement from paying dividends.
Dividends are not permitted under our bank credit agreement. In the event the Board of Directors
decided to declare a cash or a stock dividend in the future, we would have to seek a waiver from
the covenant in our bank agreement. Our bank may not be willing to waive the restriction.
As permitted under Michigan law, our directors are not liable to Perceptron for monetary
damages resulting from their actions or inactions.
Under our articles of incorporation, as permitted under the Michigan Business Corporation Act,
members of our Board of Directors are not liable for monetary damages for any negligent or grossly
negligent action that the director takes, or for any negligent or grossly negligent failure of a
director to take any action. However, a director will remain liable for:
| intentionally inflicting harm on Perceptron or its shareholders; |
| distributions that the director makes in violation of the Michigan Business
Corporation Act; and |
| intentional criminal acts that the director commits. |
However, we or our shareholders may seek an injunction, or other appropriate equitable relief,
against a director. Finally, liability may be imposed against members of the Board of Directors
under the federal securities laws.
We are required to indemnify our officers and directors if they are involved in litigation as a
result of their serving as officers or directors of Perceptron, which could reduce our profits and
cash available to operate our business.
Our by-laws require us to indemnify our officers and directors. We may be required to pay
judgments, fines, and expenses incurred by an officer or director, including reasonable attorneys
fees, as a result of actions or proceedings in which such officers or directors are involved by
reason of being or having been an officer or director of Perceptron.
Funds paid in satisfaction of judgments, fines and expenses would reduce our profits and may be
funds we need for the operation of our business and the development of products. This could cause
our stock price to drop.
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Our profits will be reduced as a result of our compliance with new SEC rules relating to our
internal control over financial reporting.
Beginning with our annual report on Form 10-K for the fiscal year ending June 30, 2008, we were
required by SEC rules to include a report of management on Perceptrons internal control over
financial reporting in our annual reports. In addition, our independent registered public
accounting firm auditing our financial statements was required to provide an attestation report on
our internal control for fiscal 2008.
In fiscal year 2009 and 2010, the Company was not an accelerated filer and therefore was not
required to have an attestation report from our independent registered public accounting firm on
our internal controls. However, current SEC rules will require such a report if the market value
of the Companys common stock held by non-affiliates exceeds $75 million as of the Companys second
fiscal quarter in any given fiscal year. We expect to expend significant resources in future
fiscal years in connection with ongoing compliance with these requirements, which could adversely
affect our profitability.
If management is not able to provide a positive report on our internal control over financial
reporting, and our independent registered public accounting firm is not able to provide an
unqualified opinion regarding our internal control over financial reporting, shareholders and
others may lose confidence in our financial statements, which could cause our stock price to
drop.
Because of our relatively small size, we have a limited number of personnel in our finance
department to handle their existing responsibilities, as well as compliance with the SECs rules
relating to our internal control over financial reporting.
In fiscal 2008, fiscal 2009 and fiscal 2010, management provided a positive report on our internal
control over financial reporting and we received in fiscal 2008 an unqualified opinion from our
independent registered public accounting firm regarding our internal control over financial
reporting. In fiscal 2009 and fiscal 2010, our auditors were not required to give an opinion on
our internal control over financial reporting, but under current SEC rules, will be required to do
so if the market value of the Companys common stock held by non-affiliates exceeds $75 million as
of the Companys second fiscal quarter in any given fiscal year. However, there can be no positive
assurance that, in the future, management will provide a positive report on our internal control
over financial reporting or that if required under SEC rules in the future, we will receive an
unqualified opinion from our independent registered public accounting firm regarding our internal
control over financial reporting. In the event we identify significant deficiencies or material
weaknesses in our internal control that we cannot remediate in a timely manner, investors and
others may lose confidence in the reliability of our financial statements. This could cause our
stock price to drop.
If the subcontractors we rely on for component parts or products delay deliveries or fail to
deliver parts or products meeting our requirements, we may not be able to deliver products to our
customers in a timely fashion and our revenues and profits could be reduced.
We rely on subcontractors for certain components of our products, including outside subcontracting
assembly houses to produce the circuit boards that we use in our products. Our new commercial
products are manufactured by several subcontractors located in China and the United States. As a
result, we have limited control over the quality and the delivery schedules of components or
products purchased from third parties. In addition, we purchase a number of component parts from
single source suppliers. If our supplies of component parts or products meeting our requirements
are significantly delayed or interrupted, we may not be able to deliver products to our customers
in a timely fashion. This could result in a reduction in revenues and profits for these periods.
The termination of or material change in the purchase terms of any single source supplier could
have a similar impact on us. It is also possible, if our delay in delivering products to our
customer is too long, the customer could cancel its order, resulting in a permanent loss of revenue
and profit from that sale. From time to time, we have experienced significant delays in the
receipt of certain components, including components for our ScanWorks® systems.
Finally, although we believe that alternative suppliers are available, difficulties or delays may
arise if we shift manufacturing capacity to new suppliers.
The Board of Directors has the right to issue up to 1,000,000 shares of preferred stock without
further action by shareholders. The issuance of those shares could cause the market price of our
Common Stock to drop significantly and could be used to prevent or frustrate shareholders attempts
to replace or remove current management.
Although no preferred stock currently is outstanding, we are authorized to issue up to 1,000,000
shares of preferred stock. Preferred stock may be issued in one or more series, the terms of which
may be determined at the time of issuance by the Board of Directors, without further action by
shareholders, and may include voting rights (including the
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right to vote as a series on particular matters), the dividends payable thereon, liquidation
payments, preferences as to dividends and liquidation, conversion rights and redemption rights. In
the event that preferred stock is issued, the rights of the common stockholders may be adversely
affected. This could result in a reduction in the value of our Common Stock.
The preferred stock could be issued to discourage, delay or prevent a change in control of
Perceptron. This may be beneficial to our management or Board of Directors in a hostile tender
offer or other takeover attempt and may have an adverse impact on shareholders who may want to
participate in the tender offer or who favor the takeover attempt.
Our common stock rights plan could be used to discourage hostile tender offers.
We maintain a common stock rights plan. Under the plan, if any person acquires 15% or more of our
outstanding Common Stock, our shareholders, other than the acquirer, will have the right to
purchase shares of our Common Stock at half their market price. The common stock rights plan
discourages potential acquirers from initiating tender offers for our Common Stock without the
approval of the Board of Directors. This may be beneficial to our management or Board of Directors
in a hostile tender offer or other takeover attempt and may have an adverse impact on shareholders
who may want to participate in the tender offer or who favor the takeover attempt.
ITEM 1B: UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2: PROPERTIES
Perceptrons 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 1,576 square meter
facility in Munich, Germany and leases office space in Voisins le Bretonneux, France; Sao Paulo,
Brazil; Tokyo, Japan; Singapore; Shanghai, China; and Chennai, India. The Company believes that
its current facilities are sufficient to accommodate its requirements through fiscal 2011.
ITEM 3: LEGAL PROCEEDINGS
The Company is a party to a suit filed by Industries GDS, Inc., Bois Granval GDS Inc., and Centre
de Preparation GDS, Inc. (collectively, GDS) on or about November 21, 2002 in the Superior Court
of the Judicial District of Quebec, Canada against the Company, Carbotech, Inc. (Carbotech), and
U.S. Natural Resources, Inc. (USNR), among others. The suit alleges that the Company breached
its contractual and warranty obligations as a manufacturer in connection with the sale and
installation of three systems for trimming and edging wood products. The suit also alleges that
Carbotech breached its contractual obligations in connection with the sale of equipment and the
installation of two trimmer lines, of which the Companys systems were a part, and that USNR, which
acquired substantially all of the assets of the Forest Products business unit from the Company, was
liable for GDS damages. USNR has sought indemnification from the Company under the terms of
existing contracts between the Company and USNR. GDS seeks compensatory damages against the
Company, Carbotech and USNR of approximately $6.4 million using a June 30, 2010 exchange rate. GDS
and Carbotech have filed for bankruptcy protection in Canada. The Company intends to vigorously
defend against GDS claims.
The Company is a party to a suit filed by i-CEM Service, Inc. and 3CEMS Prime (collectively
3CEMS) on or about July 1, 2010 in the Federal Court for the Northern District of Illinois. The
suit alleges that the Company breached its contractual and common law indemnification obligations
by failing to pay for component parts used to manufacture optical video scopes. The suit seeks
damages of not less than $4 million. The Company intends to vigorously defend against 3CEMS
claims.
See Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations
Critical Accounting Policies Litigation and Other Contingencies for a discussion of the
Companys 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 2010.
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PART II
ITEM 5: | MARKET FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES |
Perceptrons Common Stock is traded on The NASDAQ Stock Markets Global Market under the symbol
PRCP. The following table shows the reported high and low sales prices of Perceptrons Common
Stock for fiscal 2010 and 2009:
Prices | ||||||||
Low | High | |||||||
Fiscal 2010 |
||||||||
Quarter through September 30, 2009 |
$ | 3.28 | $ | 5.15 | ||||
Quarter through December 31, 2009 |
$ | 3.03 | $ | 4.66 | ||||
Quarter through March 31, 2010 |
$ | 3.01 | $ | 4.50 | ||||
Quarter through June 30, 2010 |
$ | 3.83 | $ | 5.00 | ||||
Fiscal 2009 |
||||||||
Quarter through September 30, 2008 |
$ | 5.30 | $ | 9.26 | ||||
Quarter through December 31, 2008 |
$ | 2.25 | $ | 6.13 | ||||
Quarter through March 31, 2009 |
$ | 2.41 | $ | 4.19 | ||||
Quarter through June 30, 2009 |
$ | 2.85 | $ | 4.19 |
No cash dividends or distribution on Perceptrons 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 Perceptrons revolving credit
agreement with its bank. See Item 7, Managements 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 20, 2010, was 163.
The information pertaining to the securities the Company has authorized for issuance under equity
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.
For more information about the Companys equity compensation plans, see Note 9 of the Notes to the
Consolidated Financial Statements, Stock Based Compensation, included in Item 8 of this report.
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ITEM 6: SELECTED FINANCIAL DATA
The selected statement of operations and balance sheet data presented below are derived from the
Companys consolidated financial statements and should be read in conjunction with the Companys
consolidated financial statements and notes thereto and Item 7, Managements Discussion and
Analysis of Financial Condition and Results of Operations included in this report.
PERCEPTRON, INC. AND SUBSIDIARIES
(In thousands, except per share amounts)
(In thousands, except per share amounts)
Fiscal Years Ended | ||||||||||||||||||||
June 30, | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
Statement of Operations Data: 1 |
||||||||||||||||||||
Net sales |
$ | 52,141 | $ | 61,536 | $ | 72,512 | $ | 62,252 | $ | 57,875 | ||||||||||
Gross profit |
18,767 | 20,908 | 29,819 | 26,404 | 27,287 | |||||||||||||||
Operating income (loss) |
(3,439 | ) | (4,845 | ) | 1,980 | 1,853 | 4,368 | |||||||||||||
Income (loss) before income taxes |
(2,997 | ) | (5,560 | ) | 734 | 2,746 | 4,927 | |||||||||||||
Net income (loss) |
(805 | ) | (3,525 | ) | 995 | 1,459 | 3,239 | |||||||||||||
Earnings (loss) per share: |
||||||||||||||||||||
Basic |
$ | (0.09 | ) | $ | (0.40 | ) | $ | 0.12 | $ | 0.18 | $ | 0.38 | ||||||||
Diluted |
$ | (0.09 | ) | $ | (0.40 | ) | $ | 0.11 | $ | 0.17 | $ | 0.35 | ||||||||
Weighted average common shares outstanding: |
||||||||||||||||||||
Basic |
8,923 | 8,860 | 8,490 | 8,114 | 8,582 | |||||||||||||||
Diluted |
8,923 | 8,860 | 8,982 | 8,761 | 9,200 |
As of June 30, | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
Balance Sheet Data: |
||||||||||||||||||||
Working capital |
$ | 36,345 | $ | 39,833 | $ | 45,233 | $ | 42,364 | $ | 42,652 | ||||||||||
Total assets |
64,653 | 65,359 | 75,193 | 66,221 | 63,160 | |||||||||||||||
Shareholders equity |
53,476 | 55,700 | 59,859 | 53,805 | 54,230 |
1 | No cash dividends have been declared or paid during the periods presented. |
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ITEM 7: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SAFE HARBOR STATEMENT
We make statements in this Managements Discussion and Analysis of Financial Condition and Results
of Operations that may be forward-looking statements within the meaning of the Securities
Exchange Act of 1934, including the Companys expectation as to its fiscal year 2011 and future new
order bookings, revenue, expenses, net income and backlog levels, trends affecting its future
revenue levels, the rate of new orders, the timing of revenue and net income increases from new
products which we have recently released or have not yet released, the timing of the introduction
of new products and our ability to fund our fiscal year 2011 and future cash flow requirements. We
may also make forward-looking statements in our press releases or other public or shareholder
communications. When we use words such as will, should, believes, expects, anticipates,
estimates or similar expressions, we are making forward-looking statements. We claim the
protection of the safe harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995 for all of our forward-looking statements. While we believe that our
forward-looking statements are reasonable, you should not place undue reliance on any such
forward-looking statements, which speak only as of the date made. Because these forward-looking
statements are based on estimates and assumptions that are subject to significant business,
economic and competitive uncertainties, many of which are beyond our control or are subject to
change, actual results could be materially different. Factors that might cause such a difference
include, without limitation, the risks and uncertainties discussed from time to time in our reports
filed with the Securities and Exchange Commission, including those listed in Item 1A Risk
Factors in this report. Other factors not currently anticipated by management may also materially
and adversely affect our financial condition, liquidity or results of operations. Except as
required by applicable law, we do not undertake, and expressly disclaim, any obligation to publicly
update or alter our statements whether as a result of new information, events or circumstances
occurring after the date of this report or otherwise. The Companys expectations regarding future
bookings and revenues are projections developed by the Company based upon information from a number
of sources, including, but not limited to, customer data and discussions. These projections are
subject to change based upon a wide variety of factors, a number of which are discussed above.
Certain of these new orders have been delayed in the past and could be delayed in the future.
Because the Companys Industrial Business Unit segment products are typically integrated into
larger systems or lines, the timing of new orders is dependent on the timing of completion of the
overall system or line. In addition, because the Companys Industrial Business Unit segment
products have shorter lead times than other components and are required later in the process,
orders for the Companys Industrial Business Unit segment products tend to be given later in the
integration process. The Companys Commercial Products Business Unit segment products are subject
to the timing of firm orders from its customers, which may change on a monthly basis. In addition,
because the Companys Commercial Products Business Unit segment products require short lead times
from firm order to delivery, the Company purchases long lead time components before firm orders are
in hand. A significant portion of the Companys projected revenues and net income depends upon the
Companys ability to successfully develop and introduce new products and expand into new geographic
markets. Because a significant portion of the Companys revenues are denominated in foreign
currencies and are translated for financial reporting purposes into U.S. Dollars, the level of the
Companys reported net sales, operating profits and net income are affected by changes in currency
exchange rates, principally between U.S. Dollars and Euros. Currency exchange rates are subject to
significant fluctuations, due to a number of factors beyond the control of the Company, including
general economic conditions in the United States and other countries. Because the Companys
expectations regarding future revenues, order bookings, backlog and operating results are based
upon assumptions as to the levels of such currency exchange rates, actual results could differ
materially from the Companys expectations.
Overview
Perceptron, Inc. (Perceptron or the Company) develops, produces and sells non-contact
measurement and inspection solutions for industrial and commercial applications. Effective July 1,
2009, the Company reorganized its business into two operating segments, the Industrial Business
Unit (IBU) and the Commercial Products Business Unit (CBU). The reorganization of the
Companys business segments was in response to the growth potential, increased development and
focus that occurred in the Companys commercial products since their initial sales in the third
quarter of fiscal 2007. IBU products provide solutions for manufacturing process control as well
as sensor and software technologies for non-contact measurement, scanning and inspection
applications. These products are used by the Companys customers to help them manage their complex
manufacturing processes to improve quality, shorten product launch times, reduce overall
manufacturing costs and for digitizing and reverse engineering. Products sold by IBU include the
Automated Systems products consisting of AutoGauge®, AutoGauge® Plus, AutoFit®,
AutoScan®, and AutoGuide® that are primarily custom-configured systems typically
purchased for installation in connection with new automotive model retooling programs, Value Added
Services that are primarily related to automated systems products, and Technology Components
consisting of ScanWorks®, ScanWorks®xyz, Toolkit,
WheelWorks® and
Multi-line Sensor products that target the digitizing, reverse engineering, inspection and original
equipment manufacturers wheel alignment markets. The products of the CBU segment are designed for
sale to professional tradesmen in the commercial market and are sold to and distributed through
strategic partners. The Company services multiple markets, with the largest being the automotive
industry serviced by IBU. The Companys primary operations are in North America, Europe and Asia.
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In the IBU segment, new vehicle tooling programs represent the most important selling opportunity
for the Companys automated systems products. The number and timing of new vehicle tooling
programs varies based on individual automotive manufacturers plans and is also influenced by the
state of the economy. Sales related to services and technology components are on-going and vary
from period to period based on customers plans. Sales of ScanWorks® are primarily to
non-automotive customers. IBU had consecutive quarter over quarter sales growth in each of the
four quarters of fiscal 2010. Margins have improved as a result of the cost reduction actions
taken in the third quarter of fiscal 2009 despite a decline in sales. Asian sales increased 64.7%
from the level achieved in the 2009 and business in this region continues to show improvement.
During the third quarter of fiscal 2010, the Company moved to a larger office in Shanghai and is in
the process of hiring additional engineers to support its growth in China.
During fiscal 2010, the Companys CBU segment announced that it had entered into supply agreements
with three new partners, each in a separate strategic market segment. CBU has a partner in place
for each of its four initially targeted market segments, namely, plumbing, mechanical, electrical
and construction. Also during fiscal 2010, CBU announced that the Company and Ridge Tool Company
(Ridge) mutually decided not to renew the Ridge supplier agreement. The Companys new partner
for the plumbing market is Rothenberger AG of Kelkheim, Germany. During the fourth quarter of
fiscal 2010, the Company completed product design, development and manufacturing of the
Roscope® 1000 for Rothenberger. The
Roscope® 1000 is a rugged industrial
device that has Perceptrons patented Up is Up visualization technology, and backward
compatibility with previous Rothenberger imagers. The unit displays live-video images, offers
digital zoom, digital panning and captures digital still images for transport to a computer via
USB. The first shipments of the
Roscope® 1000 were delivered to Europe.
CBUs partner in the mechanics market is Snap-on Logistics Company (Snap-on). During fiscal
2010, the Company released several new products for Snap-on, the BK5500W, a Digital Video Recorder
and a 5.5mm imager. The BK5500W adds wireless capability to Snap-ons BK5500 line and provides a
larger viewing screen and greater flexibility for mechanics and technicians by allowing them to
maneuver the imager independently from where the handheld unit is positioned. This makes it easier
for the technician and also allows a second person to view the screen when the technician is
working in a crowded space. The BK5500W received a positive reception at the Snap-on franchisee
show in August 2010 where it was officially launched by Snap-on. The Digital Video Recorder has
the capability to record and store images for users of the BK5500 product. The 5.5mm imager allows
mechanics to see into diesel injector ports and glow plugs.
Outlook The Company continues to see signs that business conditions for IBU customers
are improving. Requests for quotes are strong. The Company is encouraged by the trend over the
past four quarters of quarter over quarter increased sales in the IBU segment. The Company
continues to see increased interest from customers in the enhanced functionality that was recently
incorporated into the AutoGauge® Plus product. IBU sales are expected to show modest
growth in fiscal 2011 over fiscal 2010. Sales in China are expected to show strong growth while
sales in the Americas and Europe are expected to be relatively flat. In line with the Companys
strategic plans, the Company decided in the second half of fiscal 2010 to accelerate its investment
in new product development in its IBU segment by contracting with additional temporary engineering
resources. It is expected that the additional resources will be needed throughout the first six
months of fiscal 2011 and then these additional expenses should begin to decline in the second half
of fiscal 2011.
CBU sales are expected to show double digit growth in fiscal 2011 compared to fiscal 2010,
particularly once sales begin to all four of the divisions strategic partners. Sales of the
Roscope® 1000 to Rothenberger, which began at the very end of June, are expected to
occur throughout fiscal 2011. Sales of the BK5500W wireless visual inspection product also began
in June and are expected to continue. New products for both Snap-on and Rothenberger are under
development and sales are expected to begin in fiscal 2011. Sales of the first product for CBUs
strategic customers in the electrical and construction markets are expected to begin in the second
quarter of fiscal 2011.
Overall, Company sales in fiscal 2011 are expected to grow by double digits over fiscal 2010 and
the Company expects to be profitable. The Company begins fiscal 2011 with a backlog of $20.0
million which was an increase of $2.6 million over the backlog at the beginning of fiscal 2010.
First quarter sales in fiscal 2011 however, are expected to be lower than the $16.0 million of
sales in the fourth quarter of fiscal 2010 based on the current timing of IBU customer projects
primarily in North America and Asia. CBU sales are expected to be lower in the first quarter of
fiscal 2011 but increase in the following quarters as development is completed and new products go
into production for our new and existing customers.
The Companys financial base remains strong with no debt and approximately $20.1 million of cash,
cash equivalents and short-term investments at June 30, 2010 available to support its growth plans.
Near-term, the Company will continue to focus on the release of new products in both of its
business segments, geographic growth, principally in Asia and working with its strategic partners
in the CBU.
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Results of Operations
Fiscal Year Ended June 30, 2010, Compared to Fiscal Year Ended June 30, 2009
Overview The Company reported a net loss of $805,000 or $0.09 per diluted share, for the
fiscal year ended June 30, 2010 compared with a net loss of $3.5 million, or $0.40 per diluted
share, for the fiscal year ended June 30, 2009. Specific line item results are described below.
Sales Net sales of $52.1 million for fiscal 2010 decreased $9.4 million, or 15.3%,
compared with the same period one year ago. The following tables set forth comparison data for
the Companys net sales by segment and geographic location.
Sales (by segment) | ||||||||||||||||||||||||
(in millions) | 2010 | 2009 | Increase/(Decrease) | |||||||||||||||||||||
Industrial Business Unit |
$ | 40.2 | 77.2 | % | $ | 38.3 | 62.3 | % | $ | 1.9 | 5.0 | % | ||||||||||||
Commercial Products Business Unit |
11.9 | 22.8 | % | 23.2 | 37.7 | % | (11.3 | ) | (48.7 | )% | ||||||||||||||
Totals |
$ | 52.1 | 100.0 | % | $ | 61.5 | 100.0 | % | $ | (9.4 | ) | (15.3 | )% | |||||||||||
Sales (by location) | ||||||||||||||||||||||||
(in millions) | 2010 | 2009 | Increase/(Decrease) | |||||||||||||||||||||
Americas |
$ | 26.2 | 50.3 | % | $ | 38.8 | 63.1 | % | $ | (12.6 | ) | (32.5 | )% | |||||||||||
Europe |
20.3 | 39.0 | % | 19.3 | 31.4 | % | 1.0 | 5.2 | % | |||||||||||||||
Asia |
5.6 | 10.7 | % | 3.4 | 5.5 | % | 2.2 | 64.7 | % | |||||||||||||||
Totals |
$ | 52.1 | 100.0 | % | $ | 61.5 | 100.0 | % | $ | (9.4 | ) | (15.3 | )% | |||||||||||
IBU sales increased $1.9 million primarily due to increased sales of Automated Systems products
that were mitigated by lower sales of Technology Components and Value Added Services. The global
economic conditions in the automotive industry affected IBUs sales beginning in the third quarter
of fiscal 2009 and continued into fiscal 2010. During fiscal 2010, IBU sales increased each
quarter over the preceding quarter. Year over year IBU sales increased $2.2 million in Asia, $1.0
million in Europe and decreased $1.3 million in the Americas which suffered the biggest impact
from the bankruptcies of General Motors Corporation and Chrysler LLC that occurred in the fourth
quarter of fiscal 2009. These bankruptcies disrupted the normal flow of orders, caused several
projects to be put on hold or cancelled that had been slated for fiscal 2010 and caused other
companies that supported these two automotive companies to take a wait and see position before
committing to purchases especially during the first half of fiscal 2010.
CBU sales decreased $11.3 million with the reduction almost evenly split between Snap-on and Ridge
Tool Company. The decrease in CBU sales was the primary cause of the Companys sales decline in
the Americas for the year. The lower sales to Snap-on reflected the slow economic conditions
globally during 2010. The Companys supply agreement with Ridge Tool Company expired in fiscal
2010 and was not renewed which resulted in lower sales to Ridge for the year. During 2010, CBU
entered into supplier agreements with three new partners, the first of which, Rothenberger A.G., is
in the plumbing market. During the
second half of fiscal 2010, the Company was engaged in the design and development of new products
for these three new partners as well as its existing partner, Snap-on. During 2010, CBU had sales
of three new product offerings for Snap-on, a Digital Video Recorder (DVR), a 5.5mm imager and the
BK5500W. The DVR adds the capability to record and store images for users of the BK5500 product.
The 5.5mm imager allows mechanics to see into diesel injector ports and glow plugs. The BK5500W is
a wireless video inspection system that adds functionality to the BK5500 product line. It provides
a larger viewing screen, greater flexibility and maneuverability for mechanics and technicians by
allowing them to perform their work up to 30 feet from the hand-held unit. Additionally, CBU had
new sales of the Roscope® 1000 to one of its new partners, Rothenberger. The
Roscope® 1000 is aimed at the plumbing market and the first small shipment which
occurred at the very end of June 2010, was delivered to Europe.
Bookings Bookings represent new orders received from customers. During fiscal 2010 the
Company had new order bookings of $54.7 million compared with new order bookings of $53.5 million
during fiscal 2009. The amount of new order bookings during any particular period is not
necessarily indicative of the future operating performance of the Company. The following tables
set forth comparison data for the Companys bookings by segment and geographic location.
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Bookings (by segment) | ||||||||||||||||||||||||
(in millions) | 2010 | 2009 | Increase/(Decrease) | |||||||||||||||||||||
Industrial Business Unit |
$ | 41.5 | 75.9 | % | $ | 35.2 | 65.8 | % | $ | 6.3 | 17.9 | % | ||||||||||||
Commercial Products Business Unit |
13.2 | 24.1 | % | 18.3 | 34.2 | % | (5.1 | ) | (27.9 | )% | ||||||||||||||
Totals |
$ | 54.7 | 100.0 | % | $ | 53.5 | 100.0 | % | $ | 1.2 | 2.2 | % | ||||||||||||
Bookings (by location) | ||||||||||||||||||||||||
(in millions) | 2010 | 2009 | Increase/(Decrease) | |||||||||||||||||||||
Americas |
$ | 29.2 | 53.4 | % | $ | 29.6 | 55.3 | % | $ | (0.4 | ) | (1.4 | )% | |||||||||||
Europe |
17.3 | 31.6 | % | 21.8 | 40.8 | % | (4.5 | ) | (20.6 | )% | ||||||||||||||
Asia |
8.2 | 15.0 | % | 2.1 | 3.9 | % | 6.1 | 290.5 | % | |||||||||||||||
Totals |
$ | 54.7 | 100.0 | % | $ | 53.5 | 100.0 | % | $ | 1.2 | 2.2 | % | ||||||||||||
On a comparison basis, bookings in fiscal year 2009 started at a high level and generally declined
as the year progressed, while fiscal year 2010 bookings started at a low level and increased as
the year progressed.
IBU bookings increased $6.3 million primarily for Automated Systems products, but both Technology
Components and Value Added Services bookings also increased over fiscal 2009. IBU bookings in the
Americas and Asia increased $4.7 million and $6.1 million over fiscal 2009, respectively. IBU
bookings in Europe decreased $4.5 million and were impacted by changes in the euro exchange rate,
which reduced 2010 bookings by $1.1 million.
CBU bookings decreased $5.1 million primarily due to the continued slowness in the global economy
and high unemployment in the United States which affected CBUs two existing partners in fiscal
2010. Offsetting this decline was increased bookings from two of CBUs new partners.
Backlog Backlog represents orders or bookings received by the Company that have not yet
been filled. The Companys backlog was $20.0 million as of June 30, 2010 compared with $17.4
million as of June 30, 2009. The level of backlog during any particular period is not necessarily
indicative of the future operating performance of the Company. Most of the backlog is subject to
cancellation by the customer. The Company generally expects to be able to fill substantially all
of the orders in backlog during the following twelve months. The following tables set forth
comparison data for the Companys backlog by segment and geographic location.
Backlog (by segment) | ||||||||||||||||||||||||
(in millions) | 2010 | 2009 | Increase/(Decrease) | |||||||||||||||||||||
Industrial Business Unit |
$ | 16.8 | 84.0 | % | $ | 15.4 | 88.5 | % | $ | 1.4 | 9.1 | % | ||||||||||||
Commercial Products Business Unit |
3.2 | 16.0 | % | 2.0 | 11.5 | % | 1.2 | 60.0 | % | |||||||||||||||
Totals |
$ | 20.0 | 100.0 | % | $ | 17.4 | 100.0 | % | $ | 2.6 | 14.9 | % | ||||||||||||
Backlog (by location) | ||||||||||||||||||||||||
(in millions) | 2010 | 2009 | Increase/(Decrease) | |||||||||||||||||||||
Americas |
$ | 8.6 | 43.0 | % | $ | 5.7 | 32.7 | % | $ | 2.9 | 50.9 | % | ||||||||||||
Europe |
8.2 | 41.0 | % | 11.1 | 63.8 | % | (2.9 | ) | (26.1 | )% | ||||||||||||||
Asia |
3.2 | 16.0 | % | 0.6 | 3.5 | % | 2.6 | 433.3 | % | |||||||||||||||
Totals |
$ | 20.0 | 100.0 | % | $ | 17.4 | 100.0 | % | $ | 2.6 | 14.9 | % | ||||||||||||
The increase in IBUs backlog was primarily for Technology Components and Value Added Services.
Automated Systems backlog decrease slightly from the previous year. The increase in IBUs backlog
occurred in Asia and the Americas and was partially offset by a decline in Europe. The decline in
Europe was partially due to the lower exchange rate between the dollar and the Euro at June 30,
2010 compared to June 30, 2009. The European backlog at June 30, 2010 would have been $1.2
million higher if the Euro exchange rate had been at the same rate as June 30, 2009. CBUs
backlog increased primarily as a result of orders received from two of CBUs new partners.
Snap-ons backlog was constant year over year and Ridge Tool had no backlog as a result of the
expiration of the Ridge Tool supply agreement in fiscal 2010.
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Gross Profit Gross profit was $18.8 million, or 36.1% of sales, in the fiscal year
ended June 30, 2010, as compared to $20.9 million, or 34.0% of sales, in the fiscal year ended
June 30, 2009. The Company achieved a gross margin percentage increase of 2.1% even though sales
in fiscal 2010 decreased $9.4 million or 15.3 % from 2009. The gross margin percentage increase
was primarily the result of the IBU cost reduction actions taken by the Company in fiscal 2009
mitigated by lower margin in the CBU. The $2.1 million gross profit decrease was primarily due to
the $9.4 million sales decline in fiscal year 2010 compared to fiscal 2009. The slightly stronger
euro for the full year, compared to fiscal year 2009, increased gross margin for the year by
approximately $150,000.
Selling, General and Administrative (SG&A) Expenses SG&A expenses in fiscal 2010 were
$14.9 million, compared with $16.7 million in fiscal 2009.
The $1.8 million decrease was primarily due to lower salary and
benefit expenses in North America and Europe resulting from the cost
reduction actions the Company took in fiscal 2009. Lower bad debt and
depreciation expense in fiscal 2010 also contributed to the
favorable comparison to fiscal 2009.
Engineering, Research and Development (R&D) Expenses Engineering and R&D expenses were
$7.3 million for fiscal 2010, compared with $8.0 million for fiscal 2009. The $708,000 decrease
was primarily due to reductions in engineering and R&D expenses in the Companys IBU business
segment. Reductions occurred primarily in salaries and benefit costs that were partially offset by
increases in contract services and engineering material costs. Engineering and R&D costs for the
Companys commercial products line decreased by approximately $120,000 from fiscal 2009 principally
due to lower engineering materials, mitigated by higher salary costs for additional product
development personnel.
Interest Income, net Net interest income was $228,000 in fiscal 2010, compared with
$709,000 in fiscal 2009. The decrease in interest income for fiscal year 2010 compared to fiscal
2009 was principally due to lower interest rates during fiscal 2010 on lower cash and investment
balances.
Foreign Currency Gain (Loss) There was a net foreign currency gain of $216,000 in
fiscal 2010 compared with a $64,000 gain in fiscal 2009. The gain in fiscal 2010 related to the
Yen and to a smaller extent foreign currency gains related to both the Real and Euro. The gain in
fiscal 2009 also related to the Yen, but was mitigated by foreign currency losses related to both
the Real and Euro. Foreign currency effects are primarily due to the change in foreign exchange
rates between the time that the Companys foreign subsidiaries received material denominated in
U.S. dollars and when funds were converted to pay for the material received.
Impairment on Long-Term Investment During fiscal 2009 the Companys long-term
investments were exchanged for preferred stock of the issuers and the Company determined that these
investments had been other-than-temporarily impaired. Based on an independent valuation, the
Company wrote down the value of these investments by $728,000 and reclassified $767,000 from other
comprehensive income for a total other-than-temporary charge of $1.5 million compared to a
write-down in fiscal 2008 of $2.6 million. See Note 1 of the Notes to the Consolidated Financial
Statements, Long and Short-term Investments.
Income Taxes The effective income tax benefit rate of 73.1% for fiscal 2010 compares to
36.6% for fiscal 2009. Income taxes for fiscal 2010 included a $1.1 million tax benefit related to
tax credits and the favorable recognition of an uncertain tax position. The effective tax rate for
fiscal 2010 excluding these two items was 37.1%. The balance of the change in the effective tax
rate reflected the effect of the mix of operating profit and loss among the Companys various
operating entities and their respective tax rates. See Note 10 of the Notes to the Consolidated
Financial Statements, Income Taxes.
Fiscal Year Ended June 30, 2009, Compared to Fiscal Year Ended June 30, 2008
Overview The Company reported a net loss of $3.5 million or $0.40 per diluted share, for
the fiscal year ended June 30, 2009 compared with net income of $995,000, or $0.11 per diluted
share, for the fiscal year ended June 30, 2008. Specific line item results are described below.
Sales Net sales of $61.5 million for fiscal 2009 decreased $11.0 million, or 15.2%,
compared with the same period one year ago. The following tables set forth comparison data for
the Companys net sales by segment and geographic location.
Sales (by segment) | ||||||||||||||||||||||||
(in millions) | 2009 | 2008 | Increase/(Decrease) | |||||||||||||||||||||
Industrial Business Unit |
$ | 38.3 | 62.3 | % | $ | 54.3 | 74.9 | % | $ | (16.0 | ) | (29.5 | )% | |||||||||||
Commercial Products Business Unit |
23.2 | 37.7 | % | 18.2 | 25.1 | % | 5.0 | 27.5 | % | |||||||||||||||
Totals |
$ | 61.5 | 100.0 | % | $ | 72.5 | 100.0 | % | $ | (11.0 | ) | (15.2 | )% | |||||||||||
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Sales (by location) | ||||||||||||||||||||||||
(in millions) | 2009 | 2008 | Increase/(Decrease) | |||||||||||||||||||||
Americas |
$ | 38.8 | 63.1 | % | $ | 43.3 | 59.7 | % | $ | (4.5 | ) | (10.4 | )% | |||||||||||
Europe |
19.3 | 31.4 | % | 24.2 | 33.4 | % | (4.9 | ) | (20.2 | )% | ||||||||||||||
Asia |
3.4 | 5.5 | % | 5.0 | 6.9 | % | (1.6 | ) | (32.0 | )% | ||||||||||||||
Totals |
$ | 61.5 | 100.0 | % | $ | 72.5 | 100.0 | % | $ | (11.0 | ) | (15.2 | )% | |||||||||||
The decrease of $16.0 million in fiscal 2009 IBU sales compared to fiscal 2008 primarily occurred
in the third and fourth quarters and was a direct reflection of the global economic conditions in
the automotive industry. The decline occurred primarily in the Americas with lesser declines in
Europe and Asia. During the fourth quarter of fiscal 2009, both General Motors Corporation and
Chrysler LLC entered into bankruptcy in the United States. These bankruptcies and the process
leading up to them disrupted the normal flow of orders and caused several projects to be put on
hold or cancelled. Likewise other companies that supported these two automotive companies also
took a wait and see position before committing to purchases. Of the $4.9 million decline in sales
in Europe $1.5 million was due to lower foreign currency exchange rates in fiscal 2009 compared to
fiscal 2008. Asian automotive companies instituted a freeze on capital spending beginning in the
third quarter which continued through the fourth quarter. CBU sales increased primarily from
higher sales to Snap-on and Ridge Tool.
Bookings Bookings represent new orders received from customers. During fiscal 2009 the
Company had new order bookings of $53.5 million compared with new order bookings of $75.0 million
during fiscal 2008. The amount of new order bookings during any particular period is not
necessarily indicative of the future operating performance of the Company. The following tables
set forth comparison data for the Companys bookings by segment and geographic location.
Bookings (by segment) | ||||||||||||||||||||||||
(in millions) | 2009 | 2008 | Increase/(Decrease) | |||||||||||||||||||||
Industrial Business Unit |
$ | 35.2 | 65.8 | % | $ | 56.7 | 75.6 | % | $ | (21.5 | ) | (37.9 | )% | |||||||||||
Commercial Products Business Unit |
18.3 | 34.2 | % | 18.3 | 24.4 | % | 0.0 | 0.0 | % | |||||||||||||||
Totals |
$ | 53.5 | 100.0 | % | $ | 75.0 | 100.0 | % | $ | (21.5 | ) | (28.7 | )% | |||||||||||
Bookings (by location) | ||||||||||||||||||||||||
(in millions) | 2009 | 2008 | Increase/(Decrease) | |||||||||||||||||||||
Americas |
$ | 29.6 | 55.3 | % | $ | 41.9 | 55.9 | % | $ | (12.3 | ) | (29.4 | )% | |||||||||||
Europe |
21.8 | 40.8 | % | 26.5 | 35.3 | % | (4.7 | ) | (17.7 | )% | ||||||||||||||
Asia |
2.1 | 3.9 | % | 6.6 | 8.8 | % | (4.5 | ) | (68.2 | )% | ||||||||||||||
Totals |
$ | 53.5 | 100.0 | % | $ | 75.0 | 100.0 | % | $ | (21.5 | ) | (28.7 | )% | |||||||||||
Bookings began fiscal year 2009 stronger than in fiscal 2008 and declined thereafter. Bookings in
the first quarter were higher than in the first quarter of 2008 by $2.9 million. Second quarter
bookings declined by $5.2 million while third quarter bookings declined the most at $11.7 million.
While fourth quarter bookings declined by $7.4 million, the decline was less than in the third
quarter. Bookings decreased in all locations. The significant decrease in IBU bookings was
primarily in the Americas reflecting the severe negative economic conditions in the automotive
industry. CBU bookings were flat year over year.
Backlog Backlog represents orders or bookings received by the Company that have not yet
been filled. The Companys backlog was $17.4 million as of June 30, 2009 compared with $25.4
million as of June 30, 2008. The following tables set forth comparison data for the Companys
backlog by segment and geographic location.
Backlog (by segment) | ||||||||||||||||||||||||
(in millions) | 2009 | 2008 | Increase/(Decrease) | |||||||||||||||||||||
Industrial Business Unit |
$ | 15.4 | 88.5 | % | $ | 18.4 | 72.4 | % | $ | (3.0 | ) | (16.3 | )% | |||||||||||
Commercial Products Business Unit |
2.0 | 11.5 | % | 7.0 | 27.6 | % | (5.0 | ) | (71.4 | )% | ||||||||||||||
Totals |
$ | 17.4 | 100.0 | % | $ | 25.4 | 100.0 | % | $ | (8.0 | ) | (31.5 | )% | |||||||||||
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Backlog (by location) | ||||||||||||||||||||||||
(in millions) | 2009 | 2008 | Increase/(Decrease) | |||||||||||||||||||||
Americas |
$ | 5.7 | 32.7 | % | $ | 14.9 | 58.7 | % | $ | (9.2 | ) | (61.7 | )% | |||||||||||
Europe |
11.1 | 63.8 | % | 8.6 | 33.8 | % | 2.5 | 29.1 | % | |||||||||||||||
Asia |
0.6 | 3.5 | % | 1.9 | 7.5 | % | (1.3 | ) | (68.4 | )% | ||||||||||||||
Totals |
$ | 17.4 | 100.0 | % | $ | 25.4 | 100.0 | % | $ | (8.0 | ) | (31.5 | )% | |||||||||||
The Company generally expects to be able to fill substantially all of the orders in backlog during
the following twelve months. The decline in IBU backlog was primarily in value-added services.
The decrease in CBU backlog reflected the fact that the Company was off backorder status for its
products. The level of backlog during any particular period is not necessarily indicative of the
future operating performance of the Company. Most of the backlog is subject to cancellation by
the customer.
Gross Profit Gross profit was $20.9 million, or 34% of sales, in the fiscal year ended
June 30, 2009, as compared to $29.8 million, or 41.1% of sales, in the fiscal year ended June 30,
2008. The decline in the gross profit percentage in fiscal 2009 compared to fiscal 2008 was
primarily due to lower margins in IBU which was principally a function of the lower sales level
and the relatively fixed labor and related costs for this business segment. During fiscal 2009,
the Company conducted a global inventory review to consolidate inventory management and levels for
its Automated Systems and its ScanWorks® products. As a result of this review, cost of
goods sold was negatively impacted by a charge of $1.1 million in fiscal 2009 for obsolete and
excess inventory compared to a charge of $453,000 in fiscal 2008. The weaker Euro exchange rate in
fiscal 2009 compared to fiscal 2008 also negatively impacted gross margin by approximately
$800,000.
Selling, General and Administrative (SG&A) Expenses SG&A expenses in fiscal 2009 were
$16.7 million, compared with $19.3 million in fiscal 2008. Of the $2.6 million decrease,
approximately $600,000 was due to costs recorded in fiscal 2008 related to the retirement of a
former executive of the Company and $500,000 related to implementing Section 404 of the Sarbanes
Oxley Act relating to internal controls over financial reporting. The remaining $1.5 million
decrease was primarily due to lower costs in salaries, benefits, travel and entertainment,
advertising and sales promotions resulting from the cost reduction actions the Company took in
January 2009. Partially offsetting these decreases in fiscal 2009 was a $486,000 charge for bad
debt expense compared to a credit to bad debt expense of $171,000 in fiscal 2008. In addition, the
weaker Euro exchange rate had the effect of reducing expenses in fiscal 2009 by approximately
$400,000.
Engineering, Research and Development (R&D) Expenses Engineering and R&D expenses were
$8.0 million for fiscal 2009, compared with $8.6 million for fiscal 2008. The decrease was
primarily due to reductions in engineering and R&D expenses in the Companys IBU segment.
Reductions occurred in contract services, engineering materials and salaries. Engineering and R&D
costs for the Companys new commercial products line increased in fiscal 2009 by approximately
$100,000 over fiscal 2008 principally for added personnel in product development.
Interest Income, net Net interest income was $709,000 in fiscal 2009, compared with $1.0
million in fiscal 2008. The decrease in interest income for fiscal year 2009 compared to fiscal
2008 was principally due to lower interest rates during fiscal 2009.
Foreign Currency Gain (Loss) There was a net foreign currency gain of $64,000 in fiscal
2009 compared with $287,000 in fiscal 2008. The effect in fiscal 2009 was a result of foreign
currency gains related to the Yen that was mitigated by foreign currency losses related to both the
Real and Euro. The foreign currency gain in fiscal 2008 related to changes in the Yen and Euro.
Foreign currency effects are primarily due to the change in foreign exchange rates between the time
that the Companys foreign subsidiaries received material denominated in U.S. dollars and when
funds were converted to pay for the material received.
Impairment on Long-Term Investment During fiscal 2009 the Companys long-term
investments were exchanged for preferred stock of the issuers and the Company determined that these
investments had been other-than-temporarily impaired. Based on an independent valuation, the
Company wrote down the value of these investments by $728,000 and reclassified $767,000 from other
comprehensive income for a total other-than-temporary charge of $1.5 million compared to a
write-down in fiscal 2008 of $2.6 million. See Note 1 of the Notes to the Consolidated Financial
Statements, Long and Short-term Investments.
Income Taxes The effective income tax rate of 36.6% for fiscal 2009 compares to (35.6%)
for fiscal 2008. Income taxes for fiscal 2008 included the recognition of a $619,000 tax benefit
associated with reversing a valuation allowance related to certain tax credits in North America.
The effective tax rate for fiscal 2008 excluding this item was 48.8%. In addition, the Company is
not able to record a tax benefit for non-cash stock-based compensation expense related to
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incentive stock options and the Companys Employee Stock Purchase Plan, which had the effect of
decreasing the effective tax benefit rate in fiscal 2009 by 0.1% and increasing the effective tax
rate in fiscal 2008 by 6.0%. The balance of the change in the effective tax rate reflected the
effect of the mix of operating profit and loss among the Companys various operating entities and
their respective tax rates. See Note 10 of the Notes to the Consolidated Financial Statements,
Income Taxes.
Liquidity and Capital Resources
The Companys cash and cash equivalents were $9.8 million at June 30, 2010 compared to $22.7
million at June 30, 2009. The cash decrease of $12.9 million for the fiscal year ended June 30,
2010, resulted primarily from $9.0 million used for net purchases of short-term investments, $1.5
million used for operations, $909,000 used for capital expenditures and a $1.7 million reduction
for the negative effect of exchange rate changes on cash. Proceeds from stock plans generated
$268,000 of cash.
The Company increased its net purchases of short-term investments by $9.0 million as a result of
investing in higher yield instruments with a term longer than three months.
The $1.5 million of cash used for operations was primarily related to a net loss of $805,000 and
the add back of non-cash items which totaled $933,000. The non-cash items represented an increase
in the deferred tax asset of $2.5 million and a decrease in the allowance for doubtful accounts of
$448,000, which were reduced by depreciation and amortization expense of $1.2 million, stock
compensation expense of $536,000 and disposal of assets totaling $329,000. Cash generated from
changes in assets and liabilities was $218,000 and resulted primarily from reduced inventories of
$3.3 million, an increase in accounts payable of $1.6 million and a favorable change in other
assets and liabilities of $2.9 million, which were offset by an increase of $7.5 million in net
receivables representing the higher sales level in the fourth quarter of fiscal 2010. The decrease
in inventories related to both business units, although the majority of the reduction in
inventories resulted from the management of IBU inventories. The decrease included a reserve for
obsolescence of approximately $800,000. The increase in accounts payable related to normal
fluctuations in the timing of payments. The favorable $2.9 million change in other current assets
and liabilities primarily related to a decrease in deposits with suppliers of $1.8 million, an
increase in accrued liabilities of $800,000 and an increase of $300,000 in deferred revenue.
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. A detailed review of the
inventory is performed yearly with quarterly updates for known changes that have occurred since the
annual review. When inventory is deemed to have no further use or value, the Company disposes of
the inventory and the reserve for obsolescence is reduced. During fiscal year 2010, the Company
increased its reserve for inventory obsolescence by a net $767,000, which resulted from additional
reserves for obsolescence of approximately $835,000 less disposals and the effect of changes in
foreign currency of $68,000 of inventory.
The Company determines its allowance for doubtful accounts by considering a number of factors,
including the length of time trade accounts receivable are past due, the Companys previous loss
history, the customers current ability to pay its obligation to the Company, and the condition of
the general economy and the industry as a whole. The Company writes-off accounts receivable when
they become uncollectible, and payments subsequently received on such receivables are credited to
the allowance for doubtful accounts. During fiscal year 2010, the Company reduced its allowance
for doubtful accounts reserve by a net $465,000. Write-offs totaled $510,000 and the Company
increased its provision for bad debts by $45,000.
Financing activities during fiscal year 2010 reflected $268,000 received under the Companys stock
plans.
The Company had no debt outstanding at June 30, 2010. The Company has a $6.0 million secured
Credit Agreement, which expires on November 1, 2011. Proceeds under the Credit Agreement may be
used for working capital and capital expenditures. Security under the Credit Agreement is
substantially all non-real estate assets of the Company held in the United States. Borrowings are
designated as a Libor-based Advance or as a Prime-based Advance if the Libor-based Advance is not
available. Interest on Libor-based Advances is calculated currently at 2.35% above the Libor Rate
offered at the time for the period chosen, and is payable on the last day of the applicable period.
The Company may not select a Prime-based rate for Advances except during a period of time during
which the Libor-based rate is not available as the applicable interest rate. Interest on
Prime-based Advances is payable on the first business day of each month commencing on the first
business day following the month during which such Advance is made and at maturity and is
calculated daily, using the interest rate established by the Bank as its prime rate for its
borrowers. Quarterly, the Company pays a commitment fee of 0.15% per annum on the daily unused
portion of the Credit Agreement. The Credit Agreement prohibits the Company from paying dividends.
In addition, the Credit Agreement requires the Company to maintain, unless waived, a minimum
Tangible Net Worth, as defined in the Credit Agreement, of not less than $41.7 million as of June
30, 2010 and to have no advances outstanding for 30 consecutive days each calendar year.
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At June 30, 2010, the Companys German subsidiary (GmbH) had an unsecured credit facility totaling
300,000 Euros (equivalent to $366,000 at June 30, 2010). 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,
2009, GmbH had no borrowings outstanding. At June 30, 2010, the facility supported outstanding
letters of credit totaling 62,552 Euros (equivalent to approximately $76,000).
See Item 3, Legal Proceedings and Note 6 of the Notes to the Consolidated Financial Statements,
Contingencies, for a discussion of certain contingencies relating to the Companys liquidity,
financial position and results of operations. See also, Item 7, Managements Discussion and
Analysis of Financial Condition and Results of Operations Critical Accounting Policies -
Litigation and Other Contingencies.
At June 30, 2010, the Company had short-term investments totaling $10.3 million and long-term
investments valued at $2.2 million. See Note 1 and Note 13 to the Consolidated Financial
Statements, Long and Short-term Investments, and Subsequent Events, respectively, for further
information on the Companys investments and their current valuation. The market for the long-term
investments is currently illiquid.
The Company expects to spend approximately $2.0 million during fiscal year 2010 for capital
equipment, although there is no binding commitment to do so. Based on the Companys current
business plan, including the introduction of new commercial products, the Company believes that
available cash on hand and existing credit facilities will be sufficient to fund anticipated fiscal
year 2011 cash flow requirements, except to the extent that the Company implements new business
development opportunities, which would be financed as discussed below. The Company does not
believe that inflation has significantly impacted historical operations and does not expect any
significant near-term inflationary impact.
Critical Accounting Policies
The Companys discussion and analysis of its financial condition and results of operations are
based upon the Companys financial statements and accompanying notes, which have been prepared in
accordance with accounting principles generally accepted in the United States (U.S. GAAP). The
Companys significant accounting policies are discussed in Note 1 of the Notes to Consolidated
Financial Statements, Summary of Significant Accounting Policies. Certain of the Companys
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 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 managements most
difficult, subjective or complex judgments or involve the greatest uncertainty.
Revenue Recognition. The Company recognizes revenue in accordance with ASC 605, Revenue
Recognition. Revenue related to products is recognized upon shipment when title and risk of loss
has passed to the customer, there is persuasive evidence of an arrangement, the sales price is
fixed or determinable, collection of the related receivable is reasonably assured and customer
acceptance criteria have been successfully demonstrated. Revenue related to services is recognized
upon completion of the service. The Company also has multiple element arrangements in its
Automated Systems product line that may include purchase of equipment, labor support and/or
training. Each element has value on a stand-alone basis. For multiple element arrangements, the
Company defers from revenue recognition the greater of the fair value of any undelivered elements
of the contract or the portion of the sales price of the contract that is not payable until the
undelivered elements are completed. Delivered items are not contingent upon the delivery of any
undelivered items nor do the delivered items include general rights of return. The Company does
not have price protection agreements or requirements to buy back inventory. The Companys
Automated Systems products are made to order systems that are designed and configured to meet each
customers specific requirements. The Companys Technology Components and Commercial Products are
sold under agreements with fixed quantities with no rights of return. As a result, the Company has
virtually no history of returns.
Stock-Based Compensation. The Company accounts for non-cash stock-based compensation in
accordance with ASC 718, Compensation Stock Compensation. Under the fair value recognition
provisions of this statement, share-based compensation cost is measured at the grant date based on
the value of the award and is recognized as expense over the
vesting period. Determining the fair value of share-based awards at the grant date requires
judgment, including estimating the amount of share-based awards that are expected to be forfeited.
The estimated forfeiture rate may change from time to time based upon the Companys actual
experience. An increase in the forfeiture rate would require the Company to reverse a portion of
its prior expense for non-cash stock-based compensation, which would positively impact the
Companys results of operations. Because the Company currently experiences a low forfeiture rate,
a reduction in the estimated forfeiture rate would not have a material impact on the Companys
results of operations.
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Accounts Receivable. 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 Companys previous loss history, the customers 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 Companys results
of operations for the period. In addition, if actual experience differs materially from the
Companys estimates, the Company could be required to record large credit losses that could
negatively affect the Companys 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 reviews its inventory levels quarterly 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 Companys 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 Companys results of operations for the period. In addition, if
actual experience differs materially from the Companys estimates, the Company could be required to
record large losses that could negatively affect the Companys results of operations for the
period. See Note 1 of the Notes to the Consolidated Financial Statements, Summary of Significant
Accounting Policies Inventory.
Long and Short-Term Investments. The Company accounts for its investments in accordance
with ASC 320, Investments Debt and Equity Securities. Investments with a maturity of greater
than three months but less than one year are classified as short-term investments. Investments
with maturities beyond one year may be classified as short-term if the Company reasonably expects
the investment to be realized in cash or sold or consumed during the normal operating cycle of the
business. Investments available for sale are recorded at market value using the specific
identification method. Investments expected to be held to maturity or until market conditions
improve are measured at amortized cost in the statement of financial position if it is the
Companys intent and ability to hold those securities long-term. At each balance sheet date, the
Company evaluates its investments for possible other-than-temporary impairment which involves
significant judgment. In making this judgment, management reviews factors such as the length of
time and extent to which fair value has been below the cost basis, the anticipated recovery period,
the financial condition of the issuer, the credit rating of the instrument and the Companys
ability and intent to hold the investment for a period of time which may be sufficient for recovery
of the cost basis. Any unrealized gains and losses on securities are reported as other
comprehensive income as a separate component of shareholders equity until realized or until a
decline in fair value is determined to be other than temporary. Once a decline in fair value is
determined to be other-than-temporary, an impairment charge is recorded in the income statement.
See Note 1 of the Notes to the Consolidated Financial Statements, Summary of Significant
Accounting Policies Long and Short-term Investments.
Deferred Income Taxes. Deferred income tax assets and liabilities represent the estimated
future income tax effect of temporary differences between the book and tax basis of the Companys
assets and liabilities, assuming they will be realized and settled at the amounts reported in the
Companys 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. The Company adjusts this valuation allowance
periodically based upon changes in these considerations. See Note 10 of the Notes to the
Consolidated Financial Statements, Income Taxes. If actual long-term future taxable income is
lower than the Companys estimate, or the Company revises its initial estimates, 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 Companys results of operations and
financial position for the period.
Litigation and Other Contingencies. The Company is subject to certain 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, 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 Companys results of operations and financial position
for the period.
Product Warranty. The Company provides a reserve for warranty based on its experience and
knowledge. Factors affecting the Companys warranty liability include the number of units sold or
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
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changes in these factors. If a special circumstance arises requiring a higher level of warranty
reserve, the Company would make a special warranty provision commensurate with the facts.
Management believes that the accounting estimate related to warranty reserves is a critical
accounting estimate because changes in it could materially affect net
income, and it requires management to estimate the frequency and amounts of future claims, which
are inherently uncertain. Managements policy is to continuously monitor its warranty liabilities
to determine their adequacy. As a result, the warranty reserve is maintained at an amount
management deems adequate to cover estimated warranty expense. Actual claims incurred in the future
may differ from the original estimates, which may result in material revisions to the warranty
reserve that could negatively or positively affect the Companys results of operations for the
period.
New Accounting Pronouncements
For a discussion of new accounting pronouncements, see Note 1 of the Notes to the Consolidated
Financial Statements, Summary of Significant Accounting Policies New Accounting
Pronouncements.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page | ||||
28 | ||||
Consolidated Financial Statements: |
||||
29 | ||||
30 | ||||
31 | ||||
32 | ||||
33 |
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Table of Contents
[GRANT THORNTON LETTERHEAD]
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Perceptron, Inc.
Perceptron, Inc.
We have audited the accompanying consolidated balance sheets of Perceptron, Inc. (a Michigan
corporation) and subsidiaries as of June 30, 2010 and 2009, and the related consolidated
statements of income, shareholders equity, and cash flows for each of the three years in the
period ended June 30, 2010. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. The Company is not required to have, nor were we engaged to perform an audit of
its internal control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting. Accordingly, we express no such
opinion. An audit also 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, as well as evaluating the overall financial statement
presentation. We believe that 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 financial position of Perceptron, Inc. and subsidiaries as of June 30,
2010 and 2009, and the results of their operations and their cash flows for each of the three
years in the period ended June 30, 2010 in conformity with accounting principles generally
accepted in the United States of America.
/s/ GRANT THORNTON LLP
Southfield, Michigan
September 27, 2010
September 27, 2010
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PERCEPTRON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Per Share Amount)
As of June 30, | 2010 | 2009 | ||||||
ASSETS |
||||||||
Current Assets |
||||||||
Cash and cash equivalents |
$ | 9,789 | $ | 22,654 | ||||
Short-term investments |
10,278 | 1,241 | ||||||
Receivables: |
||||||||
Billed receivables, net of allowance for doubtful accounts
of $138 and $603, respectively |
15,207 | 8,975 | ||||||
Unbilled receivables |
616 | 296 | ||||||
Other receivables |
916 | 357 | ||||||
Inventories, net of reserves of $1,413 and $646, respectively |
6,551 | 10,005 | ||||||
Deferred taxes |
2,877 | 2,290 | ||||||
Other current assets |
1,288 | 2,909 | ||||||
Total current assets |
47,522 | 48,727 | ||||||
Property and Equipment |
||||||||
Building and land |
6,095 | 6,013 | ||||||
Machinery and equipment |
13,057 | 13,418 | ||||||
Furniture and fixtures |
870 | 869 | ||||||
20,022 | 20,300 | |||||||
Less Accumulated depreciation and amortization |
(14,091 | ) | (13,763 | ) | ||||
Net property and equipment |
5,931 | 6,537 | ||||||
Long-term Investments |
2,192 | 2,192 | ||||||
Deferred Tax Asset |
9,008 | 7,903 | ||||||
Total Assets |
$ | 64,653 | $ | 65,359 | ||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||
Current Liabilities |
||||||||
Accounts payable |
$ | 3,741 | $ | 2,461 | ||||
Accrued liabilities and expenses |
2,932 | 2,197 | ||||||
Accrued compensation |
1,222 | 1,192 | ||||||
Income taxes payable |
98 | 69 | ||||||
Deferred revenue |
3,184 | 2,975 | ||||||
Total current liabilities |
11,177 | 8,894 | ||||||
Long-term Liabilities |
||||||||
Accrued taxes |
| 765 | ||||||
Total liabilities |
11,177 | 9,659 | ||||||
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 8,961 and 8,873, respectively |
90 | 89 | ||||||
Accumulated other comprehensive income (loss) |
(1,505 | ) | 718 | |||||
Additional paid-in capital |
41,717 | 40,914 | ||||||
Retained earnings |
13,174 | 13,979 | ||||||
Total shareholders equity |
53,476 | 55,700 | ||||||
Total Liabilities and Shareholders Equity |
$ | 64,653 | $ | 65,359 | ||||
The notes to the consolidated financial statements are an integral part of these statements.
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PERCEPTRON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
Years ended June 30, | 2010 | 2009 | 2008 | |||||||||
Net Sales |
$ | 52,141 | $ | 61,536 | $ | 72,512 | ||||||
Cost of Sales |
33,374 | 40,628 | 42,693 | |||||||||
Gross Profit |
18,767 | 20,908 | 29,819 | |||||||||
Operating Expenses |
||||||||||||
Selling, general and administrative |
14,902 | 16,684 | 19,263 | |||||||||
Engineering, research and development |
7,304 | 8,012 | 8,576 | |||||||||
Restructuring charge |
| 1,057 | | |||||||||
Total operating expenses |
22,206 | 25,753 | 27,839 | |||||||||
Operating Income (Loss) |
(3,439 | ) | (4,845 | ) | 1,980 | |||||||
Other Income and (Expenses) |
||||||||||||
Interest income, net |
228 | 709 | 1,029 | |||||||||
Foreign currency gain |
216 | 64 | 287 | |||||||||
Impairment on long-term investment |
| (1,494 | ) | (2,614 | ) | |||||||
Other |
(2 | ) | 6 | 52 | ||||||||
Total other income (expense) |
442 | (715 | ) | (1,246 | ) | |||||||
Income (Loss) Before Income Taxes |
(2,997 | ) | (5,560 | ) | 734 | |||||||
Income Tax Benefit |
2,192 | 2,035 | 261 | |||||||||
Net Income (Loss) |
$ | (805 | ) | $ | (3,525 | ) | $ | 995 | ||||
Earnings (Loss) Per Common Share |
||||||||||||
Basic |
$ | (0.09 | ) | $ | (0.40 | ) | $ | 0.12 | ||||
Diluted |
$ | (0.09 | ) | $ | (0.40 | ) | $ | 0.11 | ||||
Weighted Average Common Shares Outstanding |
||||||||||||
Basic |
8,923 | 8,860 | 8,490 | |||||||||
Dilutive effect of stock options |
| | 492 | |||||||||
Diluted |
8,923 | 8,860 | 8,982 | |||||||||
The notes to the consolidated financial statements are an integral part of these statements.
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PERCEPTRON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(In Thousands)
Years ended June 30, | 2010 | 2009 | 2008 | |||||||||
Cash Flows from Operating Activities |
||||||||||||
Net income (loss) |
$ | (805 | ) | $ | (3,525 | ) | $ | 995 | ||||
Adjustments to reconcile net income (loss) to net cash provided from
(used for) operating activities: |
||||||||||||
Depreciation and amortization |
1,196 | 1,430 | 1,394 | |||||||||
Stock compensation expense |
536 | 693 | 609 | |||||||||
Deferred income taxes |
(2,546 | ) | (2,462 | ) | (1,238 | ) | ||||||
Impairment on long-term investment |
| 1,494 | 2,614 | |||||||||
Disposal of assets and other |
329 | 21 | 43 | |||||||||
Allowance for doubtful accounts |
(448 | ) | 385 | (497 | ) | |||||||
Changes in assets and liabilities |
||||||||||||
Receivables, net |
(7,515 | ) | 10,858 | 4,696 | ||||||||
Inventories |
3,267 | (2,095 | ) | (83 | ) | |||||||
Accounts payable |
1,564 | 332 | (1,419 | ) | ||||||||
Other assets and liabilities |
2,902 | (3,846 | ) | 1,318 | ||||||||
Net cash provided from (used for) operating activities |
(1,520 | ) | 3,285 | 8,432 | ||||||||
Cash Flows from Financing Activities |
||||||||||||
Revolving credit borrowings |
| | 10 | |||||||||
Revolving credit repayments |
| | (10 | ) | ||||||||
Proceeds from stock plans |
268 | 186 | 3,087 | |||||||||
Repurchase of company stock |
| | | |||||||||
Net cash provided from financing activities |
268 | 186 | 3,087 | |||||||||
Cash Flows from Investing Activities |
||||||||||||
Purchases of short-term investments |
(13,515 | ) | (1,241 | ) | | |||||||
Sales of short-term investments |
4,478 | | | |||||||||
Capital expenditures |
(909 | ) | (777 | ) | (1,527 | ) | ||||||
Net cash used for investing activities |
(9,946 | ) | (2,018 | ) | (1,527 | ) | ||||||
Effect of Exchange Rate Changes on Cash and Cash Equivalents |
(1,667 | ) | (956 | ) | 1,287 | |||||||
Net Increase (Decrease) in Cash and Cash Equivalents |
(12,865 | ) | 497 | 11,279 | ||||||||
Cash and Cash Equivalents, July 1 |
22,654 | 22,157 | 10,878 | |||||||||
Cash and Cash Equivalents, June 30 |
$ | 9,789 | $ | 22,654 | $ | 22,157 | ||||||
Supplemental Disclosure of Cash Flow Information |
||||||||||||
Cash paid during the year for interest |
$ | 5 | $ | 73 | $ | 93 | ||||||
Cash paid during the year for income taxes |
422 | 586 | 379 |
The notes to the consolidated financial statements are an integral part of these statements.
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PERCEPTRON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(In Thousands)
Accumulated | ||||||||||||||||||||||||
Other | Additional | Total | ||||||||||||||||||||||
Common Stock | Comprehensive | Paid-In | Retained | Shareholders | ||||||||||||||||||||
Shares | Amount | Income (Loss) | Capital | Earnings | Equity | |||||||||||||||||||
Balances, June 30, 2007 |
8,142 | $ | 81 | $ | 869 | $ | 36,346 | $ | 16,509 | $ | 53,805 | |||||||||||||
Comprehensive income (loss) |
||||||||||||||||||||||||
Net income |
995 | 995 | ||||||||||||||||||||||
Other comprehensive income |
||||||||||||||||||||||||
Foreign currency translation adjustments |
2,679 | 2,679 | ||||||||||||||||||||||
Hedging |
(734 | ) | (734 | ) | ||||||||||||||||||||
Unrealized loss on investment |
(582 | ) | (582 | ) | ||||||||||||||||||||
Total comprehensive income |
2,358 | |||||||||||||||||||||||
Stock-based compensation |
609 | 609 | ||||||||||||||||||||||
Stock plans |
702 | 7 | 3,080 | 3,087 | ||||||||||||||||||||
Balances, June 30, 2008 |
8,844 | $ | 88 | $ | 2,232 | $ | 40,035 | $ | 17,504 | $ | 59,859 | |||||||||||||
Comprehensive income (loss) |
||||||||||||||||||||||||
Net loss |
(3,525 | ) | (3,525 | ) | ||||||||||||||||||||
Other comprehensive income |
||||||||||||||||||||||||
Foreign currency translation adjustments |
(2,076 | ) | (2,076 | ) | ||||||||||||||||||||
Hedging |
(20 | ) | (20 | ) | ||||||||||||||||||||
Reversal of unrealized loss on investment |
582 | 582 | ||||||||||||||||||||||
Total comprehensive (loss) |
(5,039 | ) | ||||||||||||||||||||||
Stock-based compensation |
693 | 693 | ||||||||||||||||||||||
Stock plans |
29 | 1 | 186 | 187 | ||||||||||||||||||||
Balances, June 30, 2009 |
8,873 | $ | 89 | $ | 718 | $ | 40,914 | $ | 13,979 | $ | 55,700 | |||||||||||||
Comprehensive income (loss) |
||||||||||||||||||||||||
Net loss |
(805 | ) | (805 | ) | ||||||||||||||||||||
Other comprehensive income |
||||||||||||||||||||||||
Foreign currency translation adjustments |
(2,223 | ) | (2,223 | ) | ||||||||||||||||||||
Total comprehensive (loss) |
(3,028 | ) | ||||||||||||||||||||||
Stock-based compensation |
536 | 536 | ||||||||||||||||||||||
Stock plans |
88 | 1 | 267 | 268 | ||||||||||||||||||||
Balances, June 30, 2010 |
8,961 | $ | 90 | $ | (1,505 | ) | $ | 41,717 | $ | 13,174 | $ | 53,476 | ||||||||||||
The notes to the consolidated financial statements are an integral part of these statements.
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PERCEPTRON, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Operations
Perceptron, Inc. (Perceptron or the Company) develops, produces, and sells non-contact
measurement and inspection solutions for industrial and commercial applications. The products from
the Companys Industrial Business Unit (IBU) provide solutions for manufacturing process control
as well as sensor and software technologies for non-contact measurement, reverse engineering, and
inspection applications. IBU also offers Value Added Services such as training and customer
support services. Perceptrons Commercial Products Business Unit (CBU) develops and manufactures
a variety of handheld visual inspection devices and add-on accessories for professional tradesmen
that are sold to and marketed through strategic partners.
Basis of Presentation and Principles of Consolidation
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.
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. Revenue related to services is recognized upon
completion of the service. The Company also has multiple element arrangements in its Automated
Systems product line that may include purchase of equipment, labor support and/or training. Each
element has value on a stand-alone basis. For multiple element arrangements, the Company defers
from revenue recognition the greater of the fair value of any undelivered elements of the contract
or the portion of the sales price of the contract that is not payable until the undelivered
elements are completed. Delivered items are not contingent upon the delivery of any undelivered
items nor do the delivered items include general rights of return. The Companys Automated Systems
products are made to order systems that are designed and configured to meet each customers
specific requirements. The Company does not have price protection agreements or requirements to
buy back inventory. The Company has virtually no history of returns.
Research and Development
Research and development costs, including software development costs, are expensed as incurred.
Foreign Currency
The financial statements of the Companys wholly-owned foreign subsidiaries have been translated in
accordance with ASC 830, Foreign Currency Translation Matters 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 until disposal of the subsidiary.
Gains and losses on foreign currency transactions are included in the consolidated statement of
income under Other Income and Expenses.
Earnings Per Share
Basic earnings per share (EPS) is calculated by dividing net income by the weighted average
number of common shares outstanding during the period. Other obligations, such as stock options,
are considered to be potentially dilutive common shares. Diluted EPS assumes the issuance of
potential dilutive common shares outstanding during the period and adjusts for any changes in
income and the repurchase of common shares that would have occurred from the assumed issuance,
unless such effect is anti-dilutive. The calculation of diluted shares also takes into effect the
average unrecognized non-cash stock-based compensation expense and additional adjustments for tax
benefits related to non-cash stock-based compensation expense.
Options to purchase 960,000, 982,000, and 279,000 shares of common stock outstanding in the fiscal
years ended June 30, 2010, 2009 and 2008, respectively, were not included in the computation of
diluted EPS because the effect would have been anti-dilutive.
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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. At June 30, 2010, the Company had $9.8 million in cash and cash
equivalents of which $4.9 million was held in foreign bank accounts.
Accounts Receivable and Concentration of Credit Risk
The Company markets and sells its IBU products principally to automotive manufacturers, line
builders, system integrators, original equipment manufacturers (OEMs) and value-added resellers.
CBUs products are marketed through its strategic partners. The Companys 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 to 60 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 for doubtful accounts by considering a number of factors, including the
length of time trade accounts receivable are past due, the Companys previous loss history, the
customers current ability to pay its obligation to the Company, and the condition of the general
economy and the industry as a whole. The Company writes-off accounts receivable when they become
uncollectible, and payments subsequently received on such receivables are credited to the allowance
for doubtful accounts. Changes in the Companys allowance for doubtful accounts are as follows (in
thousands):
Beginning | Costs and | Less | Ending | |||||||||||||
Balance | Expenses | Charge-offs | Balance | |||||||||||||
Fiscal year ended June 30, 2010 |
$ | 603 | $ | 45 | $ | 510 | $ | 138 | ||||||||
Fiscal year ended June 30, 2009 |
$ | 228 | $ | 486 | $ | 111 | $ | 603 | ||||||||
Fiscal year ended June 30, 2008 |
$ | 673 | $ | (171 | ) | $ | 274 | $ | 228 |
Long and Short-term Investments
The Company accounts for its investments in accordance with ASC 320, Investments Debts and
Equity Securities. Investments with a maturity of greater than three months to one year are
classified as short-term investments. Investments with maturities beyond one year may be classified
as short-term if the Company reasonably expects the investment to be realized in cash or sold or
consumed during the normal operating cycle of the business. Investments available for sale are
recorded at market value using the specific identification method. Investments expected to be held
to maturity or until market conditions improve are measured at amortized cost in the statement of
financial position if it is the Companys intent and ability to hold those securities long-term.
Each balance sheet date, the Company evaluates its investments for possible other-than-temporary
impairment which involves significant judgment. In making this judgment, management reviews factors
such as the length of time and extent to which fair value has been below the cost basis, the
anticipated recovery period, the financial condition of the issuer, the credit rating of the
instrument and the Companys ability and intent to hold the investment for a period of time which
may be sufficient for recovery of the cost basis. Any unrealized gains and losses on securities are
reported as other comprehensive income as a separate component of shareholders equity until
realized or until a decline in fair value is determined to be other than temporary. Once a decline
in fair value is determined to be other-than-temporary, an impairment charge is recorded in the
income statement. If market, industry, and/or investee conditions deteriorate, future impairments
may be incurred.
At June 30, 2010, the Company had $10.3 million of short-term investments in certificate of
deposits and variable rate demand note holdings of which $7.6 million was held by the Companys
foreign subsidiaries.
At June 30, 2010, the Company holds long-term investments in preferred stock investments that are
not registered under the Securities Act of 1933 and may not be offered or sold in the United States
absent registration or an applicable exemption from registration requirements. During the quarter
ended March 31, 2009, the Companys long-term investments in auction-rate securities totaling $6.3
million at cost were converted by the issuers to preferred stock. The Company estimated that the
fair market value of these investments at June 30, 2010 was $2.2 million based on an independent
valuation performed by an external independent valuation firm completed in the third quarter of
fiscal 2009 together with managements judgment of the market. The fair market analysis considered
the following key inputs, (i) the underlying structure of each security; (ii) the present value of
the future principal and dividend payments discounted at rates considered to reflect current market
conditions; and (iii) the time horizon that the market value of each security could return to its
cost and be sold. Under ASC 820, Fair Value Measurements and Disclosures, such valuation
assumptions are defined as Level 3 inputs.
During fiscal 2009 and 2008, the Company recorded an other-than-temporary impairment charge of $1.5
million and $2.6 million, respectively, pertaining to these long-term investments. The impairment
amount was based on the Companys assessment during those years that it was likely that the fair
value of those investments would not be fully recovered in the foreseeable future. The assessment
gave consideration to the duration, severity, and continued declining trend of the fair value of
those securities, as well as the uncertain financial condition and near-term prospects of the
issuers.
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Unrealized | Estimated | |||||||||||
Long-term Investments | Cost | Gains (Losses) | Fair Value | |||||||||
June 30, 2010 |
||||||||||||
Preferred Stock |
$ | 6,300 | $ | 4,108 | $ | 2,192 | ||||||
June 30, 2009 |
||||||||||||
Preferred Stock |
$ | 6,300 | $ | 4,108 | $ | 2,192 |
Inventory
Inventory is stated at the lower of cost or market. The cost of inventory is determined by the
first-in, first-out (FIFO) method. The Company provides a reserve for obsolescence to recognize
the effects of engineering change orders, age and use of inventory that affect the value of the
inventory. When the related inventory is disposed of, the obsolescence reserve is reduced. A
detailed review of the inventory is performed annually with quarterly updates for known changes
that have occurred since the annual review. Inventory, net of reserves of $1.4 million and
$646,000 at June 30, 2010 and June 30, 2009, respectively, is comprised of the following (in
thousands):
At June 30, | ||||||||
2010 | 2009 | |||||||
Component parts |
$ | 1,507 | $ | 2,651 | ||||
Work in process |
238 | 90 | ||||||
Finished goods |
4,806 | 7,264 | ||||||
Total |
$ | 6,551 | $ | 10,005 | ||||
Changes in the Companys reserves for obsolescence are as follows (in thousands):
Beginning | Costs and | Less | Ending | |||||||||||||
Balance | Expenses | Charge-offs | Balance | |||||||||||||
Fiscal year ended June 30, 2010 |
$ | 646 | $ | 835 | $ | 68 | $ | 1,413 | ||||||||
Fiscal year ended June 30, 2009 |
$ | 1,304 | $ | 1,075 | $ | 1,733 | $ | 646 | ||||||||
Fiscal year ended June 30, 2008 |
$ | 911 | $ | 453 | $ | 60 | $ | 1,304 |
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 13 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.
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 basis, 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.
Financial Instruments
The carrying amounts of the Companys financial instruments, which include cash and cash
equivalents, short-term and long-term investments, accounts receivable, accounts payable, forward
exchange contracts and amounts due to banks or other lenders, approximate their fair values at June
30, 2010 and 2009. 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 contracts fair value are recognized in
accumulated other comprehensive income until they are recognized in earnings at the time the
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Table of Contents
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. For forward exchange contracts designated as hedging the net assets of the Companys
foreign subsidiaries, changes in the contracts fair value are offset against the translation
reflected in shareholders equity to the extent effective. The Company does not enter into any
derivative transactions for speculative purposes.
Effective July 1, 2008, the Company adopted the provisions of ASC 820, Fair Value Measurements and
Disclosures for all financial assets and liabilities and nonfinancial assets and liabilities that
are recognized or disclosed at fair value in the financial statements on a recurring basis. ASC
820, defines fair value, establishes a framework for measuring fair value and expands disclosures
about fair value measurements. Financial instruments held by the Company at June 30, 2010 include
investments classified as held for sale, certificate of deposits and money market funds.
ASC 820 establishes a hierarchy of valuation techniques based upon whether the inputs to those
valuation techniques reflect assumptions other market participants would use based upon market data
obtained from independent sources (observable inputs), or reflect the Companys own assumptions of
market participant valuation (unobservable inputs). These two types of inputs create the following
fair value hierarchy:
| Level 1 Quoted prices in active markets that are unadjusted and accessible at the
measurement date for identical, unrestricted assets or liabilities. |
||
| Level 2 Quoted prices for identical assets and liabilities in markets that are not
active, quoted prices for similar assets and liabilities in active markets or financial
instruments for which significant inputs are observable, either directly or indirectly. |
||
| Level 3 Prices or valuations that require inputs that are both significant to the fair
value measurement and unobservable and reflect managements estimates and assumptions. |
ASC 820 requires the use of observable market data if such data is available without undue cost and
effort.
The following table presents the Companys investments at June 30, 2010 that are measured and
recorded at fair value on a recurring basis consistent with the fair value hierarchy provisions of
ASC 820.
(in thousands) | June 30, 2010 | Level 1 | Level 2 | Level 3 | ||||||||||||
Short-Term Investments |
$ | 7 | $ | 7 | | | ||||||||||
Long-Term Investments |
$ | 2,192 | | | $ | 2,192 |
The following table presents the changes in the Companys assets measured at fair value on a
recurring basis using significant unobservable inputs (Level 3) as defined in ASC 820 for fiscal
year 2010 and 2009. The Companys Level 3 investments consist of preferred stock investments (see
Note 1 Summary of Significant Accounting Policies Long and Short-term Investments).
(in thousands) | Level 3 Assets | |||
Balance at June 30, 2009 |
$ | 2,192 | ||
Other-than-temporary impairment charges |
| |||
Balance at June 30, 2010 |
$ | 2,192 | ||
(in thousands) | Level 3 Assets | |||
Balance at June 30, 2008 |
$ | 3,104 | ||
Other-than-temporary impairment charges |
(1,494 | ) | ||
Temporary impairment charges |
582 | |||
Balance at June 30, 2009 |
$ | 2,192 | ||
Fair value estimates are made at a specific point in time based on relevant market information and
information about the financial instrument. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore, cannot be determined with
precision. Changes in assumptions could significantly affect these estimates.
Warranty
Automated Systems products generally carry a two or three-year warranty for parts and a one-year
warranty for labor and travel related to warranty. Product sales to the forest products industry
carry a three-year warranty for TriCam® sensors. Sales of ScanWorks® and
ScanWorks® ToolKit have a one-year warranty for parts; sales of WheelWorks®
products have a two-year warranty for parts; sales of the Companys commercial products have either
a two or three-year warranty for parts and labor. The Company provides a reserve for warranty
based on its experience and knowledge. Factors affecting the Companys warranty liability include
the number of units sold or 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
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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.
Beginning | Costs and | Less | Ending | |||||||||||||
(in thousands) | Balance | Expenses | Charge-offs | Balance | ||||||||||||
Fiscal year ended June 30, 2010 |
$ | 301 | $ | 353 | $ | 348 | $ | 306 | ||||||||
Fiscal year ended June 30, 2009 |
$ | 480 | $ | 453 | $ | 632 | $ | 301 | ||||||||
Fiscal year ended June 30, 2008 |
$ | 263 | $ | 723 | $ | 506 | $ | 480 |
Advertising Expense
The Company charges advertising expense in the period incurred. As of June 30, 2010, 2009, and
2008, advertising expense was $207,000, $442,000, and $623,000, respectively.
Self-Insurance
The Company is self-insured for health, vision and short-term disability costs up to a certain stop
loss level per claim and on an aggregate basis of a percentage of estimated annual costs. The
estimated liability is based upon review by management and an independent insurance consultant of
claims filed and claims incurred but not reported.
New Accounting Pronouncements
In January 2010, the Financial Accounting Standards Board (FASB) issued guidance to amend the
disclosure requirements related to recurring and nonrecurring fair value measurements. The guidance
requires new disclosures on the transfers of assets and liabilities between Level 1 (quoted prices
in active market for identical assets or liabilities) and Level 2 (significant other observable
inputs) of the fair value measurement hierarchy, including the reasons and the timing of the
transfers. Additionally, the guidance requires a roll forward of activities on purchases, sales,
issuance, and settlements of the assets and liabilities measured using significant unobservable
inputs (Level 3 fair value measurements). The guidance became effective for the Company with the
reporting period beginning January 1, 2010, except for the disclosure on the roll forward
activities for Level 3 fair value measurements, which will become effective for the Company with
the reporting period beginning July 1, 2011. Other than requiring additional disclosures, adoption
of this new guidance did not have a material impact on the
Companys consolidated financial statements.
In June 2009, the FASB issued Topic 105, The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles (ASC). The ASC instituted a major change
in the way accounting standards are organized and became the official single source of
authoritative, nongovernmental U.S. generally accepted accounting principles (GAAP). The only
authoritative literature is the ASC and other guidance issued by the Securities and Exchange
Commission. All other literature is non-authoritative. The Company adopted the ASC in the first
quarter of fiscal 2010. The adoption of the ASC had no impact on the Companys consolidated
financial statements.
2. Leases
The Company leases building space, office equipment and motor vehicles under operating leases.
Lease terms generally cover periods from two to five years and may contain renewal options. The
following is a summary, as of June 30, 2010, of the future minimum annual lease payments required
under the Companys operating leases having initial or remaining non-cancelable terms in excess of
one year (in thousands):
Year | Minimum Rentals | |||
2011 |
$ | 843 | ||
2012 |
483 | |||
2013 |
127 | |||
2014 |
16 | |||
2015 and beyond |
10 | |||
Total minimum lease payments |
$ | 1,479 | ||
Rental expenses for operating leases in the fiscal years ended June 30, 2010, 2009 and 2008 were
$1,195,000, $1,256,000 and $1,278,000, respectively.
3. Credit Facilities
The Company had no debt outstanding at June 30, 2010 and June 30, 2009.
The Company has a $6.0 million secured Credit Agreement, which expires on November 1, 2011.
Proceeds under the Credit Agreement may be used for working capital and capital expenditures.
Security under the Credit Agreement is
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substantially all non-real estate assets of the Company held in the United States. Borrowings are
designated as a Libor-based Advance or as a Prime-based Advance if the Libor-based Advance is not
available. Interest on Libor-based Advances is calculated currently at 2.35% above the Libor Rate
offered at the time for the period chosen, and is payable on the last day of the applicable period.
The Company may not select a Prime-based rate for Advances except during a period of time during
which the Libor-based rate is not available as the applicable interest rate. Interest on
Prime-based Advances is payable on the first business day of each month commencing on the first
business day following the month during which such Advance is made and at maturity and is
calculated daily, using the interest rate established by the Bank as its prime rate for its
borrowers. Quarterly, the Company pays a commitment fee of 0.15% per annum on the daily unused
portion of the Credit Agreement. The Credit Agreement prohibits the Company from paying dividends.
In addition, the Credit Agreement requires the Company to maintain, unless waived, a minimum
Tangible Net Worth, as defined in the Credit Agreement, of not less than $41.7 million as of June
30, 2010 and to have no advances outstanding for 30 consecutive days each calendar year.
At June 30, 2010, the Companys German subsidiary (GmbH) had an unsecured credit facility totaling
300,000 Euros (equivalent to approximately $366,000). The facility may be used to finance working
capital needs and equipment purchases or capital leases. Any borrowings for working capital needs
will bear interest at 9.0% on the first 100,000 Euros of borrowings and 2.0% for borrowings over
100,000 Euros. The German credit facility is cancelable at any time by either GmbH or the bank and
any amounts then outstanding would become immediately due and payable. At June 30, 2010, GmbH had
no borrowings outstanding. At June 30, 2010, the facility supported outstanding letters of credit
totaling 62,552 Euros (equivalent to approximately $76,000).
4. Foreign Exchange Contracts
The Company may use, from time to time, a limited hedging program to minimize the impact of foreign
currency fluctuations. These transactions involve the use of forward contracts, typically mature
within one year and are designed to hedge anticipated foreign currency transactions. The Company
may use forward exchange contracts to hedge the net assets of certain of its foreign subsidiaries
to offset the translation and economic exposures related to the Companys investment in these
subsidiaries.
At June 30, 2010 and 2009 the Company had no forward exchange contracts outstanding. At June 30,
2008, the Company had approximately $7.6 million of forward exchange contracts between the United
States Dollar and the Euro with a weighted average settlement price of 1.52 Euro to each United
States Dollar. The Company recognized a loss of $20,000 and $734,000, respectively in other
comprehensive income (loss) for the unrealized change in value of forward exchange contracts during
the fiscal years ended June 30, 2009 and June 30, 2008, respectively.
5. Information About Major Customers
The Company has two segments: the Industrial Business Unit and the Commercial Products Business
Unit.
The Companys principal customers for its Automated Systems (AutoGauge, AutoFit, AutoScan,
AutoGuide) products have historically been manufacturing companies that the Company either sells to
directly or through manufacturing line builders, system integrators or OEMs. The Companys
Automated Systems products are typically purchased for installation in connection with retooling
programs undertaken by these companies. Because sales are dependent on the timing of customers
re-tooling programs, sales by customer vary significantly from year to year, as do the Companys
largest customers. For the fiscal year ended June 30, 2010, approximately 32.5% of total net sales
were derived from the Companys four largest customers (Volkswagen Group, General Motors, BMW, and
Ford Motor). For the fiscal year ended June 30, 2009 approximately 25% of total net sales were
derived from the Companys four largest automotive customers (Volkswagen Group, General Motors,
Ford Motor, and BMW). For the fiscal year ended June 30, 2008 approximately 26% of total net sales
were derived from the Companys four largest automotive customers (General Motors, Volkswagen
Group, Chrysler, and BMW). The Company also sells to manufacturing line builders, system
integrators or OEMs, who in turn sell to these same automotive companies. For the fiscal year
ended June 30, 2010, 2009, and 2008, approximately 10%, 8% and 7%, respectively, of net sales were
to manufacturing line builders, system integrators and OEMs for the benefit of the same four
automotive companies. These numbers reflect consolidations that have occurred within the Companys
four largest automotive customers. During the fiscal year ended June 30, 2010, direct sales to
Volkswagen Group accounted for approximately 22.5% of the Companys total net sales. At June 30,
2010, accounts receivable from Volkswagen Group totaled approximately $2.7 million.
The Companys commercial products sales in fiscal 2010 were primarily sold to Snap-on and Ridge
Tool for distribution through their wholesale and retail distribution networks. During 2010, the
Company entered into supply agreements with three new partners. Sales to one of the new partners,
Rothenberger, began in June 2010. Sales to the other two partners are expected to begin in fiscal
2011. The Companys supply agreement with Ridge Tool expired in fiscal 2010 and was not renewed.
During the fiscal year ended June 30, 2010, sales to Snap-on and Ridge Tool were 12.3% and 10.2%,
respectively, of the Companys total net sales. At June 30, 2010, accounts receivable from Snap-on
and Ridge Tool totaled approximately $1.5 million and $1.6 million, respectively.
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6. Contingencies
Management is currently unaware of any significant pending litigation affecting the Company, other
than the matters set forth below.
The Company is a party to a suit filed by Industries GDS, Inc., Bois Granval GDS Inc., and Centre
de Preparation GDS, Inc. (collectively, GDS) on or about November 21, 2002 in the Superior Court
of the Judicial District of Quebec, Canada against the Company, Carbotech, Inc. (Carbotech), and
U.S. Natural Resources, Inc. (USNR), among others. The suit alleges that the Company breached
its contractual and warranty obligations as a manufacturer in connection with the sale and
installation of three systems for trimming and edging wood products. The suit also alleges that
Carbotech breached its contractual obligations in connection with the sale of equipment and the
installation of two trimmer lines, of which the Companys systems were a part, and that USNR, which
acquired substantially all of the assets of the Forest Products business unit from the Company, was
liable for GDS damages. USNR has sought indemnification from the Company under the terms of
existing contracts between the Company and USNR. GDS seeks compensatory damages against the
Company, Carbotech and USNR of approximately $6.4 million using a June 30, 2010 exchange rate. GDS
and Carbotech have filed for bankruptcy protection in Canada. The Company intends to vigorously
defend against GDS claims.
The Company is a party to a suit filed by i-CEM Service, Inc. and 3CEMS Prime (collectively
3CEMS) on or about July 1, 2010 in the Federal Court for the Northern District of Illinois. The
suit alleges that the Company breached its contractual and common law indemnification obligations
by failing to pay for component parts used to manufacture optical video scopes. The suit seeks
damages of not less than $4 million. The Company intends to vigorously defend against 3CEMS
claims.
The Company may, from time to time, be subject to other claims and suits in the ordinary course of
its business.
To estimate whether a loss contingency should be accrued by a charge to income, the Company
evaluates, among other factors, the degree of probability of an unfavorable outcome and the ability
to make a reasonable estimate of the amount of the loss. Since the outcome of claims and litigation
is subject to significant uncertainty, changes in these factors could materially impact the
Companys financial position or results of operations.
7. 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 Companys contributions during the fiscal
years ended June 30, 2010, 2009 and 2008, were $0, $387,000 and $541,000, respectively.
8. 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 Companys common stock at
85% of its market value at the beginning of the six-month election period. Purchases are limited
to 10% of an employees eligible compensation and the shares purchased are restricted from being
sold for one year from the purchase date. At June 30, 2010, 98,525 shares remained available under
the Plan. During fiscal years 2010, and 2008, 16,213 and 10,429 shares, respectively, were issued
to employees. The average purchase price per share was $2.83 and $7.78 in fiscal years 2010 and
2008, respectively. No shares were issued to employees during fiscal year 2009. During fiscal
years 2010, 2009 and 2008, the Company recorded non-cash stock based compensation expense of
$25,000, $8,000 and $14,000, respectively, related to this plan.
9. Stock Based Compensation
The Company uses the Black-Scholes model for determining stock option valuations. The
Black-Scholes model requires subjective assumptions, including future stock price volatility and
expected time to exercise, which affect the calculated values. The expected term of option
exercises is derived from historical data regarding employee exercises and post-vesting employment
termination behavior. The risk-free rate of return is based on published U.S. Treasury rates in
effect for the corresponding expected term. The expected volatility is based on historical
volatility of the Companys stock price. These factors could change in the future, which would
affect the stock-based compensation expense in future periods.
The Company recognized operating expense for non-cash stock-based compensation costs in the amount
of $536,000, $693,000 and $609,000 for the fiscal years ended June 30, 2010, 2009 and 2008,
respectively. This had the effect of decreasing net income by $362,000, or $0.04 per diluted share
for the fiscal year ended June 30, 2010, $461,000 or $0.05 per diluted share for fiscal year 2009
and $446,000 or $0.05 per diluted share for fiscal year 2008. As of June 30, 2010, the total
remaining unrecognized compensation cost related to non-vested stock options amounted to $635,000.
The Company expects to recognize this cost over a weighted average vesting period of 2 years.
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The Company received $142,000 in cash from option exercises under all share-based payment
arrangements for the twelve months ended June 30, 2010. The actual tax benefit realized, that
related to tax deductions for non-qualified options exercised and disqualifying dispositions under
all share-based payment arrangements, totaled approximately, $43,000 for fiscal 2010.
The Company maintains a 1992 Stock Option Plan (1992 Plan) and 1998 Global Team Member Stock
Option Plan (1998 Plan) covering substantially all company employees and certain other key
persons and a Directors Stock Option Plan (Directors Plan) covering all non-employee directors.
During fiscal 2005, shareholders approved a new 2004 Stock Incentive Plan that replaced the 1992
and Directors Plans as to future grants. No further grants are permitted to be made under the
terms of the 1998 Plan. Options previously granted under the 1992, Directors and 1998 Plans will
continue to be maintained until all options are exercised, cancelled or expire. The 2004, 1992 and
Directors Plans are administered by a committee of the Board of Directors, the Management
Development, Compensation and Stock Option Committee. The 1998 Plan is administered by the
President of the Company.
Awards under the 2004 Stock Incentive Plan may be in the form of stock options, stock appreciation
rights, restricted stock or restricted stock units, performance share awards, director stock
purchase rights and deferred stock units; or any combination thereof. The terms of the awards will
be determined by the Management Development, Compensation and Stock Option Committee, except as
otherwise specified in the 2004 Stock Incentive Plan. As of June 30, 2010, the Company has only
issued awards in the form of stock options. Options outstanding under the 2004 Stock Incentive
Plan and the 1992 and 1998 Plans generally become exercisable at 25% per year beginning one year
after the date of grant and expire ten years after the date of grant. All options outstanding
under the 1992 and Directors Plans are vested and expire ten years from the date of grant. Option
prices for options granted under these plans must not be less than fair market value of the
Companys stock on the date of grant.
Activity under these Plans is shown in the following tables:
Fiscal Year 2010 | Fiscal Year 2009 | |||||||||||||||||||||||
Weighted | Aggregate | Weighted | Aggregate | |||||||||||||||||||||
Average | Intrinsic | Average | Intrinsic | |||||||||||||||||||||
Exercise | Value(1) | Exercise | Value(1) | |||||||||||||||||||||
Shares subject to option | Shares | Price | ($000) | Shares | Price | ($000) | ||||||||||||||||||
Outstanding at beginning of period |
1,435,592 | $ | 6.30 | 1,291,037 | $ | 6.87 | ||||||||||||||||||
New Grants (based on fair value of
common stock at dates of grant) |
20,000 | $ | 3.15 | 243,100 | $ | 3.07 | ||||||||||||||||||
Exercised |
(49,575 | ) | $ | 3.29 | (13,680 | ) | $ | 5.19 | ||||||||||||||||
Expired |
(139,383 | ) | $ | 6.90 | (53,477 | ) | $ | 5.27 | ||||||||||||||||
Forfeited |
(26,105 | ) | $ | 6.69 | (31,388 | ) | $ | 7.79 | ||||||||||||||||
Outstanding at end of period |
1,240,529 | $ | 6.29 | $ | 814 | 1,435,592 | $ | 6.30 | $ | 427 | ||||||||||||||
Exercisable at end of period |
849,206 | $ | 6.31 | $ | 550 | 821,008 | $ | 5.99 | $ | 324 |
Fiscal Year 2008 | ||||||||||||
Weighted | Aggregate | |||||||||||
Average | Intrinsic | |||||||||||
Exercise | Value(1) | |||||||||||
Shares subject to option | Shares | Price | ($000) | |||||||||
Outstanding at beginning of period |
1,834,959 | $ | 6.53 | |||||||||
New Grants (based on fair value of
common stock at dates of grant) |
282,000 | $ | 9.85 | |||||||||
Exercised |
(664,385 | ) | $ | 4.30 | ||||||||
Expired |
(104,865 | ) | $ | 24.60 | ||||||||
Forfeited |
(56,672 | ) | $ | 7.83 | ||||||||
Outstanding at end of period |
1,291,037 | $ | 6.87 | $ | 2,746 | |||||||
Exercisable at end of period |
662,144 | $ | 5.08 | $ | 2,433 |
(1) | The intrinsic value of a stock option is the amount by which the current market value of the
underlying stock exceeds the exercise price of the option. The total intrinsic value of stock
options exercised during the fiscal years ended June 30, 2010, 2009 and 2008, were $42,000, $16,000
and $2,710,000, respectively. The total fair value of shares vested during the fiscal years ended
June 30, 2010, 2009 and 2008, were $677,000, $820,000 and $919,000, respectively. |
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The estimated fair value as of the date options were granted during the periods presented using
the Black-Scholes option-pricing model, was as follows:
2010 | 2009 | 2008 | ||||||||||
Weighted Average Estimated Fair Value
Per Share Of Options Granted During The
Period |
$ | 1.38 | $ | 1.15 | $ | 3.53 | ||||||
Assumptions: |
||||||||||||
Amortized Dividend Yield |
| | | |||||||||
Common Stock Price Volatility |
47.35 | % | 39.86 | % | 32.93 | % | ||||||
Risk Free Rate Of Return |
2.38 | % | 1.93 | % | 3.90 | % | ||||||
Expected Option Term (in years) |
5 | 5 | 5 |
The following table summarizes information about stock options at June 30, 2010:
Options Outstanding | Options Exercisable | |||||||||||||||||||
Weighted | Weighted | Weighted | ||||||||||||||||||
Average | Average | Average | ||||||||||||||||||
Remaining | Exercise | Exercise | ||||||||||||||||||
Range of Exercise Prices | Shares | Contractual Life | Price | Shares | Price | |||||||||||||||
$1.24 to $2.80 |
317,705 | 5.03 | $ | 2.18 | 202,505 | $ | 1.83 | |||||||||||||
3.15 to 6.97 |
347,187 | 5.41 | $ | 5.61 | 268,687 | $ | 6.26 | |||||||||||||
6.98 to 8.81 |
402,137 | 6.58 | $ | 8.33 | 279,389 | $ | 8.20 | |||||||||||||
8.92 to 14.03 |
173,500 | 7.22 | $ | 10.48 | 98,625 | $ | 10.30 | |||||||||||||
$1.24 to $14.03 |
1,240,529 | 5.95 | $ | 6.29 | 849,206 | $ | 6.31 | |||||||||||||
At June 30, 2010, options covering 160,865 shares were available for future grants under the 2004
Plan.
10. Income Taxes
Income (loss) from continuing operations before income taxes for U.S. and foreign operations was as
follows (in thousands):
2010 | 2009 | 2008 | ||||||||||
U.S. |
$ | (4,386 | ) | $ | (2,242 | ) | $ | (388 | ) | |||
Foreign |
1,389 | (3,318 | ) | 1,122 | ||||||||
Total |
$ | (2,997 | ) | $ | (5,560 | ) | $ | 734 | ||||
The income tax (provision) benefit reflected in the statement of income consists of the following (in thousands):
2010 | 2009 | 2008 | ||||||||||
Current provision (benefit): |
||||||||||||
U.S. Federal & State |
$ | (969 | ) | $ | (14 | ) | $ | (21 | ) | |||
Foreign |
468 | (452 | ) | (629 | ) | |||||||
Deferred taxes |
||||||||||||
U.S. |
(1,651 | ) | 1,222 | 811 | ||||||||
Foreign |
(40 | ) | 1,279 | 100 | ||||||||
Total provision (benefit) |
$ | (2,192 | ) | $ | 2,035 | $ | 261 | |||||
The Companys deferred tax assets are substantially represented by the tax benefit of net operating
losses, tax credit carry-forwards and the tax benefit of future deductions represented by timing
differences for unrealized losses on investments, allowances for bad debts, warranty expenses,
deferred revenue and inventory obsolescence. The Company established in fiscal 2002 a valuation
allowance for 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.
In the fourth quarter of fiscal 2008, the Company recognized a $619,000 tax benefit from the
reduction of a portion of the Companys tax valuation allowance related to tax credits that the
Company continues to believe are more likely than not to be realized based on the continued and
expected future taxable income of the Company. Mitigating the decrease in fiscal 2008 was an
increase in the valuation allowance for net operating loss carry-forwards related to some of the
Companys foreign operations where the Company believed it was more likely than not that the tax
benefits would not be fully utilized in the next few years. The Company continues to have a
valuation allowance for tax credit carry-forwards in
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the United States that it still expects will more likely than not expire prior to the tax benefit
being realized. The Company also has a valuation allowance for net operating loss carry-forwards
for some of its foreign operations. The components of deferred tax assets were as follows (in
thousands):
2010 | 2009 | 2008 | ||||||||||
Benefit of net operating losses |
$ | 7,379 | $ | 6,657 | $ | 4,130 | ||||||
Tax credit carry-forwards |
4,240 | 4,125 | 3,842 | |||||||||
Other, principally reserves |
3,035 | 2,381 | 2,629 | |||||||||
Deferred tax asset |
14,654 | 13,163 | 10,601 | |||||||||
Valuation allowance |
(2,769 | ) | (2,970 | ) | (2,920 | ) | ||||||
Net deferred tax asset |
$ | 11,885 | $ | 10,193 | $ | 7,681 | ||||||
Rate reconciliation: |
||||||||||||
Provision at U.S. statutory rate |
34.0 | % | 34.0 | % | 34.0 | % | ||||||
Net effect of taxes on foreign activities |
(5.2 | )% | (3.6 | )% | (12.1 | )% | ||||||
Tax effect of U.S. permanent differences |
12.1 | % | 3.9 | % | (4.4 | )% | ||||||
State taxes and other, net |
(0.2 | )% | 0.1 | % | 1.8 | % | ||||||
Adjustment of federal/foreign income taxes related to prior years |
25.7 | % | 1.3 | % | (15.9 | )% | ||||||
Valuation allowance |
6.7 | % | 0.9 | % | (39.0 | )% | ||||||
Effective tax rate |
73.1 | % | 36.6 | % | (35.6 | )% | ||||||
No provision was made with respect to earnings as of June 30, 2010 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, 2010, the Company had net operating
loss carry-forwards for Federal income tax purposes of $19.9 million that expire in the years 2021
through 2030 and tax credit carry-forwards of $4.2 million of which $4.1 million expire in the
years 2010 through 2029. Included in the Federal net operating loss carry-forward is $6.0 million
from the exercise of employee stock options, the tax benefit of which, when recognized, will be
accounted for as an increase to additional paid-in-capital rather than a reduction of the income
tax provision. The net change in the total valuation allowance for the years ended June 30, 2010,
2009 and 2008 was a decrease of $201,000, an increase of $50,000 and a decrease of $286,000,
respectively.
On June 30, 2010, the Company had $1.0 million of unrecognized tax benefits, of which $1.0 million
would affect the effective tax rate if recognized. As of June 30, 2009, the Company had $1.7
million of unrecognized tax benefits, of which $954,000 would affect the effective tax rate if
recognized. The Companys policy is to classify interest and penalties related to unrecognized tax
benefits as interest expense and income tax expense, respectively. As of June 30, 2010 there was
no accrued interest or penalties related to uncertain tax positions recorded on the Companys
financial statements. For U.S. Federal income tax purposes, the tax years 2007 2010 remain open
to examination by government tax authorities. For German income tax purposes, the 2008 and 2010
tax years remain open to examination by government tax authorities.
The aggregate changes in the balance of unrecognized tax benefits were as follows (in thousands):
Year End June 30, | 2010 | |||
Balance, beginning of year |
$ | 1,719 | ||
Increases for tax positions related to the current year |
94 | |||
Decreases for tax positions related to prior years |
(765 | ) | ||
Balance, year end |
$ | 1,048 | ||
11. Segment and Geographic Information
Effective July 1, 2009, the Company reorganized its business into two operating segments, the
Industrial Business Unit (IBU) and the Commercial Products Business Unit (CBU). The
reorganization of the Companys business segments was in response to the growth potential,
increased development and focus that occurred in the Companys commercial products since its
initial sales in the third quarter of fiscal 2007. The Companys reportable segments are strategic
business units that have separate management teams focused on different marketing strategies. The
IBU segment markets its products primarily to industrial companies directly or through
manufacturing line builders, system integrators, original equipment manufacturers (OEMs) and
value-added resellers (VARs). Products sold by IBU include automated systems products consisting
of AutoGauge®, AutoGauge® Plus, AutoFit®,
AutoScan®, and AutoGuide®
that are primarily custom-configured systems typically purchased for installation in connection
with new automotive model retooling programs, value added services that are primarily related to
automated systems products, and technology components consisting of ScanWorks®,
ScanWorks®xyz, WheelWorks® and Multi-line Sensor products that target the
digitizing, reverse engineering, inspection and original equipment manufacturers wheel alignment
markets. The CBU segment products are designed for sale to professional tradesmen in the
commercial market and are sold to and distributed through strategic partners.
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The accounting policies of the segments are the same as those described in the summary of
significant policies. The Company evaluates performance based on operating income, excluding
unusual items. Company-wide costs are allocated between segments based on revenues and/or labor as
deemed appropriate. Segment results for the fiscal years ended June 30, 2008 and 2009 have been
revised to conform to the new fiscal 2010 segment reporting structure.
Industrial Business | Commercial Products | |||||||||||
Reportable Segments ($000) | Unit | Business Unit | Consolidated | |||||||||
Twelve months ended June 30, 2010 |
||||||||||||
Net sales |
$ | 40,199 | $ | 11,942 | $ | 52,141 | ||||||
Operating loss |
(727 | ) | (2,712 | ) | (3,439 | ) | ||||||
Assets, net |
42,498 | 22,155 | 64,653 | |||||||||
Accumulated depreciation and amortization |
13,730 | 361 | 14,091 | |||||||||
Twelve months ended June 30, 2009 |
||||||||||||
Net sales |
$ | 38,287 | $ | 23,249 | $ | 61,536 | ||||||
Operating income (loss) |
(7,735 | ) | 2,890 | (4,845 | ) | |||||||
Assets, net |
34,355 | 31,004 | 65,359 | |||||||||
Accumulated depreciation and amortization |
13,272 | 491 | 13,763 | |||||||||
Twelve months ended June 30, 2008 |
||||||||||||
Net sales |
$ | 54,307 | $ | 18,205 | $ | 72,512 | ||||||
Operating income |
1,052 | 928 | 1,980 | |||||||||
Assets, net |
53,753 | 21,440 | 75,193 | |||||||||
Accumulated depreciation and amortization |
13,240 | 167 | 13,407 |
The Company primarily accounts for geographic sales based on the country from which the sale is
invoiced rather than the country to which the product is shipped. The Company operates in three
primary geographic areas: The Americas (substantially all of which is the United States, with
immaterial net sales in Brazil), Europe, and Asia.
Geographical Regions ($000) | Americas | Europe1 | Asia | Consolidated | ||||||||||||
Twelve months ended June 30, 2010 |
||||||||||||||||
Net sales |
$ | 26,232 | $ | 20,279 | $ | 5,630 | $ | 52,141 | ||||||||
Long-lived assets, net |
7,617 | 306 | 200 | 8,123 | ||||||||||||
Twelve months ended June 30, 2009 |
||||||||||||||||
Net sales |
$ | 38,846 | $ | 19,284 | $ | 3,406 | $ | 61,536 | ||||||||
Long-lived assets, net |
8,112 | 402 | 215 | 8,729 | ||||||||||||
Twelve months ended June 30, 2008 |
||||||||||||||||
Net sales |
$ | 43,308 | $ | 24,170 | $ | 5,034 | $ | 72,512 | ||||||||
Long-lived assets, net |
9,674 | 500 | 191 | 10,365 |
1 | The Companys German subsidiary had net external sales of $20.3 million, $19.3
million and $24.2 million in the fiscal years ended June 30, 2010, 2009 and 2008,
respectively. Long-lived assets of the Companys German subsidiary were $293,000, $383,000
and $468,000 as of June 30, 2010, 2009 and 2008, respectively. |
12. Restructuring
During the third quarter of fiscal 2009, the Company implemented a significant cost reduction plan
for its Industrial Business Unit. The actions did not affect the Commercial Products Business
Unit. Most of the cost reduction actions took place in North America with a smaller amount in
Europe. The actions included reducing personnel, benefits, contract services and other related
expenses. During the quarter ended March 31, 2009, the Company recorded a restructuring charge of
approximately $1.0 million related to severance and other related costs.
13. Subsequent Events
The Company has evaluated subsequent events through the date that the consolidated financial
statements were issued. No events have taken place that meet the definition of a subsequent event
that requires disclosure in this filing.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES
None.
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ITEM 9A: CONTROLS AND PROCEDURES
Evaluation Of Disclosure Controls And Procedures
The Company carried out an evaluation, under the supervision and with the participation of the
Companys management, including its Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of the Companys disclosure controls and procedures
pursuant to Rule 13a-15 of the Securities Exchange Act of 1934 (the 1934 Act). Based upon that
evaluation, the Companys Chief Executive Officer and Chief Financial Officer concluded that, as of
June 30, 2010, the Companys disclosure controls and procedures were effective. Rule 13a-15(e) of
the 1934 Act defines disclosure controls and procedures as controls and other procedures of the
Company that are designed to ensure that information required to be disclosed by the Company in the
reports that it files or submits under the 1934 Act is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange Commissions rules and
forms. Disclosure controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by the Company in the reports that it
files or submits under the 1934 Act is accumulated and communicated to the Companys management,
including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely
decisions regarding required disclosure.
Report Of Management On Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting for the Company. Internal control over financial reporting is a process to
provide reasonable assurance regarding the reliability of our financial reporting and the
preparation of financial statements for external purposes in accordance with accounting principles
generally accepted in the United States of America. Internal control over financial reporting
policies and procedures includes maintaining records that in reasonable detail accurately and
fairly reflect our transactions and dispositions of the assets of the Company; providing reasonable
assurance that transactions are recorded as necessary for preparation of our financial statements,
and that receipts and expenditures of the Company are made in accordance with management and
directors authorizations; and providing reasonable assurance that unauthorized acquisition, use, or
disposition of Company assets that could have a material effect on our financial statements would
be prevented or detected on a timely basis. Because of its inherent limitations, internal control
over financial reporting is not intended to provide absolute assurance that a misstatement of our
financial statements would be prevented or detected.
Management conducted an evaluation of the effectiveness of our internal control over financial
reporting based on the framework in Internal Control Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management
concluded that the Companys internal control over financial reporting was effective as of June 30,
2010.
This Form 10-K does not include an attestation report of the Companys independent registered
public accounting firm regarding internal control over financial reporting pursuant to the rules of
the Securities and Exchange Commission that permit the Company to provide only managements report
in this Form 10-K.
Changes In Internal Control Over Financial Reporting
There have been no changes in the Companys internal control over financial reporting during the
quarter ended June 30, 2010 identified in connection with the Companys evaluation that has
materially affected, or is reasonably likely to materially affect, the Companys internal control
over financial reporting.
ITEM 9B: OTHER INFORMATION
None.
PART III
ITEM 10: DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information contained under the captions Matters to Come before the Meeting Proposal 1:
Election of Directors, Corporate Governance, Executive Officers, Section 16(a) Beneficial
Ownership Reporting Compliance and Corporate Governance Code of Ethics of the registrants
proxy statement for 2010 Annual Meeting of Shareholders (the Proxy Statement) is incorporated
herein by reference.
The information required by Part III, Item 10 with respect to the Companys nominating committee,
audit committee and the audit committees financial expert is set forth in the Proxy Statement
under the captions Corporate Governance Audit Committee, Corporate Governance Nominating and
Corporate Governance Committee and Corporate Governance Audit Committee Report, which
paragraphs are incorporated herein by reference.
The Company has adopted a Code of Business Conduct and Ethics that applies to all of the Companys
directors, executive and financial officers and employees. The Code of Business Conduct and Ethics
has been posted to the
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Companys website at
www.perceptron.com in the Investors section under Corporate Governance and
is available free of charge through the Companys website. The Company will post information
regarding any amendment to, or waiver from, the Companys Code of Business Conduct and Ethics for
executive and financial officers and directors on the Companys website in the Company section
under Investors.
ITEM 11: EXECUTIVE COMPENSATION
The information contained under the captions Matters to Come before the Meeting Proposal 1:
Election of Directors Director Compensation for 2010, Matters to Come before the Meeting
Proposal 1: Election of Directors Standard Director Compensation Arrangements and Compensation
of 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 Share Ownership of Management and Certain
Shareholders Principal Shareholders and Share Ownership of Management and Certain Shareholders
Beneficial Ownership by Directors and Executive Officers of the Proxy Statement is incorporated
herein by reference.
EQUITY COMPENSATION PLAN INFORMATION
The following table gives information about the Companys Common Stock that may be issued upon the
exercise of options, warrants and rights under all of the Companys existing equity compensation
plans as of June 30, 2010, including the 2004 Stock Incentive Plan, 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 Plans):
Number of securities | ||||||||||||
remaining available for | ||||||||||||
Number of securities | Weighted-average | future issuance under | ||||||||||
to be issued upon | exercise price of | equity compensation | ||||||||||
exercise of | outstanding | plans (excluding | ||||||||||
outstanding options, | options, warrants | securities | ||||||||||
Plan Category | warrants and rights | and rights | reflected in column (a)) | |||||||||
(a) | (b) | (c) | ||||||||||
Equity compensation plans
approved by shareholders: |
||||||||||||
2004 Stock Incentive Plan |
705,675 | (1) | $ | 6.92 | 160,865 | |||||||
1992 Stock Option Plan |
126,000 | (2) | $ | 3.52 | | |||||||
Directors Stock Option Plan |
87,000 | (2) | $ | 4.85 | | |||||||
Employee Stock Purchase Plan |
12,812 | (3) | $ | 2.69 | 85,713 | |||||||
Total of equity
compensation plans
approved by
shareholders |
931,487 | $ | 6.21 | 246,578 | ||||||||
Equity compensation plans
not approved by
shareholders: 1998 Global
Team Member Stock Option
Plan |
321,854 | (4) | $ | 6.40 | | |||||||
Total: |
1,253,341 | $ | 6.26 | 246,578 | ||||||||
(1) | Awards under the 2004 Stock Incentive Plan may be in the form of stock options, stock
appreciation rights, restricted stock or restricted stock units, performance share awards,
director stock purchase rights and deferred stock units; or any combination thereof. |
|
(2) | The 2004 Stock Incentive Plan replaced the 1992 Stock Option Plan and Directors Stock Option
Plan effective December 7, 2004. No further grants under these plans will be made. |
|
(3) | 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, 2010 until December 31,
2010, which will not be issued until January 2011. |
|
(4) | The 1998 Global Team Member Stock Option Plan expired on February 25, 2008. No further
grants under this plan will be made. |
1998 Global Team Member Stock Option Plan
On February 26, 1998, the Companys 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 Exchange Act. The 1998 Plan has been
amended by the Board on several occasions thereafter. The 1998 Plan expired on February 25, 2008.
No further grants under this plan will be made. The expiration of the 1998 Plan does not affect
any awards previously granted under the 1998 Plan.
45
Table of Contents
The purpose of the 1998 Plan is to promote the Companys success by linking the personal interests
of non-executive employees to those of the Companys 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 had
the power to set the terms of any grants under the 1998 Plan. The exercise price of an option
could not be less than the fair market value of the underlying stock on the date of grant and no
option has 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 participants 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).
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 in control of
the Company. See Compensation of Executive Officers Potential Payments Upon Termination or
Change in Control of the Proxy Statement for a definition of change in control. 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. The NASDAQ listing
requirements prohibit the Company from amending the 1998 Plan to add additional shares of Common
Stock without shareholder approval.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The
information contained under the captions Corporate Governance
Board Leadership Structure and Board and Committee Information and Related Party Transactions of the Proxy Statement is incorporated herein by
reference.
ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES
The
information contained under the captions Matters to Come Before
the Meeting Proposal 2: Ratification of Companys
Independent Registered Public Accounting Firm, Independent Accountants Policy for Pre-Approval of
Audit and Non-Audit Services and Independent Accountants Fees Paid to Independent Registered
Public Accounting Firm of the Proxy Statement is incorporated herein by reference.
PART IV
ITEM 15: EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
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. | Exhibits: |
Exhibits the exhibits filed in response to Item 601 of Regulation S-K with this
report are listed on pages 48 through 51. The Exhibit List is incorporated herein by
reference. |
46
Table of Contents
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/ Harry T. Rittenour | |||
Harry T. Rittenour, President and | ||||
Chief Executive Officer
(Principal Executive Officer) Date: September 24, 2010 |
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/ Harry T. Rittenour
|
President, Chief Executive Officer and Director (Principal Executive Officer) | September 24, 2010 | ||
/S/ John H. Lowry III
|
Vice President and Chief Financial Officer (Principal Financial Officer) |
September 24, 2010 | ||
/S/ Sylvia M. Smith
|
Controller (Principal Accounting Officer) | September 24, 2010 | ||
/S/ W. Richard Marz
|
Chairman of the Board and Director | September 24, 2010 | ||
/S/ David J. Beattie
|
Director | September 24, 2010 | ||
/S/ Kenneth R. Dabrowski
|
Director | September 24, 2010 | ||
/S/ Philip J. DeCocco
|
Director | September 24, 2009 | ||
/S/ Robert S. Oswald
|
Director | September 24, 2010 | ||
/S/ James A. Ratigan
|
Director | September 24, 2010 | ||
/S/ Terryll R. Smith
|
Director | September 24, 2010 |
47
Table of Contents
EXHIBIT INDEX
Exhibit No. | Description of Exhibits | |||
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 Companys 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 3.1 of the Companys Report on Form 10-Q for the Quarter Ended September 30, 2007. |
|||
4. | Instruments Defining the Rights of Securities Holders. |
|||
4.1 | Articles IV, V and VI of the Companys Restated Articles of Incorporation are incorporated
herein by reference to Exhibit 3.1 of the Companys 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 Companys Amended and Restated Bylaws are
incorporated herein by reference to Exhibit 3.1 of the Companys Report on Form 10-Q for the
Quarter Ended September 30, 2007. |
|||
4.3 | Credit Agreement dated October 24, 2002, between Perceptron, Inc. and Comerica Bank is
incorporated by reference to Exhibit 4.9 of the Companys 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 Amendment to Rights
Agreement filed as Exhibit 4.6) is incorporated herein by reference to Exhibit 3 of the
Companys Form 8-A/A filed March 20, 2008. 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 such Shares Acquisition Date results from the consummation
of a Permitted Offer, such later date as may be determined by 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 if, upon consummation thereof, such person
would be an Acquiring Person, other than as a result of a Permitted Offer. |
|||
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 Companys Report on Form 8-K filed March 24, 1998. |
|||
4.6 | Amendment to Rights Agreement, dated as of March 17, 2008, between Perceptron, Inc. and
American Stock Transfer & Trust Company, as Rights Agent, is incorporated herein by reference
to Exhibit 3 of the Companys Form 8-A/A filed on March 20, 2008. |
|||
4.7 | First Amendment to Credit Agreement dated October 24, 2002, between Perceptron, Inc. and
Comerica Bank is incorporated by reference to Exhibit 4.6 of the Companys Report on Form 10-Q
for the Quarter Ended September 30, 2003. |
|||
4.8 | Second Amendment to Credit Agreement dated October 24, 2002, between Perceptron, Inc. and
Comerica Bank is incorporated by reference to Exhibit 4.7 of the Companys Report on Form 10-Q
for the Quarter Ended September 30, 2003. |
|||
4.9 | Third Amendment to Credit Agreement dated October 24, 2002, between Perceptron, Inc. and
Comerica Bank is incorporated by reference to Exhibit 4.8 of the Companys Report on Form 10-K
for the Year Ended June 30, 2004. |
|||
4.10 | Fourth Amendment to Credit Agreement dated October 24, 2002, between Perceptron, Inc. and
Comerica Bank is incorporated by reference to Exhibit 10.1 of the Companys Report on Form 8-K
filed January 5, 2005. |
|||
4.11 | Fifth Amendment to Credit Agreement dated October 24, 2002, between Perceptron, Inc. and
Comerica Bank, is incorporated by reference to Exhibit 4.10 of the Companys Report on Form 10-Q for the Quarter Ended September 30, 2005. |
|||
4.12 | Sixth Amendment to Credit Agreement dated October 24, 2002, between Perceptron, Inc. and
Comerica Bank, is incorporated by reference to Exhibit 4.11 of the Companys Report on Form 10-Q for the Quarter Ended September 30, 2006. |
48
Table of Contents
Exhibit No. | Description of Exhibits | |||
4.13 | Seventh Amendment to Credit Agreement dated October 24, 2002, between Perceptron, Inc. and
Comerica Bank, is incorporated by reference to Exhibit 4.1 of the Companys Report on Form 8-K
filed December 21, 2006. |
|||
4.14 | Eighth Amendment to Credit Agreement dated October 24, 2002, between Perceptron, Inc. and
Comerica Bank, is incorporated by reference to Exhibit 4.14 of the Companys Report on Form 10-K for the Year Ended June 30, 2008. |
|||
4.15 | Ninth Amendment to Credit Agreement dated October 24, 2002, between Perceptron, Inc. and
Comerica Bank, is incorporated by reference to Exhibit 10.49 of the Companys Report on Form 10-Q for the Quarter Ended March 31, 2008. |
|||
4.16 | Tenth Amendment to Credit Agreement dated October 24, 2002, between Perceptron, Inc. and
Comerica Bank, is incorporated by reference to Exhibit 10.41 of the Companys Report on Form 8-K filed October 31, 2008. |
|||
4.17 | Eleventh Amendment to Credit Agreement dated October 24, 2002, between Perceptron, Inc. and
Comerica Bank, is incorporated by reference to Exhibit 10.1 of the Companys Report on Form
8-K filed November 10, 2009. |
|||
4.18 | Twelfth Amendment to Credit Agreement dated October 24, 2002, between Perceptron, Inc. and
Comerica Bank, is incorporated by reference to Exhibit 10.2 of the Companys Report on Form
8-K filed July 2, 2010. |
|||
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 Companys 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 Companys
Form S-1 Registration Statement (amended by Exhibit 10.2) No. 33-47463. |
|||
10.2 | 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 Companys
Form S-1 Registration Statement No. 33-47463. |
|||
10.3 | 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
Companys Form S-1 Registration Statement No. 33-47463. |
|||
10.4 | Form of Executive Agreement Not to Compete between the Company and certain officers of the
Company is incorporated herein by reference to Exhibit 10.5 of the Companys Annual Report on
Form 10-K for the Year Ended June 30, 2005. |
|||
10.5 | @ | Perceptron, Inc. First Amended and Restated 2004 Stock Incentive Plan is incorporated by
reference to Exhibit 10.1 of the Companys Report on Form 8-K filed October 10, 2008. |
||
10.6 | @ | First Amendment to Perceptron, Inc. First Amended and Restated 2004 Stock Incentive Plan is
incorporated by reference to Exhibit 10.12 of the Companys Report on Form 8-K filed October
10, 2008. |
||
10.7 | @ | Form of Incentive Stock Option Agreement Terms for Officers under the Perceptron, Inc. 2004
Stock Incentive Plan is incorporated by reference to Exhibit 10.2 of the Companys Report on
Form 8-K filed January 5, 2005. |
||
10.8 | @ | Form of Nonqualified Stock Option Agreement Terms for Officers under the Perceptron, Inc.
2004 Stock Incentive Plan is incorporated by reference to Exhibit 10.3 of the Companys Report
on Form 8-K filed January 5, 2005. |
||
10.9 | @ | Form of Incentive Stock Option Agreement Terms for Officers under the Perceptron, Inc. 2004
Stock Incentive Plan is incorporated by reference to Exhibit 10.3 of the Companys Report on
Form 8-K filed December 27, 2005. |
||
10.10 | @ | Form of Nonqualified Stock Option Agreement Terms for Officers under the Perceptron, Inc.
2004 Stock Incentive Plan is incorporated by reference to Exhibit 10.2 of the Companys Report
on Form 8-K filed December 27, 2005. |
49
Table of Contents
Exhibit No. | Description of Exhibits | |||
10.11 | @ | Form of Nonqualified Stock Option Agreement Terms Board of Directors under the Perceptron,
Inc. 2004 Stock Incentive Plan is incorporated by reference to Exhibit 10.1 of the Companys
Report on Form 8-K filed August 10, 2006. |
||
10.12 | @ | 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 Companys Annual
Report on Form 10-K for the Year Ended December 31, 1997. |
||
10.13 | @ | First Amendment to the 1998 Global Team Member Stock Option Plan is incorporated by
reference to Exhibit 10.28 of the Companys Report on Form 10-K for the Transition Period
Ended June 30, 1999. |
||
10.14 | @ | Second Amendment to the 1998 Global Team Member Stock Option Plan is incorporated by
reference to Exhibit 10.29 of the Companys Report on Form 10-K for the Transition Period
Ended June 30, 1999. |
||
10.15 | @ | Third Amendment to the 1998 Global Team Member Stock Option Plan is incorporated by
reference to Exhibit 99.6 of the Companys Form S-8 Registration Statement No. 333-55164. |
||
10.16 | @ | Fourth Amendment to the 1998 Global Team Member Stock Option Plan is incorporated by
reference to Exhibit 99.7 of the Companys S-8 Registration Statement No. 333-76194. |
||
10.17 | @ | 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 Companys
Report on Form 10-K for the Year Ended December 31, 1998. |
||
10.18 | @ | 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 Companys
Report on Form 10-Q for the Quarter Ended September 30, 1999. |
||
10.19 | @ | Form of Non-Qualified Stock Option Agreements under 1998 Global Team Member Stock Option
Plan after January 1, 2006 is incorporated by reference to Exhibit 10.47 of the Companys
Report on Form 10-Q for the Quarter Ended March 31, 2006. |
||
10.20 | @ | Perceptron, Inc. Employee Stock Purchase Plan, as amended and restated as of October 22,
2004, is incorporated by reference to Exhibit 10.2 of the Companys Report on Form 8-K filed
December 10, 2004. |
||
10.21 | @ | Amendment No. 1 to Perceptron, Inc. Employee Stock Purchase Plan is incorporated by
reference to Exhibit 10.1 of the Companys Report on
Form 8-K filed July 2, 2010. |
||
10.22 | @ | Amended and Restated 1992 Stock Option Plan is incorporated herein by reference to Exhibit
10.53 of the Companys Report on Form 10-Q for the Quarter Ended September 30, 1996. |
||
10.23 | @ | First Amendment to Amended and Restated 1992 Stock Plan is incorporated by reference to
Exhibit 10.39 of the Companys Report on Form 10-Q for the Quarter Ended March 31, 1997. |
||
10.24 | @ | Second Amendment to Amended and Restated 1992 Stock Option Plan is incorporated by reference
to Exhibit 10.26 of the Companys Report on Form 10-Q for the Quarter Ended March 31, 1999. |
||
10.25 | @ | Third Amendment to Amended and Restated 1992 Stock Option Plan is incorporated by reference
to Exhibit 10.35 of the Companys Report on Form 10-K for the Year Ended June 30, 2001. |
||
10.26 | @ | Fourth Amendment to Amended and Restated 1992 Stock Option Plan is incorporated by reference
to Exhibit 10.37 of the Companys Report on Form 10-K for the Year Ended June 30, 2002. |
||
10.27 | @ | 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 Companys Report on Form 10-Q for the Quarter Ended
September 30, 1999. |
||
10.28 | @ | Amended and Restated Directors Stock Option Plan is incorporated by reference to Exhibit
10.56 to the Companys Report on Form 10-Q for the Quarter Ended September 30, 1996. |
||
10.29 | @ | First Amendment to Amended and Restated Directors Stock Option Plan is incorporated by
reference to Exhibit 10.27 of the Companys Report on Form 10-Q for the Quarter Ended March
31, 1999. |
||
10.30 | @ | 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 Companys Report on
Form 10-Q for the Quarter Ended March 31, 2000. |
50
Table of Contents
Exhibit No. | Description of Exhibits | |||
10.31 | @ | 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 Companys Annual Report on Form 10-K
for the Year Ended December 31, 1996. |
||
10.32 | @ | 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 Companys Report on
Form 10-Q for the Quarter Ended December 31, 1999. |
||
10.33 | 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 Companys Report on Form 8-K
filed March 29, 2002. |
|||
10.34 | @ | Written Description of 2008 Team Member Profit Sharing Plan is incorporated by reference to
Exhibit 10.1 of the Companys Report on Form 8-K filed August 9, 2007. |
||
10.35 | @ | Written Description of 2010 Annual Incentive and Profit Sharing Plans is incorporated by
reference to Exhibit 10.1 of the Companys Report on Form 8-K filed August 31, 2009. |
||
10.36 | @ | Written Description of Fiscal 2011 Annual Incentive and Profit Sharing Plans is incorporated
by reference to Exhibit 10.1 of the Companys Report on Form 8-K filed September 8, 2010. |
||
10.37 | @ | Employment and Amended and Restated Severance Agreement, dated January 21, 2008, between the
Company and Alfred A. Pease is incorporated by reference to Exhibit 10.1 of the Companys
Report on Form 8-K filed January 22, 2008. |
||
10.38 | @ | Severance Agreement, dated December 18, 2008, between the Company and Harry T. Rittenour is
incorporated by reference to Exhibit 10.1 of the Companys Report on Form 8-K filed December
24, 2008. |
||
10.39 | @ | Severance Agreement, dated December 18, 2008, between the Company and Mark S. Hoefing is
incorporated by reference to Exhibit 10.3 of the Companys Report on Form 8-K filed on
December 24, 2008. |
||
10.40 | @ | Severance Agreement, dated December 18, 2008, between the Company and Paul J. Eckhoff is
incorporated by reference to Exhibit 10.1 of the Companys Report on Form 8-K filed January 7,
2009. |
||
10.41 | @ | Severance Agreement, dated December 18, 2008, between the Company and John H. Lowry III is
incorporated by reference to Exhibit 10.2 of the Companys Report on Form 8-K filed December
24, 2008. |
||
10.42 | @ | Severance Agreement, dated July 2, 2010, between the Company and Richard Price is
incorporated by reference to Exhibit 10.3 of the Companys Report on Form 8-K filed July 2,
2010. |
||
21. | A list of subsidiaries of the Company is incorporated by reference to Exhibit 21 of the
Companys Report on Form 10-K for the Year Ended June 30, 2008. |
|||
23. | * | Consent of Experts and Counsel. |
||
31. | Rule 13a-14(a)/15d-14(a) Certifications. |
|||
31.1 | * | Certification by the Chief Executive Officer of the Company pursuant to Rule 13a-14(a) and
Rule 15d-14(a). |
||
31.2 | * | Certification by the Chief Financial Officer of the Company pursuant to Rule 13a-14(a) and
Rule 15d-14(a). |
||
32. | Section 1350 Certifications. |
|||
32.1 | * | Certification by the Chief Executive Officer of the Company pursuant to Rule 13a-14(a) and
Rule 15d-14(a). |
||
32.2 | * | Certification by the Chief Financial Officer of the Company pursuant to Rule 13a-14(a) and
Rule 15d-14(a). |
* | Filed with the Companys Annual Report on Form 10-K for the fiscal year ended June 30,
2010. |
|
@ | Indicates a management contract, compensatory plan or arrangement. |
51