10-Q 1 k67512e10-q.txt FORM 10-Q FOR QUARTER ENDED DECEMBER 31, 2001 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended December 31, 2001. Commission file number: 0-20206 PERCEPTRON, INC. (Exact name of registrant as specified in its charter) Michigan 38-2381442 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 47827 Halyard Drive, Plymouth, Michigan 48170-2461 (Address of principal executive offices) (734) 414-6100 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the proceeding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No -------------- -------------- The number of shares outstanding of each of the issuer's classes of common stock as of February 6, 2002, was: Common Stock, $0.01 par value 8,232,411 ----------------------------- -------------------------- Class Number of shares PERCEPTRON, INC. AND SUBSIDIARIES INDEX TO FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 2001
PAGE NUMBER ------ COVER 1 INDEX 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements 3 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 3. Quantitative and Qualitative Disclosures About Market Risk 18 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 18 Item 6. Exhibits and Reports on Form 8-K 18 SIGNATURES 19
2 PERCEPTRON, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, JUNE 30, (In Thousands, Except Per Share Amounts) 2001 2001 ------------ ----------- (Unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $ 6,100 $ 6,680 Receivables: Billed receivables, net of allowance for doubtful accounts 23,150 20,981 of $823 and $734, respectively Unbilled and other receivables 1,874 4,435 Inventories, net of reserves of $766 and $2,038, respectively 13,666 16,011 Deferred taxes and other current assets 1,690 1,246 ---------- ---------- Total current assets 46,480 49,353 ---------- ---------- PROPERTY AND EQUIPMENT Building and land 6,032 6,032 Machinery and equipment 10,802 10,596 Furniture and fixtures 1,253 1,253 ---------- ---------- 18,087 17,881 Less - Accumulated depreciation and amortization (8,286) (7,659) ---------- ---------- Net property and equipment 9,801 10,222 ---------- ---------- OTHER ASSETS Intangible assets, net of accumulated amortization 840 1,041 of $1,224 and $1,024 respectively Deferred tax asset 7,167 6,903 ---------- ---------- Total other assets 8,007 7,944 ---------- ---------- TOTAL ASSETS $ 64,288 $ 67,519 ========== ========== LIABILITIES AND COMMON SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 2,730 $ 5,401 Accrued liabilities and expenses 4,349 3,858 Deferred revenue 2,027 2,588 Notes Payable (Note 4) 13,021 13,615 Income taxes payable 806 273 Accrued compensation 354 449 ---------- ---------- Total current liabilities 23,287 26,184 ---------- ---------- LONG-TERM LIABILITIES Notes payable 1,040 1,040 ---------- ---------- Total long-term liabilities 1,040 1,040 ---------- ---------- Total liabilities 24,327 27,224 ---------- ---------- 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 8,185 and 8,185 at December 31, 2001 and June 30, 2001, respectively 82 82 Accumulated other comprehensive income (loss) (Note 5) (4,768) (5,505) Additional paid-in capital 41,056 41,056 Retained earnings 3,591 4,662 ---------- ---------- Total shareholders' equity 39,961 40,295 ---------- ---------- TOTAL LIABILITIES AND COMMON SHAREHOLDERS' EQUITY $ 64,288 $ 67,519 ========== ==========
The notes to the consolidated financial statements are an integral part of these statements. 3 PERCEPTRON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31, DECEMBER 31, (In Thousands, Except Per Share Amounts) 2001 2000 2001 2000 -------- -------- -------- -------- NET SALES $ 14,881 $ 16,911 $ 26,252 $ 25,347 COST OF SALES 7,123 9,078 13,021 13,582 -------- -------- -------- -------- GROSS PROFIT 7,758 7,833 13,231 11,765 -------- -------- -------- -------- OPERATING EXPENSES Selling, general and administrative 4,833 4,556 9,788 9,317 Engineering, research and development 2,062 3,210 4,336 6,288 -------- -------- -------- -------- Total operating expenses 6,895 7,766 14,124 15,605 -------- -------- -------- -------- OPERATING INCOME (LOSS) 863 67 (893) (3,840) -------- -------- -------- -------- OTHER INCOME AND (DEDUCTIONS) Interest expense (187) (172) (418) (288) Interest income 31 42 53 88 Gain (loss) on disposal of assets -- 226 -- 226 Foreign currency and other (197) (7) (212) (50) -------- -------- -------- -------- Total other income and (deductions) (353) 89 (577) (24) -------- -------- -------- -------- INCOME (LOSS) BEFORE INCOME TAXES 510 156 (1,470) (3,864) INCOME TAX EXPENSE (BENEFIT) 270 (254) (399) (1,815) -------- -------- -------- -------- INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 240 410 (1,071) (2,049) CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE, NET OF $764 OF TAXES (NOTE 2) -- -- -- (1,333) -------- -------- -------- -------- NET INCOME (LOSS) $ 240 $ 410 $ (1,071) $ (3,382) ======== ======== ======== ======== EARNINGS (LOSS) PER SHARE BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE BASIC $ 0.03 $ 0.05 ($ 0.13) ($ 0.25) DILUTED $ 0.03 $ 0.05 ($ 0.13) ($ 0.25) EARNINGS (LOSS) PER SHARE OF CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE BASIC -- -- -- ($ 0.16) DILUTED -- -- -- ($ 0.16) EARNINGS (LOSS) PER SHARE BASIC $ 0.03 $ 0.05 ($ 0.13) ($ 0.41) DILUTED $ 0.03 $ 0.05 ($ 0.13) ($ 0.41) WEIGHTED AVERAGE COMMON SHARES OUTSTANDING BASIC 8,185 8,173 8,185 8,173 DILUTED 8,186 8,173 8,185 8,173
The notes to the consolidated financial statements are an integral part of these statements. 4 PERCEPTRON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
SIX MONTHS ENDED DECEMBER 31, (In Thousands) 2001 2000 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ (1,071) $ (3,382) Adjustments to reconcile net income (loss) to net cash provided from (used for) operating activities: Depreciation and amortization 942 1,042 Deferred income taxes (669) (2,779) Other 24 (92) Changes in assets and liabilities, exclusive of changes shown separately 780 982 -------- -------- Net cash provided from (used for) operating activities 6 (4,229) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Revolving credit borrowings 15,989 16,360 Revolving credit repayments (16,583) (10,615) Proceeds from stock plans -- 10 -------- -------- Net cash provided from (used for ) financing activities (594) 5,755 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (255) (657) Sale of assets -- 270 -------- -------- Net cash used for investing activities (255) (387) -------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 263 (131) -------- -------- NET INCREASE IN CASH AND CASH EQUIVALENTS (580) 1,008 CASH AND CASH EQUIVALENTS, JULY 1 6,680 5,947 -------- -------- CASH AND CASH EQUIVALENTS, DECEMBER 31 $ 6,100 $ 6,955 ======== ======== CHANGES IN ASSETS AND LIABILITIES, EXCLUSIVE OF CHANGES SHOWN SEPARATELY Receivables, net $ 777 $ 2,167 Inventories 2,344 (677) Accounts payable (2,671) (703) Other current assets and liabilities 330 195 -------- -------- $ 780 $ 982 ======== ========
The notes to the consolidated financial statements are an integral part of these statements. 5 PERCEPTRON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The accompanying consolidated financial statements should be read in conjunction with the Company's 2001 Annual Report on Form 10-K. Certain reclassifications may have been made to the prior year's financial statements to conform with the fiscal year 2002 presentation. In the opinion of management, the unaudited information furnished herein reflects all adjustments necessary, including normal recurring adjustments and restatements for the effect of the change in accounting principle (see Note 2 below), for a fair presentation of the financial statements for the periods presented. The results of operations for any interim period are not necessarily indicative of the results of operations for a full year. 2. CHANGE IN ACCOUNTING PRINCIPLE During the fourth quarter of fiscal 2001, the Company adopted retroactive to July 1, 2000, the guidelines prescribed by the Securities and Exchange Commission ("SEC") in Staff Accounting Bulletin No. 101, ("SAB 101") "Revenue Recognition in Financial Statements". SAB 101 summarizes certain areas of the Staff's views in applying generally accepted accounting principles to revenue recognition in financial statements. Historically, the Company recognized revenue from the sales of products upon shipment, and accrued for any costs of installation not completed. The Company accounted for contractual acceptance terms based upon probable achievement of meeting the acceptance criteria. Under the new accounting method the Company recognizes the portion of revenue from the sales of products upon shipment when both title and risk of loss pass to the customer and defers the greater of the fair value or the contractual holdback of any undelivered elements, such as installation services, until the undelivered elements are completed. The second quarter and first half of fiscal 2001 were restated to reflect the change in accounting and the cumulative effect of the change in accounting principle on prior years. The cumulative effect of the change in accounting principle resulted in a charge to income of $1.3 million (net of income taxes of $764,000) or $.16 per diluted share. 3. INVENTORY Inventory is stated at the lower of cost or market. The cost of inventory is determined by the first-in, first-out ("FIFO") method. The Company provides a reserve for obsolescence to recognize the effects of engineering change orders and other matters that affect the value of the inventory. When the related inventory is disposed of, the obsolescence reserve is released. During the six months ended December 31, 2001, the Company disposed of $1.3 million of inventory that had been reserved for at June 30, 2001. Inventory, net of reserves, is comprised of the following (in thousands):
DECEMBER 31, JUNE 30, 2001 2001 ------------ ------------ Component Parts $ 7,475 $ 8,507 Work In Process 1,830 1,627 Finished Goods 4,361 5,877 --------- --------- Total $ 13,666 $ 16,011 ========= =========
6 4. CREDIT FACILITIES In September 2001, the Company entered into a collateral-based $1.5 million line of credit (Facility B) that expires August 31, 2002. Facility B can be used to finance working capital needs and for general corporate purposes. Any borrowings will bear interest at 1/4% above the bank's prime rate (4.75% as of February 7, 2002). The aggregate principal amount outstanding at any one time cannot exceed the lesser of $1.5 million or the borrowing base, which is 50% of finished goods inventory located in the United States. At December 31, 2001, the Company's borrowing base under Facility B was $749,000 of which none was outstanding. In September 2001, the Company replaced its existing $15.0 million Credit Agreement with a new $17.0 million collateral-based Revolving Line of Credit Agreement (Facility A) that expires on August 31, 2003. Proceeds under Facility A may be used for working capital and general corporate purposes and can be designated as a Floating Rate Loan or as a Eurodollar Rate loan if the Company achieves a ratio of funded debt to earnings before interest, taxes, depreciation, and amortization of less than 5:1. Interest on Floating Rate borrowings is calculated daily at 1/2% below the bank's prime rate (4.75% as of February 7, 2002) and is payable on the last day of each month. Interest on Eurodollar Rate borrowings would be calculated at a Eurodollar Rate for the period chosen (approximately 3.5% as of February 7, 2002) and would be payable on the last day of the applicable period. Quarterly, the Company pays a commitment fee of 1/4% per annum on the daily unused portion of Facility A. The aggregate principal amount outstanding at any one time cannot exceed the lesser of $17.0 million or the borrowing base which is comprised of 80% of eligible accounts receivable billed in the United States, aged up to 180 days, 35% of raw material located in the United States, and $4.8 million representing 80% of the appraised value of the Company's real property located in Plymouth, Michigan. The collateral for Facility A and B is substantially all U.S. assets of the Company, a pledge of 65% of the common stock of Perceptron B.V. owned by the Company and a pledge of 100% of the common stock of Perceptron GmbH owned by Perceptron B.V. The Credit Agreement prohibits the Company from paying dividends. In addition, the Credit Agreement contains various financial covenants that, among other things, restrict dividend payments by requiring the Company to maintain a Fixed Charge Coverage Ratio and a Total Liabilities to Tangible Net Worth Ratio and require the Company to maintain certain levels of earnings before interest, taxes, depreciation and amortization (EBITDA). The Company's EBITDA for the six months ended December 31, 2001 was below the level required by the financial covenant. The Company's bank waived the covenant default through December 31, 2001. In the event that the Company failed to satisfy the covenants contained in, or there was an event of default under, the Credit Facility, the lender has the right to not make further advances under, and to require the repayment of, the Credit Agreement. At December 31, 2001, the Company's borrowing base under Facility A was $15.4 million of which $13.0 million was outstanding. 7 5. COMPREHENSIVE INCOME Comprehensive income is defined as the change in common shareholder's equity during a period from transactions and events from non-owner sources, including net income. Other items of comprehensive income include revenues, expenses, gains and losses that are excluded from net income. Total comprehensive income for the applicable periods is as follows (in thousands):
THREE MONTHS ENDED DECEMBER 31, 2001 2000 -------------- --------------- Net Income (Loss) $ 240 $ 410 Other Comprehensive Income (Loss): Foreign currency translation adjustments (278) 714 -------------- --------------- Total Comprehensive Income (Loss) $ (38) $ 1,124 ============== =============== SIX MONTHS ENDED DECEMBER 31, 2001 2000 -------------- --------------- Net Income (Loss) $ (1,071) $ (3,382) Other Comprehensive Income (Loss): Foreign currency translation adjustments 737 (305) -------------- --------------- Total Comprehensive Income (Loss) $ (334) $ (3,687) ============== ===============
6. 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. A reconciliation of both calculations is shown below (in thousands, except per share amounts):
THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31, DECEMBER 31, 2001 2000 2001 2000 ------------ ------------ ----------- ----------- Income (Loss) Before Cumulative Effect of Change in Accounting Principle $240 $410 $(1,071) $(2,049) Cumulative Effect of Change in Accounting Principle -- -- -- (1,333) ------------ ------------ ----------- ----------- Net Income (Loss) $240 $410 $(1,071) $(3,382) ============ ============ =========== =========== THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31, DECEMBER 31, 2001 2000 2001 2000 ------------ ------------ ----------- ----------- Weighted Average Shares: Basic Shares 8,185 8,173 8,185 8,173 Effect of Dilutive Securities: Stock Options 1 -- -- -- ------------ ------------ ----------- ----------- Diluted Shares 8,186 8,173 8,185 8,173 ============ ============ =========== ===========
8
THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31, DECEMBER 31, Basic Earnings (Loss) Per Share 2001 2000 2001 2000 ----- ----- ------ ------ Before Cumulative Effect of Change in Accounting Principle $0.03 $0.05 ($0.13) ($0.25) Cumulative Effect of Change in Accounting Principle -- -- -- (0.16) ----- ----- ------ ------ Basic Earnings (Loss) Per Share $0.03 $0.05 ($0.13) $(0.41) ===== ===== ====== ====== THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31, DECEMBER 31, Diluted Earnings (Loss) Per Share: 2001 2000 2001 2000 ----- ----- ------ ------ Before Cumulative Effect of Change in Accounting Principle $0.03 $0.05 ($0.13) ($0.25) Cumulative Effect of Change in Accounting Principle -- -- -- (0.16) ----- ----- ------ ------ Diluted Earnings (Loss) Per Share $0.03 $0.05 ($0.13) $(0.41) ===== ===== ====== ======
Options to purchase 1,734,000 and 1,379,000 shares of common stock were outstanding in the three months ended December 31, 2001 and 2000, respectively, and were not included in the computation of diluted EPS because the effect would have been anti-dilutive. Options to purchase 1,793,000 and 1,350,000 shares of common stock were outstanding in the six months ended December 31, 2001 and 2000, respectively, and were not included in the computation of diluted EPS because the effect would have been anti-dilutive. 7. FOREIGN EXCHANGE CONTRACTS The Company may use, from time to time, a limited hedging program to minimize the impact of foreign currency fluctuations. As the Company exports products, it may enter into limited hedging transactions relating to the accounts receivable arising as a result of such shipments. These transactions involve the use of forward contracts. During the periods presented, the Company did not engage in any hedging activities. 8. COMMITMENTS AND CONTINGENCIES The Company may, from time to time, be subject to legal proceedings and claims. Litigation involves many uncertainties. Management is currently unaware of any significant pending litigation affecting the Company, other than the matters discussed in the Company's 2001 Annual Report on Form 10-K. 9 9. SEGMENT INFORMATION The Company has two reportable segments: Automotive and Industrial Businesses. The Automotive segment designs, manufactures, and markets information-based measurement and inspection focused solutions for process improvements within the automotive industry. The Industrial Businesses segment employs the same technology, providing products and services to markets served primarily by the Forest Products business unit. The Company evaluates performance based on operating income. Company-wide costs are allocated between the segments based on revenues and/or labor as deemed appropriate. Segment detail is summarized as follows (in thousands):
THREE MONTHS ENDED AUTOMOTIVE INDUSTRIAL BUSINESSES CONSOLIDATED ------------------ ---------- --------------------- ------------ DECEMBER 31, 2001 Revenues $13,123 $ 1,758 $14,881 Operating Income (Loss) 1,942 (1,079) 863 Total Assets 55,631 8,657 64,288 DECEMBER 31, 2000 Revenues $12,544 $ 4,367 $16,911 Operating Income (Loss) 1,450 (1,383) 67 Total Assets 56,598 11,409 68,007 SIX MONTHS ENDED AUTOMOTIVE INDUSTRIAL BUSINESSES CONSOLIDATED ---------------- ---------- --------------------- ------------ DECEMBER 31, 2001 Revenues $ 23,554 $ 2,698 $ 26,252 Operating Income (Loss) 1,575 (2,468) (893) Total Assets 55,631 8,657 64,288 DECEMBER 31, 2000 Revenues $ 19,161 $ 6,186 $ 25,347 Operating Income (Loss) (98) (3,742) (3,840) Total Assets 56,598 11,409 68,007
10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS THREE MONTHS ENDED DECEMBER 31, 2001, COMPARED TO THREE MONTHS ENDED DECEMBER 31, 2000 Overview - The Company reported net income of $240,000, or $0.03 per share, for the second quarter of fiscal 2002, compared to net income of $410,000 or $0.05 per share in the quarter ended December 31, 2000. Net sales of $14.9 million for the three months ended December 31, 2001, were down $2.0 million, or 12%, compared to the prior year's sales of $16.9 million. The sales decrease was attributable to the Industrial Businesses segment, as explained below. Automotive sales accounted for 88% of total sales during the second quarter of fiscal 2002 compared to 74% in the quarter ended December 31, 2000. Industrial Businesses sales represented 12% of total sales for the quarter ended December 31, 2001, compared to 26% in the same quarter of 2000. Gross profit for the second quarter of fiscal 2002 was 52.1% compared to 46.3% in the quarter ended December 31, 2000. The increase in the gross profit percentage primarily reflected higher margins domestically from the mix of product sold during the quarter by the Automotive business unit, approximately 18% of the increase was due to higher margins in Europe related to their product mix and approximately 18% of the increase related to the product mix sold in the Forest Products business unit. Operating expenses were down $871,000 in the second quarter of fiscal 2002 compared to the quarter ended December 31, 2000, primarily as a result of a $1.1 million decrease in engineering, research and development (R & D), expenses resulting from cost reduction initiatives implemented in the second half of fiscal 2001, mitigated by a $277,000 increase in selling, general and administrative expenses related primarily to higher labor and travel costs in Europe to support expanded sales opportunities. Automotive - Sales in the second quarter of fiscal 2002 increased $579,000 to $13.1 million compared to $12.5 million for the quarter ended December 31, 2000. The sales increase in the second quarter of fiscal 2002 primarily reflected sales of the Company's new AutoSpect(TM) and ScanWorks(TM) products to Japanese customers. AutoGauge(TM) sales accounted for approximately 65% of net automotive sales in the second quarter of fiscal 2002 compared to approximately 72% in the same period a year ago. AutoGuide(TM) sales accounted for 5% of net automotive sales in both the current and prior year quarter. AutoSpect(TM) sales accounted for 3% of net sales in the quarter ended December 31, 2001 compared to 2% one year ago. Technology Component sales of NCA and ScanWorks(TM) accounted for 16% of net sales in the quarter ended December 31, 2001 compared to 17% one year ago. Other product sales and training and service accounted for the remainder of net sales in both years. Industrial Businesses - At the present time, the Industrial Businesses segment's principal market is the Forest Products industry. Sales in the second quarter of fiscal 2002 were $1.8 million, down $2.6 million from the same period last year primarily due to the continuing low softwood lumber prices and overall caution following the events of September 11 that have caused customers to postpone capital spending decisions. Bookings & Backlog - New order bookings for the three months ended December 31, 2001, were $9.0 million compared to $14.2 million in 2000. During the second quarter of fiscal 2002, a European automotive customer cancelled a $1.2 million order that had been received and shown as a booking in the first quarter of fiscal 2002 resulting in net bookings of $7.7 million for the current quarter. The Automotive bookings, net of the lost order, totaled $5.8 million in the fiscal 2002 quarter compared to 11 $10.4 million a year ago. The Company believes that the lower booking level is a result of the uncertainty that exists about the United States economy and has caused our North American automotive customers to delay some orders. During the quarter ended December 31, 2001, automotive bookings primarily represented 65% AutoGauge(TM), 16% NCA, 5% AutoSpect(TM), and 3% AutoGuide(TM). Automotive bookings for the comparable 2000 period primarily represented 64% AutoGauge(TM), 12% AutoSpect(TM), 7% AutoGuide(TM) and 4% NCA. Forest Products bookings were $1.9 million in the quarter ended December 31, 2001 compared to $3.8 million a year ago, which the Company believes reflected continuing low lumber prices and overall caution toward committing to capital spending following the events of September 11. Backlog at December 31, 2001 was $20.1 million. The current year backlog was adjusted to include $2.1 million of deferred revenue that resulted from the adoption of SAB 101 (see Note 2, Change in Accounting Principle). Backlog at December 31, 2000 was $21.7 million, or $24.6 on a SAB 101 adjusted basis. The Company expects to be able to fill substantially all of the orders in backlog during the following twelve months. The amount of new order bookings and the level of backlog during any particular period are not necessarily indicative of the future operating performance of the Company. Selling, General and Administrative (SG&A) Expenses - SG&A expenses increased $277,000 to $4.8 million in the quarter ended December 31, 2001, from $4.6 million in the comparable 2000 quarter. The increase was primarily attributable to higher costs in the Company's European operation, which had higher travel and personnel related costs to support their expanded sales activity. Cost reduction initiatives implemented domestically and in Asia offset approximately 35% of the increase. Engineering, Research and Development (R&D) Expenses - Engineering and R&D expenses decreased $1.1 million from $3.2 million in the quarter ended December 31, 2000, to $2.1 million in the second quarter of fiscal 2002. The decrease in expenses reflected product development cost reduction initiatives implemented during the third and fourth quarter of fiscal 2001 that resulted in decreases in labor, contract design services and engineering supplies. Other Income and Deductions - Foreign currency losses were approximately $200,000 higher in the current quarter compared to the quarter ended December 31, 2000 due to the decline in value of the euro and yen against the dollar. During the fiscal 2001 second quarter, the Company recorded a gain on sale of assets of $226,000 related to the sale of certain intellectual property and equipment acquired in 1998 when the Company purchased the assets of the Sonic group. Income Taxes - Income tax expense for the current quarter ended December 31, 2001 reflected the mix of operating profit and loss among the Company's various operating entities. The income tax benefit for the quarter ended December 31, 2000 also reflected the mix of operating profit and loss among the Company's various operating entities as well as a favorable tax benefit of approximately $170,000 associated with a dividend distribution within the Company's European subsidiary. Outlook - The operating results for the second quarter were slightly better than expected despite the uncertain business climate. The Company's customers in both business segments have numerous pending programs that would incorporate the Company's products to optimize performance but they have been cautious about committing to capital spending until the economic turnaround becomes clearer. This fact has resulted in the timing of new orders to be difficult to project. The Company now believes it may not be profitable for the 2002 fiscal year. The Company will continue its efforts to control spending. The 12 foregoing statements are "forward looking statements" within the meaning of the Securities Exchange Act of 1934, as amended. See Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations - Safe Harbor Statement" for a discussion of a number of uncertainties which could cause actual results to differ materially from those set forth in the forward looking statements. SIX MONTHS ENDED DECEMBER 31, 2001, COMPARED TO SIX MONTHS ENDED DECEMBER 31, 2000 Overview - The Company reported a net loss of $1.1 million, or $0.13 per share, for the first half of fiscal 2002, compared to a net loss of $2.0 million, or $0.25 per share in the six months ended December 31, 2000, before the cumulative effect of the accounting change for revenue recognition (see Note 2 to the Consolidated Financial Statements). Net sales of $26.3 million for the six months ended December 31, 2001, were up $905,000, or 4%, compared to the prior year's sales of $25.3 million. The sales increase was attributable to higher sales in the Automotive Businesses segment that offset reduced sales in the Industrial Businesses segment. Automotive sales accounted for 90% of total sales during the first half of fiscal 2002 compared to 76% in the six months ended December 31, 2000. Industrial Businesses sales represented 10% of total sales for the six months ended December 31, 2001, compared to 24% in the same quarter of 2000. Gross profit for the first half of fiscal 2002 was 50.4% compared to 46.4% in the six months ended December 31, 2000. Approximately 75% of the increase in the gross profit percentage reflected higher domestic margins from the mix of product sold during the period by the Automotive business unit and favorable fixed overhead absorption from the higher sales level in fiscal 2002. Approximately 20% of the gross margin increase was primarily due to the Company's European operation that included favorable fixed overhead absorption from higher sales in the fiscal 2002 period and a favorable currency effect caused by the stronger euro, period over period. The remaining increase in gross margin related to the product mix sold in the Forest Products business unit. Operating expenses were down $1.5 million in the first half of fiscal 2002 compared to the six months ended December 31, 2000, primarily as a result of a $2.0 million decrease in engineering, research and development (R & D), expenses resulting from cost reduction initiatives implemented in the second half of fiscal 2001, mitigated by a $471,000 increase in selling, general and administrative expenses related primarily to higher labor and travel costs in Europe to support expanded sales opportunities. Automotive - Sales in the first six months of fiscal 2002 increased $4.4 million to $23.6 million compared to $19.2 million for the six months ended December 31, 2000. Approximately half of the sales increase in the first six months of fiscal 2002 reflected sales due to the increase in domestic new tooling programs this year compared to last year at this time. One third of the increase came from higher sales in Europe with the balance of the increase coming from higher sales in Japan of the Company's new AutoSpect(TM) and ScanWorks(TM) products. AutoGauge(TM) sales accounted for approximately 64% of net automotive sales in the first half of fiscal 2002 compared to approximately 66% in the same period a year ago. AutoGuide(TM) sales accounted for approximately 5% of net automotive sales in both the current and prior year six-month periods. AutoSpect(TM) sales accounted for 3% of net sales in the six months ended December 31, 2001 compared to 4% one year ago. Technology Component sales of NCA and ScanWorks(TM) accounted for 17% of net sales in the six months ended December 31, 2001 compared to 18% one year ago. Other product sales and training and service accounted for the remainder of net sales in both years. Industrial Businesses - At the present time, the Industrial Businesses segment's principal market is the Forest Products industry. Sales in the first half of fiscal 2002 were $2.7 million, down $3.5 million from the same period last year primarily due to the lower bookings level achieved in the last half of fiscal 2001 coupled with the continuing low softwood lumber prices and overall caution following the events of September 11 that have caused customers to postpone capital spending decisions. 13 Bookings & Backlog - New order bookings for both the six months ended December 31, 2001 and 2000, were $24.2 million. The Automotive bookings totaled $18.7 million in the fiscal 2002 first half, compared to $17.3 million a year ago. During the six months ended December 31, 2001, automotive bookings primarily represented 67% AutoGauge(TM), 11% NCA, 5% AutoSpect(TM), 5% AutoGuide(TM) and 6% ScanWorks(TM). Automotive bookings for the comparable 2000 period primarily represented 62% AutoGauge(TM), 11% AutoSpect(TM), 5% AutoGuide(TM) and 10% NCA. Forest Products bookings were $5.5 million in the six months ended December 31, 2001 compared to $6.9 million a year ago, which the Company believes reflected continuing low lumber prices and overall caution toward committing to capital spending following the events of September 11. Backlog at December 31, 2001, was $20.1 million. The current year backlog was adjusted to include $2.1 million of deferred revenue that resulted from the adoption of SAB 101 (see Note 2, Change in Accounting Principle). Backlog at December 31, 2000 was $21.7 million, or $24.6 on a SAB 101 adjusted basis. The Company expects to be able to fill substantially all of the orders in backlog during the following twelve months. The amount of new order bookings and the level of backlog during any particular period are not necessarily indicative of the future operating performance of the Company. Selling, General and Administrative (SG&A) Expenses - SG&A expenses increased $471,000 to $9.8 million in the six months ended December 31, 2001, from $9.3 million in the comparable 2000 period. The increase was primarily attributable to higher costs in the Company's European operation, which had higher travel and personnel related costs to support their expanded sales activity. Cost reduction initiatives implemented domestically and in Asia offset approximately 20% of this increase. Engineering, Research and Development (R&D) Expenses - Engineering and R&D expenses decreased $2.0 million from $6.3 million in the six months ended December 31, 2000, to $4.3 million in the first half of fiscal 2002. The decrease in expenses reflected product development cost reduction initiatives implemented during the third and fourth quarter of fiscal 2001 that resulted in decreases in labor, contract design services and engineering supplies. Other Income and Deductions - Foreign currency losses were approximately $160,000 higher in the current six-month period compared to the six months ended December 31, 2000 due to the decline in value of the euro and yen against the dollar. During the fiscal 2001 second quarter, the Company recorded a gain on sale of assets of $226,000 related to the sale of certain intellectual property and equipment acquired in 1998 when the Company purchased the assets of the Sonic group. Income Taxes - Income tax expense for the current quarter ended December 31, 2001 reflects the mix of operating profit and loss among the Company's various operating entities. The income tax benefit for the quarter ended December 31, 2000 also reflects the mix of operating profit and loss among the Company's various operating entities as well as a favorable tax benefit of approximately $340,000 associated with a dividend distribution within the Company's European subsidiary. LIQUIDITY AND CAPITAL RESOURCES The Company's cash and cash equivalents were $6.1 million at December 31, 2001, compared to $6.7 million at June 30, 2001. The use of $580,000 in cash for the six-month period primarily related to repayments of $594,000 on the Company's bank borrowings and $255,000 of capital expenditures, which were offset by a favorable foreign currency effect of the euro that increased cash $263,000 in the six-month period. 14 Cash flow from operations broke even with a reduction in working capital offsetting the loss for the period. Inventories were reduced $2.3 million, primarily due to efforts by the Company to reduce the time between inventory receipt and shipment. Receivables, net of foreign translation adjustments, decreased $777,000 primarily as a result of higher cash collections. During the six-month period of fiscal 2002, the Company increased its reserve for allowance for doubtful accounts by a net $89,000. This net amount is made up of a $130,000 additional reserve recorded in the first quarter for domestic operations and a reversal in the second quarter of approximately $41,000 by the Company's European operations for items reserved in fiscal 2001 that were paid in fiscal 2002. Offsetting the decrease in inventories and net receivables was a decrease of $2.7 million in accounts payable and a net change of $330,000 in other current assets and liabilities that primarily reflected payments for liabilities accrued at June 30, 2001. During the six-month period of fiscal 2002, the Company disposed of $1.3 million of inventory that had been reserved for at June 30, 2001. Financing activities during the quarter reflected net working capital repayments of $594,000. In September 2001, the Company replaced its existing Credit Agreement with two collateral-based Revolving Credit Facilities ("Revolver"): "Facility A" in the principal amount of $17.0 million that expires on August 31, 2003 and "Facility B" in the principal amount of $1.5 million that expires on August 31, 2002. Proceeds under each Facility may be used for working capital and general corporate purposes. The aggregate principal amount outstanding at any one time under Facility A cannot exceed the lesser of $17.0 million or the Facility A borrowing base which is comprised of 80% of eligible accounts receivable billed in the United States, aged up to 180 days, 35% of raw material located in the United States, and $4.8 million representing 80% of the appraised value of the Company's real property located in Plymouth, Michigan. The aggregate principal amount outstanding at any one time under Facility B cannot exceed the lesser of $1.5 million or the Facility B borrowing base which is 50% of finished goods inventory located in the United States. The collateral for both Facility A and B is substantially all U.S. assets of the Company, a pledge of 65% of the common stock of Perceptron B.V. owned by the Company and a pledge of 100% of the common stock of Perceptron GmbH owned by Perceptron B.V. Facility A can be designated as a Floating Rate Loan with interest calculated daily at 1/2% below the bank's prime rate which was 4.75% as of February 7, 2002 or as a Eurodollar Rate Loan with interest calculated daily at a Eurodollar Rate for the period chosen (approximately 3.5% as of February 7, 2002) if the Company achieves a ratio of funded debt to earnings before interest, taxes, depreciation, and amortization of less than 5:1. Interest on Facility B is calculated daily at the bank's prime rate plus 0.25%. Quarterly, the Company pays a commitment fee of 1/4% per annum on the daily unused portion of Facility A. The Credit Agreement prohibits the Company from paying dividends. In addition, Facility A contains various financial covenants that, among other things, restrict dividend payments by requiring the Company to maintain a Fixed Charge Coverage Ratio and a Total Liabilities to Tangible Net Worth Ratio and require the Company to maintain certain levels of earnings before interest, taxes, depreciation and amortization (EBITDA). The Company's EBITDA for the six months ended December 31, 2001 was below the level required by the financial covenant. The Company's bank waived the covenant default through December 31, 2001. In the event that the Company failed to satisfy the covenants contained in, or there was an event of default under, the Credit Facility, the lender has the right to not make further advances under, and to require the repayment of, the Credit Agreement. At December 31, 2001, the Company's borrowing base under Facility A was $15.4 million of which $13.0 million was outstanding. At December 31, 2001, the Company's borrowing base under Facility B was $749,000 of which none was outstanding. The Company believes that available cash on hand and existing credit facilities will be sufficient to fund its currently anticipated fiscal 2002 cash flow requirements. The Company does not believe that 15 inflation has significantly impacted historical operations and does not expect any significant near-term inflationary impact. The foregoing statements are "forward-looking statements" within the meaning of the Securities Exchange Act of 1934, as amended. See Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations - Safe Harbor Statement" for a discussion of a number of uncertainties which could cause actual results to differ materially from those set forth in the forward looking statements. MARKET RISK INFORMATION Perceptron's primary market risks are related to foreign exchange rates and interest rate risk in connection with its borrowings. The foreign exchange risk is derived from sales by its international operations, which are primarily located in Germany and The Netherlands and for which products are produced in the U.S. During the periods presented the Company did not use any market risk instruments for trading purposes. FOREIGN CURRENCY RISK The Company has foreign currency exchange risk in its international operations arising from the time period between sales commitment and delivery for contracts in non-U.S. currencies. For sales commitments entered into in the non-U.S. currencies, the currency rate risk exposure is predominantly less than one year with the majority in the 120 to 150 day range. At December 31, 2001, the Company's percentage of sales commitments in non-U.S. currencies was 41.1% or $8.3 million. The Company may use, from time to time, a limited hedging program to minimize the impact of foreign currency fluctuations. As the Company exports products, it may enter into limited hedging transactions relating to the accounts receivable arising as a result of such shipment. These transactions involve the use of forward contracts. During the periods presented the Company did not engage in any hedging activities. INTEREST RATE RISK The Company is subject to interest rate risk in connection with borrowings under its variable rate revolving line of credit and from fixed rate debt assumed in conjunction with the purchase of ultrasound intellectual property in October 1998. The Company's exposure to interest rate risk arises primarily from changes in the prime rate and changes in Eurodollar rates in the London interbank market. The Company would not expect its operating results or cash flows to be affected to any significant degree by a hypothetical 10 percent change in market interest rates. See Note 4 of "Notes to Consolidated Statements" for a description of the Company's outstanding debt. NEW ACCOUNTING PRONOUNCEMENTS In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations", which supersedes Accounting Principles Board Opinion ("APB") No. 16, "Business Combinations". SFAS 141 eliminates the pooling-of-interests method of accounting for business combinations for transactions initiated after June 30, 2001. SFAS 141 also provides guidance on purchase accounting related to the recognition of intangible assets and accounting for negative goodwill. This statement will not have an impact on the Company's consolidated financial statements. 16 In July 2001, the FASB also issued SFAS No. 142, "Goodwill and Intangible Assets", which supersedes APB Opinion No. 17, "Intangible Assets". Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the statements. Other intangible assets will continue to be amortized over their useful lives. SFAS 142 will apply to goodwill and intangible assets arising from transactions completed before and after the Statement's effective date. SFAS 142 is effective for fiscal years beginning after December 15, 2001, but earlier adoption is permitted. The Company is currently reviewing the Statement and has not yet made a determination of the impact that adoption will have on its consolidated financial statements. In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which addresses issues relating to the implementation of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and develops a single accounting model, based on the framework established in SFAS 121, for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired. SFAS 144 is effective for fiscal years beginning after December 15, 2001, but earlier adoption is permitted. The Company is currently reviewing the Statement and has not yet made a determination of the impact that adoption will have on its consolidated financial statements. SAFE HARBOR STATEMENT Certain statements in this Management's Discussion and Analysis of Financial Condition and Results of Operations may be "forward-looking statements" within the meaning of the Securities Exchange Act of 1934, including the Company's expectation as to fiscal 2002 and future revenue, order booking levels and earnings levels, the impact of the Company's cost reduction initiatives and the ability of the Company to fund its currently anticipated fiscal 2002 cash flow requirements. The Company assumes no obligation for updating any such forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking statements. Actual results could differ materially from those in the forward-looking statements due to a number of uncertainties, including, but not limited to, the dependence of the Company's revenue on a number of sizable orders from a small number of customers, the timing of orders and shipments which can cause the Company to experience significant fluctuations in its quarterly and annual revenue and operating results, timely receipt of required supplies and components which could result in delays in anticipated shipments, general product demand and market acceptance risks, the ability of the Company to successfully compete with alternative and similar technologies, the timing and continuation of the automotive industry's retooling programs, the ability of the Company to resolve technical issues inherent in the development of new products and technologies, the impact of lumber prices on capital spending in the Forest Products industry, the ability of the Company to identify and satisfy market needs, general product development and commercialization difficulties, the ability of the Company to attract and retain key personnel, especially technical personnel, the quality and cost of competitive products already in existence or developed in the future, the level of interest existing and potential new customers may have in new products and technologies generally, rapid or unexpected technological changes, the effect of economic conditions, particularly economic conditions in the domestic and worldwide Automotive and Forest Products industries, both of which have from time to time been subject to cyclical downturns due to the level of demand for, or supply of, the products produced by companies in these industries, variations in the amount of cost savings anticipated from the cost reduction initiatives, the impact of cost reduction initiatives on the Company's revenues, order bookings and earnings and the continued availability of the Company's current line of credit and the lender's continued willingness to waive violations of financial covenants under the line of credit in the event that the Company's future results do not satisfy such 17 covenants. The Company's expectations regarding future bookings and revenues are based upon oral discussions with customers and are subject to change based upon a wide variety of factors, including economic conditions and system implementation delays. Certain of these new orders have been delayed in the past and could be delayed in the future. Because the Company's products are typically integrated into larger systems or lines, the timing of new orders is dependent on the timing of completion of the overall system or line. In addition, because the Company's products have shorter lead times than other components and are required later in the process, orders for the Company's products tend to be given later in the integration process. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information required pursuant to this item is incorporated by reference herein from Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations - Market Risk Information". PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company held its Annual Meeting of Shareholders on December 7, 2001 at which the following action was taken: 1. The Shareholders elected the following persons as the Company's Board of Directors, and the results of the vote on this matter were as follows:
Name For Withheld Broker Non-Votes -------------------- --------- -------- ----------------- David J. Beattie 7,364,992 135,887 -- Kenneth R. Dabrowski 7,309,870 191,009 -- Philip J. DeCocco 7,364,992 135,887 -- W. Richard Marz 7,364,992 135,887 -- Robert S. Oswald 7,364,992 135,887 -- Alfred A. Pease 7,232,260 268,619 -- Terryll R. Smith 7,364,492 136,387 --
2. The Shareholders approved an amendment to the Company's 1992 Stock Option Plan, which extends the expiration date to make new grants under the 1992 Plan from April 20, 2002 to April 20, 2012. As to this proposal, 3,428,972 shares voted "for", 267,818 shares voted "against", and 761,922 shares "abstained" and 0 shares were "broker non-votes". ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) Exhibits None (B) Reports on Form 8-K: None 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PERCEPTRON, INC. (Registrant) Date: February 11, 2002 By: /S/ Alfred A. Pease ------------------------------------------ Alfred A. Pease President and Chief Executive Officer Date: February 11, 2002 By: /S/ John J. Garber ------------------------------------------ John J. Garber Vice President and Chief Financial Officer (Principal Financial Officer) Date: February 11, 2002 By: /S/ Sylvia M. Smith ------------------------------------------ Sylvia M. Smith Controller and Chief Accounting Officer (Principal Accounting Officer) 19