-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GajeNMp2tNd4x6enA6fDWaAgWifHQt/FUcMcxqYxhc1PGEsXWocV3WPTNBboqC9K 0a1s/R8gCX2pja6HJblnLQ== 0000950124-05-000810.txt : 20050214 0000950124-05-000810.hdr.sgml : 20050214 20050214154616 ACCESSION NUMBER: 0000950124-05-000810 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20041231 FILED AS OF DATE: 20050214 DATE AS OF CHANGE: 20050214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PERCEPTRON INC/MI CENTRAL INDEX KEY: 0000887226 STANDARD INDUSTRIAL CLASSIFICATION: OPTICAL INSTRUMENTS & LENSES [3827] IRS NUMBER: 382381442 STATE OF INCORPORATION: MI FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20206 FILM NUMBER: 05609649 BUSINESS ADDRESS: STREET 1: 47827 HALYARD DRIVE CITY: PLYMOUTH STATE: MI ZIP: 48170-2461 BUSINESS PHONE: 3134144816 MAIL ADDRESS: STREET 1: 47827 HALYARD DRIVE CITY: PLYMOUTH STATE: MI ZIP: 48170-2461 10-Q 1 k92186e10vq.txt QUARTERLY REPORT FOR PERIOD ENDED 12/31/2004 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, 2004. 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) (Zip Code) (734) 414-6100 (Registrant's Telephone Number, Including Area Code) Not Applicable (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] The number of shares outstanding of each of the issuer's classes of common stock as of February 8, 2005, was: Common Stock, $0.01 par value 8,766,531 ----------------------------- ---------------- Class Number of shares PERCEPTRON, INC. AND SUBSIDIARIES INDEX TO FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 2004
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 21 Item 4. Controls and Procedures 21 PART II. OTHER INFORMATION Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 22 Item 4. Submission of Matters to a Vote of Security Holders 22 Item 5 Other Information 23 Item 6. Exhibits 23 SIGNATURES 24
2 PERCEPTRON, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, JUNE 30, (In Thousands, Except Per Share Amount) 2004 2004 ------------ ---------- (Unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $ 23,509 $ 19,679 Receivables: Billed receivables, net of allowance for doubtful accounts 17,832 19,631 of $731 and $625, respectively Unbilled receivables 1,360 2,050 Other receivables 607 462 Inventories, net of reserves of $510 and $510, respectively 6,451 5,688 Deferred taxes and other current assets 1,774 1,831 ---------- ---------- Total current assets 51,533 49,341 PROPERTY AND EQUIPMENT Building and land 6,013 6,013 Machinery and equipment 10,446 9,640 Furniture and fixtures 1,071 1,068 ---------- ---------- 17,530 16,721 Less - Accumulated depreciation and amortization (9,696) (9,007) ---------- ---------- Net property and equipment 7,834 7,714 DEFERRED TAX ASSETS 4,795 5,869 ---------- ---------- TOTAL ASSETS $ 64,162 $ 62,924 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 1,927 $ 1,444 Accrued liabilities and expenses 2,998 2,827 Accrued compensation 1,259 3,288 Income taxes payable 1,410 2,543 Deferred revenue 2,550 2,462 ---------- ---------- Total current liabilities 10,144 12,564 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 8,759 and 8,716, respectively 88 87 Accumulated other comprehensive income (loss) 316 (758) Additional paid-in capital 42,653 42,502 Retained earnings 10,961 8,529 ---------- ---------- Total shareholders' equity 54,018 50,360 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 64,162 $ 62,924 ========== ==========
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) 2004 2003 2004 2003 ---------- ---------- ---------- ---------- NET SALES $ 14,812 $ 13,607 $ 27,056 $ 25,875 COST OF SALES 7,394 7,120 13,610 13,777 ---------- ---------- ---------- ---------- GROSS PROFIT 7,418 6,487 13,446 12,098 OPERATING EXPENSES Selling, general and administrative 3,355 3,215 6,152 5,700 Engineering, research and development 1,917 1,665 3,620 3,102 ---------- ---------- ---------- ---------- Total operating expenses 5,272 4,880 9,772 8,802 ---------- ---------- ---------- ---------- OPERATING INCOME 2,146 1,607 3,674 3,296 OTHER INCOME AND (EXPENSES) Interest income, net 127 89 218 140 Foreign currency 89 597 120 614 Other (49) 166 (12) 138 ---------- ---------- ---------- ---------- Total other income (expenses) 167 852 326 892 ---------- ---------- ---------- ---------- INCOME BEFORE INCOME TAXES 2,313 2,459 4,000 4,188 INCOME TAX EXPENSE 846 929 1,568 1,631 ---------- ---------- ---------- ---------- NET INCOME $ 1,467 $ 1,530 $ 2,432 $ 2,557 ========== ========== ========== ========== EARNINGS PER COMMON SHARE Basic $ 0.17 $ 0.18 $ 0.28 $ 0.30 Diluted $ 0.16 $ 0.16 $ 0.26 $ 0.28 WEIGHTED AVERAGE COMMON SHARES OUTSTANDING Basic 8,749 8,585 8,738 8,507 Dilutive effect of stock options 664 713 665 758 ---------- ---------- ---------- ---------- Diluted 9,413 9,298 9,403 9,265 ========== ========== ========== ==========
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) 2004 2003 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 2,432 $ 2,557 Adjustments to reconcile net income to net cash provided from (used for) operating activities: Depreciation and amortization 665 681 Stock option income tax benefit 22 290 Deferred income taxes 1,074 439 Other 84 (137) Changes in assets and liabilities, exclusive of changes shown separately (935) 1,963 ---------- ---------- Net cash provided from operating activities 3,342 5,793 CASH FLOWS FROM FINANCING ACTIVITIES Revolving credit borrowings 441 - Revolving credit repayments (441) - Proceeds from stock plans 167 576 Repurchase of company stock (38) - ---------- ---------- Net cash provided from financing activities 129 576 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (763) (582) ---------- ---------- Net cash used for investing activities (763) (582) EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 1,122 541 ---------- ---------- NET INCREASE IN CASH AND CASH EQUIVALENTS 3,830 6,328 CASH AND CASH EQUIVALENTS, JULY 1 19,679 11,101 ---------- ---------- CASH AND CASH EQUIVALENTS, DECEMBER 31 $ 23,509 $ 17,429 ========== ========== CHANGES IN ASSETS AND LIABILITIES, EXCLUSIVE OF CHANGES SHOWN SEPARATELY Receivables, net $ 3,322 $ 7,131 Inventories (763) 80 Accounts payable 483 426 Other current assets and liabilities (3,977) (5,674) ---------- ---------- $ (935) $ 1,963 ========== ==========
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 2004 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 2005 presentation. In the opinion of management, the unaudited information furnished herein reflects all adjustments necessary, consisting of normal recurring adjustments, 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. 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 yearly with quarterly updates for known changes that have occurred since the annual review. Inventory, net of reserves of $510,000 for both periods presented, is comprised of the following (in thousands):
DECEMBER 31, 2004 JUNE 30, 2004 ----------------- ------------- Component Parts $ 3,341 $ 2,663 Work In Process 519 573 Finished Goods 2,591 2,452 ---------- ---------- Total $ 6,451 $ 5,688 ========== ==========
3. EARNINGS PER SHARE Basic earnings per share ("EPS") is calculated by dividing net income by the weighted average number of common shares outstanding during the period. Other obligations, such as stock options, are considered to be potentially dilutive common shares. Diluted EPS assumes the issuance of potential dilutive common shares outstanding during the period and adjusts for any changes in income and the repurchase of common shares that would have occurred from the assumed issuance, unless such effect is anti-dilutive. Options to purchase 624,000 and 580,000 shares of common stock outstanding in the three months ended December 31, 2004 and 2003, respectively, were not included in the computation of diluted EPS because the effect would have been anti-dilutive. Options to purchase 623,000 and 580,000 shares of common stock were outstanding in the six months ended December 31, 2004 and 2003, respectively, were not included in the computation of diluted EPS because the effect would have been anti-dilutive. 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 Company's investment in these subsidiaries. 6 At December 31, 2004, the Company had $8.0 million of forward exchange contracts between the United States Dollar and the Euro. The hedges are accounted for as cash flow hedges and have a weighted average settlement price of 1.28 Euros to the United States Dollar. The contracts outstanding at December 31, 2004, mature through June 30, 2005 and are intended to hedge the Company's investment in its German subsidiary. The Company recognized a charge of approximately $988,000 and $1.1 million in other comprehensive income (loss) for the unrealized change in value of the forward exchange contracts during the three and six months ended December 31, 2004, respectively. The Company's forward exchange contracts do not subject it to material risk due to exchange rate movements because gains and losses on these contracts offset losses and gains on the assets, liabilities, and transactions being hedged. At December 31, 2003, the Company had approximately $10.0 million of forward exchange contracts between the United States Dollar and the Euro with a weighted average settlement price of 1.16 Euros to the United States Dollar. The company recognized a charge of $1.0 million and $1.2 million in other comprehensive income (loss) for the unrealized change in value of forward exchange contracts during the three and six months ended December 31, 2003, respectively. 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, 2004 2003 ----------- ---------- Net Income $ 1,467 $ 1,530 Other Comprehensive Income: Foreign Currency Translation Adjustments 1,863 1,177 Forward Contracts (988) (985) ---------- ---------- Total Comprehensive Income $ 2,342 $ 1,722 ========== ==========
SIX MONTHS ENDED DECEMBER 31, 2004 2003 ----------- ---------- Net Income $ 2,432 $ 2,557 Other Comprehensive Income: Foreign Currency Translation Adjustments 2,205 1,533 Forward Contracts (1,131) (1,198) ---------- ---------- Total Comprehensive Income $ 3,506 $ 2,892 ========== ==========
6. CREDIT FACILITIES The Company had no debt outstanding at December 31, 2004. The Company has a $7.5 million secured Credit Agreement with Comerica Bank, which expires on November 1, 2006. Proceeds under the Credit Agreement may be used for working capital and capital expenditures. The security for the loan is substantially all assets of the Company held in the United States. Borrowings are designated as a Prime-based Advance or as a Eurodollar-based Advance. Interest on Prime-based Advances is payable on the last day of each month and is calculated daily at a rate that ranges from a 1/2% below to a 1/4% above the bank's prime rate (5.25% as of December 31, 2004) dependent upon the Company's ratio of funded debt to earnings before interest, taxes, depreciation and amortization ("EBITDA"). Interest on Eurodollar-based Advances is calculated at a specific margin above the Eurodollar Rate offered at the time and for the period chosen (approximately 4.44% as of 7 December 31, 2004) dependent upon the Company's ratio of funded debt to EBITDA and is payable on the last day of the applicable period. Quarterly, the Company pays a commitment fee on the daily unused portion of the Credit Agreement based on a percentage dependent upon the Company's ratio of funded debt to EBITDA. The Credit Agreement prohibits the Company from paying dividends. In addition, the Credit Agreement requires the Company to maintain a Tangible Net Worth, as defined in the Credit Agreement, of not less than $33.9 million as of December 31, 2004 and to have no advances outstanding for 30 consecutive days each calendar year. At December 31, 2004, the facility supported a $264,000 letter of credit outstanding. At December 31, 2004, the Company's German subsidiary (GmbH) had an unsecured credit facility totaling 500,000 Euros (equivalent to approximately $682,000 at December 31, 2004). 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 December 31, 2004, GmbH had no borrowings outstanding. The facility supported outstanding letters of credit totaling 126,000 Euros (equivalent to approximately $172,000 at December 31, 2004). 7. STOCK-BASED COMPENSATION The Company has stock plans, which are described more fully in Notes 10 and 11 in the Company's Annual Report on Form 10-K for fiscal year 2004. The Company applies APB Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees," and related interpretations in accounting for these plans. Accordingly, compensation cost for stock options has been recognized under the provisions of APB 25. No stock-based compensation cost is reflected in net income, as all options granted under these plans had an exercise price greater than or equal to the market value of the underlying common stock on the date of grant. The following table illustrates the pro forma effect on net income and earnings per share for the periods indicated if the Company had applied the fair value recognition provisions of FASB Statement 123, "Accounting for Stock-Based Compensation," to its stock option plans as indicated below (in thousands except per share amounts):
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS ENDED ENDED ENDED ENDED 12/31/2004 12/31/2003 12/31/2004 12/31/2003 ------------ ------------ ---------- ----------- NET INCOME AS REPORTED $ 1,467 $ 1,530 $ 2,432 $ 2,557 EFFECT OF STOCK-BASED (136) (122) (272) (222) COMPENSATION EXPENSE - NET OF TAX --------- --------- --------- --------- PRO FORMA $ 1,331 $ 1,408 $ 2,160 $ 2,335 ========= ========= ========= ========= EARNINGS PER SHARE BASIC - AS REPORTED $ 0.17 $ 0.18 $ 0.28 $ 0.30 BASIC - PRO FORMA $ 0.15 $ 0.16 $ 0.25 $ 0.27 DILUTED - AS REPORTED $ 0.16 $ 0.16 $ 0.26 $ 0.28 DILUTED - PRO FORMA $ 0.14 $ 0.15 $ 0.23 $ 0.25
8 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:
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS ENDED ENDED ENDED ENDED 12/31/2004 12/31/2003 12/31/2004 12/31/2003 ------------ ------------ ---------- ---------- WEIGHTED AVERAGE ESTIMATED FAIR VALUE PER SHARE OF OPTIONS GRANTED DURING THE PERIOD $ 2.12 $ 3.45 $ 2.12 $ 4.58 ASSUMPTIONS: AMORTIZED DIVIDEND YIELD - - - - COMMON STOCK PRICE VOLATILITY 28.39% 63.14% 28.39% 77.32% RISK FREE RATE OF RETURN 3.38% 3.38% 3.38% 3.38% EXPECTED OPTION TERM (IN YEARS) 5 5 5 5
8. COMMITMENTS AND CONTINGENCIES Management is currently unaware of any significant pending litigation affecting the Company, other than the matters set forth below and those discussed in the Company's Annual Report on Form 10-K for fiscal year 2004. The Company is a party to a suit filed by Industries GDS, Inc., Bois Granval GDS Inc., and Centre de Preparation GDS, Inc. (collectively, "GDS") on or about November 21, 2002 in the Superior Court of the Judicial District of Quebec, Canada against the Company, Carbotech, Inc. ("Carbotech"), and U.S. Natural Resources, Inc. ("USNR"), among others. The suit alleges that the Company breached its contractual and warranty obligations as a manufacturer in connection with the sale and installation of three systems for trimming and edging wood products. The suit also alleges that Carbotech breached its contractual obligations in connection with the sale of equipment and the installation of two trimmer lines, of which the Company's systems were a part, and that USNR, which acquired substantially all of the assets of the Forest Products business unit from the Company, was liable for GDS' damages. USNR has sought indemnification from the Company under the terms of existing contracts between the Company and USNR. GDS seeks compensatory damages against the Company, Carbotech and USNR of approximately $5.5 million using a December 31, 2004 exchange rate. Carbotech has filed for bankruptcy protection in Canada. The Company intends to vigorously defend GDS' claims. The Company has been informed that a customer has received allegations of possible patent infringement involving the Company's TriCam sensor. The customer is currently engaged in litigation relating to such matter. This customer has notified the Company that it expects the Company to indemnify it for expenses and damages, if any, incurred in this matter. Management believes, however, that the TriCam sensor was independently developed without utilizing any previously patented process or technology and intends to vigorously assist its customer in defending the Company's position. Because of the uncertainty surrounding the nature of any possible infringement and the validity of any such claim or any possible customer claim for indemnity, it is not possible to estimate the ultimate effect, if any, of this matter on the Company's financial position. The Company may, from time to time, be subject to other claims and suits in the ordinary course of its business. To estimate whether a loss contingency should be accrued by a charge to income, the Company evaluates, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of the loss. Since the outcome of litigation is subject to significant uncertainty, changes in these factors could materially impact the Company's financial position or results of operations. 9 9. NEW ACCOUNTING PRONOUNCEMENTS In November 2004, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 151, "Inventory Costs - an amendment of ARB No. 43, Chapter 4". This Statement amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated that " .. . . under some circumstances, items such as idle facility expense, excessive spoilage, double freight, and rehandling costs may be so abnormal as to require treatment as current period charges. . . ." This Statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of "so abnormal." In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. This Statement will be adopted by the Company effective July 1, 2005 and is not expected to have a material impact on the Company's financial statements. In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets - - an amendment of APB Opinion No. 29". This Statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. This Statement will be effective for non-monetary asset exchanges occurring July 1, 2005 or thereafter. In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment". This Statement is a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation. This Statement supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance. This Statement establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity's equity instruments or that may be settled by the issuance of those equity instruments. This Statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. This Statement is effective for the Company beginning July 1, 2005. The impact of adopting this Statement on the Company's consolidated statement of operations has not yet been evaluated. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Perceptron, Inc. ("Perceptron" or the "Company") designs, develops, manufactures and markets information-based measurement and inspection solutions for process improvement. Perceptron's product offerings are designed to improve quality, increase productivity and decrease costs in manufacturing and product development. The solutions offered by the Company are divided into three groups: 1) The Automated Systems Group made up of AutoGauge(R), AutoFit(R), AutoScan(R), AutoSpect(R) and AutoGuide(R) products; 2) The Technology Components Group made up of ScanWorks(TM), Non-Contact Wheel Alignment and TriCam(R) sensors for the forest products industry; and 3) The Value Added Services Group providing consulting, training and non-warranty support services. The Company services multiple markets, with the largest being the automotive industry. The Company's primary operations are in North America, Europe and Asia. The Company has a strong financial base, no debt and approximately $23.5 million of cash at December 31, 2004, to support its growth plans. The Company's near-term focus for growth will remain on the successful introduction of its two new Automated Systems products, AutoFit(R) and AutoScan(R), which are designed to expand the Company's product offerings in its worldwide automotive markets, and the continued development of enhanced versions of its ScanWorks(TM) product line. In addition the Company believes there are growth opportunities in Asia and Eastern Europe related to the emerging automotive markets in those areas and the expansion of the Company`s business with current customers in Japan. The Company has plans to commit additional resources to support these efforts. 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. The Company's revenues are principally derived from the sale of products for use in the automotive industry. New vehicle tooling programs are the most important selling opportunity for the Company's automotive related sales. The number and timing of new vehicle tooling programs can be influenced by the state of the economy. Therefore, from a macro perspective the Company continues to assess the global economy and its likely effect on the Company's automotive customers and markets served. The Company is continuing its efforts to expand its opportunities outside the automotive industry, principally through its Technology Components Group and new product development efforts. RESULTS OF OPERATIONS THREE MONTHS ENDED DECEMBER 31, 2004 COMPARED TO THREE MONTHS ENDED DECEMBER 31, 2003 For the second quarter of fiscal 2005, the Company reported net income of $1.5 million, or $0.16 per diluted share, compared to net income of $1.5 million or $0.16 per diluted share, for the second quarter of fiscal 2004. Specific line item results are described below. 11 SALES - Net sales of $14.8 million for the second quarter of fiscal 2005 were up $1.2 million, compared with the same period one year ago. The following tables set forth comparison data for the Company's net sales by product groups and geographic location.
SALES (BY GROUP) SECOND QUARTER SECOND QUARTER (in millions) 2005 2004 INCREASE/(DECREASE) - --------------------- ------------------ ------------------ --------------------- Automated Systems $ 11.1 75% $ 8.9 65% $ 2.2 24.7% Technology Components 2.2 15% 3.3 25% (1.1) (33.3)% Value Added Services 1.5 10% 1.4 10% 0.1 7.1% --------- --- --------- --- --------- Totals $ 14.8 100% $ 13.6 100% $ 1.2 8.8% ========= === ========= === =========
SALES (BY LOCATION) SECOND QUARTER SECOND QUARTER (in millions) 2005 2004 INCREASE/(DECREASE) - ------------------- ------------------- ------------------- -------------------- North America $ 9.2 62% $ 9.1 56% $ 0.1 1.1% Europe 5.3 36% 4.2 41% 1.1 26.2% Asia 0.3 2% 0.3 3% 0.0 0.0% ---------- --- ---------- --- ---------- Totals $ 14.8 100% $ 13.6 100% $ 1.2 8.8% ========== === ========== === ==========
Sales of the Company's Automated Systems products increased primarily due to the early delivery of a large AutoGauge(R) order to support a revised customer delivery schedule and a higher than normal number of project completions that resulted in customer buy-offs and associated final invoicing and sales recognition. Technology Components sales were down primarily due to the timing of customer delivery requirements for the ScanWorks(TM) product line. ScanWorks(TM) sales of $0.2 million were down approximately $500,000 compared to the second quarter of fiscal 2004. The sales increase in Europe reflected a higher level of new orders scheduled for delivery during the quarter of $640,000 and the benefit from the strong Euro, that based on conversion rates in effect this quarter, added approximately $460,000 more in sales than the comparable rates in the second quarter of fiscal 2004 would have yielded. BOOKINGS - The Company had new order bookings during the quarter of $16.9 million compared with new order bookings of $6.7 million in the first quarter of fiscal 2005 and $12.4 million for the quarter ended December 31, 2003. 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 Company's bookings by product groups and geographic location.
BOOKINGS (BY GROUP) SECOND QUARTER SECOND QUARTER (in millions) 2005 2004 INCREASE/ (DECREASE) - --------------------- ----------------------- ----------------------- ----------------------- Automated Systems $ 13.6 80% $ 6.8 55% $ 6.8 100.0 % Technology Components 1.8 11% 3.3 27% (1.5) (45.5)% Value Added Services 1.5 9% 2.3 18% (0.8) (34.8)% --------- --- --------- --- --------- TOTALS $ 16.9 100% $ 12.4 100% $ 4.5 36.3 % ========= === ========= === =========
BOOKINGS (BY LOCATION) SECOND QUARTER SECOND QUARTER (in millions) 2005 2004 INCREASE/ (DECREASE) - ---------------------- -------------------- ------------------- ----------------------- North America $ 12.1 72% $ 7.3 60% $ 4.8 65.8% Europe 4.8 28% 4.4 37% 0.4 9.1% Asia 0.0 0% 0.7 3% (0.7) (100.0)% ---------- --- ---------- --- ---------- TOTALS $ 16.9 100% $ 12.4 100% $ 4.5 36.3% ========== === ========== === ==========
12 The Company indicated in its Form 10-Q filed for the first quarter of fiscal 2005 that it expected new orders to be significantly higher than the low level of new orders reported in the first quarter of $6.7 million. The timing of new orders, particularly for Automated Systems products, can cause a large swing between quarters as was the case between the first and second quarters of fiscal 2005. The reduction in new orders for Technology Components and Value Added Services was also primarily a function of timing. The Company believes that interest in the ScanWorks(TM) product line and Value Added Services remains high, and correspondingly expects orders to increase. New orders in Asia were less than $50,000 this quarter, but the Company believes that customer interest for many of the Company's product lines has been growing. As a result the Company believes there is growth potential for new orders in this region and intends to commit additional resources to the Asian market. 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. BACKLOG - The Company's backlog was $15.6 million as of December 31, 2004 compared with $13.5 million as of September 30, 2004 and $16.6 million as of December 31, 2003. The following tables set forth comparison data for the Company's backlog by product groups and geographic location.
BACKLOG (BY GROUP) SECOND QUARTER SECOND QUARTER (in millions) 2005 2004 INCREASE/ (DECREASE) - -------------------- -------------- --------------- --------------------- Automated Systems $12.2 78% $10.9 66% $ 1.3 11.9 % Technology Components 1.9 12% 3.0 18% (1.1) (36.7)% Value Added Services 1.5 10% 2.7 16% (1.2) (44.4)% ----- --- ----- --- ----- TOTALS $15.6 100% $16.6 100% $(1.0) (6.0)% ===== === ===== === =====
BACKLOG (BY LOCATION) SECOND QUARTER SECOND QUARTER INCREASE/ (in millions) 2005 2004 (DECREASE) - -------------------- --------------- --------------- -------------------- North America $ 10.2 55% $ 8.8 53% $ 1.4 15.9 % Europe 5.1 41% 6.9 42% (1.8) (26.1)% Asia 0.3 4% 0.9 5% (0.6) (66.7)% ------ --- ----- --- ----- TOTALS $ 15.6 100% $16.6 100% $(1.0) (6.0)% ====== === ===== === =====
The Company expects to be able to fill substantially all of the orders in backlog during the next twelve months. 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 $7.4 million, or 50.1% of sales, in the second quarter of fiscal year 2005, as compared to $6.5 million, or 47.7% of sales, in the second quarter of fiscal year 2004. The margin improvement primarily reflected the benefit from higher than normal revenue in North America of approximately $370,000, or 2.5% of sales, related to customer buy-offs on completed system installations and the strong Euro that had a net positive impact of approximately $300,000, or 2.0% of sales. Higher installation and manufacturing costs compared with the second quarter of fiscal 2004 of approximately $530,000, or 3.6% of sales, partially offset the improvement. The balance of the gross margin percentage change was due to product mix. 13 SELLING, GENERAL AND ADMINISTRATIVE (SG&A) EXPENSES - SG&A expenses were $3.4 million in the quarter ended December 31, 2004 compared to $3.2 million in the second quarter a year ago. The increase of $140,000 was primarily due to salary and benefit increases of $100,000, higher provision for doubtful accounts of approximately $140,000 and the impact of the strong Euro on SG&A expenses in the Company's European subsidiary of approximately $90,000. Partially offsetting the increases were lower legal expenses in fiscal 2005 of $220,000 related to the settlement of various litigation matters. ENGINEERING, RESEARCH AND DEVELOPMENT (R&D) EXPENSES - Engineering and R&D expenses were $1.9 million in the quarter ended December 31, 2004 compared to $1.7 million in the second quarter a year ago. The increase of $252,000 was principally due to spending on contract engineering services and engineering materials to support new product development. INTEREST INCOME, NET - Net interest income was $127,000 in the second quarter of fiscal 2005 compared with net interest income of $89,000 in the second quarter of fiscal 2004. The increase was primarily due to higher cash balances available for investment in short term securities at higher interest rates compared to one year ago. FOREIGN CURRENCY - There was a net foreign currency transaction gain of $89,000 this quarter primarily due to the strengthening Euro compared with a foreign currency gain of $597,000 last year. Last year's results included a large, realized foreign exchange gain of approximately $400,000 on Euros that had been held in a bank account in Europe by the Company. OTHER - Other expense this quarter was $49,000 primarily due to the loss on a Euro foreign exchange contract compared to other income last year of $166,000 that included the receipt of funds related to the settlement of all legal disputes with LMI Technologies, Inc. offset by certain costs incurred to secure the settlement and the reversal of certain costs that were not required to be paid in the final settlement of an arbitration award. INCOME TAXES - The effective tax rates of 36.6% and 37.8% for the second quarter of fiscal 2005 and 2004, respectively, reflected the effect of the mix of operating profit and loss among the Company's various operating entities and their countries' respective tax rates. OUTLOOK - The Company continues to expect revenues and bookings for the fiscal year as a whole to remain comparable to those achieved in fiscal year 2004. The Company also expects operating results for the second half of fiscal 2005 to remain positive. The Company's sales forecast is based on a thorough assessment of the probable size, system content, and timing of each of the programs being considered by its customers. These factors are difficult to quantify accurately because over time the Company's customers weigh changes in the economy and the probable effect of these changes on their business, and adjust the number and timing of their new vehicle programs to reflect the changing business conditions. Longer term there are several factors that may positively influence sales growth including the automotive industry's focus on introducing fresh new vehicles more frequently to satisfy its customer's changing requirements, our customers continuing focus on improving the fit and finish of their vehicles, and the Company's new products AutoFit(R) and AutoScan(R), that are designed to not only support our customers goals to improve fit that is measured in terms of the vehicle's gap and flush but also to reduce the time and cost to introduce new vehicles. 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. 14 SIX MONTHS ENDED DECEMBER 31, 2004 COMPARED TO SIX MONTHS ENDED DECEMBER 31, 2003 The Company reported net income of $2.4 million, or $0.26 per diluted share, for the first half of fiscal 2005, compared with net income of $2.6 million, or $0.28 per diluted share for the six months ended December 31, 2003. SALES - Net sales in the first six months of fiscal 2005 were $27.1 million, compared to $25.9 million for the six months ended December 31, 2003. The following tables set forth comparison data for the Company's net sales by product groups and geographic location.
SALES (BY GROUP) SIX MONTHS SIX MONTHS (in millions) ENDED 12/31/04 ENDED 12/31/03 INCREASE/ (DECREASE) - --------------------- -------------- -------------- -------------------- Automated Systems $19.0 70% $18.2 70% $0.8 4.4 % Technology Components 5.2 19% 5.4 21% (0.2) (3.7)% Value Added Services 2.9 11% 2.3 9% 0.6 26.1 % ----- --- ----- --- ---- Totals $27.1 100% $25.9 100% $1.2 4.6 % ===== === ===== === ====
SALES (BY LOCATION) SIX MONTHS SIX MONTHS (in millions) ENDED 12/31/04 ENDED 12/31/03 INCREASE/ (DECREASE) - ------------------ -------------- -------------- -------------------- North America $17.1 63% $16.0 62% $1.1 6.9% Europe 9.2 34% 9.2 35% 0.0 0.0% Asia 0.8 3% 0.7 3% 0.1 14.3% ----- --- ----- --- ---- Totals $27.1 100% $25.9 100% $1.2 4.6% ===== === ===== === ====
Sales by product line and geographic region for both six month periods generally reflected the timing of orders scheduled for delivery. The sales increase in North America was primarily due to higher sales of AutoGauge(TM) systems within the Automated Systems products group. Sales in Europe did benefit from the strong Euro that based on conversion rates in effect for fiscal year 2005 added approximately $730,000 more in sales than the comparable rates for the same period of fiscal 2004 would have yielded. BOOKINGS - New order bookings for the six months ended December 31, 2004 were $23.6 million compared to $24.4 million for the same period one year ago.
BOOKINGS (BY GROUP) SIX MONTHS SIX MONTHS (in millions) ENDED 12/31/04 ENDED 12/31/03 INCREASE/ (DECREASE) - --------------------- -------------- -------------- --------------------- Automated Systems $16.0 68% $16.0 65% $ 0.0 0.0 % Technology Components 4.4 19% 5.3 22% (0.9) (17.0)% Value Added Services 3.2 13% 3.1 13% 0.1 3.2 % ----- --- ----- --- ----- TOTALS $23.6 100% $24.4 100% $(0.8) (3.3)% ===== === ===== === =====
BOOKINGS (BY LOCATION) SIX MONTHS SIX MONTHS (in millions) ENDED 12/31/04 ENDED 12/31/03 INCREASE/ (DECREASE) - ---------------------- -------------- -------------- -------------------- North America $15.8 67% $14.6 60% $ 1.2 8.2 % Europe 7.3 31% 8.8 36% (1.5) (17.0)% Asia 0.5 2% 1.0 4% (0.5) (50.0)% ----- --- ----- --- ----- TOTALS $23.6 100% $24.4 100% $(0.8) (3.3)% ===== === ===== ==== =====
15 The decrease in orders of the Technology Components Group was due to lower orders of the WheelWorks(TM) product line of $2.2 million compared to $3.0 million last year when the level of new orders was higher than normal. The reduction in new orders in Europe reflected fewer new vehicle tooling programs that represent the primary opportunity to sell AutoGauge(TM) systems. New orders in Asia for the six months ended December 31, 2004 were $500,000 less than the prior year six-month period. The Company believes that customer interest in Asia for many of the Company's product lines has been growing. As a result the Company believes there is growth potential for new orders in this region and intends to commit additional resources to the Asian market. 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. GROSS PROFIT - Gross profit was $13.4 million, or 49.7% of sales, in the first half of fiscal year 2005, as compared to $12.1 million, or 46.8% of sales, in the first half of fiscal year 2004. The margin improvement primarily reflected the benefit from higher than normal revenue in North America of approximately $500,000, or 1.8% of sales, related to customer buy-offs on completed system installations with nominal associated costs and the strong Euro that had a net impact of approximately $480,000, or 1.8% of sales. The balance of the gross margin percentage change was primarily due to product mix. SELLING, GENERAL AND ADMINISTRATIVE (SG&A) EXPENSEs - SG&A expenses were $6.2 million for the six months ended December 31, 2004 compared to $5.7 million in the six-month period a year ago. The increase of $452,000 was primarily due to salary and benefit increases of approximately $200,000, higher provision for doubtful accounts of approximately $150,000, and the impact of the strong Euro on SG&A expenses in the Company's European subsidiary of approximately $150,000 that were partially offset by lower legal expenses of approximately $120,000. ENGINEERING, RESEARCH AND DEVELOPMENT (R&D) EXPENSES - Engineering and R&D expenses were $3.6 million for the six months ended December 31, 2004 compared to $3.1 million for the six-month period a year ago. The increase of $518,000 was due principally to increased spending of approximately $350,000 for contract engineering services and engineering materials to support new product development and salary and benefit increases of approximately $150,000. INTEREST INCOME, NET - Net interest income was $218,000 in the first half of fiscal 2005 compared with net interest income of $140,000 in the first half of fiscal 2004. The increase was due to higher cash balances available for investment in short term securities at higher interest rates compared to one year ago. FOREIGN CURRENCY - There was a net foreign currency gain of $120,000 in the first half of fiscal 2005 primarily due to the strengthening Euro compared with a net foreign currency gain of $614,000 last year when the Company realized a foreign exchange gain of approximately $400,000 on Euros that had been held in a bank account in Europe by the Company. OTHER - Other expense in the first half of fiscal 2005 was $12,000 primarily due to the loss on a Euro foreign exchange contract this quarter compared to other income last year of $138,000 that reflected the receipt of funds related to the settlement of all legal disputes with LMI Technologies, Inc. offset by certain costs incurred to secure the settlement as well as the reversal of certain costs previously expensed that were not required to be paid in the final settlement of the arbitration award. 16 INCOME TAXES - The effective tax rates of 39.2% and 38.9% for the first six months of fiscal 2005 and 2004, respectively, reflected the effect of the mix of operating profit and loss among the Company's various operating entities and their countries' respective tax rates. LIQUIDITY AND CAPITAL RESOURCES The Company's cash and cash equivalents were $23.5 million at December 31, 2004, compared to $19.7 million at June 30, 2004. The cash increase of $3.8 million for the six months ended Decemer 31, 2004 resulted primarily from $3.3 million of cash generated from operations. The Company also used $763,000 of cash for capital expenditures and $38,000 for the repurchase of company stock and received $167,000 of cash from the purchase of common stock under its employee stock plans. Depreciation and amortization was $665,000 during the six months ended December 31, 2004. The $3.3 million in cash provided from operations was primarily generated from net income of $2.4 million and the add back of non-cash items such as depreciation and deferred income taxes that totaled $1.8 million. Cash provided from operations also reflected a decrease due to the change in net working capital of $935,000. Net working capital is defined as changes in assets and liabilities, exclusive of changes shown separately on the Consolidated Statements of Cash Flow. The net working capital increase resulted primarily from reductions of other current assets and liabilities of $4.0 million and increases in inventories of $763,000 that were partially offset by a reduction in accounts receivables of $3.3 million and increases in accounts payable of $483,000. The $4.0 million use of cash for other current assets and accrued liabilities primarily represents payments of $2.3 million made under the Company's 2004 team member profit sharing plan and tax payments of $1.1 million. The $3.3 million reduction in receivables primarily related to increased cash collections due to higher sales achieved in the fourth quarter of fiscal 2004 that were collected during the first six months of fiscal 2005. Inventory increased due to purchases of items required to fill anticipated orders. 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. 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. There was no inventory disposed of during the first six months of fiscal 2005. 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 Company's previous loss history, the customer's current ability to pay its obligation to the Company, and the condition of the general economy and the industry as a whole. The Company writes-off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts. During the first half of fiscal 2005, the Company wrote off $8,000 of receivables and received a payment of $79,000 for a previously written-off receivable. Also during the first half of fiscal 2005, the Company increased its provision for bad debts by $35,000. On February 2, 2005, Tower Automotive Inc., a customer of the Company, filed for bankruptcy. On that date, Tower Automotive owed the Company approximately $500,000. At December 31, 2004, the Company had already reserved for a portion of the amount outstanding. It is expected that a further reserve will be recorded during the third quarter of fiscal 2005 as the Company receives additional information related to the bankruptcy proceeding. To date, except as indicated above, the Company has not experienced any significant losses related to the collection of accounts receivable. 17 The Company has no debt outstanding at December 31, 2004. The Company has a $7.5 million secured Credit Agreement with Comerica Bank, which expires on November 1, 2006. Proceeds under the Credit Agreement may be used for working capital and capital expenditures. The security for the loan is substantially all assets of the Company held in the United States. Borrowings are designated as a Prime-based Advance or as a Eurodollar-based Advance. Interest on Prime-based Advances is payable on the last day of each month and is calculated daily at a rate that ranges from a 1/2% below to a 1/4% above the bank's prime rate (5.25% as of December 31, 2004) dependent upon the Company's ratio of funded debt to earnings before interest, taxes, depreciation and amortization ("EBITDA"). Interest on Eurodollar-based Advances is calculated at a specific margin above the Eurodollar Rate offered at the time and for the period chosen (approximately 4.44% as of December 31, 2004) dependent upon the Company's ratio of funded debt to EBITDA and is payable on the last day of the applicable period. Quarterly, the Company pays a commitment fee on the daily unused portion of the Credit Agreement based on a percentage dependent upon the Company's ratio of funded debt to EBITDA. The Credit Agreement prohibits the Company from paying dividends. In addition, the Credit Agreement requires the Company to maintain a Tangible Net Worth, as defined in the Credit Agreement, of not less than $33.9 million as of December 31, 2004 and to have $0 advances outstanding for 30 consecutive days each calendar year. At December 31, 2004 the facility supported a $264,000 letter of credit outstanding. At December 31, 2004, the Company's German subsidiary (GmbH) had an unsecured credit facility totaling 500,000 Euros (equivalent to approximately $682,000 at December 31, 2004). 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 December 31, 2004, GmbH had no borrowings outstanding. The facility supported outstanding letters of credit totaling 126,000 Euros (equivalent to approximately $172,000 at December 31, 2004). The Company also had a favorable cash effect of $1.1 million in the first half of fiscal 2005 related to the impact of exchange rate changes, principally due to the strong Euro, on Company cash held in Euros. On August 9, 2004, the Company's Board of Directors approved a stock repurchase program authorizing the Company to repurchase up to $2.0 million of the Company's common stock. The Company may buy shares of its common stock on the open market or in privately negotiated transactions from time to time, based on market prices. During the first half of fiscal 2005, the Company repurchased 5,400 shares of the Company's common stock for approximately $38,000. The program may be discontinued at any time. See Note 8 to the Consolidated Financial Statements, "Commitments and Contingencies", contained in this Quarterly Report on Form 10-Q and Item 3, "Legal Proceedings" and Note 8 to the Consolidated Financial Statements, "Contingencies", of the Company's Annual Report on Form 10-K for fiscal year 2004, for a discussion of certain contingencies relating to the Company's liquidity, financial position and results of operations. See also, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies - Litigation and Other Contingencies" of the Company's Annual Report on Form 10-K for fiscal year 2004. The Company expects to spend approximately $1.5 million during fiscal year 2005 for capital equipment, although there is no binding commitment to do so. Based upon the Company's current business plan, the Company believes that available cash on hand and existing credit facilities will be sufficient to fund its currently anticipated fiscal 2005 cash flow requirements and its cash flow requirements for at least the next few years, except to the extent that the Company implements new business development opportunities, which would be financed as discussed 18 below. The Company does not believe that inflation has significantly impacted historical operations and does not expect any significant near-term inflationary impact. The foregoing statements are "forward-looking statements" within the meaning of the Securities 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. The Company continues to evaluate business development opportunities, including potential acquisitions that fit its strategic plans. There can be no assurance that the Company will identify any opportunities that fit its strategic plans or will be able to execute any such opportunities on terms acceptable to the Company. The Company intends to finance any such opportunities from available cash on hand, existing credit facilities, issuance of additional shares of its stock or additional sources of financing, as circumstances warrant. CRITICAL ACCOUNTING POLICIES A summary of critical accounting policies is presented in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies" of the Company's Annual Report on Form 10-K for fiscal year 2004. There have been no material changes in the accounting policies followed by the Company during the first half of fiscal year 2005. MARKET RISK INFORMATION Perceptron's primary market risk is related to foreign exchange rates. The foreign exchange risk is derived from the operations of its international subsidiaries, which are primarily located in Germany and for which products are produced in the United States. The Company may from time to time have interest rate risk in connection with its investment of its cash. 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-United States currencies. For sales commitments entered into in the non-United States 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, 2004, the Company's percentage of sales commitments in non-United States currencies was approximately 41.2% or $6.4 million, compared to 46.9% or $7.8 million at December 31, 2003. The Company may use, from time to time, a limited hedging program to minimize the impact of foreign currency fluctuations. These transactions involve the use of forward contracts. These forward contracts, which typically mature within one year, are designed to hedge anticipated foreign currency transactions. The Company's forward exchange contracts do not subject it to material risk due to exchange rate movements, because gains and losses on these contracts offset losses and gains on the assets, liabilities, and transactions being hedged. The Company may use forward exchange contracts to hedge the net assets of certain of its foreign subsidiaries to offset the translation and economic exposures related to the Company's investment in these subsidiaries. At December 31, 2004, the Company had $8.0 million of forward exchange contracts between the United States Dollar and the Euro. The hedges are accounted for as cash flow hedges and have a weighted average settlement price of 1.28 Euros to the United States Dollar. The contracts outstanding at December 31, 2004, mature through June 30, 2005 and are intended to hedge the Company's investment in its German subsidiary. The Company recognized a charge of approximately $988,000 and $1.1 million in other 19 comprehensive income (loss) for the unrealized change in value of forward exchange contracts during the three and six months ended December 31, 2004, respectively. The Company's forward exchange contracts do not subject it to material risk due to exchange rate movements because gains and losses on these contracts offset losses and gains on the assets, liabilities, and transactions being hedged. At December 31 2003, the Company had $10.0 million of forward exchange contracts between the United States Dollar and the Euro with a weighted average settlement price of 1.16 Euros to the United States Dollar. The Company recognized a charge of $1.0 million and $1.2 million in other comprehensive income (loss) for the unrealized change in value of forward exchange contracts during the three and six months ended December 31, 2003, respectively. INTEREST RATE RISK The Company invests its cash and cash equivalents in high quality, short-term investments with primarily a term of three months or less. Given the short maturities and investment grade quality of the Company's investment holdings at December 31, 2004, a 100 basis point rise in interest rates would not be expected to have a material adverse impact on the fair value of the Company's cash and cash equivalents. As a result, the Company does not currently hedge these interest rate exposures. NEW ACCOUNTING PRONOUNCEMENTS For a discussion of new accounting pronouncements, see Note 9 to the Consolidated Financial Statements, "New Accounting Pronouncements". 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 2005 and future revenue, order bookings, costs and earnings levels, the introduction of, and customer interest in, new products, customer interest in Asia for the Company's existing products, and the ability of the Company to fund its currently anticipated fiscal 2005 cash flow requirements and cash flow requirements for the next few years. 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, continued pricing pressures from the Company's customers, the timing of orders and shipments which can cause the Company to experience significant fluctuations in its quarterly and annual revenue, order bookings, backlog 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, number and continuation of the Automotive industry's retooling programs, including the risk that the Company's customers postpone new tooling programs as a result of economic conditions or otherwise, the ability of the Company to expand into new markets in Eastern Europe and Asia, the ability of the Company to resolve technical issues inherent in the development of new products and technologies, the ability of the Company to identify and satisfy market needs, general product development and commercialization difficulties, the ability of the Company to attract and retain key personnel, especially technical personnel, the quality and cost of competitive products already in existence or developed in the future, the level of interest existing and potential new customers may have in new products and technologies generally, rapid or unexpected technological changes, and the effect of economic conditions, particularly economic conditions in the domestic and worldwide Automotive 20 industry, which has from time to time been subject to cyclical downturns due to the level of demand for, or supply of, the products produced by companies in this industry. The ability of the Company to expand into new geographic markets is subject to a number of uncertainties, including the timing of customer acceptance of the Company's products and technologies, the impact of changes in local economic conditions, the ability of the Company to attract the appropriate personnel to effectively represent, install and service the Company's products in the market and uncertainties inherent in doing business in foreign markets, especially those that are less well developed than the Company's traditional markets, such as the impact of fluctuations in foreign currency exchange rates, foreign government controls, policies and laws affecting foreign trade and investment, differences in the level of protection available for the Company's intellectual property and differences in language and local business and social customs. The Company's 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 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. Because a significant portion of the Company's revenues are denominated in foreign currencies, and are translated for financial reporting purposes into U.S. Dollars, the level of the Company's 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 Company's 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 Company's expectations. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information required pursuant to this item is incorporated by reference herein from Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations - Market Risk Information". ITEM 4. CONTROLS AND PROCEDURES The Company carried out an evaluation, under the supervision and with the participation of the Company's management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934. Based upon that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2004, the Company's disclosure controls and procedures were effective in causing the material information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 to be recorded, processed, summarized and reported, to the extent applicable, within the time periods required for the Company to meet the Securities and Exchange Commission's ("SEC") filing deadlines for these reports specified in the SEC's rules and forms. There have been no significant changes in the Company's internal controls over financial reporting during the quarter ended December 31, 2004 identified in connection with the Company's evaluation that has materially affected, or is reasonably likely to materially affect, the Company's internal controls over financial reporting. 21 PART II. OTHER INFORMATION ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(c) TOTAL NUMBER (d) MAXIMUM NUMBER OF SHARES (OR APPROXIMATE (a) TOTAL PURCHASED AS DOLLAR VALUE) OF NUMBER OF (b) AVERAGE PART OF PUBLICLY SHARES THAT MAY YET SHARES PRICE PAID ANNOUNCED BE PURCHASED UNDER PERIOD PURCHASED PER SHARE PROGRAM THE PROGRAM - --------------------- --------- ---------- ---------------- ------------------- November 1 - 30, 2004 2,000 $6.95 2,000 $1,986,100 December 1 - 31, 2004 3,400 $7.08 5,400 $1,962,029 ----- ----- ----- ---------- Total 5,400 $7.03 5,400 $1,962,029 ===== ===== ===== ==========
On August 9, 2004, the Company's Board of Directors approved a stock repurchase program authorizing the Company to repurchase up to $2.0 million of the Company's common stock. The Company may buy shares of its common stock on the open market or in privately negotiated transactions from time to time, based on market prices. The program may be discontinued at any time. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company held its Annual Meeting of Shareholders on December 6, 2004 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 6,343,588 912,282 -- Kenneth R. Dabrowski 6,478,230 777,640 -- Philip J. DeCocco 6,376,598 879,272 -- W. Richard Marz 6,594,640 661,230 -- Robert S. Oswald 6,573,240 682,630 -- Alfred A. Pease 6,527,886 727,984 -- James A. Ratigan 5,553,193 1,702,677 -- Terryll R. Smith 6,449,172 806,698 --
2. The Shareholders approved the Company's 2004 Stock Incentive Plan. As to this proposal, 2,328,260 shares voted "for", 1,932,071 shares voted "against", 29,049 shares "abstained" and 2,966,490 shares were "broker non-votes". 3. The Shareholders approved the Company's Amended and Restated Employee Stock Purchase Plan which increased the shares of Common Stock available under the plan by 100,000 shares from 150,000 to 250,000. As to this proposal, 4,074,268 voted "for", 187,148 shares voted "against", 27,964 shares "abstained" and 2,966,490 shares were "broker non-votes". 22 ITEM 5. OTHER INFORMATION On November 16, 2004, the Company announced the appointment of Peter J. Chatel as Senior Vice President for New Market Development, effective November 22, 2004. A letter agreement between Mr. Chatel and the Company which outlines certain terms and conditions of Mr. Chatel's employment has been filed as Exhibit 10.43 to this Form 10-Q and is incorporated herein by reference. ITEM 6. EXHIBITS 10.38 Perceptron, Inc. 2004 Stock Incentive Plan is incorporated by reference to Exhibit 10.1 of the Company's Report on Form 8-K filed December 10, 2004. 10.39 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 Company's Report on Form 8-K filed December 10, 2004. 10.40 Fourth Amendment dated as of December 29, 2004 to Credit Agreement dated October 24, 2002 is incorporated by reference to Exhibit 10.1 of the Company's Report on Form 8-K filed January 5, 2005. 10.41 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 Company's Report on Form 8-K filed January 5, 2005. 10.42 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 Company's Report on Form 8-K filed January 5, 2005. 10.43 Letter Agreement, dated October 13, 2004, between the Company and Peter J. Chatel. 31.1 Section 302 Certification of Chief Executive Officer 31.2 Section 302 Certification of Chief Financial Officer 32.1 Section 906 Certification of Chief Executive Officer 32.2 Section 906 Certification of Chief Financial Officer 23 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, 2005 By: /s/ Alfred A. Pease ---------------------------------------- Alfred A. Pease Chairman of the Board, President and Chief Executive Officer Date: February 11, 2005 By: /s/ John J. Garber ---------------------------------------- John J. Garber Vice President and Chief Financial Officer (Principal Financial Officer) Date: February 11, 2005 By: /s/ Sylvia M. Smith ---------------------------------------- Sylvia M. Smith Controller and Chief Accounting Officer (Principal Accounting Officer) 24 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION - ----------- ----------------------------------------------------------------- 10.43 Letter Agreement, dated October 13, 2004, between the Company and Peter J. Chatel. 31.1 Section 302 Certification of Chief Executive Officer 31.2 Section 302 Certification of Chief Financial Officer 32.1 Section 906 Certification of Chief Executive Officer 32.2 Section 906 Certification of Chief Financial Officer
EX-10.43 2 k92186exv10w43.txt LETTER AGREEMENT, DATED OCTOBER 13, 2004 EXHIBIT 10.43 October 13, 2004 Mr. Peter J. Chatel 4137 Grove Street Skokie, Illinois 60076 Dear Pete, I am very pleased to offer you the position of Senior Vice President for New Market Development, reporting to me. Information regarding your compensation and benefits follows: [ ] Your starting salary will be at the annual rate of $195,000. [ ] Perceptron has a profit sharing plan that rewards team members when company performance warrants. Your potential award under our profit sharing plan would be 55% of your annual salary rate. Provisions of the plan change from year to year based upon business forecasts and objectives. Your eligibility begins with Perceptron's fiscal year 2005, which runs from July 1, 2004 to June 30, 2005. Any award based upon company performance in fiscal 2005 will be prorated based upon your date of hire and the resulting portion of the full fiscal year you are employed by Perceptron. [ ] Stock Options: You will be awarded 50,000 Perceptron Stock Option Shares, effective on the first of the month following the month in which you are hired. These shares will be priced by averaging the closing price on the last five trading days before the effective date of the grant. The grant vests at 25% per year. Additional and specific terms of the grant would be covered in a grant agreement. [ ] You will be eligible for Perceptron's standard company car program for executives which includes either use of a leased car and reimbursement for related expenses, or receipt of monthly car allowance of $600. If you chose the allowance, travel miles by car are not reimbursable, even when travelling on company business. [ ] Signing Bonus: You will receive $30,000 as a signing bonus. This bonus will be paid in five equal installments during your first, sixth, 12th, 18th and 24th months of employment at Perceptron. [ ] Relocation: Perceptron will reimburse reasonable and customary moving, real estate sale and/or purchase costs and temporary living expenses up to $35,000, incurred during the period up to four months following the start of your employment. - continued - Pete Chatel 10/13/04 page 2 Your starting date will be November 22, 2004 or two weeks following the end of the Black & Decker transition period, whichever is later but no later than December 20, 2004. Benefits: Perceptron offers excellent benefits. Here is a summary: A 401K investment plan in which the company from time to time provides a partial match of your investment, normally capped only by IRS limits. Your eligibility begins on the first of the calendar quarter following six months from your date of hire. A stock purchase plan that provides opportunity to purchase Perceptron stock at below market prices. Eligibility begins on the first January or July enrollment date following six months of service. Continuance of this plan is subject to shareholder approval at the December 6, 2004 annual meeting of shareholders. Group life Insurance will be provided for you in the amount of $50,000. You also have the option of purchasing additional and/or dependent life insurance. An executive term life insurance policy with a death benefit of $1 million. Short and Long-Term Disability income protection. Group health, dental, and vision care insurance plans. Insurance costs are shared between Perceptron and the Team Member. The health plan has two options, offering choices to meet your needs. Either plan allows in-network and out-of-network services. Both include office visits for preventive care with no co-payments or deductibles. Coverage is immediate upon hire and enrollment. A Tuition Refund Program. Pete, we are confident that you will make significant contributions to Perceptron and find your work here both fulfilling and enjoyable. However, if things do not work out for you at Perceptron, there are some conditions, which would apply. These conditions are set forth in the severance addendum attached hereto. - continued - Pete Chatel 10/13/04 Page 3 This offer is contingent upon your signing of Perceptron's standard agreements for executives covering proprietary information, inventions, non-compete, and business conduct and ethics, as well as the completion of the Directors and Officers Questionnaire. This offer expires October 31, 2004. Please indicate your acceptance by signing in the space provided below. Yours truly, /s/ A. A. Pease Alfred Pease President and CEO I accept this employment offer. I understand that Perceptron is an at-will employer and that no terms of this offer express or imply that employment is for any specified period of time. I further understand that Perceptron, Inc., in its sole discretion, reserves the right to make changes to employee compensation, benefits, practices and/or policies. /s/ Peter J. Chatel 10/21/04 - ------------------- -------- Peter J. Chatel Date Severance Addendum to Letter dated October 13, 2004 In the event of the termination of your employment Without Cause (as defined below), upon execution of a release in the form attached hereto as Exhibit A, Perceptron, Inc. will continue your base salary and employee benefits ("Severance Benefits") for six months after termination and you shall have the right to earn a Pro Rata Share of any bonus that you would have earned if you have been employed by the Company at the end of the bonus period in which your employment was terminated. Also, if your employment with Perceptron, Inc. terminates within two years for your date of hire for any reason other than a termination Without Cause, any signing bonus received up to the time of your termination would be subject to repayment to Perceptron, Inc. on a pro rata basis. If your employment with Perceptron, Inc. terminates for any reason, other than a termination Without Cause, or is terminated by Perceptron, Inc. as a result of your disability or death, you shall not be entitled to any severance payments or benefits, to the extent permitted by law and the terms of such benefit programs, for periods after your Disability or death, except that in the case of your Disability or death you shall have the right to earn a Pro Rata Share of any bonus that you would have earned if you had been employed by Perceptron, Inc. at the end of the applicable bonus period. The effect of the termination of your employment on options to purchase the Company's Common Stock held by you shall be governed by the terms of the agreements pursuant to which such options were issued. A Pro Rata Share of any bonus shall mean the total bonus payable to you multiplied by a fraction, the numerator of which is the number of days in the applicable bonus period prior to the date of death or Disability and the denominator of which is the number of days in the bonus period (or, in the case of fiscal year 2005, the number of days from the date your employment begins to June 30, 2005). Termination of your employment "Without Cause" shall be defined as termination of your employment by Perceptron, Inc. for any reason other than (i) your personal dishonesty in connection with your performance of services for Perceptron, Inc., (ii) your willful misconduct in connection with your performance of services for Perceptron, Inc.,, (iii) your conviction for violation of any law (other than minor traffic violations or similar offenses); (iv) your repeated and intentional failure to perform stated duties, after written notice is delivered identifying the failure, and it is not cured within ten (10) days following receipt of such notice, (v) your accepting employment or rendering services which are detrimental or inimical to the interests of Perceptron, Inc. or engaging in conduct which adversely affects or conflicts with the interests of Perceptron, Inc., and your failure to cease the same within five (5) days following written notice to you by Perceptron, Inc. identifying the same and requesting you to cease the same, (vi) death or (vii) Disability. "Disability" means your inability to substantially perform your stated duties for such period as would qualify you for benefits under the long-term disability insurance policy provided by Perceptron, Inc. to you. Your severance compensation shall be payable in the same manner as the Base Salary is paid and any Pro Rata Share of a bonus payable to you hereunder shall be payable at the time set forth in the bonus program. Base Salary and bonus payments and employee benefits payable as severance as described above shall not be reduced or suspended if you accept other employment, except that Perceptron, Inc. is not required to continue any employee benefits which duplicate employee benefits and perquisites received by you in connection with such subsequent employment. For purposes of COBRA, your employment shall be deemed to have terminated as of the date of actual termination of employment irrespective of the continuation of Base Salary and benefits for periods thereafter as provided above. EXHIBIT A RELEASE AGREEMENT THIS AGREEMENT ("Agreement") is made by and between Peter J. Chatel ("Employee") and Perceptron, Inc. (the "Company"). RECITALS A. Employee has terminated employment as an Employee officer of Company, effective __________, _____. B. Employee has been given the opportunity to review this Agreement, to consult with legal counsel, and to ascertain his rights and remedies. C. Employee and Company, without any admission of liability, desire to settle with finality, compromise, dispose of, and release any and all claims and demands asserted or which could be asserted arising out of Employee's employment at and separation from Company. In consideration of the foregoing and of the promises and mutual covenants contained herein, it is hereby agreed between Employee and Company as follows: AGREEMENT 1. In exchange for the good and valuable consideration, Employee hereby releases, waives and discharges any and all manner of action, causes of action, claims, rights, charges, suits, damages, debts, demands, obligations, attorneys fees, and any and all other liabilities or claims of whatsoever nature, whether in law or in equity, known or unknown, including, but not limited to, age discrimination under The Age Discrimination In Employment Act of 1967 (as amended), employment discrimination prohibited by other federal, state or local laws, and any other claims, which Employee has claimed or may claim or could claim in any local, state or federal or other forum, against Company, its directors, officers, employees, agents, attorneys, successors and assigns as a result of or relating to Employee's employment at and separation from Company and as an officer of Company as a result of any acts or omissions by Company or any of its directors, officers, employees, agents, attorneys, successors or assigns ("Covered Acts or Omissions") which occurred prior to the date of this Agreement; excluding only (i) those to compel the payment of amounts due to Employee as provided in the Employee's severance agreement dated October 13, 2004, (ii) enforcement of any rights of Employee under any stock option agreements with the Company or (iii) those for indemnification under the Company's articles of incorporation, bylaws or applicable law by reason of his service as an officer or director of the Company. 2. Employee agrees to immediately return to Company all property, assets, manuals, materials, information, notes, reports, agreements, memoranda, customer lists, formulae, data, know-how, inventions, trade secrets, processes, techniques, and all other assets, materials and information of any kind or nature, belonging or pertaining to Company ("Company Information and Property"), including, but not limited to, computer programs and diskettes or other media for electronic storage of information containing Company Information and Property, in Employee's possession, and Employee shall not retain copies of any such Company Information and Property. Employee further agrees that from and after the date hereof he will not remove from Company's offices any Company Information and Property, nor retain possession or copies of any Company Information and Property. 3. Employee agrees that he shall never make any negative, disparaging, defamatory or other unfavorable comments regarding, or other statements that negatively affects the goodwill or good reputation of, the Company, or any officer or director of Company, except as required by law, and except that such statements may be made to members of the Board of Directors of the Company. 4. Employee covenants and agrees that he shall never commence or prosecute, or knowingly encourage, promote, assist or participate in any way, except as required by law, in the commencement or prosecution, of any claim, demand, action, cause of action or suit of any nature whatsoever against Company or any officer, director, employee or agent of Company ("Covered Litigation") that is based upon any claim, demand, action, cause of action or suit released pursuant to this Agreement or involving or based upon the Covered Acts and Omissions. 5. Employee further agrees that he has read this Agreement carefully and understands all of its terms. 6. Employee understands and agrees that he was advised to consult with an attorney and did so prior to executing this Agreement. 7. Employee understands and agrees that he has been given twenty-one (21) days within which to consider this Agreement. 8. Employee understands and agrees that he may revoke this Agreement for a period of seven (7) calendar days following the execution of this Agreement (the "Revocation Period"). This Agreement is not effective until this revocation period has expired. Employee understands that any revocation, to be effective, must be in writing and either (a) postmarked within seven (7) days of execution of this Agreement and addressed to Perceptron, Inc., 47827 Halyard Drive, Plymouth, Michigan 48170 or (b) hand delivered within seven (7) days of execution of this Agreement to Perceptron, Inc., 47827 Halyard Drive, Plymouth, Michigan 48170. Employee understands that if revocation is made by mail, mailing by certified mail, return receipt requested, is recommended to show proof of mailing. 9. In agreeing to sign this Agreement and separate from Company, Employee is doing so completely voluntarily and of his own free-will and without any encouragement or pressure from Company and agrees that in doing so he has not relied on any oral statements or explanations made by Company or its representatives. 10. Both parties agree not to disclose the terms of this Agreement to any third party, except as is required by law, or as is necessary for purposes of securing counsel from either parties' attorneys or accountants. 11. This Agreement shall not be construed as an admission of wrongdoing by Company. 12. This Agreement contains the entire agreement between Employee and Company regarding the matters set forth herein. Any modification of this Agreement must be made in writing and signed by Employee and each of the entities constituting the Company. 13. This Agreement shall be governed by and construed in accordance with the domestic laws of the State of Michigan, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Michigan or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Michigan. 14. In the event any provision of this Agreement or portion thereof is found to be wholly or partially invalid, illegal or unenforceable in any judicial proceeding, then such provision shall be deemed to be modified or restricted to the extent and in the manner necessary to render the same valid and enforceable, or shall be deemed excised from this Agreement, as the case may require, and this Agreement shall be construed and enforced to the maximum extent permitted by law, as if such provision had been originally incorporated herein as so modified or restricted, or as if such provision had not been originally incorporated herein, as the case may be. 15. If there is a breach or threatened breach of the provisions of this Agreement, Company may, in addition to other available rights and remedies, apply to any court of competent jurisdiction for specific performance and/or injunctive relief in order to enforce, or prevent any violation of, any of the provisions of this Agreement. 16. In the event that Employee violates the terms of this Agreement, in addition to other available rights and remedies, the Company shall be released of all of its remaining obligations under the Severance Agreement. The parties hereto have entered into this Agreement as of this______ day of _____, ______. PERCEPTRON, INC. By: _______________________________ Name: _____________________________ Title: ____________________________ EMPLOYEE ____________________________________ EX-31.1 3 k92186exv31w1.txt SECTION 302 CERTIFICATION OF CHIEF EXECUTIVE OFFICER EXHIBIT 31.1 CERTIFICATION PURSUANT TO RULE 13a-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934 I, Alfred A. Pease, Chairman of the Board, President and Chief Executive Officer, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of Perceptron, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) [Omitted pursuant to SEC Release 33-8238] (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 11, 2005 /s/ Alfred A. Pease ------------------- Alfred A. Pease Chairman of the Board, President and Chief Executive Officer EX-31.2 4 k92186exv31w2.txt SECTION 302 CERTIFICATION OF CHIEF FINANCIAL OFFICER EXHIBIT 31.2 CERTIFICATION PURSUANT TO RULE 13a-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934 I, John J. Garber, Vice President and Chief Financial Officer, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of Perceptron, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) [Omitted pursuant to SEC Release 33-8238] (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 11, 2005 /s/ John J. Garber ------------------ John J. Garber Vice President and Chief Financial Officer EX-32.1 5 k92186exv32w1.txt SECTION 906 CERTIFICATION OF CHIEF EXECUTIVE OFFICER EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Perceptron, Inc. (the "Company") on Form 10-Q for the quarter ended December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Alfred A. Pease, Chairman of the Board, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Alfred A. Pease - ------------------- Alfred A. Pease Chairman of the Board, President and Chief Executive Officer February 11, 2005 A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. EX-32.2 6 k92186exv32w2.txt SECTION 906 CERTIFICATION OF CHIEF FINANCIAL OFFICER EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Perceptron, Inc. (the "Company") on Form 10-Q for the quarter ended December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John J. Garber, Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ John J. Garber - ------------------ John J. Garber Vice President and Chief Financial Officer February 11, 2005 A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----