-----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, F6VRRgHePsI6MDPtCtiEtehHPF782U/huG7I6Vp3juvA2S4kUnm8mjwpWN//IZ+H 6p4RtQO593tvy21Kl1Cxcw== 0000950124-06-002807.txt : 20060515 0000950124-06-002807.hdr.sgml : 20060515 20060515123444 ACCESSION NUMBER: 0000950124-06-002807 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20060331 FILED AS OF DATE: 20060515 DATE AS OF CHANGE: 20060515 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: 06838537 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 k05378e10vq.txt QUARTERLY REPORT FOR PERIOD ENDED MARCH 31, 2006 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 March 31, 2006. 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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X] Indicate by check mark whether the registrant is a shell company (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 May 9, 2006, was: Common Stock, $0.01 par value 8,367,955 ----------------------------- ---------------- Class Number of shares PERCEPTRON, INC. AND SUBSIDIARIES INDEX TO FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2006
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 13 Item 3. Quantitative and Qualitative Disclosures about Market Risk 25 Item 4. Controls and Procedures 26 PART II. OTHER INFORMATION Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 26 Item 6. Exhibits 27 SIGNATURES 27
2 PERCEPTRON, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
MARCH 31, JUNE 30, (In Thousands, Except Per Share Amount) 2006 2005 ----------- --------- (Unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $ 22,196 $ 20,374 Receivables: Billed receivables, net of allowance for doubtful accounts 17,320 19,413 of $300 and $391, respectively Unbilled receivables 2,232 1,888 Other receivables 591 1,004 Inventories, net of reserves of $577 and $520, respectively 7,314 5,884 Deferred taxes 1,199 1,199 Other current assets 574 736 ----------- --------- Total current assets 51,426 50,498 PROPERTY AND EQUIPMENT Building and land 6,013 6,013 Machinery and equipment 11,549 10,653 Furniture and fixtures 1,085 1,059 ----------- --------- 18,647 17,725 Less - Accumulated depreciation and amortization (10,952) (10,038) ----------- --------- Net property and equipment 7,695 7,687 DEFERRED TAX ASSET 4,232 5,205 ----------- --------- TOTAL ASSETS $ 63,353 $ 63,390 =========== ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 1,863 $ 1,854 Accrued liabilities and expenses 2,018 2,807 Accrued compensation 1,216 1,359 Income taxes payable 19 130 Deferred revenue 3,871 3,248 ----------- --------- Total current liabilities 8,987 9,398 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 8,403 and 8,822, respectively 84 88 Accumulated other comprehensive loss (652) (677) Additional paid-in capital 39,612 42,770 Retained earnings 15,322 11,811 ----------- --------- Total shareholders' equity 54,366 53,992 ----------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 63,353 $ 63,390 =========== =========
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 NINE MONTHS ENDED MARCH 31, MARCH 31, (In Thousands, Except Per Share Amounts) 2006 2005 2006 2005 --------- -------- -------- -------- NET SALES $ 13,447 $ 12,879 $ 43,395 $ 39,935 COST OF SALES 6,298 6,299 22,365 19,909 --------- -------- -------- -------- GROSS PROFIT 7,149 6,580 21,030 20,026 OPERATING EXPENSES Selling, general and administrative 3,850 3,810 10,794 9,962 Engineering, research and development 1,984 1,681 5,742 5,301 --------- -------- -------- -------- Total operating expenses 5,834 5,491 16,536 15,263 --------- -------- -------- -------- OPERATING INCOME 1,315 1,089 4,494 4,763 OTHER INCOME AND (EXPENSES) Interest income, net 206 138 457 356 Foreign currency gain (loss) 32 (64) (45) 56 Other 8 24 169 12 --------- -------- -------- -------- Total other income (expenses) 246 98 581 424 --------- -------- -------- -------- INCOME BEFORE INCOME TAXES 1,561 1,187 5,075 5,187 INCOME TAX EXPENSE (NOTE 9) 513 443 1,564 2,011 --------- -------- -------- -------- NET INCOME $ 1,048 $ 744 $ 3,511 $ 3,176 ========= ======== ======== ======== EARNINGS PER COMMON SHARE Basic $ 0.12 $ 0.08 $ 0.41 $ 0.36 Diluted $ 0.12 $ 0.08 $ 0.38 $ 0.34 WEIGHTED AVERAGE COMMON SHARES OUTSTANDING Basic 8,453 8,775 8,650 8,751 Dilutive effect of stock options 639 715 608 679 --------- -------- -------- -------- Diluted 9,092 9,490 9,258 9,430 ========= ======== ======== ========
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)
NINE MONTHS ENDED MARCH 31, (In Thousands) 2006 2005 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 3,511 $ 3,176 Adjustments to reconcile net income to net cash provided from (used for) operating activities: Depreciation and amortization 919 954 Stock compensation expense 523 - Deferred income taxes 973 1,134 Stock option income tax benefit - 122 Other (9) 85 Changes in assets and liabilities, exclusive of changes shown separately 593 (3,975) -------- -------- Net cash provided from operating activities 6,510 1,496 CASH FLOWS FROM FINANCING ACTIVITIES Revolving credit borrowings 641 442 Revolving credit repayments (641) (442) Proceeds from stock plans 304 364 Repurchase of company stock (3,990) (279) -------- -------- Net cash provided from (used for) financing activities (3,686) 85 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (1,008) (954) -------- -------- Net cash used for investing activities (1,008) (954) EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 6 566 -------- -------- NET INCREASE IN CASH AND CASH EQUIVALENTS 1,822 1,193 CASH AND CASH EQUIVALENTS, JULY 1 20,374 19,679 -------- -------- CASH AND CASH EQUIVALENTS, MARCH 31 $ 22,196 $ 20,872 ======== ======== CHANGES IN ASSETS AND LIABILITIES, EXCLUSIVE OF CHANGES SHOWN SEPARATELY Receivables, net $ 2,174 $ 2,114 Inventories (1,430) (1,800) Accounts payable 9 987 Other current assets and liabilities (160) (5,276) -------- -------- $ 593 $ (3,975) ======== ========
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 2005 Annual Report on Form 10-K. 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 $577,000 and $520,000 at March 31, 2006 and June 30, 2005, respectively, is comprised of the following (in thousands):
MARCH 31, JUNE 30, 2006 2005 --------- -------- Component Parts $ 3,437 $ 2,799 Work In Process 421 407 Finished Goods 3,456 2,678 --------- -------- Total $ 7,314 $ 5,884 ========= ========
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. Effective with the adoption of Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment, (SFAS 123R), the calculation of diluted shares also takes into effect the average unrecognized non-cash stock-based compensation expense and additional adjustments for tax benefits related to non-cash stock-based compensation expense. Options to purchase 491,000 and 399,000 shares of common stock outstanding in the three months ended March 31, 2006 and 2005, respectively, were not included in the computation of diluted EPS because the effect would have been anti-dilutive. Options to purchase 610,000 and 594,000 shares of common stock outstanding in the nine months ended March 31, 2006 and 2005, 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 6 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 March 31, 2006, the Company had forward exchange contracts to sell 4.0 million Euros ($4.8 million equivalent) at a weighted average settlement rate of 1.21 Euros to the United States Dollar. The contracts outstanding at March 31, 2006, mature through September 29, 2006. The objective of the hedge transactions is to protect designated portions of the Company's net investment in its foreign subsidiary against adverse changes in the Euro/U.S. Dollar exchange rate. The Company assesses hedge effectiveness based on overall changes in fair value of the forward contract. Since the critical risks of the forward contract and the net investment coincide, there was no ineffectiveness. The accounting for the hedges is consistent with translation adjustments where any gains and losses are recorded to other comprehensive income. The Company recognized a charge of approximately $33,000 and income of $99,000 in other comprehensive income (loss) for the unrealized and realized change in value of the forward exchange contracts during the three and nine months ended March 31, 2006, respectively. Offsetting these amounts in other comprehensive income (loss) was the translation effect of the Company's foreign subsidiary. Because the forward contracts were effective, there was no gain or loss recognized in earnings. 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 March 31, 2005, the Company had $9.2 million of forward exchange contracts between the United States Dollar and the Euro with a weighted average settlement price of 1.32 Euros to the United States Dollar. The Company recognized income of $535,000 and a charge of $596,000 in other comprehensive income (loss) for the unrealized and realized change in value of forward exchange contracts during the three and nine months ended March 31, 2005, 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 MARCH 31, 2006 2005 -------- -------- Net Income $ 1,048 $ 744 Other Comprehensive Income (Loss): Foreign currency translation adjustments 183 (1,048) Forward contracts (33) 535 -------- -------- Total Comprehensive Income $ 1,198 $ 231 ======== ========
NINE MONTHS ENDED MARCH 31, 2006 2005 -------- -------- Net Income $ 3,511 $ 3,176 Other Comprehensive Income (Loss): Foreign currency translation adjustments (74) 1,157 Forward contracts 99 (596) -------- -------- Total Comprehensive Income $ 3,536 $ 3,737 ======== ========
7 6. CREDIT FACILITIES The Company had no debt outstanding at March 31, 2006. The Company has a $7.5 million secured Credit Agreement with Comerica Bank, which expires on November 1, 2007. 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 (7.75% as of March 31, 2006) 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 6.87% as of March 31, 2006) 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 $36.0 million as of March 31, 2006 and to have no advances outstanding for 30 consecutive days each calendar year. At March 31, 2006, the Company's German subsidiary (GmbH) had an unsecured credit facility totaling 500,000 Euros (equivalent to approximately $604,000 at March 31, 2006). 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 March 31, 2006, GmbH had no borrowings outstanding. The facility supported outstanding letters of credit totaling 45,000 Euros (equivalent to approximately $55,000 at March 31, 2006). 7. STOCK-BASED COMPENSATION The Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment ("SFAS 123R"), effective July 1, 2005. SFAS 123R requires the recognition of the fair value of stock-based compensation in the Company's financial statements. Prior to July 1, 2005, the Company applied the requirements of APB Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees," and related interpretations in accounting for its stock-based plans. Under APB 25, generally no compensation expense was recognized for the Company's stock-based plans since the exercise price of granted employee stock options was greater than or equal to the market value of the underlying common stock on the date of grant. The Company elected the modified prospective transition method for adopting SFAS 123R. Under this method, the provisions of SFAS 123R apply to all awards granted or modified after the date of adoption. The Company continues to use the Black Scholes model for determining stock option valuations. The provisions of SFAS 123R also apply to awards granted prior to July 1, 2005 that did not vest before July 1, 2005 (transition awards). The compensation cost for the portion of the transition awards that had not vested by July 1, 2005 is based on the grant-date fair value of these transition awards as calculated for pro forma disclosures under the provisions of SFAS 123. Compensation cost for these transition awards are attributed to periods beginning July 1, 2005 and use the Black Scholes method used under SFAS 123, except that an estimate of expected forfeitures is used rather than actual forfeitures. 8 The Company recognized as an operating expense non-cash stock-based compensation cost in the amount of $140,000 and $523,000 in the three and nine months ended March 31, 2006. This had the effect of decreasing net income by $112,000, or $0.01 per diluted share, and $423,000, or $0.05 per diluted share, for the three and nine months ended March 31, 2006, respectively. As of March 31, 2006, the total remaining unrecognized compensation cost related to non-vested stock options amounted to $1.5 million. SFAS 123R requires the Company to present pro forma information for periods prior to the adoption as if the Company had accounted for all employee stock-based awards under the fair value method of that statement. For purposes of pro forma disclosure, the estimated fair value of the stock-based awards at the date of the grant is amortized to expense over the requisite service period, which generally equals the vesting period. The following table illustrates the effect on net income and earnings per share for the periods indicated as if the Company had applied the fair value recognition provisions of SFAS 123R to its stock-based employee compensation plans (in thousands except per share amounts):
THREE MONTHS ENDED NINE MONTHS ENDED MARCH 31, 2005 MARCH 31, 2005 ------------------ ----------------- NET INCOME AS REPORTED $ 744 $ 3,176 EFFECT OF STOCK-BASED COMPENSATION EXPENSE -- NET OF TAX (125) (397) ------- ------- PRO FORMA $ 619 $ 2,779 ======= ======= EARNINGS PER SHARE BASIC -- AS REPORTED $ 0.08 $ 0.36 BASIC -- PRO FORMA $ 0.07 $ 0.32 DILUTED -- AS REPORTED $ 0.08 $ 0.34 DILUTED -- PRO FORMA $ 0.07 $ 0.29
The Company maintains a 1992 Stock Option Plan ("1992 Plan") and 1998 Global Team Member Stock Option Plan ("1998 Plan") covering substantially all company employees and certain other key persons and a Directors Stock Option Plan ("Directors Plan") covering all non-employee directors. During fiscal 2005, shareholders approved a new 2004 Stock Incentive Plan that replaced the 1992 and Directors Plans as to future grants. Options previously granted under the 1992 and Directors Plans will continue to be maintained until all options are exercised, cancelled or expire. The 2004, 1992 and Directors Plans are administered by a committee of the Board of Directors, the Management Development, Compensation and Stock Option Committee. The 1998 Plan is administered by the President of the Company. Awards under the 2004 Stock Incentive Plan may be in the form of stock options, stock appreciation rights, restricted stock or restricted stock units, performance share awards, director stock purchase rights and deferred stock units; or any combination thereof. The terms of the awards will be determined by the Management Development, Compensation and Stock Option Committee, unless specified in the 2004 Stock Incentive Plan. As of March 31, 2006, the Company has only issued awards in the form of stock options. Options outstanding under the 2004 Stock Incentive Plan and the 1992 and 1998 Plans generally become exercisable at 25% per year beginning one year after the date of grant and expire ten years after the date of grant. Options outstanding under the Directors Plan are either an initial option or an annual option. Prior to December 7, 2004, initial options of 15,000 shares were granted as of the date the non-employee director was first elected to the Board of Directors and became exercisable in full on the first anniversary of the date of grant. Prior to December 7, 2004, annual options of 3,000 shares were granted as of the date of the respective annual meeting to each non-employee director serving at least six months 9 prior to the annual meeting and become exercisable in three annual increments of 33 1/3% after the date of grant. Options under the Directors Plan expire ten years from the date of grant. Option prices for options granted under these plans must not be less than fair market value of the Company's stock on the date of grant. Activity under these Plans is shown in the following tables:
THREE MONTHS ENDED NINE MONTHS ENDED MARCH 31, 2006 MARCH 31, 2006 ------------------------------------ ----------------------------------- Weighted Aggregate Weighted Aggregate Average Intrinsic Average Intrinsic Exercise (1) Value Exercise (1) Value Shares subject to option Shares Price ($000) Shares Price ($000) - ---------------------------------- --------- -------- --------- --------- -------- --------- Outstanding at beginning of period 2,198,719 $ 7.57 2,204,007 $ 7.56 New Grants (based on fair value of common stock at dates of grant) 92,000 $ 6.98 243,675 $ 6.72 Exercised (61,574) $ 1.94 (137,866) $ 1.85 Expired (209,351) $ 23.52 (230,863) $ 23.15 Forfeited 2,689 $ 6.12 (56,470) $ 6.71 --------- --------- Outstanding at end of period 2,022,483 $ 6.09 $ 7,583 2,022,483 $ 6.09 $ 7,583 Exercisable at end of period 1,366,602 $ 6.04 $ 6,060 1,366,602 $ 6.04 $ 6,060
THREE MONTHS ENDED NINE MONTHS ENDED MARCH 31, 2005 MARCH 31, 2005 ------------------------------------ ----------------------------------- Weighted Aggregate Weighted Aggregate Average Intrinsic Average Intrinsic Exercise (1) Value Exercise (1) Value Shares subject to option Shares Price ($000) Shares Price ($000) - ---------------------------------- --------- -------- --------- --------- -------- --------- Outstanding at beginning of period 2,315,282 $ 7.39 2,182,882 $ 8.06 New Grants (based on fair value of common stock at dates of grant) 12,300 $ 7.18 401,350 $ 6.75 Exercised (69,727) $ 2.30 (100,828) $ 2.15 Expired (22,796) $ 11.08 (90,796) $ 24.63 Forfeited (3,071) $ 4.68 (160,620) $ 6.64 --------- --------- Outstanding at end of period 2,231,988 $ 7.52 $ 7,155 2,231,988 $ 7.52 $ 7,155 Exercisable at end of period 1,451,230 $ 8.76 $ 5,060 1,451,230 $ 8.76 $ 5,060
(1) The intrinsic value of a stock option is the amount by which the current market value of the underlying stock exceeds the exercise price of the option. The total intrinsic value of stock options exercised during the three months ended March 31, 2006 and 2005 was $293,128 and $373,693, respectively. The total intrinsic value of stock options exercised during the nine months ended March 31, 2006 and 2005 was $434,421 and $444,526, respectively. The total fair value of shares vested during the three months ended March 31, 2006 and 2005 was $232,000 and $227,000, respectively. The total fair value of shares vested during the nine months ended March 31, 2006 and 2005 was $735,000 and $784,000, respectively. 10 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 NINE MONTHS NINE MONTHS ENDED ENDED ENDED ENDED 3/31/2006 3/31/2005 3/31/2006 3/31/2005 ------------ ------------ ----------- ----------- Weighted Average Estimated Fair Value Per Share Of Options Granted During The Period $ 2.37 $ 2.30 $ 2.28 $ 2.12 Assumptions: Amortized Dividend Yield - - - - Common Stock Price Volatility 29.49% 28.87% 30.16% 28.40% Risk Free Rate Of Return 4.25% 3.50% 4.02% 3.38% Expected Option Term (in years) 5 5 5 5
The following table summarizes information about stock options at March 31, 2006:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE --------------------------------------- ------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE REMAINING EXERCISE EXERCISE RANGE OF EXERCISE PRICES SHARES CONTRACTUAL LIFE PRICE SHARES PRICE --------- ---------------- -------- --------- -------- $ 1.21 to $ 1.53 545,926 5.53 $ 1.39 510,489 $ 1.38 1.72 to 6.45 550,635 5.70 $ 4.33 389,911 $ 3.80 6.47 to 6.85 513,105 7.32 $ 6.62 233,818 $ 6.61 6.87 to 33.96 412,817 5.80 $ 14.01 232,384 $ 19.43 --------- --------- $ 1.21 to $ 33.96 2,022,483 6.08 $ 6.09 1,366,602 $ 6.04 ========= =========
At March 31, 2006, options covering 574,027 shares were available for future grants under the 2004 and 1998 Plans. 8. COMMITMENTS AND CONTINGENCIES Management is currently unaware of any significant pending litigation affecting the Company, other than the matters set forth below. The Company is a party to a suit filed by Industries GDS, Inc., Bois Granval GDS Inc., and Centre de Preparation GDS, Inc. (collectively, "GDS") on or about November 21, 2002 in the Superior Court of the Judicial District of Quebec, Canada against the Company, Carbotech, Inc. ("Carbotech"), and U.S. Natural Resources, Inc. ("USNR"), among others. The suit alleges that the Company breached its contractual and warranty obligations as a manufacturer in connection with the sale and installation of three systems for trimming and edging wood products. The suit also alleges that Carbotech breached its contractual obligations in connection with the sale of equipment and the installation of two trimmer lines, of which the 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 $5.7 million using a March 31, 2006 exchange rate. Carbotech has filed for bankruptcy protection in Canada. The Company intends to vigorously defend GDS' claims. 11 The Company has been informed that certain of its customers have received allegations of possible patent infringement involving processes and methods used in the Company's products. Certain of these customers, including one customer who was a party to a patent infringement suit relating to this matter, have settled such claims. Management believes that the processes used in the Company's products were independently developed without utilizing any previously patented process or technology. Because of the uncertainty surrounding the nature of any possible infringement and the validity of any such claim or any possible customer claim for indemnity relating to claims against the Company's customers, it is not possible to estimate the ultimate effect, if any, of this matter on the Company's financial statements. The Company may, from time to time, be subject to other claims and suits in the ordinary course of its business. To estimate whether a loss contingency should be accrued by a charge to income, the Company evaluates, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of the loss. Since the outcome of litigation is subject to significant uncertainty, changes in these factors could materially impact the Company's financial position or results of operations. 9. INCOME TAXES The Company had established in fiscal 2002, a valuation allowance for a portion of the Company's net operating loss carry-forwards and tax credit carry-forwards where it was more likely than not that these tax benefits would expire prior to the Company being able to realize the benefit. Based on the past few years of taxable income in the United States and expected taxable income in the United States in the future, the Company believes there is positive evidence that it is more likely than not that the tax benefits associated with the valuation allowance on the net operating loss carry-forwards will now be utilized. As a result, in the second quarter of fiscal 2006, the Company recognized a $725,000 tax benefit associated with reversing the valuation allowance related to net operating losses in the United States. The Company continues to have a valuation allowance for tax credit carry-forwards that it still expects will more likely than not expire prior to the tax benefit being realized. During the second quarter of fiscal 2006, the Company recorded a $290,000 tax expense related to the repatriation of $6.3 million of un-remitted earnings of certain of the Company's European subsidiaries under the provisions of the American Jobs Creation Act of 2004. 10. NEW ACCOUNTING PRONOUNCEMENTS In February 2006, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 155, "Accounting for Certain Hybrid Financial Instruments -- an amendment of FASB Statements No. 133 and 140". This Statement amends FASB Statements No. 133, "Accounting for Derivative Instruments and Hedging Activities", and No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" to resolve issues addressed in SFAS No. 133 implementation Issue No. D1, "Application of Statement 133 to Beneficial Interests in Securitized Financial Assets". This Statement is effective for fiscal years beginning after September 15, 2006 and is not expected to have a material impact on the Company's financial statements. 12 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(R), WheelWorks(R) 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's financial base remained strong, with no debt and approximately $22.2 million of cash at March 31, 2006 available to support its growth plans. The Company's near-term focus for growth has been on the successful introduction of two Automated Systems products, AutoFit(R) and AutoScan(R), which are designed to expand the Company's product offerings in its worldwide automotive markets, the continued development of enhanced versions of its ScanWorks(R) product line and its other new product development efforts relating to products outside the automotive industry. The Company continues to believe that these products have the potential to yield significant sales growth. The Company has initiated its plans to achieve sales growth in largely untapped geographic areas, including 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. Toward this end, the Company has established an office in Singapore and hired and trained many of the new personnel necessary to support the new business opportunities in these regions. The Company believes that the long term sales growth potential in these geographic regions will provide a significant return on the investment in personnel. 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 a number of economic factors. 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 continues to view the automotive industry's focus on introducing new vehicles more frequently to satisfy their customers' changing requirements, as well as their continuing focus on improved quality, as positive indicators for new business. The Company is continuing its efforts to increase revenue outside the automotive industry, principally through its Technology Components Group and other new product development efforts. Effective July 1, 2005, the Company was required to adopt a new accounting pronouncement, SFAS 123R, that required the Company to record non-cash stock-based compensation expense for its stock compensation plans. Previously, the Company generally did not record non-cash stock-based compensation as an expense following the requirements of Accounting Principles Board Opinion 25. Under SFAS 123R, the Company recorded $140,000 of non-cash stock-based compensation expense in the third quarter and $523,000 for the nine months ended March 31, 2006 related to the amortization of the fair value of stock options and, to a smaller extent, the amortization of the fair value of the Company's Employee Stock Purchase Plan. The non-cash stock-based compensation expense had the 13 effect of reducing net income by $112,000, or $0.01 per diluted share, and $423,000, or $0.05 per diluted share, for the three and nine months ended March 31, 2006, respectively. Based upon outstanding stock option grants, the Company expects non-cash stock-based compensation expense of approximately $164,000 for the fourth quarter of fiscal 2006. Any stock-based awards granted under these plans during the fourth quarter of fiscal 2006 could increase the fourth quarter amount of non-cash stock-based compensation expense. The preceding statements in this "Overview" section 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. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2006 COMPARED TO THREE MONTHS ENDED MARCH 31, 2005 For the third quarter of fiscal 2006, the Company reported net income of $1,048,000, or $0.12 per diluted share, compared to net income of $744,000, or $0.08 per diluted share, for the third quarter of fiscal 2005. Specific line item results are described below. SALES -- Net sales of $13.4 million for the third quarter of fiscal 2006 were up $568,000, 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) THIRD QUARTER THIRD QUARTER (in millions) 2006 2005 INCREASE/(DECREASE) - --------------------- ---------------- ------------- ------------------- Automated Systems $10.7 79.9% $ 8.8 68.2% $ 1.9 21.6 % Technology Components 2.0 14.9% 2.9 22.5% (0.9) (31.0)% Value Added Services 0.7 5.2% 1.2 9.3% (0.5) (41.7)% ----- ----- ----- ----- ----- Totals $13.4 100.0% $12.9 100.0% $ 0.5 3.9 % ===== ===== ===== ===== =====
SALES (BY LOCATION) THIRD QUARTER THIRD QUARTER (in millions) 2006 2005 INCREASE/(DECREASE) - --------------------- ---------------- ------------- ------------------- North America $10.8 80.6% $ 7.5 58.1% $ 3.3 44.0 % Europe 2.3 17.2% 5.0 38.8% (2.7) (54.0)% Asia 0.3 2.2% 0.4 3.1% (0.1) (25.0)% ----- ----- ----- ----- ----- Totals $13.4 100.0% $12.9 100.0% $ 0.5 3.9 % ===== ===== ===== ===== =====
Sales of the Company's Automated Systems products increased due to significantly higher sales in North America that offset lower sales in Europe. The change in both regions primarily reflected the number of new vehicle programs and timing of customer delivery schedules for AutoGauge(R) systems, associated with those programs. The Technology Components sales decrease reflected lower sales in each of the product lines within this group. The sales decrease in Value Added Services was primarily due to the timing of customer requirements. The sales decrease in Europe was also due to the declining value of the Euro during the quarter compared to one year ago that based on conversion rates in effect this quarter, resulted in approximately $240,000 less in sales than rates in the third quarter of fiscal 2005 would have yielded. The Company believes that the increases and decreases by sales group and region were the result of normal customer considerations that influence the timing of purchasing decisions and did not 14 reflect a trend of changing demand. The foregoing statement is a "forward-looking statement" 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 statement. BOOKINGS -- The Company had new order bookings during the quarter of $8.5 million compared with new order bookings of $18.9 million in the quarter ended December 31, 2005 and $16.2 million for the quarter ended March 31, 2005. 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) THIRD QUARTER THIRD QUARTER (in millions) 2006 2005 INCREASE/(DECREASE) - --------------------- ---------------- ------------- ------------------- Automated Systems $ 4.9 57.7% $11.0 67.9% $(6.1) (55.5)% Technology Components 2.8 32.9% 4.1 25.3% (1.3) (31.7)% Value Added Services 0.8 9.4% 1.1 6.8% (0.3) (27.3)% ----- ----- ----- ----- ----- Totals $ 8.5 100.0% $16.2 100.0% $(7.7) (47.5)% ===== ===== ===== ===== =====
BOOKINGS (BY LOCATION) THIRD QUARTER THIRD QUARTER (in millions) 2006 2005 INCREASE/(DECREASE) - --------------------- ---------------- ------------- ------------------- North America $ 5.7 67.0% $ 8.8 54.3% $(3.1) (35.2)% Europe 2.3 27.1% 7.0 43.2% (4.7) (67.1)% Asia 0.5 5.9% 0.4 2.5% 0.1 25.0 % ----- ----- ----- ----- ----- Totals $ 8.5 100.0% $16.2 100.0% $(7.7) (47.5)% ===== ===== ===== ===== =====
New orders for the first half of fiscal 2006 of $33.9 million were very good, especially in the second quarter when the Company received new orders of $18.9 million. New orders for the Company's core business, primarily AutoGauge(R) systems within the Automated Systems Group, tend to normalize on a yearly basis. As a result, the Company had not expected orders in the third quarter to be at the high levels achieved in the first and second quarters of fiscal 2006. The European economy has been weak, and was the principle reason for the relatively low level of new orders in Europe during the third quarter of fiscal 2006. Recently, the European economy has been improving, and the fourth quarter outlook for new orders both in Europe and North America is in the range of $15 to $17 million. The foregoing statement is a "forward-looking statement" 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 statement. BACKLOG - The Company's backlog was $17.0 million as of March 31, 2006 compared with $22.0 million as of December 31, 2005 and $18.9 million as of March 31, 2005. The following tables set forth comparison data for the Company's backlog by product groups and geographic location. 15
BACKLOG (BY GROUP) THIRD QUARTER THIRD QUARTER (in millions) 2006 2005 INCREASE/(DECREASE) - --------------------- ---------------- ------------- ------------------- Automated Systems $13.2 77.6% $13.9 73.5% $(0.7) (5.0)% Technology Components 2.0 11.8% 3.0 15.9% (1.0) (33.3)% Value Added Services 1.8 10.6% 2.0 10.6% (0.2) (10.0)% ----- ----- ----- ----- ----- Totals $17.0 100.0% $18.9 100.0% $(1.9) (10.1)% ===== ===== ===== ===== =====
BACKLOG (BY LOCATION) THIRD QUARTER THIRD QUARTER (in millions) 2006 2005 INCREASE/(DECREASE) - --------------------- ---------------- ------------- ------------------- North America $10.3 60.6% $11.6 61.4% $(1.3) (11.2) % Europe 6.2 36.5% 7.0 37.0% (0.8) (11.4)% Asia 0.5 2.9% 0.3 1.6% 0.2 66.7 % ----- ----- ----- ----- ----- Totals $17.0 100.0% $18.9 100.0% $(1.9) (10.1)% ===== ===== ===== ===== =====
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 $7.2 million, or 53.2% of sales, in the third quarter of fiscal 2006, as compared to $6.6 million, or 51.1% of sales, in the third quarter of fiscal 2005. The margin improvement was primarily due to a higher level of deferred revenue recognized in the third quarter of fiscal 2006 than had been recognized for the third quarter of fiscal 2005. This had a positive impact on gross profit margin because final customer buy-off on completed system installations generally have nominal associated costs. Lower installation and manufacturing costs as a percent of sales, 26.2 % this quarter compared with 27.0% in the third quarter of fiscal 2005, also contributed to the improvement. These favorable factors were partially offset by the lower value of the Euro compared to the third quarter of fiscal 2005 that had the effect of reducing margins by approximately $120,000. The gross profit margin in both periods was above historical averages primarily due to a favorable product mix in both periods. As a result, the Company does not expect to sustain a gross profit margin at this level in future periods. The foregoing statement is a "forward-looking statement" 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 statement. SELLING, GENERAL AND ADMINISTRATIVE (SG&A) EXPENSES -- SG&A expenses of $3.9 million in the quarter ended March 31, 2006 were $40,000 higher than the third quarter a year ago. Incrementally higher expenses related to salary and benefit increases and personnel additions of approximately $250,000, accrued profit sharing of $108,000, non-cash stock based compensation expense of $51,000 and various other expense increases, including Michigan Single Business Tax, travel, and audit fees, were offset to a large extent by incrementally lower bad debt expense of $389,000, lower SG&A expense in Europe of approximately $110,000 that primarily resulted from the lower value of the Euro compared to the third quarter of fiscal 2005, and lower legal expense of $84,000. Bad debt expense in the third quarter of 2005 was high due to providing an allowance for the expected loss related to a customer bankruptcy. ENGINEERING, RESEARCH AND DEVELOPMENT (R&D) EXPENSES -- Engineering and R&D expenses of $2.0 million in the quarter ended March 31, 2006 were up $303,000 compared to the third quarter a year ago. The increase was primarily due to incrementally higher expenses related to engineering contract services 16 and material for new product development of approximately $100,000, accrued profit sharing of $50,000, and non-cash stock based compensation expense of $48,000. INTEREST INCOME, NET -- Net interest income was $206,000 in the third quarter of fiscal 2006 compared with net interest income of $138,000 in the third quarter of fiscal 2005. The increase was primarily due to higher interest rates compared to one year ago. FOREIGN CURRENCY -- There was a net foreign currency transaction gain of $32,000 this quarter primarily due to a stronger Japanese Yen and Brazilian Real compared with a transaction loss of $64,000 last year when the Company held Euros during a period of Euro decline and a declining Japanese Yen resulted in an unrealized foreign exchange loss. OTHER -- Other income this quarter of $8,000 was due to a gain on sale of a marketable security, and other income of $24,000 in the third quarter of fiscal 2005 was primarily due to the gain on a Euro foreign exchange contract. INCOME TAXES -- The effective tax rates of 32.9 % and 37.3% for the third quarter of fiscal 2006 and 2005, 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. In addition, the Company is not able to record a tax benefit for non-cash stock-based compensation expense related to incentive stock options and the Company's Employee Stock Purchase Plan, which had the effect of increasing the effective tax rate in fiscal 2006 by 1.2%. OUTLOOK -- The Company believes that the relatively low level of new orders in the third quarter of fiscal 2006, and the timing for delivery of orders that were in the backlog as of March 31, 2006, will result in sales of approximately $11 million for the fourth quarter of fiscal 2006 and a net loss for the quarter. As a result the Company expects sales for fiscal 2006 to be comparable to those of fiscal 2005. As previously reported, the Company expects net income for fiscal 2006 to be lower than fiscal 2005 primarily as a result of additions in personnel during fiscal 2006 to support recently introduced products, new product development and geographic growth opportunities. Net non-cash stock based compensation expense related to the adoption of SFAS 123R and the decline in the value of the Euro through the first nine months of fiscal 2006 compared to one year ago are also contributing to lower net income in fiscal 2006. Based on current business being quoted, the Company expects new orders for the fourth quarter of fiscal 2006 of approximately $15 to $17 million and a backlog between $21 to $23 million, compared to a backlog of $18.0 million at fiscal year end 2005. The sales outlook for the first quarter of fiscal 2007 is strong as the Company expects to ship orders originally forecast for the fourth quarter of fiscal 2006, begin to see European sales improve, and achieve increased returns from investments in people and products made during fiscal 2006. The Company's decision to add people in Asia has resulted in several orders from Japanese and Korean customers, which the Company believes will serve as a foundation for sustained growth in this region for fiscal 2007 and beyond. The Company has designed a new ScanWorks(R) system that has significantly faster scanning capability without sacrificing precision. This addition to the ScanWorks(R) product line will broaden the market to include customers that require a higher level of speed and accuracy. As a result, the Company believes that ScanWorks(R) has the potential for solid growth in fiscal 2007. The Company's new order bookings and 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 17 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 has been no change in 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 and our customers continuing focus on improving the fit and finish of their vehicles. The Company's new products AutoFit(R) and AutoScan(R) are designed to not only support our customers goals to improve fit that is measured in terms of the vehicle's gap and flushness but also to reduce the time and cost to introduce new vehicles. The foregoing statements in this "Outlook" section 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. NINE MONTHS ENDED MARCH 31, 2006 COMPARED TO NINE MONTHS ENDED MARCH 31, 2005 The Company reported net income of $3.5 million, or $0.38 per diluted share, for the nine months ended March 31, 2006, compared with net income of $3.2 million, or $0.34 per diluted share for the nine months ended March 31, 2005. SALES -- Net sales in the nine months ended March 31, 2006 were $43.4 million, compared to $39.9 million for the nine months ended March 31, 2005. The following tables set forth comparison data for the Company's net sales by product groups and geographic location.
SALES (BY GROUP) NINE MONTHS NINE MONTHS (in millions) ENDED 3/31/06 ENDED 3/31/05 INCREASE/(DECREASE) - --------------------- ---------------- ------------- ------------------- Automated Systems $33.0 76.0% $27.8 69.7% $ 5.2 18.7 % Technology Components 7.9 18.2% 8.1 20.3% (0.2) (2.5)% Value Added Services 2.5 5.8% 4.0 10.0% (1.5) (37.5)% ----- ----- ----- ----- ----- Totals $43.4 100.0% $39.9 100.0% $ 3.5 8.8 % ===== ===== ===== ===== =====
SALES (BY LOCATION) NINE MONTHS NINE MONTHS (in millions) ENDED 3/31/06 ENDED 3/31/05 INCREASE/(DECREASE) - ------------------- ---------------- ------------- ------------------- North America $29.2 67.3% $24.4 61.1% $ 4.8 19.7 % Europe 13.1 30.2% 14.2 35.6% (1.1) (7.7)% Asia 1.1 2.5% 1.3 3.3% (0.2) (15.4)% ----- ----- ----- ----- ----- Totals $43.4 100.0% $39.9 100.0% $ 3.5 8.8 % ===== ===== ===== ===== =====
Sales by group and geographic region for both nine month periods generally reflected the timing of orders scheduled for delivery. The Company does not believe that the decrease in sales of Value Added Services reflected a trend in reduced customer demand. The foregoing statement is a "forward-looking statement" 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 statement. The Company is focusing sales efforts in both North America and Europe on the sale of Value Added Services. The sales increase in North America was primarily due to higher sales of AutoGauge(R) systems within the Automated Systems products group. The sales decrease in Europe primarily reflected the decline in the value of the Euro that 18 based on conversion rates in effect for fiscal 2006 resulted in lower sales by approximately $740,000 than the comparable rates for the same period of fiscal 2005 would have yielded. BOOKINGS -- New order bookings for the nine months ended March 31, 2006 were $42.4 million compared to $39.7 million for the same period one year ago.
BOOKINGS (BY GROUP) NINE MONTHS NINE MONTHS (in millions) ENDED 3/31/06 ENDED 3/31/05 INCREASE/(DECREASE) - ------------------- ---------------- ------------- ------------------- Automated Systems $31.9 75.2% $26.8 67.5% $ 5.1 19.0 % Technology Components 7.3 17.2% 8.4 21.2% (1.1) (13.1)% Value Added Services 3.2 7.6% 4.5 11.3% (1.3) (28.9)% ----- ------ ----- ----- ----- Totals $42.4 100.0% $39.7 100.0% $ 2.7 6.8 % ===== ===== ===== ===== =====
BOOKINGS (BY LOCATION) NINE MONTHS NINE MONTHS (in millions) ENDED 3/31/06 ENDED 3/31/05 INCREASE/(DECREASE) - --------------------- ---------------- ------------- ------------------- North America $30.5 71.9% $24.5 61.7% $ 6.0 24.5 % Europe 10.7 25.3% 14.2 35.8% (3.5) (24.6)% Asia 1.2 2.8% 1.0 2.5% 0.2 20.0 % ----- ----- ----- ----- ----- Totals $42.4 100.0% $39.7 100.0% $ 2.7 6.8 % ===== ===== ===== ===== =====
The increase in orders for the Automated Systems Group and North America was primarily due to a significant increase for AutoGauge(R) systems, principally as a result of a large order to support a customer's new vehicle platform that will be assembled at several plants in North America. New orders for AutoGuide(R) systems were also higher in fiscal 2006 compared to last year reflecting increased customer demand for this product following the redesign of the software used in the AutoGuide(R) systems. The European economy has been weak, which was the principal reason for the decline in new orders in Europe. Recently, the European economy has been improving, and the fourth quarter outlook for new orders both in Europe and North America is in the range of $15 to $17 million. The foregoing statement is a "forward-looking statement" 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 $21.0 million, or 48.5% of sales, for the nine months ended March 31, 2006, as compared to $20.0 million, or 50.1% of sales, for the nine months ended March 31, 2005. The gross margin percentage reduction primarily reflected the decline in the value of the Euro compared to the same period one year ago that had a net unfavorable impact on margins of approximately $440,000, or 1.0% of sales. The reduction was partially offset by lower installation and manufacturing costs that were 24.6% of sales for the nine months ended March 31, 2006, compared with 25.4% of sales for the nine months ended March 31, 2005. 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 $10.8 million for the nine months ended March 31, 2006 compared to $10.0 million in the nine-month period a year ago. The increase of approximately $800,000 was primarily due to incrementally higher expenses related to salary and benefit increases and personnel additions of approximately $840,000, travel expenses of approximately $200,000, contract services of $195,000, non-cash stock based compensation expense of $190,000, audit fees of $130,000 primarily due to compliance with the Sarbanes Oxley Act, and various other expense increases including, Michigan Single Business Tax, and recruiting and relocation of new 19 hires. The increases were partially offset by incrementally lower bad debt expense of $438,000, SG&A expense in Europe of approximately $250,000 that resulted from the lower value of the Euro compared to fiscal 2005, accrued profit sharing of $125,000 and legal expense of $123,000. Bad debt expense in fiscal 2005 was high due to providing an allowance for the expected loss related to a customer bankruptcy. ENGINEERING, RESEARCH AND DEVELOPMENT (R&D) EXPENSES -- Engineering and R&D expenses were $5.7 million for the nine months ended March 31, 2006 compared to $5.3 million for the nine-month period a year ago. The increase of $441,000 was due principally to incrementally higher expenses related to salary and benefit increases and personnel additions of approximately $207,000 and non-cash stock based compensation expense of $178,000. INTEREST INCOME, NET -- Net interest income was $457,000 in the nine months ended March 31, 2006 compared with net interest income of $356,000 in the nine months ended March 31, 2005. The increase was primarily due to higher interest rates compared to one year ago. FOREIGN CURRENCY -- There was a net foreign currency loss of $45,000 in the fiscal 2006 nine-month period compared with a net foreign currency gain of $56,000 in the fiscal 2005 nine-month period. The change between years was primarily due to the decline in the value of the Euro and Japanese Yen during the nine months ended March 31, 2006 compared to the same period one year ago. OTHER -- Other income in the fiscal 2006 nine-month period was $169,000 compared to other income in the comparable period last year of $12,000. Other income this year was primarily due to the value of stock received by the Company when a mutual life insurance company was demutualized. INCOME TAXES -- The effective tax rate of 30.8 % for the nine months ended March 31, 2006 included the recognition of a $725,000 tax benefit associated with reversing a valuation allowance related to net operating losses in North America that the Company now believes will be utilized, and a $290,000 tax expense related to the repatriation of $6.3 million of un-remitted earnings of certain of the Company's European subsidiaries under the provisions of the American Jobs Creation Act of 2004. The effective tax rate excluding these two items was 39.4% for the fiscal 2006 nine-month period compared to 38.8% in fiscal 2005 and reflected the effect of the mix of operating profit and loss among the Company's various operating entities and their countries' respective tax rates. In addition, the Company is not able to record a tax benefit for non-cash stock-based compensation expense related to incentive stock options and the Company's Employee Stock Purchase Plan, which had the effect of increasing the effective tax rate in fiscal 2006 by 1.5%. LIQUIDITY AND CAPITAL RESOURCES The Company's cash and cash equivalents were $22.2 million at March 31, 2006, compared to $20.4 million at June 30, 2005. The cash increase of $1.8 million for the nine months ended March 31, 2006 resulted primarily from cash provided from operations of $6.5 million offset by $4.0 million of cash used to repurchase shares of the Company's common stock and $1.0 million used for capital expenditures. The Company also received $304,000 of cash from the purchase of common stock under its employee stock plans. Depreciation and amortization was $919,000 during the nine months ended March 31, 2006. The $6.5 million in cash provided from operations was primarily generated from net income of $3.5 million and the add back of non-cash items such as depreciation, deferred income taxes and non-cash stock based compensation expense that totaled $2.4 million. Cash provided from operations also reflected an increase due to the change in net working capital of $593,000. Net working capital is defined as changes in assets and liabilities, exclusive of changes shown separately on the Consolidated 20 Statements of Cash Flow. The net working capital change resulted primarily from decreased receivables of $2.2 million that were partially offset by increased inventories of $1.4 million. The $2.2 million decrease in receivables primarily reflected increased cash collections and the lower level of sales achieved in the third quarter compared to the second quarter of fiscal 2006. 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. During the nine months ended March 31, 2006, the Company increased its reserve for inventory obsolescence by a net $57,000, which resulted from the disposal of $33,000 of inventory that had previously been reserved for at June 30, 2005 and approximately $90,000 for additional reserves for obsolescence. 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. The Company wrote off $20,000 of receivables and decreased its estimated allowance for doubtful accounts by $71,000 during the nine months ended March 31, 2006. The Company had no debt outstanding at March 31, 2006. The Company has a $7.5 million secured Credit Agreement with Comerica Bank, which expires on November 1, 2007. 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 (7.75% as of March 31, 2006) 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 6.87% as of March 31, 2006) 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 $36.0 million as of March 31, 2006 and to have no advances outstanding for 30 consecutive days each calendar year. At March 31, 2006, the Company's German subsidiary (GmbH) had an unsecured credit facility totaling 500,000 Euros (equivalent to approximately $604,000 at March 31, 2006). 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 March 31, 2006, GmbH had no borrowings outstanding. The facility supported outstanding letters of credit totaling 45,000 Euros (equivalent to approximately $55,000 at March 31, 2006). 21 On September 9, 2005, the Company's Board of Directors approved a stock repurchase program authorizing the Company to repurchase up to $5.0 million of the Company's common stock during fiscal year 2006. 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. The Company also announced that it has entered into a Rule 10b5-1 trading plan ("Repurchase Plan") with Barrington Research Associates, Inc. to purchase up to $5.0 million of the Company's common stock during fiscal year 2006 (less the dollar amount of purchases by the Company outside the Repurchase Plan), in open market or privately negotiated transactions, in accordance with the requirements of Rule 10b-18. Pursuant to the authorization, the Company repurchased 558,900 shares of common stock for $4.0 million during the period from September 12, 2005 to March 31, 2006. See Note 8 to the Consolidated Financial Statements, "Commitments and Contingencies", contained in this Quarterly Report on Form 10-Q, Item 3, "Legal Proceedings" and Note 6 to the Consolidated Financial Statements, "Contingencies", of the Company's Annual Report on Form 10-K for fiscal year 2005, 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 2005. The Company expects to spend approximately $1.5 million during fiscal year 2006 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 2006 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 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 will consider evaluating business opportunities 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 enter into agreements with identified business opportunities on terms acceptable to the Company. The Company intends to finance any such business 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 2005. Effective July 1, 2005, the Company adopted SFAS 123R that required the Company to record non-cash stock-based compensation expense for its stock compensation plans. Previously, the Company generally did not record non-cash stock-based compensation as an expense following the requirements of Accounting Principles Board Opinion 25. SFAS 123R was adopted using the modified prospective method of application, which requires the Company to recognize compensation expense on a prospective basis. As a result, prior period financial statements have not been restated. Under SFAS 123R, the Company recorded $140,000 and $523,000 22 for the third quarter and nine months ended March 31, 2006, respectively, of non-cash stock-based compensation expense related to the amortization of the fair value of granted stock options and, to a smaller extent, the amortization of the fair value of the Company's Employee Stock Purchase Plan. The non-cash stock-based compensation expense had the effect of reducing net income $112,000, or $0.01 per diluted share, and $423,000, or $0.05 per diluted share, for the quarter and nine months ended March 31, 2006, respectively. MARKET RISK INFORMATION The Company'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 March 31, 2006, the Company's percentage of sales commitments in non-United States currencies was approximately 41.5% or $7.1 million, compared to 44.4% or $8.4 million at March 31, 2005. 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'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 March 31, 2006, the Company had forward exchange contracts to sell 4.0 million Euros ($4.8 million equivalent) at a weighted average settlement rate of 1.21 Euros to the United States Dollar. The contracts outstanding at March 31, 2006, mature through September 29, 2006. The objective of the hedge transactions is to protect designated portions of the Company's net investment in its foreign subsidiary against adverse changes in the Euro/U.S. Dollar exchange rate. The Company assesses hedge effectiveness based on overall changes in fair value of the forward contract. Since the critical risks of the forward contract and the net investment coincide, there was no ineffectiveness. The accounting for the hedges is consistent with translation adjustments where any gains and losses are recorded to other comprehensive income. The Company recognized a charge of approximately $33,000 and income of $99,000 in other comprehensive income (loss) for the unrealized and realized change in value of the forward exchange contracts during the three and nine months ended March 31, 2006, respectively. Offsetting this amount was an increase in other comprehensive income (loss) for the translation effect of the Company's foreign subsidiary. Because the forward contracts were effective, there was no gain or loss recognized in earnings. 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 March 31, 2005, the Company had $9.2 million of forward exchange contracts between the United States Dollar and the Euro with a weighted average settlement price of 1.32 Euros to the United States 23 Dollar. The Company recognized income of $535,000 and a charge of $596,000 in other comprehensive income (loss) for the unrealized and realized change in value of forward exchange contracts during the three and nine months ended March 31, 2005, respectively. The Company's potential loss in earnings that would have resulted from a hypothetical 10% adverse change in quoted foreign currency exchange rates related to the translation of foreign denominated revenues and expenses into U.S. dollars for the three and nine months ended March 31, 2006 would have been approximately $71,000 and $2,000, respectively. The potential loss in earnings for the comparable periods in fiscal 2005 would have been approximately $36,000 and $105,000, 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 March 31, 2006, 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 10 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 2006 and future new order bookings, revenue, expenses, net income and backlog levels, trends affecting its future revenue levels, the rate of new orders, the timing of revenue and net income increases from new products which the Company has recently released or has not yet released and from the Company's plans to make important new investments, largely for personnel, for newly introduced products and geographic growth opportunities in the U.S., Europe, Eastern Europe, Asia, the ability of the Company to fund its fiscal year 2006 cash flow requirements and customers' current and future interest in the Company's Value Added Services. 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 concentrated in the automotive industry, particularly in the United States and Western Europe, the dependence of the Company's net income levels on increasing revenues, 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, continued access to third party components for our ScanWorks(R) systems, 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 develop and introduce new products, the ability of the Company to expand into new markets in Eastern Europe and Asia, 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, rapid or unexpected technological changes, the 24 ability of the Company to identify and satisfy demand for the Company's Value Added Services, the ability of the Company to identify business opportunities that fit the Company's strategic plans, the ability to implement identified business opportunities on terms acceptable to the Company and the effect of economic conditions, particularly economic conditions in the domestic, European and worldwide Automotive industry, which has from time to time been subject to cyclical downturns due to the level of demand for, or supply of, the products produced by companies in this industry. The ability of the Company to develop and introduce new products, especially in markets outside of automotive, is subject to a number of uncertainties, including general product demand and market acceptance risks, 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, the ability of the Company to identify satisfactory distribution networks, the ability of the Company to develop internally or identify externally high quality cost effective manufacturing capabilities for the products, general product development and commercialization difficulties, and the level of interest existing and potential new customers may have in new products and technologies generally. 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 ability of the Company to identify and satisfy demand for the Company's Value Added Services is subject to a number of uncertainties including that these services represent discretionary spending by customers and so tend to decline during economic downturns even if product sales do not decline. 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. A significant portion of the Company's projected revenues and net income depends upon the Company's ability to successfully develop and introduce new products and expand into new geographic markets. 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". 25 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 March 31, 2006, 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 changes in the Company's internal controls over financial reporting during the quarter ended March 31, 2006 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. PART II. OTHER INFORMATION ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS The following table sets forth information concerning the Company's repurchases of its common stock during the quarter ended March 31, 2006. All shares were purchased pursuant to the Company's stock repurchase program described below.
(c) TOTAL NUMBER OF SHARES (d) APPROXIMATE (a) TOTAL PURCHASED AS DOLLAR VALUE OF SHARES NUMBER OF (b) AVERAGE PART OF PUBLICLY THAT MAY YET BE SHARES PRICE PAID ANNOUNCED PURCHASED UNDER THE PERIOD PURCHASED PER SHARE PROGRAM PROGRAM - ------------------- --------- ----------- ----------------- ---------------------- January 1-31, 2006 22,700 $7.37 22,700 $ 1,907,253 February 1-28, 2006 49,700 $7.71 49,700 $ 1,524,194 March 1-31, 2006 61,000 $7.96 61,000 $ 1,038,595 ------- ------- Total 133,400 $7.77 133,400 $ 1,038,595 ======= =======
On September 9, 2005, the Company's Board of Directors approved a stock repurchase program authorizing the Company to repurchase up to $5.0 million of the Company's common stock during fiscal year 2006. 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. The Company also announced that it has entered into a Rule 10b5-1 trading plan ("Repurchase Plan") with Barrington Research Associates, Inc. to purchase up to $5.0 million of the Company's common stock during fiscal year 2006 (less the dollar amount of purchases by the Company outside the Repurchase Plan), in open market or privately negotiated transactions, in accordance with the requirements of Rule 10b-18. This stock repurchase program replaces the Company's stock repurchase program for fiscal year 2005, which terminated on June 30, 2005. 26 ITEM 6. EXHIBITS 10.47 Form of Non-Qualified Stock Option Agreement Terms under the Perceptron, Inc. 1998 Global Team Member Stock Option Plan after January 1, 2006. 31.1 Certification by the Chief Executive Officer of the Company pursuant to Rule 13a-14(a) and Rule 15d-14(a). 31.2 Certification by the Chief Financial Officer of the Company pursuant to Rule 13a-14(a) and Rule 15d-14(a). 32.1 Certification by the Chief Executive Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification by the Chief Financial Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PERCEPTRON, INC. (Registrant) Date: May 12, 2006 By: /s/ Alfred A. Pease --------------------------------------- Alfred A. Pease Chairman of the Board, President and Chief Executive Officer Date: May 12, 2006 By: /s/ John J. Garber ----------------------------------------- John J. Garber Vice President and Chief Financial Officer (Principal Financial Officer) Date: May 12, 2006 By: /s/ Sylvia M. Smith ----------------------------------------- Sylvia M. Smith Controller and Chief Accounting Officer (Principal Accounting Officer) 27 EXHIBIT INDEX
EX NO. DESCRIPTION - ------- ----------- 10.47 Form of Non-Qualified Stock Option Agreement Terms under the Perceptron, Inc. 1998 Global Team Member Stock Option Plan after January 1, 2006. 31.1 Certification by the Chief Executive Officer of the Company pursuant to Rule 13a-14(a) and Rule 15d-14(a). 31.2 Certification by the Chief Financial Officer of the Company pursuant to Rule 13a-14(a) and Rule 15d-14(a). 32.1 Certification by the Chief Executive Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification by the Chief Financial Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
28 EX-10.47 2 k05378exv10w47.txt FORM OF NON-QUALIFIED STOCK OPTION AGREEMENT EXHIBIT 10.47 STOCK OPTION AGREEMENT TERMS UNDER THE PERCEPTRON, INC. 1998 GLOBAL TEAM MEMBER STOCK OPTION PLAN THESE STOCK OPTION AGREEMENT TERMS pertain to stock options granted effective January 2, 2006, under the 1998 Global Team Member Stock Option Plan (the "Plan") as detailed in the accompanying Notice of Grant of Stock Options and Option Agreement (the "Notice") between Perceptron, Inc., a Michigan corporation (the "Company"), and the employee named in the Notice who is currently employed by the Company or one of its subsidiaries (the "Optionee"). A copy of the 1998 Global Employee Stock Option Plan is not attached hereto but is available upon written request made to the Secretary of the Company. 1. GRANT OF OPTION. Subject to the terms and conditions hereof, the Company hereby grants to the Optionee an option to purchase from the Company up to, but not exceeding in the aggregate, the number of shares of the Company's Common Stock detailed in the accompanying Notice at the price per share designated in the Notice. This option is not intended to constitute an "incentive stock option" with the meaning of Section 422 of the Internal Revenue Code ("Code"). 2. RIGHT TO EXERCISE OPTION. Unless otherwise indicated in the Notice, the Optionee may purchase from the Company on and after the first (1st) anniversary of the date of grant, 25% of the shares covered by this option, and on each succeeding one year anniversary thereof, may exercise an additional 25% of the shares covered by the option, so that on the fourth (4th) anniversary of the date of grant this option shall be fully exercisable. Unless a shorter period is specified in the Notice under the "Expiration" column, and notwithstanding any provision of this Agreement, no portion of this option shall be exercisable on or after the tenth (10th) anniversary of the date of grant. 3. TERMINATION OF EMPLOYMENT. If, prior to the date on which this option first shall become exercisable, the Optionee's employment with the Company or any of its subsidiaries is terminated for any reason, the Optionee's right to exercise this option shall terminate and all rights hereunder shall cease. As used in this Agreement, the term "subsidiary" of the Company means any "subsidiary corporation" as defined in Section 424(f) of the Code, the term "employment" means employment with the Company or any subsidiary of the Company, and the term "disability" means "total and permanent disability," as defined in Section 22(e) of the Code. If, on or after the date on which this option first shall become exercisable, the Optionee's employment is terminated for any reason other than death or disability, the Optionee shall have the right to exercise this option, to the extent that it was exercisable and unexercised on the date of the Optionee's termination of employment, at any time on or before the earlier of: (i) the expiration date of the option, or (ii) three (3) months after the date of such termination of employment, subject to any other limitation on the exercise of such option in effect on the date of exercise. If, on or after the date on which this option first shall become exercisable, the Optionee's employment is terminated due to the Optionee's death or disability, the Optionee, the executor or the administrator of the estate of the Optionee, or the person(s) to whom the option has been transferred by will or by the laws of descent and distribution, shall have the right to exercise this option at any time on or before the earlier of: (i) the expiration date of the option, or (ii) one (1) year from the date of the Optionee's death or disability, to the extent that the option was exercisable and unexercised on the date of the Optionee's death or disability, subject to any other limitation on the exercise of such option in effect on the date of exercise. For purposes of this Agreement, the transfer of an Optionee to/from the Company to/from any of its subsidiaries, shall not constitute a termination of employment. In addition, a leave of absence by an Optionee shall not constitute a termination of employment, provided the Optionee obtains the prior written consent of the Company for such leave of absence. 4. CHANGE IN CONTROL. Notwithstanding the provisions of Section 2 "Right to Exercise Option" and Section 3 "Termination of Employment" of this Agreement, in the event of a Change in Control, any portion of this option that is then not exercisable shall become immediately exercisable. For purposes hereof, a "Change in Control" shall be deemed to have occurred in the event of (i) a merger involving the Corporation in which the Corporation is not the surviving corporation (other than a merger with a wholly-owned subsidiary of the Corporation formed for the purpose of changing the Corporation's corporate domicile); (ii) a share exchange in which the shareholders of the Corporation exchange their stock in the Corporation for stock of another corporation (other than a share exchange in which all or substantially all of the holders of the voting stock of the Corporation, immediately prior to the transaction, exchange, on a pro rata basis, their voting stock of the Corporation for more than 50% of the voting stock of such other corporation); (iii) the sale of all or substantially all of the assets of the Corporation; or (iv) any person or group of persons (as defined by Section 13(d) of the Securities Exchange Act of 1934, as amended) (other than any employee benefit plan or employee benefit trust benefiting the employees of the Corporation) becoming a beneficial owner, directly or indirectly, of securities of the Corporation representing more than fifty (50%) percent of either the then outstanding Common Stock of the Corporation, or the combined voting power of the Corporation's then outstanding voting securities. In the event of a Change of Control, the Company's Management Development, Compensation and Stock Option Committee, or such other committee as determined by the Board of Directors (the "Committee") may, in its sole discretion and without the consent of the Optionee, cancel this option in exchange for a payment with respect to each vested share of Common Stock as provided in Section 9 of the Plan. 5. EXERCISE OF OPTION. (a) At any time during which this option may be exercised as provided in this Agreement, the Optionee may exercise any portion of this option which is then exercisable, in whole or in part, by delivering a written notice to the Company, in the form attached hereto, signed by the Optionee. (b) In addition, the Optionee shall deliver, on the date of exercise: (i) cash, personal check, bank draft or money order equal to the purchase price of the shares being purchased, 2 (ii) such documents as are or may be required to effect a cashless exercise pursuant to Section 5.3 of the 1998 Global Team Member Stock Option Plan (the "Plan"), or (iii) Permitted Shares with a fair market value (determined as of the date of exercise of the option and as defined in the Plan) equal to the purchase price of the shares being purchased (the "Delivered Shares Method") pursuant to Section 5.3 of the Plan. (c) "Permitted Shares" are shares of Company Common Stock to be delivered to pay the exercise price of the option (the "Delivered Shares"): (i) which have been owned by the Optionee for at least six (6) months prior to the date of delivery, or (ii) if they have not been owned by the Optionee for at least six (6) months prior to the date of delivery, the Optionee then owns, and has owned for at least six (6) months prior thereto, a number of shares of Company Common Stock at least equal in number to the Delivered Shares. (d) Shares which have been counted during the prior six (6) months as owned by the Optionee, for purposes of determining whether the Optionee may exercise options to purchase Common Stock pursuant to the Delivered Shares Method, may not be used as Delivered Shares and may not be counted as owned by the Optionee for purposes of making calculations under the Delivered Shares Method. 6. COMPLIANCE WITH SECURITIES LAWS. Notwithstanding any provision in this Agreement to the contrary, the Company's obligation to sell and deliver stock under this option is subject to such compliance with federal, state and foreign laws, rules and regulations applying the authorization, issuance or sale of securities, and applicable stock exchange requirements, as the Company deems necessary or advisable. 7. NON-ASSIGNABILITY. The option hereby granted shall not be transferable by the Optionee other than by will or by the laws of descent and distribution, and the option may be exercised only during the Optionee's lifetime by the Optionee. Any person to whom this option is transferred shall take such option subject to the terms and conditions of this Agreement. No such transfer of an option shall be effective to bind the Company unless the Company is furnished with written notice of the transfer, and a copy of the will and/or such other evidence as the Company may deem necessary to establish the validity of the transfer and the acceptance by the transferee(s) of the terms and conditions of this Agreement. No assignment or transfer of this option, or of the rights represented thereby, whether voluntary or involuntary, by operation of law or otherwise, shall vest in the purported assignee or transferee any interest or right herein whatsoever, except to the extent an Optionee makes a transfer by will or by the laws of descent and distribution. 8. DISPUTES. The granting of this option under this Agreement is conditioned upon the agreement by the Optionee, and the Optionee's successors and assigns, that any dispute or disagreement which may arise under or as a result of this Agreement shall be resolved by the Committee in its sole discretion and judgment, and that any such determination or interpretation by the Committee of the terms of this Agreement shall be final, binding and conclusive for all purposes. 3 9. ADJUSTMENTS. In the event of any stock dividend on the Common Stock, subdivision or combination of shares of the Common Stock, or reclassification of the Common Stock, and in the event of a merger, consolidation, share exchange, reorganization, recapitalization or other change in the capitalization of the Company directly affecting the outstanding Common Stock, the rights of the Optionee shall be determined pursuant to Section 8 of the Plan and any adjustment to this option shall be made in accordance with Section 8 of the Plan. 10. RIGHTS AS SHAREHOLDER. The Optionee shall have no rights as a shareholder of the Company with respect to any of the shares covered by this option until the certificate(s) are issued upon the exercise of the option, in full or in part, and then only with respect to the shares represented by such certificate(s). 11. NOTICES. Any notice which relates to this Agreement shall be made in writing and if such notice is mailed, it shall be mailed by either registered or certified mail, with return receipt requested. Any notice to the Company either shall be delivered or addressed to the Secretary of the Company at the Company's headquarters. Any notice by the Company to the Optionee shall be delivered to the Optionee personally or addressed to the Optionee at the Optionee's last known address, as then contained in the records of the Company, or such other address as the Optionee may designate. Either party may designate a different address to which notices shall be addressed, provided the other party has received sufficient notification of such designation. Any notice given by the Company to an Optionee at the Optionee's last designated address shall be effective to bind any other person who shall acquire any rights hereunder. 12. "OPTIONEE" TO INCLUDE CERTAIN TRANSFEREES. Whenever the word "Optionee" is used in any provision of this Agreement under circumstances in which the provision logically should apply to any other person(s) to whom the option, in accordance with the provisions of Section 6 hereof, may be transferred, the word "Optionee" shall be deemed to include such other person(s). 13. GOVERNING LAW. This Agreement is made under and shall be construed in accordance with the laws of the State of Michigan. 14. PROVISIONS OF PLAN CONTROLLING. The provisions of this Agreement are subject to the terms and provisions of the Plan. Copies of the Plan are available for review upon request. In the event a conflict arises between the provisions of this option and the provisions of the Plan, the provisions of the Plan shall control, except to the extent that the provisions of this option limit or restrict the rights of an Optionee to a greater extent than that which is set forth in the Plan. 15. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 16. CAPTIONS. The captions to the sections and subsections contained in this Agreement are for reference only, do not form a substantive part of this Agreement and shall not restrict or enlarge substantive provisions of this Agreement. 17. PARTIES IN INTEREST. This Agreement shall bind and shall inure to the benefit of the parties hereto, their respective permitted successors and assigns. 4 18. COMPLETE AGREEMENT. This Agreement shall constitute the entire agreement between the parties hereto and shall supersede all proposals, oral or written, and all other communications between the parties relating to the subject matter of this Agreement. 19. MODIFICATIONS. The terms of this Agreement cannot be modified except in writing and signed by each of the parties hereto. 20. SEVERABILITY. In the event that any one or more of the provisions of this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. 21. WITHHOLDING. The Optionee hereby authorizes the Company to withhold from his compensation or agrees to tender the applicable amount to the Company to satisfy any requirements for withholding of income and employment taxes in connection with the exercise of the option granted hereby. 5 NOTICE OF EXERCISE OF NON-QUALIFIED STOCK OPTION UNDER THE PERCEPTRON, INC. 1998 GLOBAL TEAM MEMBER STOCK OPTION PLAN Perceptron, Inc. 47827 Halyard Drive Plymouth, Michigan 48170 Dear Sir: A non-qualified stock option, number XXXX, was granted to me on XX/XX/XXXX to purchase XXX shares of Perceptron, Inc. Common Stock at a price of $XX.XX per share. I hereby elect to exercise my non-qualified stock option with respect to XXX shares for an aggregate purchase price of $X,XXX.XX. I hereby elect to pay for such shares, plus tax withholding, as follows: Personal Check $ ______________ Cash $ ______________ Bank Draft $ ______________ Money Order $ ______________ Cashless Exercise $ ______________ Perceptron Common Stock $ ______________ TOTAL $ ______________
A personal check (or cash, bank draft or money order) for the purchase price is enclosed herewith. Documents as are required to effect a cashless exercise are enclosed. I hereby elect to exercise my stock option with respect to _____________ shares through a combination of cash payments and shares of Perceptron, Inc. Common Stock, as described on the attached Exhibit A. A personal check for the purchase price to be paid in cash is enclosed herewith. Certificates for _______________ shares of Perceptron, Inc. Common Stock are enclosed herewith, along with a duly executed stock power in proper form for transfer, with all signatures properly guaranteed by a national bank or member firm of the NYSE or AMEX. I represent that the shares of Perceptron, Inc. Common Stock enclosed herewith have been owned by me for more than six months or I currently own more than ______________ shares of Perceptron, Inc. Common Stock which have been owned by me for more than six months. Such shares have not been counted during the prior six months as owned by me for purposes of determining whether I may exercise options to purchase Common Stock pursuant to the Delivered Shares Method. I represent that the shares of stock that I am purchasing upon this exercise of my option are being purchased for investment purposes and not with a view to resale. This representation shall not be binding upon me if the shares of Common Stock that I am purchasing are subject to an effective Registration Statement under the Securities Act of 1933. Optionee: ___________________________________ Date: _________________________ Name EX-31.1 3 k05378exv31w1.txt CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER TO RULE 13A-14(A)/15D-14(A) 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: May 12, 2006 /s/ Alfred A. Pease -------------------------------- Alfred A. Pease Chairman of the Board, President and Chief Executive Officer EX-31.2 4 k05378exv31w2.txt CERTIFICATION BY THE CHIEF FINANCIAL OFFICER TO RULE 13A-14(A)/15D-14(A) 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: May 12, 2006 /s/ John J. Garber ------------------------------------------ John J. Garber Vice President and Chief Financial Officer EX-32.1 5 k05378exv32w1.txt CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER TO 18 U.S.C. SECTION 1350 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 March 31, 2006 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 May 12, 2006 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 k05378exv32w2.txt CERTIFICATION BY THE CHIEF FINANCIAL OFFICER TO 18 U.S.C. SECTION 1350 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 March 31, 2006 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 May 12, 2006 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-----