SAFE HARBOR STATEMENT
We make statements in this Management's Discussion and Analysis of Financial Condition and Results of Operations that may be "forward-looking statements" within the meaning of the Securities Exchange Act of 1934, including the Company's expectation as to its fiscal year 2009 and future new order bookings, revenue, expenses, net income and backlog levels, trends affecting its future revenue levels, the rate of new orders, the timing of revenue and net income increases from new products which we have recently released or have not yet released and from our 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 timing of the introduction of new products, our ability to fund our fiscal year 2009 and future cash flow requirements and the amount of cost reductions from recently announced cost reduction actions. We may also make forward-looking statements in our press releases or other public or shareholder communications. When we use words such as "will," "should," "believes," "expects," "anticipates," "estimates" or similar expressions, we are making forward-looking statements. We claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 for all of our forward-looking statements. While we believe that our forward-looking statements are reasonable, you should not place undue reliance on any such forward-looking statements, which speak only as of the date made. Because these forward-looking statements are based on estimates and assumptions that are subject to significant business, economic and competitive uncertainties, many of which are beyond our control or are subject to change, actual results could be materially different. Factors that might cause such a difference include, without limitation, the risks and uncertainties discussed from time to time in our reports filed with the Securities and Exchange Commission, including those listed in "Item 1A - Risk Factors" in this report and in the Company's Annual Report on Form 10-K for fiscal year 2008 and Quarterly Report on Form 10-Q for the quarter ended September 30, 2008. Other factors not currently anticipated by management may also materially and adversely affect our financial condition, liquidity or results of operations. Except as required by applicable law, we do not undertake, and expressly disclaim, any obligation to publicly update or alter our statements whether as a result of new information, events or circumstances occurring after the date of this report or otherwise. The 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 Automated Systems segment products are typically integrated into larger systems or lines, the timing of new orders is dependent on the timing of completion of the overall system or line. In addition, because the Company's Automated Systems segment products have shorter lead times than other components and are required later in the process, orders for the Company's Automated Systems segment products tend to be given later in the integration process. The Company's Technology Products segment products are subject to the timing of firm orders from its customers, which may change on a monthly basis. In addition, because the Company's Technology Products segment products require short lead times from firm order to delivery, the Company purchases long lead time components before firm orders are in hand. A significant portion of the 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.
OVERVIEW
Perceptron, Inc. ("Perceptron" or the "Company") develops, produces and markets non-contact metrology solutions for manufacturing process control as well as sensor and software technologies for non-contact measurement and inspection applications. Perceptron's product offerings are designed to improve quality, increase productivity and decrease costs in manufacturing and product development. Perceptron also produces innovative technology solutions for scanning and inspection, serving industrial, trade and consumer applications. The solutions offered by the Company are divided into two groups: 1) The Automated Systems Group made up of AutoGaugeâ, AutoFitâ, AutoScanâ, and AutoGuideâ products and training, consulting and non-warranty support services; and 2) The Technology Products Group made up of ScanWorksâ, Non-Contact Wheel Alignment ("WheelWorksâ"), TriCamâ sensors for the forest products industry, and commercial products. The Company services multiple markets and its primary operations are in North America, Europe and Asia.
The Company expects sales from its Technology Products segment, in large part due to anticipated growth in commercial products, to continue to become a greater percentage of overall revenue in fiscal 2009. The Company continued to see robust sales of its commercial product sold by Snap-on Tool Company under the BK5500 name. .During the second quarter of fiscal 2009, the Company began shipments of a new product sold by Ridge Tool Company under the name, microEXPLORER™ Digital Inspection Camera. This product utilizes significantly more advanced and sophisticated technology than the SeeSnakeâ microÔ. The microEXPLORER™ has a self-leveling feature for a consistently upright picture, has zoom capabilities, is water proof, is able to save images and video to a SD Card, and can transfer files to a computer. In addition, during the second quarter, the Company began shipments to North America and Europe of the second generation of the new 9.5 millimeter and 17 millimeter imager head See Snake® micro™ sold by Ridge Tool.
New vehicle tooling programs represent the most important selling opportunity for the Company's automotive related sales. The number and timing of new vehicle tooling programs varies in accordance with individual automotive manufacturers' plans and is also influenced by the state of the economy. The Company has been seeing changes in new tooling programs, including reductions in scope and timing, which have resulted in some of the Company's orders being cancelled or delayed. Although the Company expects the turbulent economic conditions in the automotive industry to continue in fiscal year 2009, the Company believes there are opportunities as the automobile manufacturers transition to production of new models that are more fuel efficient. The Company has continued its plans to open an office in India and has temporarily delayed adding additional resources in other parts of Asia while turbulence remains in the global automotive markets. The Company believes growth in Asia will recover earlier than in other areas and expects to be in position to take advantage of sales growth opportunities in these markets. The Company has seen a trend toward more robot-based Automated Systems that have lower hardware content and increased labor content. Also, due to plant closings and faster turnaround of new models, the Company has experienced an increase in Automated Systems orders to refurbish and reconfigure the customer's existing equipment.
The Company's financial base remains strong with no debt and approximately $23.3 million of cash at December 31, 2008 available to support its growth plans. Near-term the Company will continue to focus on the successful production and release of an expanded line of commercial electronic inspection products. In response to recent reductions in the level of new orders and the negative outlook for the automotive industry in the next twelve to eighteen months, the Company also undertook a significant cost

reduction plan during the third quarter of fiscal 2009 that is expected to reduce costs by approximately $4.7 million in fiscal 2010. During the third quarter of fiscal 2009, the Company expects to record a charge of approximately $1.0 million related to severance and other related costs. The cost reductions occurred primarily in the Company's North American Automated Systems business in response to the economic environment affecting the automotive market, with smaller reductions in Europe. In planning and implementing these cost reductions, the Company focused on maintaining sufficient resources to continue growth in its Technology Products segment and develop new, advanced technologies for its Automated Systems segment. The Company did not make any reductions in its personnel in Asia but did delay adding additional resources until growth resumes in this area.
RESULTS OF OPERATIONS
Three Months Ended December 31, 2008 Compared to Three Months Ended December 31, 2007 Overview - For the second quarter of fiscal 2009, the Company reported net income of $1.1 million, or $0.12 per diluted share, compared to a net loss of $188,000 or $0.02 per diluted share, for the second quarter of fiscal 2008. Specific line item results are described below.
Sales - Net sales were $19.9 million for the second quarter of fiscal 2009 compared to net sales of $19.1 million for the same period one year ago. The following tables set forth comparison data for the Company's net sales by segment and geographic location.

                                Second                 Second
    Sales (by segment)         Quarter                Quarter
    (in millions)                2009                   2008              Increase/(Decrease)
    Automated Systems     $  9.2        46.2 %   $ 10.6        55.5 %   $    (1.4 )        (13.2 )%
    Technology Products     10.7        53.8 %      8.5        44.5 %         2.2           25.9 %

    Totals                $ 19.9       100.0 %   $ 19.1       100.0 %   $     0.8            4.2 %




                                Second                 Second
    Sales (by location)        Quarter                Quarter
    (in millions)                2009                   2008              Increase/(Decrease)
    Americas              $ 12.5        62.8 %   $ 11.2        58.6 %   $     1.3           11.6 %
    Europe                   5.9        29.7 %      6.6        34.6 %        (0.7 )        (10.6 )%
    Asia                     1.5         7.5 %      1.3         6.8 %         0.2           15.4 %

    Totals                $ 19.9       100.0 %   $ 19.1       100.0 %   $     0.8            4.2 %

The decrease in Automated Systems sales was primarily due to decreased sales in the Americas. Spending by North American automotive companies has decreased due to the current economic conditions. The Technology Product sales increase was primarily the result of higher sales of the Company's commercial products that were mitigated by lower WheelWorks® and ScanWorks® sales, primarily sold to the automotive industry. The increase in sales of the Company's commercial products was primarily due to products the Company began shipping this fiscal year, in particular the BK5500 sold to Snap-on and the micro EXPLORER™ Digital Inspection Camera sold to Ridge Tool. Increased sales of the Company's commercial products were also the primary reason for the increase in sales in the Americas. European sales decreased primarily in the Technology Products segment and the weaker Euro this quarter compared to the second quarter of fiscal 2008 reduced sales by approximately $600,000. Asian sales increased primarily due to sales of the Company's Automated Systems products.

Bookings - Bookings represent new orders received from customers. The Company had new order bookings during the quarter of $12.4 million compared with new order bookings of $17.6 million for the second quarter ended December 31, 2007. 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 segment and geographic location.

                                 Second                 Second
   Bookings (by segment)        Quarter                Quarter
   (in millions)                  2009                   2008              Increase/(Decrease)
   Automated Systems       $  6.6        53.2 %   $  8.5        48.3 %   $    (1.9 )        (22.4 )%
   Technology Products        5.8        46.8 %      9.1        51.7 %        (3.3 )        (36.3 )%

   Totals                  $ 12.4       100.0 %   $ 17.6       100.0 %   $    (5.2 )        (29.5 )%




                                  Second                 Second
   Bookings (by location)        Quarter                Quarter
   (in millions)                   2009                   2008              Increase/(Decrease)
   Americas                 $  7.1        57.3 %   $ 10.5        59.7 %   $    (3.4 )        (32.4 )%
   Europe                      4.8        38.7 %      5.7        32.4 %        (0.9 )        (15.8 )%
   Asia                        0.5         4.0 %      1.4         7.9 %        (0.9 )        (64.3 )%

   Totals                   $ 12.4       100.0 %   $ 17.6       100.0 %   $    (5.2 )        (29.5 )%

The Company's level of new orders fluctuates from quarter to quarter. Bookings in both segments declined in the second quarter of 2009 compared to 2008 due to current economic conditions. Additionally, the decrease in new order bookings for Technology Products was primarily due to orders for the Company's commercial products which reflected the fact that the second quarter of fiscal 2008 had a high level of orders needed to fill the pipeline for large distribution customers. Decreased bookings of WheelWorks® and ScanWorks® also contributed to the decrease in Technology Products. The decrease in orders in commercial products for the quarter was the primary reason for the decrease in orders in the Americas. The decrease in Europe bookings was primarily from lower Automated Systems orders. The decrease in Asia bookings was primarily from Automated Systems orders with lower Technology Products bookings contributing to the decrease.
Backlog - Backlog represents orders or bookings received by the Company that have not yet been filled. The Company's backlog was $19.1 million as of December 31, 2008 compared with $21.3 million as of December 31, 2007. The following tables set forth comparison data for the Company's backlog by segment and geographic location.

                                 Second                 Second
    Backlog (by segment)        Quarter                Quarter
    (in millions)                 2009                   2008              Increase/(Decrease)
    Automated Systems      $ 16.2        84.8 %   $ 14.7        69.0 %   $     1.5           10.2 %
    Technology Products       2.9        15.2 %      6.6        31.0 %        (3.7 )        (56.1 )%

    Totals                 $ 19.1       100.0 %   $ 21.3       100.0 %   $    (2.2 )        (10.3 )%




                                 Second                 Second
   Backlog (by location)        Quarter                Quarter
   (in millions)                  2009                   2008              Increase/(Decrease)
   Americas                $  8.0        41.9 %   $ 12.5        58.7 %   $    (4.5 )        (36.0 )%
   Europe                    10.5        55.0 %      7.7        36.2 %         2.8           36.4 %
   Asia                       0.6         3.1 %      1.1         5.1 %        (0.5 )        (45.5 )%

   Totals                  $ 19.1       100.0 %   $ 21.3       100.0 %   $    (2.2 )        (10.3 )%

The Company expects to be able to fill substantially all of the orders in backlog during the following twelve months. The increase in Automated Systems backlog was principally due to higher orders for new systems and system upgrade orders. The decrease in Technology Products backlog was primarily due to commercial products which reflected lower bookings in the quarter. 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 $7.6 million, or 38.5% of sales, in the second quarter of fiscal year 2009, as compared to $8.7 million, or 45.4% of sales, in the second quarter of fiscal year 2008. The decrease of $1.1 million in gross profit this quarter was primarily due to lower Automated Systems sales in fiscal 2009 compared to the fiscal 2008 quarter which resulted in under absorbed fixed installation labor and manufacturing costs. Also affecting the gross margin percentage decline in the current quarter was the product mix, which reflected a higher percentage of commercial products in the Technology Products segment and a higher percentage of high labor content sales in the Automated Systems products both of which are at lower margins than a new Automated System sale that includes higher margin equipment. Of the $1.1 million decline in gross profit, the weaker Euro also had a negative impact of approximately $400,000. Selling, General and Administrative (SG&A) Expenses - SG&A expenses were essentially flat at $4.4 million quarter over quarter. There was a decrease of approximately $240,000 related to audit and contract services related to the fiscal 2008 SOX 404 implementation and legal fees. Offsetting this decrease were higher costs related to the Company's commercial products of approximately $140,000, primarily related to higher co-op advertising and in Europe and Asia, increased salary and other costs of approximately $90,000.
Engineering, Research and Development (R&D) Expenses - Engineering and R&D expenses were $2.0 million in the quarter ended December 31, 2008 compared to $2.2 million in the second quarter a year ago. The $194,000 decrease was primarily due to lower engineering materials in the fiscal 2009 quarter primarily related to spending on commercial product development efforts. Interest Income, net - Net interest income was $241,000 in the second quarter of fiscal 2009 compared with net interest income of $329,000 in the second quarter of fiscal 2008. The decrease was primarily due to lower interest rates on higher average invested cash balances compared to one year ago.
Foreign Currency - There was a net foreign currency gain of $282,000 in the fiscal 2009 quarter compared with a gain of $50,000 a year ago and represents foreign currency changes, particularly related to the Yen and to a lesser extent the Real and Euro within the respective periods.
Impairment on Long-term Investment - In the quarter ended December 31, 2007, the Company determined that one of its investments in auction rate securities had been other-than-temporarily impaired and based on fair values provided by the Company's broker, recorded a $2.6 million other-than-

temporary decline in the market value of this investment. See Note 4 of the Notes to the Consolidated Financial Statements, "Long-Term Investments". Income Taxes - The effective tax rate for the second quarter of fiscal 2009 was 35.0% compared to 6.0% in the second quarter of fiscal 2008. The effective rate in both 2009 and 2008 primarily reflects the effect of the mix of pre-tax profit and loss among the Company's various operating entities and their countries' respective tax rates. The large impairment charge recorded in the second quarter of fiscal 2008 resulted in a taxable loss in the United States that offset taxable income in other countries with higher tax rates. The effective tax rate for the second quarter of fiscal 2008 would have been approximately 37% without the impairment charge.
Outlook - Recent negative trends in the automotive market have had an effect on the Company's business outlook. Revenue in fiscal 2009 is still expected to grow compared to fiscal 2008, however, not at the double digit rate previously anticipated. As a result, the Company announced a significant cost reduction plan for its Automated Systems business. The actions did not affect the commercial products portion of the Company's business. Most of the cost reduction actions took place in North America with a smaller amount in Europe. The actions included reducing personnel, benefits, contract services and other related expenses that are expected to decrease annual costs by approximately $4.7 million in fiscal 2010 and are intended to result in operating income for the Company's Automated Systems business in fiscal 2010. The Company expects to record a restructuring charge of approximately $1.0 million related to severance and other related costs in the third quarter of fiscal 2009. The Company believes that the cost reduction actions will improve the gross profit percentage in future quarters.
Six Months Ended December 31, 2008 Compared to Six Months Ended December 31, 2007 Overview - The Company reported net income of $1.1 million, or $0.12 per diluted share, for the first half of fiscal 2009, compared with net income of $259,000, or $0.03 per diluted share for the six months ended December 31, 2007. Specific line item results are described below.
Sales - Net sales in the first six months of fiscal 2009 were $39.1 million, compared to $36.8 million for the six months ended December 31, 2007. The following tables set forth comparison data for the Company's net sales by segment and geographic location.

   Sales (by segment)        Six Months              Six Months
   (in millions)           Ended 12/31/08          Ended 12/31/07          Increase/(Decrease)
   Automated Systems     $  17.7        45.3 %   $  18.7        50.8 %   $     (1.0 )        (5.3 )%
   Technology Products      21.4        54.7 %      18.1        49.2 %          3.3          18.2 %

   Totals                $  39.1       100.0 %   $  36.8       100.0 %   $      2.3           6.3 %




   Sales (by location)       Six Months              Six Months
   (in millions)           Ended 12/31/08          Ended 12/31/07           Increase/(Decrease)
   Americas              $  26.0        66.5 %   $  24.1        65.5 %   $     1.9             7.9 %
   Europe                   10.8        27.6 %      10.6        28.8 %         0.2             1.9 %
   Asia                      2.3         5.9 %       2.1         5.7 %         0.2             9.5 %

   Totals                $  39.1       100.0 %   $  36.8       100.0 %   $     2.3             6.3 %

The decrease in Automated Systems was primarily due to lower sales in the Americas mitigated by increased sales in Europe and Asia. Spending by North American automotive companies has decreased due to the current economic conditions. The sales increase in Technology Products was primarily due to higher sales of the Company's commercial products that were mitigated by lower sales of WheelWorks® which is primarily sold to the automotive industry. Increased sales of the Company's commercial products were also the primary reason for the increase in sales in the Americas. Europe and Asia's sales increased primarily in Automated Systems products reduced by lower sales of Technology Products. For the six-month period, the weakening of the Euro exchange rate during the second quarter of fiscal 2009 more than offset the effect of the stronger Euro on sales in the first quarter of fiscal 2009. Bookings - Bookings represent new orders received from customers. New order bookings for the six months ended December 31, 2008 were $32.8 million compared to $35.1 million for the same period one year ago. 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 segment and geographic location.

  Bookings (by segment)       Six Months              Six Months
  (in millions)             Ended 12/31/08          Ended 12/31/07          Increase/(Decrease)
  Automated Systems       $  16.2        49.4 %   $  20.3        57.8 %   $    (4.1 )        (20.2 )%
  Technology Products        16.6        50.6 %      14.8        42.2 %         1.8           12.2 %

  Totals                  $  32.8       100.0 %   $  35.1       100.0 %   $    (2.3 )         (6.6 )%




  Bookings (by location)       Six Months             Six Months
  (in millions)              Ended 12/31/8          Ended 12/31/07          Increase/(Decrease)
  Americas                 $ 19.1        58.2 %   $  20.3        57.8 %   $    (1.2 )         (5.9 )%
  Europe                     12.6        38.4 %      12.0        34.2 %         0.6            5.0 %
  Asia                        1.1         3.4 %       2.8         8.0 %        (1.7 )        (60.7 )%

The decrease in new order bookings for Automated Systems during the first half of fiscal 2009 was primarily due to decreased bookings in the Americas with lower bookings in Asia contributing to the decrease. Increased Automated Systems bookings in Europe mitigated this decrease. Spending by North American automotive companies has decreased due to current economic conditions. The increase in new order bookings in the Technology Products Group during the first half of fiscal 2009 was primarily due to increased orders for commercial products mitigated by lower bookings in the other Technology Products. Historically, the Company's rate of new orders has varied from quarter to quarter.
Gross Profit - Gross profit was $14.4 million, or 36.9% of sales, in the first half of fiscal 2009, as compared to $15.6 million, or 42.4% of sales, in the first half of fiscal 2008. The $1.2 million gross profit decrease was primarily due to higher material and labor costs in Europe and under absorbed fixed installation labor in the Americas and Asia contributing to the decrease. Also affecting the gross margin percentage decline in the current period was the product mix, which reflected a higher percentage of commercial products in the Technology Products segment and a higher percentage of high labor content sales in the Automated Systems products both of which are at lower margins than a new . . .