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PRCP > SEC Filings for PRCP > Form 10-Q on 13-Nov-2012All Recent SEC Filings

Show all filings for PERCEPTRON INC/MI

Form 10-Q for PERCEPTRON INC/MI


13-Nov-2012

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 future dividend payments, fiscal year 2013 and future new order bookings, revenue, expenses, net income and backlog levels, trends affecting its future revenue levels, the rate of new orders, the timing of revenue and net income increases from new products which we have recently released or have not yet released, the timing of the introduction of new products and our ability to fund our fiscal year 2013 and future cash flow requirements. We may also make forward-looking statements in our press releases or other public or shareholder communications. When we use words such as "will," "should," "believes," "expects," "anticipates," "estimates" or similar expressions, we are making forward-looking statements. We claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 for all of our forward-looking statements. While we believe that our forward-looking statements are reasonable, you should not place undue reliance on any such forward-looking statements, which speak only as of the date made. Because these forward-looking statements are based on estimates and assumptions that are subject to significant business, economic and competitive uncertainties, many of which are beyond our control or are subject to change, actual results could be materially different. Factors that might cause such a difference include, without limitation, the risks and uncertainties discussed from time to time in our reports filed with the Securities and Exchange Commission, including those listed in "Item 1A - Risk Factors" in the Company's Annual Report on Form 10K for fiscal year 2012. The Company's Board of Directors may change the Company's dividend policy and dividend amounts at any time, or discontinue the payment of dividends altogether, due to a number of factors, including covenants in the Company's loan agreement requiring the approval of the Company's bank prior to the payment of dividends, the Company's levels of available capital, the Company's future operating results, or the determination to use or reserve the Company's cash resources for other purposes. 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 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 Industrial Business Unit segment 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, expand into new geographic markets and successfully negotiate new sales or supply agreements with new customers. 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 sells non-contact measurement and inspection solutions for industrial applications. The Company's primary operations are in North America, Europe and Asia. While the Company has one operating segment, its non-contact measurement solutions are divided into Automated Systems and Technology Components. Automated Systems products consist of a number of complete metrology solutions for industrial process control - AutoGauge ®, AutoGauge® Plus, AutoFit®, AutoScan®, and AutoGuide®-that are primarily used by the Company's customers to improve product quality, shorten product launch cycles, reduce overall manufacturing costs, and manage complex manufacturing processes. Technology Components products include ScanWorks®, ScanWorks ®xyz, ToolKit, WheelWorks® and Multi-line Sensor products that target the digitizing, reverse engineering, inspection and original equipment manufacturers ("OEMs") wheel alignment markets. Additionally, the Company provides a number of Value Added Services that are primarily related to the Automated Systems line of products. The largest market served by the Company is the automotive market.

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. The existing installed base of Automated Systems products also provides a continuous revenue stream in the form of system additions, upgrades and modifications, and Value Added Services such as customer training and service. Opportunities for Technology Component products include the expansion of the ScanWorks® reseller channel as well as new OEM customers for WheelWorks®.


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On August 30, 2012, the Company completed the sale of substantially all of the assets of its Commercial Products Business Unit ("CBU"). The disposal of CBU resulted in an after-tax gain of approximately $124,000 in the first quarter of fiscal 2013. In the fourth quarter of fiscal 2012, the Company recorded a $1.6 million charge, or $1.1 million, net of taxes based on management's estimates and assumptions of the pending sale and retained liabilities. The operating results of CBU through August 30, 2012, the gain on sale of CBU assets and prior year operating results of CBU are included in discontinued operations. As a result, the Company's remaining business, formerly referred to as the Industrial Business Unit ("IBU), is substantially all in the global automotive market and its business segment is the automotive industry.

During the first quarter of fiscal 2013, the Company had income from continuing operations of $629,000 compared to a loss of $1.2 million in the first quarter of fiscal 2012. The $1.8 million improvement was the result of higher gross profit of $2.9 million. The higher gross profit was achieved from a greater proportion of revenue related to buy-offs on completed projects in the current quarter compared to the quarter a year ago.

In the second quarter of fiscal 2012, the Company released an enhanced version of the Helix® platform to production. Helix ® is an innovative and versatile 3D metrology solution that enables manufacturers to perform their most challenging measurement tasks with greater ease and precision.

Outlook - The Company is concentrating its efforts in fiscal 2013 on growing the Company's business and the continued development and release of additional Helix® sensors throughout the remainder of the fiscal year. The Company's backlog remains high at $30.8 million and, as a result, the Company expects modest and profitable growth in fiscal 2013. The Company's financial base remains strong with no debt and approximately $27.1 million of cash, cash equivalents and short-term investments at September 30, 2012 to support the Company's growth plans. On November 1, 2012, the Company paid its first ever dividend of $0.25 per share.

RESULTS OF OPERATIONS

Three Months Ended September 30, 2012 Compared to Three Months Ended September 30, 2011

Overview - For the first quarter of fiscal 2013, the Company reported income from continuing operations of $629,000, or $0.08 per diluted share, compared to a loss from continuing operations of $1.2 million or $0.14 per diluted share, for the first quarter of fiscal 2012. Specific line item results are described below.

Sales - Net sales in the first quarter of fiscal 2013 were $12.1 million, compared to $9.1 million for the quarter ended September 30, 2012. The following tables set forth comparison data for the Company's net sales by segment and geographic location.

  Sales (by location)     First Quarter           First Quarter
  (in millions)                2013                    2012                Increase/(Decrease)
  Americas              $  5.3        43.8 %    $  2.6        28.6 %    $    2.7             103.8 %
  Europe                   4.1        33.9 %       4.1        45.1 %          -                0.0 %
  Asia                     2.7        22.3 %       2.4        26.3 %         0.3              12.5 %

  Totals                $ 12.1       100.0 %    $  9.1       100.0 %    $    3.0              33.0 %

Sales in the Americas increased $2.7 million in the first quarter of fiscal 2013 quarter compared to the same quarter a year ago. The increase was primarily due to increased sales of Automated Systems products. Sales in Europe were comparable to sales in the first quarter a year ago. However, on a euro basis, Europe's sales were up 405,000 euros over the quarter a year ago. The lower foreign currency rate in the fiscal 2013 quarter compared to the quarter a year ago, resulted in approximately a $550,000 decrease in revenue. The increase in sales in Europe when measured in euros was primarily due to increased sales of Automated Systems products. The increase in sales in Asia was primarily related to higher Automated Systems products sales in China.

Bookings - Bookings represent new orders received from customers. The Company had new order bookings during the quarter of $12.8 million compared to $18.4 million for the first quarter ended September 30, 2011. It should be noted that the Company's level of new orders fluctuates from quarter to quarter and 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.


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 Bookings (by location)     First Quarter           First Quarter
 (in millions)                   2013                    2012               Increase/(Decrease)
 Americas                 $  3.1        24.2 %    $  6.8        37.0 %    $    (3.7 )        (54.4 )%
 Europe                      7.0        54.7 %       6.9        37.5 %          0.1            1.4 %
 Asia                        2.7        21.1 %       4.7        25.5 %         (2.0 )        (42.6 )%

 Totals                   $ 12.8       100.0 %    $ 18.4       100.0 %    $    (5.6 )        (30.4 )%

Bookings decreased $5.6 million primarily as a result of lower bookings of Automated Systems. Bookings in the first quarter a year ago were the second highest quarter of bookings the Company had in over a decade. Bookings in the Americas were down $3.7 million compared to the prior year principally due to lower booking in Brazil which had its largest quarter of bookings in its history in the first quarter of fiscal 2012. Although Europe showed a slight increase in bookings in the current quarter, bookings would have been approximately $700,000 higher had the euro been at the same exchange rate as the quarter a year ago. The decrease in Asia related to lower orders primarily in China, which had very high bookings in the first quarter of fiscal 2012.

Backlog - Backlog represents orders or bookings received by the Company that have not yet been filled. The Company's backlog was $30.8 million as of September 30, 2012 compared with $33.2 million as of September 30, 2011. It should be noted that the level of backlog during any particular period is not necessarily indicative of the future operating performance of the Company. Most of the backlog is subject to cancellation by the customer. The Company expects to be able to fill substantially all of the orders in the backlog during the following twelve months. The following tables set forth comparison data for the Company's backlog by segment and geographic location.

  Backlog (by location)     First Quarter           First Quarter
  (in millions)                  2013                    2012               Increase/(Decrease)
  Americas                $ 10.0        32.5 %    $ 11.8        35.5 %    $    (1.8 )        (15.3 )%
  Europe                    12.7        41.2 %      11.5        34.6 %          1.2           10.4 %
  Asia                       8.1        26.3 %       9.9        29.8 %         (1.8 )        (18.2 )%

  Totals                  $ 30.8       100.0 %    $ 33.2       100.0 %    $    (2.4 )         (7.2 )%

The Company's backlog has remained above $30.0 million for five consecutive quarters. Previously, the backlog had not exceeded $30 million since at least 1999. The $2.4 million decrease in backlog over the first quarter of fiscal 2012 was primarily the result of lower orders of Automated Systems products. Europe's backlog increased $1.2 million and would have been approximately $1.3 million higher if the euro exchange rate had been the same as the quarter a year ago.

Gross Profit - Gross profit was $5.6 million, or 46.1% of sales, in the first quarter of fiscal 2013, as compared to $2.7 million, or 29.6% of sales, in the first quarter of fiscal 2012. Impacting the higher gross profit in the fiscal 2013 quarter was higher revenue related to final buy-off on completed projects where costs had been recorded in earlier periods.

Selling, General and Administrative (SG&A) Expenses - SG&A expenses were approximately $3.4 million in the first quarter fiscal 2013 compared to $3.2 million in the first quarter a year ago. The $123,000 increase primarily occurred in North America and China. The increase in China related principally to the addition of staff to support continued growth. The increase in North America related principally to legal fees. The weaker Euro relative to the U.S. Dollar in the first quarter of fiscal 2013 compared to a year ago reduced European general and administrative expenses by approximately $100,000.

Engineering, Research and Development (R&D) Expenses - Engineering and R&D expenses were $1.6 million in the quarter ended September 30, 2012 compared to $1.3 million in the first quarter a year ago. The $230,000 increase was primarily due to higher salary costs related to additional resources added for Helix development and engineering materials related to the development of Helix®.

Interest Income, net - Net interest income was $44,000 in the first quarter of fiscal 2013 compared with net interest income of $66,000 in the first quarter of fiscal 2012. The decrease in interest income was the result of lower investment rates and the effect of the lower Euro exchange rate in the fiscal 2013 quarter compared to the fiscal 2012 quarter.

Foreign Currency - There was a net foreign currency gain of $146,000 in the first quarter of fiscal 2013 compared with a loss of $142,000 a year ago. The $288,000 change was related to foreign currency changes, primarily related to the Euro in comparative quarters.

Income Taxes - The effective tax rate on continuing operations for the first quarter of fiscal 2013 was 27.4% compared to 38.5% in the first quarter of fiscal 2012. The effective rate in both fiscal quarters 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.


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LIQUIDITY AND CAPITAL RESOURCES

The Company's cash and cash equivalents were $14.4 million at September 30, 2012, compared to $13.0 million at June 30, 2012. The cash increase of $1.4 million primarily represented cash provided from operations of approximately $2.0 million and approximately $838,000 received from the sale of assets of the Commercial Products Business. Offsetting cash received were $1.3 million of cash used to purchase short-term investments and $329,000 for capital expenditure purchases.

Of the $2.0 million in cash provided from operations, $2.6 million was generated from continuing operations and $552,000 was used for discontinued operations. The $2.6 million provided from continuing operations was generated from net working capital of $1.2 million, income from continuing operations of $629,000, plus the add back of non-cash items totaling $711,000. The favorable net working capital change resulted primarily from a decrease in receivables of $4.8 million which was offset by a change in other current assets and liabilities of $2.4 million and an increase in inventories of $1.1 million. The $4.8 million decrease in receivables reflects increased collections in the first quarter of fiscal 2013. The change in other current assets and liabilities primarily represented lower deferred revenue.

The Company provides a reserve for obsolescence to recognize the effects of engineering change orders and other matters that affect the value of the inventory. A detailed review of the inventory is performed yearly with quarterly updates for known changes that have occurred since the annual review. When inventory is deemed to have no further use or value, the Company disposes of the inventory and the reserve for obsolescence is reduced. During the quarter ended September 30, 2012, the Company's reserve for obsolescence increased by $20,000, which resulted primarily from the effect of foreign currency rate changes.

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 increased its allowance for doubtful accounts by a net $40,000 during the quarter ended September 30, 2012.

The Company had no debt outstanding at September 30, 2012 and June 30, 2012. The Company has a $6.0 million secured credit agreement with Comerica Bank ("Credit Agreement"), which expires on November 1, 2014. Proceeds under the Credit Agreement may be used for working capital and capital expenditures. Security under the Credit Agreement is substantially all non-real estate assets of the Company held in the United States. Borrowings are designated as a Libor-based Advance or as a Prime-based Advance if the Libor-based Advance is not available. Interest on Libor-based Advances is calculated at 2.35% above the Libor Rate offered at the time for the period chosen, and is payable on the last day of the applicable period. Quarterly, the Company pays a commitment fee of 0.15% per annum on the average daily unused portion of the revolving credit commitment. The Credit Agreement prohibits the Company from paying dividends unless previously approved by the bank. The Credit Agreement requires the Company to maintain a minimum Tangible Net Worth, as defined in the Credit Agreement. Beginning August 30, 2012, the Credit Agreement requires a Tangible Net Worth of not less than $33.2 million. The Company was in compliance with this financial covenant at September 30, 2012. The Credit Agreement also requires the Company to have no advances outstanding for 30 days (which need not be consecutive) during each calendar year. The Credit Agreement allows the Company to declare and pay dividends of up to $2.8 million in fiscal 2013 and up to $1.8 million for each fiscal year thereafter provided the Company maintains a minimum Tangible Net Worth as defined in the Credit Agreement.

At September 30, 2012, the Company's German subsidiary (GmbH) had an unsecured credit facility totaling 350,000 euros (equivalent to approximately $450,000). The facility allows 100,000 euros to be used to finance working capital needs and equipment purchases or capital leases bearing an interest rate of 7.44%. The facility allows up to 250,000 euros to be used for providing bank guarantees bearing an interest rate of 2.0%. 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 September 30, 2012, GmbH had no borrowings outstanding.

On September 27, 2012, the Company announced that its Board of Directors declared a special dividend of twenty-five cents ($0.25) per share of Common Stock. The special dividend was paid on November 1, 2012 to shareholders of record at the close of business on October 10, 2012. The dividend declared by the Board of Directors on September 27, 2012, represents the start of what the Company intends to be an on-going program of regular dividend payments.

On October 19, 2010, the Company's Board of Directors ("Board") approved a stock repurchase program authorizing the Company to repurchase up to $5.0 million of the Company's Common Stock through December 31, 2011. See also, Part II Item 2, "Unregistered Sales of Equity Securities and Use of Proceeds" of this Quarterly Report on Form 10-Q and Part II Item 5, "Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities" of the Company's Annual Report on Form 10-K for the fiscal year 2011 for further information on this program. Pursuant to the authorization, the Company repurchased 121,845 shares of Common Stock at an average price of $6.09 per share during the three months ended September 30, 2011 for total cash of $748,349 which includes commissions and fees.


Table of Contents

For a discussion of certain contingencies relating to the Company's liquidity, financial position and results of operations, see Note 11 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 2012. 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 2012.

At September 30, 2012 the Company had short-term investments totaling $12.7 million and long-term investments valued at $2.2 million. See Note 6 to the Consolidated Financial Statements, "Short-Term and Long-Term Investments", contained in this Quarterly Report on Form 10-Q, for further information on the Company's investments and their current valuation. The market for the long-term investments is currently illiquid.

The Company expects to spend up to $2.0 million during fiscal year 2013 for capital equipment, although there is no binding commitment to do so. Based on the Company's current business plan, the Company believes that available cash on hand, short-term investments and existing credit facilities will be sufficient to fund anticipated fiscal year 2013 cash flow requirements, except to the extent that the Company implements 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 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 anticipates that it would finance any such business opportunities from available cash on hand, 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 2012.

New Accounting Pronouncements

For a discussion of new accounting pronouncements, see Note 2 to the Consolidated Financial Statements, "New Accounting Pronouncements".

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