UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended December 3 1 , 2014.
Commission file number: 0-20206
(Exact Name of Registrant as Specified in Its Charter)
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Michigan (State or Other Jurisdiction of Incorporation or Organization) |
38-2381442 (I.R.S. Employer Identification No.) |
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47827 Halyard Drive, Plymouth, Michigan (Address of Principal Executive Offices) |
48170-2461 (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.
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Yes ☑ |
No ☐ |
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
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Yes ☑ |
No ☐ |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer ☐ |
Accelerated filer ☑ |
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Non-accelerated filer ☐ (Do not check if a smaller reporting company) |
Smaller reporting company ☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
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Yes ☐ |
No ☑ |
The number of shares outstanding of each of the issuer’s classes of common stock as of February 3, 2015, was:
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Common Stock, $0.01 par value |
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9,2 59 , 685 |
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Class |
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Number of shares |
1
PERCEPTRON, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
For the Quarter Ended December 3 1 , 201 4
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Page
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. Quantitative and Qualitative Disclosures about Market Risk |
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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 2014 Annual Report on Form 10- K . In the opinion of management, the unaudited information furnished herein reflects all adjustments necessary 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. New Accounting Pronouncements
In March 2013, the Financial Accounting Standards Board, (“FASB”), issued Accounting Standards Update No. 2013-05, Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets with a Foreign Entity or an Investment in a Foreign Entity (ASU 2013-05) . This new guidance requires that the parent release any related cumulative translation adjustment into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. ASU 2013-05 was effective for the Company beginning July 1, 2014 and did not have a material impact on the Company’s financial statements.
In April 2014, the FASB issued Accounting Standards Update No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (ASU 2014-08), which provides guidance regarding the definition of a discontinued operation and the required disclosures. The new guidance defines a discontinued operation as a component or group of components that is disposed of or is classified as held for sale and represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. A strategic shift could include a disposal of (1) a major geographical area of operations, (2) a major line of business, (3) a major equity method investment, or (4) other major parts of an entity. In addition, having significant continuing involvement with a component after a disposal or failing to eliminate the operations or cash flows of a disposed component from an entity’s ongoing operations will no longer preclude presentation as a discontinued operation. There will be new disclosures required related to discontinued operations and to disposals of individually significant components that do not qualify as discontinued operations. ASU 2014-08 is effective for the Company beginning July 1, 2015 and applies prospectively to new disposals of components and new classifications as held for sale and is not expected to have a significant impact on the presentation of the Company’s financial statements or disclosures.
In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09) , which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. The standard will be effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the applications of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). We are currently evaluating the impact of our pending adoption of ASU 2014-09 on our consolidated financial statements and have not yet determined the method by which we will adopt the standard in fiscal year 2018.
In August 2014, the FASB issued Accounting Standards Update No. 2015-15, Presentation of Financial Statements – Going Concern, (ASU 2014-15), requiring management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date of issuance of the entity’s financial statements. The entity must provide certain disclosures if “conditions or events raise substantial doubt about the entity’s ability to continue as a going concern.” The disclosure requires identifying the principal conditions and events contributing to the “doubt” to continue as a going concern, as well as management’s evaluations and plans to try to alleviate these uncertainties. ASU 2014-15 is effective for the Company beginning July 1, 2015 and is not expected to have a significant impact on the Company’s disclosures.
On November 18, 2014, the FASB issued Accounting Standards Update No. 201 4 -17, Pushdown Accounting , which provides an acquired entity with the option to apply pushdown accounting in its separate financial statements upon occurrence of an event in which an acquirer obtains control of the acquired entity. ASU 2014-17 was effective for the Company beginning November 18, 2014 and did not have a material impact on the Company’s financial statements.
3. Revenue Recognition
Revenue related to products and services is recognized upon shipment when title and risk of loss has passed to the customer or upon completion of the service, there is persuasive evidence of an arrangement, the sales price is fixed or determinable, collection of the related receivable is reasonably assured and customer acceptance criteria, if any, have been successfully demonstrated.
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The Company also has multiple element arrangements in its Measurement Solutions product line that may include elements such as, equipment, installation, labor support and/or training. Each element has value on a stand-alone basis and the delivered elements do not include general rights of return. Accordingly, each element is considered a separate unit of accounting. When available, the Company allocates arrangement consideration to each element in a multiple element arrangement based upon vendor specific objective evidence (“VSOE”) of fair value of the respective elements. When VSOE cannot be established, the Company attempts to establish the selling price of each element based on relevant third-party evidence. Because the Company’s products contain a significant level of proprietary technology, customization or differentiation such that comparable pricing of products with similar functionality cannot be obtained, the Company uses, in these cases, its best estimate of selling price (“BESP”). The Company determines the BESP for a product or service by considering multiple factors including, but not limited to, pricing practices, internal costs, geographies and gross margin.
For multiple element arrangements, the Company defers from revenue recognition the greater of the relative fair value of any undelivered elements of the contract or the portion of the sales price of the contract that is not payable until the undelivered elements are completed. As part of this evaluation, the Company limits the amount of revenue recognized for delivered elements to the amount that is not contingent on the future delivery of products or services, including a consideration of payment terms that delay payment until those future deliveries are completed.
Some multiple element arrangements contain installment payment terms with a final payment (“final buy-off”) due upon the Company’s completion of all elements in the arrangement or when the customer’s final acceptance is received. The Company recognizes revenue for each completed element of a contract when it is both earned and realizable. A provision for final customer acceptance generally does not preclude revenue recognition for the delivered equipment element because the Company rigorously tests equipment prior to shipment to ensure it will function in the customer’s environment. The final acceptance amount is assigned to specific element(s) identified in the contract, or if not specified in the contract, to the last element or elements to be delivered that represent an amount at least equal to the final payment amount.
The Company’s Measurement Solutions products are designed and configured to meet each customer’s specific requirements. Timing for the delivery of each element in the arrangement is primarily determined by the customer’s requirements and the number of elements ordered. Delivery of all of the multiple elements in an order will typically occur over a three to 15 month period after the order is received. The Company does not have price protection agreements or requirements to buy back inventory. The Company’s history demonstrates that sales returns have been insignificant.
4. Financial Instruments
For a discussion on the Company’s fair value measurement policies for Financial Instruments, refer to Note 1 to the Consolidated Financial Statements, “Summary of Significant Accounting Policies – Financial Instruments”, of the Company’s Annual Report on Form 10-K for the fiscal year ended June 30 , 201 4 .
The Company has not changed its valuation techniques in measuring the fair value of any financial assets and liabilities during the period.
The following table presents the Company’s investments at December 3 1 , 2014 and June 30, 2014 that are measured and recorded at fair value on a recurring basis consistent with the fair value hierarchy provisions of ASC 820, “Fair Value Measurements and Disclosures” (in thousands). The fair value of the Company’s investments approximates their cost basis.
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Description |
December 31, 2014 |
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Level 1 |
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Level 2 |
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Level 3 |
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Mutual funds |
$ |
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$ |
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$ |
- |
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$ |
- |
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Fixed deposits and certificates of deposit |
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- |
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- |
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Variable rate demand notes |
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- |
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- |
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Repurchase agreements |
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- |
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- |
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- |
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- |
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Total |
$ |
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$ |
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$ |
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$ |
- |
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Description |
June 30, 2014 |
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Level 1 |
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Level 2 |
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Level 3 |
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Mutual funds |
$ |
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$ |
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$ |
- |
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$ |
- |
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Fixed deposits and certificates of deposit |
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- |
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- |
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Variable rate demand notes |
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- |
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- |
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Repurchase agreements |
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- |
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- |
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Total |
$ |
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$ |
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$ |
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$ |
- |
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Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instrument . These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore, cannot be determined with precision. Changes in assumptions could significantly affect these estimates.
5. Inventory
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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 inventory impairment for the effects of engineering change orders, age and use of inventory that affect the value of the inventory. The reserve for obsolescence creates a new cost basis for the impaired inventory. When inventory that has previously been impaired is sold or disposed of, the related obsolescence reserve is reduced resulting in the reduced cost basis being reflected in cost of goods sold. A detailed review of the invent ory is performed annually with quarterly updates for known changes that have occurred since the annual review. Inventory, net of reserves of $ 1,078,000 and $ 1,185,000 at December 3 1 , 201 4 and June 30, 201 4 , respectively, is comprised of the following (in thousands):
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December 31, |
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June 30, |
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Inventory |
2014 |
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2014 |
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Component parts |
$ |
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$ |
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Work in process |
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Finished goods |
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Total |
$ |
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$ |
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6. Short-Term and Long-Term Investments
The Company accounts for its investments in accordance with ASC 320, “Investments – Debt and Equity Securities.” Investments with a maturity of greater than three months to one year are classified as short-term investments. Investments with maturities beyond one year may be classified as short-term if the Company reasonably expects the investment to be realized in cash or sold or consumed during the normal operating cycle of the business. Investments available for sale are recorded at market value using the specific identification method. Investments expected to be held to maturity or until market conditions improve are measured at amortized cost in the statement of financial position if it is the Company’s intent and ability to hold those securities long-term. Each balance sheet date, the Company evaluates its investments for possible other-than-temporary impairment which involves significant judgment. In making this judgment, management reviews factors such as the length of time and extent to which fair value has been below the cost basis, the anticipated recovery period, the financial condition of the issuer, the credit rating of the instrument and the Company’s ability and intent to hold the investment for a period of time which may be sufficient for recovery of the cost basis. Any unrealized gains and losses on securities are reported as other comprehensive income as a separate component of shareholders’ equity until realized or until a decline in fair value is determined to be other than temporary. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded in the income statement. If market, industry, and/or investee conditions deteriorate, future impairments may be incurred.
At December 31 , 2014, the Company had $5.0 million of short-term investments that primarily represented $ 4. 4 million in time deposits or certificates of deposit and $430,000 in variable rate demand notes. Included in short-term investments is restricted cash that serves as collateral for bank guarantees that provide financial assurance that the Company will fulfill certain customer obligations in China. The cash is restricted as to withdrawal or use while the related bank guarantees are outstanding. Interest is earned on the restricted cash and recorded as interest income. At December 3 1 , 2014 and June 30, 201 4 , restricted cash in short-term investments was $59,000 and $520,000 , respectively .
At December 3 1 , 2014, the Company held a long-term investment in preferred stock that is not registered under the Securities Act of 1933 and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. The preferred stock investment is currently recorded at $725,000 after consideration of impairment charges recorded in fiscal years 2008 and 2009. The Company estimated that the fair market value of this investment at December 31, 2014 exceeded $725,000 based on observable market activity and an internal valuation model which included the use of a discounted cash flow model. The fair market analysis considered the following key inputs, (i) the underlying structure of the security; (ii) the present value of the future principal, discounted at rates considered to reflect current market conditions; and (iii) the time horizon that the market value of the security could return to its cost and be sold. Under ASC 820, “Fair Value Measurements” , such valuation assumptions are defined as Level 3 inputs. The Company also held a long-term time deposit for $5 3 ,000 . This time deposit serves as collateral for a bank guarantee that provides financial assurance that the Company will fulfill certain customer obligations in China. The cash is restricted as to withdrawal or use while the related bank guarantee is outstanding. Interest is earned on the restricted cash and recorded as interest income.
7. Credit Facilities
The Company had no debt outstanding at December 31, 2014 and June 30, 2014.
The Company has a $ 6.0 million secured credit agreement with Comerica Bank (“Credit Agreement”) which expires on November 2, 2015. Proceeds under the Credit Agreement may be used for working capital and capital expenditures. Security for 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 requires
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the Company to maintain a minimum Tangible Net Worth of not less than $ 33.2 million. The Company was in compliance with this financial covenant at December 31, 2014. The Company is permitted to declare dividends of up to $2.5 million in any fiscal year provided the Company maintains the required minimum Tangible Net Worth. The Company is also required to have no advances outstanding under the Credit Agreement for 30 days (which need not be consecutive) during each calendar year. On January 29, 2015, the Company entered into a Seventh Amendment to the Credit Agreement which provides for Comerica Bank ’s consent to the acquisitions announced by the Company on January 29, 2015, reduces the minimum Tangible Net Worth requirement to $31.0 million and provides an Advance Formula Agreement for borrowings under the Credit Agreement. The Advance Formula Agreement limits borrowings to the lesser of $6.0 million or 80% of eligible accounts receivable. At December 31, 2014, if the Advance Formula Agreement had been in effect, the Company would have been able to borrow $3.7 million. See Note 11 of the Notes to the Consolidated Financial Statements, “Subsequent Events”.
At December 31, 2014, the Company's German subsidiary (“GmbH”) had an unsecured credit facility totaling 350,000 Euros (equivalent to approximately $ 425,000 ). The facility allows 100,000 Euros to be used to finance working capital needs and equipment purchases or capital leases. The facility allows up to 250,000 Euros to be used for providing bank guarantees. Any borrowings for working capital needs will bear interest at 4.25% . Any outstanding bank guarantees will bear interest at 2.0% . The GmbH credit facility is cancelable at any time by either GmbH or the bank and any amounts then outstanding would become immediately due and payable. At December 31, and June 30, 2014, GmbH had no borrowings or bank guarantees outstanding .
8. Stock-Based Compensation
The Company maintains a 2004 Stock Incentive Plan (“2004 Plan”) covering substantially all company employees, non-employee directors and certain other key persons. Options previously granted under a 1998 Global Team Member Stock Option Plan (“1998 Plan”) and a Directors Stock Option Plan (“Directors Plan”) will continue to be maintained until all options are exercised, cancelled or expire. No further grants are permitted to be made under the terms of the 1998 and Directors Plans. The 2004 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 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, except as otherwise specified in the 2004 Plan.
Stock Options
Options outstanding under the 2004 Plan generally become exercisable at 25% per year beginning one year after the date of grant and expire ten years after the date of grant. Beginning in January 2015, new options granted to officers of the Company become exercisable at one third per year beginning one year after the date of grant. All options outstanding under the 1998 and Directors Plans are vested and expire ten years from the date of grant. Option prices from options granted under these plans must not be less than fair market value of the Company’s stock on the date of grant. The Company uses the Black-Scholes model for determining stock option valuations. The Black-Scholes model requires subjective assumptions, including future stock price volatility and expected time to exercise, which affect the calculated values. The expected term of option exercises is derived from historical data regarding employee exercises and post-vesting employment termination behavior. The risk-free rate of return is based on published U.S. Treasury rates in effect for the corresponding expected term. The expected volatility is based on historical volatility of the Company’s stock price. These factors could change in the future, which would affect the stock-based compensation expense in future periods.
The Company recognized operating expense for non-cash stock-based compensation costs related to stock options in the amount of $ 74,000 and $ 159,000 in the three and six months ended December 31, 2014, respectively. The Company recognized operating expense for non-cash stock-based compensation costs related to stock options in the amount of $65,000 and $149,000 in the three and six months ended December 31, 2013, respectively. As of December 31, 2014, the total remaining unrecognized compensation cost related to non-vested stock options amounted to $ 814,827 . The Company expects to recognize this cost over a weighted average vesting period of 3.06 years.
The estimated fair value as of the date options were granted during the periods presented, using the Black-Scholes option-pricing model, is shown in the table below.
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Three Months Ended |
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Three Months Ended |
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Six Months Ended |
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Six Months Ended |
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12/31/2014 |
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12/31/2013 |
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12/31/2014 |
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12/31/2013 |
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Weighted average estimated fair value per |
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share of options granted during the period |
$ |
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$ |
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$ |
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$ |
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Assumptions: |
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Dividend yield |
$ |
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$ |
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$ |
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$ |
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Common stock price volatility |
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Risk free rate of return |
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Expected option term (in years) |
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10
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The Company received approximately $ 151,000 and $ 153,000 in cash from option exercises under all share-based payment arrangements for the three and six months ended December 3 1 , 2014, respectively . The Company received approximately $1,543,000 and $3,012,000 in cash from option exercises under all share-based payment arrangements for the three and six months ended December 31, 201 3 , respectively.
Restricted S tock and Restricted Stock Units
The Company’s r estricted stock and restricted stock units under the 2004 Plan have been awarded by three methods as follows: One, awards that are earned based on an individual’s achievement of performance goals during the initial fiscal year with a subsequent one year service vesting period and are freely transferable after vesting provided the individual’s employment has not terminated prior to the vesting date; two, awards that are earned based on the Company achieving certain revenue and operating income results with a subsequent one-third vesting requirement on the first, second and third anniversary of the issuance and are freely transferable after vesting provided the individual’s employment has not terminated prior to the vesting date; and three, awards to non-management members of the Board of Directors with a subsequent one-third vesting requirement on the first, second and third anniversary of the issuance and are freely transferable after vesting provided the service of the non-management member of the Board of Directors has not terminated prior to the vesting date. The grant date fair value associated with restricted stock and restricted stock unit awards is calculated in accordance with ASC 718 “Compensation – Stock Compensation”. Compensation expense related to restricted stock and restricted stock unit awards is based on the closing price of the Company’s Common Stock on the grant date authorized by the Company’s Board of Directors, multiplied by the number of restricted stock and restricted stock unit awards expected to be issued and vested and is amortized over the combined performance , service and vesting periods as applicable . The non-cash stock based compensation expense recorded for restricted stock and restricted stock unit awards for the three and six months ended December 3 1 , 2014 was $21,000 and $86,000 , respectively. The non-cash stock based compensation expense recorded for restricted stock awards for the three and six months ended December 31, 2013 was $43,000 and $57,000 , respectively. As of December 31, 2014, the total remaining unrecognized compensation cost related to restricted stock and restricted stock unit awards amounted to $ 560,197 .
A summary of the status of restricted stock and restricted stock unit awards issued at December 3 1 , 201 4 is presented in the table below.
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Non-vested |
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Weighted Average |
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Restricted |
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Grant Date |
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Shares |
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Fair Value |
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Non-vested at June 30, 2014 |
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$ |
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Granted |
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Vested |
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Forfeited or expired |
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Non-vested at December 31, 2014 |
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$ |
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9. 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. 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 313 , 250 and 178 , 000 shares of common stock outstanding in the three months ended December 3 1 , 201 4 and 201 3 , r espectively, were not included in the computation of diluted EPS because the effect would have been anti-dilutive. Options to purchase 286 , 516 and 134,000 shares of common stock outstanding in the six months ended December 31, 2014 and 2013, respectively, were not included in the computation of diluted EPS because the effect would have been anti-dilutive.
10. C ommitments and Contingencies
The Company may, from time to time, be subject to litigation and other claims in the ordinary course of its business. The Company accrues for estimated losses arising from such litigation or claims if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. 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 and claims is subject to significant uncertainty, changes in the factors used in the Company’s evaluation could materially impact the Company’s financial position or results of operations.
Management is currently unaware of any significant pending litigation affecting the Company other than the matter set forth below .
11
The Company is a party to a civil suit filed by 3CEMS, a Cayman Islands and People’s Republic of China corporation, in the U.S. District Court for the Eastern District of Michigan and served on the Company on or about January 7, 2015. The suit allege s that the Company breached its contractual obligations by failing to pay for component parts to be used to manufacture optical video scopes for the Company’s discontinued Commercial Products Business Unit. 3CEMS alleged that it purchased the component parts in advance of the receipt of orders from the Company based upon instructions they claimed to have received from the Company. The suit alleged damages of not less than $4.0 m illion . See also Note 5 of the Notes to the Consolidated Financial Statements, “Contingencies”, of the Company’s Annual Report on Form 10-K for fiscal year 2014, for a discussion regarding a previous civil suit filed against the Company by 3CEMS, on July 19, 2013, which was dismissed e ffective December 6, 2013 and a Tolling Agreement entered into between the Company and 3CEMS that terminated on December 31, 2014. The Company intends to vigorously defend against 3CEMS’ claims.
Because of the inherent uncertainty of litigation and claims such as the 3CEMS Matter, the Company is unable to reasonably estimate a possible loss or range of loss relating to the 3CEMS Matter.
As part of routine evaluation procedures, the Company identified a potential concern regarding the employment status and withholding for several individuals in one of the Company’s foreign jurisdictions. The Company has begun a review of the matter, and expects resolution in the next few months. At this time, because the Company has not completed its evaluation, the Company is not able to determine an amount or range of its financial liability relating to this matter. The Company does not expect that the resolution of this matter will have a detrimental effect on the conduct of the Company’s business in this foreign jurisdiction.
11. Subsequent Event s
On January 29, 2015, the Company announced that it had reached agreement to acquire the businesses of two European metrology companies. The total value of the transactions will be approximately $15.7 million . On January 29, 2015, the Company acquired all of the share capital of Next Metrology Software s.r.o. a Czech Republic company that develops operating software for coordinate measuring machines, for $2.1 million in cash at closing, $295,000 in cash contingent upon the closing of the Coord3 Transaction, and deferred payments of $230,000 due 12 months from closing. The Company expects to close on the acquisition of the coordinate measuring machine business of Coord3 Industries s.r.l. by the end of February, 2015, subject to customary closing conditions, for $2.0 million in cash at closing, deferred payments of $350,000 due 18 months from closing and assumed debt of $10.7 million . Coord3 Industries s.r.l. is an Italian based designer and manufacturer of a full range of coordinate measuring machines. The purchase transactions are denominated in Euros and have been converted to U.S dollars using an assumed 1.17 exchange rate. See the Liquidity and Capital Resources section of Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in this Quarterly Report on Form 10-Q, for further information regarding these acquisitions.
On January 29, 2015, the Company also entered into a Seventh Amendment to the Company’s $6.0 million secured credit agreement with Comerica Bank (“Credit Agreement”). The Seventh Amendment provides for Comerica Bank’s consent to the acquisitions referred to above, reduces the minimum Tangible Net Worth requirement to $31.0 million and provides an Advance Formula Agreement for borrowings under the Credit Agreement. The Advance Formula Agreement limits borrowings to the lesser of $6.0 million or 80% of eligible accounts receivable. At December 31, 2014, if the Advance Formula Agreement had been in effect, the Company would have been able to borrow $3.7 million.
12
I TE M 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 its fiscal year 2015 and future new order bookings, revenue, expenses, net income and backlog levels, future dividend payments, 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, our ability to fund our fiscal year 2015 and future cash flow requirements , t he Company’s expectation as to its ability to close, and the timing of the closing of, the Coord3 Industries s.r.l. (“Coord3”) acquisition, the revenue and income levels of the businesses of Coord3 and Next Metrology Software s.r.o. (“NMS”) following the acquisition and when they will be accretive to the Company, and the Company’s ability to expand its share of the CMM market. 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,” “prospects” “outlook” 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 “Part I, Item 1A – Risk Factors” in the Company’s Annual Report on Form 10-K, for fiscal year 2014 , the risk that the Coord3 acquisition does not close, any difficulties in integrating the businesses of Coord3 and NMS into the Company’s operations, and the possibility that anticipated benefits of the acquisition of the businesses of Coord3 and NMS may not materialize as expected. 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 products tend to be given later in the integration process. A significant portion of the Company’s projected revenues and net income may depend upon the Company’s ability to successfully develop and introduce new products, expand into new geographic markets or continue sales with current and future 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. Dollar, Euro, Chinese Yuan and Japanese Yen. 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 In Process and Offline Measurement Solutions and 3D Scanning Products. In Process and Offline Measurement Solutions consist of a number of complete metrology systems for industrial process control including, AutoGauge , AutoGauge Plus , AutoFit , AutoScan , AutoGuide and Helix ® systems. These products 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. 3D Scanning Products include ScanWorks ® , ScanWorks ® xyz, and WheelWorks ® products that target the digitizing, reverse engineering, inspection and original equipment manufacturers wheel alignment markets. Additionally, the Company provides a number of Value Added Services that are primarily related to In Process and Offline Measurement Solutions. 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 In Process and Offline Measurement Solutions also provides a continuous revenue stream in the form of system additions, upgrades, modifications, and Value Added Services such as customer training and support. Opportunities for 3D Scanning Products include growth from reverse engineering and inspection markets using coordinate measur ing machines.
13
In fiscal 2014, the Company added new members to its management team and put in place a strategic plan designed to expand revenues and increase shareholder value over the longer term. The four elements of the plan are: continuing to expand profitability in core markets, pursuing prudent diversification, extending technological leadership, and maintaining fiscal discipline to ensure strong profitability.
On January 29, 2015, the Company announced that it had reached agreement to acquire the businesses of two European metrology companies. The total value of the transactions will be approximately $15. 7 million . On January 29, 2015, the Company acquired all of the share capital of Next Metrology Software s.r.o. for $ 2.1 million in cash at closing, $295,000 in cash contingent upon the closing of the Coord3 Transaction, and deferred payments of $230,000 due 12 months from closing. Next Metrology Software is a Czech Republic company that develops operating software for coordinate measuring machines. The Company expects to close on the acquisition of the coordinate measuring machine business of Coord3 Industries s.r.l. by the end of February, 2015, subject to customary closing conditions, for $2.0 million in cash at closing, deferred payments of $ 350 ,000 due 18 months from closing and assumed debt of $10.7 million . Coord3 Industries s.r.l. is a designer and manufacturer of a full range of coordinate measuring machines and is based in Italy. The purchase transactions are denominated in Euros and have been converted to U.S dollars using an assumed 1.17 exchange rate. See the Liquidity and Capital Resources section below for further information regarding these acquisitions.
RESULTS OF OPERATIONS
Three Months Ended December 3 1 , 2014 Compared to Three Months Ended December 3 1 , 2013
Overview – The Company reported net income of $2.8 million, or $.30 per diluted share, for the second quarter of fiscal 2015 compared with a net loss of $407,000, or $.05 per diluted share, for the second quarter of fiscal 2014. The Company’s quarterly results vary from quarter to quarter and are dependent upon delivery and installation schedules determined by our customers. These schedules are subject to change by the customer and are not controlled by the Company. Specific line item results are described below.
Bookings – Bookings represent new orders received from customers. It should be noted that the Company’s level of new orders fluctuates from quarter to quarter and the amount of new order bookings during any particular period is not necessarily indicative of the future operating performance of the Company. The following table sets forth comparison data for the Company’s bookings by geographic location.
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Bookings (by location) |
Second Quarter |
Second Quarter |
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(in millions) |
2015 |
2014 |
Increase/(Decrease) |
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Americas |
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$ |
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$ |
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$ |
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(32.8)% |
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Europe |
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(31.5)% |
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Asia |
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(9.6)% |
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Totals |
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$ |
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$ |
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$ |
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(25.3)% |
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Bookings decreased $4.3 million, or 25.3%, from the level achieved a year ago due to lower bookings for Measurement Solutions , and to a lesser extent lower Value Added Services orders , in all three geographic regions. Higher 3D Scanning orders in Europe and Asia were offset by lower 3D Scanning orders in the Americas. Additionally, bookings in Europe decreased $926,000 as a result of re-valuing the European backlog to reflect the lower Euro rate at December 31 , 2014 from the rate in effect at September 30, 2014.
Backlog – Backlog represents orders or bookings received by the Company that have not yet been filled. It should be noted that the level of backlog during any particular period is not necessarily indicative of the future operating performance of the Company. Most of the backlog is subject to cancellation by the customer. The Company expects to be able to fill substantially all of the orders in the backlog during the following twelve months. The following table sets forth comparison data for the Company’s backlog by geographic location.
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Backlog (by location) |
Second Quarter |
Second Quarter |
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(in millions) |
2015 |
2014 |
Increase/(Decrease) |
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Americas |
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$ |
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$ |
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$ |
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Europe |
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(20.7)% |
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Asia |
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Totals |
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$ |
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$ |
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$ |
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(3.5)% |
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The Company’s $39.0 million backlog at December 31, 2014 decreased $1.4 million or 3.5% from the backlog at December 31, 2013 due to lower orders for Measurement Solutions in all three geographic regions. Partially mitigating the decrease was higher 3D Scanning orders in Europe and Asia. The re-valuation effect of the lower Euro at December 31, 2014 versus September 30, 2014, reduced backlog approximately $ 926,000 .
14
Sales – Sales of $23.6 million for the second quarter of fiscal 2015 increased $ 1 1 .1 million, or 88.8 %, when compared to the same period a year ago. The following table sets forth comparison data for the Company’s net sales by geographic location.
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Sales (by location) |
Second Quarter |
Second Quarter |
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(in millions) |
2015 |
2014 |
Increase/(Decrease) |
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Americas |
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$ |
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$ |
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$ |
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Europe |
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Asia |
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Totals |
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$ |
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$ |
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$ |
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The sales increase of $11.1 million primarily represented higher sales of Measurement Solutions in all three geographic regions. Partially mitigating this increase were lower sales of 3D Scanning Products in all three geographic regions. Changes in sales levels reflect normal quarter to quarter fluctuations as a result of requested delivery and installation schedules from our customers , including a previously reported delay in the shipment of a large order from the first quarter of fiscal 2015 into the second quarter of fiscal 2015 . The effect of the weaker Euro during the current quarter compared to a year ago reduced sales by approximately $1.1million.
Gross Margin – The Company’s gross margin percentage was 48.0% in the second quarter of fiscal 2015 compared to 39.7% in the same quarter a year ago. The higher gross margin percentage in the fiscal 2015 quarter was primarily the result of the significantly higher sales in the quarter compared to the fiscal 2014 quarter. Additionally, cost of sales was lower as a percent of revenue due to product mix and the absorption of fixed labor costs. The effect of the weaker Euro in the current quarter compared to the fiscal 2014 quarter reduced gross margin by approximately $680,000.
Selling, General and Administrative (SG&A) Expenses – SG&A expenses were approximately $4.9 million, an increase of $1.3 million compared to the second quarter of fiscal year 2014. The increase in fiscal 2015 was primarily due to $675,000 of acquisition costs related to the NMS Transactions and the Coord3 Transaction. See Note 11 of the Notes to the Consolidated Financial Statements, “Subsequent Events” and “Liquidity and Capital Resources” below. Also contributing to the increase in costs in the fiscal 2015 quarter compared to a year ago were higher employee costs for bonuses, salaries and commissions totaling approximately $585,000 and higher building, equipment maintenance and bad debts totaling approximately $147,000. The effect of the weaker Euro during the current quarter compared to the quarter a year ago reduced costs by approximately $130,000.
Engineering, Research and Development (R&D) Expenses – Engineering, research and development expenses of $2.0 million increased $357,000 over the second quarter last year. The increase in costs related to higher bonus and salary costs of approximately $188,000 and higher engineering materials costs of approximately $147,000 to support new product development in the current quarter when compared to the same quarter a year ago
Interest Income, net – Net interest income was $76,000 in the second quarter of fiscal year 2015 compared with net interest income of $51,000 in the second quarter of fiscal year 2014. The increase in interest income was primarily the result of higher interest rates in fiscal year 2015 when compared to fiscal year 2014.
Foreign Currency – There was a net foreign currency loss of $376,000 in the second quarter of fiscal year 2015 compared with a net foreign currency loss of $246,000 a year ago. The unfavorable change in foreign currency was primarily related to unfavorable changes in the Brazilian Real, Euro, and to a lesser extent the Indian Rupee to the U.S. Dollar.
Other Income – The increase in other income in the second quarter of fiscal 2015, represents dividend income received on the Company’s long term investments.
Income Taxes – The effective tax rate for the second quarter of fiscal year 2015 was 33.0% compared to 11.1% in the second quarter of fiscal year 2014. The effective rate in both fiscal quarters primarily reflects the effect of the mix of pre-tax income and loss across the Company’s various tax jurisdictions and their respective tax rates. Affecting the unusual effective tax rate in the fiscal 2014 quarter was the fact that the United States had pre-tax income at an effective tax rate of 30.3% that was partially offset by a foreign pre-tax loss at a lower effective tax rate of 23.9%.
Outlook – Sales in the second quarter recovered due to a combination of project timing, which affected first quarter revenue, as well as the momentum of the previous record backlog that is working its way through revenue. Customer related project timing issues for the Company’s Measurement Solutions products will continue to be a significant part of the Company’s business for the foreseeable future. With the current backlog of $39.0 million, the Company continues to expect strong, organic revenue growth for fiscal 2015 from its existing product lines.
15
Six Months Ended December 31, 2014 Compared to Six Months Ended December 31, 2013
Overview – For the first half of fiscal 2015, the Company reported net income of $739,000 or $0.08 per diluted share, compared to a loss of $995,000 or ($0.11) per diluted share, for the first half of fiscal 2014.
Bookings – Bookings represent new orders received from customers. New order bookings for the six months ended December 31, 2014 were $34.4 million compared to $34.9 million for the same period one year ago. It should be noted that historically, the Company’s level of new orders has varied from period to period and the amount of new order bookings during any particular period is not necessarily indicative of the future operating performance of the Company. The following tables set forth comparison data for the Company’s bookings by geographic location.
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Bookings (by location) |
Six Months |
Six Months |
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(in millions) |
Ended 12/31/14 |
Ended 12/31/13 |
Increase/(Decrease) |
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Americas |
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$ |
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$ |
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$ |
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Europe |
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(29.1)% |
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Asia |
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(2.1)% |
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Totals |
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$ |
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$ |
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$ |
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(1.4)% |
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The overall slight decrease in bookings of $500,000 for the six-month period of fiscal 2015 was primarily due to the decrease in bookings in Europe, and related to lower Measurement Solutions orders. Additionally, bookings in Europe decreased approximately $2.0 million as a result of re-valuing the European backlog to reflect the lower Euro rate at December 31, 2014 from the rate in effect at June 30, 2014. Lower Value Added Services in Asia and Europe , and to a lesser extent, lower 3D Scanning orders in the Americas also contributed to the decline. These declines were partially offset by higher orders for Measurement Solutions in the Americas .
Sales – Net sales in the first six months of fiscal 2015 were $34.8 million, compared to $24.9 million for the six months ended December 31, 2013. The following tables set forth comparison data for the Company’s net sales by geographic location.
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Sales (by location) |
Six Months |
Six Months |
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(in millions) |
Ended 12/31/14 |
Ended 12/31/13 |
Increase/(Decrease) |
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Americas |
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$ |
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$ |
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$ |
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Europe |
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Asia |
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Totals |
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$ |
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$ |
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$ |
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The $9.9 million increase in sales primarily represented, in all three geographic regions, higher sales of Measurement Solutions products that were partially offset by lower 3D Scanning sales. The effect of the weaker Euro during the current period compared to fiscal 2014 reduced sales by approximately $1. 1 million.
Gross Margin – Gross margin was $14.4 million, or 41.5% of sales, in the first half of fiscal 2015, as compared to $9.3 million, or 37.2% of sales, in the first half of fiscal 2014. The higher gross margin percentage in the current period is the result of the significantly higher sales in the first six months of fiscal 2015 compared to the first half of fiscal 2014. Additionally, cost of sales was lower as a percent of revenue due to product mix and the absorption of fixed labor costs . T he effect of the weaker Euro in the first half of fiscal 2015 compared to fiscal 2014 decreased gross margin by approximately $6 4 0,000.
Selling, General and Administrative (SG&A) Expenses – SG&A expenses were $9.0 million in the first half of fiscal 2015 compared to $7.1 million in the same period one year ago. The increase of approximately $2.0 million included acquisition costs related to the Coord3 and NMS Transactions of approximately $750,000. See Note 11 of the Notes to the Consolidated Financial Statements, “Subsequent Events” and “Liquidity and Capital Resources” below. Also contributing to the increase in costs in the fiscal 2015 period compared to the same period a year ago were higher employee related costs for bonus, salary and commissions totaling approximately $900,000 and higher building and equipment maintenance and bad debts totaling $305,000. The effect of the weaker Euro in the fiscal 2015 period compared to the same period a year ago reduced costs by approximately $1 50 ,000.
Engineering, Research and Development (R&D) Expenses – Engineering and R&D expenses were $3.7 million for the six months ended December 31, 2014 compared to $3.3 million for the six-month period a year ago. The $404,000 increase was primarily due to higher engineering materials of approximately $224,000 and bonus and salary costs of approximately $246,000, which include additional personnel and year over year salary increases.
16
Interest Income, net – Net interest income was $154,000 in the first half of fiscal 2015 compared with net interest income of $63,000 in the first half of fiscal 2014. The increase was principally due to higher interest rates in the first half of fiscal 2015 compared to the first half of fiscal 2014.
Foreign Currency – There was a net foreign currency loss of $930,000 in the first half of fiscal 2015 compared with a loss of $249,000 a year ago. The $681,000 change in foreign currency losses principally represented unfavorable changes in the Euro, Japanese Yen and to a lesser extent the Brazilian Real.
Other Income – The increase in other income in the first half of fiscal 2015, represents dividend income received on the Company’s long term investments.
Income Taxes – The effective tax rate for the first six months of fiscal 2015 was 28.1% compared to 23.0% in the first half of fiscal 2014. The effective tax rate in both fiscal periods primarily reflected the effect of the mix of pre-tax income and loss among the Company’s various operating entities and their countries’ respective tax rates.
LIQUIDITY AND CAPITAL RESOURCES
The Company’s cash and cash equivalents were $27.0 million at December 31, 2014, compared to $23.1 million at June 30, 2014. The $3.9 million increase in cash represented $1.3 million provided from operations and $5.5 million from net sales of short-term investments. Offsetting cash received was $677,000 used for capital expenditures, $562,000 used for other long-term asset purchases and a $1.7 million decline in cash related to changes in foreign currency rates.
The $1.3 million in cash provided from operations resulted from net income of $739,000 and the add-back of non-cash items totaling $527,000. Working capital uses represented an increase in receivables of $3.4 million and $1.5 million for inventory purchases that were offset by an increase in accounts payable of $3.4 million and a $1.5 million change in other current assets and liabilities . The increase in receivables represents the higher sales in the second quarter. Inventories increased primarily due to increases in work-in-progress and finished goods to meet backlog requirements, and to a lesser extent, increases in raw material inventory to support new products nearing release and an increase in stock levels to support reduced order lead times. The increase in accounts payable represents normal fluctuations in the timing of payments. The $1.5 million change in other current assets and liabilities related primarily to an increase in deferred revenue and accrued liabilities as a result of the normal timing of revenue recognition and payment of accrued expenses.
The Company provides a reserve for obsolescence to recognize inventory impairment for the effects of engineering change orders, age and use of inventory that affect the value of the inventory. The reserve for obsolescence creates a new cost basis for the impaired inventory. When inventory that has previously been impaired is sold or disposed of, the related obsolescence reserve is reduced resulting in the reduced cost basis being reflected in cost of goods sold. A detailed review of the inventory is performed annually with quarterly updates for known changes that have occurred since the annual review. During the six-month period ended December 31, 2014, the Company decreased its reserve for obsolescence by a net $107,000, which resulted from additional reserves for obsolescence of approximately $8,000 less disposals and the effect of changes in foreign currency of $115,000.
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 decreased its allowance for doubtful accounts by a net $13,000 during the six-month period ended December 31, 2014.
At December 31, 2014, the Company had $32.0 million in cash, cash equivalents and short-term investments of which $22.5 million or 70% was held in foreign bank accounts. Included in short-term investments at December 31, 2014 is $59,000 of restricted cash that serves as collateral for bank guarantees that provide financial assurance that the Company will fulfill certain customer obligations in China. The cash is restricted as to withdrawal or use while the related bank guarantees are outstanding. Interest is earned on the restricted cash and recorded as interest income. The Company does not repatriate its foreign earnings and based on its business plan, current cash, cash equivalents and short-term investments, the level of cash, cash equivalents and short-term investments in foreign bank accounts is not expected to have a material adverse impact on the Company’s liquidity.
At December 31, 2014, the Company had a long-term investment valued at $725,000. 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 investment is currently illiquid. At December 31, 2014, t he Company also held a long-term time deposit for $53 ,000. This time deposit serves as collateral for a bank guarantee that provides financial assurance that the Company will fulfill certain customer obligations in China. The cash is restricted as to withdrawal or use while the related bank guarantee is outstanding. Interest is earned on the restricted cash and recorded as interest income
The Company had no debt outstanding at December 31 and June 30, 2014. The Company has a $6.0 million secured credit agreement with Comerica Bank (“Credit Agreement”) which expires on November 2, 2015. Proceeds under the Credit Agreement may be used for working capital and capital expenditures. Security for the Credit Agreement is substantially all non-real estate assets of the Company held in the
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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 requires the Company to maintain a minimum Tangible Net Worth of not less than $33.2 million. The Company was in compliance with this financial covenant at December 31, 2014. The Company is permitted to declare dividends of up to $2.5 million in any fiscal year provided the Company maintains the required minimum Tangible Net Worth. The Company is also required to have no advances outstanding under the Credit Agreement for 30 days (which need not be consecutive) during each calendar year. On January 29, 2015, the Company entered into a Seventh Amendment to the Credit Agreement which provides for Comerica Bank ’s consent to the acquisitions announced by the Company on January 29, 2015, reduces the minimum Tangible Net Worth requirement to $31.0 million and provides an Advance Formula Agreement for borrowings under the Credit Agreement. The Advance Formula Agreement limits borrowings to the lesser of $6.0 million or 80% of eligible accounts receivable. At December 31, 2014, if the Advance Formula Agreement had been in effect, the Company would have been able to borrow $3.7 million. See Note 11 of the Notes to the Consolidated Financial Statements, “Subsequent Events”.
At December 31, 2014, the Company's German subsidiary (“GmbH”) had an unsecured credit facility totaling 350,000 Euros (equivalent to approximately $425,000). The facility allows 100,000 Euros to be used to finance working capital needs and equipment purchases or capital leases. The facility allows up to 250,000 Euros to be used for providing bank guarantees. Any borrowings for working capital needs will bear interest at 4.25%. Any outstanding bank guarantees will bear interest at 2.0%. The GmbH credit facility is cancelable at any time by either GmbH or the bank and any amounts then outstanding would become immediately due and payable. At December 31, and June 30, 2014, GmbH had no borrowings or bank guarantees outstanding.
As part of routine evaluation procedures, the Company identified a potential concern regarding the employment status and withholding for several individuals in one of the Company’s foreign jurisdictions. The Company has begun a review of the matter, and expects resolution in the next few months. At this time, because the Company has not completed its evaluation, the Company is not able to determine an amount or range of its financial liability relating to this matter. The Company does not expect that the resolution of this matter will have a detrimental effect on the conduct of the Company’s business in this foreign jurisdiction. See Item 1, “Legal Proceedings” and Note 10 to the Consolidated Financial Statements, “Commitments and Contingencies”, contained in this Quarterly Report on Form 10-Q, and Item 3, “Legal Proceedings” and Note 5 to the Consolidated Financial Statements, “Contingencies”, of the Company’s Annual Report on Form 10-K for fiscal year 2014 for a discussion of certain other 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 2014.
The Company spent $677,000 on capital equipment in the first six months of fiscal year 2015 and could spend up to an aggregate of approximately $1.8 million for capital expenditures during fiscal year 2015, although there generally is no binding commitment to do so. The Company also spent $510,000 on a long-term asset that is part of its development of a new 3D Scanning Solutions product. 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 2015 cash flow requirements. The Company does not believe that inflation has significantly impacted historical operations and does not expect any significant near-term inflationary impact.
On January 29, 2015, Perceptron CMM, LLC, a wholly owned subsidiary of the Company, entered into an a greement for the purchase of 100% of the coordinate measuring machine business of Coord3 Industries s.r.l., a n Italian company, (“Coord3”) and Angelo Muscarella (collectively, the “Coord3 Sellers”) and (“the Buyer”) (the “Coord3 Agreement”) pursuant to which an affiliate of the Company will acquire the business of Coord3 for €2 million (the “Coord3 Transaction”). The purchase price is payable €1.7 million at closing and €300,000 18 months following closing to the extent not used to cover indemnification obligations of the Coord3 Sellers. In connection with the Coord3 Transaction, Coord3 will contribute substantially all of its assets and liabilities to a newly formed Italian company (“NewCo”). An affiliate of the Company will acquire all of the share capital of NewCo. The liabilities of Coord3 to be contributed to NewCo will include: (i) approximately €9.2 million due to banks and for tax and other governmental obligations and (ii) accounts payable and other accrued liabilities. The purchase price under the Coord3 Transaction is subject to a working capital adjustment and an adjustment based upon the amount of bank debt outstanding as of the closing date. The Company expects to fund the purchase price and Coord3 assumed liabilities from cash on hand. The Coord3 Transaction is expected to close by the end of February 2015. The closing is subject to the satisfaction of customary closing conditions. The Coord3 Agreement may be terminated by the Company and the Coord3 Sellers under certain specified circumstances.
On January 29, 2015, the Company consummated the acquisition of all of the share capital of Next Metrology Software s.r.o. a Czech Republic company (the “NMS Transactions”) from Keith Mills, Angelo Muscarella and Topmes s.r.o. The aggregate purchase price paid in the NMS Transactions for all of the share capital of NMS is €2.25 million. The purchase price was paid €1.8 million at closing, €250,000 upon the closing of the Coord3 Transaction, €100,000 12 months following closing of the NMS Transactions to the extent not used to cover indemnification obligations of Mr. Mills and €100,000 12 months following closing of the NMS Transactions to the extent not used to cover indemnification obligations of Mr. Muscarella. The Company funded the purchase price from cash on hand. A deal consummation fee of €250,000 is payable to an affiliate of Mr. Mills upon the closing of the Coord3 Transaction and will be funded by the Company’s cash on hand. See Note 11, to the Consolidated Financial Statements, “Subsequent Events”, contained in this Quarterly Report on Form 10-Q for further information regarding the Coord3 and NMS Transactions.
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The Company will consider evaluating additional business opportunities that fit its strategic plans. There can be no assurance that the Company will identify any additional opportunities that fits 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 2014.
MARKET RISK INFORMATION
Perceptron’s primary market risk is related to foreign exchange rates. The foreign exchange risk is derived from the operations of its international subsidiaries, which are primarily located in Germany, China and Japan and for which products are produced in the U.S. The Company may from time to time have interest rate risk in connection with the 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 non-United States currencies, the currency rate risk exposure is predominantly less than one year with the majority in the 120 to 150 day range. At December 3 1 , 2014, the Company’s percentage of sales commitments in non-United States currencies was approximately 70.1% or $27.6 million, compared to 77.7% or $31.4 million at December 31, 2013. The Company is most vulnerable to changes in U.S. dollar/Euro, U.S. dollar/Chinese Yuan and U. S. dollar/Japanese Yen exchange rates.
The Company’s potential loss in net income 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 three and six months ended December 31, 2014, would have been approximately $266,000 and $120,000, respectively. The potential loss in earnings for the comparable periods in fiscal 2014 would have been approximately $105,000 and $130,000, respectively. This sensitivity analysis assumes there are no changes other than the exchange rates. This analysis has inherent limitations, including that it disregards the possibility that (i) the exchange rates of multiple foreign currencies may not always move in the same direction or percentage amount relative to the value of the U.S. dollar and (ii) changes in exchange rates may impact the volume of sales.
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. 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.
Uncertainties in Credit Markets
At December 3 1 , 2014, the Company holds a long-term investment in preferred stock that is not registered under the Securities Act of 1933 and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. The Company’s long-term investment is subject to risk due to a decline in value of the investment. The investment is currently recorded at $725,000 after consideration of impairment charges recorded in fiscal 2008 and 2009.
Based on the Company’s current business plan, cash and short-term investments of $32.0 million at December 3 1 , 2014 and its existing unused credit facilities, the Company does not currently anticipate that the lack of liquidity in its long-term investment will affect the Company’s ability to operate or fund its currently anticipated fiscal 2015 cash flow requirements.
New Accounting Pronouncements
For a discussion of new accounting pronouncements, see Note 2 to the Consolidated Financial Statements, “New Accounting Pronouncements”.
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.”
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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(b) of the Securities Exchange Act of 1934 (the “1934 Act”). Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of December 3 1 , 2014, the Company’s disclosure controls and procedures were effective. Rule 13a-15(e) of the 1934 Act defines “disclosure controls and procedures” as controls and other procedures of the Company that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the 1934 Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the 1934 Act is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
There have been no changes in the Company’s internal controls over financial reporting during the quarter ended December 31 , 2014 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.
The Company is a party to a civil suit filed by 3CEMS, a Cayman Islands and People’s Republic of China corporation, in the U.S. District Court for the Eastern District of Michigan and served on the Company on or about January 7, 2015. The suit allege s that the Company breached its contractual obligations by failing to pay for component parts to be used to manufacture optical video scopes for the Company’s discontinued Commercial Products Business Unit. 3CEMS alleged that it purchased the component parts in advance of the receipt of orders from the Company based upon instructions they claimed to have received from the Company. The suit alleged damages of not less than $4. 0 m illion. See also Note 5 of the Notes to the Consolidated Financial Statements, “Contingencies”, of the Company’s Annual Report on Form 10-K for fiscal year 2014, for a discussion regarding a previous civil suit filed against the Company by 3CEMS, on July 19, 2013, which was dismissed e ffective December 6, 2013 and a Tolling Agreement entered into between the Company and 3CEMS that terminated on December 31, 2014. The Company intends to vigorously defend against 3CEMS’ claims. See Note 10 of the Notes to the Consolidated Financial Statements, “Commitments and Contingencies”.
Other than as set forth below, there have been no material changes to the risk factors listed in “Item 1A – Factors” of the Company’s Annual Report on Form 10-K for fiscal year 2014:
From time to time, we make “forward-looking statements” regarding our business, including our future revenues, order bookings, backlog and operating results. Because these “forward-looking statements” are based on estimates and assumptions, actual results could be materially different.
From time to time, we make “forward-looking statements” within the meaning of the Securities Exchange Act of 1934, including our expectations as to its future new order bookings, revenue, expenses, net income and backlog levels, trends affecting our future revenue levels, the rate of new orders, the timing of revenue and income from new products which we have recently released or have not yet released, and the timing of the introduction of new products. When we use words such as “will,” “should,” “believes,” “expects,” “anticipates,” “estimates,” “prospects”, “outlook” 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 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” of the Company’s Annual Report on Form 10-K, for fiscal year 2014. 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.
Our expectations regarding future bookings and revenues are projections developed 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.
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Certain of these new orders have been delayed in the past and could be delayed in the future. Because our 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 our products have shorter lead times than other components and are required later in the process, orders for products tend to be given later in the integration process.
A significant portion of our projected revenues and net income depends upon our ability to successfully develop and introduce new products, expand into new geographic markets, successfully negotiate new sales or supply agreements with new customers and otherwise continue sales with current and new customers.
Because a significant portion of our revenues are denominated in foreign currencies and are translated for financial reporting purposes into U.S. dollars, the level of our reported new order bookings, revenues, operating profits, net income and order backlog are affected by changes in currency exchange rates, principally between the U.S. Dollar, Euro, Chinese Yuan and Japanese Yen. Currency exchange rates are subject to significant fluctuations, due to a number of factors beyond our control, including general economic conditions in the United States and other countries. Because our 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.
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10.52 |
Form of Nonqualified Stock Option Agreement Terms for Officers under the Perceptron, Inc. 2004 Stock Incentive Plan. |
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31.1 |
Certification by the Chief Executive Officer of the Company pursuant to Rule 13a – 14(a) of the Securities Exchange Act of 1934. |
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Certification by the Chief Financial Officer of the Company pursuant to Rule 13a – 14(a) of the Securities Exchange Act of 1934. |
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Certification pursuant to 18 U.S.C. Section 1350 and Rule 13a – 14(b) of the Securities Exchange Act of 1934. |
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101.INS* |
XBRL Instance Document |
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101.SCH* |
Taxonomy Extension Schema |
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101.CAL* |
Taxonomy Extension Calculation Linkbase |
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101.LAB* |
XBRL Taxonomy Extension Label Linkbase |
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101.PRE* |
XBRL Taxonomy Extension Presentation Linkbase |
*XBRL (Extensible Business Reporting Language) information is furnished and not filed herewith, is not a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.
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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 .
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Perceptron, Inc. |
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(Registrant) |
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Date: February 6, 2015 |
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/S/ Jeffrey M. Armstrong |
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Jeffrey M. Armstrong |
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President and Chief Executive Officer |
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Date: February 6, 2015 |
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/S/ Keith R. Marchiando |
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Keith R. Marchiando |
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Senior Vice President and Chief Financial Officer |
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(Principal Financial Officer) |
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Date: February 6, 2015 |
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/S/ Sylvia M. Smith |
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Sylvia M. Smith |
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Vice President and Chief Accounting Officer |
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(Principal Accounting Officer) |
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Initial Usage Date: 1/2/15
NON-QUALIFIED STOCK OPTION AGREEMENT TERMS – OFFICER
UNDER THE PERCEPTRON, INC. 2004 STOCK INCENTIVE PLAN
THESE STOCK OPTION AGREEMENT TERMS pertain to stock options granted effective _____________ under the 2004 Stock Incentive 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 Corporation"), and the employee named in the Notice who is currently employed by the Corporation or one of its subsidiaries (the "Optionee"). A copy of the 2004 Stock Incentive Plan is not attached hereto but is available upon written request made to the Secretary of the Corporation.
1. Grant of Option. Subject to the terms and conditions hereof, the Corporation hereby grants to the Optionee an option to purchase from the Corporation up to, but not exceeding in the aggregate, the number of shares of the Corporation’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" within 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 Corporation on and after the first anniversary of the date of grant, 33 1/3 % of the shares covered by this option, and on each succeeding one year anniversary thereof may exercise an additional 33 1/3 % of the shares covered by the option, so that on the third anniversary of the date of grant this option shall be fully exercisable. To the extent not exercised, installments shall accumulate and the Optionee may exercise them in whole or in part in any subsequent period. 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 anniversary of the date of grant. The Committee (as defined in the Plan), in its sole discretion, may accelerate the time at which this option may be exercised in whole or in part.
3. Termination of Employment. If, prior to the date that this option shall first become exercisable, the Optionee's employment with the Corporation or any of its subsidiaries shall be 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 Corporation means any "subsidiary corporation" as defined in Section 424(f) of the Code, the term "employment" means employment with the Corporation or any subsidiary of the Corporation, and the term "disability" means "total and permanent disability," as defined in Section 22(e) of the Code.
If, on or after the date that this option shall first become exercisable, the Optionee's employment shall be terminated for any reason other than death or disability, the Optionee shall have the right to exercise this option to the extent that it shall have been exercisable and unexercised on the date of such termination of services, 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 at the date of exercise.
If on or after the date that this option shall first become exercisable the Optionee's employment shall be terminated due to death or disability, the Optionee or the executor or administrator of the estate of the Optionee (as the case may be) or the person or persons to whom the option shall have 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 it was exercisable and unexercised on the date of the Optionee’s death or disability, subject to any other limita tion on exercise in effect at the date of exercise.
The transfer of the Optionee from one corporation to another among the Corporation and any of its subsidiaries, or a leave of absence with the written consent of the Corporation, shall not be a termination of services for purposes of this option.
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 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 9.2(b) of the Plan.
5. Exercise of Option.
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At any time that 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 delivery to the Corporation of a written notice, in the form attached hereto, signed by the Optionee. |
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In addition, the Optionee shall deliver, on the date of exercise: |
(i) cash equal to the purchase price of the shares being purchased,
(ii) such documents as are or may be required under the terms of Section 2.4(b) of the Plan to effect a cashless exercise, except to the extent that the Corporation determines that the Optionee is not permitted to use a cashless exercise under applicable law, or
(iii) Permitted Shares with a Fair Market Value (as defined in the Plan and determined as of the date of exercise of the option) and equal to the purchase price of the shares being purchased and in accordance with Section 2.4 of the Plan (the "Delivered Shares Method").
(c) "Permitted Shares" are shares of Corporation 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 months prior to the date of delivery, or
(ii) if they have not been owned by the Optionee for at least six months prior to the date of delivery, the Optionee then owns, and has owned for at least six months prior thereto, a number of shares of Corporation Common Stock at least equal in number to the Delivered Shares.
(d) Shares which have been counted during the prior six 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:
(i) may not be used as Delivered Shares, and
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(ii) may not be counted as owned by the Optionee for purposes of making calculations under the Delivered Shares Method.
6. Compliance With Securities Laws. Anything to the contrary herein notwithstanding, the Corporation's obligation to sell and deliver stock under this option is subject to such compliance with federal and state laws, rules and regulations applying to the authorization, issuance or sale of securities, and applicable stock exchange requirements, as the Corporation deems necessary or advisable.
7. Non-Assignability. The option hereby granted shall not be transferable by the Optionee other than by will or the laws of descent and distribution, and the option may be exercised during the Optionee's lifetime only by the Optionee. Any transferee of the option shall take the same subject to the terms and conditions of this Agreement. No such transfer of the option shall be effective to bind the Corporation unless the Corporation shall have been furnished with written notice thereof and a copy of the will and/or such other evidence as the Corporation may deem necessary to establish the validity of the transfer and the acceptance by the transferee or transferees 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, except a transfer by the Optionee by will or by the laws of descent and distribution, shall vest in the purported assignee or transferee any interest or right herein whatsoever.
8. Disputes. As a condition of the granting of the option granted hereby, the Optionee and the Optionee's successors and assigns agree that any dispute or disagreement which shall arise under or as a result of this Agreement shall be determined by the Committee in its sole discretion and judgment and that any such determination and any interpretation by the Committee of the terms of this Agreement shall be final and shall be binding and conclusive for all purposes.
9. Adjustments. In the event of any stock dividend, subdivision or combination of shares, reclassification, or similar transaction affecting the shares covered by this option, determined by the Committee to be covered by this Section 9, a proposed dissolution or liquidation of the Corporation, a merger of the Corporation with or into another corporation where the Corporation is not the surviving corporation, but its stock is exchanged for stock of the parent Corporation of the other party to the merger, the sale of substantially all of the assets of the Corporation, the reorganization of the Corporation or other similar transaction determined by the Committee to be covered by this Section 9, a proposed spin-off or a transfer by the Corporation of a portion of its assets resulting in the employment of the Optionee by the spin-off entity or the entity acquiring assets of the Corporation, the rights of the Optionee shall be as provided in Section 9.1 of the Plan and any adjustment therein provided shall be made in accordance with Section 9.1 of the Plan.
10. Rights as Shareholder. The Optionee shall have no rights as a shareholder of the Corporation with respect to any of the shares covered by this option until the issuance of a stock certificate or certificates upon the exercise of the option in full or in part, and then only with respect to the shares represented by such certificate or certificates.
11. Notices. Every notice relating to this Agreement shall be in writing and if given by mail shall be given by registered or certified mail with return receipt requested. All notices to the Corporation shall be delivered to the Secretary of the Corporation at the Corporation's headquarters or addressed to the Secretary of the Corporation at the Corporation's headquarters. All notices by the Corporation to the Optionee shall be delivered to the Optionee personally or addressed to the Optionee at the Optionee's last residence address as then contained in the records of the Corporation or such other address as the Optionee may designate. Either party by notice to the other may designate a different address to which notices shall be addressed. Any notice given by the Corporation to the Optionee at the Optionee's last designated address shall be effective to bind any other person who shall acquire rights hereunder.
12. "Optionee" to Include Certain Transferees. Whenever the word "Optionee" is used in any provision of this Agreement under circumstances where the provision should logically apply to any other person or persons 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 person or persons.
13. Governing Law. This Agreement has been made in and shall be construed in accordance with the laws of the State of Michigan, without regard to its choice of law rules.
14. Provisions of Plan Controlling. The provisions hereof are subject to the terms and provisions of the Plan,
2
copies of which are available for review upon request. In the event of any conflict 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 the Optionee to a greater extent than 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.
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 Corporation to withhold from his compensation or agrees to tender the applicable amount to the Corporation to satisfy any requirements for withholding of income and employment taxes in connection with the exercise of the option granted hereby.
3
NOTICE OF EXERCISE OF NON-QUALIFIED STOCK OPTION
UNDER THE PERCEPTRON, INC.
2004 STOCK INCENTIVE PLAN
Perceptron, Inc.
47827 Halyard Drive
Plymouth, MI 48170
Dear Sir:
A non-qualified stock option was granted to me on , to purchase shares of Perceptron, Inc. Common Stock at a price of $ per share. I hereby elect to exercise my non-qualified stock option with respect to shares for an aggregate purchase price of $ . I hereby elect to pay for such shares as follows:
|
Personal Check |
$ |
|
|
Cash |
$ |
|
|
Bank Draft |
$ |
|
|
Money Order |
$ |
|
|
Cashless Exercise |
$ |
|
|
Perceptron Common Stock |
$ |
|
|
Tax Withholding |
$ |
|
|
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.
Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
I, Jeffrey M. Armstrong , 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(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 the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: February 6 , 201 5
/s/
Jeffrey M. Armstrong
Jeffrey M. Armstrong
President and Chief Executive Officer
Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
I, Keith R. Marchiando , 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(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 the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: February 6 , 201 5
/s/
Keith R. Marchiando
Keith R. Marchiando
Senior
Vice President
and
Chief Financial Officer
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 period ending December 31 , 201 4 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Jeffrey M. Armstrong , President and Chief Executive Officer of the Company, and Keith R. Marchiando , Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 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/ Jeffrey M. Armstrong
Jeffrey M. Armstrong
President
and Chief Executive Officer
February
6
,
201
5
/s/ Keith R. Marchiando
Keith R. Marchiando
Senior
Vice President
and
Chief Financial Officer
February
6
, 2015
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.