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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 [FEE REQUIRED] OR [ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM _________ TO
_________.
COMMISSION FILE NUMBER: 0-20206
PERCEPTRON, INC.
(Exact name of registrant as specified in its charter)
Michigan 38-2381442
(State or other jurisdiction or (I.R.S. Employer
incorporation or organization) Identification No.)
47827 Halyard Drive
Plymouth, Michigan 48170-2461
(313) 414-6100
(Registrant's telephone number, including area code)
Securities registered pursuant to section 12(b) of the act: None
Securities registered pursuant to section 12(g) of the act:
COMMON STOCK, $0.01 PAR VALUE
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes__X__ No _____
Indicate by check mark if disclosure of delinquent filers pursuant to item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant, based upon the closing sale price of the Common Stock on March
14, 1997, as reported by The Nasdaq Stock Market, was approximately
$254,000,000 (assuming, but not admitting for any purpose, that all directors
and executive officers of the registrant are affiliates).
The number of shares of Common Stock, $0.01 par value, issued and
outstanding as of March 14, 1997 was: 7,694,628.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following document, to the extent specified in this report, are
incorporated by reference in the Part III of this report:
Document Incorporated by reference in:
------------------------------ -----------------------------
Proxy Statement for 1997
Annual Meeting of Shareholders Part III, Items 10-13
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PART I
ITEM 1: DESCRIPTION OF BUSINESS
GENERAL
Perceptron, Inc. ("Perceptron" or the "Company") designs, manufactures and
markets information based process measurement and guidance solutions which help
customers improve performance by providing process control systems that
precisely measure and monitor component parts for conformance to design intent,
systems that guide robots to perform precise tasks on the assembly line and
systems that address certain other applications. Perceptron's product
offerings are designed to improve productivity, increase product quality and
decrease costs in the manufacturing workplace.
The Company has two distinct three-dimensional machine vision
technologies: TriCam(TM) and LASAR(TM). The TriCam technology uses structured
laser light triangulation techniques to obtain accurate three-dimensional
measurements. This third-generation system, introduced in late 1993, is
primarily used to measure formed parts for process control, to provide robot
guidance for automated assembly tasks and to perform non-contact alignment
functions. LASAR technology uses laser radar technology and provides accurate
three-dimensional measurements of all points in a scene over a larger field of
view than does TriCam.
The systems that employ TriCam technology have been primarily sold to the
automotive industry. However, these products have also been sold into other
industries, such as the appliance industry and the forest and wood products
industry. Over 500 of the Company's three-dimensional machine vision systems,
incorporating over 11,000 non-contact sensors, have been installed worldwide.
LASAR based systems have been sold primarily to the forest and wood
products industry. Perceptron believes that there may be potential
applications for the LASAR system in a number of diverse industries. The
foregoing statement may be deemed to be a "forward looking statement" within
the meaning of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). See "Business Strategy" for a discussion of certain factors affecting
the Company's expansion plans.
Perceptron's design philosophy is to create systems which incorporate
sophisticated proprietary software and hardware to minimize the need for
customer application engineering. The Company's products are used by
factory-floor personnel for in-line manufacturing or in other operating
environments, are re-configurable and are amenable to networking. The systems
provide graphical displays, in addition to numerical reports.
From its incorporation in 1981 until August 1992, Perceptron's Common
Stock ("Common Stock") was held by private investors. On August 20, 1992, the
Company completed the Initial Public Offering ("IPO") of shares of its Common
Stock. In 1995, the Company announced a three-for-two stock split of the
Company's Common Stock in the form of a stock dividend payable on November 30,
1995 to shareholders of record on November 20, 1995. All reported historical
information has been adjusted accordingly to reflect the impact of this stock
split. On February 3, 1997, the Company consummated its acquisition of
Autospect, Inc. ("Autospect") through the merger of a wholly owned subsidiary
of the Company with and into Autospect for aggregate consideration consisting
of 387,093 shares of Common Stock of the Company. Autospect, based in Ann
Arbor, Michigan, designs, develops and manufactures information-based coatings
inspection and defect detection systems primarily for use in the automotive
industry. Historical financial information included in the Form 10-K for 1996
or prior periods does not include any financial results for Autospect, except
where indicated.
The Company recently signed letters of intent to acquire Trident Systems,
Inc. ("Trident") and Nanoose Systems Corporation ("Nanoose"). The closing of
these acquisitions is subject to a number of factors, including the
negotiation, approval and execution of definitive documents and completion of
satisfactory due diligence. The proposed consideration for these acquisitions
will be shares of Common Stock of the Company, aggregating less than 5% of the
outstanding Common Stock. Trident is a full service systems integrator for the
solid woods sector of the forest and wood products industry, providing
applications that address a wide spectrum of mill processes. Trident and the
Company are currently parties to a sales agreement pursuant to which Trident
purchases TriCam and LASAR based systems from the Company for integration into
systems sold by Trident to the forest and wood products industry. Nanoose,
based in British Columbia, Canada, is a software design and engineering
company, specializing in industrial scanning and optimization systems primarily
for the forest and wood products industry. Optimization software written by
Nanoose is an important element of the systems sold by Trident to the forest
and wood products industry. This software accepts scanner information from the
Company's TriCam and LASAR systems.
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The Company was incorporated in Michigan in 1981. Its headquarters are
located at 47827 Halyard Drive, Plymouth, Michigan 48170-2461, (313) 414-6100.
The Company also has operations in Munich, Germany; Rotterdam, The
Netherlands; Sao Paulo, Brazil and Nagoya, Japan.
PRODUCT OVERVIEW
TriCam and LASAR. The Company's two families of laser based
three-dimensional machine vision systems, TriCam and LASAR, use solid-state
lasers, proprietary high speed electronics and optics to capture
three-dimensional images. The captured images are then converted into
dimensions or locations by proprietary digital signal processing electronics
and a sophisticated rectification process. Perceptron's products provide its
customers with solutions for a variety of applications.
The TriCam family of products uses structured laser light triangulation
techniques for obtaining accurate three-dimensional measurements. LASAR
sensors incorporate a completely different technology, known as light detection
and ranging (LIDAR or laser radar), to obtain three-dimensional imagery. In
such imagery, the distance (range) to every point in the image is directly
indicated, thus providing the basis for modeling and measuring an entire scene.
TriCam based systems are currently used to measure large formed parts for
process control, to provide robot guidance for automated assembly tasks, to
provide non-contact measurement capability for wheel alignment systems in
automotive assembly plants and for certain applications in non-automotive
industries. The Company's LASAR sensors provide accurate three-dimensional
images over a larger field of view than does TriCam.
With the increased emphasis on continuous improvement in manufacturing as
a fundamental strategy to simultaneously reduce cost and improve quality,
manufacturers are recognizing the need for sophisticated process control
systems. Capabilities provided by Perceptron products include the following:
Measurement. The Company's products are used for in-process measurement
of manufacturing performance. The Company's products first locate the process
mean relative to design intent, and then measure any part-to-part variation to
determine the process range. To rapidly accomplish both of these tasks,
measurements must be taken in-process, at line speed rates, with sufficient
accuracy to analyze and control the process performance to ensure that the
manufactured part is as close to design intent as possible. Deviation from
design intent or part-to-part variation in a process result in lower quality
and increased cost.
Guidance. In many applications, a manufacturing workpiece must be
visually and accurately located to guide a robot or an unmanned vehicle to
perform its tasks.
Autospect. Autospect's products, based primarily on machine vision
technology, are used to measure the quality of painted surfaces. The in-line
Quality Measurement System (QMS) provides paint process control and trend
analysis of the shininess, reflection clarity and smoothness of the painted
surface.
The in-line Industrial Dirt Counter (IDC) inspects the painted surface for
dirt and provides data, such as size, location, and amount of the defects, for
both repair information and process trend analysis.
Autospect also markets two lighting systems that aid inspectors in the
location and repair of painted surface defects.
MARKETS
To date, the Company has focused its primary marketing efforts on the
automotive industry. In January 1996, the Company entered into a sales
agreement with Trident Systems, Inc. ("Trident") by which Trident purchases
TriCam and LASAR based systems for integration into systems to be sold by
Trident to the forest and wood products industry. See "Research and
Development". Since December 31, 1995, the Company has received a total of
$4.8 million of orders from Trident Systems, Inc. for a combination of TriCam
and LASAR sensors. The Company believes that there may be potential
applications for its three-dimensional machine vision systems in non-automotive
industries as diverse as appliances, forest and wood products, robot and
autonomous vehicle guidance, and others. The foregoing statement is a "forward
looking statement" within the meaning of the Exchange Act. See "Business
Strategy" for a discussion of certain factors affecting the Company's expansion
plans.
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PRODUCTS AND APPLICATIONS
TriCam Applications. TriCam based three-dimensional machine vision
systems are generally incorporated into application specific products used in
the manufacture of large formed parts and assemblies, such as vehicles. Three
TriCam products, described below, are currently in production. Other
applications and products under development are described below under the
caption "Research and Development".
Assembly Process Control System (P-1000). The P-1000 system has been sold
primarily to automotive manufacturers to measure large formed vehicle body
parts and assembled vehicle bodies. This system, which has also been sold to
the appliance industry, is used by manufacturers of large formed parts and
assemblies for process control. Installed directly in the customer's
manufacturing line, typically in connection with new model re-tooling programs,
the P-1000 system rapidly measures critical dimensions and performs analyses to
reduce part-to-part variation and deviations from design intent. By
continually measuring and analyzing sources of variation, the manufacturer can
more quickly identify and correct manufacturing process faults, thereby
preventing defects from reaching the ultimate customer.
Completing measurement and analysis tasks within a few seconds, the P-1000
enables customers to shorten the time it would otherwise take to launch a new
product. In addition, the P-1000 enables customers to reduce cost and increase
both quality and throughput by measuring and analyzing sources of variation to
achieve continuous process improvement.
Robot Guidance System for automated assembly (RGS). The RGS system, which
is used for flexible assembly, incorporates TriCam sensors and high speed
digital process electronics and proprietary software to provide robots
three-dimensional visual guidance to perform a variety of automated assembly
tasks. The RGS optically locates the position on an object and instructs a
robot to perform work on the located object. This product was developed in
cooperation with Mercedes-Benz, which provided specifications to enable the
system to address a broad range of applications. Other automotive companies,
including General Motors, Ford, Volvo, BMW and Opel, are currently using RGS
systems. Worldwide, over 100 RGS systems have been installed to date.
The RGS system is currently used primarily by automotive companies in the
following applications, among others: windshield insertion, door assembly and
installation, hood and trunk lid installation, fuel tank installation, fender
mounting and instrument panel installation.
Non-Contact Wheel Alignment System (NCA). The NCA system, which uses
TriCam three-dimensional machine vision technology, was developed in close
cooperation with Ford Motor Company, which helped fund and was instrumental in
testing the technology. The NCA system is incorporated into original equipment
manufacturers' ("OEM's") wheel alignment equipment.
The NCA system offers a fast and accurate non-contact method to align
wheels, which reduces costly in-plant maintenance of mechanical wheel alignment
equipment. Since 1993, the Company, pursuant to a long-term licensing
agreement with Schenck Komeg of Germany, has been supplying NCA systems to the
automotive market in Europe, China and Taiwan. The Company recently amended
its licensing agreement with Schenck Komeg to permit the Company to license
others to sell the NCA in Europe and other markets currently covered by Schenck
Komeg's license. The Company has recently entered into an agreement to supply
Burke Porter with NCAs. In connection with the settlement of certain
litigation filed by the Company against Fori Automation alleging infringement
of certain of the Company's patents relating to non-contact wheel alignment
systems, the Company has licensed such patents to Fori on a non-exclusive
basis. The Company has sold NCA systems to a number of domestic OEM's who
installed these systems into various North American automotive assembly plants.
To date, Perceptron has delivered over 90 NCA systems worldwide.
Autospect Products. The QMS-I checks the painted surface quality of each
car as it exits the paint oven, providing quality trend analysis and process
control information by car color, model, shift, etc. With this information
corrective action can be taken before quality drops below acceptable levels.
The QMS-I interfaces with the Autospect "Paint Process Monitor" (PPM), a
network that sends the trend data and quality data to the plant and corporate
paint supervision. The QMS-Battery Portable (QMS-BP) is a hand held meter
providing the same readings as the QMS-I and is used to monitor incoming parts,
and is used in paint laboratories.
The Industrial Dirt Counter (IDC), released in 1997, checks the amount of
dirt and other defects that affect the painted surface quality. The system
prints out a profile of the car and shows the location of the defects to
assist in repair. The system also provides trend analysis and process control
information to assist management in controlling the process. The IDC
interfaces with the Autospect "Dirt Process Monitor" (DPM) which is a network
that sends the trend and quality data to those responsible for supervision of
the paint process.
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The Lightwave and Swirl Detection Lighting Systems aid the inspection of
painted surfaces, helping the inspectors to find and repair surface defects in
a more efficient and reliable manner. Lightwave is distributed by Autospect
in North America pursuant to the terms of a distributor agreement with a
foreign entity.
PROPRIETARY SOFTWARE MODULES
The heart of the Company's products are a number of sophisticated
proprietary software modules which enable the Company to provide easy-to-use,
customer-configurable, application specific products. The software modules are
provided in four integrated levels:
Level I. The first level of software implementing machine vision algorithms
convert the digital images from the sensors into meaningful dimensional
information. This software also performs the complex coordinate transformation
and calibration functions required for the high resolution and accuracy of the
measurement results offered by Perceptron's products.
Level II. The second level analyzes the dimensional information and presents
it in an assortment of reports to provide process status information at a
glance. Additional software modules further analyze the information and
provide it in the form of histograms, Pareto diagrams, X-bar and Range charts
and other useful process control formats.
Level III. The third level provides ease of use proprietary software for
customer set up. Through a graphical CRT interface, the system operator can
completely configure the system, telling it what to measure, where to measure,
how to measure and how to display the measurements. This sophisticated
software capability, which management believes adds significant value to
Perceptron products, offers customers the ability to re-configure the system
rapidly and easily.
Level IV. The fourth level provides network access and database management
capabilities in a client/server environment within a plant (intra-plant
communications) and between plants via remote access (inter-plant
communications). This capability provides wide distribution of the data
presentation obtained from Level II software.
BUSINESS STRATEGY
The Company seeks to expand its customer base and markets. To do this,
the Company has embraced a four-pronged strategy:
- Increase the number of automotive plants served annually.
Many automotive assembly plants continue to use off-line, sampling
measuring techniques which the Company believes places such plants
at a competitive disadvantage to those that use Perceptron
equipment, which, in the case of the P-1000, is in-line and measures
100% of the manufactured parts. Perceptron intends to continue to
work with automotive customers to help them achieve even greater
efficiencies in their processes.
- Increase product sales within a given automotive plant
through derivative products. The RGS and the NCA systems are
examples of derivative products that meet additional needs of
automotive customers. In addition, the Company's recent acquisition
of Autospect expands the product line offered by the Company at a
given automotive plant to include the paint line. The Company plans
to continue to introduce new products, such as those described below
under the caption "Research and Development".
- Expand customer base to include first tier suppliers to the
automotive industry. The Company believes opportunities exist with
these suppliers as they begin to conform to the new quality
standards of the international automotive companies. Toward this
strategy, an order totaling $2.8 million was received in December
1996 from a major first-tier supplier.
- Migrate existing and future information-based machine vision
technologies into new markets. Perceptron is increasing its
activity with potential customers and evaluating potential
applications for its products in industries as diverse as appliance
assembly, forest and wood products, steel processing, robot guidance
and others. Sales in non-automotive markets totaled approximately
5% of the 1996 net sales.
The foregoing statements may be deemed to be "forward looking statements"
within the meaning of the Exchange Act. The Company's ability to expand its
customer base and markets and to successfully execute the strategies set forth
above involves a number of uncertainties, including, but not limited to, the
quality and cost of competitive products already in existence or developed in
the future, the level of interest existing and potential new customers may have
in new products and technologies generally, the ability of the Company to
resolve technical
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issues inherent in the development of new products and
technologies, the ability of the Company to identify and satisfy market needs,
general product development and commercialization difficulties, the
continuation or acceleration of the automotive industries' retooling programs,
rapid or unexpected technological changes, general product demand and market
acceptance risks, the ability of the Company to successfully compete with
alternative and similar technologies, the ability of the Company to negotiate
satisfactory acquisition agreements with Trident and Nanoose and risks inherent
in completing and integrating acquisitions generally, and the effect of
economic conditions. There can be no assurance that the Company will be able
to expand its customer base and markets or successfully execute the strategies
set forth above.
SALES AND MARKETING
To date, the Company has marketed its systems either directly to the end
users of the Company's systems, or to system integrators, value-added resellers
(VAR's) or original equipment manufacturers (OEM's) who in turn sell to the
same end users.
The Company's direct marketing efforts are conducted by the Company's
account executives. These account executives develop a close consultative
selling relationship with the Company's customers. Perceptron's senior
management works in close collaboration with customers' senior executives. The
Company intends to continue this marketing strategy for its assembly process
control systems (P-1000), and for products offered by Autospect.
With respect to the RGS system for robot guidance, the NCA system for
wheel alignment and sales to the forest and wood products industry, the
Company's marketing strategy is focused primarily on sales to system
integrators, OEM's and VAR's who integrate the Company's products into their
systems for sale to end user customers.
The Company's principal customers have historically been automotive
companies that the Company either sells to directly or through system
integrators or OEM's. The Company's products are typically purchased for
installation in connection with new model re-tooling programs undertaken by
these companies. Because sales are dependent on the timing of customers
re-tooling programs, sales by customer vary significantly from year to year, as
do the Company's largest customers. For the year ended December 31, 1996,
approximately 67% of total revenues were derived from three domestic automotive
companies (General Motors, Ford and Chrysler). For the years ended December
1995 and 1994, approximately 64% and 83%, respectively, of total revenues were
derived from the same three customers. Approximately 85% of 1996 revenues for
Autospect were derived from the same three domestic auto companies.
CUSTOMER SUPPORT
The Company's support program for automotive customers begins at the
pre-sales phase with customer consultation regarding strategic dimensional
control strategy for vehicle production. The outcome of this consultation is
incorporated into the Company's sales proposals. In selected instances,
particularly with respect to the P-1000 assembly process control system and the
RGS system, the Company's application and project engineering group works
closely with the customers' tooling engineers. The customer education group
offers extended technical education for the customers' plant personnel in
metrology and process control techniques. Extended education contracts
generally continue for 12 months.
The Company provides similar support to the system integrators, VAR's and
OEM's who resell the Company's systems to end users.
Ongoing hardware and software enhancements to the Company's installed
products are provided through service contracts or through individual purchase
orders. The Company strives to achieve total customer satisfaction through
account teams that provide customers with dedicated sales, customer service,
application and project engineering and customer education staff.
Autospect supports its customers with pre-sales consultation regarding
process control and cost saving benefits derived from the use of its products.
After sale of the products, the Autospect Product Engineering and Installation
Team works closely with the customer to efficiently integrate the system into
the plant, and after installation, to train the customer's personnel on the use
and maintenance of the system. After installation, Autospect personnel monitor
the system's operation and provide preventative maintenance.
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RESEARCH AND DEVELOPMENT
The Company engages in research and development ("R&D") to enhance its
existing products, to adapt existing products to new applications and to
develop new products to meet new market opportunities.
The Company has announced three products which are in late stages of
development:
Optical Checking Fixture (OCF). The OCF is a non-contact
three-dimensional surface scanner, which employs TriCam technology. The
Company plans to market OCF to both automotive and non-automotive
customers for use as a process control device to precisely measure and
monitor large formed parts (stamped or molded) for conformance to design
intent. The Company has sold and installed three of the initial versions
of this system in automotive customer facilities, and beta testing is
continuing.
LASAR. LASAR is a three-dimensional machine vision system that employs
laser radar technology and provides three-dimensional images over a field
of view that is an order of magnitude larger than those covered by
TriCam. Perceptron continues to more fully develop the current version
of the LASAR system. The Company is currently evaluating a number of
different applications within industries as diverse as forest and wood
products, robot guidance and others.
Dimensional Data Management (DDM). The DDM, which is in beta testing,
is a computer system that consolidates in-line measurement data and
provides data analysis tools to help identify, trace, and eliminate
sources of process variation and deviation from design intent. The DDM
product consists of both server and client software. The server collects
and stores dimensional data in a single database from Perceptron
measurement systems and other measurement devices. The client software
provides multiple users, both local and remote, with the capability of
monitoring and analyzing dimensional data.
The Company is involved in a continuous product improvement program for
its products intended to enhance performance, reduce costs and incorporate new
technological advances. To this end, the Company is engaged in strategic
alliances with a number of research and development institutions.
In 1993, the Company was awarded a $1.22 million NIST-ATP grant from the
United States Department of Commerce for software development related to
high-speed image processing techniques for three-dimensional machine vision
systems. This grant, now completed, provided the Company $0.4 million in 1994,
$0.6 million in 1995, and $0.2 million in 1996. The Company includes all
development costs incurred internally and subcontracted to an independent
research organization and to a university in engineering, research and
development expense, and offsets these costs with any reimbursements due from
NIST. Work under this grant has supplied the Company with a substantial
repertoire of widely usable and tested machine vision algorithm components for
use with its TriCam and LASAR products.
In late 1995, Autospect received a $1.8 million NIST grant which will
provide funding of $600,000 per year over three years for development of a
system to measure the thickness of wet film (e.g. paint). Prototype testing of
this system has begun.
As of March 14, 1997, 64 persons employed by the Company are focused
primarily on research, development and engineering relating to
three-dimensional machine vision systems and related software. The Company's
laser based systems use sophisticated proprietary software technology, coupled
with state-of-the-art hardware. The Company believes that continued leadership
in software development is crucial for maintaining and expanding its market
position.
For the three years ended December 31, 1994, 1995 and 1996, the Company's
research, development and engineering expenses were $3.8 million, $4.5 million,
and $5.9 million, respectively.
In addition to investing directly in R&D, the Company has developed close
relationships with the University of Michigan and other research organizations
which are recognized as technological leaders. The Company is a member of the
Auto Body Consortium (the "ABC"), a group of ten companies in
automotive-related businesses and two universities, sponsored by Michigan
Future, Inc. a non-profit corporation. Dwight D. Carlson, Vice Chairman of the
Board of Directors of the Company, is also Chairman of Board of Michigan
Future, Inc. The ABC has created a number of programs to develop improvements
in measurement technology and process control techniques for automotive
applications.
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BACKLOG
As of December 31, 1996, the Company had a backlog of $21.0 million,
compared to $16.3 million as of December 31, 1995. Most of the backlog is
subject to cancellation by the customer. The level of order backlog at any
particular time is not necessarily indicative of the future operating
performance of the Company. The Company expects to be able to fill
substantially all of the orders in backlog by December 31, 1997.
MANUFACTURING AND SUPPLIERS
The Company's manufacturing operations consist primarily of final assembly
and test, together with integrating the Company's software with individual
components, including printed circuit boards, which are manufactured by third
parties according to Company developed designs. With a low level of vertical
integration, the Company believes it gains significant manufacturing
flexibility, while minimizing total product costs.
Since its inception the Company has strived to continuously improve its
proprietary sensor calibration process. This process technology, primarily
software-based, allows each sensor to be calibrated throughout its measurable
space to rectify any inherent manufacturing errors. The Company believes that
this proprietary software reduces the need that would otherwise exist for
capital investment in sensor manufacturing.
The Company purchases a number of component parts and assemblies from
single source suppliers. With respect to most of its components, the Company
believes that alternate suppliers are readily available. Significant delays or
interruptions in the delivery of components or assemblies by suppliers, or
difficulties or delays in shifting manufacturing capacity to new suppliers,
could have a material adverse effect on the Company.
INTERNATIONAL OPERATIONS
The Company's European operations have contributed approximately 11%, 31%,
and 23% of the Company's revenues during the years ended 1994, 1995, and 1996,
respectively. The Company's wholly-owned subsidiary, Perceptron Europe B.V.
("Perceptron B.V."), is located in Rotterdam, The Netherlands. Perceptron B.V.
holds a 100% equity interest in Perceptron Europe GmbH ("Perceptron GmbH"),
which is located in Munich, Germany. Prior to June 23, 1994, a minority
shareholder (Cementia S.A.) held a 12.5% equity interest in Perceptron B.V.,
which was converted into 197,802 shares of Common Stock of Perceptron, Inc. on
that date. The Company currently employs twenty-one people in its European
operations. Autospect currently offers its products internationally through
distributors in Europe.
In 1990, the Company began operating a Joint Project Office with Sumitomo,
located in Nagoya, Japan. The Joint Project Office is currently staffed by
five persons, three employed by the Company and two employed by Sumitomo.
Pursuant to an agreement with the Company, Sumitomo engages in sales and
marketing efforts in Asia on behalf of the Company, and earns commissions on
any sales in Asia. For the years ended December 31, 1994, 1995 and 1996, the
Company's Asian operations generated net sales of $0.5 million, $1.4 million,
and $1.1 million, respectively.
The Company is in the process of establishing a sales office in Sao Paulo,
Brazil to service automotive customers in South America.
The Company's foreign operations are subject to certain risks typically
encountered in such operations, including fluctuations in foreign currency
exchange rates and controls, expropriation and other economic and local
policies of foreign governments, and the laws and policies of the U.S. and
local governments affecting foreign trade and investment. For information
regarding net sales, operating profit (loss) and identifiable assets of the
Company's foreign operations, see Note 11 to the Consolidated Financial
Statements, "Foreign Operations".
On November 26, 1996, the Company's German subsidiary acquired the assets
of a division of HGV Vosseler GmbH ("HGV") engaged in the development and sale
of non-contact three-dimensional measurement systems for aggregate
consideration consisting of 82,150 shares of Common Stock of the Company and DM
300,000. The assets acquired include certain patents, patent applications and
other intellectual property, hardware, software, customer lists, and a
non-competition agreement.
COMPETITION
The Company is not aware of any other entity having three-dimensional
machine vision systems that are as advanced, in terms of completeness of the
solutions provided, as those offered by the Company and sold into those
markets that the Company serves. The Company is, however, aware of a number of
companies that sell similar and/or alternative technologies and methods into
the same markets.
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In 1990, the Company purchased certain assets from Diffracto Corporation
("Diffracto") of Canada, a former direct competitor, and entered into
agreements pursuant to which Diffracto and certain Diffracto employees agreed
not to compete with the Company for a period of five years in certain product
areas ("Diffracto non-compete agreements"). These agreements expired in July
1995. The assets acquired by the Company from Diffracto include the designs
and technology incorporated into the Diffracto "Z Sensor" gauging systems, as
well as a paid up non-exclusive license for fifty-five U.S. patents, forty-six
of which are still in force. In June 1996, the Company filed suit against
Diffracto and certain of the parties subject to the Diffracto Non-compete
Agreements alleging breaches of the Diffracto Non-compete Agreements prior to
their expiration and that products currently offered and sold by such persons
use the technology acquired by Perceptron in violation of Diffracto's
agreements with the Company.
The Company believes that the principal competitive factor in Autospect's
markets is the total capability as a process control system and that
Autospect's products compete favorably with similar and alternative
technologies in this regard. The Company is aware of one foreign and one
domestic competitor for Autospect's portable version of its QMS products and
one domestic competitor for the lighting system. The Company is not aware of
any direct competition for Autospects' other products.
The Company believes that there may be other entities, some of whom may be
substantially larger and have substantially greater resources than the Company,
which may be engaged in the development of technology and products which could
prove to be competitive with those of the Company. In addition, the Company
believes that certain existing and potential customers may be capable of
internally developing their own technology. There can be no assurance that the
Company will be able to successfully compete with any such entities, or that
any competitive pressures will not result in price erosion or other factors
which will adversely affect the Company's financial performance.
PATENTS, TRADE SECRETS AND CONFIDENTIALITY AGREEMENTS
The Company considers its software and hardware to be proprietary and
seeks to protect its technology through a combination of patents, copyrights,
trade secrets, confidentiality and other agreements. The Company deems its
patents and patent applications to be materially important to its business.
However, the Company also believes that its success depends upon its trade
secrets and proprietary know-how, innovative skills, technical competence and
marketing abilities of its employees. There can be no assurance that any of
the above measures will be adequate to protect this proprietary technology.
The Company, including Autospect, owns nine U.S. patents and ten pending
U.S. patent applications which relate to various products and processes
manufactured, used, and/or sold by the Company. In addition, the Company also
owns corresponding foreign patents in Canada, Europe, and Japan. The Vosseller
acquisition also adds several patent applications in foreign locations.
These U.S. patents expire from 2002 through 2010 and the Company's
existing foreign patent rights expire from 2008 through 2011.
The Company has been informed that certain of its customers have received
allegations of possible patent infringement involving processes and methods
used in the Company's products. One such customer is currently engaged in
litigation relating to such matter. This customer has notified various
companies from which it has purchased such equipment, including the Company,
that it expects the suppliers of such equipment to indemnify such customer, on
a pro-rata basis, for expenses and damages, if any, incurred in this matter.
Management believes, however, that the processes and methods used in the
Company's products were independently developed by the Company without
utilizing any previously patented process or technology. Because of the
uncertainty surrounding the nature of any possible infringement and the
validity of any such claim or any possible customer claim for indemnity, it is
not possible to estimate the ultimate effect, if any, this matter may have upon
the Company's financial position and results of operations.
On March 13, 1996, a complaint was filed naming the Company as a
defendant, along with Trident and Nanoose, in an action alleging that the
Company's TriCam sensor violates a patent held by the plaintiff and seeking
preliminary and permanent injunctions and damages. Management believes that
its TriCam sensor was independently developed without utilizing any previously
patented process or technology and intends to vigorously defend its position.
The Company has registered, and continues to register, various trade names
and trademarks, including PERCEPTRON, DATACAM, LASAR, VERISTAR, and TRICAM,
among others, which are used in connection with the conduct of its business.
Autospect has applied for registration of the AUTOSPECT trade name.
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The Company's software products are copyrighted and generally licensed to
customers pursuant to license agreements that restrict the use of the products
to the customer's own internal purposes on designated Perceptron equipment.
EMPLOYEES
As of March 14, 1997, the Company employed 203 persons. Of these persons,
64 were in research, development and engineering, 32 in sales, marketing and
support, 90 in operations, applications and project engineering and 17 in
general administration and finance. None of the employees are covered by a
collective bargaining agreement and the Company believes its relations with its
employees to be good. At present, Autospect employs 36 persons.
ITEM 2: FACILITIES
Perceptron's principal facilities consist of a 70,000 square foot building
located in Plymouth, Michigan, owned by the Company. Autospect conducts its
operations from a 20,500 square foot leased facility in Ann Arbor, Michigan.
In addition, the Company leases a 3,500 square foot facility in Munich,
Germany, a 1,000 square foot facility in Rotterdam, The Netherlands, an office
in Brazil and utilizes the Joint Project Office facility in Nagoya, Japan
provided by Sumitomo. The Company believes that its current facilities are
sufficient to accommodate its requirement through 1997.
ITEM 3: LEGAL PROCEEDINGS
On March 13, 1996, a complaint was filed in the United States District
Court, Western District of Washington, by Applied Scanning Technology, Inc.
naming the Company as a defendant, along with two other co-defendants (Trident
Systems, Inc. and Nanoose Systems Corporation), in an action alleging that the
Company's TriCam sensor violates a patent held by the plaintiff and seeking
preliminary and permanent injunctions and damages. Management believes that
its TriCam sensor was independently developed without utilizing any previously
patented process or technology and intends to vigorously defend its position.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No response to Item 4 is required.
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PART II
ITEM 5: MARKET FOR THE REGISTRANTS'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
Perceptron's Common Stock is traded on The Nasdaq Stock Market's National
Market under the symbol "PRCP". The following table shows the reported high
and low sales prices of Perceptron's Common Stock for the fiscal periods
indicated:
Period Prices
--------------------------------------------------------- ------
Low High
------ ------
1995
---------------------------------------------------------
First Quarter ........................................... $9.83 $15.33
Second Quarter .......................................... $11.00 $14.50
Third Quarter ........................................... $13.17 $19.33
Fourth Quarter .......................................... $14.33 $24.83
1996
---------------------------------------------------------
First Quarter ........................................... $17.75 $27.00
Second Quarter .......................................... $25.50 $39.00
Third Quarter ........................................... $24.50 $37.75
Fourth Quarter .......................................... $23.50 $37.50
1997
---------------------------------------------------------
First Quarter (January 1, 1997 through March 14, 1997) .. $31.75 $38.13
No cash dividends or distribution on Perceptron's Common Stock have been
paid and it is not anticipated that any will be paid in the foreseeable future.
The Company is prohibited under the terms of its bank line of credit from the
payment of cash dividends or from purchasing or retiring any of its capital
stock without written consent from its bank.
The approximate number of shareholders of record on March 14, 1997, was
330.
On November 26, 1996, the Company issued 82,150 shares of its Common Stock
in connection with the acquisition by its German subsidiary of certain assets
of a division of HGV Vosseler GmbH ("Vosseler"). The issuance was made
pursuant to Regulation D promulgated under the Securities Act of 1933, as
amended. Vosseler is engaged in the development and sale of non-contact three
dimensional measurement systems.
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ITEM 6: SELECTED CONSOLIDATED FINANCIAL INFORMATION
PERCEPTRON, INC. AND SUBSIDIARIES
(In thousands, except per share data)
Years Ended December 31,
--------------------------------------------------------
Statement of Operations Data(2): 1996 1995 1994 1993 1992
---------- ------------ ------------ ------- -------
(as restated)
Net sales $49,679 $37,291 $27,835 $17,022 $14,462
Gross profit 30,690 23,116 16,807 10,045 8,528
Income from operations(1) 10,178 7,388 5,720 2,907 2,267
Net income before provision for
income tax(1) 10,964 7,927 5,839 2,702 1,824
Net income(1) 7,894 8,409 5,839 2,702 1,824
Net income per weighted
average common and common
equivalent share(1) $1.03 $1.16 $.83 $.45 $.37
Weighted average common and
common equivalent shares 7,636 7,258 6,998 5,973 4,908
As of December 31,
--------------------------------------------------------
Balance Sheet Data: 1996 1995 1994 1993 1992
------- ------- ------- ------- ------
Working capital $35,089 $27,831 $18,620 $12,605 $6,555
Total assets 56,896 38,581 24,507 16,138 8,966
Shareholders' equity 46,504 30,358 19,737 13,451 7,251
- ---------------
(1) Excluding amounts for non-cash stock option compensation expense (See
Note 2 to the Consolidated Financial Statements), the reported amounts
would have been:
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Income from operations 13,380 8,765 5,720 2,907 2,267
Net income before provision
for income tax 14,166 9,304 5,839 2,702 1,824
Net income 9,916 9,304 5,839 2,702 1,824
Net income per weighted
average common and
common equivalent share $1.30 $1.28 $.83 $.45 $.37
(2) No cash dividends have been declared or paid during the periods presented.
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ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Perceptron, Inc. ("Perceptron" or the "Company") was founded in September
1981, and operated as a development stage company through 1982. From 1983
through 1987, the Company continued to incur significant product development
expenses as it redesigned and modified the initial triangulation based
three-dimensional machine vision system using laser technology in response to
customer input. The Company commenced production and shipment of its initial
products in 1984. In early 1988, the Company introduced its second-generation
(DataCam) system, and in late 1993, released the third-generation (TriCam)
version of its three-dimensional machine vision system. The Company also
offers its proprietary LASAR based three-dimensional machine vision system,
which employs laser radar technology and generates three-dimensional images
over a larger field of view than do TriCam based systems.
The Company's products have been sold primarily to North American,
European and Asian automobile manufacturers. Sales to automotive customers
typically depend on new model re-tooling programs. Accordingly, sales may vary
significantly among customers on a year-to-year and quarter-to-quarter basis.
On November 26, 1996, the Company's German subsidiary acquired the assets
of a division of HGV Vosseler GmbH ("Vosseler") engaged in the development and
sale of non-contact three-dimensional measurement systems for aggregate
consideration consisting of 82,150 shares of Common Stock and DM 300,000 and
recorded $2.3 million in intangible assets relating to the acquisition. See
Note 13 to the Consolidated Financial Statements.
On February 3, 1997, the Company consummated its acquisition of Autospect,
Inc. ("Autospect") through the merger of a wholly owned subsidiary of the
Company with and into Autospect for aggregate consideration consisting of
387,093 shares of Common Stock of the Company. Autospect, based in Ann Arbor,
Michigan, designs, develops and manufactures information-based coatings
inspection and defect detection systems primarily for use in the automotive
industry. The transaction will be accounted for as a pooling of interests.
Autospect's revenues for 1997 are expected to represent less than ten (10%)
percent of the Company's total revenues and to be slightly accretive to
earnings per share for 1997.
The Company recently signed letters of intent to acquire Trident Systems,
Inc. ("Trident") and Nanoose Systems Corporation ("Nanoose"). The closing of
these acquisitions is subject to a number of factors, including the
negotiation, approval and execution of definitive documents and completion of
satisfactory due diligence. The proposed consideration for these acquisitions
will be shares of Common Stock of the Company, aggregating less than 5% of the
outstanding Common Stock. Trident and Nanoose's revenues for 1997 are
expected to represent at least ten (10%) percent of the Company's total
revenues and to be slightly accretive to earnings per share for 1997.
Trident is a full service systems integrator for the solid woods sector of
the forest and wood products industry, providing applications that address a
wide spectrum of mill processes. Trident and the Company are currently parties
to a sales agreement pursuant to which Trident purchases TriCam and LASAR based
systems from the Company for integration into systems sold by Trident to the
forest and wood products industry.
Nanoose, based in British Columbia, Canada, is a software design and
engineering company, specializing in industrial scanning and optimization
systems. Optimization software written by Nanoose is an important element of
the systems sold by Trident to the forest and woods products industry. This
software accepts scanner information from the Company's TriCam and LASAR
systems.
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The foregoing statements regarding Autospect's 1997 revenues and earnings
and the Company's acquisitions of Trident and Nanoose and the impact of such
acquisitions, if consummated, on 1997 revenues and earnings are "forward
looking statements" within the meaning of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"). See "Business Strategy" for a discussion of
certain factors affecting such revenues and earnings and the acquisitions of
Trident and Nanoose.
RESULTS OF OPERATIONS
Year Ended December 31, 1996, Compared to Year Ended December 31, 1995
Net Sales. Net sales, of which substantially all are attributable to the
automotive market, consist primarily of product sales together with training
and service revenue. The Company's net sales increased by 33% from $37.3
million in 1995 to $49.7 million in 1996. Net sales in the North American
market increased from $24.3 million in 1995 to $37.0 million in 1996. Net
sales in the European and Asian markets decreased from $13.0 million in 1995 to
$12.7 million in 1996.
P-1000 systems accounted for 79% of net sales in 1995 and 74% of net sales
in 1996. The RGS and NCA systems combined accounted for 14% of net sales in
both 1995 and 1996. Non-automotive sales accounted for 5% of net sales in 1996
and less than 1% in 1995. Training and service revenues and other product
sales accounted for the remainder of net sales in both years.
New order bookings for 1995 totaled $42.3 million, compared to $54.4
million in 1996. North American orders were up from $29.4 million in 1995 to
$39.5 million in 1996 and European and Asian orders were up from $12.9 million
in 1995 to $14.9 million in 1996. P-1000 systems accounted for 76% of new
order bookings in 1995 and 78% in 1996.
Gross profit. Gross profit increased from $23.1 million in 1995 to $30.7
million in 1996, and as a percentage of net sales decreased from 62.0% in 1995
to 61.8% in 1996. The decrease is due primarily to the lower gross profit
percentage associated with one specific sale by the Company of a new product,
which was integrated into equipment acquired from an original equipment
manufacturer ("OEM"), and sold as a complete system.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by 16% from $9.9 million in 1995 to $11.5
million in 1996. This increase is due primarily to increases in personnel and
various operating expenses required to support the increased 1996 operating
activity and, to a lesser extent, to increased management performance bonuses.
The Company's 1996 selling, general, and administrative expenses included a
charge of $113,000 for stock option compensation expense related to the 1993
grants of performance based stock options, compared to a charge of $325,000 in
1995. As a percentage of net sales, selling, general and administrative
expenses decreased from 26.5% in 1995, to 23.1% in 1996.
Engineering, research and development. Engineering, research and
development expenses increased by 31%, from $4.5 million in 1995, to
approximately $5.9 million in 1996, due primarily to increased personnel and,
to a lesser extent, to increased expenditures for materials associated with
products under development. As a percentage of net sales, engineering,
research and development expenses decreased from 12.0% in 1995 to 11.8% in 1996
principally due to the higher sales base.
Non-cash stock compensation expense. Beginning in late 1994, some
participants in the Company's stock option plan have used Perceptron stock
options to pay the exercise price of stock options issued under the plan. The
Company was recently advised that accounting rules require the recording of a
non-cash compensation expense relating to certain of these exercises during
1996 and 1995. See Note 2 to the Consolidated Financial Statements for further
information.
The Company has restated its financial statements to record non-cash stock
compensation expense of $1.4 million in the fiscal 1995 and $3.2 million in
1996. The effect of this non-cash stock compensation charges on net income for
fiscal 1995 was a reduction of $.12 per share, and for 1996 was $0.27 per
share. The Company has taken action to eliminate the provision in its stock
option plans which
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otherwise might result in similar non-cash stock compensation expense
in 1997 and future years, including seeking to amend all outstanding stock
option agreements to require options to be exercised only in a manner which
does not result in non-cash stock compensation expense.
Interest income, net. Interest income, net, increased from approximately
$0.5 million in 1995 to $0.8 million in 1996, due to increased cash balances
and related investing activities during 1996.
Income before provision for income taxes. In 1995, Perceptron had income
before provision for income taxes of approximately $7.9 million representing
21.3% of net sales, as compared to 1996 income before provision for income
taxes of approximately $11.0 million representing 22.1% of net sales. Without
the non-cash stock compensation charge, the results for 1995 would have been
$9.3 million, or 25% of net sales, as compared to $14.2 million, or 28.5% of
net sales in 1996.
Provision for income taxes. For U.S. federal income tax reporting
purposes, as of December 31, 1996, there were no net operating loss
carryforwards available. Investment tax and research and development credits
of $0.7 million were available to benefit future U.S. earnings.
For financial reporting purposes, because the Company anticipated would
utilize certain of these carryforwards and credits, a deferred tax asset was
recorded in 1995, representing the estimated tax benefit of these items. As a
result, a tax benefit of $482,000 was recorded for the year ended 1995,
principally due to the tax benefits attributable to non-cash stock compensation
expense. See Note 8 to the Consolidated Financial Statements, "Income Taxes".
For the year ended December 31, 1996, the Company recorded a $3.1 million
provision for income taxes, representing an estimated effective tax rate of
28%.
Net income. Net income in 1995 was $8.4 million, or 22.5% of net sales,
resulting in $1.16 per share based on 7.3 million shares and equivalents
outstanding on a weighted average basis. In 1996, net income was $7.9 million,
or 15.9% of net sales, resulting in $1.03 per share based on 7.6 million shares
and equivalents outstanding on a weighted average basis. Without the non-cash
stock compensation expense, net income for 1995 would have been $9.3 million,
or 24.9% of net sales, resulting in $1.28 per share. Excluding the non-cash
stock option compensation expense, the 1996 net income would have been $9.9
million, 20% of net sales, or $1.30 per share, compared to the 1995 earnings,
as if taxed at a comparable rate, of $6.7 million, 18% of net sales or $.92
per share.
Year Ended December 31, 1995, Compared to Year Ended December 31, 1994
Net Sales. Net sales, of which substantially all are attributable to the
automotive market, consist of product sales together with training and service
revenue. The Company's net sales increased by 34% from $27.8 million in 1994
to $37.3 million in 1995. Net sales in the North American market increased
slightly from $24.2 million in 1994 to $24.3 million in 1995. Net sales in the
European and Asian markets increased from $3.6 million in 1994 to $13.0 million
in 1995, as a result of increased demand from the European and Asian automotive
industry.
The P-1000 systems accounted for 80% of net sales in 1994 and 79% of net
sales in 1995. The RGS and NCA systems combined accounted for 12% and 14% of
net sales in 1994 and 1995, respectively. Training and service revenues
accounted for less than 10% of net sales in both years.
New order bookings for 1994 totaled $30.9 million, compared to $42.3
million in 1995. North American orders were up from $25.5 million in 1994 to
$29.4 million in 1995 and European and Asian orders were up from $5.4 million in
1994 to $12.9 million in 1995. The P-1000 systems accounted for 78% of new
order bookings in 1994 and 76% in 1995.
Gross profit. Gross profit increased from $16.8 million in 1994 to $23.1
million in 1995, and as a percentage of net sales increased from 60.4% in 1994
to 62.0% in 1995. The Company charged cost of sales for increased reserves for
obsolete inventory by $340,000 in 1994 and $125,000 in 1995. Without these
charges, gross profit for 1994 and 1995 would have been 61.6% and 62.3%,
respectively.
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Selling, general and administrative expenses. Selling, general and
administrative expenses increased by 36% from $7.3 million in 1994 to $9.9
million in 1995. This increase is due primarily to increases in personnel and
various operating expenses required to support the increased 1995 operating
activity and, to a lesser extent, to increased management performance bonuses.
The Company's 1995 selling, general and administrative expenses included a
charge of $325,000 for stock option compensation expense related to the 1993
grants of performance based stock options, compared to a charge of $390,000 in
1994. As a percentage of net sales, selling, general and administrative
expenses increased slightly from 26.2% in 1994, to 26.5% in 1995.
Engineering, research and development. Engineering, research and
development expenses increased by 17%, from $3.8 million in 1994, to
approximately $4.5 million in 1995, due primarily to increased personnel and,
to a lesser extent, to increased expenditures for materials associated with
products under development. The expenses in 1994 included a one-time charge of
$160,000 for costs incurred in connection with a customer specific development
project, as well as one-time redesign costs of $85,000. Without these one-time
1994 costs, engineering, research and development costs would have increased by
25% in 1995 as compared to 1994. As a percentage of net sales, engineering,
research and development expenses decreased from 13.7% in 1994 to 12% in 1995
principally due to the higher sales base and, to a lesser extent, to the one
time charges and costs in 1994.
Non-cash stock compensation expense. Beginning in late 1994, some
participants in the Company's stock option plan have used Perceptron stock
options to pay the exercise price of stock options issued under the plan. The
Company was recently advised that accounting rules require the recording of a
non-cash compensation expense relating to certain of these exercises during
1996 and 1995, including $1.4 million in 1995. See Note 2 to the Consolidated
Financial Statements for further information.
The Company has restated its financial statements to record non-cash stock
compensation of $1.4 million, or net of taxes, of $895,000 for 1995. The
effect of this non-cash stock compensation charge on net income for 1995 was a
reduction of $.12 per share.
Interest income, net. Interest income, net, increased from approximately
$119,000 in 1994 to $539,000 in 1995, due to increased cash balances and
related investing activities during 1995.
Net income. In 1994, Perceptron had net income of approximately $5.8
million representing 21.0% of net sales, or $0.83 per share based on 7.0
million shares, as compared to 1995 net income of approximately $8.4 million
representing 22.5% of net sales, or $1.16 per share on 7.3 million shares.
During 1995, there was a tax benefit for income taxes in the Consolidated
Statement of Income of $482,000 principally due to the tax benefits
attributable to the non-cash stock compensation expense. See Note 8 to the
Consolidated Financial Statements, "Income Taxes".
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents as of December 31, 1996 totaled
approximately $14.7 million, as compared with approximately $15.0 million as of
December 31, 1995. This decrease was due primarily to increased capital
expenditures relating to the construction of the Company's new facility in
Plymouth, Michigan, and increased working capital requirements, partially
offset by an increase in cash represented by income from operating activities
during 1996.
The Company has unsecured credit facilities totaling $4.0 million U.S. and
1.0 million DM. These facilities may be used to finance working capital needs
and equipment purchases or capital leases. Any borrowings for working capital
needs will bear interest at the bank's prime rate (8.25% as of March 14, 1997);
any borrowings to finance equipment purchases will bear interest at the bank's
prime rate plus 1/2%. The credit facilities expire on May 31, 1997 unless
canceled earlier by the Company or the bank. As of December 31, 1996,
Perceptron had no outstanding borrowings on these facilities. The Company
expects to renew these credit facilities.
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The credit facility requires the Company to maintain a minimum amount of
tangible net worth and a minimum debt to tangible net worth ratio. The
facility also prohibits the Company from paying dividends, acquiring or
retiring any of its capital stock, or incurring any other debt, liens, or
guarantying any third party debt.
The Company's working capital increased to $35.1 million at December 31,
1996, from $27.8 million at December 31, 1995. Accounts receivable increased
from $14.3 million as of December 31, 1995 to $20.9 million as of December 31,
1996 primarily as a result of increased sales. The increase of approximately
$1.9 million in inventory is due primarily to an increase in component parts
inventory in preparation for delivery of products to customers during 1997.
The increase of $2.2 million in current liabilities is due primarily to an
increase in accounts payable and accrued expenses relating to the increased
operating activity in 1996 and progress payments due on the new facility. As a
result of the reduced net income due to the non-cash stock option compensation
expense and tax overpayments in Germany, an income tax receivable was recorded
of $2.1 million.
The Company does not believe that inflation has had any significant impact
on reported historical operations, and does not expect any significant
near-term inflationary impact.
The Company believes that cash on hand and existing credit facilities will
be sufficient to fund its currently anticipated 1997 cash flow requirements.
The Company expects to expend approximately $3.0 million during 1997 for
capital equipment, although there is no binding commitment to do so.
For a discussion of certain contingencies relating to the Company's
financial position and results of operations, see Note 10 to the Consolidated
Financial Statements, "Contingencies".
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (FAS
128). FAS 128 specifies the computation, presentation, and disclosure
requirements for earnings per share. The Company will adopt FAS 128 as of
December 31, 1997 (earlier adoption is not permitted). Once management has
determined the impact of adoption of FAS 128, the Company will disclose the
results.
RECENT DEVELOPMENTS
The Company believes that new order bookings for the first quarter of
1997 will be more than double the $7.5 million of new order bookings reported
in the first quarter of 1996. However, because of the granular nature of the
Company's business, a portion of the revenues planned to be booked and shipped
during the first quarter of 1997 are now expected to be booked and shipped
during the second quarter of 1997. In addition, certain anticipated first
quarter 1997 orders did not materialize. Accordingly, the Company's first
quarter revenues and earnings will be adversely affected. The foregoing
statements may be forward looking statements within the meaning of the
Securities Exchange Act of 1934. Actual results could differ materially from
those in the forward looking statements due to a number of uncertainties,
including, but not limited to, the dependence of the Company's revenues on a
limited number of sizable orders from a small number of customers, the timing
of orders, which can cause the Company to experience significant fluctuations
in its quarterly and annual revenues and operating results, general product
demand and market acceptance risks, the ability of the Company to successfully
compete with alternative and similar technologies, the ability of the Company
to resolve technical issues inherent in the development of new products and
technologies, the ability of the Company to identify and satisfy market needs,
general product development and commercialization difficulties, the quality and
cost of competitive products already in existence or developed in the future,
the level of interest existing and potential new customers may have in new
products and technologies generally, the timing and continuation of the
automotive industry's retooling programs, rapid or unexpected technological
changes, and the effect of economic conditions.
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ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
----
Report of Independent Accountants ................................... 19
Consolidated Financial Statements:
Balance Sheets - December 31, 1996 and 1995 ................... 20
Statements of Income for the years ended
December 31, 1996, 1995 and 1994 .............................. 21
Statements of Shareholders' Equity
for the years ended December 31, 1996, 1995 and 1994 .......... 22
Statements of Cash Flows for the years ended December 31, 1996,
1995 and 1994 ................................................. 23
Notes to Consolidated Financial Statements .................... 24-31
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[COOPERS & LYBRAND LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Perceptron, Inc.:
We have audited the accompanying consolidated balance sheets of Perceptron,
Inc. and Subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, shareholders' equity and cash flows, and the
financial statement schedule referred to in item 14A.(2) for each of the three
years in the period ended December 31, 1996. These financial statements and
financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express and opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Perceptron, Inc.
and Subsidiaries as of December 31, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996 in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedule referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information required to be included therein.
COOPERS & LYBRAND L.L.P.
Detroit, Michigan
January 31, 1997, except as to note 14
for which the date is February 3, 1997
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PERCEPTRON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
---------------------------
1996 1995
---------------------------
ASSETS (as restated)
- ------
Current assets:
Cash and cash equivalents $14,666,000 $ 14,990,000
Accounts receivable, net of reserves of $60,000 and $35,000 20,898,000 14,292,000
Inventories, net of reserves of $860,000 and $670,000 6,001,000 4,114,000
Income tax receivables 2,103,000 ---
Prepaid expenses and deferred tax asset 1,813,000 2,658,000
----------- -------------
Total current assets 45,481,000 36,054,000
----------- -------------
Property and equipment:
Construction in progress 6,202,000 ---
Machinery and equipment 4,077,000 8,014,000
Furniture and fixtures 252,000 492,000
Leasehold improvements 0 95,000
----------- -------------
10,531,000 8,601,000
Less: Accumulated depreciation and amortization (1,416,000) (6,074,000)
----------- -------------
Net property and equipment 9,115,000 2,527,000
Intangible assets 2,300,000 ---
----------- -------------
Total assets $56,896,000 $ 38,581,000
=========== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable 4,291,000 2,070,000
Accrued payables 4,171,000 3,869,000
Accrued compensation and stock option expense 1,930,000 2,284,000
----------- -------------
Total current liabilities 10,392,000 8,223,000
----------- -------------
Shareholders' equity:
Preferred Stock, no par value, 1,000,000 shares authorized,
none issued 0 0
Common Stock, $0.01 par value; 19,000,000 shares authorized,
7,253,000 and 6,723,000 issued and outstanding at
December 31, 1996 and 1995, respectively 73,000 67,000
Cumulative translation adjustments (929,000) (474,000)
Additional paid-in capital 39,472,000 30,771,000
Retained earnings (deficit) 7,888,000 (6,000)
----------- -------------
Total shareholders' equity $46,504,000 $ 30,358,000
----------- -------------
Total liabilities and shareholders' equity $56,896,000 $ 38,581,000
=========== =============
The accompanying notes are an integral part of the consolidated financial
statements.
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PERCEPTRON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
-------------------------------------
1996 1995 1994
----------- ----------- -----------
(As restated)
Net sales $49,679,000 $37,291,000 $27,835,000
Cost of sales 18,989,000 14,175,000 11,028,000
----------- ----------- ----------
Gross profit 30,690,000 23,116,000 16,807,000
----------- ----------- ----------
Selling, general and administrative expense 11,456,000 9,884,000 7,279,000
Engineering, research and development expense 5,854,000 4,467,000 3,808,000
Non-cash stock compensation expense 3,202,000 1,377,000 ---
----------- ----------- ----------
Income from operations 10,178,000 7,388,000 5,720,000
----------- ----------- ----------
Interest income, net 786,000 539,000 119,000
----------- ----------- ----------
Net income before provision for income taxes 10,964,000 7,927,000 5,839,000
Provision for income taxes 3,070,000 (482,000) ---
----------- ----------- ----------
Net income $7,894,000 $8,409,000 $5,839,000
=========== =========== ==========
Net income per weighted average share $1.03 $1.16 $0.83
=========== =========== ==========
Weighted average common and
common equivalent shares 7,636,296 7,257,784 6,998,380
=========== =========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
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PERCEPTRON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
for the years ended December 31, 1994, 1995 and 1996
Cumulative
Foreign
Common Stock Currency Additional Retained Total
-------------------- Translation Paid-In Earnings Shareholders'
Shares Amount Adjustments Capital (Deficit) Equity
---------- -------- ----------- ----------- ------------- -------------
Balances, January 1, 1994 5,841,511 $ 58,000 $ (366,000) $28,013,000 $ (14,254,000) $ 13,451,000
Stock options exercised, net of shares
tendered 538,708 6,000 513,000 519,000
Translation adjustment on investment (72,000) (72,000)
in foreign subsidiaries
Net Income 5,839,000 5,839,000
---------- -------- ----------- ----------- ------------- -------------
Balances, December 31, 1994 6,380,219 $ 64,000 $(438,000) $28,526,000 $ (8,415,000) $ 19,737,000
---------- -------- ----------- ----------- ------------- -------------
Stock options exercised, net of shares
tendered 342,560 3,000 591,000 594,000
Tax benefit of non-qualified stock 150,000 150,000
options exercised
Previously recorded stock option
compensation expense attributable
to options exercised 127,000 127,000
Non-cash stock compensation expense
attributable to options exercised 1,377,000 1,377,000
Translation adjustment on investment
in foreign subsidiaries (36,000) (36,000)
Net Income 8,409,000 8,409,000
---------- -------- ----------- ----------- ------------- -------------
Balances, December 31, 1995 (as restated) 6,722,779 $ 67,000 $(474,000) $30,771,000 $ (6,000) $ 30,358,000
========== ======== =========== =========== ============= =============
Shares issued for intangible assets 82,510 1,000 2,299,000 2,300,000
Stock options exercised, net of
shares tendered 447,278 5,000 2,066,000 2,071,000
Tax benefit of non-qualified stock
options exercised 600,000 600,000
Previously recorded stock option
compensation attributable to
options exercised 534,000 534,000
Non-cash compensation expense
attributable to options exercised 3,202,000 3,202,000
Translation adjustment on investment
in foreign subsidiaries (455,000) (455,000)
Net income 7,894,000 7,894,000
---------- -------- ----------- ----------- ------------- -------------
Balances, December 31, 1996 7,252,567 73,000 (929,000) 39,472,000 7,888,000 46,504,000
========== ======== =========== =========== ============= =============
The accompanying notes are an integral part of the consolidated financial
statements.
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PERCEPTRON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
----------------------------------------
1996 1995 1994
----------- -------------- -----------
(as restated)
Cash flows from operating activities:
Net income $7,894,000 $8,409,000 $5,839,000
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 720,000 635,000 458,000
Disposal of fixed assets 293,000 --- 134,000
Non-cash stock compensation expense 3,202,000 1,377,000 ---
Changes in operating assets and liabilities:
Accounts receivable and income
tax receivable (8,989,000) (2,645,000) (2,833,000)
Inventories (1,887,000) (851,000) (887,000)
Prepaid expenses and deferred tax asset 845,000 (2,239,000) (164,000)
Accounts payable (47,000) 378,000 267,000
Accrued expenses 482,000 3,583,000 1,356,000
Deferred revenue --- --- 175,000
----------- ----------- -----------
Total adjustments (5,381,000) 238,000 (1,494,000)
----------- ----------- -----------
Net cash provided by operating activities 2,513,000 8,647,000 4,345,000
----------- ----------- -----------
Cash flows (used in) investing activities:
Capital expenditures (5,333,000) (1,999,000) (738,000)
----------- ----------- -----------
Net cash (used in) investing activities (5,333,000) (1,999,000) (738,000)
----------- ----------- -----------
Cash flows from financing activities:
Principal payments under capital leases -0- (94,000) (103,000)
Proceeds from issuance of short-term debt -0- --- 287,000
Principal payments on short-term debt -0- (287,000) ---
Proceeds from the exercise of stock options 2,071,000 594,000 519,000
Tax benefit of non-qualified options exercised 600,000 150,000 ---
----------- ----------- -----------
Net cash provided by financing activities 2,671,000 363,000 703,000
----------- ----------- -----------
Effect of exchange rates on cash and cash equivalents (175,000) 62,000 36,000
----------- ----------- -----------
Net increase/(decrease) in cash and cash equivalents (324,000) 7,073,000 4,346,000
Cash and cash equivalents, beginning of year 14,990,000 7,917,000 3,571,000
----------- ----------- -----------
Cash and cash equivalents, end of year $14,666,000 $14,990,000 $7,917,000
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest expense $0 $28,000 $23,000
=========== =========== ===========
Cash paid during the year for income taxes $ 2,518,000 $100,000 $150,000
=========== =========== ===========
Non-cash transactions:
Equipment acquired under capital leases $0 $0 $101,000
Previously recorded compensation expense
attributable to options exercised 534,000 127,000 0
Intangible assets acquired for stock 2,300,000 0 0
The accompanying notes are an integral part of the consolidated financial
statements
23
24
PERCEPTRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
OPERATIONS
Perceptron, Inc. and its wholly-owned subsidiaries (collectively, the
"Company") are involved in the design, development, manufacture, and marketing
of three-dimensional machine vision systems which are used primarily in the
automotive industry, and to a lesser extent, in other industries.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
CURRENCY TRANSLATION
The financial statements of the Company's wholly-owned foreign
subsidiaries have been translated in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 52, with the functional currency being the
local currency in the foreign country. Under this standard, translation
adjustments are accumulated in a separate component of shareholders' equity.
Gains and losses on foreign currency transactions are included in the
consolidated statement of income.
CONCENTRATION OF CREDIT RISK
The Company markets and sells its products primarily to automotive
assembly companies and to system integrators or original equipment
manufacturers, who in turn sell to automotive assembly companies. The
Company's accounts receivable are principally from a small number of large
customers. The Company performs ongoing credit evaluations of its customers.
To date, the Company has not experienced any significant losses related to the
collection of accounts receivable.
A significant portion of the Company's cash and cash equivalents were with
one bank as of December 31, 1996.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INVENTORIES
Inventories are stated at the lower of cost or market. The cost of
inventories is determined by the first-in, first-out (FIFO) method.
Inventories, net of reserves, are comprised of the following:
December 31,
------------------------
1996 1995
------------ ----------
Component parts $4,234,000 $3,022,000
Work in process 1,247,000 641,000
Finished goods 520,000 451,000
------------ ----------
Total $6,001,000 $4,114,000
============ ==========
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Depreciation related to
machinery and equipment and furniture and fixtures is computed on a
straight-line basis over estimated useful lives ranging from three to five
years. Leasehold improvements are amortized over the term of the lease or
estimated useful life, whichever is shorter. Intangible assets recorded in
1996 will be amortized over approximately 5 years.
24
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When properties are retired, the costs of such properties and related
accumulated depreciation or amortization are eliminated from the respective
accounts, and the resulting gain or loss is reflected in the consolidated
statement of income.
REVENUE RECOGNITION
The Company's products are generally configured to customer
specifications. Certain customers may require a demonstration of the system
prior to shipment. At the time of satisfactory demonstration, a written
customer acceptance is completed. Revenue is recognized upon the earlier of
written customer acceptance or shipment of the product to the customer.
RESEARCH AND DEVELOPMENT
Research and development costs, including software development costs, are
expensed as incurred.
NET INCOME PER SHARE
Net income per common and common equivalent share is calculated based upon
the weighted average number of shares of Common Stock outstanding, adjusted for
the dilutive effect of stock options and warrants, using the treasury stock
method. The dilutive effect of convertible shares held by a minority
shareholder of a foreign subsidiary has also been included in the calculation
of net income per share up to June 23, 1994, at which time these shares were
converted into Common Stock of the Company.
CASH AND CASH EQUIVALENTS
In accordance with SFAS No. 95, the Company considers all highly liquid
investments purchased with maturities of three months or less to be cash
equivalents. Fair value approximates carrying value because of the short
maturity of the cash equivalents.
RECLASSIFICATIONS
Certain 1995 and 1994 amounts have been reclassified to conform to the
1996 presentation.
IMPAIRMENT OF LONG-LIVED ASSETS AND CERTAIN IDENTIFIABLE INTANGIBLES
The Company adopted Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of," as of January 1, 1996. The effect of adopting this
standard was not material.
The Company evaluates the carrying value of long-lived assets and
long-lived assets to be disposed of for potential impairment on an ongoing
basis. The Company considers projected future operating results, trends and
other circumstances in making such estimates and evaluations.
2. NON-CASH STOCK COMPENSATION EXPENSE
Beginning in late 1994, some participants in the Company's stock option
plan have used Perceptron stock options to pay the exercise price of stock
options issued under the plan. The Company was recently advised by its
independent accounting firm that generally accepted accounting principles
require the recording of a non-cash compensation expense relating to certain
option exercises during 1996 and 1995.
The Company has restated its 1995 financial statements to record non-cash
stock compensation expense, net of taxes, of $895,000.
3. CREDIT FACILITY:
The Company has unsecured credit facilities totaling $4.0 million U.S. and
1.0 million DM. These facilities may be used to finance working capital needs
and equipment purchases or capital leases. Any borrowings for working capital
needs will bear interest at the bank's prime rate (8.25% as of December 31,
1996); any borrowings to finance equipment purchases will bear interest at the
bank's prime rate plus 1/2%. The credit facilities expire on
25
26
May 31, 1997 unless canceled earlier by the Company or the bank. The Company
expects to renew these credit facilities. At December 31, 1996, the Company
had no outstanding liabilities under these facilities.
The credit facility requires the Company to maintain a minimum amount of
tangible net worth and a minimum debt to tangible net worth ratio. The
agreement also prohibits the Company from paying dividends, acquiring or
retiring any of its capital stock, or incurring any other debt, liens, or
guarantying any third party debt.
4. LEASES:
The following is a summary, as of December 31, 1996, of the future minimum
annual lease payments required under the Company's real estate and other
operating leases having initial or remaining noncancelable terms in excess of
one year:
Year Operating
- ---- ---------
1997 $158,000
1998 110,000
1999 0
---------
Total minimum lease payments $268,000
=========
Rental expense for operating leases in 1996, 1995 and 1994 was $352,000,
$380,000 and $365,000, respectively.
5. COMMITMENTS AND OTHER:
The Company has committed to provide funding in the amount of $50,000 to a
university in conjunction with research in manufacturing methods utilizing the
Company's products and technology. At December 31, 1996, the Company had
funded $25,000 of its commitment for the university's fiscal year ended June
30, 1997.
The Company had received a $1.22 million grant from the U.S. Department of
Commerce, through the National Institute of Standards and Technology (NIST),
for software development related to high-speed image processing techniques for
three-dimensional machine vision systems. This grant was for the period which
began on January 1, 1994, and which ended March 31, 1996.
In connection with this grant, the Company had subcontracted a portion of
the research effort to a university and to an independent research institute,
at a total cost of $1.0 million. In addition, the Company granted warrants to
the research institute to purchase 30,000 shares of Common Stock, 15,000 of
which are currently unexercised. The exercise price of these warrants is
$11.17 per share. During 1994, 1995, and 1996, the Company incurred total
costs of $444,000, $558,000, and $250,000 in connection with this grant, which
were substantially reimbursed by NIST. The amounts reimbursed by NIST are not
recognized as net sales by the Company, but are rather treated as a reduction
of engineering, research and development expense.
The Company uses, from time to time, a limited hedging program to minimize
the impact of foreign currency fluctuations. As the Company exports product,
it generally enters into limited hedging transactions relating to the accounts
receivable arising as a result of such shipment. These transactions involve
the use of forward contracts. At December 31, 1996, the Company had no forward
contracts outstanding.
6. SHAREHOLDERS EQUITY:
- Convertible Equity of Subsidiary
On June 23, 1994, the owner of a minority interest in the Company's
European subsidiary converted its equity interest in this subsidiary into
197,802 shares of Common Stock of the Company.
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- Stock options
The Company maintains 1983 and 1992 Stock Option Plans covering
substantially all company employees and certain other key persons. These Plans
are administered by a committee of the Board of Directors. Activity under
these Plans is shown in the following table:
1996 1995 1994
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Shares subject to option
Outstanding at beginning of period 1,060,943 $ 8.26 1,318,740 $ 5.85 1,466,883 $ 4.35
New grants (based on fair value of
Common Stock at dates of grant) 339,300 25.24 236,350 14.93 253,323 10.08
Exercised* (430,129) 6.07 (353,944) 3.81 (355,333) 2.47
Terminated and expired (16,603) 9.90 (140,203) 7.93 (46,133) 7.63
Outstanding at end of Period** 953,511 15.22 1,060,943 8.26 1,318,740 5.85
Outstanding but not exercisable 799,224 16.35 829,205 8.29 1,094,106 5.88
Exercisable at end of period 154,287 9.36 231,738 8.13 224,634 5.71
* Exercised at option prices ranging from $.23 to $21.87 during 1996, $.23
to $11.92 during 1995, and $.23 to $7.33 during 1994
** All outstanding shares at December 31, 1996 are under the 1992 Plan.
The following table summarizes information about stock options at December
31, 1996:
Outstanding Stock Options Exercisable Stock Options
------------------------------------------------ -------------------------
Weighted-Average
Range of Remaining Weighted-Average Weighted-Average
Exercise Prices Shares Contractual Life Exercise Price Shares Exercise Price
- --------------------------------------------------------------------------------------------------
$3.00 to $10.00 358,132 6.7 years $6.25 108,703 $6.60
$10.01 to $20.00 198,553 8.1 years $12.29 31,271 $12.92
$20.01 to $30.00 322,875 9.2 years $24.30 14,313 $22.48
$30.01 to $40.00 73,951 9.6 years $36.02 0 $0
- --------------------------------------------------------------------------------------------------
$3.00 to $40.00 953,511 8.1 years $15.22 154,287 $9.36
- --------------------------------------------------------------------------------------------------
Options outstanding under these Plans generally become exercisable at 25
percent per year beginning one year after the date of the grant and expire five
to ten years after the date of the grant. At December 31, 1996, options
covering 154,287 shares were exercisable and options covering 174,983 shares
were available for future grants under these plans.
The Company also maintains a Director Stock Option Plan covering all
non-employee directors. This Plan is administered by a committee of the Board
of Directors.
1996 1995
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
Shares subject to option
Outstanding at beginning of period 60,000 $12.58
New grants 64,500 $30.75 60,000 $12.58
Terminated and expired (16,500) $13.55 0
Outstanding at end of period 108,000 $23.28 60,000 $12.58
Outstanding but not exercisable 63,000 $30.75 60,000 $12.58
Exercisable at end of period 45,000 $12.58 0
At December 31, 1996, the weighted-average remaining exercise period
relating to the outstanding options was approximately 8.6 years.
Each non-employee director at the date the Director Stock Option Plan was
adopted received, and each non-employee director as of the date they are first
elected to the Board of Directors will receive, an option to purchase 15,000
shares of Common Stock (the "Initial Option"). Initial Options become
exercisable in full on the first anniversary of the day of the grant. In
addition, each non-employee director who has been a director for six
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months before the date of each Annual Meeting of Shareholders automatically will
be granted, as of the date of such Annual Meeting, an option to purchase an
additional 1,500 shares of Common Stock. These Annual Options become
exercisable in three annual increments of 33 1/3% of the shares subject to the
option, and expire ten years from the date of the grant. At December 31, 1996,
45,000 of these options were exercisable and options covering 67,500 shares
were available for future grants under this plan.
The estimated fair value as of the date options were granted in 1996 and
1995, using the Black-Scholes option-pricing model was as follows:
1996 1995
Weighted average estimated fair
value per share of options
granted during the year $16.55 $12.33
Assumptions:
Amortized dividend yield - -
Common Stock price volatility 57.94% 57.94%
Risk-free rate of return 5.78% 6.46%
Expected option term (in years) 6 6
The Company adopted the disclosure requirements of Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation," effective with the 1996 financial statements, but elected to
continue to measure compensation cost using the intrinsic value method, in
accordance with APB Opinion No. APB 25 ("APB 25"), "Accounting for Stock Issued
to Employees." Accordingly, compensation cost for stock options has been
recognized under the provisions of APB 25. If compensation cost had been
determined based on the estimated fair value of options granted in 1996 and
1995, consistent with the methodology in SFAS 123, the Company's net income and
income per share would have been adjusted to the proforma amount indicated
below:
1996 1995
Net income ..As reported $7,894,000 $8,409,000
..Pro forma 4,795,000 7,543,000
Primary earnings per share ..As reported $1.03 $1.16
..Pro forma $0.63 $1.04
The Company granted warrants to an independent research institute to
purchase 30,000 shares of Common Stock, 15,000 which were exercised in 1996
and 15,000 of which expire in 1998. The exercise price of these warrants is
$11.17 per share.
7. 401K PLAN:
The Company has a 401(k) tax deferred savings plan that covers all
eligible employees. The Company may make discretionary contributions to the
plan. The Company's contributions to the plan during 1996, 1995 and 1994 were
$251,000, $163,000, and $108,000, respectively.
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8. INCOME TAXES:
The income tax provision reflected in the statement of income consists of
the following for the years ending December 31, 1996 and 1995:
1996 1995
---------- -----------
Current provision
U.S. federal $1,159,000 $ 54,000
Foreign 1,136,000 1,446,000
Deferred taxes 775,000 (1,500,000)
Tax benefit attributable to non-cash stock compensation 0 (482,000)
---------- -----------
3,070,000 (482,000)
========== ===========
The Company's deferred tax assets are substantially represented by the tax
benefit of minimum tax credits, investment tax credits, research activities
credits, and general business credits carry forwards. The components of
deferred tax assets as of December 31, 1996 and 1995 were as follows:
1996 1995
---------- ----------
Net operating loss carry forwards $ 0 $1,200,000
Minimum tax credits 400,000 300,000
Investment tax credits 100,000 100,000
Research activities and general business credits 600,000 800,000
Other 325,000 ---
---------- ----------
Subtotal 1,425,000 2,400,000
Valuation reserve 0 (200,000)
---------- ----------
Deferred tax asset $1,425,000 $2,200,000
========== ==========
With the exception of the minimum tax credits, which have an indefinite
carryforward period, the credits giving rise to the deferred tax assets will
expire, if unused, at various dates from 1998 through 2008.
Rate reconciliation: 1996 1995
---- ----
Provision at U.S. statutory rate 34% 34%
Recognition of net operating loss carryforwards -- (40%)
Net effect of taxes on foreign activities (4%) 20%
Change in valuation allowance (2%) (20%)
---- ----
28% (6%)
==== ====
9. INFORMATION ABOUT MAJOR CUSTOMERS:
The Company sells its products directly to both domestic and international
automotive assembly companies. For the year ended December 31, 1996, the
Company derived 49% of its net sales from three such customers, one of which
was a shareholder until October 1994, when this customer sold their shares.
The Company also sells to system integrators or original equipment
manufacturers ("integrators"), who in turn sell to those same automotive
companies. For the year ended December 31, 1996, 18% of net sales were to
integrators, where those products were for the benefit of the same three
automotive assembly companies. In 1996, sales by the Company to each of these
three customers exceeded 13% of the Company's net sales. During 1995, 36% of
total net sales was derived from three domestic automotive companies, and 28%
from sales by integrators to such companies. In 1995, sales by the Company to
each of these three customers exceeded 8% of the Company's net sales. During
1994, 34% of net sales were derived from three automotive companies and 49%
from sales by integrators to such companies. In 1994, sales by the Company to
each of these three companies exceeded 10% of the Company's net sales.
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10. CONTINGENCIES:
The Company may, from time to time, be subject to legal proceedings and
claims. Litigation involves many uncertainties. Management is currently
unaware of any significant pending litigation affecting the Company, other than
the indemnification matter and the complaint discussed in the following
paragraphs.
The Company has been informed that certain of its customers have received
allegations of possible patent infringement involving processes and methods
used in the Company's products. One such customer is currently engaged in
litigation relating to such matter. This customer has notified various
companies from which it has purchased such equipment, including the Company,
that it expects the suppliers of such equipment to indemnify such customer, on
a pro-rata basis, for expenses and damages, if any, incurred in this matter.
Management believes, however, that the processes used in the Company's products
were independently developed without utilizing any previously patented process
or technology. Because of the uncertainty surrounding the nature of any
possible infringement and the validity of any such claim or any possible
customer claim for indemnity, it is not possible to estimate the ultimate
effect, if any, of this matter on the company's financial position.
On March 13, 1996, a complaint was filed naming the Company as a
defendant, along with Trident and Nanoose, in an action alleging that the
Company's TriCam sensor violates a patent held by the plaintiff and seeking
preliminary and permanent injunctions and damages. Management believes that
its TriCam sensor was independently developed without utilizing any previously
patented process or technology and intends to vigorously defend its position.
11. FOREIGN OPERATIONS:
The Company operates in three primary geographic areas: North America,
Europe and Asia. Geographical area data is as follows ($000):
Years ended December 31,
---------------------------
1996 1995 1994
-------- -------- -------
Net sales:
North America* $41,352 $ 26,899 $25,341
Europe and Asia 12,686 13,049 3,606
Intercompany Sales (4,359) (2,657) (1,112)
-------- --------- -------
Total Net Sales $49,679 $ 37,291 $27,835
======== ========= =======
Income from operations: (as restated)
North America* $5,581 $ 1,634 $5,513
Europe and Asia 4,597 5,754 207
-------- --------- -------
Total Income from Operations $10,178 $ 7,388 $5,720
======== ========= =======
Identifiable assets at December 31:
North America* $44,399 $ 30,808 $22,209
Europe and Asia 12,497 7,773 2,298
-------- --------- -------
Total Assets $56,896 $ 38,581 $24,507
======== ========= =======
__________________________
* Includes intercompany amounts; intercompany sales prices are based on
cost plus a transfer fee.
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12. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
Selected unaudited quarterly financial data for the years ended December
31, 1996 and 1995, are as follows ($000's except earnings per share):
Quarter ended
---------------------------------
1996 3-31 6-30 9-30 12-31
---- ------ ------- ------- -------
Net Sales $9,062 $11,663 $12,856 $16,098
Gross profit 5,307 7,046 8,140 10,197
Net income 928 588 2,487 3,891
Earnings per share $.12 $.08 $.32 $.50
Weighted average shares 7,468 7,677 7,680 7,706
3-31 6-30 9-30* 12-31
------ ------- ------- -------
1995
----
Net sales $5,989 $8,603 $9,311 $13,388
Gross profit 3,606 5,250 5,823 8,437
Net income 733 1,914 1,621 4,141
Earnings per share $.10 $.27 $.22 $.56
Weighted average shares 7,087 7,127 7,310 7,391
*See Note 2.
13. INTANGIBLE ASSETS
On November 26, 1996, the Company's German subsidiary acquired the assets
of a division of HGV Vosseler GmbH ("Vosseler") engaged in the development and
sale of non-contact three-dimensional measurement systems for aggregate
consideration consisting of 82,150 shares of Common Stock and DM 300,000 and
recorded $2.3 million in intangible assets relating to the acquisition.
14. SUBSEQUENT EVENTS
On February 3, 1997, the Company consummated its acquisition of Autospect,
Inc. ("Autospect") through the merger of a wholly owned subsidiary of the
Company with and into Autospect for aggregate consideration consisting of
387,093 shares of Common Stock of the Company. Autospect, based in Ann Arbor,
Michigan, designs, develops and manufactures information-based coatings
inspection and defect detection systems primarily for use in the automotive
industry. The transaction will be accounted for as a pooling of interests. As
of and for the year ended December 31, 1996, Autospect's revenues, net income,
and net assets were approximately $4 million, $0.7 million and $2.6 million
respectively.
[UNAUDITED]
The Company recently signed letters of intent to acquire Trident Systems,
Inc. ("Trident") and Nanoose Systems Corporation ("Nanoose"). The closing of
these acquisitions is subject to a number of factors, including the
negotiation, approval and execution of definitive documents and completion of
satisfactory due diligence. The proposed consideration for these acquisitions
will be shares of Common Stock of the Company, aggregating less than 5% of the
outstanding Common Stock.
ITEM 9:CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
No response to Item 9 is required.
31
32
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained under the captions "Matters to Come before the
Meeting - Proposal 1: Election of Directors," "Further Information - Executive
Officers" and "Further Information - Share Ownership of Management and Certain
Shareholders - Reporting of Beneficial Ownership by Directors, Executive
Officers and Ten Percent Holders" of the registrant's proxy statement for 1997
Annual Meeting of Shareholders (the "Proxy Statement") is incorporated herein
by reference.
ITEM 11: EXECUTIVE COMPENSATION
The information contained under the caption "Further Information -
Compensation of Directors and Executive Officers" of the Proxy Statement is
incorporated herein by reference.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained under the captions "Further Information - Share
Ownership of Management and Certain Shareholders - Principal Shareholders" and
"Further Information - Share Ownership of Management and Certain Shareholders -
Beneficial Ownership by Directors and Executive Officers" of the Proxy
Statement is incorporated herein by reference.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained under the captions "Further Information -
Certain Transactions" of the Proxy Statement is incorporated herein by
reference.
32
33
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K
A. Financial Statements and Schedules Filed
1. Financial Statements - see Item 8 of this report.
2. Financial Statement Schedule - the schedule filed
with this report is listed on page 35.
3. Exhibits - the exhibits filed with this report are
listed on pages 37 through 40.
B. Reports on Form 8-K: The Company did not file any reports on
Form 8-K in the fourth quarter of 1996 with the Securities and
Exchange Commission.
33
34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form
10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
PERCEPTRON, INC.
(Registrant)
By: /S/ Alfred A. Pease
------------------------------------
Alfred A. Pease, Chairman, President
and Chief Executive Officer
Date: March 27, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signatures Title Date
- --------------------- --------------------------------------------------- --------------
/S/ Alfred A. Pease Chairman of the Board, March 27, 1997
- --------------------- President, Chief Executive Officer
Alfred A. Pease
/S/ John G. Zimmerman Vice President and Chief March 27, 1997
- --------------------- Financial Officer (Principal Financial Officer)
John G. Zimmerman
/S/ Paul J. Tripodi Controller (Principal Accounting Officer) March 27, 1997
- ---------------------
Paul J. Tripodi
/S/ Dwight D. Carlson Vice Chairman of the Board of Directors March 27, 1997
- ---------------------
Dwight D. Carlson
Director March 27, 1997
- ---------------------
Philip J. DeCocco
/S/ Robert S. Oswald Director March 27, 1997
- ---------------------
Robert S. Oswald
/S/ Harry T. Rein Director March 27, 1997
- ---------------------
Harry T. Rein
/S/ Paul E. Rice Director March 27, 1997
- ---------------------
Paul E. Rice
/S/ Louis R. Ross Director March 27, 1997
- ---------------------
Louis R. Ross
Director March 27, 1997
- ---------------------
Terryll R. Smith
34
35
PERCEPTRON, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS SCHEDULE
Financial Statements Schedule:
Designation Description Page
- ----------- --------------------------------- ----
Schedule II Valuation and qualifying accounts 36
The schedules not filed are omitted because they are not required, the
information required to be contained therein is disclosed elsewhere in the
financial statements or the amounts involved are not sufficient to require
submission.
35
36
PERCEPTRON, INC. AND SUBSIDIARIES
SCHEDULE II, VALUATION AND QUALIFYING ACCOUNTS
CHARGED TO
BEGINNING COSTS AND ENDING
DESCRIPTION BALANCE EXPENSE CHARGE-OFFS BALANCE
- ---------------------- ----------- --------------- ------------ -------------
December 31, 1994:
- ----------------------
ALLOWANCE FOR DOUBTFUL
ACCOUNTS $125,000 $116,000 $ 5,000 $236,000
INVENTORY RESERVES $230,000 $506,000 $ 36,000 $700,000
December 31, 1995:
- ----------------------
ALLOWANCE FOR DOUBTFUL
ACCOUNTS $236,000 $ 35,000 $236,000 $ 35,000
INVENTORY RESERVES $700,000 $125,000 $155,000 $670,000
December 31, 1996:
- ----------------------
ALLOWANCE FOR DOUBTFUL
ACCOUNTS $ 35,000 $ 36,000 $ 11,000 $ 60,000
INVENTORY RESERVES $670,000 $200,000 $ 10,000 $860,000
36
37
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION OF EXHIBITS
3. Restated Articles of Incorporation and Bylaws.
3.1 Restated Articles of Incorporation, as amended to date, are
incorporated herein by reference to Exhibit 3.3 of the Company's Report
on Form 10-Q for the Quarter Ended June 30, 1994.
3.2 Bylaws, as amended to date, are incorporated herein by reference to
Exhibit 19 of the Company's Report on Form 10-Q for the Quarter Ended
September 30, 1992.
4. Instruments Defining the Rights of Securities Holders.
4.1 Articles IV and V of the Company's Restated Articles of
Incorporation are incorporated herein by reference to Exhibit 3.3 of
the Company's Report on Form 10-Q for the Quarter Ended June 30, 1994.
4.2 Articles I, II, III, VI, VII and X of the Company's Bylaws are
incorporated herein by reference to Exhibit 19 of the Company's Report
on Form 10-Q for the Quarter Ended September 30, 1992.
4.3 Revised Credit Agreement dated May 22, 1996, between Perceptron,
Inc., Perceptron GmbH and NBD Bank, N.A. and related Demand Business
Loan Note are incorporated herein by reference to Exhibit 4.4 of the
Company's Report on Form 10-Q for the Quarter Ended June 30, 1996.
10. Material Contracts.
10.1 Registration Agreement, dated as of June 13, 1985, as amended,
among the Company and the Purchasers identified therein, is
incorporated by reference to Exhibit 10.3 of the Company's Form S-1
Registration Statement (amended by Exhibit 10.2) No. 33-47463.
10.2 Patent License Agreement, dated as of August 23, 1990, between the
Company and Diffracto Limited, is incorporated herein by reference to
Exhibit 10.10 of the Company's Report on Form S-1 Registration
Statement No. 33-47463.
10.3 Form of Proprietary Information and Inventions Agreement between
the Company and all of the employees of the Company is incorporated
herein by reference to Exhibit 10.11 of the Company's Form S-1
Registration Statement No. 33-47463.
10.4 Form of Confidentiality and Non-Disclosure Agreement between the
Company and certain vendors and customers of the Company is
incorporated herein by reference to Exhibit 10.12 of the Company's Form
S-1 Registration Statement No. 33-47463.
10.5 Two Forms of Agreement Not to Compete between the Company and
certain officers of the Company, is incorporated herein by reference to
Exhibit 10.50 of the Company's Report on Form 10-Q for the Quarter
Ended June 30, 1996.
37
38
10.6 Co-operative Agreement, dated April 1, 1992, between the Company
and Sumitomo Corporation, is incorporated herein by reference to
Exhibit 10.17 of the Company's Form S-1 Registration Statement No.
33-47463.
10.7 Development and Purchase Agreement between DeMattia Development
Company, Plymouth-West Limited Partnership and Perceptron, Inc. dated
June 2, 1996 is incorporated by reference to Exhibit 10.51 to the
Company's Report on Form 10-Q for the Quarter Ended June 30, 1996.
10.8 Mortgage between DeMattia Development Company and Perceptron, Inc.
dated June 6, 1996 is incorporated by reference to Exhibit 10.52 to the
Company's Report on Form 10-Q for the Quarter Ended June 30, 1996.
10.9 Single Tenant Building Lease, dated March 5, 1996, between Demco
XVI Limited Partnership and Perceptron, Inc. is incorporated by
reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K
for the Year Ended December 31, 1995.
10.10@ 1983 Stock Option Plan, as amended, and forms of Stock Option
Agreement are incorporated herein by reference to Exhibit 10.21 of the
Company's Form S-1 Registration Statement No. 33-47463.
10.11@ Amended and Restated 1992 Stock Option Plan is incorporated herein by
reference to Exhibit 10.53 of the Company's Report on Form 10-Q for the
Quarter Ended September 30, 1996.
10.12@ Form of Stock Option Agreements, for July 1993 Stock Option Grants,
is incorporated herein by reference to Exhibit 10.23 of the Company's
Report on Form 10-Q for the Quarter Ended September 30, 1993 and
Exhibit 10.32 of the Company's Report on Form 10-Q for the Quarter
Ended March 31, 1994.
10.13@ Stock Option Agreement, December 1993 Option Grant, dated December
13, 1993, between the Company and James A. Ratigan is incorporated
herein by reference to Exhibit 10.25 of the Company's Annual Report on
Form 10-K for the Year Ended December 31, 1993.
10.14@ First Amendment to Stock Option Agreement, December 1993 Option Grant
between the Company and James A. Ratigan, is incorporated by reference
to Exhibit 10.41 of the Company's Report on Form 10-Q for the Quarter
Ended September 30, 1995.
10.15@ Stock Option Agreement, Performance Options, dated December 13, 1993,
between the Company and James A. Ratigan is incorporated herein by
reference to Exhibit 10.26 of the Company's Annual Report on Form 10-K
for the Year Ended December 31, 1993.
10.16@ First Amendment to Stock Option Agreement, Performance Options dated
December 13, 1993, between the Company and James A. Ratigan, is
incorporated by reference to Exhibit 10.42 of the Company's Report on
Form 10-Q for the Quarter Ended September 30, 1995.
10.17@ Form of Stock Option Agreements for Performance Options, is
incorporated herein by reference to Exhibit 10.27 of the Company's
Annual Report on Form 10-K for the Year Ended December 31, 1993. The
performance standards under these options were waived effective March
2, 1994.
10.18@ First Amendments to Stock Option Agreements for Performance Options
is incorporated herein by reference to Exhibit 10.20 of the Company's
Annual Report on Form 10-K for the Year Ended December 31, 1994.
38
39
10.19@ Form of Stock Option Agreements under 1992 Stock Option Plan, (Team
Members and Officers) prior to February 9, 1995, is incorporated herein
by reference to Exhibit 10.28 of the Company's Annual Report on Form
10-K for the Year Ended December 31, 1993.
10.20@ Forms of Master Amendments to Stock Option Agreements (Team Members
and Officers) under 1992 Stock Option Plan, prior to February 9, 1995
is incorporated herein by reference to Exhibit 10.22 to the Company's
Annual Report on Form 10-K for the Year Ended December 31, 1994.
10.21@ Forms of Incentive Stock Option Agreements (Team Members and
Officers) under 1992 Stock Option Plan after February 9, 1995 is
incorporated by reference to Exhibit 10.23 to the Company's Annual
Report on Form 10-K for the Year Ended December 31, 1994.
10.22*@ Forms of Incentive Stock Option Agreements (Team Members and
Officers) and Non-Qualified Stock Option Agreements under 1992 Stock
Option Plan after January 1, 1997 and Amendments to existing Stock
Option Agreements under the 1992 Stock Option Plan.
10.23@ Stock Option Agreement, dated May 21, 1993 between the Company and
James E. McGrath is incorporated herein by reference to Exhibit 10.33
of the Company's Report on Form 10-Q for the Quarter Ended March 31,
1994.
10.24@ Incentive Stock Option Agreement, dated February 14, 1996, between
the Company and Alfred A. Pease is incorporated by reference to Exhibit
10.29 of the Company's Annual Report on From 10-K for the Year Ended
December 31, 1995.
10.25@ Non-qualified Stock Option Agreement, dated February 14, 1996,
between the Company and Alfred A. Pease is incorporated by reference to
Exhibit 10.30 of the Company's Annual Report on Form 10-K for the Year
Ended December 31, 1995.
10.26@ Amended and Restated Directors Stock Option Plan is incorporated by
reference to Exhibit 10.56 to the Company's Report on Form 10-Q for the
Quarter Ended September 30, 1996.
10.27*@ Form of Non-Qualified Stock Option Agreements and Amendments under
the Director Stock Option Plan.
10.28@ Letter Agreement dated December 13, 1993, between the Company and
James A. Ratigan is incorporated herein by reference to Exhibit 10.24
of the Company's Annual Report on Form 10-K for the Year Ended December
31, 1993.
10.29@ Amendment dated October 26, 1995 to Letter Agreement dated December
13, 1993, between the Company and James A. Ratigan, is incorporated
herein by reference to Exhibit 10.40 of the Company's Report on Form
10-Q for the Quarter Ended September 30, 1995.
10.30@ Amendment dated April 19, 1996 to letter agreement dated December 13,
1993, between the Company and James A. Ratigan is incorporated by
reference to Exhibit 10.46 to the Company's Report on Form 10-Q for the
Quarter Ended March 31, 1996.
10.31@ Compensation Arrangement Letter, dated May 21, 1993, between the
Company and James E. McGrath, is incorporated herein by reference to
Exhibit 10.34 of the Company's Report on Form 10-Q for the Quarter
Ended March 31, 1994.
10.32@ 1994 Management Bonus Plan is incorporated herein by reference to
Exhibit 10.30 to the Company's Annual Report on Form 10-K for the Year
Ended December 31, 1994.
10.33@ 1995 Management Bonus Plan is incorporated herein by reference to
Exhibit 10.38 to the Company's Annual Report on Form 10-K for the Year
Ended December 31, 1995.
39
40
10.34*@ 1996 Management Bonus Plan.
10.35@ Amended and Restated Employee Stock Purchase Plan is incorporated by
reference to Exhibit 10.54 of the Company's Report on Form 10-Q for the
Quarter Ended September 30, 1996.
10.36*@ Letter Agreement, dated February 14, 1996, between the Company and
Alfred A. Pease.
10.37@ Employment Agreement, dated February 12, 1996, between the Company
and Dwight D. Carlson is incorporated by reference to Exhibit 10.42 to
the Company's Annual Report on Form 10-K for the Year Ended December
31, 1995.
10.38 Financial Assistance Award, dated December 17, 1993, received from
the U.S. Department of Commerce - National Institute of Standards and
Technology, and incorporated herein by reference to Exhibit 10.31 of
the Company's Annual Report on Form 10-K for the Year Ended December
31, 1993.
11.* Statement re: computations of per share earnings.
21.* A list of subsidiaries of the Company.
23.* Consent of Experts.
27.* Financial Data Schedule.
- ----------
* Filed with the Company's Annual Report on Form 10K for the year ended
December 31, 1996.
@ Indicates a management contract, compensatory plan or arrangement.
40