Back to GetFilings.com
1
- --------------------------------------------------------------------------------
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, 1998 OR [ ] TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 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
(734) 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
RIGHTS TO PURCHASE PREFERRED STOCK
(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 17, 1999, as reported by The Nasdaq Stock Market, was approximately
$34,100,000 (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 17, 1999, was: 8,169,152.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following document, to the extent specified in this report, are
incorporated by reference in Part III of this report.
Document Incorporated by reference in:
Proxy Statement for 1999
Annual Meeting of Shareholders Part III, Items 10 - 13
- --------------------------------------------------------------------------------
1
2
PART I
ITEM 1: DESCRIPTION OF BUSINESS
GENERAL
Perceptron, Inc. ("Perceptron" or the "Company") designs, develops,
manufactures and markets information based process measurement and guidance
solutions, that help customers improve performance. The Company's systems
provide information to process automation equipment or to workers to address a
number of measurement and guidance applications. Product solutions offered by
the Company include: (1) Process control systems that precisely measure and
process measurements to monitor assembly processes for conformance to design
intent. (2) Systems that guide robots to perform precise tasks on the assembly
line. (3) Systems that inspect and detect defects on painted surfaces. (4)
Systems that capture the shape of logs and process the shape data to optimize
the cutting process. Perceptron's product offerings are designed to improve
quality, increase productivity and decrease costs in the automotive and forest
and wood products workplace.
With the 1997 acquisitions of Trident Systems, Inc. ("Trident") and
Nanoose Systems Corporation ("Nanoose") and the 1998 asset purchases from Sonic
Industries, Inc. and Sonic Technologies, Inc. ("Sonic"), the Company has both a
Forest Products business unit segment and an Automotive business unit segment.
The Company has engineering, selling, assembly and installation resources in
place to support customer requirements for both of these market segments.
The Company's current principal products rely on proprietary
three-dimensional image processing and feature extraction software algorithms
combined with two distinct three-dimensional object imaging technologies:
TriCam(TM) and LASAR(TM). TriCam technology uses structured laser light
triangulation techniques to obtain accurate three-dimensional measurements.
TriCam systems are primarily used to measure formed parts for process control,
to provide robot guidance for automated assembly tasks and to perform
non-contact alignment functions. TriCam is also applied to measure naturally
occurring three-dimensional shapes such as logs. 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.
Perceptron proprietary software algorithms convert sensor images into
meaningful dimensional information and present it in a variety of useful
formats. 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 Internet, Web-based
networking. The systems provide graphical displays, in addition to numerical
reports.
Trident, based in Atlanta, Georgia, 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. 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 TriCam and LASAR systems sold to the forest and wood
products industry. This software accepts scanner information from the Company's
TriCam and LASAR systems.
On October 1, 1998, the Company acquired the assets and ultrasound
intellectual property, and assumed certain liabilities, of Sonic of Hatboro,
Pennsylvania. Sonic designs and markets scanning systems, principally for food
and forest product applications.
In 1999, the Company merged its wholly-owned subsidiary, Autospect,
Inc. ("Autospect") with and into the Company and Autospect is now operated as
part of the Automotive business unit.
The Company was incorporated in Michigan in 1981. Its headquarters are
located at 47827 Halyard Drive, Plymouth, Michigan 48170-2461, (734) 414-6100.
The Company also has operations in Ann Arbor, Michigan; Atlanta, Georgia;
Hatboro, Pennsylvania; British Columbia, Canada; Munich, Germany; Seoul, South
Korea; Rotterdam, The Netherlands; Sao Paulo, Brazil and Tokyo, Japan.
2
3
MARKETS
The Company has a multiple market approach, with the main focus being
the automotive industry. With the acquisition of Autospect in 1997, the Company
now has product offerings encompassing the entire automobile manufacturing line,
including stamping, general assembly, paint, trim and final assembly.
Perceptron's purchase of Trident and Nanoose in 1997 and Sonic assets in 1998
increased its marketing efforts in the forest and wood products markets. The
Company believes that there may be potential applications for its
three-dimensional measurement systems in non-automotive industries as diverse as
aerospace, food processing, appliances, robot and autonomous vehicle guidance,
and others. The foregoing statement is a "forward looking statement" within the
meaning of the Securities Exchange Act of 1934, as amended ("Exchange Act").
PRODUCTS AND APPLICATIONS
AUTOMOTIVE BUSINESS UNIT
Assembly Process Control System ("P-1000"): The P-1000 system, which
uses TriCam sensors, 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.
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' ("OEMs") wheel alignment equipment and offers a fast and accurate
non-contact method to align wheels, which reduces costly in-plant maintenance of
mechanical wheel alignment equipment. The Company supplies NCA systems to the
automotive market through a number of OEMs. 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.
ScanWorks[TM]: The ScanWorks measurement and dimensional analysis
software incorporates proprietary feature extraction algorithms, CAD data input,
CAD to scan comparison, data filtering and motion device interfaces in an
operator friendly, WindowsNT Graphical User Interface ("GUI"). The ScanWorks GUI
links the operator with measurement products such as OptiFlex-Pro (formerly
called Optical Checking Fixture) and OEM products.
Dimensional Data Management ("DDM"): The DDM is a 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. The client software provides multiple users, both local and
remote, with the capability of monitoring and analyzing dimensional data.
3
4
QMS-I: The QMS-I is a measurement system for coated surfaces. The QMS-I
checks the painted surface quality of each car as it exits the paint oven,
providing in-line quality trend analysis and process control information by car
color, model, shift, etc. It generates four objective, repeatable, and
reproducible ratings of coated surfaces. Measurements are taken in seconds, and
data analysis is automated. 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 trend and
quality data to the plant and corporate paint supervision. The information
provided allows quick reaction to process changes, resulting in improved quality
and cost savings. The QMS-Battery Portable ("QMS-BP"), a hand-held meter
providing the same readings as the QMS-I, is used to monitor incoming parts and
is used in paint laboratories.
PaintScan: The PaintScan System (formerly Industrial Dirt Counter)
checks the amount of dirt and other defects that affect the painted surface
quality of a car. 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 initial version of this product was sold to one customer for two
applications. While this version is currently running, no additional units of
this version are being offered. Instead, a new enhanced version is currently in
development which, once testing is complete, will become the new product
offering.
FOREST PRODUCTS BUSINESS UNIT
Forest Products Industry Application Solutions: TriCam and LASAR based
vision systems relay high resolution scan data to the Company's mill-wide family
of three-dimensional optimization software, providing a modular approach to
optimizing the entire mill. This computer integrated manufacturing assists the
mill in maximizing its returns on raw materials and capital investments. The
software solutions, coupled with the precision of dense three-dimensional
product modeling, provides process management with the added benefits of
sophisticated reporting, real-time feedback, order scheduling, production
control, and mill-wide information management.
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.
Note: Level IV software is based on WindowsNT operating system and
Internet Explorer, products of Microsoft Corporation. Perceptron
develops the GUI and the Data reporting structure, and interfaces to
underlying software levels.
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 ("VARs") or OEMs who in turn sell to the same end users and offer
access to new markets.
The Company's direct sales 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 automotive and
aerospace process control systems and for selected forest and wood products
applications.
4
5
With respect to the RGS system for robot guidance, the NCA system for
wheel alignment, various aerospace sales activities and sales to the forest and
wood products industry, the Company's marketing strategy is focused primarily on
sales to selected system integrators, OEMs and VARs who integrate the Company's
products into their systems for sale to end user customers.
The Company has formed an Emerging Markets Business Unit. This unit is
charged with finding and developing applications for existing software and
hardware products in aerospace markets as well as bringing to market several new
software product offerings.
The Company's principal customers have historically been automotive
companies that the Company either sells to directly or through system
integrators or OEMs. 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, 1998,
approximately 22% of total revenues were derived from three automotive companies
(General Motors, Ford and DaimlerChrysler). For the years ended December 31,
1997 and 1996, approximately 38% and 46%, respectively, of total revenues were
derived from the same three customers. In 1998, sales to General Motors exceeded
10% of the Company's total net sales. For the years ended December 31, 1998,
1997 and 1996, 13%, 17% and 16% of net sales, respectively, were to system
integrators and OEMs for the benefit of the same three automotive companies.
MANUFACTURING AND SUPPLIERS
The Company's manufacturing operations consist primarily of final
assembly and testing, along 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.
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. See Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations-Year
2000 Readiness Disclosure".
INTERNATIONAL OPERATIONS
Europe: The Company's European operations have contributed
approximately 20%, 23%, and 30% of the Company's revenues during the years ended
1996, 1997, and 1998, 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 outside of Munich, Germany. The
Company currently employs 39 people in its European operations.
Asia: The Company operates a direct sales and application office in
Seoul, Korea and began operating through a representative sales office in Tokyo,
Japan.
South America: The Company has a direct 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 14 to the Consolidated Financial Statements,
"Segment and Geographic Information".
COMPETITION
The Company believes that the principal competitive factors in the
Company's automotive markets are total capability as a process control system
and, with certain of the Company's products, system price. There are a number of
companies that sell similar and/or alternative technologies and methods into the
same markets as the Company.
The Company believes that the principal competitive factors in the
Company's forest and wood products markets are its capability as a process
control system and the value added when installed in a wood mill. In the forest
and wood products markets, there are a number of companies that sell similar
and/or alternative technologies and methods into the same markets as the
Company.
5
6
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.
BACKLOG
As of December 31, 1998, the Company had a backlog of $23.5 million,
compared to $24.2 million as of December 31, 1997. 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 its backlog by December 31, 1999.
RESEARCH AND DEVELOPMENT
As of December 31, 1998, 124 persons employed by the Company were
focused primarily on research, development and engineering relating to
three-dimensional machine vision systems and related software. For the three
years ended December 31, 1996, 1997 and 1998, the Company's research,
development and engineering expenses were $7.3 million, $8.9 million, and $11.4
million, respectively.
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 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. Recent customer recognition of the power of Web-based
or Web-like informational navigation for manufacturing operations has involved
the Company in pilot projects for widely distributed measurement systems and
remote information accessibility.
The Company has received a NIST-ATP award to participate in a joint
venture to develop a robot guidance system for power train assembly automation.
The Company's in-kind development contribution is approximately $500,000 over a
four-year period that began in 1998. The joint venture is administered by the
National Center for Manufacturing Sciences and includes a major automotive
manufacturer.
In late 1995, Autospect received a $1.8 million NIST grant that
provided funding over three years for development of a system to measure the
thickness of wet film (e.g. paint). During 1998, 1997 and 1996, the Company
recorded reimbursements of $800,000, $600,000 and $400,000, respectively, which
offset the related costs. Prototype testing was completed in 1998 and the system
will be installed and tested in a manufacturing environment during 1999.
PATENTS, TRADE SECRETS AND CONFIDENTIALITY AGREEMENTS
The Company owns ten 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 and has several patent applications
pending in foreign locations. These U.S. patents expire from 2004 through 2014
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. Certain of these customers, including
one customer who was a party to a patent infringement suit relating to this
matter, have settled such claims. Management believes, 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 relating to
claims against these customers, it is not possible to estimate the ultimate
effect, if any, of this matter on the Company's financial position.
The Company has registered, and continues to register, various trade
names and trademarks, including SCANWORKS, OPTIFLEX, PERCEPTRON, DATACAM, LASAR,
VERISTAR, DRISCAN, TRICAM, AUTOSPECT and PAINTSCAN, among others, which are used
in connection with the conduct of its business.
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.
6
7
EMPLOYEES
As of December 31, 1998, the Company employed 366 persons. None of the
employees are covered by a collective bargaining agreement and the Company
believes its relations with its employees to be good.
ITEM 2: FACILITIES
Perceptron's principal domestic facilities consist of a 70,000 square
foot building located in Plymouth, Michigan, owned by the Company, a 20,500
square foot leased facility in Ann Arbor, Michigan, a 13,000 square foot leased
building in Atlanta, Georgia, and a 3,500 square foot leased facility in
Hatboro, Pennsylvania. In addition, the Company leases a 1,350 square meters
facility in Munich, Germany, a 1,000 square foot facility in Rotterdam, The
Netherlands, a 6,200 square foot facility in British Columbia, Canada, an office
in Sao Paulo, Brazil, an office in Seoul, Korea, and an office in Tokyo, Japan.
The Company believes that its current facilities are sufficient to accommodate
its requirements through 1999.
ITEM 3: LEGAL PROCEEDINGS
On December 11, 1998, a jury in a civil case in the U.S. District Court
for the Eastern District of Michigan returned a favorable judgement for the
Company and awarded damages of over $732,000. The suit, filed by the Company in
June 1996, charged Sensor Adaptive Machines, Inc. ("SAMI") with violation of a
covenant not to compete. SAMI filed counterclaims against the Company alleging,
in part, that the Company was engaged in unlawful monopolization and tortious
interference with business practice and sought damages. In response to a motion
for summary disposition filed by the Company, the counterclaim for unlawful
monopolization was dismissed by the court in June 1998. The jury found that the
remaining counterclaims were without merit. On March 4, 1999, the Company's
motion for interest was granted. SAMI has the right to appeal the judgement
including the counterclaims against the Company.
On September 25, 1998, the U.S. District Court for the Eastern District
of Michigan dismissed, with prejudice, a suit filed against the Company by
Speroni, S.p.A. ("Speroni"). Speroni has appealed the dismissal. The suit
alleged tortious interference in conjunction with exclusive distributorship
contracts covering the sale of P-1000 products in Italy and France between
Perceptron B.V., a wholly-owned subsidiary of the Company, and Speroni. Speroni
sought unspecified compensatory damages and punitive damages. Perceptron B.V.
terminated the exclusive distributorship contracts in 1997 for breach of
contract by Speroni and has sought arbitration of this matter with the
International Chamber of Commerce International Court of Arbitration ("ICC"), to
confirm the terminations and to award damages. Speroni has filed counterclaims
with the ICC alleging breach of the exclusive distributorship contracts and
seeking damages of $6.5 million. The Company intends to vigorously pursue its
claims and defend Speroni's claims.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No response to Item 4 is required.
7
8
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
--- ----
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................................................... $ 25.25 $ 38.13
Second Quarter.................................................. $ 25.25 $ 30.75
Third Quarter................................................... $ 24.88 $ 34.50
Fourth Quarter.................................................. $ 19.13 $ 30.75
1998
- ----
First Quarter................................................... $ 17.75 $ 24.50
Second Quarter.................................................. $ 9.38 $ 20.50
Third Quarter................................................... $ 5.63 $ 11.88
Fourth Quarter.................................................. $ 4.25 $ 11.25
1999
- ----
First Quarter (January 1, 1999 through March 17, 1999).......... $ 4.00 $ 9.88
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 approximate number of shareholders of record on March 17, 1999, was
256.
8
9
ITEM 6: SELECTED CONSOLIDATED FINANCIAL INFORMATION
PERCEPTRON, INC. AND SUBSIDIARIES
(In thousands, except per share data)
Years Ended December 31,
--------------------------------------------------------------------
Statement of Operations Data(1): 1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Net sales $49,635 $65,102 $58,975 $43,154 $33,224
Gross profit 27,193 40,025 35,367 26,184 19,248
Operating income (loss) (5,799) 15,118 9,502 7,699 6,046
Income (loss) before income taxes (5,143) 16,009 10,245 8,227 6,179
Net income (loss) (3,339) 10,806 7,150 8,491 6,179
Net income (loss) per diluted
average common share $(.41) $1.28 $.86 $1.07 $.80
Weighted average common
shares outstanding - diluted 8,239 8,412 8,309 7,955 7,695
As of December 31,
---------------------------------------------------------------------
Balance Sheet Data: 1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Working capital $40,094 $45,604 $34,444 $28,119 $19,023
Total assets 66,408 68,142 61,456 42,017 25,750
Long-term liabilities 1,040 -- -- -- --
Shareholders' equity 54,852 57,879 46,447 31,049 20,346
- -----------------
(1) No cash dividends have been declared or paid during the periods presented.
9
10
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Perceptron, Inc. ("Perceptron" or the "Company") designs, manufactures
and markets information-based process measurement and guidance systems.
The Company's principal products involve a TriCam technology, a
proprietary triangulation based three-dimensional machine vision system using
laser technology. 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.
To date, the Company's products have been sold primarily to North
American, European and, to a lesser extent, Asian and South American automobile
manufacturers. Historically, sales to automotive customers have typically
depended primarily on new model re-tooling programs. Accordingly, sales may vary
significantly among customers on a year-to-year and quarter-to-quarter basis.
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. The transaction was accounted for
as a pooling of interests. Autospect, which is now part of the Company's
Automotive business unit, designs, develops and manufactures information-based
coating inspection and defect detection systems primarily for use in the
automotive industry.
On April 30, 1997, the Company consummated its acquisitions of Trident
Systems, Inc. ("Trident") and Nanoose Systems Corporation ("Nanoose") for
aggregate consideration consisting of 219,962 and 89,820 shares, respectively,
of Common Stock of the Company. The transactions were accounted for as
poolings of interest.
Trident, based in Atlanta, Georgia, 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. 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 to the
forest and wood products industry. This software accepts scanner information
from the Company's TriCam and LASAR systems.
On October 1, 1998, the Company acquired the assets and ultrasound
intellectual property, and assumed certain liabilities, of Sonic Industries,
Inc. and Sonic Technologies, Inc. ("Sonic") of Hatboro, Pennsylvania. Sonic
designs and markets ultrasound scanning systems, principally for food and forest
product applications.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998, COMPARED TO YEAR ENDED DECEMBER 31, 1997
Net Sales. Net sales, of which substantially all are attributable to
the automotive and forest and wood products ("Forest Products") markets, consist
primarily of product sales together with training and service revenue. Net sales
of $49.6 million in 1998 decreased by $15.5 million, or 24%, compared with net
sales of $65.1 million in 1997. Net sales in the North American market, net of
inter-segment eliminations, decreased from $48.3 million in 1997 to $34.5
million in 1998. Net sales in the European, Asian, and South American markets
decreased from $16.8 million in 1997 to $15.1 million in 1998. The total
decrease in net sales for 1998 was principally accounted for by a $12.4 million,
or 32%, decrease in sales of P-1000 systems and a $3.0 million, or 29%, decrease
in sales of RGS and NCA systems. Because the P-1000 system has been widely
received, particularly in North America, by the automotive industry for several
years, the sales decline for this system was not unexpected. As a result, P-1000
system sales in North America are expected to continue to decline. The RGS and
NCA systems' decrease was primarily due to the timing of new orders. Forest
Products' sales were up slightly compared with 1997.
P-1000 systems accounted for 54% of net sales in 1998 and 60% of net
sales in 1997. The RGS and NCA systems combined accounted for 15% of net sales
in 1998 and 16% in 1997. Forest Products sales accounted for 20% of net sales in
1998 and 15% of net sales in 1997. Training and service revenues and other
product sales accounted for the remainder of net sales in both years.
New order bookings for 1998 totaled $48.9 million, compared to $66.1
million in 1997. North American orders declined from $50.4 million in 1997 to
$32.9 million in 1998 while European and Asian orders were up from $15.7 million
in 1997 to $16.0 million in 1998. P-1000 systems accounted for 60% of new order
bookings in 1998 and 50% in 1997. RGS and NCA bookings accounted for 6% of
bookings in 1998 and 17% in 1997. Forest Product bookings were 20% of the total
in 1998 and 19% in 1997. Training and service and other product sales accounted
for the remainder of net bookings in both years. The decrease in new order
bookings in 1998 compared with 1997 was principally due to RGS and NCA systems
and, to a lesser extent, lower orders for P-1000 systems, Forest Product
systems, and Autospect paint inspection systems.
10
11
RGS and, in particular NCA systems, orders were down due to the timing
of new blanket purchase orders from several customers, expected to be received
during the first half of 1999. The Forest Product systems' order decline
reflected; (1) forest industry cash constraints related to weak demand for
lumber and (2) reduced orders for LASAR based systems due to required system
reengineering currently in process. Autospect paint inspection systems' new
orders were lower than anticipated due to delays in new product development. The
Company expects to release certain of these products during 1999. The foregoing
statements contain "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
described under Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Safe Harbor Statement", below.
Gross profit. Gross profit was $27.2 million, or 54.8%, of sales in
1998 compared with $40.0 million, or 61.5%, of sales in 1997. The percentage
decrease was due primarily to the lower sales volume which led to under-absorbed
fixed overhead and, to a lesser extent, sales mix and higher manufacturing,
warranty and installation costs.
Selling, general and administrative expenses. Selling, general and
administrative expenses were $20.1 million, or 40.6%, of sales in 1998 compared
with $16.0 million, or 24.5%, of sales in 1997. This increase was due primarily
to adding personnel and associated expenses, such as travel and telephone,
required to support the development of domestic and international markets for
automotive and Forest Products. Incremental cost increases associated with the
acquisitions during 1997 and 1998 also contributed to the year over year
spending increase.
Engineering, research and development. Engineering, research and
development expenses increased from $8.9 million, or 13.7% of sales in 1997, to
$11.4 million, or 22.9% of sales in 1998. The increase was primarily due to
additional personnel as well as higher material and testing expenditures to
support products under development.
Intangible asset write-off. During 1998, the Company developed a new
suite of non-contact three-dimensional measurement technologies, which
superceded certain existing technologies recorded as intangible assets. As a
result, the carrying value of these intangible assets was evaluated for
impairment. This evaluation resulted in a write-off of intangible assets with a
net book value of $1.5 million.
Interest income, net. Interest income, net, decreased from
approximately $0.9 million in 1997 to $0.7 million in 1998, due to lower average
cash balances during 1998.
Provision for income taxes. For the year ended December 31, 1998, the
Company recorded a $1.8 million income tax benefit related to the pre-tax loss
of $5.1 million, compared to a provision of $5.2 million related to pre-tax
income of $16.0 million in 1997 (see Note 13 to the Consolidated Financial
Statements, "Income Taxes").
YEAR ENDED DECEMBER 31, 1997, COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net Sales. Net sales, of which substantially all are attributable to
the automotive and Forest Product markets, consisted primarily of product sales
together with training and service revenue. The Company's net sales increased by
10% from $59.0 million in 1996 to $65.1 million in 1997. Net sales in the North
American market increased from $46.3 million in 1996 to $48.3 million in 1997.
Net sales in the European, Asian, and South American markets increased from
$12.7 million in 1996 to $16.8 million in 1997. The total increase in net sales
for 1997 was accounted for by a 5% increase in sales of P-1000 systems, a 45%
increase in sales of RGS and NCA systems, and a 21% increase in the sale of
Forest Product systems in North America.
P-1000 systems accounted for 63% of net sales in 1996 and 60% of net
sales in 1997. The RGS and NCA systems combined accounted for 12% of net sales
in 1996 and 16% in 1997. Forest Products sales accounted for 13% of net sales in
1996 and 15% of net sales in 1997. Training and service revenues and other
product sales accounted for the remainder of net sales in both years.
New order bookings for 1996 totaled $64.7 million, compared to $66.1
million in 1997. North American orders were up from $49.7 million in 1996 to
$50.4 million in 1997 and European, Asian and South American orders were up from
$15.0 million in 1996 to $15.7 million in 1997. P-1000 systems accounted for 66%
of new order bookings in 1996 and 50% in 1997. RGS and NCA bookings accounted
for 13% of bookings in 1996 and 17% in 1997. Forest Product bookings were 10% of
the total in 1996 and 19% in 1997. Training and service and other product sales
accounted for the remainder of net bookings in both years. The increase in new
order bookings in 1997 was principally due to Forest Product orders, orders for
RGS and NCA systems and orders for Autospect paint inspection products, offset
by a decline in P-1000 orders.
Gross profit. Gross profit increased from $35.4 million in 1996 to
$40.0 million in 1997, and as a percentage of net sales increased from 60.0% in
1996 to 61.5% in 1997. The percentage increase is due primarily to increased
sales of higher gross margin products and, to a lesser extent, to the lower
gross profit percentage associated with sales 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 in 1996.
11
12
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by 4% from $15.4 million in 1996 to $16.0
million in 1997. This increase is due primarily to increases in personnel and
various operating expenses required to support the increased 1997 operating
activity and, to a lesser extent, to costs associated with the recent
acquisitions partially offset by decreased management performance bonuses.
Additionally, 1996 expenses included a non-recurring charge related to a special
compensation program at one of the acquired companies. As a percentage of net
sales, selling, general and administrative expenses decreased from 26.1% in 1996
to 24.5% in 1997.
Engineering, research and development. Engineering, research and
development expenses increased by 23%, from $7.3 million in 1996, to
approximately $8.9 million in 1997, 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 increased from 12.4% in 1996 to 13.7% in 1997.
Non-cash stock compensation expense. During 1996, some participants in
the Company's stock option plan used Perceptron stock options to pay the
exercise price of stock options issued under the plan. Accounting rules required
the recording of a non-cash compensation expense relating to these exercises.
The Company took action to eliminate the provision in its stock option plans
which otherwise might have resulted in similar non-cash stock compensation
expense in 1997 and future years.
Interest income, net. Interest income, net, increased from
approximately $0.7 million in 1996 to $0.9 million in 1997, due to increased
cash balances and related investing activities during 1997.
Income before provision for income taxes. In 1996, Perceptron had
income before provision for income taxes of approximately $10.2 million
representing 17.4% of net sales, as compared to 1997 income before provision for
income taxes of approximately $16.0 million representing 24.6% of net sales.
Without the non-cash stock compensation charge, the results for 1996 would have
been $13.4 million, or 22.8% of net sales in 1996.
Provision for income taxes. For the year ended December 31, 1997, the
Company recorded a $5.2 million provision for income taxes, representing an
estimated effective tax rate of 32.5%, compared to a provision of $3.1 million
in 1996, representing an estimated effective tax rate of 30.0% (see Note 13 to
the Consolidated Financial Statements, "Income Taxes").
Net income. Net income in 1997 was $10.8 million, or 16.6% of net
sales, resulting in $1.28 per diluted share. In 1996, net income was $7.2
million, or 12.1% of net sales, resulting in $.86 per diluted share. Excluding
the non-cash stock option compensation expense, the 1996 net income would have
been $9.2 million, 15.6% of net sales, or $1.11 per diluted share.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents as of December 31, 1998, were
$5.8 million, compared with $14.4 million as of December 31, 1997. The use of
cash was due primarily to; (1) $2.6 million dollars for operations after
adjusting for non-cash charges, (2) increased inventories of $3.3 million and
other working capital needs of $1.1 million, (3) capital spending of $2.4
million, (4) stock repurchase of $1.6 million and (5) the acquisition of Sonic
assets for $1.1 million. These cash outflows were partially offset by; (1) the
sale of marketable securities of $2.0 million and (2) proceeds from exercises of
stock options of $1.2 million. The inventory increase was due primarily to
higher levels of work-in-process and finished goods inventories to support
future deliveries.
The Company has unsecured credit facilities totaling U.S. $5.0 million
and DM 1.0 million. 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 (7 3/4 % as of March
17, 1999). The credit facilities expire on May 31, 1999, unless canceled earlier
by the Company or the bank. As of December 31, 1998, Perceptron had no
outstanding borrowings on these facilities. The Company expects to renew these
credit facilities.
The Company believes that cash on hand and existing credit facilities
will be sufficient to fund its currently anticipated 1999 cash flow
requirements.
The Company expects to spend approximately $3.0 million during 1999 for
capital equipment, although there is no binding commitment to do so.
The Company has completed the previously approved stock repurchase
program. A total of 173,000 shares of the Company's outstanding Common Stock
were repurchased, of which 123,000 shares were repurchased during 1998.
Repurchased shares primarily will be used to offset the Company's requirements
for share issuances under its various stock-based incentive programs. Expansion
of this repurchase program will be considered from time to time to meet the
continuing share requirements of the Company's stock-based incentive programs.
The Company may buy shares of its Common Stock on the open market or in
privately negotiated transactions from time to time, based on market prices.
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".
12
13
EURO CONVERSION
A single currency called the "euro" was introduced in Europe on January
1, 1999. Eleven of the fifteen member countries of the European Union agreed to
adopt the euro as their common legal currency on that date. Fixed conversion
rates between these participating countries' existing currencies (the "legacy
currencies") and the euro were established as of that date. The legacy
currencies are scheduled to remain legal tender as denominations of the euro
until at least January 1, 2002 (but not later than July 1, 2002). During this
transition period, parties may settle transactions using either the euro or a
participating country's legacy currency.
Conversion to the euro may reduce the amount of the Company's exposure
to changes in foreign exchange rates, due to the netting effect of having assets
and liabilities denominated in a single currency as opposed to the various
legacy currencies. Conversely, because there will be less diversity in
the Company's exposure to foreign currencies, movements in the euro's value in
U.S. dollars could have a more pronounced effect, whether positive or negative,
on the Company.
YEAR 2000 READINESS DISCLOSURE
YEAR 2000 OVERVIEW
An issue affecting the Company is the potential inability of many
computer systems and applications to process information in the year 2000 and
beyond. This could result in system failures or miscalculations leading to
disruptions in the Company's activities and operations (the "Year 2000"
capability issue). Programs that will operate in the Year 2000 unaffected by the
change in year from 1999 to 2000 are referred to herein as "Year 2000
compliant". The disclosure below is intended to summarize the Company's actions
to minimize the risk. Certain portions of the discussion set forth below contain
"forward looking statements" within the meaning of the Securities Exchange Act
of 1934, as amended, including, but not limited to, those relating to the
compliance of the Company's products and systems to operate under the Year 2000
issue, future costs to remediate Year 2000 issues, the timetable in which such
remediation is to occur, the alternatives available to the Company to fully
address Year 2000 issues, the Company's requirements and the impact on the
Company of an inability of it or its key suppliers and customers to fully
address Year 2000 issues. Actual results could differ materially from those in
the forward looking statement due to a number of uncertainties set forth below.
YEAR 2000 STATE OF READINESS
The Company has forward-date tested the current version of its
principal products and believes that the current versions, and all versions
currently under warranty, are capable of operating in the Year 2000. The
Company's products operate on computers and operating systems supplied by third
party vendors. The Company's customers have been advised to conduct their own
forward-date tests on such systems and to contact the third party vendors
regarding available upgrades or other remediation efforts.
The Company's principal customers are automotive companies and forest
and wood products processors and system integrators who sell to such customers.
Because of the size and level of Year 2000 compliance activity by these
customers, the Company expects most of these customers will become Year 2000
capable in a timely fashion. However, the Company does not plan to monitor their
progress in this regard. If any of the Company's customers are unable to become
Year 2000 capable in a timely fashion, it is possible they could suspend product
purchases from the Company until their systems have addressed the Year 2000
issue.
The Company is in the process of determining whether its principal
vendors and suppliers (all of which are referred to as "Third Party Suppliers")
are Year 2000 capable. The plan includes the identification of principal Third
Party Suppliers, formal communications with the Third Party Suppliers regarding
their Year 2000 efforts and, with respect to its critical Third Party Suppliers,
some form of additional verification of readiness, which could include site
visits. The failure of one or more critical Third Party Suppliers to be Year
2000 capable such that its supply of needed products or services is interrupted
could result in the Company not being able to produce one or more of its systems
for a period of time, which in turn could result in lost sales and profits.
The Company has established a project team to identify internal systems
which are not Year 2000 capable and complete the corrections or plans required
to mitigate the Year 2000 issue. The Company's principal information technology
("IT") systems are located at its headquarters in Plymouth, Michigan. These
systems consist of a financial system, which the Company has forward-date tested
and believes is Year 2000 capable, and an operations system provided by a third
party vendor. This third-party vendor offers an upgraded version which is
represented to be Year 2000 compliant. Alternatively, the Company believes that
the current version of the operations system can be remediated by a third party
to be Year 2000 capable. Completion of this remediation is expected in the first
half of 1999. The Company also has a number of engineering systems, used
primarily for testing, developed by the Company's internal staff. The Company
forward-date tested these systems during the first quarter of 1999 and is in the
process of completing the remediation necessary to make them Year 2000
compliant. The Company has begun to assess the IT systems of its subsidiaries.
13
14
The Company maintains networks of personal computers. Using internal
personnel, the Company plans to assess the Company's personal computer networks
for Year 2000 compliance and to make necessary modifications. The assessment
began in the first quarter of 1999. Completion of this project is expected in
the first half of 1999. The Company's personal computer systems generally
operate using "shrinkwrapped" software (such as Microsoft Windows 95, Microsoft
Word and Excel). To the extent any of the programs used by the personal computer
systems are not Year 2000 compliant, the Company believes that Year 2000 capable
upgrades are or will be readily available for purchase.
A failure of one or more of the Company's internal systems to become
Year 2000 compliant, particularly the Company's principal internal information
technology systems, could require the Company to manually process information or
could prevent or limit access to mission critical information.
The Company's non-IT systems consist principally of security, climate
control, telephone and data communication systems. The Company began its initial
assessment of these systems in the first quarter of 1999. Most of the Company's
operations are conducted from its headquarters in Plymouth, Michigan, which was
built in 1996, and included new non-IT systems. If the Company's non-IT systems
cannot be remediated to become compliant, and if it is necessary for the
Company's operations, the Company will replace those systems before the end of
1999.
YEAR 2000 COSTS
Most of the costs incurred by the Company to date on Year 2000
compliance issues have been internal staff costs and costs relating to normal
product upgrades, which the Company has not separately tracked. As a result, the
Company is not able to reasonably estimate the amount of such expenditures. The
Company presently estimates that its future costs relating to Year 2000
compliance issues, including replacement systems, will be less than $100,000.
The Company would have incurred many of the costs for these efforts in any event
because of the normal process of product and equipment upgrades. These cost
estimates are subject to a number of uncertainties, which could result in actual
costs exceeding the estimated amounts described below. Costs related to the Year
2000 issue are funded through operating cash flow. The Year 2000 costs have not
caused the Company to defer any other significant information technology
program.
YEAR 2000 RISKS AND CONTINGENCY PLANS
The Company's Year 2000 project team plans to evaluate business
disruption scenarios, coordinate the establishment of Year 2000 contingency
plans, and identify and implement preemptive strategies. The Company plans to
develop contingency plans for critical business processes during 1999 as the
Company identifies areas of greater risk for Year 2000 non-compliance internally
or by its customers and Third Party Suppliers. Estimates of time, costs and
risks associated with the Year 2000 issue are based on currently available
information. Developments that could affect estimates include, but are not
limited to, the availability and cost of trained personnel; the ability to
locate and correct all relevant computer code and systems; cooperation and
remediation success of the Company's suppliers and customers (and their
suppliers and customers); the ability to correctly anticipate risks and
implement suitable contingency plans in the event of system failures at the
Company or its suppliers or customers (and their suppliers and customers);
unanticipated difficulties with the assessment or remediation process resulting
in the need to replace more systems or hire more personnel or third party firms
to assist in the process than expected and the Company being required to assist
any of its Third Party Suppliers to become Year 2000 compliant.
Some commentators have stated that a significant amount of litigation
will arise out of Year 2000 compliance issues. In addition, it is possible that
there will be undetected errors or defects associated with Year 2000 date
functions in the Company's current products or internal systems or those of its
Third Party Suppliers (and their suppliers and customers). Because of the
unprecedented nature of litigation in this area, it is uncertain how the Company
may be affected by it. In the event of such litigation or the occurrence of
production disruptions related to Third Party Suppliers, internal issues, or
customers, it is possible the Company's revenues, net income or financial
condition could be materially adversely affected.
MARKET RISK INFORMATION
Perceptron's primary market risk is related to foreign exchange rates.
This risk is derived from sales by its international operations which are
primarily located in Germany and The Netherlands and for which products are
produced in the U.S. The Company has historically not had direct exposures to
interest rate risks. The Company assumed fixed rate debt due in 2003 in
connection with a recent acquisition. To the extent the Company needs to borrow
funds in the future it could be exposed to interest rate risks. At December 31,
1998, the Company did not have any market risk instruments for trading purposes.
14
15
FOREIGN CURRENCY RISK
The Company has limited foreign currency exchange risk in its
international operations due to the percentage of contracts entered into in U.S.
dollars and the short time period between sales commitment and delivery for
contracts in the non-U.S. currencies. The percentage of sales commitments in
U.S. Dollars at December 31, 1998 was 89%. For sales commitments entered into in
the non-U.S. currencies, the currency rate risk exposure is predominantly less
than one year with the majority in the 120 to 150 day range. See also
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Euro Conversion".
The Company may use, from time to time, a limited hedging program to
minimize the impact of foreign currency fluctuations. As the Company exports
products, it may enter 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, 1998 and 1997, the Company
had no forward contracts outstanding.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 130 ("SFAS 130"),
"Reporting Comprehensive Income", was issued by the Financial Accounting
Standards Board in June 1997. This Statement requires all items that must be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. Perceptron adopted SFAS 130 for 1998 and included
the required annual information in the Consolidated Statement of Shareholders'
Equity.
Statement of Financial Accounting Standards No. 131 ("SFAS 131"),
"Disclosures about Segments of an Enterprise and Related Information", was
issued by the Financial Accounting Standards Board in June 1997. This Statement
establishes standards for reporting information about operating segments in
annual financial statements and requires reporting of selected information about
operating segments in interim financial reports issued to stockholders. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. Perceptron adopted SFAS 131 for 1998 (see
Note 14, "Segment and Geographic Information" to the Consolidated Financial
Statements).
In March 1998, the Accounting Standards Executive Committee ("ASEC")
for the American Institute of Certified Public Accountants released Statement of
Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed
for Internal Use." SOP 98-1 requires the capitalization of internal-use software
and specifically identifies which costs should be capitalized and which costs
should be expensed. The statement is effective for fiscal years beginning after
December 15, 1998. Management does not expect the SOP to have a material effect
on the Company's consolidated financial statements.
In April 1998, the ASEC released SOP 98-5, "Reporting on the Costs of
Start-Up Activities". SOP 98-5 generally requires costs of start-up and
organizational activities to be expensed as incurred and is effective for fiscal
years beginning after December 15, 1998. Management does not expect the SOP to
have a material effect on the Company's consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities", effective
for fiscal years beginning after June 15, 1999. SFAS No. 133 requires
recognition of all derivative financial instruments as either assets or
liabilities in the consolidated balance sheet, measured at fair value and sets
forth conditions in which a derivative instrument may be designated as a hedge.
The statement requires that changes in the fair value of derivatives be
recognized currently in earnings unless specific hedge accounting criteria are
met. Special accounting for qualifying hedges allows a derivative's gains and
losses to be recorded to other comprehensive income or to offset related results
on the hedged item in earnings. The Company from time to time engages in hedging
activities to minimize the impact of foreign currency fluctuations. Management
is currently assessing the effect that this pronouncement may have on the
Company's consolidated financial statements.
15
16
SAFE HARBOR STATEMENT
Certain statements in this Management's Discussion and Analysis of
Financial Condition and Results of Operation may be "forward looking statements"
within the meaning of the Securities Exchange Act of 1934, including the
Company's expectation as to 1999 and future revenue and earnings levels, the
timing of new product releases and the expansion of the Company into new
markets. Actual results could differ materially from those in the forward
looking statements due to a number of uncertainties, including, but not limited
to, the dependence of the Company's revenue on a number of sizable orders from a
small number of customers, the timing of orders and shipments which can cause
the Company to experience significant fluctuations in its quarterly and annual
revenue and operating results, timely receipt of required supplies and
components which could result in delays in anticipated shipments, general
product demand and market acceptance risks, the ability of the Company to
successfully compete with alternative and similar technologies, the timing and
continuation of the automotive industry's retooling programs, 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, rapid or unexpected technological
changes, the impact of undetected errors or defects associated with the Year
2000 date functions on the Company and its suppliers, and the effect of economic
conditions.
ITEM 7A: QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Information required pursuant to this item is incorporated by reference
herein from Item 7, "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Market Risk Information".
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
Report of Independent Accountants.......................................... 17
Consolidated Financial Statements:
Balance Sheets - December 31, 1998 and 1997....................... 18
Statements of Income for the years ended
December 31, 1998, 1997 and 1996.................................. 19
Statements of Shareholders' Equity
for the years ended December 31, 1998, 1997 and 1996.............. 20
Statements of Cash Flows for the years ended December 31, 1998,
1997 and 1996..................................................... 21
Notes to Consolidated Financial Statements........................ 22
16
17
[PRICEWATERHOUSECOOPERS LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Perceptron, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of shareholders' equity, and of cash flows
present fairly, in all material respects, the financial position of Perceptron,
Inc. and its subsidiaries at December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedule
referred to in item 14(A)(2) for each of the three years in the period ended
December 31, 1998 presents fairly, in all material respects, the information set
forth therein when read in conjunction with the related consolidated financial
statements. These financial statements and financial statement schedule are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICEWATERHOUSECOOPERS LLP
Detroit, Michigan
February 12, 1999
17
18
PERCEPTRON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
At December 31, 1998 1997
------------ -----------
ASSETS
Current Assets:
Cash and cash equivalents $ 5,753 $ 14,448
Marketable securities - 2,000
Receivables:
Billed receivables, net of allowance for doubtful accounts
of $200,000 and $175,000, respectively 27,357 28,000
Unbilled and other receivables 4,242 2,692
Inventories, net of reserves of $519,000 and $860,000, respectively 11,365 8,019
Prepaid expenses and deferred tax asset 1,893 708
----------- ----------
Total current assets 50,610 55,867
----------- ----------
Property and Equipment:
Building and land 5,990 5,982
Machinery and equipment 8,950 6,638
Furniture and fixtures 1,438 1,312
----------- ----------
16,378 13,932
Less - Accumulated depreciation and amortization (5,131) (3,308)
----------- ----------
Net property and equipment 11,247 10,624
----------- ----------
Other Assets:
Intangible assets, net of accumulated amortization
of $94,000 and $394,000, respectively (Note 6) 1,829 1,651
Deferred tax asset 2,722 -
----------- ----------
Total other assets 4,551 1,651
----------- ----------
----------- ----------
Total Assets $ 66,408 $ 68,142
=========== ==========
LIABILITIES AND COMMON SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 3,666 $ 2,979
Accrued liabilities and expenses 5,726 5,298
Income taxes payable 841 631
Accrued compensation and stock option expense 283 1,355
----------- ----------
Total current liabilities 10,516 10,263
----------- ----------
Long-Term Liabilities:
Notes payable (Note 7) 1,040 -
----------- ----------
Total long-term liabilities 1,040 -
----------- ----------
----------- ----------
Total liabilities 11,556 10,263
----------- ----------
Shareholders' Equity:
Preferred stock - no par value, authorized 1,000,000 shares, issued none - -
Common Stock, $0.01 par value, authorized 19,000,000 shares, issued
and outstanding 8,219,000 and 8,207,000 at December 31, 1998 and 1997,
respectively 82 82
Accumulated other comprehensive income (loss) (1,669) (2,411)
Additional paid-in capital 41,236 41,666
Retained earnings 15,203 18,542
----------- ----------
Total shareholders' equity 54,852 57,879
----------- ----------
----------- ----------
Total Liabilities and Common Shareholders' Equity $ 66,408 $ 68,142
=========== ==========
The notes to the consolidated financial statements are an integral part of these
statements.
18
19
PERCEPTRON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Amounts)
Years Ended December 31, 1998 1997 1996
--------- --------- --------
Net Sales $ 49,635 $ 65,102 $ 58,975
Cost of Sales 22,442 25,077 23,608
-------- -------- --------
Gross Profit 27,193 40,025 35,367
-------- -------- --------
Operating Expenses:
Selling, general and administrative 20,136 15,963 15,369
Engineering, research and development 11,384 8,944 7,294
Non-cash intangible asset write-off (Note 6) 1,472 - -
Non-cash stock compensation (Note 12) - - 3,202
-------- -------- --------
Total operating expenses 32,992 24,907 25,865
-------- -------- --------
Operating Income (Loss) (5,799) 15,118 9,502
Interest Income, net 656 891 743
-------- -------- --------
Income (Loss) Before Income Taxes (5,143) 16,009 10,245
Income Tax Expense (Benefit) (1,804) 5,203 3,095
-------- -------- --------
Net Income (Loss) $ (3,339) $ 10,806 $ 7,150
======== ======== ========
Earnings (Loss) Per Share:
Basic $ (.41) $ 1.34 $ .93
Diluted $ (.41) $ 1.28 $ .86
Weighted Average Common Shares Outstanding:
Basic 8,239 8,065 7,661
Diluted 8,239 8,412 8,309
The notes to the consolidated financial statements are an integral part of these
statements.
19
20
PERCEPTRON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In Thousands)
ACCUMULATED
OTHER ADDITIONAL RETAINED TOTAL
COMMON STOCK COMPREHENSIVE PAID-IN EARNINGS SHAREHOLDERS'
SHARES AMOUNT INCOME CAPITAL (DEFICIT) EQUITY
-------------------------------------------------------------------------------------
BALANCES, JANUARY 1, 1996 7,420 $ 74 $ (474) $ 30,863 $ 586 $ 31,049
Comprehensive income
Net income 7,150 7,150
Other comprehensive income:
Foreign currency translation
adjustments (455) (455)
------------
Total comprehensive income 6,695
------------
Shares issued for intangible assets 82 1 2,299 2,300
Stock options exercised, net of shares
tendered 447 5 2,062 2,067
Tax benefit relating to stock option plans 600 600
Previously recorded stock option
compensation attributable to options
exercised 534 534
Non-cash compensation expense
attributable to options exercised 3,202 3,202
-------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1996 7,949 $ 80 $ (929) $ 39,560 $ 7,736 $ 46,447
=====================================================================================
Comprehensive income
Net income 10,806 10,806
Other comprehensive income:
Foreign currency translation
adjustments (1,482) (1,482)
------------
Total comprehensive income 9,324
------------
Stock options exercised, net of shares
tendered 258 2 1,852 1,854
Tax benefit relating to stock option plans 87 87
Previously recorded stock option
compensation attributable to options
exercised 167 167
-------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1997 8,207 $ 82 $ (2,411) $ 41,666 $ 18,542 $ 57,879
=====================================================================================
Comprehensive income (loss)
Net income (loss) (3,339) (3,339)
Other comprehensive income:
Foreign currency translation 742 742
adjustments
------------
Total comprehensive income (loss) (2,597)
------------
Stock options exercised, net of shares
tendered 135 1 988 989
Tax benefit relating to stock option plans 223 223
Stock repurchase (123) (1) (1,641) (1,642)
-------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1998 8,219 $ 82 $ (1,669) $ 41,236 $ 15,203 $ 54,852
=====================================================================================
The notes to the consolidated financial statements are an integral part of these
statements.
20
21
PERCEPTRON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Years Ended December 31, 1998 1997 1996
------------ ----------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (3,339) $ 10,806 $ 7,150
Adjustments to reconcile net income to net cash provided from (used for)
operating activities:
Depreciation and amortization 2,488 1,754 904
Non-cash write-off of intangible asset 1,472 - -
Non-cash stock compensation expense - 167 3,202
Deferred income taxes (3,190)
Other - - 293
Changes in assets and liabilities, exclusive of changes shown
separately (4,393) (9,417) (9,640)
-------- -------- --------
Net cash provided from (used for) operating activities (6,962) 3,310 1,909
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of short-term debt 2,000 - 980
Repayment of short-term debt (2,000) (980) (200)
Repurchase of company stock (1,642) - -
Proceeds from the exercise of stock options 1,212 1,941 2,671
-------- -------- --------
Net cash provided from (used for) financing activities (430) 961 3,451
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (2,400) (2,356) (5,703)
Sales and maturities of marketable securities 2,000 500 -
Purchases of marketable securities - - (2,500)
Purchase of Sonic assets (Note 6) (1,114) - -
-------- -------- --------
Net cash (used for) investing activities (1,514) (1,856) (8,203)
-------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 211 (391) (175)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (8,695) 2,024 (3,018)
CASH AND CASH EQUIVALENTS, JANUARY 1 14,448 12,424 15,442
-------- -------- --------
CASH AND CASH EQUIVALENTS, DECEMBER 31 $ 5,753 $ 14,448 $ 12,424
======== ======== ========
CHANGES IN ASSETS AND LIABILITIES, EXCLUSIVE OF CHANGES SHOWN SEPARATELY
Billed, unbilled and other receivables, net $ (667) $ (6,600) $ (9,996)
Inventories (3,262) (843) (2,138)
Accounts payable 687 (1,913) 588
Other current assets and liabilities (1,151) (61) 1,906
-------- -------- --------
$ (4,393) $ (9,417) $ (9,640)
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest $ 6 $ 31 $ 24
Cash paid during the year for income taxes 1,288 2,889 2,711
Non-cash transactions:
Previously recorded compensation expense attributable to
options exercised - 167 534
Intangible assets acquired by assumption of note
payable and for stock, respectively (Note 6) 1,040 - 2,300
The notes to the consolidated financial statements are an integral part of these
statements.
21
22
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 machine vision systems which are used primarily in the automotive industry,
and to a lesser extent, in forest and wood products and other industries.
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the Company give effect to the
acquisition by the Company of Autospect, Inc. ("Autospect"), which was
consummated on February 3, 1997, and Trident Systems Inc. ("Trident") and
Nanoose Systems Corporation ("Nanoose"), which acquisitions were consummated on
April 30, 1997. The acquisitions were accounted for as poolings of interest. All
periods preceding the acquisition dates have been restated to include the
combined results and balances of these companies. On January 1, 1999, the
Company merged Autospect into the Company and Autospect is now operated as part
of the Automotive business unit.
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. Certain amounts for
prior periods have been reclassified to conform to the current period
presentation.
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.
FOREIGN 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 and were not material for 1998, 1997 and 1996.
CONCENTRATION OF CREDIT RISK
The Company markets and sells its products primarily to automotive
assembly companies and to system integrators or original equipment manufacturers
("OEMs"), who in turn sell to automotive assembly companies. The Company also
markets and sells its forest products to lumber mills and to OEMs, who in turn,
sell to end users. 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.
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 (in thousands):
YEARS ENDED DECEMBER 31, 1998 1997
------------- -------------
Component parts $ 5,794 $ 5,507
Work in process 2,235 902
Finished goods 3,336 1,610
------------- -------------
Total $ 11,365 $ 8,019
============= =============
22
23
PROPERTY, EQUIPMENT AND INTANGIBLE ASSETS
Property and equipment are recorded at cost. Depreciation related to
machinery and equipment and furniture and fixtures is primarily computed on a
straight-line basis over estimated useful lives ranging from three to ten years.
Depreciation on buildings is computed on a straight-line basis over 37 1/2
years. Intangible assets are being amortized generally over 5 years.
When assets are retired, the costs of such assets 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.
EARNINGS PER SHARE
Basic earnings per share ("EPS") is calculated by dividing net income
by the weighted average number of common shares outstanding during the period.
Other obligations, such as stock options and warrants, are considered to be
potentially dilutive common shares. Diluted EPS assumes the issuance of
potential dilutive common shares outstanding during the period and adjusts for
any changes in income and the repurchase of common shares that would have
occurred from the assumed issuance. A reconciliation of both calculations is
shown below.
(in thousands except per share NET INCOME WEIGHTED AVG. EARNINGS (LOSS)
amounts) (LOSS) COMMON SHARES PER SHARE
---------------- -------------------- ------------------
1998
Basic EPS $(3,339) $ 8,239 $ (.41)
Effect of Dilutive Securities:
Stock options and warrants - -
------- -------
Diluted EPS $(3,339) $ 8,239 $ (.41)
======= =======
1997
Basic EPS $10,806 $ 8,065 $ 1.34
Effect of Dilutive Securities:
Stock options and warrants - 347
------- -------
Diluted EPS $10,806 $ 8,412 $ 1.28
======= =======
1996
Basic EPS $ 7,150 $ 7,661 $ .93
Effect of Dilutive Securities:
Stock options and warrants - 648
------- -------
Diluted EPS $ 7,150 $ 8,309 $ .86
======= =======
Options to purchase 75,000 shares of common stock were outstanding in 1998 and
were not included in the computation of diluted EPS because the effect would
have been antidilutive.
CASH AND CASH EQUIVALENTS
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. Those with a greater life are recorded as marketable securities.
23
24
IMPAIRMENT OF LONG-LIVED ASSETS AND CERTAIN IDENTIFIABLE INTANGIBLES
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.
FINANCIAL INSTRUMENTS
The carrying amount of the Company's financial instruments, which
include cash, marketable securities, accounts receivable, accounts payable, and
amounts due to banks or other lenders, approximate their fair value at December
31, 1998 and 1997. Fair values have been determined through information obtained
from market sources and management estimates.
2. ACQUISITIONS
The Company acquired Autospect, Inc. on February 3, 1997, and both
Trident Systems Inc. ("Trident") and Nanoose Systems Corporation ("Nanoose") on
April 30, 1997. The acquisitions were accounted for as poolings-of-interest. Net
sales and net income for the acquired companies and Perceptron for periods
preceding the acquisitions were as follows (in thousands):
YEAR ENDED DECEMBER 31, 1996 NET SALES NET INCOME
------------- -------------
Perceptron, as previously reported $ 49,679 $ 7,894
Trident and Nanoose 7,933 (805)
Autospect 3,990 453
Consolidation adjustments (2,627) (392)
------------- -------------
Combined $ 58,975 $ 7,150
============= =============
3. MARKETABLE SECURITIES
In 1998 and 1997, proceeds from sales of available for sale securities
were $2,000,000 and $500,000, respectively; no gross gains or losses were
realized on those sales. At December 31, 1997, marketable securities, which were
classified as available for sale, consisted of mortgage backed securities whose
fair value approximated cost.
4. CREDIT FACILITY
At December 31, 1998 the Company had unsecured credit facilities
totaling $5.0 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
(7.75% as of December 31, 1998). The Company's credit facilities expire on May
31, 1999 unless canceled earlier by the Company or the bank. The Company intends
to renew these facilities.
5. LEASES
The following is a summary, as of December 31, 1998, of the future
minimum annual lease payments required under the Company's real estate and other
operating leases having initial or remaining non-cancelable terms in excess of
one year (in thousands):
YEAR OPERATING
---- ----------
1999 $ 1,126
2000 718
2001 578
2002 366
2003 37
2004 and beyond 70
----------
Total minimum lease payments $ 2,895
==========
Rental expense for operating leases in 1998, 1997 and 1996 was
$1,318,000, $719,000 and $480,000, respectively.
6. INTANGIBLE ASSETS
On October 1, 1998, the Company purchased the assets, including
ultrasound intellectual property, of Sonic Industries, Inc. and Sonic
Technologies, Inc. and assumed certain liabilities and long-term debt (see Note
7). Intangible assets, including goodwill, totaled $1,848,000 and will be
amortized over five years.
24
25
During 1998, the Company developed a new suite of non-contact
three-dimensional measurement technologies, which superceded certain existing
technologies recorded as intangible assets. As a result, the carrying value of
these intangible assets were evaluated for impairment. This evaluation resulted
in a write-off of intangible assets with a net book value of $1,472,000.
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.
7. LONG-TERM NOTE PAYABLE
In conjunction with the Company's October 1, 1998 purchase of Sonic
assets, discussed in Note 6, the Company assumed a long term note payable
totaling $1,040,000. The note is payable in full on November 1, 2003 and
requires quarterly payments of interest at 7.5% per annum on the outstanding
principal balance. The note may be prepaid without penalty in whole or in part
at anytime.
8. COMMITMENTS AND OTHER
As part of the purchase of the Sonic intellectual property (see Note
6), the Company agreed to pay contingent royalty payments on sales using the
Sonic technology over a five year period beginning October 1, 1998. The maximum
total amount of royalties is capped at $6 million on sales of $90 million. The
Company has prepaid approximately $1.9 million of the contingent royalty
payments generally through the assumption of liabilities in connection with the
acquisition of the Sonic assets. These prepaid royalties generally offset the
first contingent royalties due.
The Company has received a NIST-ATP award to participate in a joint
venture to develop a robot guidance system for power train assembly automation.
The Company's in-kind development contribution is approximately $500,000 over a
four-year period that began in 1998. The joint venture is administered by the
National Center for Manufacturing Sciences and includes a major automotive
manufacturer.
In late 1995, Autospect received a $1.8 million NIST grant that
provided funding over three years for development of a system to measure the
thickness of wet film (e.g. paint). During 1998, 1997 and 1996, the Company
recorded reimbursements of $800,000, $600,000 and $400,000, respectively, which
offset the related costs. Prototype testing was completed in 1998 and the system
will be installed and tested in a manufacturing environment during 1999.
The Company may use, from time to time, a limited hedging program to
minimize the impact of foreign currency fluctuations. As the Company exports
product, it may enter 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, 1998 and 1997, the Company had no
forward contracts outstanding.
9. INFORMATION ABOUT MAJOR CUSTOMERS
The Company sells its products directly to both domestic and
international automotive assembly companies. During 1998, 22% of net sales were
derived from three automotive companies. During 1997 and 1996, 38% and 46% of
net sales, respectively, were derived from these same three automotive
companies. In 1998, sales to one of these automotive companies, General Motors,
exceeded 10% of the Company's total net sales. The Company also sells to system
integrators or OEMs, who in turn sell to these same automotive companies. For
the years ended December 31, 1998, 1997 and 1996, 13%, 17% and 16% of net sales,
respectively, were to system integrators and OEMs for the benefit of the same
three automotive companies.
25
26
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
matters discussed below.
On December 11, 1998, a jury in a civil case in the U.S. District Court
for the Eastern District of Michigan returned a favorable judgement for the
Company and awarded damages of over $732,000. The suit, filed by the Company in
June 1996, charged Sensor Adaptive Machines, Inc. ("SAMI") with violation of a
covenant not to compete. SAMI filed counterclaims against the Company alleging,
in part, that the Company was engaged in unlawful monopolization and tortious
interference with business practice and sought damages. In response to a motion
for summary disposition filed by the Company, the counterclaim for unlawful
monopolization was dismissed by the court in June 1998. The jury found that the
remaining counterclaims were without merit. On March 4, 1999, the Company's
motion for interest was granted. SAMI has the right to appeal the judgement
including the counterclaims against the Company.
On September 25, 1998, the U.S. District Court for the Eastern District
of Michigan dismissed, with prejudice, a suit filed against the Company by
Speroni, S.p.A. ("Speroni"). Speroni has appealed the dismissal. The suit
alleged tortious interference in conjunction with exclusive distributorship
contracts covering the sale of P-1000 products in Italy and France between
Perceptron B.V., a wholly-owned subsidiary of the Company, and Speroni. Speroni
sought unspecified compensatory damages and punitive damages. Perceptron B.V.
terminated the exclusive distributorship contracts in 1997 for breach of
contract by Speroni and has sought arbitration of this matter with the
International Chamber of Commerce International Court of Arbitration ("ICC"), to
confirm the terminations and to award damages. Speroni has filed counterclaims
with the ICC alleging breach of the exclusive distributorship contracts and
seeking damages of $6.5 million. The Company intends to vigorously pursue its
claims and defend Speroni's claims.
The Company has been informed that certain of its customers have
received allegations of possible patent infringement involving processes and
methods used in the Company's products. Certain of these customers, including
one customer who was a party to a patent infringement suit relating to this
matter, have settled such claims. Management believes, 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 relating to
claims against these customers, it is not possible to estimate the ultimate
effect, if any, of this matter on the Company's financial position.
11. 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. On January 1, 1998, the Company merged the Autospect and Trident 401(k)
plans into the Perceptron 401(k) plan. The Company's contributions to these
plans during 1998, 1997 and 1996, were $439,000, $361,000 and $292,000,
respectively.
12. STOCK OPTION PLANS
The Company maintains 1992 and 1998 Stock Option Plans covering
substantially all company employees and certain other key persons and a Director
Stock Option Plan covering all non-employee directors. The 1992 and Director
Plans are administered by a committee of the Board of Directors. The 1998 Plan
is administered by the President of the Company. Activity under these Plans is
shown in the following table:
1998 1997 1996
------------------------- ---------------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ ----- ------ ----- ------ -----
Shares subject to option
Outstanding at beginning of period 1,088,765 $ 21.39 1,061,511 $ 16.04 1,120,943 $ 8.49
New grants (based on fair value of
Common Stock at dates of grant) 397,399 8.72 310,927 27.81 403,800 26.12
Exercised (134,931) 7.28 (258,653) 7.92 (430,129) 6.07
Terminated and expired (112,047) 22.89 (25,020) 16.60 (33,103) 11.72
Outstanding at end of Period 1,239,186 19.14 1,088,765 21.39 1,061,511 16.04
Exercisable at end of period 468,824 23.00 313,180 19.04 199,287 10.09
26
27
The following table summarizes information about stock options at December 31,
1998:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------- ------------------------------
WEIGHTED-AVERAGE
RANGE OF REMAINING WEIGHTED-AVERAGE WEIGHTED-AVERAGE
EXERCISE PRICES SHARES CONTRACTUAL LIFE EXERCISE PRICE SHARES EXERCISE PRICE
- -------------------------------------------------------------------------------------------------------------------
$ 5.05 to $ 7.40 331,199 9.65 years $ 6.88 0 $ 0.00
$ 8.15 to $ 23.50 469,783 6.42 years $ 18.62 259,071 $ 17.42
$ 23.67 to $ 30.75 317,203 8.24 years $ 27.18 154,824 $ 28.19
$ 31.40 to $ 36.50 121,001 7.88 years $ 33.69 54,929 $ 34.64
- -------------------------------------------------------------------------------------------------------------------
$ 5.05 to $ 36.50 1,239,186 7.89 years $ 19.14 468,824 $ 23.00
- -------------------------------------------------------------------------------------------------------------------
Option prices for options granted under these Plans must not be less
than fair market value of the Company's stock on the date of grant. At December
31, 1998, options covering 468,824 shares were exercisable and options covering
271,074 shares were available for future grants under these plans.
Options outstanding under the 1992 and 1998 Stock Option Plans
generally become exercisable at 25% per year beginning one year after the date
of grant and expire ten years after the date of grant. Options outstanding under
the Director Stock Option Plan are either an initial option or an annual option.
Initial options of 15,000 shares are granted as of the date the non-employee
director is first elected to the Board of Directors and become exercisable in
full on the first anniversary of the date of grant. Annual options of 1,500
shares are granted as of the date of the respective annual meeting to each
non-employee director serving at least six months prior to the annual meeting
and become exercisable in three annual increments of 33 1/3% after the date of
grant and expire ten years from the date of grant.
The estimated fair value as of the date options were granted in 1998,
1997 and 1996, using the Black-Scholes option-pricing model was as follows:
1998 1997 1996
-------------- ------------ ----------
Weighted average estimated fair
value per share of options granted
during the year $ 5.57 $ 12.82 $ 16.55
Assumptions:
Amortized dividend yield - - -
Common Stock price volatility 73.69% 42.57% 57.94%
Risk-free rate of return 4.25% 6.20% 5.78%
Expected option term (in years) 5 5 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. 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 1998, 1997 and 1996,
consistent with the methodology in SFAS 123, the Company's net income and income
per share would have been adjusted to the pro forma amounts indicated below:
1998 1997 1996
----------------- ------------------ -----------------
(in thousands except per share amounts)
Net income (loss)
..As reported $ (3,339) $10,806 $ 7,150
..Pro forma $ (5,377) $ 8,379 $ 4,051
Earnings (loss) per share - diluted
..As reported $ (.41) $ 1.28 $ .86
..Pro forma $ (.65) $ 1.00 $ .49
The Company granted warrants to an independent research institute to
purchase 30,000 shares of Common Stock, of which 15,000 were exercised in 1996
and 15,000 expired in 1998. The exercise price of these warrants was $11.17 per
share.
NON-CASH STOCK COMPENSATION EXPENSE
In 1996, some participants in the Company's stock option plan used
Perceptron stock options to pay the exercise price of stock options issued under
the plan. Accounting rules required the recording of a non-cash compensation
expense relating to these option exercises during 1996.
27
28
13. INCOME TAXES
Income before income taxes for U.S. and foreign operations was as
follows:
(in thousands) 1998 1997 1996
----------------- ------------------ ----------------
U.S. $ (7,881) $ 9,070 $ 5,884
Foreign 2,738 6,939 4,361
---------------- ----------------- ---------------
Total $ (5,143) $ 16,009 $ 10,245
================ ================= ===============
The income tax provision (benefit) reflected in the statement of income
consists of the following for the years ending December 31, 1998, 1997 and 1996:
(in thousands) 1998 1997 1996
----------------- ------------------ ----------------
Current provision (benefit):
U.S. federal $ - $ 2,591 $ 1,184
Foreign 1,366 1,227 1,136
Deferred taxes (3,170) 1,385 775
---------------- ----------------- ---------------
Total provision (benefit) $ (1,804) $ 5,203 $ 3,095
================ ================= ===============
The Company's deferred tax assets are substantially represented by the
tax benefit of future deductions represented by reserves for bad debts, warranty
expenses and inventory obsolescence, as well as, net operating loss carry-overs
from 1998. The components of deferred tax assets as of December 31, 1998, 1997
and 1996 were as follows:
1998 1997 1996
------- ------- -------
Minimum tax credits $ - $ - $ 400
Investment tax credits - - 100
Research activities and general business credits - - 600
Benefit of net operating losses 2,202 - -
Other, principally reserves 175 180 465
------- ------- -------
Deferred tax asset $ 2,377 $ 180 $ 1,565
======= ======= =======
Rate reconciliation: 1998 1997 1996
------- ------- -------
Provision at U.S. statutory rate (34%) 34.0% 34%
Recognition of net operating loss carryforwards and other credits 2%
Net effect of taxes on foreign activities (1%) (1.5%) (4%)
Change in valuation allowance (2%)
-------- ------- -------
Effective tax rate (35%) 32.5% 30%
======== ======= =======
No provision was made with respect to retained earnings as of December
31, 1998 that have been retained for use by foreign subsidiaries. It is not
practicable to estimate the amount of unrecognized deferred tax liability for
the undistributed foreign earnings. At December 31, 1998, the Company had net
operating loss carry-forwards for Federal income tax purposes of $2,202,000 that
expire in 2018.
28
29
14. SEGMENT AND GEOGRAPHIC INFORMATION
The Company adopted SFAS No. 131, Disclosure About Segments of an
Enterprise and Related Information in 1998. The Company has two reportable
segments: Automotive and Forest Products. The Automotive segment designs,
manufactures, and markets information based process measurement and guidance
systems within the automotive industry. The Forest Products segment employs the
same technology, providing products and services to the forest and wood products
industry. The accounting policies of the segments are the same as those
described in the summary of significant policies. The Company evaluates
performance based on operating income. The Company primarily accounts for
geographic sales and transfers based on cost plus a transfer fee and/or royalty
fees and allocates company wide costs based on revenues and/or manpower as
appropriate. The Company's reportable segments are strategic business units that
offer similar products and services to different industries. They have separate
management teams because each business unit requires different marketing
strategies. The business units were created as a result of a combination of
existing businesses and acquisitions.
REPORTABLE SEGMENTS ($000) AUTOMOTIVE FOREST PRODUCTS CONSOLIDATED
- ------------------------------------------------------------------------------------------------------------------
1998
Revenues $ 39,555 $ 10,080 $ 49,635
Depreciation and amortization 2,191 297 2,488
Operating (loss) (4,531) (1,268) (5,799)
Assets 58,654 7,754 66,408
Capital expenditures 2,080 320 2,400
- ------------------------------------------------------------------------------------------------------------------
1997
Revenues $ 55,472 $ 9,630 $ 65,102
Depreciation and amortization 1,645 109 1,754
Operating income 14,709 409 15,118
Assets 63,785 4,357 68,142
Capital expenditures 2,195 161 2,356
- ------------------------------------------------------------------------------------------------------------------
1996
Revenues $ 53,669 $ 5,306 $ 58,975
Depreciation and amortization 804 100 904
Operating income (loss) 10,880 (1,378) 9,502
Assets 59,528 1,928 61,456
Capital expenditures 5,563 140 5,703
- ------------------------------------------------------------------------------------------------------------------
The Company operates in two primary geographic areas: North America and
Europe, with limited operations in Asia and South America.
EUROPE, ASIA &
GEOGRAPHIC REGIONS ($000) NORTH AMERICA SOUTH AMERICA ELIMINATIONS CONSOLIDATED
- ---------------------------------------------------------------------------------------------------------------------------------
1998
Net Sales $ 43,453 $ 15,116 $ (8,934) $ 49,635
Operating income (loss) (4,829) (970) - (5,799)
Identifiable assets 47,180 19,228 - 66,408
- ---------------------------------------------------------------------------------------------------------------------------------
1997
Net Sales $ 55,117 $ 16,847 $ (6,862) $ 65,102
Operating income 10,650 4,468 - 15,118
Identifiable assets 55,980 12,162 - 68,142
- ---------------------------------------------------------------------------------------------------------------------------------
1996
Net Sales $ 53,217 $ 12,744 $ (6,986) $ 58,975
Operating income 5,505 3,997 - 9,502
Identifiable assets 48,959 12,497 - 61,456
- ---------------------------------------------------------------------------------------------------------------------------------
29
30
15. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected unaudited quarterly financial data for the years ended
December 31, 1998 and 1997, are as follows:
(in thousands except per share amounts) QUARTER ENDED
----------------------------------------------------------------------
1998 3-31 6-30 9-30 12-31
- ---- --------- -------- --------- ---------
Net Sales $ 8,755 $ 9,555 $ 14,482 $ 16,843
Gross profit 4,439 5,019 8,043 9,692
Net income (loss) (1,664) (1,507) 389 (557)(a)
Basic earnings (loss) per share $ (.20) $ (.18) $ .05 $ (.07)
Diluted earnings (loss) per share (.20) (.18) .05 (.07)
1997 3-31 6-30 9-30 12-31
- ---- --------- -------- --------- ---------
Net Sales $ 12,383 $ 18,806 $ 16,255 $ 17,658
Gross profit 6,930 12,158 10,005 10,932
Net income 911 3,771 2,779 3,345
Basic earnings per share $ .11 $ .47 $ .34 $ .41
Diluted earnings per share .11 .45 .33 .40
(a) In the fourth quarter of 1998, the Company wrote-off $1,472,000 of
intangible assets (see Note 6).
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
No response to Item 9 is required.
30
31
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" of the registrant's proxy statement for 1999 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
No response to Item 13 is required.
31
32
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 34.
3. Exhibits - the exhibits filed with this report are listed
on pages 36 through 38.
B. Reports on Form 8-K: The Company's current report on Form 8-K,
dated December 16, 1998, which disclosed information under
Item 5 concerning a judgement that the Company received
against Sensor Adaptive Machines, Inc. in federal court.
32
33
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 26, 1999
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 26, 1999
- ------------------------------------
Alfred A. Pease President, Chief Executive Officer
/S/ John J. Garber Vice President and Chief March 26, 1999
- ------------------------------------
John J. Garber Financial Officer (Principal Financial Officer)
/S/ Sylvia M. Smith Controller (Principal Accounting Officer) March 26, 1999
- ------------------------------------
Sylvia M. Smith
/S/ David J. Beattie Director March 26, 1999
- ------------------------------------
David J. Beattie
/S/ Philip J. DeCocco Director March 26, 1999
- ------------------------------------
Philip J. DeCocco
/S/ Robert S. Oswald Director March 26, 1999
- ------------------------------------
Robert S. Oswald
/S/ Louis R. Ross Director March 26, 1999
- ------------------------------------
Louis R. Ross
/S/ Terryll R. Smith Director March 26, 1999
- ------------------------------------
Terryll R. Smith
33
34
PERCEPTRON, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS SCHEDULE
Financial Statements Schedule:
Designation Description Page
Schedule II Valuation and qualifying accounts 35
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.
34
35
PERCEPTRON, INC. AND SUBSIDIARIES
SCHEDULE II, VALUATION AND QUALIFYING ACCOUNTS
CHARGED TO
BEGINNING COSTS AND ENDING
DESCRIPTION BALANCE EXPENSE CHARGE-OFFS BALANCE
- ----------- ------- ------- ----------- -------
DECEMBER 31, 1996:
ALLOWANCE FOR DOUBTFUL
ACCOUNTS $ 35,000 $ 84,000 $ 11,000 $ 108,000
INVENTORY RESERVES $ 670,000 $ 200,000 $ 10,000 $ 860,000
DECEMBER 31, 1997:
ALLOWANCE FOR DOUBTFUL
ACCOUNTS $ 108,000 $ 104,000 $ 37,000 $ 175,000
INVENTORY RESERVES $ 860,000 $ 0 $ 0 $ 860,000
DECEMBER 31, 1998:
ALLOWANCE FOR DOUBTFUL
ACCOUNTS $ 175,000 $ 98,000 $ 73,000 $ 200,000
INVENTORY RESERVES $ 860,000 $ 47,000 $ 388,000 $ 519,000
35
36
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 3.1 of the Company's Report on Form 10-Q
for the Quarter Ended March 31, 1998.
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 3.1 of the Company's Report
on Form 10-Q for the Quarter Ended March 31, 1998.
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 Credit Authorization Agreement, dated June 30,
1998, between Perceptron, Inc. and NBD Bank,
Related Master Demand Business Loan Note, Demand
Note Agreement dated June 30, 1998 between First
Chicago NBD Bank, Canada, Perceptron, Inc. and
Perceptron Canada, Inc. and Related Letter
Agreement are incorporated herein by reference to
Exhibit 4.6 of the Company's Report on Form 10-Q
for the Quarter Ended June 30, 1998.
Other instruments, notes or extracts from
agreements defining the rights of holders of
long-term debt of the Company or its subsidiaries
have not been filed because (i) in each case the
total amount of long-term debt permitted thereunder
does not exceed 10% of the Company's consolidated
assets, and (ii) the Company hereby agrees that it
will furnish such instruments, notes and extracts
to the Securities and Exchange Commission upon its
request.
4.4 Form of certificate representing Rights (included
as Exhibit B to the Rights Agreement filed as
Exhibit 4.5) is incorporated herein by reference to
Exhibit 2 of the Company's Report on Form 8-K filed
March 24, 1998. Pursuant to the Rights Agreement,
Rights Certificates will not be mailed until after
the earlier of (i) the tenth business day after the
Shares Acquisition Date (or, if the tenth day after
the Shares Acquisition Date occurs before the
Record Date, the close of business on the Record
Date) (or, if such Shares Acquisition Date results
from the consummation of a Permitted Offer, such
later date as may be determined before the
Distribution Date, by action of the Board of
Directors, with the concurrence of a majority of
the Continuing Directors), or (ii) the tenth
business day (or such later date as may be
determined by the Board of Directors, with the
concurrence of a majority of the Continuing
Directors, prior to such time as any person becomes
an Acquiring Person) after the date of the
commencement of, or first public announcement of
the intent to commence, a tender or exchange offer
by any person or group of affiliated or associated
persons (other than the Company or certain entities
affiliated with or associated with the Company),
other than a tender or exchange offer that is
determined before the Distribution Date to be a
Permitted Offer, if, upon consummation thereof,
such person or group of affiliated or associated
persons would be the beneficial owner of 15% or
more of such outstanding shares of Common Stock.
4.5 Rights Agreement, dated as of March 24, 1998,
between Perceptron, Inc. and American Stock
Transfer & Trust Company, as Rights Agent, is
incorporated herein by reference to Exhibit 2 of
the Company's Report on Form 8-K filed March 24,
1998.
10. Material Contracts.
36
37
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.
10.6*@ Form of Non-Qualified Stock Option Agreements under
1998 Global Team Member Stock Option Plan after
September 1, 1998.
10.7@ 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.
10.8@ First Amendment to Amended and Restated 1992 Stock
Plan is incorporated by reference to Exhibit 10.39
of the Company's Report on Form 10-Q for the
Quarter Ended March 31, 1997.
10.9@ 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.
10.10@ 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.
10.11@ 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.
10.12@ 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.
10.13@ 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.
10.14@ 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.
10.15@ 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 is incorporated by reference to Exhibit 10.22
to the Company's Annual Report on Form 10-K for the
Year Ended December 31, 1996.
37
38
10.16@ 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.
10.17@ 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.
10.18@ 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.
10.19@ Form of Non-Qualified Stock Option Agreements and
Amendments under the Director Stock Option Plan is
incorporated by reference to Exhibit 10.27 to the
Company's Annual Report on Form 10-K for the Year
Ended December 31, 1996.
10.20@ 1998 Global Team Member Stock Option Plan and Form
of Non-Qualified Stock Option Agreements under such
Plan is incorporated herein by reference to Exhibit
10.20 to the Company's Annual Report on Form 10-K
for the Year Ended December 31, 1997.
10.21@ 1996 Management Bonus Plan is incorporated herein
by reference to Exhibit 10.34 to the Company's
Annual Report on Form 10-K for the Year Ended
December 31, 1996.
10.22@ 1997 Management Bonus Plan is incorporated herein
by reference to exhibit 10.23 to the Company's
Annual Report on Form 10-K for the Year Ended
December 31, 1997.
10.23@ 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.
10.24@ Letter Agreement, dated February 14, 1996, between
the Company and Alfred A. Pease is incorporated
herein by reference to Exhibit 10.36 to the
Company's Annual Report on Form 10-K for the Year
Ended December 31, 1996.
10.25*@ Forms of Incentive Stock Option Agreements
(Officers) and Non-Qualified Stock Option
Agreements (Officers) under 1992 Stock Option Plan
after September 1, 1998.
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 10-K for the year ended
December 31, 1998.
@ Indicates a management contract, compensatory plan or arrangement.
38
39
UNDERTAKING
The Company will furnish any exhibit to this report on Form 10-K to a
shareholder upon payment of a fee of $.10 per page for photocopying, postage and
handling expenses and upon written request made to:
Investor Relations
Perceptron, Inc.
47827 Halyard Drive
Plymouth, MI 48170-2461
39