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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 [FEE REQUIRED] OR [ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM _________ TO _________.
COMMISSION FILE NUMBER: 0-20206
PERCEPTRON, INC.
(Exact name of registrant as specified in its charter)
Michigan 38-2381442
(State or other jurisdiction or (I.R.S. Employer
incorporation or organization) Identification No.)
47827 Halyard Drive
Plymouth, Michigan 48170-2461
(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. [X]
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 16, 1998, as reported by The Nasdaq Stock Market, was approximately
$170,000,000 (assuming, but not admitting for any purpose, that all directors
and executive officers of the registrant are affiliates).
The number of shares of Common Stock, $0.01 par value, issued and
outstanding as of March 16, 1998, was: 8,267,264.
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 1998
Annual Meeting of Shareholders Part III, Items 10-13
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PART I
ITEM 1: DESCRIPTION OF BUSINESS
GENERAL
Perceptron, Inc. ("Perceptron" or the "Company") designs, manufactures
and markets information based process measurement and guidance solutions which
help customers improve performance. The Company's systems address a number of
measurement and guidance applications, including process control systems that
precisely measure and monitor the assembly process for conformance to design
intent, systems that guide robots to perform precise tasks on the assembly line,
systems which inspect and detect defects on painted surfaces and 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 products
workplace.
The Company's products principally use two distinct three-dimensional
machine vision technologies: TriCam(TM) and LASAR(TM). The TriCam technology
uses structured laser light triangulation techniques to obtain accurate
three-dimensional measurements. 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. LASAR technology
uses laser radar technology and provides accurate three-dimensional measurements
of all points in a scene over a larger field of view than does TriCam.
The systems that employ TriCam technology have been primarily sold to
the automotive industry. However, these products have also been sold into other
industries, such as the forest and wood products industry.
LASAR based systems have been sold primarily to the forest and wood
products industry. Perceptron believes that there may be potential applications
for the LASAR system in a number of diverse industries. The foregoing statement
may be deemed to be a "forward looking statement" within the meaning of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). See "Business
Strategy" for a discussion of certain factors affecting the Company's expansion
plans.
Perceptron's design philosophy is to create systems which incorporate
sophisticated proprietary software and hardware to minimize the need for
customer application engineering. The Company's products are used by
factory-floor personnel for in-line manufacturing or in other operating
environments, are re-configurable and are amenable to networking. The systems
provide graphical displays, in addition to numerical reports.
From its incorporation in 1981 until August 1992, Perceptron's Common
Stock ("Common Stock") was held by private investors. On August 20, 1992, the
Company completed the Initial Public Offering ("IPO") of shares of its Common
Stock. In 1995, the Company announced a three-for-two stock split of the
Company's Common Stock in the form of a stock dividend payable on November 30,
1995 to shareholders of record on November 20, 1995. All reported historical
information has been adjusted accordingly to reflect the impact of this stock
split.
On February 3, 1997, the Company consummated its acquisition of
Autospect, Inc. ("Autospect") through the merger of a wholly owned subsidiary of
the Company with and into Autospect for aggregate consideration consisting of
387,093 shares of Common Stock of the Company. Autospect, based in Ann Arbor,
Michigan, designs, develops and manufactures information-based 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. 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.
The acquisitions of Autospect, Trident and Nanoose were accounted for
as poolings-of-interest. Accordingly, historical financial information included
in the Form 10-K for 1996 and prior periods has been restated to include the
financial results for the acquired companies.
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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;
British Columbia, Canada; Munich, Germany; Seoul, South Korea; Rotterdam, The
Netherlands; Sao Paulo, Brazil and Tokyo, Japan.
PRODUCT TECHNOLOGY OVERVIEW
The Company's two families of laser based three-dimensional machine
vision systems, TriCam and LASAR, use solid-state lasers, proprietary high speed
electronics and optics to capture three-dimensional images. The captured images
are then converted into dimensions or locations by proprietary digital signal
processing electronics and a sophisticated rectification process.
Perceptron's products provide its customers with solutions for a variety of
applications.
The TriCam family of products uses structured laser light triangulation
techniques for obtaining accurate three-dimensional measurements. LASAR sensors
incorporate a completely different technology, known as light detection and
ranging (LIDAR or laser radar), to obtain three-dimensional imagery. In such
imagery, the distance (range) to every point in the image is directly indicated,
thus providing the basis for modeling and measuring an entire scene.
Autospect products use Gray-scale and Infrared image capture and
analysis. These technologies, when combined with proprietary image processing
algorithms, calibration and reporting structure, form the basis for the coating
and paint quality measurement systems offered by Autospect.
APPLICATION OVERVIEW
TriCam based systems are currently used to measure large formed parts
for process control, to provide robot guidance for automated assembly tasks, to
provide non-contact measurement capability for wheel alignment systems in
automotive assembly plants and for certain other applications in the automotive
industry and certain non-automotive industries, such as providing
three-dimensional parameters for the forest and wood products applications. The
Company's LASAR sensors provide accurate three-dimensional images over a larger
field of view than does TriCam, and have been primarily used for forest and wood
products applications.
With the increased emphasis on continuous improvement in manufacturing
as a fundamental strategy to simultaneously reduce cost and improve quality,
manufacturers are recognizing the need for sophisticated process control
systems. Capabilities provided by Perceptron products include the following:
Measurement. The Company's automotive products are used for in-process
measurement of manufacturing performance. The Company's products first locate
the process mean relative to design intent, and then measure any part-to-part
variation to determine the process range. To rapidly accomplish both of these
tasks, measurements must be taken in-process, at line speed rates, with
sufficient accuracy to analyze and control the process performance to ensure
that the manufactured part is as close to design intent as possible. Deviation
from design intent or part-to-part variation in a process result in lower
quality and increased cost.
Autospect's products are used to measure the quality of painted
surfaces. The in-line Quality Measurement System (QMS) provides paint process
control and trend analysis of the gloss, distinctness of reflected image and
orange peel of the painted surface. The in-line Industrial Dirt Counter (IDC)
inspects the painted surface for dirt and provides data such as size, location,
and amount of the defects, for both repair information and process trend
analysis.
Guidance. In many applications, a manufacturing workpiece must be
visually and accurately located to guide a robot or an unmanned vehicle to
perform its tasks.
MARKETS
The Company has a multiple market approach, with the main focus being
the automotive industry. With the acquisition of Autospect, Inc. in 1997, the
Company now has product offerings encompassing the entire automobile
manufacturing line, including stamping, general assembly, paint, trim and final
assembly. In 1997, Perceptron purchased Trident Systems and Nanoose Systems and
increased its marketing efforts in the forest and wood products markets. The
Company believes that there may be potential applications for its
three-dimensional machine vision 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
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meaning of the Exchange Act. See "Business Strategy" for a discussion of certain
factors affecting the Company's expansion plans.
PRODUCTS AND APPLICATIONS
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' ("OEM's") wheel alignment equipment.
The NCA system offers a fast and accurate non-contact method to align
wheels, which reduces costly in-plant maintenance of mechanical wheel alignment
equipment. The Company supplies NCA systems to the automotive market through a
number of OEM's. 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.
Optical Checking Fixture (OCF). The OCF is a non-contact
three-dimensional surface scanner, which employs TriCam technology. The Company
markets the OCF product to both automotive and non-automotive customers for use
as a process control device to precisely measure and monitor large formed parts
(stamped or molded) for conformance to design intent. Four systems have been
ordered from beta stage customers, of which three have been delivered and are
operational. The Company continues to receive customer feedback and is working
on enhancements to the product.
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.
Defroster Continuity Monitor (DCM): The Perceptron DCM is a product
developed with Autospect machine vision technology for application in automotive
Trim and Final Assembly areas. The system quickly determines whether embedded
stripe defroster grids in rear glass have been fully installed and are fully
operational.
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QMS-I: The QMS-I checks the painted surface quality of each car as it
exits the paint oven, providing quality trend analysis and process control
information by car color, model, shift, etc. With this information corrective
action can be taken before quality drops below acceptable levels. The QMS-I
interfaces with the Autospect "Paint Process Monitor" (PPM), a network that
sends the trend data and quality data to the plant and corporate paint
supervision.
QMS-BP: The QMS-Battery Portable (QMS-BP) is a hand held meter
providing the same readings as the QMS-I and is used to monitor incoming
parts, and is used in paint laboratories.
The Industrial Dirt Counter (IDC): The IDC checks the amount of dirt
and other defects that affect the painted surface quality. The system prints out
a profile of the car and shows the location of the defects to assist in repair.
The system also provides trend analysis and process control information to
assist management in controlling the process. The 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 Industry Application Solutions: TriCam and LASAR based
vision systems relay high resolution scan data to the WinMill 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, a
product of Microsoft Corporation. Perceptron develops the Graphical
User Interface (GUI) and the Data reporting structure, and interfaces
to underlying software levels.
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BUSINESS STRATEGY
The Company seeks to expand its customer base and markets. To do this,
the Company has embraced the following strategy:
1. Expand the Company's automotive markets by:
- Increasing products sales to automotive original equipment
manufacturers through the expansion of the Company's product
offerings available to this market. The Company now has product
offerings encompassing the entire automobile manufacturing line,
including stamping (P-1000), general assembly (P-1000 and RGS),
paint and trim (QMS, IDC) and final assembly (P-1000, NCA, RGS,
DCM). The Company plans to continue to introduce new products
meeting the needs of its existing automotive customers in order to
leverage the Company's resources dedicated to this market.
- Continuing efforts to expand the Company's base of automotive
customers. In North America, the Company's expansion efforts will
focus on sales to the transplant automobile manufacturers and
first-tier suppliers to the automotive industry. In Europe, the
Company will focus on geographic expansion, initiating or
expanding sales activities in a number of countries currently not
fully served by the Company or its distributors. The Company will
also continue to focus on expansion in Asia and South America
through its offices in Seoul, Korea, Tokyo, Japan and Sao Paulo,
Brazil.
2. Expand the Company's forest and wood products markets by:
- Expanding the Company's product offerings available to the forest
and wood products markets. As a result of new product
introductions in 1997, the Company now has products that serve
most of the process areas in softwood and hardwood mills. The
Company plans to continue to refine these products and to
introduce new products meeting the needs of this growing market.
- Continuing efforts to expand the Company's base of forest and
wood products customers. The Company intends to focus its efforts
on North American producers, many of whom are engaged in plant
modernization programs. Sales efforts will also be made in
selected international markets, either directly or through
distributors, where the Company believes the market is receptive
to technological advances offered by the Company's products,
including Australia, the Scandinavian countries, and others.
3. Migrate existing and future information-based machine vision
technologies into new markets. Perceptron is increasing its activity
with potential customers and evaluating potential applications for its
products in industries as diverse as food processing, appliance
assembly, steel processing, robot guidance and others.
The foregoing statements may be deemed to be "forward looking
statements" within the meaning of the Exchange Act. The Company's ability to
expand its customer base and markets and to successfully execute the strategies
set forth above involves a number of uncertainties, including, but not limited
to, the quality and cost of competitive products already in existence or
developed in the future, the level of interest existing and potential new
customers may have in new products and technologies generally, the ability of
the Company to resolve technical issues inherent in the development of new
products and technologies, the ability of the Company to identify and satisfy
market needs, general product development and commercialization difficulties,
the continuation or acceleration of the automotive industries' retooling
programs, rapid or unexpected technological changes, general product demand and
market acceptance risks, the ability of the Company to successfully compete with
alternative and similar technologies, and risks inherent in completing and
integrating acquisitions generally, and the effect of economic conditions. There
can be no assurance that the Company will be able to expand its customer base
and markets or successfully execute the strategies set forth above.
SALES AND MARKETING
To date, the Company has marketed its systems either directly to the
end users of the Company's systems, or to system integrators, value-added
resellers (VAR's) or original equipment manufacturers (OEM's) who in turn sell
to the same end users.
The Company's direct 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
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marketing strategy for its assembly process control systems (P-1000), products
offered by Autospect, and for selected forest and wood products applications.
With respect to the RGS system for robot guidance, the NCA system for
wheel alignment and sales to the Forest and Wood Products industry, the
Company's marketing strategy is focused primarily on sales to selected system
integrators, OEM's and VAR's who integrate the Company's products into their
systems for sale to end user customers.
The Company's principal customers have historically been automotive
companies that the Company either sells to directly or through system
integrators or OEM's. The Company's products are typically purchased for
installation in connection with new model re-tooling programs undertaken by
these companies. Because sales are dependent on the timing of customers
re-tooling programs, sales by customer vary significantly from year to year, as
do the Company's largest customers. For the year ended December 31, 1997,
approximately 55% of total revenues were derived from three domestic automotive
companies (General Motors, Ford and Chrysler). For the years ended December 1996
and 1995, approximately 62% and 60%, respectively, of total revenues were
derived from the same three customers.
CUSTOMER SUPPORT
The Company's support program for its customers begins at the pre-sales
phase with customer consultation. The outcome of this consultation is
incorporated into the Company's sales proposals. In selected instances,
particularly with respect to the P-1000 assembly process control system, the RGS
system, and forest products systems, the Company's automotive and forest
products applications and project engineering groups work closely with the
customers' engineers. The automotive customer education group offers extended
technical education for the customers' plant personnel in metrology and process
control techniques. Extended education contracts generally continue for 12
months. Training programs are also conducted with forest product customers.
The Company provides similar support to the system integrators, VAR's
and OEM's who resell the Company's systems to end users.
Ongoing hardware and software enhancements to the Company's installed
products are provided through service contracts or through individual purchase
orders. The Company strives to achieve total customer satisfaction through
account teams that provide customers with dedicated sales, customer service,
application and project engineering and customer education staff.
RESEARCH AND DEVELOPMENT
The Company engages in research and development ("R&D") to enhance its
existing products, to adapt existing products to new applications and to develop
new products to meet new market opportunities.
The Company is involved in a continuous product improvement program for
its products intended to enhance performance, reduce costs and incorporate new
technological advances. To this end, the Company is engaged in strategic
alliances with a number of research and development institutions.
In late 1995, Autospect received a $1.8 million National Institute of
Science & Technology (NIST) grant which will provide funding of $600,000 per
year over three years for development of a system to measure the thickness of
wet film (e.g. paint). Prototype testing of this system has begun.
In 1993, the Company was awarded a $1.22 million NIST-ATP (Advanced
Technology Program) grant from the United States Department of Commerce for
software development related to high-speed image processing techniques for
three-dimensional machine vision systems. This grant, now completed, provided
the Company $0.4 million in 1994, $0.6 million in 1995, and $0.2 million in
1996. The Company included all development costs incurred internally, and
subcontracted to an independent research organization and to a university in
engineering, research and development expense, and offset these costs with
reimbursements from NIST. Work under this grant supplied the Company with a
substantial repertoire of widely usable and tested machine vision algorithm
components for use with its TriCam and LASAR products.
A Joint Venture among Perceptron, Ford Motor Company, Progressive
Industries Company and Micro Dexterity Systems, Inc. began in October 1997
for participation in the Flexible Robotic Assembly for Powertrain Applications
(FRAPA) program. The objective of the Joint Venture is to develop and implement
the technologies needed to deliver flexible assembly robotic cells, including
vision sensing and tactile feedback. These additional
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sensing capabilities are being developed to assist robotic work cells to adapt
to the current state of their surroundings to improve cell placement reliability
and to reduce the need for precision tooling. The applications being targeted
are those most ergonomically demanding of human operators. Perceptron receives
25% matching funds from the National Center for Manufacturing Services for
In-kind contributions over a four year period, not to exceed a total of
$305,000.
As of March 16, 1998, 114 persons employed by the Company are focused
primarily on research, development and engineering relating to three-dimensional
machine vision systems and related software. The Company's laser based systems
use sophisticated proprietary software technology, coupled with state-of-the-art
hardware. The Company believes that continued leadership in software development
is crucial for maintaining and expanding its market position.
For the three years ended December 31, 1995, 1996 and 1997, the
Company's research, development and engineering expenses were $5.4 million, $7.3
million, and $8.9 million, respectively.
In addition to investing directly in R&D, the Company has developed
close relationships with the University of Michigan and other research
organizations, which are recognized as technological leaders. The Company is a
member of the Auto Body Consortium (the "ABC"), a group of ten companies in
automotive-related businesses and two universities, sponsored by Michigan
Future, Inc., a non-profit corporation.
BACKLOG
As of December 31, 1997, the Company had a backlog of $24.2 million,
compared to $23.1 million as of December 31, 1996. 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, 1998.
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.
Since its inception the Company has strived to continuously improve its
proprietary sensor calibration process. This process technology, primarily
software-based, allows each sensor to be calibrated throughout its measurable
space to rectify any inherent manufacturing errors. The Company believes that
this proprietary software reduces the need that would otherwise exist for
capital investment in sensor manufacturing.
The Company purchases a number of component parts and assemblies from
single source suppliers. With respect to most of its components, the Company
believes that alternate suppliers are readily available. Significant delays or
interruptions in the delivery of components or assemblies by suppliers, or
difficulties or delays in shifting manufacturing capacity to new suppliers,
could have a material adverse effect on the Company.
INTERNATIONAL OPERATIONS
Europe: The Company's European operations have contributed
approximately 27%, 20%, and 23% of the Company's revenues during the years ended
1995, 1996, and 1997, 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 29 people in its European operations. Autospect
currently offers its products internationally through distributors in Europe.
On November 26, 1996, the Company's German subsidiary acquired the
assets of a division of HGV Vosseler GmbH ("HGV") engaged in the development and
sale of non-contact three-dimensional measurement systems. The assets acquired
include certain patents, patent applications and other intellectual property,
hardware, software, customer lists, and a non-competition agreement.
Asia: In 1997, the Company began operating a direct sales and
application office in Seoul, Korea and began operating through a representative
sales office in Tokyo, Japan.
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South America: The Company has established 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 11 to the Consolidated Financial Statements,
"Foreign Operations".
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, such as P-1000, RGS and NCA, 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 its P-1000 system is the most advanced, in terms of completeness
of solutions provided, system currently offered and that its other products
compete favorably with similar and alternative technologies currently being
offered in terms of both capability and price.
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. 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. The
Company believes that its products compete favorably with similar and
alternative technologies currently being offered in terms of both capability and
value added.
The Company believes that there may be other entities, some of whom may
be substantially larger and have substantially greater resources than the
Company, which may be engaged in the development of technology and products
which could prove to be competitive with those of the Company. In addition, the
Company believes that certain existing and potential customers may be capable of
internally developing their own technology. There can be no assurance that the
Company will be able to successfully compete with any such entities, or that any
competitive pressures will not result in price erosion or other factors which
will adversely affect the Company's financial performance.
PATENTS, TRADE SECRETS AND CONFIDENTIALITY AGREEMENTS
The Company considers its software and hardware to be proprietary and
seeks to protect its technology through a combination of patents, copyrights,
trade secrets, confidentiality and other agreements. The Company deems its
patents and patent applications to be materially important to its business.
However, the Company also believes that its success depends upon its trade
secrets and proprietary know-how, innovative skills, technical competence and
marketing abilities of its employees. There can be no assurance that any of the
above measures will be adequate to protect this proprietary technology.
The Company owns nine U.S. patents and nine 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 2010
and the Company's existing foreign patent rights expire from 2008 through 2011.
The Company has been informed that certain of its customers have
received allegations of possible patent infringement involving processes and
methods used in the Company's products. One such customer is currently engaged
in litigation relating to such matter. This customer has notified various
companies from which it has purchased such equipment, including the Company,
that it expects the suppliers of such equipment to indemnify such customer, on a
pro-rata basis, for expenses and damages, if any, incurred in this matter.
Management believes, however, that the processes and methods used in the
Company's products were independently developed by the Company without utilizing
any previously patented process or technology. Because of the uncertainty
surrounding the nature of any possible infringement and the validity of any such
claim or any possible customer claim for indemnity, it is not possible to
estimate the ultimate effect, if any, this matter may have upon the Company's
financial position and results of operations.
9
<PAGE> 10
The Company has registered, and continues to register, various trade
names and trademarks, including PERCEPTRON, DATACAM, LASAR, VERISTAR, WinMill,
TRICAM and OPTIFLEX, among others, which are used in connection with the
conduct of its business. Autospect has applied for registration of the
AUTOSPECT trade name.
The Company's software products are copyrighted and generally licensed
to customers pursuant to license agreements that restrict the use of the
products to the customer's own internal purposes on designated Perceptron
equipment.
EMPLOYEES
As of March 16, 1998, the Company employed 317 persons. Of these
persons, 114 were in research, development and engineering, 43 in sales,
marketing and support, 126 in operations, applications and project engineering
and 34 in general administration and finance. None of the employees are covered
by a collective bargaining agreement and the Company believes its relations with
its employees to be good.
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, and a 13,000 square foot
leased building in Atlanta, Georgia. 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 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 1998.
ITEM 3: LEGAL PROCEEDINGS
No response to Item 3 is required.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No response to Item 4 is required.
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<PAGE> 11
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:
<TABLE>
<CAPTION>
Period Prices
------ ------
Low High
--- -----
<S> <C> <C>
1995
First Quarter................................................... $ 9.83 $ 15.33
Second Quarter.................................................. $ 11.00 $ 14.50
Third Quarter................................................... $ 13.17 $ 19.33
Fourth Quarter.................................................. $ 14.33 $ 24.83
1996
First Quarter................................................... $ 17.75 $ 27.00
Second Quarter.................................................. $ 25.50 $ 39.00
Third Quarter................................................... $ 24.50 $ 37.75
Fourth Quarter.................................................. $ 23.50 $ 37.50
1997
First Quarter................................................... $ 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 (January 1, 1998 through March 16, 1998).......... $ 18.75 $ 24.50
</TABLE>
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 16, 1998, was
302.
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<PAGE> 12
ITEM 6: SELECTED CONSOLIDATED FINANCIAL INFORMATION
PERCEPTRON, INC. AND SUBSIDIARIES
(In thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------------
Statement of Operations Data(2): 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales $65,102 $58,975 $43,154 $33,224 $22,203
Gross profit 40,025 35,367 26,184 19,248 11,724
Income from operations (1) 15,118 9,502 7,699 6,046 3,072
Net income before provision for
income tax (1) 16,009 10,245 8,227 6,179 2,870
Net income (1) 10,806 7,150 8,491 6,179 2,841
Net income per diluted
average common share (1) $1.28 $.86 $1.07 $.80 $.43
Weighted average common
shares outstanding - diluted 8,412 8,309 7,955 7,695 6,669
<CAPTION>
As of December 31,
------------------------------------------------------------------
Balance Sheet Data: 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Working capital $45,604 $34,444 $28,119 $19,023 $12,733
Total assets 68,142 61,456 42,017 25,750 17,454
Shareholders' equity 57,879 46,447 31,049 20,346 13,711
</TABLE>
- ----------------
(1) Excluding amounts for non-cash stock option compensation expense (See
Note 6 to the Consolidated Financial Statements), the reported amounts
would have been:
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income from operations 15,118 12,704 9,076 6,046 3,072
Net income before provision
for income tax 16,009 13,447 9,604 6,179 2,870
Net income 10,806 9,231 9,386 6,179 2,841
Net income per diluted
average common share $1.28 $1.11 $1.19 $.80 $.43
</TABLE>
(2) No cash dividends have been declared or paid during the periods presented.
12
<PAGE> 13
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. Autospect, based in Ann Arbor,
Michigan, designs, develops and manufactures information-based coating
inspection and defect detection systems primarily for use in the automotive
industry. The transaction was accounted for as a pooling of interests.
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.
RESULTS OF OPERATIONS
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 and wood products ("Forest") markets, consist
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 revenues
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.
13
<PAGE> 14
Due to the evolving shift in focus from automotive end-of-line gauging
to solutions that service process centers factory-wide, the Company expects that
sales of its P-1000 systems, designed for end-of-line gauging, will slow and
that future growth in net sales will be derived from Forest Products systems and
new product introductions anticipated in 1998. As a result, the Company expects
its results for the quarter ended March 31, 1998, to be below those of the same
quarter in the prior year, and that, as new products are introduced during 1998,
for the Company's results for the last six months of 1998 to show a marked
improvement. The foregoing statements are "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 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 product sales, 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.
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. Beginning in late 1994, 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 certain of
the exercises during 1995 and 1996. 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, and as a
result, incurred no similar charge in 1997.
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 8 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.
YEAR ENDED DECEMBER 31, 1996, COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net Sales. Net sales, of which substantially all are attributable to
the automotive and forest products markets, consist primarily of product sales
together with training and service revenue. The Company's net sales increased by
37% from $43.1 million in 1995 to $59.0 million in 1996. Net sales in the North
American market
14
<PAGE> 15
increased from $30.1 million in 1995 to $46.3 million in 1996. Net sales in the
European and Asian markets decreased from $13.0 million in 1995 to $12.7 million
in 1996.
P-1000 systems accounted for 68% of net sales in 1995 and 63% of net
sales in 1996. The RGS and NCA systems combined accounted for 13% of net sales
in 1995 and 12% in 1996. Forest Products sales accounted for 8% of net sales in
1995 and 13% of net sales in 1996. Training and service revenues and other
product sales accounted for the remainder of net sales in both years.
New order bookings for 1995 totaled $45.6 million, compared to $64.7
million in 1996. North American orders were up from $32.7 million in 1995 to
$49.7 million in 1996 and European and Asian orders were up from $12.9 million
in 1995 to $15.0 million in 1996. P-1000 systems accounted for 71% of new order
bookings in 1995 and 66% in 1996. RGS and NCA bookings accounted for 11% of the
total in 1995 and 13% in 1996. Forest Product bookings accounted for 8% of the
total in 1995 and 10% in 1996. Training and service revenues and other product
sales accounted for the remainder of net sales in both years.
Gross profit. Gross profit increased from $26.2 million in 1995 to
$35.4 million in 1996, and as a percentage of net sales decreased from 60.7% in
1995 to 60.0% in 1996. The decrease is due primarily to the lower gross profit
percentage associated with one specific sale by the Company of a new product,
which was integrated into equipment acquired from an original equipment
manufacturer ("OEM") and sold as a complete system.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by 31% from $11.7 million in 1995 to $15.4
million in 1996. This increase is due primarily to increases in personnel and
various operating expenses required to support the increased 1996 operating
activity and, to a lesser extent, to increased management performance bonuses.
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 27.0%
in 1995, to 26.1% in 1996.
Engineering, research and development. Engineering, research and
development expenses increased by 34%, from $5.4 million in 1995, to
approximately $7.3 million in 1996, due primarily to increased personnel and, to
a lesser extent, to increased expenditures for materials associated with
products under development. As a percentage of net sales, engineering, research
and development expenses decreased from 12.6% in 1995 to 12.4% in 1996
principally due to the higher sales base.
Non-cash stock compensation expense. Beginning in late 1994, some
participants in the Company's stock option plan 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 certain of
the exercises during 1996 and 1995.
The Company recorded non-cash stock compensation expense of $1.4
million in the fiscal 1995 and $3.2 million in 1996. The effect of this non-cash
stock compensation charges on net income for fiscal 1995 was a reduction of $.12
per diluted share, and for 1996 was $0.25 per diluted share.
Interest income, net. Interest income, net, increased from
approximately $0.5 million in 1995 to $0.7 million in 1996, due to increased
cash balances and related investing activities during 1996.
Income before provision for income taxes. In 1995, Perceptron had
income before provision for income taxes of approximately $8.2 million
representing 19.1% of net sales, as compared to 1996 income before provision for
income taxes of approximately $10.2 million representing 17.4% of net sales.
Without the non-cash stock compensation charge, the results for 1995 would have
been $9.6 million, or 22.3% of net sales, as compared to $13.4 million, or 22.8%
of net sales in 1996.
Provision for income taxes. For financial reporting purposes, because
the Company anticipated it would utilize certain operating loss and tax credit
carryforwards, a deferred tax asset was recorded in 1995, representing the
estimated tax benefit of these items. As a result, a tax benefit of $264,000 was
recorded for the year ended 1995. For the year ended December 31, 1996, the
Company recorded a $3.1 million provision for income taxes, representing an
estimated effective tax rate of 30%. (See Note 8 to the Consolidated Financial
Statements, "Income Taxes").
Net income. Net income in 1995 was $8.5 million, or 19.7% of net sales,
resulting in $1.07 per diluted share. In 1996, net income was $7.2 million, or
12.1% of net sales, resulting in $.86 per diluted share. Without the non-cash
stock compensation expense, net income for 1995 would have been $9.4 million, or
21.8% of net sales,
15
<PAGE> 16
resulting in $1.19 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, compared to the 1995 earnings, as if
taxed at a comparable rate, of $6.8 million, 16% of net sales or $.83 per
diluted share.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents and marketable securities as of
December 31, 1997, totaled approximately $16.4 million, as compared with
approximately $14.9 million as of December 31, 1996. This increase was due
primarily to net income and cash received from stock options, partially offset
by capital expenditures and increased working capital requirements.
The Company has 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 (8.25% as of March 16,
1998). The credit facilities expire on May 31, 1998 unless canceled earlier by
the Company or the bank. As of December 31, 1997, Perceptron had no outstanding
borrowings on these facilities. The Company expects to renew these credit
facilities.
The Company's working capital increased to $45.6 million at December
31, 1997, from $34.4 million at December 31, 1996. Accounts receivable increased
from $22.8 million as of December 31, 1996, to $30.7 million as of December 31,
1997, due primarily to extended terms and collections by foreign subsidiaries,
which have now been collected. The increase of approximately $0.8 million in
inventory is due primarily to an increase in component parts inventory in
preparation for delivery of products to customers during 1998. The decrease of
$4.2 million in current liabilities is due primarily to repayment of subsidiary
bank loans, reduced compensation expense accrued, and final progress payments on
the new facility paid during 1997. As a result of the reduced net income due to
the non-cash stock option compensation expense and tax overpayments in Germany,
an income tax receivable was recorded of $2.1 million in 1996. Prepaid expenses
and deferred tax assets decreased by $1.8 million in 1997 as a result of the
recognition of current tax expense.
During the first quarter of 1997, construction of the Company's new
headquarters facility in Plymouth, Michigan was completed and the sale of the
facility to the Company was consummated. This is reflected in the Property and
Equipment portion of the consolidated balance sheet for the period ended
December 31, 1997.
The Company does not believe that inflation has had any significant
impact on reported historical operations, and does not expect any significant
near-term inflationary impact.
The Company believes that cash on hand and existing credit facilities
will be sufficient to fund its currently anticipated 1998 cash flow
requirements.
The Company expects to expend approximately $3.0 million during 1998
for capital equipment, although there is no binding commitment to do so.
The Board of Directors has authorized the repurchase of up to 150,000
shares of the Company's outstanding Common Stock. Repurchased shares primarily
will be used to meet the Company's requirements for share issuances under its
various stock-based incentive programs, including the Global Team Member Stock
Option Plan approved by the Board of Directors on February 26, 1998. 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".
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
(FAS 128). FAS 128 specifies the computation, presentation, and disclosure
requirements for earnings per share. The Company has adopted FAS 128 as of
December 31, 1997. Adoption of this standard did not have a material effect on
reported earnings per share.
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 to
be reported in a financial statement that is displayed with the same prominence
as other financial statements. Perceptron will adopt SFAS
16
<PAGE> 17
130 for 1998. Management is evaluating the impact, if any, this Standard will
have on the Company's comprehensive income reporting.
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 will adopt SFAS 131 for 1998.
Management is evaluating the impact, if any, this Standard will have on the
Company's present segment reporting.
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 1998 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, and the effect of economic conditions.
Year 2000
The Company is testing its products and third party software sold with
its systems to determine if they are year 2000 compliant. To the extent that
any of its products are determined not to be year 2000 compliant, the Company
plans to develop upgrades to make such products year 2000 compliant or to
release new versions of its products which will be year 2000 compliant prior to
January 1, 2000. The Company will offer such upgrades or new product versions
to its existing customers to upgrade or replace non-compliant systems then
still in use.
The Company is also reviewing its internal systems for year 2000
compliance. The Company's principal internal systems were acquired from
third-party software vendors. As a result, the Company plans to bring its
internal systems into year 2000 compliance prior to January 1, 2000, through
upgrades from such third-party software vendors, where available, replacement
of certain systems with new third-party software which is year 2000 compliant
and, to a limited extent, modification of existing systems.
Because the Company has not completed its testing procedures and because
any testing procedure, by its nature, is not complete, there can be no assurance
that the Company's products, the operating systems on which they operate, and
the Company's internal systems do not contain errors or defects associated with
year 2000 date functions that may result in material costs to the Company.
However, Management does not believe that the cost to bring its current products
and internal systems into year 2000 compliance will have a material adverse
effect on the Company's business, results of operations or financial condition.
The foregoing statements regarding the year 2000 compliance of the Company's
current products and the cost to bring the Company's current products and
internal systems into year 2000 compliance are "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 mentioned above. In addition, the Company's plan to bring its
products and internal systems into year 2000 compliance could be adversely
affected by the failure of other software vendors supplying software to the
Company to bring such software into year 2000 compliance.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No response to Item 7A is required.
17
<PAGE> 18
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Accountants.................................................... 19
Consolidated Financial Statements:
Balance Sheets - December 31, 1997 and 1996................................. 20
Statements of Income for the years ended
December 31, 1997, 1996 and 1995............................................ 21
Statements of Shareholders' Equity
for the years ended December 31, 1997, 1996 and 1995........................ 22
Statements of Cash Flows for the years ended December 31, 1997,
1996 and 1995............................................................... 23
Notes to Consolidated Financial Statements.................................. 24-31
</TABLE>
18
<PAGE> 19
[COOPERS & LYBRAND LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Perceptron, Inc.:
We have audited the accompanying consolidated balance sheets of Perceptron,
Inc. and Subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of income, shareholders' equity and cash flows, and the
financial statement schedule referred to in item 14(A)(2) for each of the three
years in the period ended December 31, 1997. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Perceptron, Inc.
and Subsidiaries as of December 31, 1997 and 1996, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1997 in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information required to be included therein.
Detroit, Michigan
February 6, 1998
19
<PAGE> 20
PERCEPTRON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
--------------------------------
1997 1996
-------------- ----------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 14,448,000 $ 12,424,000
Marketable securities 2,000,000 2,500,000
Accounts receivable, net of reserves of $175,000
and $108,000 30,692,000 22,750,000
Inventories, net of reserves of $860,000 8,019,000 7,176,000
Income tax receivable 0 2,103,000
Prepaid expenses and deferred tax asset 708,000 2,500,000
------------ ------------
Total current assets 55,867,000 49,453,000
------------ ------------
Property and equipment:
Building and land 5,982,000 --
Machinery and equipment 6,638,000 4,986,000
Furniture and fixtures 1,312,000 376,000
Leasehold improvements -- 12,000
Construction in progress -- 6,202,000
------------ ------------
13,932,000 11,576,000
Less: Accumulated depreciation and amortization (3,308,000) (1,925,000)
------------ ------------
Net property and equipment 10,624,000 9,651,000
Intangible assets, net of accumulated amortization of $394,000 and $0 1,651,000 2,352,000
------------ ------------
Total assets $ 68,142,000 $ 61,456,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Due to bank -- 980,000
Accounts payable 2,979,000 4,892,000
Accrued payables and expenses 5,929,000 6,223,000
Accrued compensation and stock option expense 1,355,000 2,914,000
------------ ------------
Total current liabilities 10,263,000 15,009,000
------------ ------------
Shareholders' equity:
Preferred Stock, no par value, 1,000,000 shares authorized,
none issued 0 0
Common Stock, $0.01 par value; 19,000,000 shares authorized,
8,207,000 and 7,950,000 issued and outstanding at
December 31, 1997 and 1996, respectively 82,000 80,000
Cumulative translation adjustments (2,411,000) (929,000)
Additional paid-in capital 41,666,000 39,560,000
Retained earnings 18,542,000 7,736,000
------------ ------------
$ 57,879,000 $ 46,447,000
------------ ------------
Total liabilities and shareholders' equity $ 68,142,000 $ 61,456,000
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
20
<PAGE> 21
PERCEPTRON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------
1997 1996 1995
-------------------- -------------------- -------------
<S> <C> <C> <C>
Net sales $ 65,102,000 $ 58,975,000 $ 43,154,000
Cost of sales 25,077,000 23,608,000 16,970,000
------------ ------------ ------------
Gross profit 40,025,000 35,367,000 26,184,000
------------ ------------ ------------
Selling, general and administrative expense 15,963,000 15,369,000 11,672,000
Engineering, research and development expense 8,944,000 7,294,000 5,436,000
Non-cash stock compensation expense -- 3,202,000 1,377,000
------------ ------------ ------------
Income from operations 15,118,000 9,502,000 7,699,000
------------ ------------ ------------
Interest income, net 891,000 743,000 528,000
------------ ------------ ------------
Net income before provision for income taxes 16,009,000 10,245,000 8,227,000
Provision for income taxes 5,203,000 3,095,000 (264,000)
------------ ------------ ------------
Net income $ 10,806,000 $ 7,150,000 $ 8,491,000
============ ============ ============
Earnings per share:
Basic $ 1.34 $ .93 $ 1.17
============ ============ ============
Diluted $ 1.28 $ .86 $ 1.07
============ ============ ============
Weighted average common shares outstanding:
Basic 8,064,589 7,661,153 7,251,320
============ ============ ============
Diluted 8,412,354 8,309,043 7,954,659
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
21
<PAGE> 22
PERCEPTRON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
for the years ended December 31, 1995, 1996 and 1997
<TABLE>
<CAPTION>
Cumulative
Common Stock Foreign
-------------------- Currency Additional Retained Total
Translation Paid-in Earnings Shareholders'
Shares Amount Adjustments Capital (Deficit) Equity
------ ------- ----------- ------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1995 7,077,094 $ 71,000 $(438,000) $28,618,000 $(7,905,000) $ 20,346,000
Stock options exercised, net of shares
tendered 342,560 3,000 591,000 594,000
Tax benefit of non-qualified stock 150,000 150,000
options exercised
Previously recorded stock option
compensation expense attributable
to options exercised 127,000 127,000
Non-cash stock compensation expense
attributable to options exercised 1,377,000 1,377,000
Translation adjustment on investment
in foreign subsidiaries (36,000) (36,000)
Net Income 8,491,000 8,491,000
--------- --------- --------- ----------- ----------- -----------
Balances, December 31, 1995 7,419,654 $ 74,000 $(474,000) $30,863,000 586,000 $ 31,049,000
========= ========= ========= =========== =========== ============
Shares issued for intangible assets 82,150 1,000 2,299,000 2,300,000
Stock options exercised, net of
shares tendered 447,638 5,000 2,062,000 2,067,000
Tax benefit of non-qualified stock
options exercised 600,000 600,000
Previously recorded stock option
compensation attributable to
options exercised 534,000 534,000
Non-cash compensation expense
attributable to options exercised 3,202,000 3,202,000
Translation adjustment on investment
in foreign subsidiaries (455,000) (455,000)
Net income 7,150,000 7,150,000
--------- --------- --------- ----------- ----------- -----------
Balances, December 31, 1996 7,949,442 $ 80,000 $(929,000) $39,560,000 $ 7,736,000 $ 46,447,000
========= ========= ========= =========== =========== ============
Stock options exercised, net of
shares tendered 257,666 2,000 1,852,000 1,854,000
Tax benefit of non-qualified stock
options exercised 87,000 87,000
Previously recorded stock option
compensation attributable to
options exercised 167,000 167,000
Translation adjustment on investment
in foreign subsidiaries (1,482,000) (1,482,000)
Net income 10,806,000 10,806,000
---------- --------- ----------- ----------- ----------- ------------
Balances, December 31, 1997 8,207,108 $ 82,000 $(2,411,000) $41,666,000 $18,542,000 $ 57,879,000
========== ========= =========== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
22
<PAGE> 23
PERCEPTRON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------
1997 1996 1995
-------------- ---------------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 10,806,000 $ 7,150,000 $ 8,491,000
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,754,000 904,000 854,000
Disposal of fixed assets 0 293,000 0
Non-cash stock compensation expense 167,000 3,202,000 1,377,000
Changes in operating assets and liabilities:
Accounts receivable and income
tax receivable (6,600,000) (9,996,000) (3,387,000)
Inventories (843,000) (2,138,000) (1,496,000)
Prepaid expenses and deferred tax asset 1,792,000 510,000 (2,393,000)
Accounts payable (1,913,000) 588,000 1,201,000
Accrued payables and expenses (1,853,000) 1,396,000 4,679,000
------------ ------------ ------------
Total adjustments (7,496,000) (5,241,000) 835,000
------------ ------------ ------------
Net cash provided by operating activities 3,310,000 1,909,000 9,326,000
------------ ------------ ------------
Cash flows (used in) investing activities:
Capital expenditures (2,356,000) (5,703,000) (2,415,000)
Purchases of marketable securities 0 (2,500,000) 0
Sales and maturities of marketable securities 500,000 0 0
------------ ------------ ------------
Net cash (used in) investing activities (1,856,000) (8,203,000) (2,415,000)
------------ ------------ ------------
Cash flows from financing activities:
Principal payments under capital leases 0 0 (94,000)
Proceeds from issuance of short-term debt 0 980,000 200,000
Principal payments on short-term debt (980,000) (200,000) (422,000)
Proceeds from the exercise of stock options 1,854,000 2,071,000 594,000
Tax benefit of non-qualified options exercised 87,000 600,000 150,000
------------ ------------ ------------
Net cash provided by financing activities 961,000 3,451,000 428,000
------------ ------------ ------------
Effect of exchange rates on cash and cash equivalents (391,000) (175,000) 62,000
------------ ------------ ------------
Net increase/(decrease) in cash and cash equivalents 2,024,000 (3,018,000) 7,401,000
Cash and cash equivalents, beginning of year 12,424,000 15,442,000 8,041,000
------------ ------------ ------------
Cash and cash equivalents, end of year $ 14,448,000 $ 12,424,000 $ 15,442,000
============ ============ ============
Supplemental disclosure of cash flow information:
Cash paid during the year for interest expense $ 31,000 $ 24,000 $ 45,000
============ ============ ============
Cash paid during the year for income taxes $ 2,889,000 $ 2,711,000 $ 318,000
============ ============ ============
Non-cash transactions:
Equipment acquired under capital leases $ 0 $ 0 $ 128,000
Previously recorded compensation expense
attributable to options exercised 167,000 534,000 127,000
Intangible assets acquired for stock 0 2,300,000 0
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
23
<PAGE> 24
PERCEPTRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
OPERATIONS
Perceptron, Inc. and its wholly-owned subsidiaries (collectively, the
"Company") are involved in the design, development, manufacture, and marketing
of machine vision systems which are used primarily in the automotive industry,
and to a lesser extent, in 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., which was consummated on February
3, 1997, Trident Systems Inc. ("Trident") and Nanoose Systems Corporation
("Nanoose"), which acquisitions were consummated on April 30, 1997. The
acquisitions are being accounted for as poolings-of-interest. Accordingly, all
amounts for prior periods have been restated to include the financial results
of the acquired companies.
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 with current period
presentations.
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 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, who in turn sell to automotive assembly companies. The Company's
accounts receivable are principally from a small number of large customers. The
Company performs ongoing credit evaluations of its customers. To date, the
Company has not experienced any significant losses related to the collection of
accounts receivable.
A significant portion of the Company's cash and cash equivalents were
with one bank as of December 31, 1997 and 1996.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
ACQUISITIONS
Net sales and net income for the acquired companies and Perceptron for
periods proceeding the acquisitions were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1996 December 31, 1995
Net Sales Net Income Net Sales Net Income
-------------------------- ---------------------------
<S> <C> <C> <C> <C>
Perceptron, as previously reported $ 49,679 $ 7,894 $ 37,291 $ 8,409
Trident and Nanoose 7,933 (805) 3,901 (350)
Autospect 3,990 453 2,272 432
Consolidation adjustments (2,627) (392) (310) 0
--------- ---------- ---------- ---------
Combined $ 58,975 $ 7,150 $ 43,154 $ 8,491
========= ========== ========== =========
</TABLE>
24
<PAGE> 25
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:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------
1997 1996
------------- -------------
<S> <C> <C>
Component parts $ 5,507,000 $ 4,627,000
Work in process 902,000 1,829,000
Finished goods 1,610,000 720,000
------------- -------------
Total $ 8,019,000 $ 7,176,000
============= =============
</TABLE>
PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS
Property and equipment is 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 over approximately 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.
NET INCOME PER SHARE
The Company adopted Statement of Financial Accounting Standards No.
128, "Earnings per Share", for financial statements for the year ended December
31, 1997. Adoption of this standard did not have a material effect on reported
earnings per share.
Basic earnings per share is calculated by dividing net income by the
average number of shares outstanding during the applicable period. Other
obligations, such as stock options and warrants, are considered to be
potentially dilutive common shares. The calculation of diluted earnings per
share takes into account the effect of these potentially dilutive common shares.
Earnings per share were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------- ------------------------ -------------------------
Income Shares Income Shares Income Shares
<S> <C> <C> <C> <C> <C> <C>
Net income and shares 10,806,000 8,064,589 7,150,000 7,661,153 8,491,000 7,251,320
Basic Earnings Per Share $1.34 $0.93 $1.17
Net income and shares 10,806,000 8,064,589 7,150,000 7,661,153 8,491,000 7,251,320
Net dilutive effect of stock
options and warrants - 347,765 - 647,890 - 703,339
----------- ----------- ----------- ----------- ----------- -----------
Diluted income and shares 10,806,000 8,412,354 7,150,000 8,309,043 8,491,000 7,954,659
Diluted Earnings Per Share $1.28 $0.86 $1.07
</TABLE>
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.
25
<PAGE> 26
IMPAIRMENT OF LONG-LIVED ASSETS AND CERTAIN IDENTIFIABLE INTANGIBLES
The Company adopted Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," as of January 1, 1996. The effect of adopting this
standard was not material.
The Company evaluates the carrying value of long-lived assets and
long-lived assets to be disposed of for potential impairment on an ongoing
basis. The Company considers projected future operating results, trends and
other circumstances in making such estimates and evaluations.
FINANCIAL INSTRUMENTS
The carrying amount of the Company's financial instruments, which
include cash, marketable securities, accounts receivable, accounts payable, and
amounts due to bank, approximates their fair value at December 31, 1997 and
1996. Fair values have been determined through information obtained from market
sources and management estimates.
2. MARKETABLE SECURITIES:
At December 31, 1997 and 1996, marketable securities, which were
classified as available for sale, consisted of mortgage backed securities whose
fair value approximated cost. In 1997, proceeds from sales of available for sale
securities were $500,000; no gross gains or losses were realized on those sales.
3. CREDIT FACILITY:
At December 31, 1997 the Company has 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
(8.25% as of December 31, 1997). The Company's credit facilities expire on May
31, 1998 unless canceled earlier by the Company or the bank. At December 31,
1996, borrowings under a portion of the facilities by Autospect and Trident, in
the amounts of $830,000 and $150,000, respectively, were collateralized by
substantially all of the assets of Autospect and Trident.
4. LEASES:
The following is a summary, as of December 31, 1997, 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:
<TABLE>
<CAPTION>
Year Operating Capital
---- ---------- -----------
<S> <C> <C> <C>
1998 $ 724,000 $ 27,000
1999 646,000 14,000
2000 620,000 2,000
2001 617,000 ---
2002 371,000 ---
---------- -----------
Total minimum lease payments $2,978,000 $ 43,000
========== ===========
Less amount representing interest $ 5,000
-----------
Present value of net minimum lease payments $ 38,000
===========
</TABLE>
Rental expense for operating leases in 1997, 1996 and 1995 was
$719,000, $480,000 and $484,000, respectively.
Depreciation of the assets recorded under capital leases is included in
depreciation expense. The net book value of the leased assets included in
property and equipment at December 31, 1997 was $38,000.
5. COMMITMENTS AND OTHER:
The Company has committed to provide funding in the amount of $50,000
to a university in conjunction with research in manufacturing methods utilizing
the Company's products and technology. At December 31, 1997, the Company had
funded $25,000 of its commitment for the university's fiscal year ended June 30,
1998.
In 1993, the Company was awarded a $1.22 million NIST-ATP grant from
the United States Department of Commerce for software development related to
high-speed image processing techniques for three-dimensional machine vision
systems. In connection with this grant, the Company had subcontracted a portion
of the research effort to a university and to an independent research institute,
at a total cost of $1.0 million. This grant, now completed, provided the Company
$0.4 million in 1994, $0.6 million in 1995, and $0.2 million in 1996. The
Company included all development costs incurred internally and subcontracted to
the independent research organization and to the university in engineering,
research and
26
<PAGE> 27
development expense, and offset these costs with reimbursements from NIST.
Work under this grant has supplied the Company with a substantial repertoire
of widely usable and tested machine vision algorithm components for use with
its TriCam and LASAR products.
In late 1995, Autospect received a $1.8 million NIST grant which will
provide funding of $600,000 per year over three years for development of a
system to measure the thickness of wet film (e.g. paint). Prototype testing of
this system has begun. During 1997 and 1996, Autospect received revenue
reimbursement of $0.6 million and $0.4 million, respectively, which offset the
related costs.
The Company uses, from time to time, a limited hedging program to
minimize the impact of foreign currency fluctuations. As the Company exports
product, it generally enters into limited hedging transactions relating to the
accounts receivable arising as a result of such shipment. These transactions
involve the use of forward contracts. At December 31, 1997 and 1996, the Company
had no forward contracts outstanding.
6. SHAREHOLDERS EQUITY:
- Stock options and warrants
The Company maintains 1983 and 1992 Stock Option Plans covering
substantially all company employees and certain other key persons. These Plans
are administered by a committee of the Board of Directors. Activity under these
Plans is shown in the following table:
<TABLE>
<CAPTION>
1997 1996 1995
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares subject to option
Outstanding at beginning of period 953,511 $ 15.22 1,060,943 $ 8.26 1,318,740 $ 5.85
New grants (based on fair value of
Common Stock at dates of grant) 288,427 27.80 339,300 25.24 236,350 14.93
Exercised (228,653) 7.28 (430,129) 6.07 (353,944) 3.81
Terminated and expired (25,020) 16.60 (16,603) 9.90 (140,203) 7.93
Outstanding at end of Period** 988,265 20.77 953,511 15.22 1,060,943 8.26
Exercisable at end of period 237,180 16.42 154,287 9.36 231,738 8.13
</TABLE>
** All outstanding shares at December 31, 1997, and December 31, 1996, are under
the 1992 Plan.
The following table summarizes information about stock options at
December 31, 1997:
<TABLE>
<CAPTION>
Outstanding Stock Options Exercisable Stock Options
-------------------------------------------------- -------------------------
Weighted-Average
Range of Remaining Weighted-Average Weighted-Average
Exercise Prices Shares Contractual Life Exercise Price Shares Exercise Price
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 3.71 to $ 9.92 168,050 6.06 years $ 7.00 74,926 $ 7.88
$ 10.08 to $ 19.58 148,154 7.11 years $ 12.23 56,298 $ 12.39
$ 20.63 to $ 29.98 506,811 8.79 years $ 23.64 87,468 $ 22.19
$ 30.25 to $ 36.50 165,250 8.92 years $ 33.61 18,488 $ 36.02
- ---------------------------------------------------------------------------------------------------------------
$ 3.71 to $ 36.50 988,265 8.10 years $ 20.77 237,180 $ 16.42
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
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. Options
outstanding under these Plans generally become exercisable at 25 percent per
year beginning one year after the date of the grant and expire ten years after
the date of the grant. At December 31, 1997, options covering 237,180 shares
were exercisable and options covering 211,576 shares were available for future
grants under these plans.
27
<PAGE> 28
The Company also maintains a Director Stock Option Plan covering all
non-employee directors. This Plan is administered by a committee of the Board of
Directors.
<TABLE>
<CAPTION>
1997 1996 1995
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares subject to option
Outstanding at beginning of period 108,000 $ 23.28 60,000 $ 12.58
New grants 22,500 $ 28.00 64,500 $ 30.75 60,000 $ 12.58
Exercised (30,000) $ 12.83 0 $ 0 0
Terminated and expired 0 $ 0 (16,500) $ 13.55 0
Outstanding at end of period 100,500 $ 27.46 108,000 $ 23.28 60,000 $ 12.58
Exercisable at end of period 76,000 $ 27.21 45,000 $ 12.58 0
</TABLE>
The following table summarizes information about stock options
outstanding at December 31, 1997 under the Directors Stock Option Plan:
<TABLE>
<CAPTION>
Outstanding Stock Options
Weighted-Average Exercisable Stock Options
----------------------------------------------------- ------------------------------
Range of Remaining Weighted-Average Weighted-Average
Exercise Prices Shares Contractual Life Exercise Price Shares Exercise Price
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 11.83 to $ 12.83 15,000 7.11 years $ 12.83 15,000 $ 12.83
$ 28.00 to $ 30.75 85,500 8.78 years $ 30.03 61,000 $ 30.75
- -----------------------------------------------------------------------------------------------------------------
$ 11.83 to $ 30.75 100,500 8.53 years $ 27.46 76,000 $ 27.21
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Each non-employee director at the date the Director Stock Option Plan
was adopted received, and each non-employee director as of the date they are
first elected to the Board of Directors will receive, an option to purchase
15,000 shares of Common Stock (the "Initial Option"). Initial Options become
exercisable in full on the first anniversary of the day of the grant. In
addition, each non-employee director who has been a director for six months
before the date of each Annual Meeting of Shareholders automatically will be
granted, as of the date of such Annual Meeting, an option to purchase an
additional 1,500 shares of Common Stock (the "Annual Option"). These Annual
Options become exercisable in three annual increments of 33 1/3% of the shares
subject to the option, and expire ten years from the date of the grant. Option
prices for options granted under this plan must not be less than fair market
value of the Company's stock on the date of grant. At December 31, 1997, 76,000
of these options were exercisable and options covering 45,000 shares were
available for future grants under this plan.
The estimated fair value as of the date options were granted in 1997
and 1996, using the Black-Scholes option-pricing model was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- ------------
<S> <C> <C> <C>
Weighted average estimated fair
value per share of options granted
during the year $ 12.82 $ 16.55 $ 12.33
Assumptions:
Amortized dividend yield - - -
Common Stock price volatility 42.57% 57.94% 57.94%
Risk-free rate of return 6.20% 5.78% 6.46%
Expected option term (in years) 5 6 6
</TABLE>
The Company adopted the disclosure requirements of Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation," effective with the 1996 financial statements, but elected to
continue to measure compensation cost using the intrinsic value method, in
accordance with APB Opinion No. APB 25 ("APB 25"), "Accounting for Stock Issued
to Employees." Accordingly, compensation cost for stock options has been
recognized under the provisions of APB 25. If compensation cost had been
determined based on the estimated fair value of options granted in 1997, 1996
and 1995, consistent with the methodology in SFAS 123, the Company's net income
and
28
<PAGE> 29
income per share would have been adjusted to the pro forma amount indicated
below:
<TABLE>
<CAPTION>
1997 1996 1995
-------------- ------------- -------------
<S> <C> <C> <C>
Net income
..As reported $ 10,806,000 $ 7,150,000 $ 8,491,000
..Pro forma $ 8,379,000 $ 4,051,000 $ 7,625,000
Earnings per share - diluted
..As reported $ 1.28 $ .86 $ 1.07
..Pro forma $ 1.00 $ .49 $ .96
</TABLE>
The Company granted warrants to an independent research institute to
purchase 30,000 shares of Common Stock, 15,000 which were exercised in 1996 and
15,000 of which expire in 1998. The exercise price of these warrants is $11.17
per share.
NON-CASH STOCK COMPENSATION EXPENSE
Beginning in late 1994, 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 certain option exercises during 1996 and 1995.
7. 401K PLAN:
The Company has 401(k) tax deferred savings plans that cover all
eligible employees. The Company may make discretionary contributions to the
plans. The Company's contributions to the plans during 1997, 1996 and 1995 were
$361,000, $292,000 and $181,000, respectively.
8. INCOME TAXES:
The income tax provision reflected in the statement of income
consists of the following for the years ending December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Current provision:
U.S. federal $ 2,591,000 $ 1,184,000
Foreign 1,227,000 1,136,000
Deferred taxes 1,385,000 775,000
------------- -------------
Total provision $ 5,203,000 $ 3,095,000
============= =============
</TABLE>
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. The components of deferred tax assets as of
December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Minimum tax credits $ 0 $ 400,000
Investment tax credits 0 100,000
Research activities and general business credits 0 600,000
Other, principally reserves 180,000 465,000
------------- -------------
Subtotal 180,000 1,565,000
------------- -------------
Deferred tax asset $ 180,000 $ 1,565,000
============= =============
</TABLE>
<TABLE>
<CAPTION>
Rate reconciliation: 1997 1996
------------- -------------
<S> <C> <C>
Provision at U.S. statutory rate 34% 34%
Recognition of net operating loss carryforwards and other credits 0 2%
Net effect of taxes on foreign activities (1.5%) (4%)
Change in valuation allowance 0 (2%)
------------- -------------
32.5% 30%
============= =============
</TABLE>
No provision was made with respect to retained earnings as of December
31, 1997 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.
29
<PAGE> 30
9. INFORMATION ABOUT MAJOR CUSTOMERS:
The Company sells its products directly to both domestic and
international automotive assembly companies. During 1997, 38% of net sales were
derived from three automotive companies. During 1996 and 1995, 46% and 34% of
net sales, respectively, were derived from these same three automotive
companies. Net sales by the Company to each of these three companies exceeded 7%
in 1997, 12% in 1996, and 7% in 1995. The Company also sells to system
integrators or original equipment manufacturers ("integrators"), who in turn
sell to these same automotive companies. For the years ended December 31, 1997,
1996 and 1995, 17%, 16% and 26% of net sales, respectively, were to integrators
for the benefit of the same three automotive companies.
10. CONTINGENCIES:
The Company may, from time to time, be subject to legal proceedings and
claims. Litigation involves many uncertainties. Management is currently unaware
of any significant pending litigation affecting the Company, other than the
indemnification matter and the complaint discussed in the following paragraphs.
The Company has been informed that certain of its customers have
received allegations of possible patent infringement involving processes and
methods used in the Company's products. One such customer is currently engaged
in litigation relating to such matter. This customer has notified various
companies from which it has purchased such equipment, including the Company,
that it expects the suppliers of such equipment to indemnify such customer, on a
pro-rata basis, for expenses and damages, if any, incurred in this matter.
Management believes, however, that the processes used in the Company's products
were independently developed without utilizing any previously patented process
or technology. Because of the uncertainty surrounding the nature of any possible
infringement and the validity of any such claim or any possible customer claim
for indemnity, it is not possible to estimate the ultimate effect, if any, of
this matter on the Company's financial position.
11. FOREIGN OPERATIONS:
The Company operates in two primary geographic areas: North America and
Europe, with limited operations in Asia and South America. Geographical area
data is as follows ($000):
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net sales:
North America* $ 58,423 $ 53,217 $ 32,762
Europe, Asia and South America 16,847 12,744 13,049
Intercompany Sales (10,168) (6,986) (2,657)
---------- ---------- ----------
Total Net Sales $ 65,102 $ 58,975 $ 43,154
========== ========== ==========
Income from operations:
North America* $ 9,319 $ 4,905 $ 1,945
Europe, Asia and South America 5,799 4,597 5,754
---------- ---------- ----------
Total Income from Operations $ 15,118 $ 9,502 $ 7,699
========== ========== ==========
Identifiable assets at December 31:
North America* $ 55,980 $ 48,959 $ 34,244
Europe, Asia and South America 12,162 12,497 7,773
---------- ---------- ----------
Total Assets $ 68,142 $ 61,456 $ 42,017
========== ========== ==========
</TABLE>
- --------------------------
* Includes intercompany amounts; intercompany sales prices are based on
cost plus a transfer fee.
30
<PAGE> 31
12. INTANGIBLE ASSETS:
On November 26, 1996, the Company's German subsidiary acquired the
assets of a division of HGV Vosseler GmbH ("Vosseler") engaged in the
development and sale of non-contact three-dimensional measurement systems for
aggregate consideration consisting of 82,150 shares of Common Stock and DM
300,000 and recorded $2.3 million in intangible assets relating to the
acquisition.
13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
Selected unaudited quarterly financial data for the years ended
December 31, 1997 and 1996, are as follows ($000's except earnings per share):
<TABLE>
<CAPTION>
Quarter ended
---------------------------------------------------------------
1997 3-31 6-30 9-30 12-31
- ---- --------- -------- --------- -------
<S> <C> <C> <C> <C>
Net Sales $ 12,383 $ 18,806 $ 16,256 $ 17,657
Gross profit 6,930 12,158 10,007 10,930
Net income 911 3,771 2,778 3,346
Basic earnings per share $ .11 $ .47 $ .34 $ .41
Diluted earnings per share .11 .45 .33 .40
1996 3-31 6-30 9-30 12-31
- ---- --------- -------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $10,117 $ 13,823 $ 15,008 $ 20,027
Gross profit 5,948 8,242 9,390 11,787
Net income 755 964 1,541 3,890
Basic earnings per share $ .10 $ .13 $ .20 $ .49
Diluted earnings per share .09 .12 .19 .46
</TABLE>
14. SUBSEQUENT EVENT (UNAUDITED):
On March 23, 1998, the Board of Directors implemented a Shareholder
Rights Plan ("Rights Plan").
In connection with the adoption of the Rights Plan, the Board of
Directors declared a dividend of one right to purchase one one-hundredth
(1/100th) of a share of Series A Preferred Stock on each share of its
outstanding Common Stock. The initial exercise price of a right is $135 and the
rights expire on March 23, 2008. Distribution of these rights will be made to
shareholders of record on April 6, 1998.
The rights will generally become exercisable if a person or group
acquires 15% or more of the Company's Common Stock or announces a tender offer
which would cause that result. In addition, generally if a person or group
acquires 15% or more of the Company's Common Stock, the Rights will entitle
shareholders (other than the acquirer) to purchase the Company's Common Stock,
or in certain cases, stock of the acquirer, at a discount to market prices.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
No response to Item 9 is required.
31
<PAGE> 32
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained under the captions "Matters to Come before
the Meeting - Proposal 1: Election of Directors," "Further Information -
Executive Officers" and "Further Information - Share Ownership of Management and
Certain Shareholders" of the registrant's proxy statement for 1998 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.
32
<PAGE> 33
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K
A. Financial Statements and Schedules Filed
1. Financial Statements - see Item 8 of this report.
2. Financial Statement Schedule - the schedule filed with
this report is listed on page 35.
3. Exhibits - the exhibits filed with this report are listed
on pages 37 through 39.
B. Reports on Form 8-K: The Company did not file any reports on
Form 8-K in the fourth quarter of 1997 with the Securities
and Exchange Commission.
33
<PAGE> 34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form
10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
PERCEPTRON, INC.
(Registrant)
By: /S/ Alfred A. Pease
---------------------------------
Alfred A. Pease, Chairman, President
and Chief Executive Officer
Date: March 23, 1998
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.
<TABLE>
<CAPTION>
Signatures Title Date
<S> <C> <C>
/S/ Alfred A. Pease Chairman of the Board, March 23, 1998
- ------------------------------------ President, Chief Executive Officer
Alfred A. Pease
/S/ John G. Zimmerman Vice President and Chief March 23, 1998
- ------------------------------------ Financial Officer (Principal Financial Officer)
John G. Zimmerman
/S/ Paul J. Tripodi Controller (Principal Accounting Officer) March 23, 1998
- ------------------------------------
Paul J. Tripodi
/S/ David J. Beattie Director March 23, 1998
- ------------------------------------
David J. Beattie
Philip J. DeCocco Director March 23, 1998
- ------------------------------------
Philip J. DeCocco
/S/ Robert S. Oswald Director March 23, 1998
- ------------------------------------
Robert S. Oswald
/S/ Harry T. Rein Director March 23, 1998
- ------------------------------------
Harry T. Rein
/S/ Louis R. Ross Director March 23, 1998
- ------------------------------------
Louis R. Ross
/S/ Terryll R. Smith Director March 23, 1998
- ------------------------------------
Terryll R. Smith
</TABLE>
34
<PAGE> 35
PERCEPTRON, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS SCHEDULE
Financial Statements Schedule:
<TABLE>
<CAPTION>
Designation Description Page
- ------------ ----------- ----
<S> <C> <C>
Schedule II Valuation and qualifying accounts 36
</TABLE>
The schedules not filed are omitted because they are not required, the
information required to be contained therein is disclosed elsewhere in the
financial statements or the amounts involved are not sufficient to require
submission.
35
<PAGE> 36
PERCEPTRON, INC. AND SUBSIDIARIES
SCHEDULE II, VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
CHARGED TO
BEGINNING COSTS AND ENDING
DESCRIPTION BALANCE EXPENSE CHARGE-OFFS BALANCE
--------- ---------- ----------- -------
<S> <C> <C> <C> <C>
December 31, 1995:
- -----------------
ALLOWANCE FOR DOUBTFUL
ACCOUNTS $ 236,000 $ 35,000 $ 236,000 $ 35,000
INVENTORY RESERVES $ 700,000 $ 125,000 $ 155,000 $ 670,000
December 31, 1996:
- -----------------
ALLOWANCE FOR DOUBTFUL
ACCOUNTS $ 35,000 $ 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
</TABLE>
36
<PAGE> 37
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBITS
- ---------- -----------------------
3. Restated Articles of Incorporation and Bylaws.
3.1 Restated Articles of Incorporation, as amended to date,
are incorporated herein by reference to Exhibit 3.3 of
the Company's Report on Form 10-Q for the Quarter Ended
June 30, 1994.
3.2 Bylaws, as amended to date, are incorporated herein by
reference to Exhibit 19 of the Company's Report on Form
10-Q for the Quarter Ended September 30, 1992.
4. Instruments Defining the Rights of Securities Holders.
4.1 Articles IV and V of the Company's Restated Articles of
Incorporation are incorporated herein by reference to
Exhibit 3.3 of the Company's Report on Form 10-Q for
the Quarter Ended June 30, 1994.
4.2 Articles I, II, III, VI, VII and X of the Company's
Bylaws are incorporated herein by reference to Exhibit
19 of the Company's Report on Form 10-Q for the Quarter
Ended September 30, 1992.
4.3 Credit Authorization Agreement, dated June 25, 1997,
between Perceptron, Inc. and NBD Bank and related
Master Demand Business Loan Note are incorporated
herein by reference to Exhibit 4.4 of the Company's
Report on Form 10-Q for the Quarter Ended June 30,
1997.
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.
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.
37
<PAGE> 38
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 Development and Purchase Agreement between DeMattia
Development Company, Plymouth-West Limited Partnership
and Perceptron, Inc. dated June 2, 1996 is incorporated
by reference to Exhibit 10.51 to the Company's Report
on Form 10-Q for the Quarter Ended June 30, 1996.
10.7@ 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
38
<PAGE> 39
incorporated by reference to Exhibit 10.22 to the
Company's Annual Report on Form 10-K for the Year Ended
December 31, 1996.
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.
10.21@ 1995 Management Bonus Plan is incorporated herein by
reference to Exhibit 10.38 to the Company's Annual
Report on Form 10-K for the Year Ended December 31,
1995.
10.22@ 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.
10.23*@ 1997 Management Bonus Plan.
10.24@ 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.
10.25@ 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.
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, 1997.
@ Indicates a management contract, compensatory plan or arrangement.
39
<PAGE> 1
EXHIBIT 10.20
PERCEPTRON, INC.
1998 GLOBAL TEAM MEMBER STOCK OPTION PLAN
SECTION 1. PURPOSE
This Stock Option Plan, which shall be known as the Perceptron, Inc.
1998 Global Team Member Stock Option Plan (the "Plan"), is intended to encourage
Team Members (as defined in Section 3.1) of Perceptron, Inc. (the "Company") and
its subsidiaries to acquire shares of the Common Stock of the Company ("Common
Stock") through Non-Qualified Stock Options ("Options"). It is believed that the
Plan will encourage Team Members to have a greater financial investment in the
Company through ownership of its Common Stock, will stimulate their efforts on
the Company's behalf, will maintain and strengthen their desire to remain with
the Company, and generally will be in the interest of the Company and its
shareholders.
SECTION 2. ADMINISTRATION
2.1 ADMINISTRATION BY THE PRESIDENT. The Plan shall be administered by
the President of the Company (the "President"). In addition to the powers
granted to the President in Section 2.2, and subject to the limitations in
Section 2.4, the President shall have the authority to grant Options to Team
Members under the terms of the Plan. The Board of Directors of the Company (the
"Board") shall designate the maximum number of shares of Common Stock available
under the Plan, which may become subject to Options granted by the President.
Such number of shares may be revised from time to time by the Board.
2.2 POWERS. The President shall have full and final authority to
administer the Plan on behalf of the Company. Subject to the provisions of the
Plan, this authority includes, but is not limited to, the power to:
(a) determine the persons to whom Options shall be granted;
(b) determine the number of shares to be covered by the
Option granted to each such person;
(c) determine the price to be paid for the shares upon the
exercise of each Option;
(d) prescribe the period within which Options may be exercised;
(e) grant Options conditionally or unconditionally; and
(f) prescribe the form(s) of the Stock Option
Agreement(s) evidencing the grant of Options under
the Plan.
<PAGE> 2
2.3 ADDITIONAL POWERS. Subject to the provisions of the Plan, the
President may: (i) adopt rules and regulations for the administration of the
Plan, (ii) make interpretations of and determinations under the Plan, and (iii)
take such action in connection with the Plan, or the Options granted hereunder,
as he deems necessary or advisable. Each interpretation, determination or other
action made or taken by the President pursuant to the Plan shall be final and
conclusive for all purposes and upon all persons.
2.4 LIMITATIONS. Notwithstanding the foregoing provisions of the Plan,
the President shall not have the authority: (i) to grant Options to any single
Team Member to purchase more than 10,000 shares of Common Stock in any fiscal
year of the Company, or (ii) to grant more than 50,000 shares of Common Stock,
in the aggregate, to Team Members at any one time, without first obtaining the
prior written approval of the Company's Management Development, Compensation and
Stock Option committee, or such other committee as determined by the Board (the
"Committee").
2.5 QUARTERLY REPORTS. The President shall provide quarterly reports to
the Committee which summarize the terms and conditions of any Options granted by
him during the previous calendar quarter.
SECTION 3. ELIGIBILITY
3.1 ELIGIBLE PERSONS. An individual shall be eligible to receive
Options under the Plan if such individual is: (i) a full-time or part-time
employee of the Company or one of its subsidiaries, (ii) not subject to Section
16 of the Securities Exchange Act of 1934, as amended, and (iii) not serving as
an officer of the Company at the time of the grant ("Team Member"). A Team
Member may serve as an officer of a subsidiary of the Company.
3.2 RELEVANT FACTORS. The President shall grant Options to those Team
Members who, in the opinion of the President, are capable of contributing to the
successful performance of the Company.
SECTION 4. GRANTING OF OPTIONS
4.1 SHARES AVAILABLE FOR OPTIONS. The Board shall reserve a total of
300,000 shares of Common Stock for purposes of the Plan.
4.2 EFFECT OF EXPIRATION, TERMINATION OR SURRENDER. Shares subject to
any unexercised portion of a terminated, canceled or expired Option may again be
subjected to grants under the Plan. In the event that an Option granted under
the Plan is exercised by delivering shares of Common Stock that previously were
acquired by exercising Options granted under the Plan, such shares of
previously-acquired Common Stock so delivered to the Company may again be
subjected to grants under the Plan.
2
<PAGE> 3
4.3 TERM OF OPTIONS. Subject to the provisions of this Section 4.3, the
President shall have full discretion to determine the period during which an
Option may be exercised. In no event shall any Option granted under the Plan, by
its terms, have an exercise period that extends beyond ten (10) years from the
date of the grant. Unless specified otherwise in an optionee's Stock Option
Agreement, twenty-five percent (25%) of the shares covered by an Option shall
become exercisable on the first (1st) anniversary of the date of the grant, and
another twenty-five percent (25%) of the shares shall become exercisable on each
anniversary of the date of the grant until all shares covered by the Option
become exercisable on the fourth (4th) anniversary of the date of the grant.
4.4 OPTION PRICE. The President shall have the discretionary authority
to establish, at the time an Option is granted, the purchase price of each share
of Common Stock covered by such Option ("Option Exercise Price"); provided,
however, that the Option Exercise Price shall not be less than 100% of the fair
market value of the shares covered by the Option on the date of such grant. The
Option Exercise Price shall be subject to adjustment in accordance with the
procedures contained in Section 8 of the Plan. For purposes of the Plan, the
fair market value of each share shall be deemed to be:
(a) the average of the closing sales price of the Common Stock
on the principal securities exchange on which the Common Stock may be listed at
the time (or, if there have been no sales on such exchange on any day, the
average of the closing high bid and low asked prices on such exchange at the end
of such day) for the five (5) consecutive trading days on such exchange
immediately preceding the date of the grant of the Option; or
(b) if the Common Stock is not listed on a securities exchange,
the average of the closing sales prices of the Common Stock on The Nasdaq Stock
Market (or, if there have been no sales on The Nasdaq Stock Market on any such
day, the average of the closing high bid and low asked prices on The Nasdaq
Stock Market at the end of such day) for the five (5) consecutive trading days
on The Nasdaq Stock Market immediately preceding the date of the grant of the
Option; or
(c) if the Common Stock is not listed on any domestic stock
exchange or The Nasdaq Stock Market, the average of the mean between the closing
high bid and low asked price as reported by the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") (or, if not so
reported, by the system then regarded as the most reliable source of such
quotations) for the five (5) consecutive trading days on NASDAQ or other such
system immediately preceding the date of the grant of the Option; or
(d) if none of the foregoing clauses apply, the fair value as
determined in good faith by the President.
4.5 EFFECT OF MERGER, CONSOLIDATION OR SALE OR TRANSFER OF ASSETS. If,
in connection with any merger, consolidation, or sale or transfer by the Company
of substantially all of its assets, any Option is not assumed or continued by
the surviving corporation or the purchaser, any portion of such Option that is
then not exercisable shall become exercisable immediately and the date of
3
<PAGE> 4
termination of such Option and the date on or after which such Option may be
exercised, shall be advanced to a date to be fixed by the Committee, which date
shall not be more than 15 days prior to such merger, consolidation, or sale or
transfer; provided, however, that the Committee shall have the right, at any
time prior to the occurrence of such merger, consolidation, or sale or transfer,
to modify the provisions of this paragraph, including the termination of all of
an optionee's rights set forth in this paragraph, to the extent required under
applicable accounting and Securities and Exchange Commission rules, regulations,
policies, guidelines or other similar requirements to permit the Company to
account for a then contemplated business combination under pooling-of-interests
accounting.
4.6 NON-TRANSFERABILITY OF OPTIONS. No Option granted under the Plan
shall be transferable by the optionee other than by will or by the laws of
descent and distribution; an Option only may be exercised during an optionee's
lifetime by such optionee. No transfer of an Option by will or by the laws of
descent and distribution shall be effective to bind the Company unless the
Company is furnished with written notice of such transfer and a copy of the
will, or such other evidence as the Company may deem necessary, to establish the
validity of the transfer and the acceptance by the transferee of the terms and
conditions of the Option. If an optionee is declared legally incompetent, the
optionee's duly appointed personal representative may exercise any Options which
the optionee was eligible to exercise at the time when the optionee was declared
incompetent, to the extent provided in Section 6 of the Plan, and upon
furnishing to the Company such evidence of such legal representative's
authority, as the Company may deem necessary, to establish the validity of such
exercise.
4.7 WRITTEN CONFIRMATION OF GRANTS. Each Option granted under the Plan
shall be confirmed by a Stock Option Agreement which shall be executed by the
Company and the person to whom the Option is granted.
SECTION 5. EXERCISE OF OPTIONS
5.1 EXERCISE. Each Option granted under the Plan shall be exercisable
for such number of shares and on such date(s) or during such period(s) as shall
be provided in the Stock Option Agreement evidencing such Option.
5.2 NOTICE OF EXERCISE. An optionee who elects to exercise an Option
granted under the Plan shall give written notice to the Company. Such notice
shall state the number of full shares (no fractional shares may be purchased) to
which the election applies.
5.3 PURCHASE OF SHARES. The Option Exercise Price of each share
purchased pursuant to the exercise of an Option shall be paid in full at the
time of purchase by cash, personal check, bank draft, money order or the tender
of Permitted Shares (as defined below) with a fair market value (determined as
of the date of exercise of the Option) equal to the purchase price of the shares
being purchased (the "Delivered Shares Method"). "Permitted Shares" are shares
of Common Stock to be delivered to pay the Option Exercise Price (the "Delivered
Shares") which have been owned by the
4
<PAGE> 5
optionee for at least six (6) months prior to the date of delivery, or, if they
have not been owned by the optionee for at least six (6) months prior to the
date of delivery, the optionee then owns, and has owned for at least six (6)
months prior thereto, a number of shares of Common Stock at least equal in
number to the Delivered Shares. Shares which have been counted during the prior
six (6) months as owned by the optionee, for purposes of determining whether the
optionee may exercise Options to purchase Common Stock pursuant to the Delivered
Shares Method, may not be used as Delivered Shares and may not be counted as
owned by the optionee for purposes of making calculations under the Delivered
Shares Method. The Option Exercise Price also may be paid by delivering a
properly executed exercise notice to the Company, together with irrevocable
instructions to the optionee's broker to deliver to the Company sufficient cash
to pay the exercise price and any applicable income and employment withholding
taxes, in accordance with a written agreement between the Company and the
brokerage firm ("cashless exercise" procedure). Until an optionee has been
issued a certificate or certificates for the shares so purchased, the optionee
shall possess no rights of a shareholder with respect to any such shares.
5.4 DELIVERY AND REGISTRATION OF STOCK. The Company shall not be
required to deliver any shares of Common Stock under the Plan prior to (i) the
admission of such shares to listing on any stock exchange on which such shares
may then be listed and (ii) the completion of such registration or other
qualification of such shares under any federal, state or local law, rule or
regulation as the President shall determine to be necessary or advisable.
5.5 WITHHOLDING AND TAXES. Upon the exercise of an Option, the Company
shall have the right to withhold applicable income and employment withholding
taxes from a Team Member's compensation or require a Team Member to remit
sufficient funds to satisfy such obligation.
5.6 SECURITIES LAWS. Notwithstanding any provision of the Plan to the
contrary, the Company's obligation to sell and deliver stock pursuant to the
exercise of an Option is subject to compliance with federal, state and foreign
laws, rules and regulations applying to the authorization, issuance or sale of
securities as the Company deems necessary or advisable. The Company shall not be
required to sell and deliver stock unless and until it receives satisfactory
assurance that the issuance or transfer of such shares shall not violate any
provisions of any federal or state law governing the sale of securities, or that
there has been compliance with the provisions of such acts, rules, regulations
and laws. The Board may impose such restrictions on any shares of Common Stock
acquired pursuant to the exercise of an Option under the Plan as it may deem
advisable, including, without limitation, restrictions under applicable federal
securities laws, or under any blue sky or state securities laws applicable to
such shares.
SECTION 6. TERMINATION OF EMPLOYMENT
6.1 GENERAL. Upon an optionee's termination of employment for any
reason other than death or "total and permanent disability," as defined in
Section 22(e) of the Internal Revenue Code of 1986, as amended, any Option which
such optionee was entitled to exercise on the date of such termination of
employment shall be exercisable by the optionee at any time on or before the
earlier
5
<PAGE> 6
of: (i) the expiration date of the Option, or (ii) three (3) months after the
date of such termination, but only to the extent of the accrued right to
purchase on the date of such termination. Any Option which such optionee was not
entitled to exercise on the date of such termination of employment shall
automatically terminate and all rights thereunder shall cease. Termination of
employment shall be defined as the last day on which an optionee performs
services for the Company or any of its subsidiaries and shall not include
severance pay periods, paid vacation periods or periods during which
compensation in lieu of notice is paid following an optionee's actual
termination of employment. Leaves of absence from the Company or any of its
subsidiaries for military or government service, or for other special purposes
approved by the President, shall not constitute a termination of employment
under this Section 6.1.
SECTION 6.2 DISABILITY. If an optionee's employment is terminated
because of such optionee's total and permanent disability, any Option which such
optionee was entitled to exercise on the date of such total and permanent
disability shall be exercisable by the optionee at any time on or before the
earlier of: (i) the expiration date of the Option, or (2) one (1) year after the
date of such total and permanent disability, but only to the extent of the
accrued right to purchase on the date of such total and permanent disability.
SECTION 6.3 DEATH. If an optionee's employment is terminated because of
such optionee's death, any Option which such optionee was entitled to exercise
on the date of death shall be exercisable by the legal representative of such
optionee's estate (on behalf of the optionee's estate, or on behalf of the
person to whom the Option passed by will or by the laws of descent and
distribution) at any time on or before the earlier of: (i) the expiration date
of the Option, or (ii) one (1) year after the optionee's date of death, but only
to the extent of the accrued right to purchase on the date of death.
SECTION 7. EFFECT OF PLAN ON EMPLOYMENT
Neither the adoption of the Plan, nor the granting of any Option under
the Plan, shall be deemed to create any right in any individual to be retained
or continued in the employ of the Company or any of its subsidiaries. Option
grants under the Plan are discretionary and are not a part of regular salary.
Option grants may not be used to determine the amount of compensation for any
purpose under the Company's benefit plans. No optionee shall have any rights as
a shareholder with respect to any shares covered by an Option until a
certificate is issued to the optionee for such shares. No adjustment shall be
made for dividends or other rights with respect to such shares for which the
record date is prior to the date such certificate is issued.
SECTION 8. ADJUSTMENTS
In the event of any stock dividend on the Common Stock, subdivision or
combination of shares of the Common Stock, or reclassification of the Common
Stock, and in the event of a merger, consolidation, share exchange,
reorganization, recapitalization or other change in the capitalization of the
Company directly affecting the outstanding Common Stock, the aggregate number
and class
6
<PAGE> 7
of shares available for the granting of Options under the Plan, the number and
class of shares subject to each outstanding Option and the Option Exercise
Prices, shall be proportionately adjusted by the Board. The Board may (but shall
not be obligated to) make any appropriate adjustment of the aggregate number and
class of shares subject to each outstanding Option, the aggregate number and
class of shares available for the granting of Options under the Plan, and the
Option Exercise Prices, to reflect any spin-off, spin-out or other distribution
of assets to shareholders or any acquisition of the Company's stock or assets or
other change which the Board determines to be similar, in its substantive effect
upon the Plan or its Options, to any of the changes expressly indicated in this
sentence. The foregoing adjustments, and their application to particular
circumstances, shall be determined by the Board in its sole discretion. Any such
adjustment may provide for the elimination of any fractional share which might
otherwise become subject to an Option.
SECTION 9. AMENDMENT AND TERMINATION
The Board shall have the right to suspend, terminate or amend the Plan
at any time. However, no such amendment, modification or termination of the Plan
shall in any manner affect any Option granted under the Plan without the consent
of the Optionee holding the Option.
SECTION 10. GOVERNING LAW
The Plan and all actions taken under the Plan shall be governed and
construed in accordance with Michigan law.
SECTION 11. EFFECTIVE DATE AND DURATION
This Plan shall become effective February 26, 1998, subject to the
approval of the Board of Directors of the Company. No Options shall be granted
under the Plan subsequent to February 25, 2008.
THIS PLAN is hereby executed on February 26, 1998.
PERCEPTRON, INC.
By:/s/ ALFRED A. PEASE
---------------------------
Alfred A. Pease, Chairman,
President and Chief
Executive Officer
BOARD APPROVAL: 2/26/1998
7
<PAGE> 8
NON-QUALIFIED STOCK OPTION AGREEMENT
UNDER THE PERCEPTRON, INC.
1998 GLOBAL TEAM MEMBER STOCK OPTION PLAN
THIS STOCK OPTION AGREEMENT made this ________ day of
______________________, 19___, by and between Perceptron, Inc., a Michigan
corporation (the "Company"), and ________, who is currently employed by the
Company or one of its subsidiaries (the "Optionee").
1. GRANT OF OPTION. Subject to the terms and conditions hereof, the
Company hereby grants to the Optionee an option to purchase from the Company up
to, but not exceeding in the aggregate,______ shares of the Company's Common
Stock at a price of $______ per share.
2. RIGHT TO EXERCISE OPTION. The Optionee may purchase from the Company
on and after the first (1st) anniversary of the date of grant, 25% of the shares
covered by this option, and on each succeeding one year anniversary thereof, may
exercise an additional 25% of the shares covered by the option, so that on the
fourth (4th) anniversary of the date of grant this option shall be fully
exercisable. Notwithstanding any provision of this Agreement, no portion of this
option shall be exercisable on or after the tenth (10th) anniversary of the date
of grant.
3. TERMINATION OF EMPLOYMENT. If, prior to the date on which this
option first shall become exercisable, the Optionee's employment with the
Company or any of its subsidiaries is terminated for any reason, the Optionee's
right to exercise this option shall terminate and all rights hereunder shall
cease. As used in this Agreement, the term "subsidiary" of the Company means any
"subsidiary corporation" as defined in Section 424(f) of the Code, the term
"employment" means employment with the Company or any subsidiary of the Company,
and the term "disability" means "total and permanent disability," as defined in
Section 22(e) of the Code.
If, on or after the date on which this option first shall become
exercisable, the Optionee's employment is terminated for any reason other than
death or disability, the Optionee shall have the right to exercise this option,
to the extent that it was exercisable and unexercised on the date of the
Optionee's termination of employment, at any time on or before the earlier of:
(i) the expiration date of the option, or (ii) three (3) months after the date
of such termination of employment, subject to any other limitation on the
exercise of such option in effect on the date of exercise.
If, on or after the date on which this option first shall become
exercisable, the Optionee's employment is terminated due to the Optionee's death
or disability, the Optionee, the executor or the administrator of the estate of
the Optionee, or the person(s) to whom the option has been transferred by will
or by the laws of descent and distribution, shall have the right to exercise
this
1
<PAGE> 9
option at any time on or before the earlier of: (i) the expiration date of the
option, or (ii) one (1) year from the date of the Optionee's death or
disability, to the extent that the option was exercisable and unexercised on the
date of the Optionee's death or disability, subject to any other limitation on
the exercise of such option in effect on the date of exercise.
For purposes of this Agreement, the transfer of an Optionee to/from the
Company to/from any of its subsidiaries, shall not constitute a termination of
employment. In addition, a leave of absence by an Optionee shall not constitute
a termination of employment, provided the Optionee obtains the prior written
consent of the Company for such leave of absence.
Notwithstanding the provisions contained in Section 2 "Right to
Exercise Option" and Section 3 "Termination of Employment" of this Agreement,
if, in connection with any merger, consolidation, or sale or transfer by the
Company of substantially all of its assets, this option is not assumed or
continued by the surviving corporation or the purchaser, the date of termination
of this option and the date on or after which this option, or any portion
thereof not then exercisable, may be exercised, shall be advanced to a date to
be fixed by the Company's Management Development, Compensation and Stock Option
committee, or such other committee as determined by the Board of Directors (the
"Committee"), which date shall not be more than 15 days prior to such merger,
consolidation, or sale or transfer; provided however, that the Committee shall
have the right, at any time prior to the occurrence of such merger,
consolidation or sale or transfer, to modify the provisions of this paragraph,
including the termination of all of the Optionee's rights set forth in this
paragraph, to the extent required under applicable accounting and Securities and
Exchange Commission rules, regulations, policies, guidelines or other similar
requirements, to permit the Company to account for a then contemplated business
combination under pooling-of-interests accounting.
4. EXERCISE OF OPTION.
(a) At any time during which this option may be exercised as provided
in this Agreement, the Optionee may exercise any portion of this option which is
then exercisable, in whole or in part, by delivering a written notice to the
Company, in the form attached hereto, signed by the Optionee.
(b) In addition, the Optionee shall deliver, on the date of exercise:
(i) cash, personal check, bank draft or money order equal to
the purchase price of the shares being purchased,
(ii) such documents as are or may be required to effect a
cashless exercise pursuant to Section 5.3 of the 1998 Global Team Member Stock
Option Plan (the "Plan"), or
(iii) Permitted Shares with a fair market value (determined as
of the date of exercise of the option and as defined in the Plan) equal to the
purchase price of the shares being purchased (the "Delivered Shares Method")
pursuant to Section 5.3 of the Plan.
2
<PAGE> 10
(c) "Permitted Shares" are shares of Company Common Stock to be
delivered to pay the exercise price of the option (the "Delivered Shares"):
(i) which have been owned by the Optionee for at least
six (6) months prior to the date of delivery, or
(ii), if they have not been owned by the Optionee for at
least six (6) months prior to the date of delivery, the Optionee then owns, and
has owned for at least six (6) months prior thereto, a number of shares of
Company Common Stock at least equal in number to the Delivered Shares.
(d) Shares which have been counted during the prior six (6) months as
owned by the Optionee, for purposes of determining whether the Optionee may
exercise options to purchase Common Stock pursuant to the Delivered Shares
Method, may not be used as Delivered Shares and may not be counted as owned by
the Optionee for purposes of making calculations under the Delivered Shares
Method.
5. COMPLIANCE WITH SECURITIES LAWS. Notwithstanding any provision in
this Agreement to the contrary, the Company's obligation to sell and deliver
stock under this option is subject to such compliance with federal, state and
foreign laws, rules and regulations applying the authorization, issuance or sale
of securities, and applicable stock exchange requirements, as the Company deems
necessary or advisable.
6. NON-ASSIGNABILITY. The option hereby granted shall not be
transferable by the Optionee other than by will or by the laws of descent and
distribution, and the option may be exercised only during the Optionee's
lifetime by the Optionee. Any person to whom this option is transferred shall
take such option subject to the terms and conditions of this Agreement. No such
transfer of an option shall be effective to bind the Company unless the Company
is furnished with written notice of the transfer, and a copy of the will and/or
such other evidence as the Company may deem necessary to establish the validity
of the transfer and the acceptance by the transferee(s) of the terms and
conditions of this Agreement. No assignment or transfer of this option, or of
the rights represented thereby, whether voluntary or involuntary, by operation
of law or otherwise, shall vest in the purported assignee or transferee any
interest or right herein whatsoever, except to the extent an Optionee makes a
transfer by will or by the laws of descent and distribution.
7. DISPUTES. The granting of this option under this Agreement is
conditioned upon the agreement by the Optionee, and the Optionee's successors
and assigns, that any dispute or disagreement which may arise under or as a
result of this Agreement shall be resolved by the Committee in its sole
discretion and judgment, and that any such determination or interpretation by
the Committee of the terms of this Agreement shall be final, binding and
conclusive for all purposes.
8. ADJUSTMENTS. In the event of any stock dividend on the Common Stock,
subdivision or combination of shares of the Common Stock, or reclassification of
the Common Stock, and in the
3
<PAGE> 11
event of a merger, consolidation, share exchange, reorganization,
recapitalization or other change in the capitalization of the Company directly
affecting the outstanding Common Stock, the rights of the Optionee shall be
determined pursuant to Section 8 of the Plan and any adjustment to this option
shall be made in accordance with Section 8 of the Plan.
9. RIGHTS AS SHAREHOLDER. The Optionee shall have no rights as a
shareholder of the Company with respect to any of the shares covered by this
option until the certificate(s) are issued upon the exercise of the option, in
full or in part, and then only with respect to the shares represented by such
certificate(s).
10. NOTICES. Any notice which relates to this Agreement shall be made
in writing and if such notice is mailed, it shall be mailed by either registered
or certified mail, with return receipt requested. Any notice to the Company
either shall be delivered or addressed to the Secretary of the Company at the
Company's headquarters. Any notice by the Company to the Optionee shall be
delivered to the Optionee personally or addressed to the Optionee at the
Optionee's last known address, as then contained in the records of the Company,
or such other address as the Optionee may designate. Either party may designate
a different address to which notices shall be addressed, provided the other
party has received sufficient notification of such designation. Any notice given
by the Company to an Optionee at the Optionee's last designated address shall be
effective to bind any other person who shall acquire any rights hereunder.
11. "OPTIONEE" TO INCLUDE CERTAIN TRANSFEREES. Whenever the word
"Optionee" is used in any provision of this Agreement under circumstances in
which the provision logically should apply to any other person(s) to whom the
option, in accordance with the provisions of Section 6 hereof, may be
transferred, the word "Optionee" shall be deemed to include such other
person(s).
12. GOVERNING LAW. This Agreement is made under and shall be construed
in accordance with the laws of the State of Michigan.
13. PROVISIONS OF PLAN CONTROLLING. The provisions of this Agreement
are subject to the terms and provisions of the Plan. Copies of the Plan are
available for review upon request. In the event a conflict arises between the
provisions of this option and the provisions of the Plan, the provisions of the
Plan shall control, except to the extent that the provisions of this option
limit or restrict the rights of an Optionee to a greater extent than that which
is set forth in the Plan.
4
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
PERCEPTRON, INC.
By:
----------------------------------
Title:
-------------------------------
-------------------------------------
, OPTIONEE
---------------------------
5
<PAGE> 13
NOTICE OF EXERCISE OF NON-QUALIFIED STOCK OPTION
UNDER THE PERCEPTRON, INC.
1998 GLOBAL TEAM MEMBER STOCK OPTION PLAN
Perceptron, Inc.
47827 Halyard Drive
Plymouth, MI 48170
Dear Sir:
A non-qualified stock option was granted to me on
____________________________, 19_____ to purchase __________ shares of
Perceptron, Inc. Common Stock at a price of $__________ per share.
I hereby elect to exercise my non-qualified stock option with respect
to ___________ shares for an aggregate purchase price of $__________ . I hereby
elect to pay for such shares as follows:
Personal Check $________
Cash $________
Bank Draft $________
Money Order $________
Cashless Exercise $________
Perceptron Common Stock $________
Total $
========
[A personal check [or cash, bank draft or money order] for the purchase
price [is enclosed herewith.]
[Documents as are required to effect a cashless exercise are enclosed.]
[I hereby elect to exercise my stock option with respect to _______
shares through a combination of cash payments and shares of Perceptron,
Inc. Common Stock, as described on the attached Exhibit A. A personal check
for the purchase price to be paid in cash is enclosed herewith. Certificates
for ________ shares of Perceptron, Inc. Common Stock are enclosed herewith,
along with a duly executed stock power in proper form for transfer, with all
signatures properly guaranteed by a national bank or member firm of the NYSE
or AMEX. [I represent that the shares of Perceptron, Inc. Common Stock
enclosed herewith have been owned by me for more than six months.] or [I
currently own more than ____________ shares of Perceptron, Inc. Common Stock
1
<PAGE> 14
which have been owned by me for more than six months]. Such shares have not been
counted during the prior six months as owned by me for purposes of determining
whether I may exercise options to purchase Common Stock pursuant to the
Delivered Shares Method.]
I represent that the shares of stock that I am purchasing upon this
exercise of my option are being purchased for investment purposes and not with a
view to resale. This representation shall not be binding upon me if the shares
of Common Stock that I am purchasing are subject to an effective Registration
Statement under the Securities Act of 1933.
______________________________
Optionee
Dated:_____________________, 19___
2
<PAGE> 1
EXHIBIT 10.23
PERCEPTRON, INC.
1997 BONUS PROGRAM
1. OPERATING GOALS:
---------------
1997 Operating Goals % Bonus Allocation
-------------------- -------------------
Bookings Goals $80,855,000 40% of Total
Revenue Goal $76,076,000 30% of Total
Pre-Tax Income Goal $20,016,000 30% of Total
(Pre-tax Income goal is after budgeted expense for bonus and
stock option compensation expense)
2. BONUS PLANS:
-----------
Plan
Officer Plan 1. 70% based on company achievement of operating
goals.
2. 30% based on the sole discretion of the
Management Development and Compensation
Committee, with the same discretionary %
applied to each individual officer's bonus
Manager Plan 1. 75% based on company achievement of operating
goals.
2. 25% based on the manager's overall performance,
as determined by the manager's supervisor
Team Plan 1. 100% based on company achievement of operating
goals
Proposal is to change for 1998 (1999 payout)
the Manager and Team Plans to correspond with Officer Plan
3. PLAN ADMINISTRATION:
-------------------
1. The plan will be administered by the Management Development and
Compensation Committee of the Board of Directors.
2. No bonuses will be earned under any plan, unless pre-tax income
equals at least $15,021,000.
3. To be eligible for a bonus, participants must be employed on or
before June 30, 1997 and must be employed on the date of payment
of the bonus. Those employed between January 1, 1997 and June 30,
1997 will receive a pro-rata portion of their individual bonus
potential. Each individual will have a specified bonus potential
(yet to be specifically identified).
4. Bonuses to be paid within 30 days of the completion of the 1997
audit but not later than March 31, 1998.
5. That portion of the 1997 bonus that is based on company achievement
of operating goals will begin being earned upon the company
achievement of 75% of each of the three individual operating goal
elements (banking, revenue and pre-tax income).
6. Earned bonuses will be based on the attached graph, which
demonstrates the percentages of the bonuses that will be earned
beginning at 75% of operating goal achievement and continuing at
achievement levels in excess of 100%. A separate chart will be
prepared for each of the three elements of bookings, revenue and
pre-tax income. The sum of the three will be the total bonus
earned.
<PAGE> 2
PERCEPTRON, INC.
1997 Bonus Payout
Graph indicting the percent of Bonus which is earned if various
percentage levels of operating goals are achieved, with (i) 0% of Bonus earned
if 75% of operating goals are achieved, (ii) increasing linearly to 100%
of Bonus earned if 100% of operating goals are achieved and (iii), thereafter,
increasing linearly at one-half the slope, with 150% of Bonus earned if 125% of
operating goals are achieved and 200% of Bonus earned if 150% of operating
goals are achieved.
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF PERCEPTRON, INC.
The following four corporations are subsidiaries of Perceptron, Inc.
1. Perceptron Europe B.V., a corporation organized under the laws of
the Netherlands.
2. Perceptron (Europe) GmbH, a corporation organized under the laws
of Germany, is a wholly owned subsidiary of Perceptron Europe
B.V.
3. Autospect, Inc., a corporation organized under the laws of Michigan.
4. Trident Systems, Inc., a corporation organized under the laws of
Georgia.
41
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Perceptron, Inc. and Subsidiaries on Form S-8 (File Nos. 33-63666, 33-63664,
33-85656, 33-93910, 333-00444 and 333-00446) and on Form S-3 (File No. 33-78594
and 333-29263) of our report dated February 6, 1998, on our audits of the
consolidated financial statements and financial statement schedule of
Perceptron, Inc. and Subsidiaries as of December 31, 1997 and 1996, and for the
years ended December 31, 1997, 1996 and 1995, which report is included in
this Annual Report on Form 10-K for the year ended December 31, 1997.
COOPERS & LYBRAND L.L.P.
Detroit, Michigan
March 30, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENT OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 14,448,000
<SECURITIES> 2,000,000
<RECEIVABLES> 30,867,000
<ALLOWANCES> (175,000)
<INVENTORY> 8,019,000
<CURRENT-ASSETS> 55,867,000
<PP&E> 13,932,000
<DEPRECIATION> (3,308,000)
<TOTAL-ASSETS> 68,142,000
<CURRENT-LIABILITIES> 10,263,000
<BONDS> 0
0
0
<COMMON> 82,000
<OTHER-SE> 57,797,000
<TOTAL-LIABILITY-AND-EQUITY> 68,142,000
<SALES> 65,102,000
<TOTAL-REVENUES> 65,102,000
<CGS> 25,077,000
<TOTAL-COSTS> 24,907,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (891,000)
<INCOME-PRETAX> 16,009,000
<INCOME-TAX> 5,203,000
<INCOME-CONTINUING> 10,806,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,806,000
<EPS-PRIMARY> 1.34
<EPS-DILUTED> 1.28
</TABLE>
