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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 JUNE 30, 2000 OR [ ] TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER: 0-20206
PERCEPTRON, INC.
(Exact name of registrant as specified in its charter)
Michigan 38-2381442
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
47827 Halyard Drive
Plymouth, Michigan 48170-2461
(734) 414-6100
(Registrant's telephone number, including area code)
Securities registered pursuant to section 12(b) of the act: None
Securities registered pursuant to section 12(g) of the act:
COMMON STOCK, $0.01 PAR VALUE
RIGHTS TO PURCHASE PREFERRED STOCK
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing sale price of the Common Stock on September
13, 2000, as reported by The Nasdaq Stock Market, was approximately $28,500,000
(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 September 13, 2000, was 8,173,001.
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:
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Proxy Statement for 2000
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, develops, manufactures
and markets information-based measurement and inspection focused solutions for
process improvement. Among the solutions offered by the Company are: (1) Gauging
systems that provide for 100% inline measurement for reduction of process
variation; (2) Systems that guide robots in a variety of automated assembly
applications throughout the plant; (3) Systems that inspect painted surfaces,
measure film thickness, and identify defects on those surfaces, and; (4) Sawmill
systems that optimize the lumber production process in the Forest Products
industry. Perceptron's product offerings are designed to improve quality,
increase productivity and decrease costs in the automotive and forest products
industries, as well as in a variety of other industries such as steel blast
furnace inspection.
The Company has two primary business segments: The Automotive Business segment
and the Industrial Businesses segment. The Company has been selling to the
automotive industry since its inception in 1981. In 1997, the Company acquired
Autospect, Inc. ("Autospect") in order to develop products to expand its
offerings to the automotive paint shops. Products that are released or are under
development include those that identify defects in bare metal prior to paint,
measure the thickness of wet paint non-destructively, and inspect finished
painted bodies for a variety of defects as well as measuring paint gloss,
distinction of reflected image and orange peel. The Industrial Businesses
segment contains the Forest Products business unit and the Emerging Markets
business unit. The Forest Products business unit was created with the 1997
acquisitions of Trident Systems, Inc. ("Trident") and Nanoose Systems
Corporation ("Nanoose"). In October 1998, the Company expanded its forest
products offerings by acquiring the assets and ultrasound intellectual property
from Sonic Industries, Inc. and Sonic Technologies, Inc. The Emerging Markets
business unit was formed in 1999 and currently focuses primarily on the steel
blast furnace inspection and digitizing markets. The Company has engineering,
selling, assembly and installation resources in place to support customer
requirements in these markets.
The Company's current principal products are based upon proprietary
three-dimensional image processing and feature extraction software algorithms
combined with two distinct three-dimensional object imaging technologies:
TriCam(TM) and LASAR(TM). TriCam(TM) technology uses structured laser light
triangulation techniques to obtain accurate three-dimensional measurements.
TriCam(TM) systems are used to measure formed parts for reduction of process
variation, to provide robot guidance sensing for automated assembly tasks and to
improve the speed and lower the cost of wheel alignment final assembly
operations. TriCam(TM) is also used by the Forest Products business unit to
measure three-dimensional shapes of trees, logs, boards and by-products.
LASAR(TM) provides accurate three-dimensional measurements of a full scene over
a larger field of view than does TriCam(TM). The LASAR(TM) product is used by
the Industrial Businesses segment for the three-dimensional measurement of
stems, logs, and cants in forest product applications and in the inspection of
steel blast furnaces.
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; Plymouth
Meeting, Pennsylvania; British Columbia, Canada; Munich, Germany; Seoul, South
Korea; Rotterdam, The Netherlands; Sao Paulo, Brazil and Tokyo, Japan.
MARKETS
The Company services multiple markets, with the largest being the automotive
industry. The Company has product offerings encompassing virtually the entire
automobile manufacturing line, including stamping, general assembly, paint, trim
and final assembly. Perceptron's purchase of Trident and Nanoose in 1997 and
Sonic assets in 1998 increased its product and marketing efforts in the forest
and wood products markets. Within the forest and wood products markets,
Perceptron has products that service virtually every process center in the green
mill. The Company believes that there may be potential for its three-dimensional
measurement systems in many other industrial and commercial applications. The
foregoing statement is a "forward looking statement" within the meaning of the
Securities Exchange Act of 1934, as amended ("Exchange Act"). See Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Safe Harbor Statement".
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PRODUCTS AND APPLICATIONS
AUTOMOTIVE BUSINESS SEGMENT
Assembly Process Control System ("P-1000"): The P-1000 system, which uses
TriCam(TM) sensors, has been sold primarily to automotive manufacturers and
their first tier suppliers to measure a variety of formed vehicle body parts as
well as assembled vehicle bodies. Installed directly in the customer's
manufacturing line, typically in connection with new model re-tooling programs,
the P-1000 system rapidly measures critical, absolute and relative 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 is able to more quickly identify and correct manufacturing process
faults, thereby producing vehicles of higher quality, at a greater throughput,
and at lower overall cost. In addition, the P-1000 enables customers to
demonstrably shorten new product launch cycle times.
Intelligent Process Network ("IPNet(TM)"): IPNet(TM) is a sophisticated and
innovative new internet web-based process control solution that links Internet
technology with plant-floor process management. The PC-based IPNet(TM) system
provides the capability for collection of in-line measurement information at any
point in the build or assembly process and the ability to monitor, analyze and
distribute that information throughout a plant or enterprise. IPNet(TM) uses
Perceptron's new line of digital sensors and features an Internet Explorer
graphical interface, distributed and modular scalability to accommodate various
sized systems, and an open architecture that permits the integration of
third-party devices.
Robot Guidance System for automated assembly ("RGS"): The RGS system, which is
used for flexible automated assembly, incorporates TriCam(TM) sensors,
high-speed digital process electronics and proprietary software to provide
robots real-time three-dimensional guidance to perform a variety of automated
assembly tasks. The RGS system precisely determines the target location onto
which a part is to be placed and provides accurate offset information to the
robot performing the assembly. This permits highly reliable, accurate, and
reproducible assemblies in the manufacturing processes. This product was
originally developed in cooperation with Mercedes-Benz, which provided
specifications to enable the system to address a broad range of applications and
subsequently was enhanced and refined by Perceptron. Many 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 is based upon
the TriCam(TM) three-dimensional machine vision technology, was developed in
close cooperation with Ford Motor Company, which helped fund and test the
technology. 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 third party original equipment manufacturers ("OEMs"). In
connection with the settlement of certain litigation filed by the Company
against Fori Automation alleging infringement of certain of the Company's
patents relating to non-contact wheel alignment systems, the Company has
licensed such patents to Fori on a non-exclusive basis.
ScanWorks(TM): The ScanWorks(TM) measurement and dimensional analysis software
incorporates proprietary feature extraction algorithms, computer assisted design
("CAD") data input, CAD to scan comparison, data filtering and motion device
interfaces in an operator friendly, WindowsNT Graphical User Interface ("GUI").
The ScanWorks(TM) GUI links the operator with measurement and OEM products. The
current product is used in the digitizing market for the off-line inspection of
hydro-formed automobile body rails and body frames. A version of the software is
used with portable Coordinate Measuring Machines ("CMM") to inspect small volume
parts and provide scan data collection for reverse engineering applications.
QMS Battery Portable ("QMS-BP"): The QMS-BP is a battery portable measurement
system for coated surfaces. The QMS-BP checks the painted surface quality of
vehicles, providing in-line quality trend analysis and process control
information by vehicle color, model, shift, etc. It generates four objective,
repeatable and reproducible ratings of coated surfaces. Measurements are taken
in seconds and data analysis is automated. With this information corrective
action can be taken before quality drops below acceptable levels. The
information provided allows quick reaction to process changes, resulting in
improved quality and cost savings.
PaintScan: The PaintScan system (formerly Industrial Dirt Counter) checks the
amount of dirt and other defects that affect the painted surface quality of a
vehicle. The system prints out a profile of the vehicle 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
PaintScan system is in the final stages of Beta testing at a customer site.
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INDUSTRIAL BUSINESSES SEGMENT
General: The Forest Products business unit sells a complete line of mill-wide
products for optimization of yield and value. These systems are based on an
architecture of optimization modules that contain common user interfaces,
reporting systems and scanning interfaces. The system runs on the WindowsNT
platform.
Scanning and optimization systems are sold directly to sawmills and to a large
number of sawmill machinery manufacturers and systems integrators. One of the
distinct advantages of Perceptron's optimization systems is that they can
operate on virtually any manufacturer's equipment. This allows the sawmill to
choose the best mechanical system for its own operations and receive the benefit
of the Company's scanning and optimization systems within the facility.
True Shape Bucking System ("TSB"): The TSB system optimizes the process of
cutting tree stems into logs. The system utilizes TriCam(TM) or LASAR(TM)
scanners to create a high density 3D surface map of a tree stem to be cut or
"bucked" into logs. The stem is either scanned as it is conveyed lineally
through an array of TriCam(TM) sensors or is scanned at rest with LASAR(TM)
sensors. Optimization software then makes a determination of the log lengths to
be cut based upon shape, product, defect and yield parameters and then provides
saw motion information to produce those cuts.
True Shape Log Optimizer System ("TSO"): The TSO system optimizes the process of
log breakdown into boards or cants. The system utilizes TriCam(TM) or LASAR(TM)
scanners to create a high-density 3D surface map of a log. Optimization software
makes a determination of the product mix to be cut from the log based upon
shape, product defect and yield parameters and then provides saw motion
information to produce those cuts.
The TSO system enables lumber manufacturers to optimize the yields and value
from the logs in the sawmill by using analysis algorithms to statistically
evaluate the log topography to optimize which products should be cut from the
log. The addition of a TSO to a sawmill increases the amount and value of the
final products that can be derived from the logs.
True Shape Log Sorter System ("TSS"): The TSS system optimizes the process of
log sorting. Certain customers prefer to sort logs into batches with common
characteristics and then feed them into the sawmill at high rates with a fixed
cutting pattern. The system utilizes TriCam(TM) scanners to create a
high-density 3D surface map of a log. Optimization software fits all of the
potential customer cutting scenarios into the log models and sorts the logs by
the pattern that will produce the highest value.
The TSS system allows lumber manufacturers to optimize the value of the logs
entering the sawmill based on pre-defined patterns. This technique provides
increased value over past systems that simply measured the small end diameter of
the log as the sorting criteria.
True Shape Cant Optimizer System ("TSC"): The TSC system optimizes the process
of cant (a log with two cut sides) breakdown. The system utilizes TriCam(TM),
Transverse TriCam(TM) (a TriCam(TM) derivative sensor in which the cant is
scanned as it is conveyed transversely though an arrangement of special
TriCam(TM) scanners) or LASAR(TM) scanners to create a high-density 3D surface
map of the cant. Optimization software fits the customer's final products into
the cant model to determine the cut that will produce the highest value. The TSC
system can model either straight sawing systems or the recently popular curve
sawing systems. The optimization software can also process grade-input data to
facilitate high-grade cutting patterns for maximum grade utilization.
True Shape Edger Optimizer System ("TSE"): The TSE system optimizes the process
of flitch edging (a flitch is an un-edged board cut from the side of a log) by
utilizing TriCam(TM) or Transverse TriCam(TM) scanners to create a high-density
3D surface map of the flitch. Optimization software fits the customer's final
board products into the flitch model to determine the cut that will produce the
highest value.
True Shape Trimmer Optimizer System ("TST"): The TST system optimizes the
processes of board trimming by utilizing Transverse TriCam(TM) scanners to
create a high-density 3D surface map of the untrimmed board. Optimization
software fits the customer's final board products into the untrimmed board model
to determine the trim that will produce the highest value.
Mill Controller System: The Mill Controller system is a software package that
allows sawmill operators to define what orders they need filled for their
customers. The system links this information with the optimizers in the sawmill
to produce the lumber required to fill these orders.
The Mill Controller adds a level of control to the sawmill operator that was
previously unavailable. Typical optimizer systems attempt to maximize recovered
value from raw material without regard to the actual orders that the sawmill
needs to fill. By utilizing the Mill Controller, the sawmill can now balance
value-based recovery with the time based requirement to fill orders.
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Lumber Analyzer System: The Lumber Analyzer system utilizes ultrasonic
technology to find defects in finished lumber. Defects such as splits, rot,
voids and cracks are important to secondary manufacturers who process dried
lumber into finished products such as furniture and moldings. The application of
a Lumber Analyzer system can save secondary manufacturers money by identifying
these defects and improving cutting decisions and raw material utilization. The
Lumber Analyzer system is in Beta testing at a customer site.
Carriage Optimizer System: The Carriage LASAR Scanning and Mill Expert
Optimization system scans logs after the operator has loaded them on the
carriage and provides either a complete breakdown solution or a minimum opening
face solution. This product is superior to the traditional curtain scanning
carriage systems. On average, the LASAR scanning and image processing takes less
time, leading to higher production. The scanning system provides high-density
true-shape data for the surface of the log that allows more accurate calculation
of the breakdown solutions.
SALES AND MARKETING
To date, the Company has marketed its systems either directly to the end users
of the Company's systems, or to system integrators, value-added resellers
("VARs") or OEMs who in turn sell to the same end users and offer access to new
markets.
The Company's direct sales efforts are led by the Company's account executives.
These account executives develop a close consultative selling relationship with
the Company's customers. Perceptron's senior management works in close
collaboration with customers' senior executives. The Company intends to continue
this marketing strategy for its automotive process control systems and for
selected forest and wood products applications.
With respect to the RGS system for robot guidance, the NCA system for wheel
alignment, steel blast furnace inspection sales activities and sales to the
forest and wood products industry, the Company's marketing strategy is focused
primarily on sales to selected system integrators, OEMs and VARs who integrate
the Company's products into their systems for sale to end user customers.
The Company formed an Emerging Markets business unit in 1999. This unit's
current focus is finding and developing applications for existing software and
hardware products in the digitizing (reverse engineering and inspection) and
steel blast furnace inspection markets.
The Company's principal customers have historically been automotive companies
that the Company either sells to directly or through system integrators or OEMs.
The Company's products are typically purchased for installation in connection
with new model re-tooling programs undertaken by these companies. Because sales
are dependent on the timing of customers' re-tooling programs, sales by customer
vary significantly from year to year, as do the Company's largest customers. For
the twelve months ended June 30, 2000, approximately 35% of total revenues were
derived from three automotive companies (General Motors, Ford and
DaimlerChrysler). For the six months ended June 30, 1999 and years ended
December 31, 1998 and 1997, approximately 25%, 22% and 38%, respectively, of
total revenues were derived from the same three customers. For the twelve months
ended June 30, 2000, six months ended June 30, 1999 and years ended December 31,
1998 and 1997, approximately 11%, 8%, 13% and 17% of net sales, respectively,
were to system integrators and OEMs for the benefit of the same three automotive
companies. During the twelve months ended June 30, 2000, sales to
DaimlerChrysler and General Motors each exceeded 10% of the Company's total net
sales.
MANUFACTURING AND SUPPLIERS
The Company's manufacturing operations consist primarily of final assembly and
testing, along with integrating the Company's software with individual
components, including printed circuit boards, which are manufactured by third
parties according to Company developed designs. With a low level of vertical
integration, the Company believes it gains significant manufacturing
flexibility, while minimizing total product costs.
The Company purchases a number of component parts and assemblies from single
source suppliers. Although the Company believes that alternative suppliers are
available for most of its components, component supply shortages in certain
industries, including the electronics industry, are possible due to the overall
strength of the economy. 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.
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INTERNATIONAL OPERATIONS
Europe: The Company's European operations have contributed approximately 23%,
39%, 30% and 23% of the Company's revenues during the twelve months ended June
30, 2000, six months ended June 30, 1999 and the years ended 1998 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 and a 100% equity interest in
Perceptron E.U.R.L. located in Quimper, France. The Company currently employs 44
people in its European operations.
Asia: The Company operates a direct sales and application office in Seoul, Korea
and a branch sales office in Tokyo, Japan.
South America: The Company has a direct sales office in Sao Paulo, Brazil to
service automotive customers in South America.
The Company's foreign operations are subject to certain risks typically
encountered in such operations, including fluctuations in foreign currency
exchange rates and controls, expropriation and other economic and local policies
of foreign governments, and the laws and policies of the U.S. and local
governments affecting foreign trade and investment. For information regarding
net sales, operating profit (loss) and identifiable assets of the Company's
foreign operations, see Note 13 to the Consolidated Financial Statements,
"Segment and Geographic Information".
COMPETITION
The Company believes that it provides the best and most complete solutions to
its automotive markets in terms of system capabilities and support, at a
competitive price for the value provided, which it believes are the principal
competitive factors in these 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 it provides the best and most complete solutions to
the forest and wood products markets in terms of system capabilities and
support, at a competitive price for the value provided, which it believes are
the principal competitive factors in these markets. 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 there may be other entities, some of which may be
substantially larger and have substantially greater resources than the Company,
which may be engaged in the development of technology and products, which could
prove to be competitive with those of the Company. In addition, the Company
believes that certain existing and potential customers may be capable of
internally developing their own technology. There can be no assurance that the
Company will be able to successfully compete with any such entities, or that any
competitive pressures will not result in price erosion or other factors, which
will adversely affect the Company's financial performance.
BACKLOG
As of June 30, 2000, the Company had a backlog of $23.1 million, compared to
$27.8 million at June 30, 1999 and $23.5 million at December 31, 1998. The
Automotive Business segment's backlog was $19.1 million, $22.5 million and $17.9
million at June 30, 2000, June 30, 1999 and December 31, 1998, respectively. The
Industrial Businesses segment backlog was $4.0 million, $5.3 million and $5.6
million at June 30, 2000, June 30, 1999 and December 31, 1998, respectively.
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 June 30, 2001.
RESEARCH AND DEVELOPMENT
As of June 30, 2000, 122 persons employed by the Company were focused primarily
on research, development and engineering relating to three-dimensional machine
vision systems and related software. For the twelve months ended June 30, 2000,
six months ended June 30, 1999 and years ended December 31, 1998 and 1997, the
Company's research, development and engineering expenses were $13.1 million,
$6.5 million, $11.4 million and $8.9 million, respectively.
The Company engages in research and development ("R&D") to enhance its existing
products, to adapt existing products to new applications and to develop new
products to meet new market opportunities. The Company is involved in a
continuous product improvement program for its products intended to enhance
performance, reduce costs and incorporate new technological advances. To this
end, the Company is engaged in strategic alliances with a number of research and
development institutions. Recent customer recognition of the power of Web-based
or Web-like informational navigation for manufacturing operations has involved
the Company in pilot projects for widely distributed measurement systems and
remote information accessibility.
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The Company has received a NIST-ATP award to participate in a joint venture to
develop a robot guidance system for powertrain assembly automation. The
Company's in-kind development contribution is approximately $500,000 over a
four-year period that began in 1998. The joint venture is administered by the
National Center for Manufacturing Sciences and includes a major automotive
manufacturer.
In late 1995, Autospect received a $1.8 million NIST grant that provided funding
over three years for development of a system to measure the thickness of wet
film (e.g. paint). During 1998, 1997 and 1996, the Company recorded
reimbursements of $800,000, $600,000 and $400,000, respectively, which offset
the related costs. Prototype testing was completed in 1998. The system was
installed in a manufacturing environment during 1999 and is currently undergoing
advanced testing.
PATENTS, TRADE SECRETS AND CONFIDENTIALITY AGREEMENTS
The Company owns fourteen U.S. patents and eighteen 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 four foreign
patents in Canada, Europe and Japan and has eleven patent applications pending
in foreign locations. The U.S. patents expire from 2004 through 2018 and the
Company's existing foreign patent rights expire from 2008 through 2011.
The Company has been informed that certain of its customers have received
allegations of possible patent infringement involving processes and methods used
in the Company's products. Certain of these customers, including one customer
who was a party to a patent infringement suit relating to this matter, have
settled such claims. Management believes, however, that the processes used in
the Company's products were independently developed without utilizing any
previously patented process or technology. Because of the uncertainty
surrounding the nature of any possible infringement and the validity of any such
claim or any possible customer claim for indemnity relating to claims against
these customers, it is not possible to estimate the ultimate effect, if any, of
this matter on the Company's financial position.
The Company has registered, and continues to register, various trade names and
trademarks, including SCANWORKS, OPTIFLEX, PERCEPTRON, DATACAM, LASAR, VERISTAR,
DRISCAN, TRICAM, AUTOSPECT, IPNET and PAINTSCAN, among others, which are used in
connection with the conduct of its business.
The Company's software products are copyrighted and generally licensed to
customers pursuant to license agreements that restrict the use of the products
to the customer's own internal purposes on designated Perceptron equipment.
EMPLOYEES
As of June 30, 2000, the Company employed 334 persons. None of the employees is
covered by a collective bargaining agreement and the Company believes its
relations with its employees to be good.
ITEM 2: FACILITIES
Perceptron's principal domestic facilities consist of a 70,000 square foot
building located in Plymouth, Michigan, owned by the Company, a 20,500 square
foot leased facility in Ann Arbor, Michigan, a 13,000 square foot leased
building in Atlanta, Georgia and a 8,200 square foot leased facility in Plymouth
Meeting, Pennsylvania. In addition, the Company leases a 1,350 square meters
facility in Munich, Germany, a 150 square meters facility in Rotterdam, The
Netherlands, a 6,200 square foot facility in British Columbia, Canada, and
offices in Sao Paulo, Brazil, Seoul, Korea and Tokyo, Japan. Primary facilities
used by the Automotive Business segment are Plymouth and Ann Arbor, Michigan and
the German and The Netherlands locations. Primary facilities used by the
Industrial Businesses segment are Plymouth, Michigan, Atlanta, Georgia, Plymouth
Meeting, Pennsylvania and the Canadian location. The Company believes that its
current facilities are sufficient to accommodate its requirements through the
year 2001.
ITEM 3: LEGAL PROCEEDINGS
On December 11, 1998, a jury in a civil case in the U.S. District Court for the
Eastern District of Michigan returned a favorable judgement for the Company and
awarded damages of over $732,000. The suit, filed by the Company in June 1996,
charged Sensor Adaptive Machines, Inc. ("SAMI") with violation of a covenant not
to compete. SAMI filed counterclaims against the Company alleging, in part, that
the Company was engaged in unlawful monopolization and tortious interference
with business practice and sought damages. In response to a motion for summary
disposition filed by the Company, the counterclaim for unlawful monopolization
was dismissed by the court in June 1998. The jury found that the remaining
counterclaims were without merit. On March 4, 1999, the Company's motion for
interest was granted. SAMI's appeal of the judgement including the counterclaims
against the Company was denied by the U.S. Court of Appeals for the Sixth
Circuit. The Company has instituted legal action to collect the judgement.
SAMI is subject to bankruptcy proceedings in Canada.
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On September 25, 1998, the U.S. District Court for the Eastern District of
Michigan dismissed, with prejudice, a suit filed against the Company by Speroni,
S.p.A. ("Speroni"). Speroni has appealed the dismissal. The appeal has been
stayed pending the arbitration decision discussed below. The suit alleged
tortious interference in conjunction with exclusive distributorship contracts
covering the sale of P-1000 products in Italy and France between Perceptron
B.V., a wholly-owned subsidiary of the Company, and Speroni. Speroni sought
unspecified compensatory damages and punitive damages. Perceptron B.V.
terminated the exclusive distributorship contracts in 1997 for breach of
contract by Speroni and has sought arbitration of this matter with the
International Chamber of Commerce International Court of Arbitration ("ICC"), to
confirm the terminations and to award damages. Speroni has filed counterclaims
with the ICC alleging breach of the exclusive distributorship contracts and
seeking damages of $6.5 million. Arbitration hearings have been conducted and
Perceptron B.V. is awaiting the decision of the arbitrator. The Company intends
to vigorously pursue its claims and defend Speroni's claims.
The Company is a party to a suit filed by Analog Technologies, Inc. ("Analog")
on October 8, 1999 in the Circuit Court for the County of Oakland, Michigan. The
suit alleges that the Company breached a non-disclosure agreement and
misappropriated Analog's confidential information and trade secrets in
connection with the Company's development of a potential new product. The
potential new product involved is one of a number of new products under
development by the Company, which have not been discussed in the Company's
filings with the Securities and Exchange Commission. On February 15, 2000, the
Oakland County Circuit Court denied Analog's motion for preliminary injunction
against the Company. Analog also seeks unspecified compensatory damages in
excess of $25,000. The Company believes that Analog's claims are without merit
and intends to vigorously defend Analog's claims.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No response to Item 4 is required.
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PART II
ITEM 5: MARKET FOR THE REGISTRANT'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 calendar year periods
indicated:
Period Prices
------ ------
Low High
---------- ----------
1997
- ----
Quarter Ended March 31.......................................... $ 25.25 $ 38.13
Quarter Ended June 30........................................... $ 25.25 $ 30.75
Quarter Ended September 30...................................... $ 24.88 $ 34.50
Quarter Ended December 31....................................... $ 19.13 $ 30.75
1998
- ----
Quarter Ended March 31.......................................... $ 17.75 $ 24.50
Quarter Ended June 30........................................... $ 9.38 $ 20.50
Quarter Ended September 30...................................... $ 5.63 $ 11.88
Quarter Ended December 31....................................... $ 4.25 $ 11.25
1999
- ----
Quarter Ended March 31.......................................... $ 3.53 $ 9.88
Quarter Ended June 30........................................... $ 3.75 $ 6.25
Quarter Ended September 30...................................... $ 3.50 $ 5.75
Quarter Ended December 31....................................... $ 3.00 $ 4.81
2000
- ----
Quarter Ended March 31.......................................... $ 3.63 $ 7.50
Quarter Ended June 30........................................... $ 3.31 $ 6.25
Quarter through September 13.................................... $ 3.13 $ 3.94
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. In
addition, the payment of cash dividends or other distributions is prohibited
under the terms of Perceptron's revolving credit agreement with its bank. See
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Liquidity and Capital Resources", for a discussion of other
restrictions on the payment of dividends.
The approximate number of shareholders of record on September 13, 2000, was 258.
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ITEM 6: SELECTED CONSOLIDATED FINANCIAL INFORMATION
PERCEPTRON, INC. AND SUBSIDIARIES
- ---------------------------------
(In thousands, except per share amounts)
Twelve Months Six Months Twelve Months Ended December 31,
Ended Ended -----------------------------------------
Statement of Operations Data(1): June 30, 2000 June 30, 1999(2) 1998 1997 1996 1995
------------- ------------- ---- ---- ---- ----
Net sales $69,821 $21,256 $49,635 $65,102 $58,975 $43,154
Gross profit 38,589 10,488 27,193 40,025 35,367 26,184
Operating income (loss) 3,659 (6,660) (5,776) 14,861 9,306 7,699
Income (loss) before income taxes 3,294 (7,349) (5,143) 16,009 10,245 8,227
Net income (loss) 1,857 (4,860) (3,339) 10,806 7,150 8,491
Net income (loss) per diluted
average common share .23 (.59) (.41) 1.28 .86 1.07
Weighted average common
shares outstanding - diluted 8,199 8,185 8,239 8,412 8,309 7,955
As of December 31,
As of As of -----------------------------------------
Balance Sheet Data: June 30, 2000 June 30, 1999 1998 1997 1996 1995
------------- ------------- ---- ---- ---- ----
Working capital $40,663 $34,569 $40,094 $45,604 $34,444 $28,119
Total assets 66,227 61,334 66,408 68,142 61,456 42,017
Long-term liabilities 4,595 4,265 1,040 - - -
Shareholders' equity 49,569 48,064 54,852 57,879 46,447 31,049
- -----------------------------
1 No cash dividends have been declared or paid during the periods presented.
2 In 1999, the Company elected to change its reporting period from a calendar
year ending December 31 to a fiscal year ending June 30. As a result, 1999
represents a six-month transition period.
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ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Perceptron, Inc. ("Perceptron" or the "Company") designs, develops, manufactures
and markets information-based measurement and inspection focused solutions for
process improvement primarily for the automotive and forest products industries.
The Company's current principal products are based upon proprietary
three-dimensional image processing and feature extraction software algorithms
combined with two distinct three-dimensional object imaging technologies:
TriCam(TM) and LASAR(TM). TriCam(TM) technology uses structured laser light
triangulation techniques to obtain accurate three-dimensional measurements.
TriCam(TM) systems are used to measure formed parts for reduction of process
variation, to provide robot guidance sensing for automated assembly tasks and to
improve the speed and lower the cost of wheel alignment final assembly
operations. TriCam(TM) is also used by the Forest Products business unit to
measure three-dimensional shapes of trees, logs, boards and by-products.
LASAR(TM) provides accurate three-dimensional measurements of a full scene over
a larger field of view than does TriCam(TM). The LASAR(TM) product is used by
the Forest Products business unit for the three-dimensional measurement of
stems, logs and cants.
The Company has two business segments: the Automotive Business segment and the
Industrial Businesses segment. The Company's Automotive Business segment has
sold its products 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. The Company's Industrial Businesses
segment was formed in fiscal year 2000 and includes the Forest Products business
unit and the Emerging Markets business unit. The Forest Products business unit
has sold its products primarily to North American sawmills, sawmill machinery
manufacturers and systems integrators. The Emerging Markets business unit was
formed during the first quarter of fiscal year 2000 and focuses on the steel
blast furnace inspection and digitizing markets.
On June 24, 1999, the Company elected to change its reporting period from a
calendar year ending December 31, to a fiscal year ending June 30. As a result,
this Form 10-K contains financial information for the six-month transition
period January 1, 1999 through June 30, 1999.
In October 1998, the Company acquired the assets and ultrasound intellectual
property, and assumed certain liabilities, of Sonic Industries, Inc. and Sonic
Technologies, Inc. ("Sonic") of Hatboro, Pennsylvania. Sonic designs and markets
ultrasound scanning systems, principally for forest product applications.
RESULTS OF OPERATIONS
TWELVE MONTHS ENDED JUNE 30, 2000, COMPARED TO TWELVE MONTHS ENDED JUNE 30, 1999
Overview. The Company reported net income of $1.9 million, or $0.23 per share,
for the twelve months ended June 30, 2000 compared to a loss of $5.0 million, or
$0.61 per share, in the same period ended June 30, 1999. Net sales of $69.8
million for the twelve months ended June 30, 2000 were up $17.2 million, or
32.8%, over sales for the comparable period ended June 30, 1999 of $52.6
million. Automotive sales accounted for 79% of total sales during the twelve
months ended June 30, 2000 compared to 81% for the twelve-month period ended
June 30, 1999. Industrial Businesses sales represented 21% of total sales for
2000 compared to 19% for the twelve months ended June 30, 1999. Net Domestic
sales were up $18.6 million to $53.4 million for the twelve months ended June
30, 2000 as compared to $34.8 million for the same period ended 1999. Net
International sales decreased $1.4 million from $17.8 million in the twelve
months ended June 30, 1999 to $16.4 million in the fiscal 2000 twelve-month
period. Gross profit as a percent of net sales for the 2000 period was 55.3%
compared to 53.7% for the twelve months ended June 30, 1999 principally
reflecting the benefit from economies of scale associated with higher sales in
fiscal 2000 that was partially reduced by competitive pricing pressure and the
effect of currency declines principally in the euro. Operating expenses were
down $0.6 million in the twelve months ended June 30, 2000 compared to 1999
primarily reflecting an intangible asset write-off of $1.5 million in the 1999
period that was offset by higher costs in the fiscal 2000 period for research
and development work on new products, higher personnel costs and incremental
expenses associated with the ultrasound technology acquisition. The twelve-month
comparison also reflects higher interest expense and lower interest income
totaling $471,000 as a result of lower cash balances, higher borrowings under
the Company's revolving line of credit and a full twelve months of interest on
the note payable assumed with the October 1, 1998 purchase of the Sonic Group.
Other expenses were down $569,000 representing $671,000 for legal fees related
to a civil action discussed in Item 3, "Legal Proceedings" during the fiscal
1999 period compared to $102,000 for disposal of assets in the fiscal 2000
period.
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TWELVE MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, 2000 JUNE 30, 1999
------------------- -------------------
(unaudited)
Net Sales $ 69,821 $ 52,581
Cost of Sales 31,232 24,358
--------- ----------
Gross Profit 38,589 28,223
Selling, General and Administrative Expense 21,815 21,524
Engineering, Research and Development Expense 13,115 12,506
Non-cash intangible asset write-off - 1,472
--------- ----------
Operating Income (Loss) 3,659 (7,279)
Interest Income (Expense), net (233) 238
Foreign Currency Gain (Loss) (30) (12)
Other (102) (671)
---------- -----------
Income (Loss) Before Income Taxes 3,294 (7,724)
Income Tax Expense (Benefit) 1,437 (2,696)
--------- -----------
Net Income (Loss) $ 1,857 $ (5,028)
========= ===========
Automotive. Sales in the twelve months ended June 30, 2000 increased $12.7
million, or 30%, to $55.5 million compared to $42.8 million in the twelve months
ended June 30, 1999. P-1000 sales accounted for approximately 47% of net
Automotive sales in fiscal 2000 compared to approximately 71% in the twelve
months ended June 30, 1999. The percentage sales decrease reflected customers'
migration to the Company's web-based Intelligent Process Network ("IPNet(TM)")
product. Sales of the Company's IPNet(TM) product totaled approximately 25% of
net automotive sales in the twelve months ended June 30, 2000. RGS and NCA
systems sales accounted for 20% of net sales in fiscal 2000 compared to 13% in
fiscal 1999. Other product sales, which during the 1999 twelve-month period
included the first developmental system to inspect wet film paint thickness,
represented 12% of net fiscal 1999 Automotive sales as compared to 5% for the
twelve months ended June 30, 2000. Training and service revenues accounted for
the remainder of net sales in both years.
Industrial Businesses. At the present time, the Industrial Businesses segment's
principal market is the Forest Products industry. Sales in the twelve months
ended June 30, 2000 were $14.3 million, of which $12.5 million was delivered by
the Forest Products business unit. Sales of $9.8 million for the same period
last year were all delivered by the Forest Products business unit. Sales were up
$4.5 million from the same period last year primarily due to sales of newly
introduced products to the forest products industry and new sales in the steel
blast furnace inspection and digitizing markets.
Bookings & Backlog. New order bookings for the twelve months ended June 30, 2000
were $65.0 million compared to $55.8 million for the twelve months ended June
30, 1999. Automotive bookings totaled $52.0 million in the fiscal 2000 period
compared to $46.5 million a year ago. The increase in automotive bookings in
fiscal 2000 is primarily related to orders for the Company's new IPNet(TM)
product. During the twelve months ended June 30, 2000, automotive bookings
represented: 45% P-1000, 33% IPNetTM and 15% RGS and NCA as compared with 61%
P-1000, 12% IPNetTM and 18% RGS and NCA for the twelve months ended June 30,
1999. Industrial Businesses bookings were $13.0 million in fiscal 2000 compared
to $9.3 million a year ago of which Forest Product bookings represented 85% and
94%, respectively. The new order bookings, net of sales resulted in a backlog at
June 30, 2000 of $23.1 million compared to $27.8 million at June 30, 1999. The
amount of new order bookings and the level of backlog during any particular
period are not necessarily indicative of the future operating performance of the
Company.
Gross Profit. Gross profit was $38.6 million, or 55.3% of sales, in the twelve
months ended June 30, 2000, as compared to $28.2 million, or 53.7% of sales, in
the 1999 twelve-month period. The percentage increase principally reflected the
benefit from economies of scale associated with the higher sales volume in
fiscal 2000 reduced by competitive pricing pressure and the effect of currency
declines principally in the euro.
Selling, General and Administrative (SG&A) Expenses. SG&A expenses increased
slightly from $21.5 million in the twelve months ended June 30, 1999 to $21.8
million in the comparable 2000 period. The increase included higher costs for
personnel related expenses, twelve months of SG&A costs incurred by the
ultrasound division of the Forest Products business unit in fiscal 2000 as
compared with only nine months in fiscal 1999, and offsetting cost reductions in
other operating expenses such as legal, contract services and bad debt expense.
Engineering, Research and Development (R&D) Expenses. Engineering and R&D
expenses increased from $12.5 million in the twelve months ended June 30, 1999
to $13.1 million in fiscal 2000. The increase in expenses primarily reflect the
Company's continued investments in new product development including twelve
months of engineering costs for ultrasound technology in the current period
compared to only nine months of expenses in the period a year ago.
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Intangible Asset Write-off. During 1998, the Company developed a new suite of
non-contact three-dimensional measurement technologies, which superseded certain
existing technologies recorded as intangible assets. As a result, the carrying
value of these intangible assets was evaluated for impairment. This evaluation
resulted in a write-off of intangible assets with a net book value of $1.5
million in 1998.
Other Income and Deductions. Other income and deductions decreased $80,000 from
net deductions of $445,000 for the twelve months ended June 30, 1999 to net
deductions of $365,000 in the comparable 2000 period. The favorable change was
primarily due to higher legal expenses in the fiscal 1999 period of $671,000
related to a civil action for which the Company was awarded a favorable
judgement. The Company is in the process of trying to collect on this judgement.
The twelve month comparison was also impacted by reduced net interest income in
fiscal 2000 from lower cash balances and higher interest expense related to
borrowings under the Company's Revolving Credit Agreement and the debt assumed
in October 1998 related to the ultrasound technology acquisition as compared to
fiscal 1999. Additionally, fiscal 2000 included $102,000 of expense related to
the disposal of machinery and equipment.
Outlook. Revenues in all of the Company's business units are expected to
strengthen during fiscal year 2001, with the exception of the North American
Automotive business unit. In the Company's Industrial Businesses segment,
customers' response to new product offerings, such as the ultrasound based
grading systems and mill-wide optimization solutions offered by the Forest
Products business unit, has been enthusiastic. In Europe the high level of new
orders that have recently been awarded or are pending final approval provides a
solid base to start the new year. The three-year outlook for the automotive
industry is good; however, new tooling programs in North America for the 2001
model year are down compared with the 2000 model year. As a result, sales of the
Company's core in-line gauging systems for the next twelve months are not
expected to be as strong as in fiscal 2000. Because the Company intends to
continue its commitment to developing new products and global markets to support
a healthy three-year outlook, if current pressures on margins related to
competition continues, the Company is unlikely to attain the level of
profitability attained in fiscal 2000. The foregoing statements contain "forward
looking statements" within the meaning of the Securities Exchange Act of 1934.
Actual results could differ materially from those in the forward looking
statements due to a number of uncertainties, including those described under
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Safe Harbor Statement", below.
SIX MONTHS ENDED JUNE 30, 1999, COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Overview. The Company reported a net loss of $4.9 million, or $0.59 per share,
for the six months ended June 30, 1999 compared to a net loss of $3.2 million,
or $0.38 per share, in the same 1998 period. Net sales of $21.3 million for the
six months ended June 30, 1999 were up $3.0 million, or 16%, over the comparable
1998 period sales of $18.3 million. Automotive sales accounted for 85% of total
sales during the six months ended June 30, 1999 compared to 81% in the same 1998
period. Forest Product sales represented 15% of total sales for 1999 compared to
19% in the six months ended June 30, 1998. Net Domestic sales remained flat at
$12.4 million for both the 1999 and 1998 six-month periods ended June 30. Net
International sales increased $2.9 million from $5.9 million in the six months
ended June 30, 1998 to $8.8 million in the 1999 six-month period. Gross profit
as a percent of net sales for the 1999 period was 49.3% compared to 51.7% in
1998 principally reflecting both competitive pricing pressure on the Company's
mature product lines and the effect of currency declines principally in the
Deutsche mark. Operating expenses were up $2.5 million in the six months ended
June 30, 1999 compared to 1998, reflecting higher costs for research and
development work on new products, the Company's global marketing initiatives,
incremental expenses associated with the ultrasound technology acquisition and
certain non-recurring and unusual items for aged accounts receivable primarily
related to the Company's Autospect and Trident Systems operations. The six month
comparison also reflects reduced net interest income of $417,000 as a result of
lower cash balances and higher other expenses of $671,000 for legal fees related
to a civil action discussed in Item 3, "Legal Proceedings".
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1999 JUNE 30, 1998
---------------- ----------------
(unaudited)
Net Sales $ 21,256 $ 18,310
Cost of Sales 10,768 8,852
--------- ----------
Gross Profit 10,488 9,458
Selling, General and Administrative Expense 10,693 9,281
Engineering, Research and Development Expense 6,455 5,333
--------- ----------
Operating Loss (6,660) (5,156)
Interest Income, net - 417
Foreign Currency Loss (18) (29)
Other (671) -
---------- ----------
Loss Before Income Taxes (7,349) (4,768)
Income Tax Benefit (2,489) (1,597)
---------- -----------
Net Loss $ (4,860) $ (3,171)
========== ===========
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Automotive. Sales in the six months ended June 30, 1999 increased $3.2 million,
or 22%, to $18.0 million compared to $14.8 million in 1998. P-1000 sales
accounted for approximately 60% of net Automotive sales in the 1999 period
compared to approximately 51% in the same period of 1998. RGS and NCA systems
sales accounted for 18% of net sales in 1999 compared to 32% in 1998. The
variance in RGS and NCA sales is a function of the timing of orders by the
Company's customers. Other product sales, which during the 1999 six-month period
included early sales of the Company's new products (principally the Company's
web-based IPNet(TM) and the first developmental system to inspect wet film paint
thickness), represented 15% of net 1999 Automotive sales as compared to 12% in
the six-month 1998 period. Training and service revenues accounted for the
remainder of net sales in both years.
Forest Products. Sales in the six months ended June 30, 1999 were $3.3 million,
down $200,000, or 8%, from the comparable 1998 period sales of $3.5 million. The
lower sales level in the 1999 period reflected postponement of capital purchases
in late 1998 by mills affected by the soft dimension lumber market. During the
six months ended June 30, 1999, the Company sold its first Lumber Analyzer
system, an ultrasound technology product that the Company acquired in the fourth
quarter of 1998.
Bookings & Backlog. New order bookings for the six months ended June 30, 1999
were $25.6 million compared to $18.8 million in the 1998 period. Automotive
bookings totaled $22.6 million in the 1999 period compared to $14.7 million a
year ago. The increased Automotive bookings in 1999 is primarily related to
orders for the Company's new IPNet(TM) product and RGS and NCA systems. Forest
Product bookings were $3.0 million in 1999 compared to $4.1 million a year ago.
The 1999 period includes a $1.1 million two-year blanket order for the Lumber
Analyzer system. The new order bookings net of sales resulted in a backlog at
June 30, 1999 of $27.8 million compared to $24.7 million in 1998. The amount of
new order bookings and the level of backlog during any particular period is not
necessarily indicative of the future operating performance of the Company.
Gross Profit. Gross profit was $10.5 million, or 49.3% of sales, in the six
months ended June 30, 1999, as compared to $9.5 million, or 51.7% of sales, in
the 1998 six months. The percentage decrease reflected both competitive pricing
pressure on the Company's mature product lines and the effect of currency
declines principally in the Deutsche mark.
Selling, General and Administrative (SG&A) Expenses. SG&A expenses increased
from $9.3 million in the six months ended June 30, 1998 to $10.7 million in the
same 1999 period. The increase was due to SG&A costs incurred by the ultrasound
division of the Forest Products business unit which were not in the 1998 period,
increased personnel and related expenses to support the Company's global
marketing activities, and bad debt expenses incurred during 1999. The bad debt
expenses incurred in 1999 primarily were for the final resolution of aged
accounts receivable primarily related to the Company's Autospect and Trident
Systems operations.
Engineering, Research and Development (R&D) Expenses. Engineering and R&D
expenses increased from $5.3 million in the six months ended June 30, 1998 to
$6.5 million in the 1999 period. The increase in expenses primarily reflect the
Company's continued investments in new product development including engineering
costs for ultrasound technology that were not in the 1998 period. The Company
began to realize revenue from some of the new products during the six-month
period ended June 30, 1999.
Other Income and Deductions. Other income and deductions decreased from income
of $388,000 in the six months ended June 30, 1998 to deductions of $689,000 in
the 1999 period. The $1.1 million net unfavorable change was primarily due to
$671,000 of legal expenses related to a civil action for which the Company was
awarded a favorable judgement. The Company is in the process of trying to
collect on this judgement. The six month comparison was also impacted by reduced
interest income from lower cash balances and higher interest expense related to
borrowings under the Company's Revolving Credit Agreement and the debt assumed
in October 1998 related to the ultrasound technology acquisition.
YEAR ENDED DECEMBER 31, 1998, COMPARED TO YEAR ENDED DECEMBER 31, 1997
Net Sales. Net sales of $49.6 million in 1998 decreased by $15.5 million, or
24%, compared with net sales of $65.1 million in 1997. Net Domestic sales
decreased from $49.5 million in 1997 to $34.7 million in 1998. Net International
sales decreased from $15.6 million in 1997 to $14.9 million in 1998. The total
decrease in net sales for 1998 was principally accounted for by a $12.4 million,
or 32%, decrease in sales of P-1000 systems and a $3.0 million, or 29%, decrease
in sales of RGS and NCA systems. Because the P-1000 system has been widely
received, particularly in North America, by the automotive industry for several
years, the sales decline for this system was not unexpected. The RGS and NCA
systems' decrease was primarily due to the timing of new orders. Forest
Products' sales were up slightly compared with 1997.
P-1000 systems accounted for 54% of net sales in 1998 and 60% of net sales in
1997. The RGS and NCA systems combined accounted for 15% of net sales in 1998
and 16% in 1997. Forest Products sales accounted for 20% of net sales in 1998
and 15% of net sales in 1997. Training and service revenues and other product
sales accounted for the remainder of net sales in both years.
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New order bookings for 1998 totaled $48.9 million, compared to $66.1 million in
1997. Domestic orders declined from $50.4 million in 1997 to $32.9 million in
1998 while International orders were up from $15.7 million in 1997 to $16.0
million in 1998. P-1000 systems accounted for 60% of new order bookings in 1998
and 50% in 1997. RGS and NCA bookings accounted for 6% of bookings in 1998 and
17% in 1997. Forest Product bookings were 20% of the total in 1998 and 19% in
1997. Training and service and other product sales accounted for the remainder
of net bookings in both years. The decrease in new order bookings in 1998
compared with 1997 was principally due to RGS and NCA systems and, to a lesser
extent, lower orders for P-1000 systems, Forest Product systems, and Autospect
paint inspection systems.
RGS and, in particular NCA systems, orders were down due to the timing of new
blanket purchase orders from several customers. The Forest Product systems'
order decline reflected; (1) forest industry cash constraints related to weak
demand for lumber and (2) reduced orders for LASAR(TM) based systems due to
required system reengineering. Autospect paint inspection systems' new orders
were lower than anticipated due to delays in new product development.
Gross Profit. Gross profit was $27.2 million, or 54.8%, of sales in 1998
compared with $40.0 million, or 61.5%, of sales in 1997. The percentage decrease
was due primarily to the lower sales volume which led to under-absorbed fixed
overhead and, to a lesser extent, sales mix and higher manufacturing, warranty
and installation costs.
Selling, General and Administrative (SG&A) Expenses. Selling, general and
administrative expenses were $20.1 million, or 40.6%, of sales in 1998 compared
with $16.2 million, or 24.9%, of sales in 1997. This increase was due primarily
to added personnel and associated expenses, such as travel and telephone,
required to support the development of domestic and international markets for
Automotive and Forest Products. Incremental cost increases associated with the
acquisitions during 1997 and 1998 also contributed to the year over year
spending increase.
Engineering, Research and Development (R&D) Expenses. Engineering and R&D
expenses increased from $8.9 million, or 13.7% of sales, in 1997 to $11.4
million, or 22.9% of sales, in 1998. The increase was primarily due to
additional personnel as well as higher material and testing expenditures to
support products under development.
Intangible Asset Write-off. During 1998, the Company developed a new suite of
non-contact three-dimensional measurement technologies, which superceded certain
existing technologies recorded as intangible assets. As a result, the carrying
value of these intangible assets was evaluated for impairment. This evaluation
resulted in a write-off of intangible assets with a net book value of $1.5
million.
Interest Income, net. Interest income, net, decreased from approximately $0.9
million in 1997 to $0.7 million in 1998, due to lower average cash balances
during 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents were $5.9 million at June 30, 2000,
compared to $4.2 million at June 30, 1999. The increase of $1.7 million in cash
for the twelve months resulted primarily from $3.1 million provided from
operations offset by $1.5 million used for capital spending.
The cash provided from operations reflected the net income for the period and
$1.8 million of cash received for the carry-back of prior year tax losses offset
by increases in working capital requirements. Receivables, net of foreign
translation adjustments, increased $7.0 million as a result of higher sales in
fiscal 2000 as compared to the fiscal 1999 period. Offsetting these increases in
working capital was a $3.9 million increase in accounts payable and other
current assets and liabilities primarily representing an increase in accrued
incentive compensation and foreign tax liabilities.
At June 30, 2000 the Company had a $15.0 million unsecured Revolving Credit
Agreement ("Revolver") that expires on July 31, 2002. Proceeds under the
Revolver may be used for general corporate purposes and can be designated as a
Floating Rate Loan or as a Eurodollar Rate Loan. Interest on Floating Rate
borrowings is calculated daily at 1/2% below the bank's prime rate which was
9.5% as of August 31, 2000 and is payable on the last day of each month.
Interest on Eurodollar Rate borrowings is calculated at a Eurodollar Rate for
the period chosen (approximately 7.9% as of August 31, 2000) and is payable on
the last day of the applicable period. Quarterly, the Company pays a commitment
fee of 1/4% per annum on the daily unused portion of the Revolver. The Revolver
prohibits the Company from paying dividends. In addition, the Revolver contains
various financial covenants that restrict dividend payments by requiring the
Company to maintain a Fixed Charge Coverage Ratio and a Total Liabilities to
Tangible Net Worth Ratio. The Company had $3.6 million outstanding under the
Revolver at June 30, 2000.
At June 30, 2000, the Company's principal bank had agreed to provide unsecured
bank credit facilities of 1.0 million Deutsche marks and $1.0 million Canadian
dollars. These facilities may be used to finance working capital needs and
equipment purchases or capital leases. Any borrowings will bear interest at the
bank's prime rate (9.5% as of August 31,
15
16
2000). The credit facilities expire on July 31, 2001, unless canceled earlier by
the Company or the bank. The Company had no borrowings outstanding under these
credit facilities at June 30, 2000.
The Company expects to spend approximately $2.0 million during fiscal year 2001
for capital equipment, although there is no binding commitment to do so. The
Company believes that available cash on hand and existing credit facilities will
be sufficient to fund its currently anticipated fiscal year 2001 cash flow
requirements. The Company does not believe that inflation has significantly
impacted historical operations and does not expect any significant near-term
inflationary impact.
For a discussion of certain contingencies relating to the Company's financial
position and results of operations, see Note 9 to the Consolidated Financial
Statements, "Contingencies".
EURO CONVERSION
A single currency called the "euro" was introduced in Europe on January 1, 1999.
Eleven of the fifteen member countries of the European Union agreed to adopt the
euro as their common legal currency on that date. Fixed conversion rates between
these participating countries' existing currencies (the "legacy currencies") and
the euro were established as of that date. The legacy currencies are scheduled
to remain legal tender as denominations of the euro until at least January 1,
2002 (but not later than July 1, 2002). During this transition period, parties
may settle transactions using either the euro or a participating country's
legacy currency.
Conversion to the euro may reduce the amount of the Company's exposure to
changes in foreign exchange rates, due to the netting effect of having assets
and liabilities denominated in a single currency as opposed to the various
legacy currencies. Conversely, because there will be less diversity in the
Company's exposure to foreign currencies, movements in the euro's value in U.S.
dollars could have a more pronounced effect, whether positive or negative, on
the Company.
MARKET RISK INFORMATION
Perceptron's primary market risks are related to foreign exchange rates and
interest rate risk in connection with its borrowings. The foreign exchange risk
is derived from sales by its international operations, which are primarily
located in Germany and The Netherlands and for which products are produced in
the U.S. At June 30, 2000, the Company did not have any market risk instruments
for trading purposes.
FOREIGN CURRENCY RISK
The Company has limited foreign currency exchange risk in its international
operations due to the percentage of contracts entered into in U.S. dollars and
the short time period between sales commitment and delivery for contracts in the
non-U.S. currencies. The Company's percentage of sales commitments in U.S.
dollars at June 30, 2000 was 73%. For sales commitments entered into in the
non-U.S. currencies, the currency rate risk exposure is predominantly less than
one year with the majority in the 120 to 150 day range. See also "Management's
Discussion and Analysis of Financial Condition and Results of Operations - Euro
Conversion".
The Company may use, from time to time, a limited hedging program to minimize
the impact of foreign currency fluctuations. As the Company exports products, it
may enter into limited hedging transactions relating to the accounts receivable
arising as a result of such shipment. These transactions involve the use of
forward contracts. At June 30, 2000, the Company had no forward contracts
outstanding.
INTEREST RATE RISK
The Company is subject to interest rate risk in connection with borrowings under
its variable rate revolving line of credit and from fixed rate debt assumed in
conjunction with the purchase of ultrasound intellectual property in October
1998. However, this risk is limited due to the limited level of debt the Company
has outstanding. The Company's exposure to interest rate risk arises primarily
from changes in the prime rate and changes in Eurodollar rates in the London
interbank market. See Note 6 of Notes to Consolidated Statements for a
description of the Company's outstanding debt.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". In June 1999, the FASB delayed the
implementation date making the statement effective for all fiscal quarters of
all fiscal years beginning after June 15, 2000. SFAS No. 133 requires
recognition of all derivative financial instruments as either assets or
liabilities in the consolidated balance sheet, measured at fair value and sets
forth conditions in which a derivative instrument may be designated as a hedge.
The statement requires that changes in the fair value of derivatives be
recognized currently in earnings unless specific hedge accounting criteria are
met. Special accounting for qualifying hedges allows a derivative's gains and
losses to
16
17
be recorded to other comprehensive income or to offset related results on the
hedged item in earnings. The Company may, from time to time, engage in hedging
activities to minimize the impact of foreign currency fluctuations. Management
does not expect the adoption of this pronouncement to have a significant effect
on the Company's consolidated financial statements.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements". SAB 101 summarizes certain of the SEC's views on applying generally
accepted accounting principles to revenue recognition in financial statements.
The Company is required to adopt SAB 101 by the fourth quarter of fiscal 2001
(retroactive to July 1, 2000) and is awaiting interpretive guidance, not yet
issued by the SEC, to complete its assessment of the impact SAB 101 may have on
the Company's financial statements.
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 fiscal year 2001 and future revenue, order booking levels 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 ability of the Company to attract and retain key personnel, especially
technical personnel, 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,
particularly economic conditions in the domestic and worldwide Automotive and
Forest Products industries, both of which have from time to time been subject to
cyclical downturns due to the level of demand for, or supply of, the products
produced by companies in these industries.
ITEM 7A: QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Information required pursuant to this item is incorporated by reference herein
from Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Market Risk Information".
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
----
Report of Independent Accountants.................................................... 18
Consolidated Financial Statements:
Balance Sheets - June 30, 2000 and 1999 and December 31, 1998.................... 19
Statements of Income for the twelve months ended June 30, 2000, six months
ended June 30, 1999 and for the years ended December 31, 1998 and 1997........... 20
Statements of Cash Flows for the twelve months ended June 30, 2000, six
months ended June 30, 1999 and for the years ended December 31, 1998 and 1997.... 21
Statements of Shareholders' Equity for the twelve months ended June 30,
2000, six months ended June 30, 1999 and for the years ended December 31,
1998 and 1997.................................................................... 22
Notes to Consolidated Financial Statements....................................... 23
17
18
[PRICEWATERHOUSECOOPERS LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Perceptron, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of shareholders' equity, and of cash flows
present fairly, in all material respects, the financial position of Perceptron,
Inc. and its subsidiaries at June 30, 2000, June 30, 1999 and December 31, 1998,
and the results of their operations and their cash flows for the year ended June
30, 2000, for the six months ended June 30, 1999 and for each of the two years
in the period ended December 31, 1998, in conformity with accounting principles
generally accepted in the United States of America. In addition, in our opinion,
the financial statement schedule referred to in item 14(A)(2) for the year ended
June 30, 2000, for the six months ended June 30, 1999 and for each of the two
years in the period ended December 31, 1998 presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. These financial statements and
financial statement schedule are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Detroit, Michigan
August 9, 2000
18
19
PERCEPTRON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AT JUNE 30, AT DECEMBER 31,
(In Thousands) 2000 1999 1998
-------- -------- ----------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 5,947 $ 4,205 $ 5,753
Receivables:
Billed receivables, net of allowance for doubtful accounts 26,507 21,128 27,357
of $268,000, $218,000 and $200,000, respectively
Unbilled and other receivables 6,126 4,611 4,242
Inventory, net of reserves of $1,200,000, $600,000 and $519,000, respectively 12,582 12,323 11,365
Deferred taxes and other current assets 1,564 1,307 1,893
-------- -------- --------
Total current assets 52,726 43,574 50,610
-------- -------- --------
PROPERTY AND EQUIPMENT
Building and land 6,004 5,990 5,990
Machinery and equipment 9,598 9,774 8,950
Furniture and fixtures 1,195 1,469 1,438
-------- -------- --------
16,797 17,233 16,378
Less - Accumulated depreciation and amortization (6,125) (6,121) (5,131)
-------- -------- --------
Net property and equipment 10,672 11,112 11,247
-------- -------- --------
OTHER ASSETS
Intangible assets, net of accumulated amortization 1,313 1,692 1,829
of $660,000, $279,000 and $94,000, respectively (Note 5)
Deferred tax asset 1,516 4,956 2,722
-------- -------- --------
Total other assets 2,829 6,648 4,551
-------- -------- --------
TOTAL ASSETS $ 66,227 $ 61,334 $ 66,408
======== ======== ========
LIABILITIES AND COMMON SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 4,549 $ 3,550 $ 3,666
Accrued liabilities and expenses 4,642 4,619 5,726
Income taxes payable 87 633 841
Accrued compensation 2,785 203 283
-------- -------- --------
Total current liabilities 12,063 9,005 10,516
-------- -------- --------
LONG-TERM LIABILITIES
Notes payable (Note 6) 4,595 4,265 1,040
-------- -------- --------
Total long-term liabilities 4,595 4,265 1,040
-------- -------- --------
Total liabilities 16,658 13,270 11,556
-------- -------- --------
SHAREHOLDERS' EQUITY
Preferred stock - no par value, authorized 1,000,000 shares, issued none -- -- --
Common stock, $0.01 par value, authorized 19,000,000 shares, issued
and outstanding 8,170,000, 8,169,000 and 8,219,000, respectively 82 82 82
Accumulated other comprehensive income (loss) (3,723) (3,340) (1,669)
Additional paid-in capital 41,010 40,979 41,236
Retained earnings 12,200 10,343 15,203
-------- -------- --------
Total shareholders' equity 49,569 48,064 54,852
-------- -------- --------
TOTAL LIABILITIES AND COMMON SHAREHOLDERS' EQUITY $ 66,227 $ 61,334 $ 66,408
======== ======== ========
The notes to the consolidated financial statements are an integral part of these
statements.
19
20
PERCEPTRON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
TWELVE MONTHS ENDED
TWELVE MONTHS SIX MONTHS DECEMBER 31,
ENDED ENDED -----------------------
(In Thousands, Except Per Share Amounts) JUNE 30, 2000 JUNE 30, 1999 1998 1997
------------- ------------- -------- -------
NET SALES $ 69,821 $ 21,256 $ 49,635 $65,102
COST OF SALES 31,232 10,768 22,442 25,077
-------- -------- -------- -------
GROSS PROFIT 38,589 10,488 27,193 40,025
-------- -------- -------- -------
OPERATING EXPENSES
Selling, general and administrative 21,815 10,693 20,113 16,220
Engineering, research and development 13,115 6,455 11,384 8,944
Non-cash intangible asset write-off (Note 5) -- -- 1,472 --
-------- -------- -------- -------
Total operating expenses 34,930 17,148 32,969 25,164
-------- -------- -------- -------
OPERATING INCOME (LOSS) 3,659 (6,660) (5,776) 14,861
-------- -------- -------- -------
OTHER INCOME AND (DEDUCTIONS)
Interest income (expense), net (233) -- 656 891
Foreign currency gain (loss) (30) (18) (23) 257
Other (Note 2) (102) (671) -- --
-------- -------- -------- -------
Total other income (deductions) (365) (689) 633 1,148
-------- -------- -------- -------
INCOME (LOSS) BEFORE INCOME TAXES 3,294 (7,349) (5,143) 16,009
INCOME TAX EXPENSE (BENEFIT) 1,437 (2,489) (1,804) 5,203
-------- -------- -------- -------
NET INCOME (LOSS) $ 1,857 $ (4,860) $ (3,339) $10,806
======== ======== ======== =======
EARNINGS (LOSS) PER SHARE
BASIC $ 0.23 $ (0.59) $ (0.41) $ 1.34
DILUTED $ 0.23 $ (0.59) $ (0.41) $ 1.28
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
BASIC 8,170 8,185 8,239 8,065
DILUTED 8,199 8,185 8,239 8,412
The notes to the consolidated financial statements are an integral part of these
statements.
20
21
PERCEPTRON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
TWELVE MONTHS ENDED
TWELVE MONTHS SIX MONTHS DECEMBER 31,
ENDED ENDED -----------------------
(In Thousands) JUNE 30, 2000 JUNE 30, 1999 1998 1997
------------- ------------- -------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 1,857 $(4,860) $ (3,339) $ 10,806
Adjustments to reconcile net income (loss) to net cash provided from
(used for) operating activities:
Depreciation and amortization 2,293 1,268 2,488 1,754
Deferred income taxes 2,325 (1,950) (3,190) --
Non-cash write-off of intangible asset (Note 5) -- -- 1,472 --
Non-cash stock compensation expense -- -- -- 167
Other 31 18 -- --
Changes in assets and liabilities, exclusive of changes shown
separately (3,369) 2,141 (4,393) (9,417)
-------- ------- -------- --------
Net cash provided from (used for) operating activities 3,137 (3,383) (6,962) 3,310
-------- ------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of short-term debt 17,585 8,847 2,000 --
Repayment of short-term debt (17,255) (5,622) (2,000) (980)
Repurchase of company stock -- (257) (1,642) --
Proceeds from stock plans 31 -- 1,212 1,941
-------- ------- -------- --------
Net cash provided from (used for) financing activities 361 2,968 (430) 961
-------- ------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (1,456) (995) (2,400) (2,356)
Sales and maturities of marketable securities -- -- 2,000 500
Purchase of Sonic assets (Note 5) -- -- (1,114) --
-------- ------- -------- --------
Net cash (used for) investing activities (1,456) (995) (1,514) (1,856)
-------- ------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (300) (138) 211 (391)
-------- ------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,742 (1,548) (8,695) 2,024
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,205 5,753 14,448 12,424
-------- ------- -------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,947 $ 4,205 $ 5,753 $ 14,448
======== ======= ======== ========
CHANGES IN ASSETS AND LIABILITIES, EXCLUSIVE OF CHANGES SHOWN SEPARATELY
Billed, unbilled and other receivables, net $ (7,028) $ 4,310 $ (667) $ (6,600)
Inventories (259) (959) (3,262) (843)
Accounts payable 999 (220) 687 (1,913)
Other current assets and liabilities 2,919 (990) (1,151) (61)
-------- ------- -------- --------
$ (3,369) $ 2,141 $ (4,393) $ (9,417)
======== ======= ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest $ 371 $ 93 $ 6 $ 31
Cash paid during the year for income taxes 1,031 322 1,288 2,889
Non-cash transactions:
Previously recorded compensation expense attributable to
options exercised -- -- -- 167
Intangible assets acquired by assumption of note payable and for
stock, respectively (Note 5) -- -- 1,040 --
The notes to the consolidated financial statements are an integral part of these
statements.
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22
PERCEPTRON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
ACCUMULATED
OTHER ADDITIONAL RETAINED TOTAL
COMMON STOCK COMPREHENSIVE PAID-IN EARNINGS SHAREHOLDERS'
(In Thousands) SHARES AMOUNT INCOME CAPITAL (DEFICIT) EQUITY
--------------------------------------------------------------------------------
BALANCES, JANUARY 1, 1997 7,949 $ 80 $ (929) $ 39,560 $ 7,736 $ 46,447
Comprehensive income
Net income 10,806 10,806
Other comprehensive income
Foreign currency translation adjustments (1,482) (1,482)
---------
Total comprehensive income 9,324
---------
Stock options exercised, net of shares tendered 258 2 1,852 1,854
Tax benefit relating to stock option plans 87 87
Previously recorded stock option compensation
attributable to options exercised 167 167
---------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1997 8,207 $ 82 $ (2,411) $ 41,666 $18,542 $ 57,879
===========================================================================
Comprehensive income (loss)
Net loss (3,339) (3,339)
Other comprehensive income
Foreign currency translation adjustments 742 742
---------
Total comprehensive income (loss) (2,597)
---------
Stock options exercised, net of shares tendered 135 1 988 989
Tax benefit relating to stock option plans 223 223
Stock repurchased (123) (1) (1,641) (1,642)
---------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1998 8,219 $ 82 $ (1,669) $ 41,236 $15,203 $ 54,852
===========================================================================
Comprehensive income (loss)
Net loss (4,860) (4,860)
Other comprehensive income
Foreign currency translation adjustments (1,671) (1,671)
---------
Total comprehensive income (loss) (6,531)
---------
Stock repurchased (50) - (257) (257)
---------------------------------------------------------------------------
BALANCES, JUNE 30, 1999 8,169 $ 82 $ (3,340) $ 40,979 $10,343 $ 48,064
===========================================================================
Comprehensive income
Net income 1,857 1,857
Other comprehensive income
Foreign currency translation adjustments (383) (383)
---------
Total comprehensive income 1,474
---------
Stock plans 1 - 31 31
---------------------------------------------------------------------------
BALANCES, JUNE 30, 2000 8,170 $ 82 $ (3,723) $ 41,010 $12,200 $ 49,569
===========================================================================
The notes to the consolidated financial statements are an integral part of these
statements.
22
23
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
information-based measurement and inspection focused solutions for process
improvements primarily for the automotive and forest products industries.
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
On June 24, 1999, the Company elected to change its reporting period from a
calendar year ending December 31, to a fiscal year ending June 30. As a result,
the financial statements include the six-month transition period January 1, 1999
through June 30, 1999.
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. Certain amounts for prior
periods have been reclassified to conform to the current period presentation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
FOREIGN CURRENCY TRANSLATION
The financial statements of the Company's wholly-owned foreign subsidiaries have
been translated in accordance with Statement of Financial Accounting Standards
("SFAS") No. 52, with the functional currency being the local currency in the
foreign country. Under this standard, translation adjustments are accumulated in
a separate component of shareholders' equity. Gains and losses on foreign
currency transactions are included in the consolidated statement of income under
"Other Income and Deductions".
CONCENTRATION OF CREDIT RISK
The Company markets and sells its products primarily to automotive assembly
companies and to system integrators or original equipment manufacturers
("OEMs"), who in turn sell to automotive assembly companies. The Company also
markets and sells its forest products to lumber mills and to OEMs, who in turn,
sell to end-users. The Company's accounts receivable are principally from a
small number of large customers. The Company performs ongoing credit evaluations
of its customers. To date, the Company has not experienced any significant
losses related to the collection of accounts receivable.
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.
PROPERTY, EQUIPMENT AND INTANGIBLE ASSETS
Property and equipment are recorded at cost. Depreciation related to machinery
and equipment and furniture and fixtures is primarily computed on a
straight-line basis over estimated useful lives ranging from 3 to 10 years.
Depreciation on buildings is computed on a straight-line basis over 37 1/2
years. Intangible assets are being amortized generally over 5 years.
When assets are retired, the costs of such assets and related accumulated
depreciation or amortization are eliminated from the respective accounts, and
the resulting gain or loss is reflected in the consolidated statement of income.
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24
INVENTORIES
Inventories are stated at the lower of cost or market. The cost of inventories
is determined by the first-in, first-out ("FIFO") method. Inventories, net of
reserves, are comprised of the following (in thousands):
AT JUNE 30,
------------------------------------------ AT DECEMBER 31,
2000 1999 1998
--------------- ---------------- ---------------
Component parts $ 7,214 $ 6,553 $ 5,794
Work in process 1,204 1,683 2,235
Finished goods 4,164 4,087 3,336
--------------- ---------------- ---------------
Total $ 12,582 $ 12,323 $ 11,365
=============== ================ ===============
EARNINGS PER SHARE
Basic earnings per share ("EPS") is calculated by dividing net income by the
weighted average number of common shares outstanding during the period. Other
obligations, such as stock options and warrants, are considered to be
potentially dilutive common shares. Diluted EPS assumes the issuance of
potential dilutive common shares outstanding during the period and adjusts for
any changes in income and the repurchase of common shares that would have
occurred from the assumed issuance unless such effect is anti-dilutive. A
reconciliation of both calculations is shown below (in thousands, except per
share amounts).
NET INCOME WEIGHTED AVG. EARNINGS (LOSS)
(LOSS) COMMON SHARES PER SHARE
----------- ------------- ---------------
TWELVE MONTHS ENDED JUNE 30, 2000
Basic EPS $ 1,857 8,170 $ .23
Effect of dilutive securities:
Stock options and warrants - 29
--------------- ----------------
Diluted EPS $ 1,857 8,199 $ .23
=============== ================
SIX MONTHS ENDED JUNE 30, 1999
Basic EPS $ (4,860) 8,185 $ (.59)
Effect of dilutive securities:
Stock options and warrants - -
--------------- ----------------
Diluted EPS $ (4,860) 8,185 $ (.59)
================ ================
YEAR ENDED DECEMBER 31, 1998
Basic EPS $ (3,339) 8,239 $ (.41)
Effect of dilutive securities:
Stock options and warrants - -
--------------- ----------------
Diluted EPS $ (3,339) 8,239 $ (.41)
================ ================
YEAR ENDED DECEMBER 31, 1997
Basic EPS $ 10,806 8,065 $ 1.34
Effect of dilutive securities:
Stock options and warrants - 347
--------------- ----------------
Diluted EPS $ 10,806 8,412 $ 1.28
=============== ================
Options to purchase 1,161,000, 1,188,000 and 914,000 shares of common stock were
outstanding in the twelve months ended June 30, 2000, six months ended June 30,
1999 and year ended December 31, 1998, respectively, and were not included in
the computation of diluted EPS because the effect would have been anti-dilutive.
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. See also "New Accounting
Pronouncements" discussion in "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
RESEARCH AND DEVELOPMENT
Research and development costs, including software development costs, are
expensed as incurred.
24
25
IMPAIRMENT OF LONG-LIVED ASSETS AND CERTAIN IDENTIFIABLE INTANGIBLES
The Company evaluates the carrying value of long-lived assets and long-lived
assets to be disposed of for potential impairment on an ongoing basis. The
Company considers projected future operating results, trends and other
circumstances in making such estimates and evaluations.
FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments, which include cash,
marketable securities, accounts receivable, accounts payable, and amounts due to
banks or other lenders, approximate their fair values at June 30, 2000, June 30,
1999 and December 31, 1998. Fair values have been determined through information
obtained from market sources and management estimates.
2. LITIGATION EXPENSES
During the six months ended June 30, 1999, the Company expensed $671,000 of
legal expenses related to a civil action for which the Company was awarded a
favorable judgement (see Note 9). The Company is in the process of trying to
collect on this judgement.
3. MARKETABLE SECURITIES
The Company had no marketable securities at June 30, 2000 and June 30, 1999. In
1998 and 1997, proceeds from sales of available for sale securities were
$2,000,000 and $500,000, respectively; no gross gains or losses were realized on
those sales.
4. LEASES
The following is a summary, as of June 30, 2000, of the future minimum annual
lease payments required under the Company's operating leases having initial or
remaining non-cancelable terms in excess of one year (in thousands):
FISCAL YEAR OPERATING
----------- ---------
2001 $ 1,306
2002 967
2003 264
2004 172
2005 48
2006 and beyond 22
----------
Total minimum lease payments $ 2,779
==========
Rental expense for operating leases in the twelve months ended June 30, 2000,
six months ended June 30, 1999 and calendar years 1998 and 1997 was $1,428,000,
$725,000, $1,318,000, and $719,000, respectively.
5. INTANGIBLE ASSETS
In October 1998, the Company purchased the assets, including ultrasound
intellectual property, of Sonic Industries, Inc. and Sonic Technologies, Inc.
("Sonic") and assumed certain liabilities and long-term debt (see Note 6).
Intangible assets, including goodwill, totaled $1,848,000 and are being
amortized over five years.
During 1998, the Company developed a new suite of non-contact three-dimensional
measurement technologies, which superseded certain existing technologies
recorded as intangible assets. As a result, the carrying value of these
intangible assets was evaluated for impairment. This evaluation resulted in a
write-off of intangible assets with a net book value of $1,472,000 in 1998.
6. SHORT-TERM AND LONG-TERM NOTES PAYABLE
At June 30, 2000, the Company's principal bank had agreed to provide short-term
unsecured credit facilities of 1.0 million Deutsche marks and $1.0 million
Canadian dollars. The facilities may be used to finance working capital needs
and equipment purchases or capital leases. Any borrowings will bear interest at
the bank's prime rate (9.5% as of August 31, 2000). The credit facilities expire
on July 31, 2001, unless canceled earlier by the Company or the bank. The
Company had no borrowings outstanding under these credit facilities at June 30,
2000.
25
26
In June 2000, the Company renewed its long-term $15 million unsecured Revolving
Credit Agreement (Revolver) that expires on July 31, 2002. Proceeds under the
Revolver may be used for general corporate purposes and can be designated as a
Floating Rate Loan or as a Eurodollar Rate Loan. Interest on Floating Rate
borrowings is calculated daily at 1/2% below the bank's prime rate (9.5% as of
August 31, 2000) and is payable on the last day of each month. Interest on
Eurodollar Rate borrowings is calculated at a Eurodollar Rate for the period
chosen (approximately 7.9% as of August 31, 2000) and is payable on the last day
of the applicable period. Quarterly, the Company pays a commitment fee of 1/4%
per annum on the daily unused portion of the Revolver. The Revolver prohibits
the Company from paying dividends. In addition, the Revolver contains various
financial covenants that, among other things, restrict dividend payments by
requiring the Company to maintain a Fixed Charge Coverage Ratio and a Total
Liabilities to Tangible Net Worth Ratio and require the Company to maintain
certain levels of earnings before interest, depreciation and amortization, and
taxes. The Company had $3.6 million outstanding under the Revolver at June 30,
2000.
In conjunction with the Company's October 1, 1998 purchase of Sonic assets,
discussed in Note 5, the Company assumed a long-term note payable totaling
$1,040,000. The note is payable in full on November 1, 2003 and requires
quarterly payments of interest at 7.5% per annum on the outstanding principal
balance. The note may be prepaid without penalty in whole or in part at anytime.
7. COMMITMENTS AND OTHER
As part of the purchase of the Sonic intellectual property (see Note 5), the
Company agreed to pay contingent royalty payments on sales using the Sonic
technology over a five-year period beginning October 1, 1998. The maximum total
amount of royalties is capped at $6 million on sales of $90 million. The Company
has prepaid approximately $1.9 million of the contingent royalty payments
generally through the assumption of liabilities in connection with the
acquisition of the Sonic assets. These prepaid royalties generally offset the
first contingent royalties due.
The Company has received a NIST-ATP award to participate in a joint venture to
develop a robot guidance system for powertrain assembly automation. The
Company's in-kind development contribution is approximately $500,000 over a
four-year period that began in 1998. The joint venture is administered by the
National Center for Manufacturing Sciences and includes a major automotive
manufacturer.
In late 1995, Autospect received a $1.8 million NIST grant that provided funding
over three years for development of a system to measure the thickness of wet
film (e.g. paint). During 1998, 1997 and 1996, the Company recorded
reimbursements of $800,000, $600,000 and $400,000, respectively, which offset
the related costs. Prototype testing was completed in 1998 and the first phase
of the system was installed in a manufacturing environment in 1999. A second
phase of the system was installed in 2000 and is undergoing advanced testing.
The Company may use, from time to time, a limited hedging program to minimize
the impact of foreign currency fluctuations. As the Company exports product, it
may enter into limited hedging transactions relating to the accounts receivable
arising as a result of such shipment. These transactions involve the use of
forward contracts. At June 30, 2000, June 30, 1999 and December 31, 1998, the
Company had no forward contracts outstanding.
8. INFORMATION ABOUT MAJOR CUSTOMERS
The Company sells its products directly to both domestic and international
automotive assembly companies. During the twelve months ended June 30, 2000, 35%
of net sales were derived from three automotive companies. During the six months
ended June 30, 1999, and calendar years 1998 and 1997, 25%, 22% and 38% of net
sales, respectively, were derived from these same three automotive companies.
The Company also sells to system integrators or OEMs, who in turn sell to these
same automotive companies. For the twelve months ended June 30, 2000, six months
ended June 30, 1999 and for the years ended December 31, 1998 and 1997,
approximately 11%, 8%, 13% and 17% of net sales, respectively, were to system
integrators and OEMs for the benefit of the same three automotive companies. In
the twelve months ended June 30, 2000, the Company had sales to DaimlerChrysler
and General Motors, each of which exceeded 10% of the Company's total net sales.
9. CONTINGENCIES
The Company may, from time to time, be subject to legal proceedings and claims.
Litigation involves many uncertainties. Management is currently unaware of any
significant pending litigation affecting the Company, other than the matters
discussed below.
On December 11, 1998, a jury in a civil case in the U.S. District Court for the
Eastern District of Michigan returned a favorable judgement for the Company and
awarded damages of over $732,000. The suit, filed by the Company in June 1996,
charged Sensor Adaptive Machines, Inc. ("SAMI") with violation of a covenant not
to compete. SAMI filed counterclaims against the Company alleging, in part, that
the Company was engaged in unlawful monopolization and tortious interference
with business
26
27
practice and sought damages. In response to a motion for summary disposition
filed by the Company, the counterclaim for unlawful monopolization was dismissed
by the court in June 1998. The jury found that the remaining counterclaims were
without merit. On March 4, 1999, the Company's motion for interest was granted.
SAMI's appeal of the judgement including the counterclaims against the Company
was denied by the U.S. Court of Appeals for the Sixth Circuit. The Company has
instituted legal action to collect the judgement. SAMI is subject to bankruptcy
proceedings in Canada.
On September 25, 1998, the U.S. District Court for the Eastern District of
Michigan dismissed, with prejudice, a suit filed against the Company by Speroni,
S.p.A. ("Speroni"). Speroni has appealed the dismissal. The appeal has been
stayed pending the arbitration decision discussed below. The suit alleged
tortious interference in conjunction with exclusive distributorship contracts
covering the sale of P-1000 products in Italy and France between Perceptron
B.V., a wholly-owned subsidiary of the Company, and Speroni. Speroni sought
unspecified compensatory damages and punitive damages. Perceptron B.V.
terminated the exclusive distributorship contracts in 1997 for breach of
contract by Speroni and has sought arbitration of this matter with the
International Chamber of Commerce International Court of Arbitration ("ICC"), to
confirm the terminations and to award damages. Speroni has filed counterclaims
with the ICC alleging breach of the exclusive distributorship contracts and
seeking damages of $6.5 million. Arbitration hearings have been conducted and
Perceptron B.V. is awaiting the decision of the arbitrator. The Company intends
to vigorously pursue its claims and defend Speroni's claims.
The Company is a party to a suit filed by Analog Technologies, Inc. ("Analog")
on October 8, 1999 in the Circuit Court for the County of Oakland, Michigan. The
suit alleges that the Company breached a non-disclosure agreement and
misappropriated Analog's confidential information and trade secrets in
connection with the Company's development of a potential new product. The
potential new product involved is one of a number of new products under
development by the Company, which have not been discussed in the Company's
filings with the Securities and Exchange Commission. On February 15, 2000, the
Oakland County Circuit Court denied Analog's motion for preliminary injunction
against the Company. Analog also seeks unspecified compensatory damages in
excess of $25,000. The Company believes that Analog's claims are without merit
and intends to vigorously defend Analog's claims.
The Company has been informed that certain of its customers have received
allegations of possible patent infringement involving processes and methods used
in the Company's products. Certain of these customers, including one customer
who was a party to a patent infringement suit relating to this matter, have
settled such claims. Management believes, however, that the processes used in
the Company's products were independently developed without utilizing any
previously patented process or technology. Because of the uncertainty
surrounding the nature of any possible infringement and the validity of any such
claim or any possible customer claim for indemnity relating to claims against
these customers, it is not possible to estimate the ultimate effect, if any, of
this matter on the Company's financial position.
10. 401(K) PLAN
The Company has a 401(k) tax deferred savings plan that covers all eligible
employees. The Company may make discretionary contributions to the plan. The
Company's contributions during the twelve months ended June 30, 2000, six months
ended June 30, 1999, and the calendar years 1998 and 1997, were $456,000,
$218,000, $439,000 and $361,000, respectively.
11. STOCK OPTION PLANS
The Company maintains 1992 and 1998 Stock Option Plans covering substantially
all company employees and certain other key persons and a Director Stock Option
Plan covering all non-employee directors. The 1992 and Director Plans are
administered by a committee of the Board of Directors. The 1998 Plan is
administered by the President of the Company. Activity under these Plans is
shown in the following table:
TWELVE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, 2000 JUNE 30, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
-------------------- -------------------- ------------------- ------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE
--------------------------------------------------------------------------------------------
Shares subject to option
Outstanding at beginning of period 1,286,391 $ 17.56 1,239,186 $ 19.14 1,088,765 $ 21.39 1,061,511 $ 16.04
New grants (based on fair value of
common stock at dates of grant) 375,625 3.92 148,200 4.91 397,399 8.72 310,927 27.81
Exercised - - - - (134,931) 7.28 (258,653) 7.92
Terminated and expired (316,758) 13.22 (100,995) 18.28 (112,047) 22.89 (25,020) 16.60
Outstanding at end of period 1,345,258 14.77 1,286,391 17.56 1,239,186 19.14 1,088,765 21.39
Exercisable at end of period 669,410 20.88 525,054 22.46 468,824 23.00 313,180 19.04
27
28
The following table summarizes information about stock options at June 30, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------- ------------------------------
WEIGHTED AVERAGE
RANGE OF REMAINING WEIGHTED AVERAGE WEIGHTED AVERAGE
EXERCISE PRICES SHARES CONTRACTUAL LIFE EXERCISE PRICE SHARES EXERCISE PRICE
- ------------------- ----------- ------------------ ----------------- ---------- -----------------
$ 3.27 to $ 4.65 379,250 9.02 years $ 4.025 31,086 $ 4.386
$ 5.05 to $ 11.00 340,570 7.64 years $ 7.099 130,237 $ 8.107
$ 11.42 to $ 25.79 380,063 6.07 years $ 22.797 324,093 $ 22.530
$ 25.88 to $ 36.50 245,375 6.56 years $ 29.603 183,994 $ 29.791
- -------------------- --------- ---------------- -------------- ---------- ---------------
$ 3.27 to $ 36.50 1,345,258 7.39 years $ 14.772 669,410 $ 20.877
- -------------------- --------- ---------------- -------------- ---------- ---------------
Option prices for options granted under these Plans must not be less than fair
market value of the Company's stock on the date of grant. At June 30, 2000,
options covering 669,410 shares were exercisable and options covering 1,016,591
shares were available for future grants under these plans.
Options outstanding under the 1992 and 1998 Stock Option Plans generally become
exercisable at 25% per year beginning one year after the date of grant and
expire ten years after the date of grant. Options outstanding under the Director
Stock Option Plan are either an initial option or an annual option. Initial
options of 15,000 shares are granted as of the date the non-employee director is
first elected to the Board of Directors and become exercisable in full on the
first anniversary of the date of grant. Annual options are granted as of the
date of the respective annual meeting to each non-employee director serving at
least six months prior to the annual meeting and become exercisable in three
annual increments of 33 1/3% after the date of grant and expire ten years from
the date of grant. In 1999, the Directors Stock Option Plan was amended to
increase the amount of the annual options from 1,500 to 3,000 shares of Common
Stock for grants beginning in the year 2000, to eliminate the annual option
grant for 1,500 shares in 1999 and to provide for a one time grant to each
Director at the time of the 1999 Annual Meeting an additional option to purchase
10,000 shares of Common Stock.
The estimated fair value as of the date options were granted during the twelve
months ended June 30, 2000, six months ended June 30, 1999 and calendar years
1998 and 1997, using the Black-Scholes option-pricing model was as follows:
TWELVE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, 2000 JUNE 30, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
-------------------- -------------------- ------------------- ------------------
Weighted average estimated fair
value per share of options
granted during the year $ 3.44 $ 3.96 $ 5.57 $ 12.82
Assumptions:
Amortized dividend yield - - - -
Common stock price volatility 96.85% 94.17% 73.69% 42.57%
Risk-free rate of return 6.75% 6.00% 4.25% 6.20%
Expected option term (in years) 5 5 5 5
The Company adopted the disclosure requirements of Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation," effective with the 1996 financial statements, but elected to
continue to measure compensation cost using the intrinsic value method, in
accordance with APB Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to
Employees." Accordingly, compensation cost for stock options has been recognized
under the provisions of APB 25. If compensation cost had been determined based
on the estimated fair value of options granted during the twelve months ended
June 30, 2000, six months ended June 30, 1999 and years 1998 and 1997,
consistent with the methodology in SFAS 123, the Company's net income and income
per share would have been adjusted to the pro forma amounts indicated below (in
thousands except per share amounts):
TWELVE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, 2000 JUNE 30, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
-------------------- -------------------- ------------------- ------------------
Net income (loss)
As reported $ 1,857 $ (4,860) $ (3,339) $ 10,806
Pro forma $ (111) $ (6,062) $ (5,377) $ 8,379
Earnings (loss) per share - diluted
As reported $ .23 $ (.59) $ (.41) $ 1.28
Pro forma $ (.01) $ (.74) $ (.65) $ 1.00
28
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12. INCOME TAXES
Income before income taxes for U.S. and foreign operations was as follows (in
thousands):
TWELVE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, 2000 JUNE 30, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
-------------------- -------------------- ------------------- ------------------
U.S. $ 58 $ (8,289) $ (7,881) $ 9,070
Foreign 3,236 940 2,738 6,939
---------- ---------- ---------- ----------
Total $ 3,294 $ (7,349) $ (5,143) $ 16,009
========== ========== =========== ==========
The income tax provision (benefit) reflected in the statement of income consists
of the following (in thousands):
TWELVE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, 2000 JUNE 30, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
-------------------- -------------------- ------------------- ------------------
Current provision (benefit):
U.S. federal $ 70 $ - $ - $ 2,591
Foreign 1,367 389 1,366 1,227
Deferred taxes - (2,878) (3,170) 1,385
---------- ----------- ----------- ----------
Total provision (benefit) $ 1,437 $ (2,489) $ (1,804) $ 5,203
========== =========== =========== ==========
The Company's deferred tax assets are substantially represented by the tax benefit of net operating losses and the tax benefit of
future deductions represented by reserves for bad debts, warranty expenses and inventory obsolescence. The components of deferred
tax assets were as follows (in thousands):
AT AT AT AT
JUNE 30, 2000 JUNE 30, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
-------------------- -------------------- ------------------- ------------------
Benefit of net operating losses $ 3,229 $ 4,892 $ 2,202 $ -
Other, principally reserves (734) 65 175 180
---------- ---------- ---------- ----------
Deferred tax asset $ 2,495 $ 4,957 $ 2,377 $ 180
========== ========== ========== ==========
TWELVE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED TWELVE MONTHS ENDED
Rate reconciliation: JUNE 30, 2000 JUNE 30, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
-------------------- -------------------- ------------------- ------------------
Provision at U.S. statutory rate 34.0% (34.0%) (34.0%) 34.0%
Net effect of taxes on foreign
activities 9.6% 0.1% (1.0%) (1.5%)
--------- ---------- ---------- ----------
Effective tax rate 43.6% (33.9%) (35.0%) 32.5%
========= ========== ========== ==========
No provision was made with respect to retained earnings as of June 30, 2000 that
have been retained for use by foreign subsidiaries. It is not practicable to
estimate the amount of unrecognized deferred tax liability for the undistributed
foreign earnings. At June 30, 2000, the Company had net operating losses for
Federal income tax purposes of $3,229,000 that expire in 2020 and 2021.
13. SEGMENT AND GEOGRAPHIC INFORMATION
The Company has two reportable segments: Automotive and Industrial Businesses.
The Automotive Business segment designs, manufactures, and markets
information-based measurement and inspection focused solutions for process
improvements within the automotive industry. The Industrial Businesses segment
uses the same technology and contains the Forest Products business unit and the
Emerging Markets business unit. The accounting policies of the segments are the
same as those described in the summary of significant policies. The Company
evaluates performance based on operating income. Company-wide costs are
allocated based on revenues and/or labor as deemed appropriate. The Company
primarily accounts for geographic sales and transfers based on cost plus a
transfer fee and/or royalty fees.
29
30
The Company's reportable segments are strategic business units that offer
similar products and services to different industries. They have separate
management teams because each business unit requires different marketing
strategies. The business units were created as a result of a combination of
existing businesses and acquisitions.
REPORTABLE SEGMENTS ($000'S) AUTOMOTIVE INDUSTRIAL BUSINESSES CONSOLIDATED
---------------- --------------------- ---------------
TWELVE MONTHS ENDED JUNE 30, 2000
Net sales $ 55,473 $ 14,348 $ 69,821
Depreciation and amortization 1,676 617 2,293
Operating (loss) 7,081 (3,422) 3,659
Assets 57,190 9,037 66,227
Capital expenditures 1,228 228 1,456
SIX MONTHS ENDED JUNE 30, 1999
Net sales $ 17,977 $ 3,279 $ 21,256
Depreciation and amortization 977 296 1,273
Operating (loss) (3,357) (3,303) (6,660)
Assets 53,370 7,964 61,334
Capital expenditures 754 241 995
TWELVE MONTHS ENDED DECEMBER 31, 1998
Net sales $ 39,555 $ 10,080 $ 49,635
Depreciation and amortization 2,191 297 2,488
Operating (loss) (4,425) (1,351) (5,776)
Assets 58,654 7,754 66,408
Capital expenditures 2,080 320 2,400
TWELVE MONTHS ENDED DECEMBER 31, 1997
Net sales $ 55,472 $ 9,630 $ 65,102
Depreciation and amortization 1,645 109 1,754
Operating income 14,452 409 14,861
Assets 63,785 4,357 68,142
Capital expenditures 2,195 161 2,356
The Company operates in two primary geographic areas: Domestic (United States) and International (primarily Europe, with limited
operations in Canada, Asia and South America).
GEOGRAPHIC REGIONS ($000'S) DOMESTIC INTERNATIONAL(1) CONSOLIDATED
---------------- -------------------- ---------------------
TWELVE MONTHS ENDED JUNE 30, 2000
Net external sales $ 53,397 $ 16,425 $ 69,821
Identifiable assets 47,424 18,803 66,227
SIX MONTHS ENDED JUNE 30, 1999
Net external sales $ 12,416 $ 8,840 $ 21,256
Identifiable assets 42,366 18,968 61,334
TWELVE MONTHS ENDED DECEMBER 31, 1998
Net external sales $ 34,731 $ 14,904 $ 49,635
Identifiable assets 49,080 17,328 66,408
TWELVE MONTHS ENDED DECEMBER 31, 1997
Net external sales $ 49,484 $ 15,618 $ 65,102
Identifiable assets 52,897 15,245 68,142
- ------------------------------------------
(1) The Company's German subsidiary had net external sales of $13.3 million,
$5.8 million, $11.0 million and $10.2 million in the twelve months ended
June 30, 2000, six months ended June 30, 1999 and twelve months ended
December 31, 1998 and 1997, respectively. Total assets of the Company's
German subsidiary were $10.5 million, $11.5 million, $10.7 million and
$9.6 million as of June 30, 2000, June 30, 1999, December 31, 1998 and
December 31, 1997, respectively.
30
31
14. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected unaudited quarterly financial data for the fiscal years ended June 30,
2000 and 1999, are as follows (in thousands, except per share amounts):
QUARTER ENDED
----------------------------------------------------------------------
FISCAL YEAR 2000 9-30-99 12-31-99 3-31-00 6-30-00
--------- ---------- ---------- ------------
Net sales $ 18,471 $ 18,533 $ 13,721 $ 19,096
Gross profit 10,382 10,270 7,503 10,434
Net income (loss) 1,128 959 (447) 217
Basic earnings (loss) per share .14 .12 (.05) .03
Diluted earnings (loss) per share .14 .12 (.05) .03
FISCAL YEAR 1999 9-30-98 12-31-98 3-31-99 6-30-99
--------- ---------- ---------- ------------
Net sales $ 14,482 $ 16,843 $ 8,934 $ 12,322
Gross profit 8,043 9,692 4,237 6,251
Net income (loss) 389 (557)b (2,631) (2,229)a
Basic earnings (loss) per share .05 (.07) (.32) (.27)
Diluted earnings (loss) per share .05 (.07) (.32) (.27)
- ---------------------------------------------
(a) The quarter ended June 30, 1999 includes unusual litigation expenses of
$671,000 (see Note 2) and bad debt expenses for final resolution of aged
accounts receivable primarily related to the Company's Autospect and
Trident operations.
(b) In the quarter ended December 31, 1998, the Company wrote-off $1,472,000 of
intangible assets (see Note 5).
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
No response to Item 9 is required.
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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 2000 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
33
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K
A. Financial Statements and Schedules Filed
1. Financial Statements - see Item 8 of this report.
2. Financial Statement Schedule - the schedule filed with this
report is listed on page 35.
3. Exhibits - the exhibits filed with this report are listed on
pages 37 through 40.
B. Reports on Form 8-K: The Company's current report on Form 8-K,
dated July 25, 2000, which disclosed information under Item 5
concerning the Company's selection of Monday, December 4,
2000, as the date for the Annual Meeting of Shareholders.
33
34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Annual Report on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized.
PERCEPTRON, INC.
(Registrant)
By: /S/ Alfred A. Pease
-----------------------------------
Alfred A. Pease, Chairman, President
and Chief Executive Officer
Date: September 22, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
/S/ Alfred A. Pease Chairman of the Board, September 22, 2000
- ------------------------------------
Alfred A. Pease President, Chief Executive Officer
/S/ John J. Garber Vice President and Chief September 22, 2000
- ------------------------------------
John J. Garber Financial Officer (Principal Financial Officer)
/S/ Sylvia M. Smith Controller (Principal Accounting Officer) September 22, 2000
- ------------------------------------
Sylvia M. Smith
/S/ David J. Beattie Director September 22, 2000
- ------------------------------------
David J. Beattie
/S/ Kenneth R. Dabrowski Director September 22, 2000
- ------------------------------------
Kenneth R. Dabrowski
/S/ Philip J. DeCocco Director September 22, 2000
- ------------------------------------
Philip J. DeCocco
/S/ W. Richard Marz Director September 22, 2000
- ------------------------------------
W. Richard Marz
/S/ Robert S. Oswald Director September 22, 2000
- ------------------------------------
Robert S. Oswald
/S/ Terryll R. Smith Director September 22, 2000
- ------------------------------------
Terryll R. Smith
34
35
PERCEPTRON, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS SCHEDULE
Financial Statements Schedule:
Designation Description Page
- ----------- ----------- ----
Schedule II Valuation and qualifying accounts 36
The schedules not filed are omitted because they are not required, the
information required to be contained therein is disclosed elsewhere in the
financial statements or the amounts involved are not sufficient to require
submission.
35
36
PERCEPTRON, INC. AND SUBSIDIARIES
SCHEDULE II, VALUATION AND QUALIFYING ACCOUNTS
CHARGED TO
BEGINNING COSTS AND ENDING
BALANCE EXPENSE CHARGE-OFFS BALANCE
---------- ---------- ----------- -------
DECEMBER 31, 1997
Allowance for doubtful accounts $ 108,000 $ 104,000 $ 37,000 $ 175,000
Inventory reserves $ 860,000 $ 0 $ 0 $ 860,000
DECEMBER 31, 1998
Allowance for doubtful accounts $ 175,000 $ 98,000 $ 73,000 $ 200,000
Inventory reserves $ 860,000 $ 47,000 $ 388,000 $ 519,000
JUNE 30, 1999(1)
Allowance for doubtful accounts $ 200,000 $ 458,000 $ 440,000 $ 218,000
Inventory reserves $ 519,000 $ 245,000 $ 164,000 $ 600,000
JUNE 30, 2000
Allowance for doubtful accounts $ 218,000 $ 194,000 $ 144,000 $ 268,000
Inventory reserves $ 600,000 $ 1,039,000 $ 439,000 $ 1,200,000
(1) In 1999, the Company elected to change its reporting period from a calendar
year ending December 31 to a fiscal year ending June 30. As a result, 1999
represents a six-month transition period.
36
37
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBITS
3. Restated Articles of Incorporation and Bylaws.
3.1 Restated Articles of Incorporation, as amended to date, are
incorporated herein by reference to Exhibit 3.1 of the
Company's Report on Form 10-Q for the Quarter Ended March 31,
1998.
3.2 Bylaws, as amended to date, are incorporated herein by
reference to Exhibit 19 of the Company's Report on Form 10-Q
for the Quarter Ended September 30, 1992.
4. Instruments Defining the Rights of Securities Holders.
4.1 Articles IV, V and VI of the Company's Restated Articles of
Incorporation are incorporated herein by reference to Exhibit
3.1 of the Company's Report on Form 10-Q for the Quarter Ended
March 31, 1998.
4.2 Articles I, II, III, VI, VII, X and XI 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 Agreement, dated May 28, 1999, between Perceptron, Inc.
and Bank One, Michigan and First Amendment to Credit
Agreement, dated August 24, 1999 are incorporated herein by
reference to Exhibit 4.3 of the Company's Report on Form 10-K
for the Transition year ended June 30, 1999.
Other instruments, notes or extracts from agreements defining
the rights of holders of long-term debt of the Company or its
subsidiaries have not been filed because (i) in each case the
total amount of long-term debt permitted thereunder does not
exceed 10% of the Company's consolidated assets, and (ii) the
Company hereby agrees that it will furnish such instruments,
notes and extracts to the Securities and Exchange Commission
upon its request.
4.4 Form of certificate representing Rights (included as Exhibit B
to the Rights Agreement filed as Exhibit 4.5) is incorporated
herein by reference to Exhibit 2 of the Company's Report on
Form 8-K filed March 24, 1998. Pursuant to the Rights
Agreement, Rights Certificates will not be mailed until after
the earlier of (i) the tenth business day after the Shares
Acquisition Date (or, if the tenth day after the Shares
Acquisition Date occurs before the Record Date, the close of
business on the Record Date) (or, if such Shares Acquisition
Date results from the consummation of a Permitted Offer, such
later date as may be determined before the Distribution Date,
by action of the Board of Directors, with the concurrence of a
majority of the Continuing Directors), or (ii) the tenth
business day (or such later date as may be determined by the
Board of Directors, with the concurrence of a majority of the
Continuing Directors, prior to such time as any person becomes
an Acquiring Person) after the date of the commencement of, or
first public announcement of the intent to commence, a tender
or exchange offer by any person or group of affiliated or
associated persons (other than the Company or certain entities
affiliated with or associated with the Company), other than a
tender or exchange offer that is determined before the
Distribution Date to be a Permitted Offer, if, upon
consummation thereof, such person or group of affiliated or
associated persons would be the beneficial owner of 15% or
more of such outstanding shares of Common Stock.
4.5 Rights Agreement, dated as of March 24, 1998, between
Perceptron, Inc. and American Stock Transfer & Trust Company,
as Rights Agent, is incorporated herein by reference to
Exhibit 2 of the Company's Report on Form 8-K filed March 24,
1998.
37
38
4.6* Second Amendment to Credit Agreement, dated May 28, 1999,
between Perceptron, Inc. and Bank One, Michigan dated June 30,
2000.
10. Material Contracts.
10.1 Registration Agreement, dated as of June 13, 1985, as amended,
among the Company and the Purchasers identified therein, is
incorporated by reference to Exhibit 10.3 of the Company's
Form S-1 Registration Statement (amended by Exhibit 10.2) No.
33-47463.
10.2 Patent License Agreement, dated as of August 23, 1990, between
the Company and Diffracto Limited, is incorporated herein by
reference to Exhibit 10.10 of the Company's Report on Form S-1
Registration Statement No. 33-47463.
10.3 Form of Proprietary Information and Inventions Agreement
between the Company and all of the employees of the Company is
incorporated herein by reference to Exhibit 10.11 of the
Company's Form S-1 Registration Statement No. 33-47463.
10.4 Form of Confidentiality and Non-Disclosure Agreement between
the Company and certain vendors and customers of the Company
is incorporated herein by reference to Exhibit 10.12 of the
Company's Form S-1 Registration Statement No. 33-47463.
10.5 Two Forms of Agreement Not to Compete between the Company and
certain officers of the Company, is incorporated herein by
reference to Exhibit 10.50 of the Company's Report on Form
10-Q for the Quarter Ended June 30, 1996.
10.6@ Form of Non-Qualified Stock Option Agreements under 1998
Global Team Member Stock Option Plan after September 1, 1998
is incorporated by reference to Exhibit 10.6 of the Company's
Report on Form 10-K for the Year Ended December 31, 1998.
10.7@ Amended and Restated 1992 Stock Option Plan is incorporated
herein by reference to Exhibit 10.53 of the Company's Report
on Form 10-Q for the Quarter Ended September 30, 1996.
10.8@ First Amendment to Amended and Restated 1992 Stock Plan is
incorporated by reference to Exhibit 10.39 of the Company's
Report on Form 10-Q for the Quarter Ended March 31, 1997.
10.9@ Form of Stock Option Agreements for July 1993 Stock Option
Grants is incorporated herein by reference to Exhibit 10.23 of
the Company's Report on Form 10-Q for the Quarter Ended
September 30, 1993, and Exhibit 10.32 of the Company's Report
on Form 10-Q for the Quarter Ended March 31, 1994.
10.10@ Form of Stock Option Agreements for Performance Options is
incorporated herein by reference to Exhibit 10.27 of the
Company's Annual Report on Form 10-K for the Year Ended
December 31, 1993. The performance standards under these
options were waived effective March 2, 1994.
10.11@ First Amendments to Stock Option Agreements for Performance
Options is incorporated herein by reference to Exhibit 10.20
of the Company's Annual Report on Form 10-K for the Year Ended
December 31, 1994.
10.12@ Form of Stock Option Agreements under 1992 Stock Option Plan,
(Team Members and Officers) prior to February 9, 1995, is
incorporated herein by reference to Exhibit 10.28 of the
Company's Annual Report on Form 10-K for the Year Ended
December 31, 1993.
10.13@ Forms of Master Amendments to Stock Option Agreements (Team
Members and Officers) under 1992 Stock Option Plan, prior to
February 9, 1995 is incorporated herein by reference to
Exhibit 10.22 to the Company's Annual Report on Form 10-K for
the Year Ended December 31, 1994.
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10.14@ Forms of Incentive Stock Option Agreements (Team Members and
Officers) under 1992 Stock Option Plan after February 9, 1995
is incorporated by reference to Exhibit 10.23 to the Company's
Annual Report on Form 10-K for the Year Ended December 31,
1994.
10.15@ Forms of Incentive Stock Option Agreements (Team Members and
Officers) and Non-Qualified Stock Option Agreements under 1992
Stock Option Plan after January 1, 1997, and Amendments to
existing Stock Option Agreements under the 1992 Stock Option
Plan is incorporated by reference to Exhibit 10.22 to the
Company's Annual Report on Form 10-K for the Year Ended
December 31, 1996.
10.16@ Incentive Stock Option Agreement, dated February 14, 1996,
between the Company and Alfred A. Pease is incorporated by
reference to Exhibit 10.29 of the Company's Annual Report on
From 10-K for the Year Ended December 31, 1995.
10.17@ Non-Qualified Stock Option Agreement, dated February 14, 1996,
between the Company and Alfred A. Pease is incorporated by
reference to Exhibit 10.30 of the Company's Annual Report on
Form 10-K for the Year Ended December 31, 1995.
10.18@ Amended and Restated Directors Stock Option Plan is
incorporated by reference to Exhibit 10.56 to the Company's
Report on Form 10-Q for the Quarter Ended September 30, 1996.
10.19@ Form of Non-Qualified Stock Option Agreements and Amendments
under the Director Stock Option Plan is incorporated by
reference to Exhibit 10.27 to the Company's Annual Report on
Form 10-K for the Year Ended December 31, 1996.
10.20@ 1998 Global Team Member Stock Option Plan and Form of
Non-Qualified Stock Option Agreements under such Plan is
incorporated herein by reference to Exhibit 10.20 to the
Company's Annual Report on Form 10-K for the Year Ended
December 31, 1997.
10.21@ 1996 Management Bonus Plan is incorporated herein by reference
to Exhibit 10.34 to the Company's Annual Report on Form 10-K
for the Year Ended December 31, 1996.
10.22@ 1997 Management Bonus Plan is incorporated herein by reference
to exhibit 10.23 to the Company's Annual Report on Form 10-K
for the Year Ended December 31, 1997.
10.23@ Amended and Restated Employee Stock Purchase Plan is
incorporated by reference to Exhibit 10.54 of the Company's
Report on Form 10-Q for the Quarter Ended September 30, 1996.
10.24@ Letter Agreement, dated February 14, 1996, between the Company
and Alfred A. Pease is incorporated herein by reference to
Exhibit 10.36 to the Company's Annual Report on Form 10-K for
the Year Ended December 31, 1996.
10.25@ Forms of Incentive Stock Option Agreements (Officers) and
Non-Qualified Stock Option Agreements (Officers) under 1992
Stock Option Plan after September 1, 1998 is incorporated by
reference to Exhibit 10.25 of the Company's Report on Form
10-K for the Year Ended December 31, 1998.
10.26@ Second Amendment to Amended and Restated 1992 Stock Option
Plan is incorporated by reference to Exhibit 10.26 of the
Company's Report on Form 10-Q for the Quarter Ended March 31,
1999.
10.27@ First Amendment to Amended and Restated Directors Stock Option
Plan is incorporated by reference to Exhibit 10.27 of the
Company's Report on Form 10-Q for the Quarter Ended March 31,
1999.
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40
10.28@ First Amendment to the 1998 Global Team Member Stock Option
Plan is incorporated by reference to Exhibit 10.28 of the
Company's Report on Form 10-K for the Transition Period Ended
June 30, 1999.
10.29@ Second Amendment to the 1998 Global Team Member Stock Option
Plan is incorporated by reference to Exhibit 10.29 of the
Company's Report on Form 10-K for the Transition Period Ended
June 30, 1999.
10.30@ Forms of Incentive Stock Option Agreements (Officers) and
Non-Qualified Stock Option Agreements (Officers) under 1992
Stock Option Plan after September 1, 1999 is incorporated by
reference to Exhibit 10.30 of the Company's Report on Form
10-Q for the Quarter Ended September 30, 1999.
10.31@ Forms of Non-Qualified Stock Option Agreements under 1998
Global Team Member Stock Option Plan after September 1, 1999
is incorporated by reference to Exhibit 10.31 of the Company's
Report on Form 10-Q for the Quarter Ended September 30, 1999.
10.32@ Forms of Non-Qualified Stock Option Agreements under the
Directors Stock Option Plan after September 1, 1999 is
incorporated by reference to Exhibit 10.32 of the Company's
Report on Form 10-Q for the Quarter Ended December 31, 1999.
10.33@ Second Amendment to the Perceptron, Inc. Directors Stock
Option Plan (Amended and Restated October 31, 1996) is
incorporated by reference to Exhibit 10.33 of the Company's
Report on Form 10-Q for the Quarter Ended March 31, 2000.
10.34*@ 2000 Management Bonus Plan.
21. A list of subsidiaries of the Company is incorporated by
reference to Exhibit 21 of the Company's Report on Form 10-K
for the Transition Period Ended June 30, 1999.
23.* Consent of Experts.
27.* Financial Data Schedule.
- -------------------------------
* Filed with the Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 2000.
@ Indicates a management contract, compensatory plan or
arrangement.
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UNDERTAKING
The Company will furnish any exhibit to this report on Form 10-K to a
shareholder upon payment of a fee of $.10 per page for photocopying, postage and
handling expenses and upon written request made to:
Investor Relations
Perceptron, Inc.
47827 Halyard Drive
Plymouth, MI 48170-2461
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