SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) of the Securities Exchange
Act of 1934 for the Year Ended December 31, 2001.
[ ] TRANSITION PURSUANT TO SECTION 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from ______ to ______.
COMMISSION FILE NO. (0-16577)
CYBEROPTICS CORPORATION
-----------------------
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1472057
--------------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5900 Golden Hills Drive
MINNEAPOLIS, MINNESOTA 55416
------------------------------------------ -----------------
(Address of principal executive offices) (Zip Code)
(763) 542-5000
-------------------------------------------------------
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE EXCHANGE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE EXCHANGE ACT:
COMMON STOCK, NO PAR VALUE
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 ___.
As of March 27, 2002, the aggregate market value of the registrant's Common
Stock, no par value, held by non-affiliates of the registrant was $76,627,251
(based on the closing sale price of common stock as of March 27, 2002 as quoted
on the Nasdaq National Market).
As of March 27, 2002, there were 8,134,826 shares of the registrant's Common
Stock, no par value, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
The responses to items 10, 11, 12 and 13 herein are incorporated by reference to
certain information in the Company's Definitive Proxy Statement for its Annual
Meeting of Shareholders to be held May 17, 2002.
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 the
Form 10-K. [ ]
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS.
The following Annual Report on Form 10-K contains various forward looking
statements within the meaning of federal securities laws. These forward looking
statements represent management's expectations or beliefs concerning future
events, including statements regarding anticipated product introductions,
changes in markets, customers and customer order rates, expenditures in research
and development, growth in revenue, taxation levels, the effects of pricing, and
the ability to continue to price foreign transactions in US currency. Actual
future results may vary from these, and other forward looking statements made by
the Company, as a result of a number of factors that may affect the Company's
financial condition and results of operations, including, but not limited to,
the following:
* Approximately 38% of the Company's new product revenues in 2001 were of one
sensor product line to original equipment manufacturers (OEM's) of component
placement machines in the surface mount industry.
* The cyclical nature of capital expenditures in the surface mount electronics
and semiconductor industries. The electronics capital equipment market is
currently in one of the most severe slowdowns in its history, which if prolonged
could have a significant impact on the financial condition and results of
operations of the Company.
* Approximately 38% of the Company's total revenues in 2001 were to two OEM
customers, the loss of whom, or continued reduction of purchases from whom,
would have significantly adverse effects.
* A significant portion of the Company's revenues (approximately 67% in 2001)
are derived from export sales.
* The technology for the manufacture of electronic components and printed
circuit boards changes rapidly and could cause some of the Company's current
products, or products currently under development, to become obsolete.
* Competition for the functions that the Company's SMT Electronic Assembly
Sensor products perform by larger machine vision companies, other optical sensor
companies, and by solutions internally developed by the Company's current or
potential customers.
* Competition for the SMT Systems products by large multinational systems
companies, many of which have greater financial resources and larger sales
distribution networks than the Company.
* The degree to which the Company is successful in protecting its technology and
enforcing its technology rights in the United States and other countries.
* The Company contracts for a substantial portion of its manufacturing.
* Many of the components used in the Company's products must be ordered with
significant lead times that could cause interruption of manufacturing if not
available.
* There are a number of significant new product introductions planned for fiscal
2002, which if delayed, could have an impact on planned shipment levels.
* The Company made three acquisitions in 1999 and an additional acquisition in
2000, and their successful integration will have a significant impact on future
operating performance.
* The ability of the Company to successfully develop in-process technology
acquired as part of acquisitions into viable products.
* The dependence of the Company's operations on several key personnel.
These and other risks that could affect the Company's operations, are discussed
in more detail in Exhibit 99 to this Form 10-K.
PART I.
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
CyberOptics(R) Corporation (the Company or CyberOptics) designs, manufactures
and markets optical process control sensors and inspection systems that enable
the global electronics and semiconductor industries to meet the rigorous quality
demands for printed circuit board assembly and semiconductor wafer transport.
Utilizing proprietary laser, optics and machine vision technology, combined with
software and electronics, the Company's products enable manufacturers to
increase operating through-put, product yields and quality by measuring the
characteristics and placement of components both during and after manufacturing
processes. The Company was founded in 1984 by Dr. Steven K. Case, a former
professor at the University of Minnesota, to commercialize technology for
non-contact three-dimensional sensing systems. Since 1992, the Company focused
development on new technology and products designed primarily for applications
in the electronics industry.
Most of the products developed and sold by the Company are for applications in
the surface mount technology (SMT) electronic circuit board assembly equipment
market. Applications in this market for the Company's products include the
measurement of screen printed solder paste, the inspection of circuit boards
after component placement, the alignment of electronic components during
placement, the measurement of electronic component lead coplanarity during
assembly, the confirmation of proper placement after full assembly of circuit
boards, and the inspection of the solder joints on printed circuit boards. The
Company developed and sells the LaserAlign(R) family of OEM sensor products (the
Company's largest selling family of products, constituting 38% of revenue in
2001) for component alignment, the laser section microscope for off-line solder
paste inspection, the SE 200(TM) and SE 300(TM) products for in-line solder
paste inspection, and the KS50(TM), KS 100(TM), KS 75(TM) and KS 200(TM)
automated optical inspection systems for circuit board inspection before and
after the reflow oven.
The Company also offers and sells products for use with the robotic equipment
that handles semiconductor wafers during the semiconductor fabrication process,
and related technologies, though HAMA(TM) Sensors, Inc. and Imagenation(R)
Corporation, companies acquired in 1999 and 2000.
The Company's operations have been heavily influenced by market conditions in
worldwide electronics markets, and particularly in the SMT electronic assembly
segment of these markets. Strong microelectronic equipment markets from 1997
through the second quarter of 1998, and from the third and fourth quarters of
1999 to the second quarter of 2001, resulting in strong sales of the Company's
products, particularly sensor products.
The worldwide electronics equipment market experienced a significant decline
starting with the second quarter of 2001. Worldwide markets for the Company's
products declined in excess of 60%. Although the Company was able to continue
strong sales of SMT Systems products through new product introductions, its
electronic assembly sensor products, which had constituted $ 43.4 million or 68%
of sales in 2000, declined to $ 20.2 million or 53% of sales in 2001. For
several quarters, the Company's two largest Electronic Assembly Sensor (EAS)
customers, which had purchased a large inventory of the Company's products in
anticipation of a continued robust market, ordered no products at all. The
Company's semiconductor product line, which had experienced a record year in
2000, was also severely impacted by the decline in semiconductor markets and the
corresponding decline in the market for capital equipment in the semiconductor
fabrication industry. After having retained staff in 2000 adequate to
accommodate continued rapid growth, the Company was forced to make three
reductions in workforce during 2001 and early 2002 to reduce its level of
expenditures. Nevertheless, in order to maintain its competitive position when
electronics markets recover, the Company determined not to significantly reduce
development efforts. The combination of a dramatic reduction in orders starting
in the second quarter of 2001 and increased levels of staffing and expenditure
caused the Company to report a loss of $4.2 million for the 2001 calendar year.
OPERATIONS AND PRODUCTS
CyberOptics' develops, manufactures and sells intelligent, non-contact sensors
and systems for process control and inspection. The Company's products are used
primarily in the SMT electronic assembly and semiconductor fabrication sectors
of the electronics industry and enable manufacturers to increase operating
efficiencies, product yields and quality. In addition to proprietary hardware
designs that combine precision optics, various light sources, and multiple
detectors, the Company's products incorporate software that controls the
hardware and filters and converts raw data into application specific
information. The Company's product offerings, are sold both to OEMs that supply
the SMT and Semiconductor fabrication industries and to end-user customers who
use its systems products directly for process and quality control in circuit
board manufacture.
SMT ELECTRONIC ASSEMBLY SENSORS
The SMT Electronic Assembly Sensor product line, which has generated the
majority of the Company's sales during the past seven years, sells sensors for
incorporation into the products of original equipment manufacturers, primarily
in the SMT circuit board assembly equipment industry. The Company works closely
with its OEM customers to integrate sensors into their equipment.
LASERALIGN. The LaserAlign sensor family is the largest selling family of
products of the Company and has accounted for the vast majority of sales in the
SMT Electronic Assembly Sensors product line. These sensors are sold for
incorporation into component placement machines used in the surface mount
production line that are manufactured by a number of different OEM customers.
Sales of these products to Juki Corporation and Assembleon N.V., accounted for
approximately 24% and 14% of the Company's revenue in 2001, and approximately
24% and 30% of the Company's revenue in 2000, respectively. Accordingly, the
Company's revenues and operations are currently heavily influenced by the level
of purchases from these two customers and by the health of the SMT production
industry.
The LaserAlign family of products align components during transport on a pick
and place machine prior to placement on circuit board. After solder paste has
been deposited and inspected, extremely small surface mount components known as
chip capacitors and resistors are placed on the solder pads by component
placement machines. CyberOptics' LaserAlign sensors are incorporated into the
placement heads of component placement machines to ensure accurate component
placement at high production speeds. Various high-speed component placement
machines utilize between one and sixteen LaserAlign sensors per machine.
LaserAlign integrates an intelligent sensor, composed of a laser, optics and
detectors with a microprocessor and software for making specific measurements.
LaserAlign quickly and accurately aligns each component as it is being
transported by the pick-and-place arm for surface mount assembly. Using
non-contact technology, LaserAlign facilitates orientation and placement of
components at much higher speeds than can be achieved using conventional
mechanical or machine vision component centering systems.
The LaserAlign sensor is offered in several different configurations to satisfy
the requirements of the different machines on which it is used. The latest
version of the LaserAlign sensor technology was introduced in a new sensor for
Juki Corporation during 2000. Revenue from shipment of LaserAlign sensors has
been a principal contributor to the growth of the Company during the past five
years and accounted for 38%, 53% and 54% of the Company's revenue in the years
ended December 31, 2001, 2000, 1999, respectively.
LASER LEAD LOCATOR. Following placement of the smallest leadless components,
more sophisticated components, including microprocessor chips, are applied to
the printed circuit boards by fine pitch component placement machines. Many of
these components have leads on all sides that are soldered to the circuit board.
Since all of these surface mount leads must make contact with the solder paste,
lead coplanarity is a critical quality factor. The Laser Lead Locator, which is
incorporated directly into fine pitch component placement machines, inspects
components immediately before placement on the circuit board to identify
defective or damaged leads and determines if all lead tips lie within the same
plane. Sales of Laser Lead Locator have decreased over the last three years as
customers have found alternative products for coplanarity inspection.
SPECIALITY PRODUCTS. A substantial number of circuit boards are made with older
through-hole technology using high speed drills to fabricate printed circuit
boards. These drills are highly automated and contain multiple drill heads that
cannot be constantly monitored by attendants. CyberOptics manufactures two
process control sensors for measuring characteristics of drill bits used in
drilling holes in printed circuit boards. The first of these, the ADM(TM), was
completed in 1989 and is used to ensure that drill bits are not damaged and that
holes are drilled with the proper size. The second sensor, the LTC, was
completed in 1990 and is used to detect broken drill bits so that all of the
preprogrammed holes in the circuit board are properly drilled. Both sensors are
sold under an exclusive arrangement to an OEM of drilling machines for
incorporation into its products.
DRS(TM) RANGE SENSORS. The Company's first commercial product was a range sensor
known as a Point Range Sensor or PRS The Company developed and introduced
Digital Range Sensor(TM) (DRS) in late 1997, a new generation of sensors,
designed to replace the PRS product line. The Company currently offers three DRS
sensors which are equivalent to the seven sensors formerly sold in the PRS line
with resolution equal to the best sensors of the PRS line. The DRS is currently
sold with a control board and software that is compatible with Windows 95 or
Windows NT. In addition, the Company designed and sold a custom DRS sensor for a
specific OEM customer in 2000. The Company will continue to sell DRS sensors on
an OEM basis for the foreseeable future.
SEMICONDUCTOR PRODUCTS
Although the Company had sold some of its sensors for semiconductor wafer
inspection prior to 1999, the semiconductor product line became a significant
part of the Company's business with the acquisition of certain assets of HAMA
Laboratories, Inc. in 1999 and was further expanded with the acquisition of
Imagenation Corporation in 2000. Principal products include sensors that inspect
the presence and orientation of semiconductor wafers in cassettes during the
fabrication process. Other products include frame grabber and machine vision
subsystems developed and sold by Imagenation. All semiconductor products are
sold to original equipment manufacturers for incorporation into their
workstations and systems.
WAFER MAPPING AND ALIGNMENT SENSORS. The Company manufactures and sells laser
based reflective sensors that improve the performance of robotic wafer handling
equipment. During the fabrication process, semiconductor wafers are stored in
slotted cassettes during transport to various workstations. Robotic equipment
removes the wafers from the cassettes and inserts them into a fabrication tool.
The Company's wafer mapping sensors inspect for the presence of wafers in the
cassettes and determines if the wafer is properly located in the cassette to
avoid damage to the wafer.
FRAME GRABBER PRODUCTS AND MACHINE VISION SUBSYSTEMS. Frame grabber products are
a machine vision component that captures, digitizes, and stores video images.
These products are currently sold to a broad array of applications in a number
of different industries, with strategic emphasis on semiconductor customers.
SMT SYSTEMS PRODUCTS
The SMT Systems product line consists of stand-alone measurement and inspection
systems used in the SMT electronic assembly industry for quality control and
inspection. These systems are sold directly to the end-user manufacturing
customer who uses them in the production line or along side a production line to
maintain process and quality control. Products sold incorporate the Company's
proprietary sensors as well as substantial, off the shelf, translation or
robotics hardware and complete computer systems or processors with internally
developed software.
SE 300. The SE 300 is an in-line system that measures the solder paste after the
first step of the SMT assembly process. Because of the small size of the
components that must be placed on each pad of solder paste and the density of
components placed on the circuit board, a significant amount of SMT assembly
problems are related to the quality of solder paste deposition. Misplaced solder
paste or excess or inadequate amounts of paste can lead to improper connections
or bridges between leads causing an entire circuit board to malfunction.
The SE 300 was first introduced in March 2000. Initial revenues of the SE 300
were recorded in the fourth quarter of 2000. The system was designed to inspect
the height, area and volume of 100% of the circuit board at production line
speeds with resolution which allows it to measure the smallest chip scale
packages and micro ball array component sites. The SE 300 can be retrofitted and
integrated into most SMT production lines, providing real time quality control
immediately after a printed circuit board leaves the screen printer and before
component placement commences. During 2001, sales of the SE 300 increased to 10%
of total Company sales from 1% in 2000.
SE 200 (FORMERLY CYBERSENTRY 2000). Introduced in the first quarter of 1995, the
SE 200 system is designed to be installed in existing automated production lines
and to strike a balance between inspection of 100% of each circuit board and the
off-line bench top measurement tools used in quality control laboratories. The
SE 200 incorporates a sensor extended on a mechanical robot arm over the
production line that measures the height, area and volume of critical solder
paste pads. Like the SE 300, the SE 200 can be retrofitted and integrated into
most SMT production lines, providing real time quality control. The SE 200
inspects solder paste deposits on a selected sampling basis. Shipments of the SE
200 product accounted for approximately 7%, 12%, and 18% of the Company's
revenue for the years ended December 31, 2001, 2000, and 1999, respectively.
LSM 300 (FORMERLY AUTOLSM). The Laser Section Microscope (LSM 300) is a low cost
off-line instrument for making height and registration measurement of screen
printed solder paste during the assembly of surface mount circuit boards. One of
the principal advantages of the LSM 300 is its ease of use--unskilled operators
can make non-contact measurements with only minimal training. In February 1999,
the Company introduced the LSM 300 in its current version which includes
enhancements over its predecessor including AutoMeasure(TM) for automatic height
measurement, a redesigned user interface, and a high resolution monitor for
improved image quality.
KS 100. The KS 100 is the first Automated Optical Inspection (AOI) product using
in-process technology acquired from Kestra Ltd. This in-line product measures
and inspects the circuit board after component placement and before reflow to
determine whether components have been placed correctly. The principal advantage
of the KS 100 is the ease of use for the operator compared to other AOI machines
and the low level of false calls. Initial revenues were recognized on the KS 100
in the fourth quarter of 2000.
KS 50. During late 2000, the Company released the KS 50 AOI system, using
in-process technology purchased from Kestra. This product screens populated
circuit boards for missing components either before or after the reflow oven. No
KS 50 revenues were reflected in the Company's financial statements as of
December 31, 2000. During 2001, sales of KS 100 and KS 50 products increased to
7% of total Company sales from 0.4% in 2000.
KS 75 and KS 200. These AOI systems were intoduced in early 2002, and
incorporate high resolution, color cameras for improved imaging. The KS 75 can
be deployed for inspection of cuircuit boards before and after the reflow oven
and is capable of inspecting solderjoints, currently the largest market
application for AOI equipment. The KS 200 is designed to inspect very small
(0201) components.
MARKETS AND CUSTOMERS
The vast majority of the Company's products are sold into the electronics
manufacturing market, particularly the portion servicing manufacturers doing SMT
circuit board assembly. The value of automation is high in this market because
the products produced have high unit costs and are manufactured at speeds too
high for effective human intervention. Moreover, the trend in these industries
toward smaller devices with higher circuit densities and smaller circuit paths
requires manufacturing and testing equipment capable of extremely accurate
alignment and multidimensional measurement such as achieved using non-contact
optical sensors. Customers in these industries also employ knowledgeable
engineers who are competent to work with computer-related equipment. The
Company's LaserAlign and Laser Lead Locator products are sold to OEMs serving
this market and the SE, KS and LSM solder paste measurement systems are sold to
end user electronic assembly manufacturers in this market.
The Company's semiconductor products are sold into the semiconductor capital
equipment market, which are used in the manufacture of semiconductor devices.
This market has many of the same characteristics as SMT electronics assembly
market and requires non-contact optical measurement tools that enable the
production of more complex, higher density and smaller semiconductor devices.
The Company's wafer mapping and alignment sensors are sold to semiconductor
equipment OEM's serving the front end wafer handling portion of this market. The
Company's wafer mapping sensors will become increasingly critical to this market
when the use of 300 millimeter semiconductor wafers becomes widespread.
The Company sells its products worldwide to many of the leading manufacturers of
electronic circuit assembly equipment, semiconductor capital equipment
manufacturers and end user electronic assembly manufacturers. The Company
maintains a foreign development office in the UK, but did not have sales
originating from locations other than the United States until 2001. During the
first half of 2001, sales of the KS 100 system originated in the UK. During the
second half of 2001, manufacture of the KS 100 and KS 50 was moved to
Minneapolis. The following table sets forth the percentage of the Company's
total sales revenue represented by total export sales (sales for delivery to
countries other than the United States, including sales delivered through
distributors) by location during the past three years:
Year Ended December 31,
2001 2000 1999
-------- -------- --------
Asia...................... 34% 37% 30%
Europe.................... 29% 35% 42%
Other (1)................. 4% 1% 5%
(1) Includes export sales in North America, primarily export sales to Canada,
Mexico and Latin America.
See Note 9 to the Company's Consolidated Financial Statements contained in item
8 of this Form 10-K.
All of the Company's export sales are negotiated, invoiced and paid in United
States dollars. Accordingly, although changes in exchange rates do not effect
the Company's revenue and income per unit, they can influence the willingness of
customers to purchase units.
SALES AND MARKETING
Electronic Assembley sensors and Semiconductor products are sold to large OEM
customers by direct sales staff located in Minnesota, California, and Oregon.
The Company's SMT Systems products are also sold through direct sales personnel
located in Minnesota and regionally throughout the USA, as well as in the UK and
Singapore. SMT systems product direct sales personnel sell directly to large
national and international accounts, as well as supervise independent
representatives and distributors. The Company has agreements with 21
representatives and distributors in North and South America who focus primarily
on SMT systems products sold to end-users. Most sales to international end-users
of SMT systems products are made through 22 representatives and distributors
covering Europe and the Pacific Rim.
The Company markets its products through appearances at industry trade shows,
advertising in industry journals, articles published in industry and technical
journals and on the Internet. In addition, the Company's strategic relationships
with certain key customers serve as highly visible references.
BACKLOG
CyberOptics' products are typically shipped two weeks to four months after the
receipt of an order. Since 1993, however, certain OEM customers have placed
orders for delivery over as many as 12 months. Reflective of the decline in SMT
markets, product backlog was $3.1 million on December 31, 2001, compared to
$11.7 million at December 31, 2000 and $11.4 million at December 31, 1999.
Approximately $2.6 million of the 2001 backlog is deliverable in the first
quarter of 2002 with the remaining $0.5 million deliverable in the remainder of
2002. Although the Company's business is generally not of a seasonal nature, its
sales may vary based on the capital procurement practices in the electronics and
semiconductor industries. The Company's scheduled backlog at any time may vary
significantly based on the timing of orders from OEM customers. Accordingly,
backlog may not be an accurate indicator of the Company's performance in the
future.
RESEARCH AND DEVELOPMENT
The Company differentiates its products primarily on the basis of its unique
technology and on the Company's ability to synthesize several different
technical disciplines to address industry needs. CyberOptics was founded by
research scientists and has retained relationships with academic institutions to
ensure that the most current information on technological developments is
obtained. In addition, the Company actively seeks ongoing strategic customer
relationships with leading product innovators in the markets it serves and
actively investigates the needs of, and seeks input from, these customers to
identify opportunities to improve manufacturing processes. The Company provides
direct interaction between its engineers and scientists and these key accounts
to ensure adoption of current technologies. In some instances, the Company
receives funding from these customers through development contracts that provide
the customer with an exclusive selling period but allows the Company to retain
technology and distribution rights.
CyberOptics believes that continued and timely development of new products and
enhancements to existing products is essential to maintaining its competitive
position. The Company commits substantial resources to its research and
development effort, which plays a critical role in maintaining and advancing its
position as a leading provider of optical sensors and systems. CyberOptics'
research and development efforts during 2001 were primarily directed at
continued development of the SE and KS product families, the latest version of
the LaserAlign technology, new alignment cameras for pick-and-place equipment
and enhanced wafer mapping sensors. During 2002, CyberOptics intends to continue
to expend significant sums on enhancements and upgrades of the SE and KS product
families and on various Electronic Assembly Sensor products. In addition, the
Company will be continuing to develop in-process technology acquired from
Imagenation along with enhanced wafer mapping sensors. There can be no
assurances that such efforts, or any other research and development efforts of
the Company, will be successful in producing products that respond effectively
to technological changes or new product announcements by others.
Research and development expenses were $8.6 million, $9.0 million, and $9.2
million for the years ended December 31, 2001, 2000 and 1999, respectively.
These amounts represented 22%, 14% and 23% of revenues, respectively. The
Company anticipates that research and development expenditures will continue at
approximately the same dollar level in 2002. Research and development expenses
consist primarily of salaries, project materials and other costs associated with
CyberOptics' ongoing product development and enhancement efforts. Research and
development resource utilization is centrally managed based on market
opportunities and the status of individual projects.
MANUFACTURING
Much of the Company's product manufacturing, consisting primarily of circuit
board manufacturing, lens manufacturing, and metal parts production is
contracted with outside suppliers. Company personnel inspect incoming parts,
assemble sensor heads, end-user systems, calibrate and perform final quality
control testing of finished products. The Company believes that its products are
not suited for the large production runs that would justify the capital
investment necessary for complete internal manufacturing. Electronic Assembly
Sensor products are assembled in Minneapolis, MN, and Semiconductor Products
were assembled in Redwood City, CA., and Portland, OR. During the first half of
2002, Semiconductor Products manufacturing will be consolidated in Portland, OR.
SMT Systems products are assembled in Minneapolis, MN, with limited prototype
assembly capability in the U.K. All manufacturing is coordinated by a corporate
manufacturing council, which establishes process and makes resource allocation
recommendations.
A variety of components used in the Company's products are available only from
single sources and involve relatively long order cycles, in some cases over one
year. Although the Company has located sources for substitute components, use of
those alternative components could require substantial rework of the Company's
product designs, resulting in periods during which it could not satisfy customer
orders. Further, although the Company believes it has identified alternative
assembly contractors for most of its subassemblies, an actual change in such
contractors would likely require a period of training and test. Accordingly, an
interruption in a supply relationship or the production capacity of one or more
of such contractors could result in the Company's inability to deliver one or
more products for a period of several months. To help prevent delays in the
shipment of its products, the Company maintains in inventory, or on scheduled
delivery from suppliers, what it believes to be a sufficient amount of certain
components based on forecasted demand (forecast extends a minimum of 6 months).
COMPETITION
Although the Company believes that its products are unique, competitors offer
technologies and systems that perform some of the visual inspection and
alignment functions performed by the Company's products. The Company faces
competition from a number of companies in the machine vision, image processing
and inspection systems market, some of which are larger and have greater
financial resources.
The Company's Electronic Assembly Sensor products face competition in the market
for OEM component placement machines primarily from manufacturers of vision
(camera and software based) systems. Potential competitors in these markets
include Cognex Corporation, Robotic Visions Systems, Inc., Electro Scientific
Industries, Inc. and ICOS Vision Systems, NV. Competition in this market is
based on speed, flexibility, cost and ease of control. In addition, the
Company's products compete with systems developed by OEMs using their own design
staff for incorporation into their products. The Company's Electronic Assembly
Sensor products have historically competed favorably on the basis of these
factors, and particularly on the basis of speed and cost. Nevertheless, advances
in terms of speed by vision systems have reduced some of the advantages of the
Company's products in some configurations. The Company has introduced newer
configurations adapted by several customers that it believes allow its sensors,
and the component placement machines in which they are incorporated, to compete
favorably based on the speed and accuracy of their performance, and their price.
In addition, the Company is expanding its focus to incorporate additional
inspection capabilities into its sensors, which has many of the same competitive
characteristics as the sensors historically developed for this market.
The Company's semiconductor products face competition in the wafer mapping and
alignment market primarily from manufacturers of through-beam sensors developed
by our customers using inexpensive sensors from suppliers like Banner
Engineering Corporation, Omron, Ltd (Japan), Keyence, Ltd (Japan). The Company
believes that its sensors compete favorably in this market based on performance
and the unique reflective mode of operations. Through beam sensing is generally
less desirable due to concerns about potential wafer contamination.
The Company's principle SMT System product is 3-D solder paste inspection. The
primary competitor in this market is GSI Lumonics, Inc. (SVS division), and more
recently Agilent. In addition, some manufacturers of screen printing equipment
provide optional 2-D solder paste inspection, and other machine vision companies
(AOI companies) have started offering 2-D and occasionally 3-D solder paste
inspection products. The Company believes that it currently competes effectively
in this market on the basis of performance, ease of installation and operation,
and price.
The Company's KS products face competition from over 40 AOI companies, the most
significant being Agilent (formerly MVT), Photon Dynamics (formerlyCR Technology
and Intelligent Reasoning Systems, Inc.) and Orbotech, GmbH. The Company
believes that the technology used in the KS series is differentiated from the
competition and that it will compete effectively in this market based on
measurement accuracy, ease of use and the low rate of false calls.
Although the Company believes its current products offer several advantages in
terms of price and suitability for specific applications and although the
Company has attempted to protect the proprietary nature of such products, it is
possible that any of the Company's products could be duplicated by other
companies in the same general market.
EMPLOYEES
As of December 31, 2001, the Company had 244 full-time and 5 part-time worldwide
employees, including 57 in sales and marketing and customer support, 70 in
manufacturing, purchasing and production engineering, 79 in research and
development and 43 in finance, administration and information services. Of these
employees, 179 are located at the corporate headquarters in Minneapolis and 70
are located at subsidiary locations (22 in the UK and 10 in California, 32 in
Oregon, 3 in Boston, and 3 in Singapore). To date, the Company has been
successful in attracting and retaining qualified technical personnel, although
there can be no assurance that this success will continue. None of the Company's
employees are covered by collective bargaining agreements or are members of a
union.
As a cost saving measure, the Company reduced the number of its worldwide
employees in January 2002 to 225 full-time and 4 part-time employees, including
49 in sales and marketing and customer support, 66 in manufacturing, purchasing
and production engineering, 77 in research and development and 38 in finance,
administration and information services. The Company does not anticipate
additional workforce reductions during 2002, but future reductions could be
required if market conditions do not improve.
PROPRIETARY PROTECTION
The Company relies on the technical expertise and know-how of its personnel and
trade secret protection, as well as on patents, to maintain its competitive
position. The Company attempts to protect its intellectual property by
restricting access to its proprietary methods by a combination of technical and
internal security measures. In addition, the Company makes use of non-disclosure
agreements with customers, consultants, suppliers and employees. Nevertheless,
there can be no assurance that any of the above measures will be adequate to
protect the proprietary technology of the Company.
The Company and its subsidiaries hold 60 patents (27 US and 33 foreign) on a
number of its technologies, including those used in its Laser Lead Locator,
LaserAlign systems and other products. Some of the patents relate to equipment
such as pick and place machines, into which the Company's EAS products are
integrated. In addition, the Company has 127 pending patents, 35 US and 92
foreign. The Company also has 8 patent applications in the process of being
prepared. The Company protects the proprietary nature of its software primarily
through copyright and license agreements, but also through close integration
with its hardware offerings. The Company utilizes 15 registered trademarks, 5 of
which are foreign. An additional 8 trademarks are pending. The Company also has
39 domain names and several common law trademarks. It is the Company's policy to
protect the proprietary nature of its new product developments whenever they are
likely to become significant sources of revenue. No guarantee can be given that
the Company will be able to obtain patent or other protection for other
products.
As the number of its products increases and the functionality of those products
expands, the Company believes that it may become increasingly subject to
attempts to duplicate its proprietary technology and to infringement claims. In
addition, although the Company does not believe that any of its products
infringe the rights of others, there can be no assurance that third parties will
not assert infringement claims against the Company in the future or that any
such assertion will not require the Company to enter into a royalty arrangement
or result in litigation.
GOVERNMENT REGULATION
All of the Company's products that contain lasers are classified as either Class
I, Class II or Class IIIb Laser Products under applicable rules and regulations
of the Center for Devices and Radiological Health (CDRH) of the Food and Drug
Administration. Such regulations generally require a self-certification
procedure pursuant to which a manufacturer must file with the CDRH with respect
to each product incorporating a laser device, periodic reporting of sales and
purchases and compliance with product labeling standards. The Company's lasers
are generally not harmful to human tissue, but could result in injury if
directed into the eyes of an individual or otherwise misused. The Company is not
aware of any incident involving injury or a claim of injury from its laser
devices and believes that its sensors and sensor systems comply with all
applicable laws for the manufacture of laser devices.
ITEM 2. PROPERTIES
The Company leases a 70,000 square foot mixed office and warehouse facility
built to its specifications in Golden Valley, Minnesota, which functions as its
corporate headquarters and primary manufacturing facility. The lease, which is
on a triple net basis for a ten year term (from May 1996) with two three year
renewal options, provides for rental payments at approximately $7.50 per square
foot initially, increasing to $8.50 per square foot. The Company, which holds an
option to lease adjoining space, anticipates that the property will be adequate
for its needs for the immediate future. HAMA, Imagenation, CyberOptics Ltd.
(formerly Kestra Ltd.), and CyberOptics (Singapore) Pte. Ltd. lease office and
warehouse facilities in California, Oregon, the UK, and Singapore respectively.
The HAMA lease expires in September 2004, the Imagenation lease expires in 2002,
the Cyber Limited lease expires in June 2013, and the CyberOptics (Singapore)
Pte Ltd. lease expires in May 2004. The Company is currently negotiating the
renewal of the Imagination lease. In August 2001, the Company entered a new
operating lease for an R&D facility in Boston, Ma. The Boston lease expires
August 2004, with an option to extend for two additional years.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently subject to any material pending or threatened legal
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of 2001.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the Nasdaq National Market. The
following table sets forth, for the fiscal periods indicated, the high and low
quotations for the Company's common stock as reported by the Nasdaq National
Market. These prices do not reflect adjustments for retail markups, markdowns or
commissions.
2001 2000
---------------------- ----------------------
Quarter High Low High Low
--------------- --------- --------- --------- ---------
First $28.25 $10.50 $29.96 $18.29
Second 14.36 9.50 47.00 22.25
Third 12.10 8.80 49.19 17.50
Fourth 13.40 8.97 25.36 13.63
As of March 27, 2002, there were approximately 230 holders of record of the
Company's common stock and approximately 5,000 beneficial holders. The Company
has never paid a dividend on its common stock. Dividends are payable at the
discretion of the Board of Directors out of funds legally available therefor.
The board has no current intention of paying dividends.
ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR FINANCIAL SUMMARY
CYBEROPTICS CORPORATION
(In thousands, except per share information)
Year Ended December 31 2001(1) 2000(2) 1999(3) 1998 1997
Revenues $ 38,446 $ 64,036 $ 39,627 $ 36,636 $ 35,120
Income (loss) from Operations (8,594) 11,369 (5,932) 3,184 4,588
Cumulative Effect of Change
In Accounting Principle -- (135) -- -- --
Net Income (loss) (4,164) 7,089 (5,496) 3,669 4,597
Net Income (loss) per Share:
Basic (0.52) 0.91 (0.74) 0.47 0.58
Diluted (0.52) 0.84 (0.74) 0.46 0.55
Cash and Marketable Securities $ 28,560 $ 28,285 $ 23,101 $ 38,502 $ 41,027
Working Capital 33,492 34,535 27,900 32,308 36,236
Total Assets 61,181 68,817 51,464 55,177 57,445
Stockholders' Equity 57,038 59,783 46,504 51,433 53,293
(1) 2001 results include a $0.03 per diluted share charge for work force
reduction costs.
(2) 2000 results include a $0.25 per diluted share charge for acquired
in-process research and development and a $0.03 per diluted share charge, net of
tax, for the write-off of impaired technology.
(3) 1999 results include a $0.95 per share, net of tax charge for acquired
in-process research and development.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL OVERVIEW:
The Company's operations during the past three years have been most
significantly influenced by fluctuations in the markets for surface mount
technology and semiconductor fabrication capital equipment and by acquisitions
it has completed. Since January 1, 1999, the Company has completed three
significant acquisitions, all of which were recorded using purchase accounting
and therefore include the acquired results of operations only from the date of
acquisition. In addition, the Company has made two technology acquisitions,
which were recorded at cost.
In April 1999, the Company acquired Kestra, Ltd. for approximately $12.2
million. Kestra was a UK research company that was developing automated
inspection equipment. Following significant additional development, the Company
sold its first inspection system based on the Kestra technology (KS series of
products) in the fourth quarter of 2000.
In May 1999, the Company acquired certain assets of Hama Laboratories, Inc. for
approximately $7.4 million. Hama had commercially introduced and was selling
several products that used technology similar to the technology used in the
Company's sensors, but for application in the semiconductor wafer-mapping
industry. Hama formed the basis for the Company's semiconductor product line,
which had previously consisted of industrial measurement devices. In October
2000, the Company added to the newly formed semiconductor product line with the
acquisition of Imagenation Corporation for approximately $7.2 million.
Imagenation was an established company headquartered in Oregon that produced and
sold frame grabbers and related equipment. At the time of acquisition, however,
Imagenation also had under development a machine vision product concept that, if
successfully developed, would integrate all vision components on a single
circuit board (VisionCell(TM)) to be used as a 'wafer mapper' primarily in a
semiconductor manufacturing environment and other potential applications--a
product that was complementary to and potentially competitive with the products
sold by Hama.
As a result of these acquisitions, the Company expensed the fair value of
in-process research and development associated with these acquisitions of $7.3
million in 1999 and $2.1 million in 2000.
The Company generates approximately 82% of its revenues from the sales and
service of sensors and system products used primarily in Surface Mount
Technology (SMT) circuit board production. Consequently, the Company's revenues
are most highly dependent on the level of capital spending in the global SMT
assembly market. These markets have been very volatile, with periods of rapid
growth followed by periods of significant contraction. Although the SMT markets
experienced rapid growth from the second half of 1999 through 2000, during the
first half of 2001 the worldwide markets for SMT equipment declined
significantly and have remained at depressed levels. The affect of this dramatic
fall-off in market activity caused a dramatic decline in portions of the
Company's business and a net loss in the 2001 fiscal year. CyberOptics expects
that the electronics market will experience only moderate recovery during the
balance of 2002 and that this growth is unlikely to generate sales in its EAS
products that match even 2001 levels.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company's discussion and analysis of its financial condition and results of
operations are based upon the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of these financial statements
requires the Company to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. On an on-going basis, the Company evaluates
its estimates, including those related to bad debts, warranty obligations,
inventory valuation, intangible assets, income taxes, and restructuring costs.
Management bases these estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions.
The Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments. If the
financial condition of the Company's customers were to deteriorate, resulting in
an impairment of their ability to make payments, additional allowances may be
required.
The Company provides for the estimated cost of product warranties at the time
revenue is recognized. While the Company engages in extensive product quality
programs and processes, including actively monitoring and evaluating the quality
of its component suppliers, the Company's warranty obligation is affected by
product failure rates, material usage and service delivery costs incurred in
correcting a product failure. Should actual product failure rates, material
usage or service delivery costs differ from management's estimates, revisions to
the estimated warranty liability would be required.
The Company writes down its inventory for estimated obsolescence or unmarketable
inventory equal to the difference between the cost of inventory and the
estimated market value based upon assumptions about future demand and market
conditions. If actual market conditions are less favorable than those projected
by management, additional inventory write-downs may be required.
The Company assesses the impairment of identifiable intangibles, long lived
assets and related goodwill whenever events or changes in circumstances indicate
the carrying value may not be recoverable.
Factors management considers important which could trigger an impairment review
include the following:
* significant under-performance relative to expected historical or projected
future operating results;
* significant changes in the manner of our use of the acquired assets or the
strategy for our overall business;
* significant negative industry or economic trends;
* significant decline in the Company's stock price for a sustained period; and
the Company's market capitalization relative to net book value.
When management determines that the carrying value of intangibles, long-lived
assets and related goodwill may not be recoverable based upon the existence of
one or more of the above indicators of impairment, the Company measures any
impairment based on a projected discounted cash flow method using a discount
rate determined by management to be commensurate with the risk inherent in our
current business model.
The Company records a valuation allowance to reduce its deferred tax assets to
an estimated amount based on historical and forecasted results as well as risk
factors associated with new product introductions and other market factors.
While management has considered future taxable income and ongoing prudent and
feasible tax planning strategies in assessing the need for the valuation
allowance, in the event management were to determine that it would be able to
realize its deferred tax assets in the future in excess of its net recorded
amount, an adjustment to the deferred tax asset would increase income in the
period such determination was made. Likewise, should management determine that
it would not be able to realize all or part of its net deferred tax asset in the
future, an adjustment to the deferred tax asset would be charged to income in
the period such determination was made.
RESULTS OF OPERATIONS FOR THE THREE YEARS ENDED DECEMBER 31, 2001
REVENUES
Revenues decreased 40% to $38.4 million in 2001 from $64.0 million in 2000, and
increased 62% in 2000 from $39.6 million in 1999. The following table sets
forth, for the years indicated, revenues by product line (in thousands):
2001 2000 1999
---- ---- ----
OEM Solutions:
Electronic Assembly Sensors $20,245 $43,415 $26,268
Semiconductor Products 6,719 9,213 4,037
SMT Systems 11,482 11,408 9,322
------- ------- -------
Total $38,446 $64,036 $39,627
Revenues from Electronic Assembly Sensors products decreased $23.2 Million or
53% during 2001 compared to 2000, and increased $17.1 million or 65% during 2000
compared to 1999. During 2001, revenues from Electronic Assembly Sensors,
primarily the Company's LaserAlign and Laser Lead Locator sensors, were
negatively impacted beginning in the second quarter of the year by slow demand
worldwide for SMT capital equipment. The market impact was compounded by the
relatively large inventory of LaserAlign sensors that had been accumulated by
the Company's two principal customers, resulting in virtually no new orders from
those customers during the remainder of the year. In contrast, during 2000,
revenues for Electronic Assembly Sensors grew dramatically as the markets for
electronic circuit boards with surface mount components throughout the world
experienced high levels of growth.
Revenues from the Semiconductor Products (including revenues from Imagenation
for semiconductor and other applications and revenues from several divested
product lines used in other industrial measurement applications) decreased 27%
or $2.5 million in 2001 compared to 2000, following an increase of $5.2 million
or 128% in 2000 compared to 1999. The 2001 semiconductor product revenue
decrease is attributed to a sharp decline in demand for semiconductor equipment
beginning early in the year and is consistent with the decline in the overall
electronics market. The 2001 revenue decrease was comprised of a $4.5 million or
60% decrease in revenue from sale of products developed by HAMA (acquired in May
1999), partially offset by a $2.5 million or 215% increase in revenues from
products developed by Imagenation (acquired in October 2001). The increase in
revenues from Imagenation resulted from the periods during which revenues were
included in the Company's consolidated results (twelve months operations in 2001
versus two months operations in 2000). The decrease in 2001 semiconductor
product revenue was exacerbated by the loss of revenue from industrial
measurement product lines that were divested in 2000, which accounted for $0.6
million of revenue in 2000. The128% increase in revenue from semiconductor
products during 2000 over 1999 was due to robust markets for semiconductor
fabrication capital equipment, a full year's, rather than seven months, sales of
HAMA products, and several months of revenue from Imagenation products (which
contributed $1.2 million of revenue in 2000 but no revenue in 1999).
Despite the severe downturn in the electronics markets in 2001, SMT systems
revenues increased $0.1 million or 1% during 2001 compared to 2000, following an
increase of $2.1 million or 22% during 2000 compared to 1999. SMT systems
revenues are generated from sales of the Company's solder paste inspection
systems: the SE300 which was introduced during 2000, the SE 200 (formerly the
CyberSentry 2000), the LSM 300 (formerly AUTOLSM), and the KS Series (including
KS 100 and KS 50) introduced in 2000. The SE 300 and KS Series generated initial
revenues in the fourth quarter of 2000. Revenue from the SE 300 and KS Series
products grew 482% and 902% in 2001 compared to 2000, respectively. This
increase was offset by 40% and 66% decrease in the revenues from the older LSM
300 and SE200 product lines, respectively, in 2001 compared to 2000. Although
most of the increase in revenues from the SMT systems products were derived from
newly introduced products, the Company believes that increasing use of
electronic manufacturing services (EMS) companies for circuit board assembly and
production difficulties associated with smaller component sizes and increased
production speeds has caused demand for its inspection equipment in this product
line to remain relatively stable.
International revenue totaled $25.7 million in 2001, $46.9 million in 2000 and
$30.6 million in 1999, comprising 67%, 73% and 77% of total revenue,
respectively. The international markets of Europe, Japan and the rest of Asia
account for a significant portion of the production capability of capital
equipment for the manufacture of electronics, the primary market for the
Company's OEM sensor and SMT system product lines.
GROSS MARGIN
Gross margin decreased to 51% of sales in 2001 from 63% in 2000 and 57% in 1999.
Gross margin is highly dependent on the volume of revenues over which to spread
the fixed component of cost of sales and the related realization of
manufacturing efficiencies. During 2001, gross margin was negatively impacted by
significantly lower revenue levels and the resulting excess capacity in
manufacturing and increased inventory obsolesence. In addition, gross margin in
2001 was negatively impacted by the increased percentage of new generation SMT
Systems revenue to total revenue, which carry a lower average margins during
their introductory period. During 2000, gross margin was positively impacted by
higher revenue levels, lower warranty costs and by increased revenue from
semiconductor products, which have revenues that carry higher gross margins than
the majority of the Company's other products. These improvements in 2000 gross
margin were offset somewhat by costs associated with rapidly increasing
production rates, such as additional overtime and increased scrap and inventory
disposals.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses decreased 4% to $8.6 million in 2001 compared
to $9.0 million in 2000 and $9.2 million in 1999. As a percentage of revenues,
research and development expenses were 22% in 2001, compared to 14% and 23% in
2000 and 1999, respectively. The decrease in research and development expense in
2001 compared to 2000 was primarily the result of cost reduction measures
implemented during 2001and approximately $1,105,000 of customer funded research
and development recognized as a reduction in research and development expenses.
These reductions were partially offset by the full year impact of the
acquisition of Imagenation. The decrease in research and development expenses in
2000 compared to 1999 was primarily the result of approximately $875,000 of
funded development. This 2000 decrease was partially offset by the full year
impact of the acquisition of Kestra and HAMA in the second quarter of 1999 and
by other development initiatives in the EAS sensor and Semiconductor product
lines.
During 2001 and 2000, research and development efforts were primarily focused on
completion of the new high speed solder paste inspection system, the SE 300,
completion of the in-process technologies acquired from Kestra(R) (KS series of
products), enhancements to the semiconductor wafer mapping sensor product
family, completion of the next generation of the LaserAlign products,
development of board alignment and on-head linescan cameras and the continued
development of the in-process technologies acquired from Imagenation. During
2001, research and development expenses also included initial development
activities for several new market based products for Electronic Assembly
Sensors. During 1999, research and development efforts were primarily focused on
continuing development work on the LaserAlign technology, including the next
generation of LaserAlign products, and sensors and development of additional
future product offerings for solder paste inspection. The Company expects that
the dollar level of research and development expenses during 2002 will continue
at levels approximately consistent with 2001 and early 2002.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased 9% to $16.9 million in
2001 compared to $15.5 million in 2000 and $10.7 million in 1999. As a
percentage of revenue, selling, general and administrative expenses were 44% in
2001, 24% in 2000 and 27% in 1999. The dollar increase in selling general and
administrative expenses in 2001 was primarily due to personnel and marketing
investments made to develop the end-user sales and service channel (including
the costs of opening and operating a Singapore sales office in May 2001 to
better serve Asian markets), and the full-year impact of the Imagenation
acquisitions, partially offset by cost reduction measures taken in the second
half of the year and reduced selling commissions and performance bonuses. The
dollar increase in selling general and administrative expenses during 2000 was
primarily due to personnel and marketing investments made to develop the
end-user sales and service channel, the full-year impact of the Kestra and HAMA
acquisitions and increased selling commissions and performance bonuses. The
Company expects to see a reduction in selling, general and administrative
expenses in 2002 compared to 2001 as the result of cost reduction measures
implemented in 2001.
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT AND OTHER
In April 2001, the Company incurred approximately $250,000 of severance related
costs associated with cost reduction measures. In September 2001, the Company
incurred approximately $169,000 of additional severance related costs associated
with a second round of cost reduction measures. A total of 23 and 22 employees
were terminated in April and September 2001, respectively. Substantially all of
these costs were paid as of December 31,2001.
On October 24, 2000, the Company acquired Imagenation(R) Corporation
(Imagenation). At the time of acquisition, Imagenation had two products under
development. The first was a new generation of frame grabber that contains
features that greatly exceed the performance of prior frame grabber products
sold by the company . The second is a machine vision product concept that, if
successfully developed, will integrate all vision components on a single circuit
board (VisionCell(TM)), to be used as a 'wafer mapper' primarily in a
semiconductor manufacturing environment and other potential applications. At the
time of acquisition the Company was uncertain whether the technology being
developed for either Bluebird or VisionCell would ultimately meet the technical
specifications required for semiconductor wafer handling, or other applications,
or be commercially acceptable. The company recorded a $2.1 million charge to
operations for the estimated fair value of the acquired in-process research and
development. This charge was not deductible, for income tax reporting purposes.
The Company introduced the Bluebird frame grabber late in the second quarter of
2001, and development of the VisionCell technology continued during 2001.
During the fourth quarter of 2000, the Company made a decision to abandon the
development of the FirstCheck(TM) product line, acquired from Electronic
Packaging Co. (EPC), using technology originally acquired in 1999. Accordingly,
intangible assets with a net book value of $308,000 were deemed to be
permanently impaired and were written off.
On April 6, 1999, the Company completed the acquisition of Kestra(R) Ltd. At the
time of the acquisition, Kestra had 2 products under development using a
statistical technique, Principal Component Analysis (PCA), for the application
of Automated Optical Inspection (AOI) in the pre-oven and post-oven reflow
stages of SMT production. At the time of acquisition the Company was uncertain
whether the technology being developed for either application would ultimately
meet the technical specifications required for circuit board production or be
commercially acceptable. The Company recorded a $6.5 million charge to
operations for the estimated fair value of the acquired in-process research and
development. This charge is not deductible for tax purposes under UK law. The
Company released the pre-oven system to the market in the fourth quarter of
1999, following extended technical evaluations by customers, and continued to
enhance the product to attempt to meet customer specifications through the first
half of 2000. The Company recognized the first revenues from this acquired
in-process technology in the fourth quarter of 2000. The Company is continuing
development of the in-process post reflow technology and has introduced a
related product, the KS 50. The Company also began development of additional
product offerings (KS 75 and KS 200) for both pre-oven and post-oven
applications, including solder joint inspection capability, in 2001. The new KS
Series products were introduced in early 2002.
On May 5, 1999, the Company acquired substantially all of the operating assets
and assumed certain liabilities of HAMA Laboratories through HAMA(TM) Sensors,
Inc., a newly formed, wholly-owned subsidiary of the Company. At the time of the
acquisition, HAMA had under development technology to develop laser-based
proximity sensors for robotic semiconductor wafer handling in a vacuum
environment, and laser micrometers that determine the orientation and alignment
of semiconductor wafers during the production process and other potential
applications. At the time of acquisition the Company was uncertain whether the
technology being developed for either the vacuum proximity sensors or the laser
micrometers would ultimately meet the technical specifications required for
semiconductor wafer handling, or other applications, or be commercially
acceptable. The Company recorded a $771,000 charge to operations for the
estimated fair value of the acquired in-process research and development. This
charge will be deductible, for income tax reporting purposes, in future periods.
Development has been completed on the vacuum sensor and the custom kit
micrometer and these products were introduced during the fourth quarter of 1999.
In addition, the mini laser micrometer was introduced in the second quarter of
2000. The Company has put on hold development of the acquired in-process
technologies related to the six-inch micrometer due to manufacturability issues.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLE ASSETS
The Company recorded $2.4 in amortization of acquired intangible assets,
including $1.2 million of goodwill amortization, during 2001, compared to $1.8
million in 2000. The amortization is attributable to identifiable intangible
assets and goodwill resulting from the Company's acquisition of certain
technology and other assets of Electronic Packaging Company (EPC) during the
first quarter of 1999, the Company's acquisition of Kestra and HAMA during the
second quarter of 1999, and the Company's acquisition of Imagenation in the
fourth quarter of 2000. The Company will adopt the provisions of FASB Statements
No. 141 and 142 effective January 1, 2002, which will eliminate the systematic
amortization of the roughly $9 million balance of goodwill and other intangible
assets with indeterminable lives. In lieu of amortization, the Company is
required to perform an initial impairment review of it's goodwill in 2002 and an
annual impairment review thereafter. While the Company does not currently
anticipate an impairment charge will be required upon adoption of the Statements
based upon preliminary evaluations, a final evaluation has not yet been
completed and an impairment charge may be required upon adoption. The Company
estimates that adoption of the Statements will reduce fiscal 2002 amortization
expense, on a pretax basis, by approximately $1.3.
EFFECTIVE TAX RATE
The Company recorded a tax benefit of $3.0 million in 2001 resulting in an
effective rate of 43%. The effective tax rate was higher than the U.S. statutory
tax rate of 35% primarily as a result of foreign sales corporation benefits and
research and development tax credits. These benefits were partially offset by
non-deductible goodwill amortization, and valuation allowances established to
eliminate the future tax benefit of net operating loss carry forwards generated
by CyberOptics UK, Ltd. (formerly Kestra) following the acquisition due to
uncertainty about realization. Based upon tax strategies implemented in the
current year, the Company expects to continue to benefit any future losses in
excess of the statutory rates , and recognize tax expense at an effective rate
below statutory rates in profitable years.
The Company recorded a tax provision of $5.5 million in 2000 resulting in an
effective rate of 43%. The effective tax rate was higher than the U.S. statutory
tax rate of 35% primarily as a result of the non-deductible, in-process research
and development write-off resulting from the Imagenation acquisition,
non-deductible goodwill amortization, and valuation allowances established to
eliminate the future tax benefit of net operating loss carry forwards generated
by CyberOptics UK, Ltd. (formerly Kestra) following the acquisition due to
uncertainty about realization. These items were partially offset by foreign
sales corporation benefits and research and development tax credits.
During 1999, the Company recorded a tax provision of $1.1 million despite
generating a loss before income tax of $4.4 million. The tax provision during
1999 reflects the non-deductible acquired in-process research and development
charge resulting from the Kestra acquisition, non-deductible goodwill
amortization from the intangible assets related to the Kestra acquisition and
valuation allowances established to eliminate the future tax benefit of net
operating loss carryforwards generated by Kestra following the acquisition due
to uncertainty about realization. These items were partially offset in 1999 by
benefits from the Company's foreign sales corporation and research and
development tax credits.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and marketable securities increased $0.3 million to
$28.6 million as of December 31, 2001 from $28.3 million as of December 31,
2000, primarily due to $1.3 million of cash generated by operations and $1.3 of
cash provided by other common stock related financing activities. These sources
of cash were partially offset by $1.4 million of cash used to acquire technology
and $1.1 million used to purchase fixed assets.
The Company generated $1.3 million of cash from operations during 2001, due
primarily to the reduction of accounts receivable by $9.7 million partially off
set by $4.4 million decrease in accounts payable and accrued expenses, a $1.1
million increase in inventories, and a $4.1 million increase in taxes receivable
and deferred tax assets. The reduction of accounts receivable, accounts payable,
and accrued expenses are attributed to the lower operating levels experienced in
2001. The increase in inventory also resulted from lower operating levels as the
Company was required to take delivery of longer lead-time materials ordered
prior to the erosion of sales. The net loss for the year of $4.2 million was
more than offset by $5.2 million of non-cash charges for depreciation and
amortization, the provision for inventory obsolescence and the provision for
doubtful accounts. The Company generated $9.6 million of cash from operations
during 2000, primarily due to net income of $7.1 million plus $5.9 million of
non-cash charges for IPR&D, depreciation and amortization and the provision for
inventory obsolescence, and a $2.2 million tax benefit from exercise of stock
options. The cash generated from operations also included an increase of $1.2
million in accounts payable and an increase of $2.3 million of accrued expenses
partially offset by an increase of $4.4 million in accounts receivables, and a
$4.2 million increase in inventories. The changes in accounts payable, accrued
liabilities, inventories, and accounts receivable are primarily due to increased
activity levels during 2000 related to revenue growth.
The Company used $3.4 million of cash for investing activities in 2001 compared
to using $10.7 million in 2000. Cash used in investing activities in 2001
includes $1.4 million for acquired technology (including $1.1 million paid for
certain intellectual property and a software license), and $1.1 million for
acquired fixed assets, and the net purchase of an additional $0.9 million of
marketable securities. Cash used in investing activities in 2000 includes $6.0
million for acquired businesses and $2.5 million for acquired fixed assets, and
the net purchase of an additional $2.1 million of marketable securities.
The Company generated $1.3 million of cash from financing activities in 2001,
and generated $4.0 million in 2000. During 2001 and 2000, all of the cash was
generated by stock related transactions, primarily stock option exercises and
Employee Stock Purchase Plan share purchases.
The Company has no material capital commitments. Through cost reduction measures
implemented during 2001 and early 2002, management believes it has reduced the
Company's cash requirements to appropriate levels given the severity of the
downturn being experienced by the electronics capital equipment industries it
serves. With cash equivalents and investments of $28.6 million at December 31,
2001, the Company believes current working capital and anticipated funds from
operations will be adequate for anticipated operating needs.
In May 2001, the Company's Board of Directors authorized the repurchase of up to
an additional 500,000 shares of common stock. The shares will be repurchased
from time to time on the open market through negotiated transactions.
Repurchased shares will be utilized for employee compensation plans and other
corporate purposes. As of December 31, 2001, the Company has not repurchased any
shares under this authorization.
At December 31, 2001 and 2000, the Company did not have any other relationships
with unconsolidated entities or financial partnerships, such as entities often
referred to as structured finance or special purpose entities, which would have
been established for the purpose of facilitating off-balance sheet arrangements
or other contractually narrow or limited purposes. As such, the Company is not
materially exposed to any financing, liquidity, market or credit risk that could
arise if Company had engaged in such relationships.
The following summarizes the Company's contractual obligations at December 31,
2001, and the effect such obligations are expected to have on its liquidity and
cash flow in future periods.
LESS THAN AFTER
December 31 (In thousands) TOTAL 1 YEAR 1 - 3 YEARS 3 YEARS
------------------------- ---------- ---------- ----------- ----------
CONTRACTUAL OBLIGATIONS:
Borrowings $ -- $ -- $ -- $ --
Non-cancelable operating lease obligations 5,487 1,249 3,237 1,001
---------- ---------- ---------- ----------
Total contractual cash obligations $ 5,487 $ 1,249 $ 3,237 $ 1,001
========== ========== ========== ==========
RELATED PARTY TRANSACTIONS
During 2000, the Company invested $193,000 in cash and other intangible assets
for a 19% equity interest in Avanti Optics Corporation, a development stage
company formed to develop products for the fiber optic component assembly
market. Dr. Steven K. Case is both the CEO of Avanti Optics Corporation and
chairman of the board of CyberOptics Corporation. Accordingly, the Company
accounts for this investment using the equity method. The Company's equity in
the loss of Avanti during 2000 was $83,000. The carrying value of the Company's
investment was $110,000 as of December 31, 2000, and was included in other
assets. In March 2001, the Company reduced its investment in Avanti to zero.
Since the Company had no intention or commitment to continue to fund the
operations of Avanti at that time, the Company did not recognize any additional
equity in the losses of Avanti in excess of the Company's cost.
In March 2001, Avanti raised second round of equity capital in which the Company
had participation rights under anti-dilution provisions of its initial
investment in Avanti. The Company declined to participate and accordingly its
ownership interest in Avanti was diluted to 14%. In December 2001, the Company
declined a proposal from Avanti whereby the Company would provide a loan to
Avanti with repayment terms and/or conversion rights based on certain future
events. In February 2002, Avanti raised a third round of equity capital in which
CyberOptics again declined to participate and accordingly its ownership interest
in Avanti was further diluted to 13%. Avanti continues to provide the Company
with funding proposals, and while there is no commitment to provide funding, the
Company considers each proposal based upon its merits.
INFLATION AND FOREIGN CURRENCY TRANSLATION
Changes in revenues have resulted primarily from changes in the level of unit
shipments resulting from a down turn in the worldwide electronics market . The
Company believes that inflation has not had any significant effect on
operations. All of the Company's international export sales are negotiated,
invoiced and paid in U.S. dollars. Accordingly, although currency fluctuations
do not significantly effect the Company's revenue and income per unit, they can
influence the price competitiveness of the Company's products and the
willingness of existing and potential customers to purchase units.
As a result of the Kestra acquisition the Company has an operating unit located
in the UK. The Company also opened a sales office in Singapore during the year.
The Company does not believe that currency fluctuations will have a material
impact on its consolidated financial statements.
RECENT ACCOUNTING DEVELOPMENTS
In August 2001, the FASB issued Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (the
"Statement"). This Statement addresses financial accounting and reporting for
the impairment or disposal of long-lived assets. This Statement also eliminates
the exception to the consolidation of a subsidiary for which control is likely
to be temporary. The Company adopted the statement on January 1, 2002. The
adoption of this statement did not have a material impact on either the
financial position or operating results of the Company.
In July of 2001, The FASB issued Statement of Financial Reporting Standards No.
141, "Business Combinations", and Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets", (collectively, the
"Standards"). The Statements eliminate the pooling-of-interest method of
accounting for business combinations and the systematic amortization of goodwill
and other intangible assets with indeterminate lives. The Company will adopt the
provisions of FASB Statements No. 141 and 142 effective January 1, 2002. Under
these Statements, the Company will cease to amortize approximately $9.0 million
of goodwill and other indefinite lived intangibles (with a net carrying value of
$6.0 million at December 31, 2001). The Company had recorded approximately $1.2
million of amortization on these amounts during 2001 and would have recorded
approximately $1.3 million of amortization during 2002. In lieu of amortization,
the company is required to perform an initial impairment review of it's goodwill
in 2002 and an annual impairment review thereafter. We expect to complete our
initial review during the first half of 2002. Management currently does not
expect to record an impairment charge upon completion of the initial impairment
review. However, there can be no assurance that at the time the review is
completed a material impairment charge will not be recorded.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company invests excess funds not required for current operations in
marketable securities. The investment policy for these marketable securities is
approved annually by the Board of Directors and administered by management. A
third party, approved by the Company's Board of Directors, manages the portfolio
at the direction of management. The investment policy dictates that marketable
securities consist of U.S. Government or U.S. Government agency securities or
certain approved corporate instruments with maturities of three years or less
and an average portfolio maturity of not more that 18 months. As of December 31,
2001 the portfolio of marketable securities had an average term to maturity of
approximately one year. All marketable securities are classified as available
for sale and carried at fair value. The Company estimates that a hypothetical 1%
increase in market interest rates would result in a decrease in the market value
of the portfolio of marketable securities of approximately $174,000. If such a
rate increase occurred, the Company's net income would only be impacted if
securities were sold prior to maturity.
The Company enters into foreign currency swap agreements to hedge short term
inter-company financing transactions with its subsidiary in the United Kingdom.
These currency swap agreements are structured to mature on the last day of each
quarter and are designated as cash flow hedges. At December 31, 2001, the
Company had one open swap agreement that was purchased on that date. As a
result, there were no unrealized gains or losses as of December 31, 2001. During
year ended December 31, 2001, the Company recognized a gain of approximately
$58,000 from settlement of foreign currency swap agreements which offset the
$60,000 translation loss on the underlying inter-company balance.
The Company's foreign currency swap agreements contain credit risk to the extent
that its bank counter-parties may be unable to meet the terms of the agreements.
The Company minimizes such risk by limiting its counter-parties to major
financial institutions. Management does not expect material losses as a result
of defaults by other parties.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
CYBEROPTICS CORPORATION
(In thousands)
December 31, 2001 2000
--------------------------------------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 12,323 $ 13,097
Marketable securities 8,407 6,650
Accounts receivable, less allowance for
doubtful accounts of $192 and
$135 in 2001 and 2000, respectively 2,740 12,470
Inventories 9,667 9,497
Income Taxes Receivable 2,076 --
Other current assets 738 877
Deferred Tax Assets 1,684 833
--------------------------------------------------------------------------------------------------------------
Total current assets 37,635 43,424
Marketable securities 7,830 8,538
Equipment and leasehold improvements, net 3,375 3,944
Intangible and other assets, net 11,512 12,911
Deferred Tax Assets 829 --
--------------------------------------------------------------------------------------------------------------
Total assets $ 61,181 $ 68,817
==============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 1,787 $ 3,433
Income taxes payable -- 345
Accrued expenses 2,356 5,111
--------------------------------------------------------------------------------------------------------------
Total current liabilities 4,143 8,889
Deferred Tax Liabilities -- 145
Commitments
Stockholders' equity:
Preferred stock, no par value, 5,000 shares authorized, none outstanding
Common stock, no par value, 37,500 authorized,
8,124 and 7,952 shares issued and outstanding, respectively 41,176 39,714
Accumulated other comprehensive loss (92) (49)
Retained earnings 15,954 20,118
--------------------------------------------------------------------------------------------------------------
Total stockholders' equity 57,038 59,783
--------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 61,181 $ 68,817
==============================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
CONSOLIDATED STATEMENTS OF OPERATIONS
CYBEROPTICS CORPORATION
(In thousands, except per share amounts)
Year ended December 31, 2001 2000 1999
------------------------------------------------------------------------------------------
Revenues $ 38,446 $ 64,036 $ 39,627
Cost of revenues 18,722 23,935 17,143
------------------------------------------------------------------------------------------
Gross margin 19,724 40,101 22,484
Research and development expenses 8,564 8,945 9,168
Selling, general and administrative expenses 16,927 15,521 10,737
Acquired in-process research and development
and other 419 2,438 7,301
Amortization of goodwill and other intangibles 2,408 1,828 1,210
------------------------------------------------------------------------------------------
Income (loss) from operations (8,594) 11,369 (5,932)
Interest income and other 1,355 1,305 1,499
------------------------------------------------------------------------------------------
Income (loss) before income taxes and
cumulative effect of change in
accounting principle (7,239) 12,674 (4,433)
Provision for income taxes (3,075) 5,450 1,063
------------------------------------------------------------------------------------------
Income (loss) before cumulative effect
of change in accounting principle (4,164) 7,224 (5,496)
Cumulative effect of change in accounting
Principle, net of tax -- (135) --
------------------------------------------------------------------------------------------
Net income (loss) $ (4,164) $ 7,089 $ (5,496)
==========================================================================================
Net income (loss) per share - Basic $ (0.52) $ 0.91 $ (0.74)
Net income (loss) per share - Diluted $ (0.52) $ 0.81 $ (0.74)
==========================================================================================
Weighted average shares outstanding - Basic 8,026 7,777 7,478
Weighted average shares outstanding - Diluted 8,026 8,424 7,478
==========================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
CONSOLIDATED STATEMENTS OF CASH FLOWS
CYBEROPTICS CORPORATION
(In thousands)
Year ended December 31, 2001 2000 1999
----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (4,164) $ 7,089 $ (5,496)
Adjustments to reconcile net income to net cash
provided by operating activities:
Acquired in-process research and development,
net of tax benefit in 1999 -- 2,130 7,041
Other non-recurring charge -- 308 --
Cumulative effect of change in accounting principle -- 135 --
Depreciation and amortization 4,212 3,335 2,468
Provision for doubtful accounts 34 11 10
Provision for inventory obsolescence 934 15 361
Deferred income taxes (1,686) 116 (145)
Amortization of restricted stock 39 79 39
Tax benefit from exercise of stock options 119 2,165 57
Changes in operating assets and liabilities:
Accounts receivable 9,696 (4,363) (1,067)
Inventories (1,104) (4,155) 780
Other current assets 49 (179) (43)
Accounts payable (1,646) 1,270 469
Income taxes payable (2,421) (673) 290
Accrued expenses (2,755) 2,305 170
----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,307 9,588 4,934
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of available for sale
marketable securities 49,782 10,762 25,608
Purchases of available for sale marketable securities (50,640) (12,647) (5,214)
Purchases of businesses and technology,
net of cash acquired (1,264) (6,009) (17,159)
Additions to equipment and leasehold improvements (1,065) (2,535) (1,166)
Additions to patents (198) (249) (87)
----------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities (3,385) (10,678) 1,982
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt -- -- (2,364)
Proceeds from exercise of stock options 933 3,527 303
Proceeds from issuance of common stock
under Employee Stock Purchase Plan 371 464 345
----------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 1,304 3,991 (1,716)
Net increase (decrease) in cash and cash equivalents (744) 2,901 5,200
Cash and cash equivalents - beginning of year 13,097 10,196 4,963
----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents - end of year $ 12,323 $ 13,097 $ 10,196
================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
CYBEROPTICS CORPORATION
Accumulated
Common Stock Other Total
------------------------ Comprehensive Retained Stockholders'
(In thousands) Shares Amount Income (Loss) Earnings Equity
----------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 7,425 $ 32,735 $ 173 $ 18,525 $ 51,433
Tax benefit from exercise
of stock options 57 57
Exercise of stock options
net of shares exchanged as payment
and subsequently retired 57 303 303
Issuance of common stock under
Employee Stock Purchase Plan 45 345 345
Amortization of restricted stock 39 39
Market value adjustments of
marketable securities $ (240) (240)
Cumulative translation adjustment 63 63
Net loss (5,496) (5,496)
---------
Comprehensive loss (5,673)
----------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 7,527 $ 33,479 $ (4) $ 13,029 $ 46,504
Tax benefit from exercise
of stock options 2,165 2,165
Exercise of stock options
net of shares exchanged as payment
and subsequently retired 375 3,527 3,527
Issuance of common stock under
Employee Stock Purchase Plan 50 464 464
Amortization of restricted stock 79 79
Market value adjustments of
marketable securities $ 263 263
Cumulative translation adjustment (308) (308)
Net income 7,089 7,089
---------
Comprehensive income 7,044
----------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2000 7,952 $ 39,714 $ (49) $ 20,118 $ 59,783
Tax benefit from exercise
of stock options 119 119
Exercise of stock options
net of shares exchanged as payment
and subsequently retired 131 933 933
Issuance of common stock under
Employee Stock Purchase Plan 41 371 371
Amortization of restricted stock 39 39
Market value adjustments of
marketable securities $ 191 191
Cumulative translation adjustment,
net of tax (234) (234)
Net loss (4,164) (4,164)
---------
Comprehensive loss (4,207)
----------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2001 8,124 $ 41,176 $ (92) $ 15,954 $ 57,038
================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CYBEROPTICS CORPORATION (IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 1 - BUSINESS DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES
BUSINESS DESCRIPTION
CyberOptics(R) Corporation (the Company) designs and manufactures intelligent
sensors and systems foR high-precision, non-contact dimensional measurement and
process control for the electronic assembly and semiconductor fabrication
vertical markets. Utilizing proprietary laser, optics and machine vision
technology combined with software and electronics, the Company's products enable
manufacturers to increase operating efficiencies, product yields and quality by
measuring the characteristics and placement of components both during and after
the manufacturing process. The Company sells its products worldwide through a
combination of direct sales staff and independent distributors.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant inter-company accounts and
transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. The Company's cash and
cash equivalents consist of funds maintained in money market accounts, U.S.
Government backed obligations and state municipal instruments with a long-term
credit rating of AAA.
MARKETABLE SECURITIES
Marketable securities generally consist of U.S. Government or U.S. Government
backed obligations and state municipal instruments with long-term credit ratings
of AAA. Marketable securities are classified as short-term or long-term in the
balance sheet based on their maturity date and expectations regarding sales. All
marketable securities have maturities of three years or less. Certain marketable
securities held by the Company are subject to call provisions prior to their
maturity date.
As of December 31, 2001 and 2000, all marketable securities are classified as
available for sale, with a carrying amount of $16,237 and $15,188, respectively.
Available for sale securities are carried at fair value, with unrealized gains
and losses, net of tax, reported as a separate component of stockholders' equity
until realized. These fair values are determined using quoted market prices. The
carrying amounts of securities, for purposes of computing unrealized gains and
losses, are determined by specific identification. The cost of securities sold
is determined by specific identification. Net unrealized holding gains and
losses and realized gains and losses were not significant at December 31, 2001
and 2000 or during the years ended December 31, 2001, 2000 and 1999.
INVENTORIES
Inventories are stated at the lower of cost or market, with cost determined
using the first-in, first-out (FIFO) method. Appropriate consideration is given
to deterioration, obsolescence, and other factors in evaluating net realizable
value.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are stated at cost. Significant additions
or improvements extending asset lives are capitalized, while repairs and
maintenance are charged to expense as incurred. In progress costs are
capitalized with depreciation beginning when assets are placed in service.
Depreciation is recorded using the straight-line method over the estimated
useful lives of the assets, ranging from three to ten years. Leasehold
improvements are depreciated using the straight-line method over the shorter of
the asset useful life or the underlying lease term. Gains or losses on
dispositions are included in current operations.
INTANGIBLE ASSETS
Intangible assets are being amortized on a straight-line basis over periods
ranging from 4 to 10 years, based upon their estimated life. Purchased in
process research and development costs (IPR&D) are expensed upon consummation of
the purchase.
PATENTS
Patents consist of legal and patent registration costs for protection of the
Company's proprietary sensor technology. The Company amortizes such expenditures
over a three-year period on a straight-line basis commencing upon issuance of
the patent.
VALUATION OF LONG-LIVED ASSETS
The Company periodically assesses the potential impairment of its intangible and
other long-lived assets based on anticipated un-discounted cash flows.
REVENUE RECOGNITION
Revenue from all customers, including distributors, is recognized when all
significant contractual obligations have been satisfied and collection of the
resulting receivable is reasonably assured. Generally, revenues are recognized
upon shipment under FOB shipping point terms. Estimated returns and warranty
costs are recorded at the time of sale. Some SMT products require customer
acceptance. For these SMT products, revenue is recognized at the time of
customer acceptance.
Effective January 1, 2000, the Company adopted Staff Accounting Bulletin (SAB)
No. 101, Revenue Recognition in Financial Statements. Prior to adoption of SAB
101, revenue was generally recognized upon shipment. Consistent with the
guidelines provided in SAB No. 101, the Company changed its revenue recognition
policy to defer elements of certain systems sales relating to installation,
training, and other contractually obligated post sale product support, until the
services are provided. The impact of adopting the provisions of SAB No. 101 was
a $135 cumulative effect charge, net of tax, effective January 1, 2000.
FOREIGN CURRENCY TRANSLATION
Financial position and results of operations of the Company's international
subsidiary are measured using local currency as the functional currency. Assets
and liabilities of these operations are translated at the exchange rates in
effect at each fiscal year-end. Statements of operations accounts are translated
at the average rates of exchange prevailing during the year. Translation
adjustments arising from the use of differing exchange rates from period to
period are included as a cumulative translation adjustment in stockholders'
equity.
RESEARCH AND DEVELOPMENT
Research and development (R&D) costs, including software development, are
expensed when incurred. Software development costs are required to be expensed
until the point that technological feasibility and proven marketability of the
product are established; costs otherwise capitalizable after such point also are
expensed because they are insignificant. Customer-funded R&D is deferred and
recognized as a reduction of R&D expenses as contractual requirements are met in
the accompanying statements of income. All other R & D costs are expensed as
incurred.
INCOME TAXES
Deferred income taxes are recorded to reflect the tax consequences in future
years of differences between the financial reporting and tax bases of assets and
liabilities. Income tax expense is the sum of the tax currently payable and the
change in the deferred tax assets and liabilities during the period. Valuation
allowances are established when, in the opinion of management, there is
uncertainty that some portion or all of the deferred tax assets will not be
realized.
NET INCOME PER SHARE
Basic net income (loss) per share is calculated based on the weighted average of
common shares outstanding during the period. Diluted net income (loss) per share
is computed by dividing net income (loss) by the weighted average number of
common and common equivalent shares outstanding. The Company's only potentially
dilutive securities are those that result from common stock options. The
calculation of diluted earnings per common share for 2000 includes 624,571 of
such potentially dilutive securities. The calculation of diluted loss per common
share for 2001 and 1999 excludes 206,873 and 124,000 potentially dilutive
shares, respectively, because their effect would be anti-dilutive.
COMPREHENSIVE INCOME (LOSS)
Components of comprehensive income (loss) include net income, foreign-currency
translation adjustments and unrealized gains (losses) on available-for-sale
securities, net-of-tax, and is presented on the consolidated statements of
shareholders' equity and comprehensive income (loss).
RECLASSIFICATIONS
Certain prior-year amounts have been reclassified to conform to the current-year
presentation.
RECENT ACCOUNTING DEVELOPMENTS
In July of 2001, The FASB issued Statement of Financial Reporting Standards No.
141, "Business Combinations", and Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets", (collectively, the
"Standards"). The Statements eliminate the pooling-of-interest method of
accounting for business combinations and the systematic amortization of goodwill
and other intangible assets with indeterminate lives. The Company will adopt the
provisions of FASB Statements No. 141 and 142 effective January 1, 2002. While
the Company does not currently anticipate an impairment charge will be required
upon adoption of the Statements based upon preliminary evaluations, a final
evaluation has not yet been completed and an impairment charge may be required
upon adoption. The Company estimates that adoption of the Statements will reduce
fiscal 2002 amortization expense, on a pretax basis, by approximately $1.3
million.
In August 2001, the FASB issued Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (the
"Statement"). This Statement addresses financial accounting and reporting for
the impairment or disposal of long-lived assets. This Statement also eliminates
the exception to the consolidation of a subsidiary for which control is likely
to be temporary. The Company will adopt the statement effective January 1, 2002.
The adoption of this statement is not expected not have a material impact on
either the financial position or operating results of the Company.
NOTE 2 - OTHER FINANCIAL STATEMENT DATA
INVENTORIES CONSIST OF THE FOLLOWING:
--------------------------------------------------------------------------------
December 31, 2001 2000
--------------------------------------------------------------------------------
Raw materials and
purchased parts $ 6,410 $ 6,311
Work in process 673 1,177
Finished goods 4,015 2,479
--------------------------------------------------------------------------------
11,098 9,967
Allowance for obsolesence (1,431) (470)
--------------------------------------------------------------------------------
$ 9,667 $ 9,497
EQUIPMENT AND LEASEHOLD IMPROVEMENTS CONSIST OF THE FOLLOWING:
--------------------------------------------------------------------------------
December 31, 2001 2000
--------------------------------------------------------------------------------
Equipment $ 8,517 $ 8,135
Leasehold improvements 1,169 1,115
--------------------------------------------------------------------------------
9,686 9,250
Accumulated
depreciation and amortization (6,311) (5,306)
--------------------------------------------------------------------------------
$ 3,375 $ 3,944
INTANGIBLE AND OTHER ASSETS CONSIST OF THE FOLLOWING:
--------------------------------------------------------------------------------
December 31, 2001 2000
--------------------------------------------------------------------------------
Goodwill $ 8,161 $ 8,108
Acquisition-related Intangibles 8,196 7,096
Capitalized patent costs 1,144 946
Other 183 355
--------------------------------------------------------------------------------
17,648 16,505
Accumulated Amortization (6,172) (3,594)
--------------------------------------------------------------------------------
Total intangible and other
assets, net $11,512 $12,911
================================================================================
During 2000, the Company invested $193 in cash and other intangible assets for a
19% equity interest in Avanti Optics Corporation, a development stage company
formed to develop products for the fiber optic component assembly market. Dr.
Steven K. Case is both the CEO of Avanti Optics Corporation and chairman of the
board of CyberOptics Corporation. Accordingly, the Company accounts for this
investment using the equity method. The Company's equity in the loss of Avanti
during 2000 was $83. The carrying value of the Company's investment was $110 as
of December 31, 2000, and was included in other assets. In March 2001, the
Company reduced its investment in Avanti to zero. Since the Company had no
intention or commitment to continue to fund the operations of Avanti at that
time, the Company did not recognize any additional equity in the losses of
Avanti in excess of the Company's cost.
In March 2001, Avanti raised second round of equity capital in which the Company
had participation rights under anti-dilution provisions of its initial
investment in Avanti. The Company declined to participate and accordingly its
ownership interest in Avanti was diluted to 14%. In December 2001, the Company
declined a proposal from Avanti whereby the Company would provide a loan to
Avanti with repayment terms and/or conversion rights based on certain future
events. In February 2002, Avanti raised a third round of equity capital in which
CyberOptics again declined to participate and accordingly its ownership interest
in Avanti was further diluted to 13%. Avanti continues to provide the Company
with funding proposals, and while there is no commitment to provide funding, the
Company considers each proposal based upon its merits.
ACCRUED EXPENSES CONSIST OF THE FOLLOWING:
--------------------------------------------------------------------------------
December 31, 2001 2000
--------------------------------------------------------------------------------
Wages and benefits $ 980 $ 3,304
Deferred Revenue 161 506
Warranty costs 432 312
Other 783 989
--------------------------------------------------------------------------------
$ 2,356 $ 5,111
================================================================================
NOTE 3 - ACQUISITIONS OF BUSINESSES AND TECHNOLOGY
In July 2001, the Company acquired certain intellectual property and a software
license for a cash payment of $1.1 million.
On October 24, 2000, the Company acquired all of the outstanding shares and all
options to acquire shares of Imagenation(R) Corporation. Total consideration of
$7,191 included $6,650 paid to the share and option holders of Imagenation at
closing, $350 paid into an escrow account to cover indemnity obligations, and
direct acquisition costs of $191. The company also agreed to pay additional
contingent consideration equal to 5% of net sales, if any, generated during the
three years ending December 31, 2003 from the sale of any new products under
development at the time of acquisition, including revenues generated from the
sale of products that are the derivative works of such products. The acquisition
was accounted for under the purchase method of accounting. Accordingly, the
purchase price was allocated to the estimated fair value of assets acquired and
liabilities assumed, and the results of operations of Imagenation are included
in the consolidated financial statements of the Company since the acquisition
date.
The purchase price was allocated as follows:
--------------------------------------------------------------------------------
Cash $ 7,000
Direct acquisition costs 191
-------
Total Purchase Price 7,191
Estimated fair value of tangible
assets acquired (approximates
recorded book value) 944
--------------------------------------------------------------------------------
Purchase price in excess of estimated
fair value of tangible assets acquired $ 6,247
================================================================================
Estimated fair value of purchased in-process research and development,
identifiable intangible assets, and goodwill:
Developed Technologies $ 2,110
Customer Base 280
Assembled Workforce 560
In-process research and development 2,130
Goodwill 1,167
--------------------------------------------------------------------------------
$ 6,247
================================================================================
Valuation of the purchased in-process research and development was conducted by
a nationally recognized independent third party appraisal company. The purchased
in-process research and development consisted of Imagenation's project Bluebird
frame grabber and VisionCell development projects.
Bluebird(TM) frame grabber is a new generation frame grabber technology that was
introduced in the second quarter of 2001, and contains high performance features
(real time control of trigger and strobe signals, assured transfers of image to
memory, and significantly lower video noise and jitters) that greatly exceed the
specifications of current products. At the time of acquisition, the complexity
of the logic design required to successfully develop Bluebird was high because
the design could not be completed utilizing DMA (direct memory access)
controllers and video processing chips commercially available at the time. The
Bluebird frame grabber was introduced in the second quarter of 2001, however,
market acceptance has not yet been proven. The estimated fair value of the
project Bluebird acquired in-process research and development technology was
$280.
VisionCell(TM) sensor is a machine vision product concept that integrates all
vision components (camera, frame grabber, lighting, computer, and vision
application software) on a single circuit board. If successfully developed, it
will provide very high performance in a small package and at a price much lower
than a normal vision system. The first product under development using the
VisionCell technology is a wafer mapper device that sits on a robot arm in a
semiconductor manufacturing environment to automatically see whether the silicon
wafers are loaded properly into wafer cassettes. The estimated fair value of the
VisionCell acquired in-process research and development technology was
$1,850.
These in-process research and development amounts were expensed as a charge upon
consummation of the acquisition. At the time of acquisition management was
uncertain whether the technology being developed for either Bluebird or
VisionCell would ultimately meet the technical specifications required for
semiconductor wafer handling, or other applications, or be commercially
acceptable. Failure to achieve these specifications would have cause Bluebird
frame grabber and the VisionCell projects to fail. At the time of the
acquisition, the Company expected that all the purchased in-process research and
development would reach technological feasibility. The Company introduced the
Bluebird frame grabber late in the second quarter of 2001, and development of
the VisionCell technology continued during 2001. There can be no assurance that
the VisionCell technology will reach technological feasibility or the Bluebird
frame grabber will achieve market acceptance.
The following table presents unaudited pro forma condensed consolidated results
of operations as if the acquisition of Imagenation had occurred as of the
beginning of fiscal 1999. The unaudited pro forma consolidated results of
operations have been adjusted to eliminate the effect of the charges to
operations of $2,130 for the estimated fair value allocated to the acquired
in-process research and development technology. The pro forma information also
includes adjustments for additional amortization of identifiable intangibles and
goodwill, the reduction of interest income due to the cash used for the
acquisitions and the related tax impacts of these adjustments. The unaudited pro
forma consolidated results of operations are presented for illustrative purposes
only and are not necessarily indicative of the combined financial results that
actually would have resulted had the acquistion, in fact, occurred on that date:
--------------------------------------------------------------------------------
2000 1999
--------------------------------------------------------------------------------
Revenue $ 68,980 $ 44,035
Net income (loss) $ 8,765 $ (6,151)
Net income (loss)
per share - Basic $ 1.13 $ (.82)
Net income (loss)
per share - Diluted $ 1.04 $ (.82)
--------------------------------------------------------------------------------
In April 1999, the Company acquired all of the outstanding shares of Kestra(R)
Limited (Kestra), a British limited liability company organized under the
Companies Act of 1985. Total consideration paid of $9,040 included $7,943 of
cash paid to shareholders of Kestra at closing, $408 paid into escrow to cover
various warranties and $689 of guaranteed notes. The Company also repaid certain
indebtedness of Kestra to one of its shareholders and certain other obligations
related to the shares acquired totaling $2,364 and paid direct acquisition costs
of approximately $536. The acquisition was accounted for under the purchase
method of accounting. Accordingly, the purchase price was allocated to the
estimated fair value of assets acquired and liabilities assumed, and the results
of operations of Kestra are included in the consolidated financial statements of
the Company since the acquisition date. The purchase price was allocated as
follows:
--------------------------------------------------------------------------------
Cash $ 9,040
Direct acquisition costs 536
Kestra liabilities assumed 2,619
Total Purchase Price 12,195
Estimated fair value of tangible
assets acquired (approximates
recorded book value) 198
--------------------------------------------------------------------------------
Purchase price in excess of estimated
fair value of tangible assets acquired $11,997
================================================================================
Estimated fair value of purchased in-process research and development
and goodwill:
In-process research and development 6,530
Goodwill 5,467
--------------------------------------------------------------------------------
$11,997
================================================================================
Valuation of the purchased in-process research and development was conducted by
a nationally recognized independent third party appraisal company. The purchased
in-process research and development consisted of Kestra's projects to develop
pre-oven and post-reflow in-line inspection systems for printed circuit boards
assemblies utilizing a statistical technique called principle component analysis
(PCA). PCA is based on statistical appearance modeling that can learn for itself
how to recognize any object. The pre-oven system involves checking for placement
of components on circuit boards. The post-reflow system involves inspection of
the solder joints, after the solder paste applied to the leads of components
placed on circuit boards has been melted by the oven. Based upon the independent
third-party appraisal, as of the acquisition date, management estimated that
$3,200 and $3,300 of the purchase price represents the fair value of purchased
in-process research and development related to the pre-oven and post-reflow
systems, respectively, that as of the acquisition date had not yet reached
technological feasibility and have no alternative future uses. These amounts
were expensed as a non-tax-deductible charge upon consummation of the
acquisition. At the time of acquisition, management was uncertain whether the
technology being developed for either system would ultimately meet the technical
specifications required for circuit board production or be commercially
acceptable. Failure to achieve these specifications could cause the pre-oven and
post-reflow system to fail. If these products are not successfully developed the
sales and profitability of the combined Company may be adversely affected in
future periods. Additionally, the value of the goodwill acquired may become
impaired.
The Company expects that all the purchased in-process research and development
will reach technological feasibility. However, even if technological feasibility
is achieved (of which there can be no assurance) there can be no assurance that
the commercial viability of the purchased in-process research and development
projects will achieve management expectations.
The Company introduced the pre-oven system in the fourth quarter of 1999, and
recorded initial revenues in the fourth quarter of 2000. The Company is
continuing development of the acquired in-process post-reflow technology and
introduced a related product, the KS 50, in the fourth quarter of 2000. As the
result of market feedback and development resource constraints, the Company has
made the decision to tier its product offerings and introduce a family of
inspection systems for pre-oven and post-oven inspection utilizing acquired
in-process technology at different price points and inspection capabilities.
On May 5, 1999, the Company acquired substantially all of the operating assets
and assumed certain liabilities of HAMA Laboratories, Inc. (HAMA) through
HAMA(TM) Sensors, Inc., a newly formed, wholly-owned subsidiary of the Company
(HSI). Pursuant to the Asset Purchase Agreement between HSI, HAMA and the two
shareholders of HAMA, HSI paid HAMA $6,750 of cash at closing, $500 of which was
deposited in an escrow account to cover certain indemnities, and $245 based on
the adjusted net asset value of HAMA at closing. In addition, the Company agreed
to pay HAMA up to $4.1 million of additional consideration based on meeting
certain operating thresholds over the next 3 years. Additional purchase
consideration of $54 and $164 was paid to the seller under this agreement during
2000 and 2001, respectively. The Company also paid direct acquisition costs of
approximately $169.
The acquisition was accounted for under the purchase method of accounting.
Accordingly, the purchase price was allocated to the estimated fair value of
assets acquired and liabilities assumed, and the results of operations of HIS
have been included in the financial statements of the Company since the
acquisition date. The purchase price was allocated to the acquired assets and
assumed liabilities as follows:
--------------------------------------------------------------------------------
Cash $ 6,995
Additional Cash in 2000 54
Additional Cash in 2001 164
Direct acquisition costs 169
HAMA liabilities assumed 33
Total Purchase Price 7,415
Estimated fair value of tangible
assets acquired (approximates
recorded book value) 479
--------------------------------------------------------------------------------
Purchase price in excess of estimated
fair value of tangible assets acquired $ 6,936
================================================================================
Estimated fair value of
purchased in-process research and development
and intangible assets:
Current technology 4,065
In-process research and development 771
Trademarks 82
Goodwill 2,018
--------------------------------------------------------------------------------
$ 6,936
================================================================================
Valuation of the purchased in-process research and development, current
technology and trademarks was conducted by a nationally recognized independent
third-party appraisal company.
At the time of the acquisition, the purchased in-process research and
development consisted of HAMA's projects to develop laser-based proximity
sensors for robotic semiconductor wafer handling which can potentially be used
in a vacuum environment and laser micrometers that will be used in semiconductor
manufacture and other operations. The technology under development for use in
these laser-based sensors utilizes a complex combination of optical components,
firmware and electronics, along with customized microprocessors and mechanical
designs. At the time of acquisition, the Company was uncertain whether the
technology being developed for either the proximity sensors or the laser
micrometers would ultimately meet the technical specifications required for
semiconductor wafer handling or be commercially acceptable. Based upon an
independent third-party appraisal, management allocated $771 of the purchase
price to proximity sensors and laser micrometers that had not yet reached
technological feasibility and have no alternative future uses. The estimated
fair value of each acquired in-process research and development technology was
appraised as follows:
Vacuum Proximity Sensors: $82
Six-Inch Laser Micrometers: $210
Mini Through Beam Micrometers: $55
Customizable Kit Micrometers: $424
Development was completed on the vacuum sensor and the customizable kit
micrometer and these products were introduced during the fourth quarter of 1999.
The mini laser micrometer was released in the second quarter of 2000. The
Company has put on hold development of the acquired in-process technologies
related to the six-inch micrometer due to manufacturability issues.
The following table presents unaudited pro forma condensed consolidated results
of operations as if the acquisitions of Kestra and HAMA had occurred as of the
beginning of fiscal 1998. The unaudited pro forma consolidated results of
operations have been adjusted to eliminate the effect of the non-recurring
charges to operations of $7,040 (net of tax) for the estimated fair value
allocated to the acquired in-process research and development technology. The
pro forma information includes adjustments for additional amortization of
identifiable intangibles and goodwill, the reduction of historical HAMA
compensation expense for executives to reflect contractual changes to the
Company's compensation structure, the reduction of interest income due to the
cash used for the acquisitions and the related tax impacts of these adjustments.
The unaudited pro forma consolidated results of operations are presented for
illustrative purposes only and are not necessarily indicative of the combined
financial results that actually would have resulted had the acquistions, in
fact, occurred on that date:
------------------------------------------------------
1999
------------------------------------------------------
Revenue $ 40,422
Net income (loss) $ 655
Net income (loss)
per share - Basic $ 0.09
Net income (loss)
per share - Diluted $ 0.09
------------------------------------------------------
During February of 1999, the Company acquired certain technology and other
assets from Electronic Packaging Company (EPC). The acquired technology and
other assets relate to a system that would inspect loaded circuit boards
(circuit boards with components placed thereon) to determine proper orientation
of the component and that the correct component is placed. The system is
designed to be used off-line for purposes of first article inspection. These
assets were acquired for $404 of cash and were accounted for using the purchase
method, whereby the purchase consideration was allocated to assets based on
estimated fair market value and will be amortized over their estimated useful
life. In the fourth quarter of 2000, the Company decided not to pursue the
continued development of products utilizing these acquired assets. Accordingly,
the net book value of the assets of $308 was considered impaired and was
written-off in December 2000.
NOTE 4 - INCOME TAXES
THE PROVISION FOR INCOME TAXES CONSISTS OF THE
FOLLOWING:
--------------------------------------------------------------------------------
2001 2000 1999
--------------------------------------------------------------------------------
Current:
Federal $(1,897) $ 4,979 $ 1,454
State 8 518 14
Deferred (1,186) (47) (405)
--------------------------------------------------------------------------------
$(3,075) $ 5,450 $ 1,063
================================================================================
DEFERRED TAX ASSETS (LIABILITIES) CONSIST OF THE FOLLOWING:
-----------------------------------------------------------------------
December 31, 2001 2000
-----------------------------------------------------------------------
Current deferred tax assets (Liabilities):
Inventory allowances $ 637 $ 354
Vacation accrual 123 147
Accounts receivable
allowances 70 58
Warranty accrual 159 121
Deferred Revenue 341 4
Other, net 354 149
-----------------------------------------------------------------------
Total 1,684 833
-----------------------------------------------------------------------
Non-current deferred tax assets (liabilities):
Fixed Asset and Intangible amortization, net 53 (458)
Write down of Equity Investment 70 --
Net operating loss
carryforwards 3,380 2,712
-----------------------------------------------------------------------
Sub-Total 3,503 2,254
Valuation allowance (2,674) (2,399)
-----------------------------------------------------------------------
Total 829 (145)
-----------------------------------------------------------------------
Net deferred tax asset $ 2,513 $ 688
=======================================================================
The majority of net operating loss carryforwards, $7,641, relate to losses
incurred in the UK by Kestra, a development stage company acquired in 1999. The
utilization of net operating loss carryforwards is dependent on Kestra's ability
to generate sufficient taxable income during the carryforward period. Because of
uncertainty as to future realization of the benefit associated with this net
operating loss, a valuation allowance equal to the related deferred tax asset
has been recorded. Once realization becomes more likely than not, the valuation
allowance will be reversed. Approximately $4,217 of the net operating loss
carryforwards relate to pre-acquisition losses and would be recorded as an
adjustment to the opening balance sheet, primarily goodwill, if the valuation
allowance is reversed. The remaining NOL carryforwards of $1,924 relates to the
loss generated by Imagenation, that management expects this carryforward to be
utilize to reduce future taxable income generated by the Company. Accordingly,
no valuation allowance for the Imagenation operating loss carryforward has been
recorded.
A RECONCILIATION OF THE STATUTORY RATE TO THE EFFECTIVE INCOME TAX RATE IS AS
FOLLOWS:
-------------------------------------------------------------------------------
2001 2000 1999
-------------------------------------------------------------------------------
Federal statutory rate 34.0% 34.0% 34.0%
State income taxes, net
of federal benefit 3.2 2.2 (0.5)
FSC benefit 10.7 (4.7) 2.1
R&E credit 3.6 (3.0) 8.2
Foreign rate difference (0.9) 1.5 (7.8)
Acquired IPR&D -- 5.9 (44.2)
Valuation allowance (3.6) 5.0 (10.5)
Non-deductible goodwill (4.0) 1.8 (4.8)
Other, net (0.5) 0.8 (0.5)
-------------------------------------------------------------------------------
Effective rate 42.5% 43.5% (24.0)%
===============================================================================
Cash payments for income taxes for the years ended December 31, 2001, 2000 and
1999, were approximately $725, $3,759 and $1,138 respectively.
NOTE 5 - OPERATING LEASES
The Company leases its primary office, warehouse and manufacturing facility
under a 10 year operating lease that expires in April 2006. The Company has the
option to extend the lease for two additional three year periods. The lease
requires the Company to pay insurance, property taxes and other operating
expenses related to the leased facility. The Company also leases facilities for
the operations of its four subsidiaries, under operating leases which expire
from September 2004 through June 2013.
Total rent expense for the years ended December 31, 2001, 2000 and 1999, was
approximately, $1,369, $994 and $905, respectively.
At December 31, 1999, the future minimum lease payments required under
non-cancelable operating lease agreements, are as follows:
Year ending December 31,
2002 $ 1,249
2003 1,129
2004 1,092
2005 1,016
2006 400
Thereafter 601
-----------------------------------------------------------------------
Total $ 5,487
=======================================================================
NOTE 6 - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES:
The Company adopted SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," on January 1, 2001. The adoption of SFAS No. 133 did not
materially impact the Company's financial position as of December 31, 2001 or
its results of operations or cash flows for the year then ended.
The Company enters into foreign currency swap agreements to hedge short term
inter-company financing transactions with its subsidiary in the United Kingdom.
These currency swap agreements are structured to mature on the last day of each
quarter and are designated as cash flow hedges. At December 31, 2001, the
Company had one open swap agreement that was purchased on that date. As a
result, there were no unrealized gains or losses as of December 31, 2001. During
year ended December 31, 2001, the Company recognized a net gain of approximately
$58,000 from settlement of a foreign currency swap agreement which offset the
$60,000 translation loss on the underlying inter-company balance.
The Company's foreign currency swap agreements contain credit risk to the extent
that its bank counter-parties may be unable to meet the terms of the agreements.
The Company minimizes such risk by limiting its counter-parties to major
financial institutions. Management does not expect material losses as a result
of defaults by other parties.
NOTE 7 - STOCKHOLDERS' EQUITY
All share and per share amounts, including stock options, have been restated to
reflect The Company's three-for-two stock split effected in the form of a common
stock dividend, which was distributed on June 16, 2000.
In May 2001, the Company's Board of Directors authorized the repurchase of up to
an additional 500,000 shares of common stock. As of December 31, 2001, no shares
have been repurchased under the authorization. During 1998, the Company issued
15,000 shares of restricted stock to an executive at the market price on the
issue date of $13.00 per share. Of these shares, 3000 vested upon issuance and
the remaining 12,000 shares vest over 4 years.
NOTE 8 - BENEFIT PLANS
STOCK OPTION PLAN
The Company has three stock option plans for which it has reserved 1,430,224
shares of common stock in the aggregate for issuance to employees, directors,
officers and others. In addition, there are 183,351 shares reserved, and
included in the following summaries that are not part of the three stock option
plans. Reserved shares underlying canceled options are available for future
grant under all plans. Options are granted at an option price per share equal to
or greater than the market value at the date of grant. Generally, options
granted to employees vest over a four-year period and expire five years after
the date of grant. The plans allow for option holders to tender shares of the
Company's common stock as consideration for the option price provided that the
tendered shares have been held by the option holder at least 6 months. Options
exercised by tendering shares are shown at the net amount.
THE FOLLOWING IS A SUMMARY OF STOCK OPTION PLAN ACTIVITY:
--------------------------------------------------------------------------------
Shares 2001 2000 1999
--------------------------------------------------------------------------------
Granted 344,275 311,634 488,400
Exercised (136,937) (401,014) (56,256)
Forfeited (154,772) (112,383) (56,085)
December 31:
Outstanding 1,426,106 1,373,540 1,575,303
Exercisable 718,242 557,787 619,331
Weighted average exercise price
per share 2001 2000 1999
--------------------------------------------------------------------------------
Granted $ 11.90 $ 26.11 $ 8.96
Exercised 7.96 10.06 5.40
Forfeited 17.11 11.82 8.28
December 31:
Outstanding 13.70 13.88 10.07
Exercisable 12.58 10.36 9.87
================================================================================
Stock options outstanding as of December 31, 2001, had a range of exercise
prices of $4.00 to $49.13 and a weighted average remaining contractual life of
approximately 3.93 years.
THE FOLLOWING IS A SUMMARY OF OUTSTANDING OPTIONS AS OF DECEMBER 31, 2000:
Weighted
Exercise Options Options Average
Price Outstanding Exercisable Remaining Life
--------------------------------------------------------------------------------
Less than $7.00 81,000 81,000 2.83 years
$7.00 to $9.99 306,594 155,375 2.43 years
$10.00 to $19.99 774,725 395,046 4.71 years
$20.00 to $29.99 209,737 73,309 3.92 years
Over $30.00 54,050 13,512 3.60 years
================================================================================
As permitted by SFAS No. 123, Accounting for Stock Based Compensation, the
Company continues to measure compensation cost for its stock incentive and
option plans using the intrinsic value method of accounting.
Had the Company used the fair value method of accounting for its stock option
and incentive plans and charged compensation costs against income over the
vesting period, net income and net income per share for 2000, 1999 and 1998
would have been reduced to the following pro forma amounts:
--------------------------------------------------------------------------------
2001 2000 1999
--------------------------------------------------------------------------------
Net Income:
As reported $(4,164) $ 7,089 $(5,496)
Pro forma $(5,477) $ 5,706 $(7,249)
Net income per share:
As reported - Basic $ (0.52) $ 0.91 $ (0.73)
Pro forma - Basic $ (0.68) $ 0.73 $ (0.97)
As reported - Diluted $ (0.52) $ 0.84 $ (0.73)
Pro forma - Diluted $ (0.68) $ 0.68 $ (0.97)
The weighted-average grant-date fair value of options granted during 2001, 2000
and 1999 was $6.41, $15.39 and $5.06, respectively. The weighted-average
grant-date fair value of options was determined by using the fair value of each
option grant on the date of grant, utilizing the Black-Scholes option-pricing
model and the following key assumptions:
--------------------------------------------------------------------------------
2000 1999 1998
--------------------------------------------------------------------------------
Risk-free interest rates 4.72% 6.22% 5.27%
Expected life 4 years 4 years 4 years
Expected volatility 74.10% 72.92% 68.47%
Expected dividends None None None
EMPLOYEE STOCK PURCHASE PLAN
The Company has an Employee Stock Purchase Plan available to eligible employees.
Under terms of the plan, eligible employees may designate from 1 to 10% of their
compensation to be withheld through payroll deductions for the purchase of
common stock at 85% of the lower of the market price on the first or last day of
the offering period. Under the plan, 600,000 shares of common stock have been
reserved for issuance. As of December 31, 2001, 351,137 shares have been issued
under this plan.
401(k) PLAN
The Company has a retirement savings plan pursuant to Section 401(k) of the
Internal Revenue Code (the Code), whereby eligible employees may contribute up
to 20% of their earnings, not to exceed annual amounts allowed under the Code.
In addition, the Company may also make contributions at the discretion of the
Board of Directors. In 2001, 2000 and 1999, the Company provided for matching
contributions totaling $328, $198, and $155, respectively.
NOTE 9 - BUSINESS SEGMENTS AND SIGNIFICANT CUSTOMERS
Effective at year-end 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) 131, Disclosure about Segments of an Enterprise and
Related Information. SFAS 131 requires the management approach in determining
business segments. The management approach designates the internal organization
that is used by management for making operating decisions and assessing
performance as the source of the Company's reportable segments. Management has
determined that the Company operates its business as one reportable segment -
the design, manufacture and sale of optical process control sensors and
inspection systems for electronics assembly capital equipment. To make operating
and strategic decisions, the Company's chief operating decision maker, the Chief
Executive Officer, evaluates revenue performance based on worldwide revenues of
each major product line and profitability on an enterprise-wide basis due to
shared manufacturing, research and development and administrative services.
Revenues by product line were as follows:
--------------------------------------------------------------------------------
Year ended December 31, 2001 2000 1999
--------------------------------------------------------------------------------
OEM Solutions:
Electronic Assembly Sensors $ 20,245 $ 43,415 $ 26,268
Semiconductor Products 6,719 9,213 4,037
SMT systems 11,482 11,408 9,322
--------------------------------------------------------------------------------
$ 38,446 $ 64,036 $ 39,627
================================================================================
THE FOLLOWING SUMMARIZES CERTAIN SIGNIFICANT CUSTOMER INFORMATION:
Significant Percentage
Customer Revenues of Revenues
--------------------------------------------------------------------------------
Year ended
December 31, 2001 A $ 7,842 20%
B $ 7,046 18%
Year ended
December 31, 2000 A $19,043 30%
B $15,414 24%
Year ended
December 31, 1999 A $13,403 34%
B $ 6,026 15%
As of December 31, 2001, accounts receivable from significant customers A and B
were $274 and $441, respectively. As of December 31, 2000, accounts receivable
from significant customers A and B were $2,310 and $1,716, respectively.
Export sales amounted to 67%, 73% and 77% of revenues for 2001, 2000 and 1999,
respectively. All of the Company's export sales are negotiated, invoiced and
paid in U.S. dollars. Export sales by geographic area are summarized as follows:
--------------------------------------------------------------------------------
2001 2000 1999
--------------------------------------------------------------------------------
Americas $ 1,397 $ 404 $ 1,888
Europe 13,069 22,847 16,759
Asia 11,147 23,593 11,858
Other 66 5 132
--------------------------------------------------------------------------------
$ 25,679 $ 46,849 $ 30,637
================================================================================
NOTE 10 - CONTINGENCIES
In the ordinary course of business, the Company is a defendant in miscellaneous
claims and disputes. While the outcome of these matters cannot be predicted with
certainty, management presently believes the disposition of these matters will
not have a material effect on the financial position, results of operations or
cash flows of the Company.
NOTE 11 - QUARTERLY FINANCIAL INFORMATION
2001 (UNAUDITED) MARCH 31 JUNE 30 SEPT. 30 DEC. 31
--------------------------------------------------------------------------------------------
Revenues $ 16,663 $ 11,308 $ 6,189 $ 4,286
Gross margin 9,689 6,182 2,498 1,355
Income from operations 1,700 (724) (4,210) (5,360)
Net income (loss) 1,312 (354) (1,949) (3,173)
Net income (loss) per share - Basic (1) 0.16 (0.04) (0.24) (0.39)
Net income (loss) per share - Diluted (1) 0.16 (0.04) (0.24) (0.39)
2000 (UNAUDITED) MARCH 31 JUNE 30 SEPT. 30 DEC. 31(2)
--------------------------------------------------------------------------------------------
Revenues $ 13,498 $ 14,694 $ 16,277 $ 19,567
Gross margin 8,304 9,376 10,256 12,165
Income from operations 1,862 2,959 3,962 2,586
Net income 1,191 1,980 2,814 1,104
Net income per share - Basic (1) 0.16 0.26 0.36 0.14
Net income per share - Diluted (1) 0.14 0.24 0.33 0.13
(1) The summation of quarterly per share amounts may not equal the calculation
for the full year, as each quarterly calculation is performed discretely.
(2) Includes a $0.25 per diluted share, net of tax, charge for acquired
in-process research and development and a $0.03 charge for the write-off of
impaired intangible assets.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
CyberOptics Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, cash flows and stockholders' equity and
comprehensive income (loss) present fairly, in all material respects, the
consolidated financial position of CyberOptics Corporation and subsidiaries as
of December 31, 2001 and 2000, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2001, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of the Company's
management, our responsibility is to express an opinion on these financial
statements 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
Minneapolis, Minnesota
February 1, 2002
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NONE.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained under the headings "Election of Directors--Nominees
and --Executive Officers, Shares Outstanding" and "Section 16(a) Beneficial
Ownership Reporting Compliance" of the Company's definitive proxy statement for
its annual meeting of shareholders to be held May 17, 2002 (hereafter, the Proxy
Statement), is hereby incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information under the headings "Election of Directors--Compensation of
Directors", and "Executive Compensation" of the Proxy Statement is hereby
incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained under the heading "Shares Outstanding" of the Proxy
Statement is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the headings "Election of Directors--Compensation of
Directors", and "Certain Transactions" of the Proxy Statement is hereby
incorporated by reference.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements: See Item 8 to this Form 10-K.
(a)(2) Financial Statement Schedule: Schedule II, Valuation and Qualifying
Accounts for the years ended December 31, 2000, 1999 and 1998, and the report of
PricewaterhouseCoopers LLP thereon are attached as Item 14(d).
(a)(3) LIST OF EXHIBITS
Exhibit Number Description
-------------- -----------
2.1 Stock Purchase Agreement dated October 24, 2000 between
CyberOptics Corporation and the Shareholders of Imagenation
Corporation (incorporated by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K dated November 8,
2000).
2.2 Escrow Agreement dated October 24,2000 between CyberOptics
Corporation, US Bank Trust National Association, and the
Shareholders of Imagination Corporation (incorporated by
reference to Exhibit 2.2 to the Company's Current Report on
Form 8-K dated November 8, 2000).
3.1 Articles of Incorporation of Company, as amended
(incorporated by reference to Exhibit 3.1 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1997).
3.2 Bylaws of the Company (incorporated by reference to Exhibit
3.1 to the quarterly report on form 10-Q for the quarter
ended September 30, 1998).
3.3 Rights Agreement, dated as of December 7, 1998, between the
Company and Norwest Bank Minnesota, N.A., as Rights Agent,
(incorporated by reference to the Company's Registration
Statement on Form 8-A, dated December 7, 1998).
4.1 Restated Stock Option Plan of the Company, as amended
(incorporated by reference to Exhibit 4.1 of the Company's
Registration Statement on Form S-8 filed August 18, 1998
(file no 333-61711)).
4.2 CyberOptics Corporation Stock Option Plan for Non-Employee
Directors, as amended (Incorporated by reference to Exhibit
4.2 of the Company's Registration Statement on Form S-8
filed October 30, 1997 (file no 33-39091).
4.3 CyberOptics Corporation 1998 Stock Incentive Plan, as
amended (incorporated by reference to exhibit 4.1 to
theCompan's Registration Statement on Form S-8 filed
December 4, 2000 (file no. 333-51200)
4.4 CyberOptics Corporation Employee Stock Purchase Plan
(Incorporated by reference to Exhibit 4.7 to the Company's
quarterly report on Form 10-Q for the quarter ended
September 30, 1992).
10.1 Organizational Agreement between CyberOptics Corporation and
Avanti Optics Corporation (formerly CyberOptics
Communication Corporation) dated August 7, 2000 amended
(incorporated by reference to Exhibit 10.1 to the Company's
Annual Report on Form 10-K for the year ended December 31,
2001).
10.2 Lease Agreement between MEPC American Properties, Inc. and
the Company dated September 15, 1995 (Incorporated by
reference to Exhibit 10 of the Company's Form 10-QSB for the
quarter ended September 30, 1995).
21.0 Subsidiaries of the Company
23.1 Consent of PricewaterhouseCoopers LLP
99.0 Forward Looking Statements--Cautionary Statement
(b) REPORTS ON FORM 8-K
None
(d) FINANCIAL STATEMENT SCHEDULES:
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
CyberOptics Corporation
Our report on the consolidated financial statements of CyberOptics Corporation
has been included in this Annual Report on Form 10-K under Item 8. In connection
with our audits of such financial statements, we have also audited the related
financial statement schedule listed in item 14 of this Annual Report on Form
10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
PRICEWATERHOUSECOOPERS LLP
Minneapolis, Minnesota
February 1, 2002
SCHEDULE II
CYBEROPTICS CORPORATION
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
Balance at Charged to Balance
Beginning of Costs and at end of
Description Period Expenses Deductions Period
----------- ------ -------- ---------- ------
Allowance for doubtful accounts:
Year ended December 31, 2001 $ 135,000 $ 138,945 $ (82,445) $ 191,500
Year ended December 31, 2000 $ 124,188 $ 10,812 $ -- $ 135,000
Year ended December 31, 1999 $ 124,811 $ 10,000 $ (10,623) $ 124,188
Balance at Charged to Balance
Beginning of Costs and at end of
Description Period Expenses Deductions Period
----------- ------ -------- ---------- ------
Allowance for obsolete inventory:
Year ended December 31, 2001 $ 470,000 $1,002,482 $ (41,482) $1,431,000
Year ended December 31, 2000 $ 450,000 $ 504,883 $ (484,883) $ 470,000
Year ended December 31, 1999 $ 880,142 $ 361,180 $ (791,322) $ 450,000
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CYBEROPTICS CORPORATION
DATED: MARCH 27, 2002 BY /s/ STEVEN M. QUIST
-------------------
STEVEN M. QUIST,
CHIEF EXECUTIVE OFFICER
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.
NAME TITLE DATE
---- ----- ----
/s/ STEVEN M. QUIST DIRECTOR AND CEO MARCH 27, 2002
-------------------------- (PRINCIPAL EXECUTIVE OFFICER)
STEVEN M. QUIST
/s/ STEVEN K. CASE CHAIRMAN AND DIRECTOR MARCH 27, 2002
--------------------------
STEVEN K. CASE
/s/ KATHLEEN P. IVERSON DIRECTOR AND PRESIDENT AND COO MARCH 27, 2002
--------------------------
KATHLEEN P. IVERSON
/s/ ALEX B. CIMOCHOWSKI DIRECTOR MARCH 26, 2002
--------------------------
ALEX B. CIMOCHOWSKI
/s/ MICHAEL M. SELZER, JR. DIRECTOR MARCH 26, 2002
--------------------------
MICHAEL M. SELZER, JR.
/s/ IRENE M. QUALTERS DIRECTOR MARCH 27, 2002
--------------------------
IRENE M. QUALTERS
/s/ ERWIN A. KELEN DIRECTOR MARCH 26, 2002
--------------------------
ERWIN A. KELEN
/s/ MICHAEL A. BOWES DIRECTOR MARCH 27, 2002
--------------------------
MICHAEL A. BOWES
/s/ SCOTT G. LARSON VICE PRESIDENT AND CFO MARCH 27, 2002
-------------------------- (PRINCIPAL ACCOUNTING OFFICER)
SCOTT G. LARSON