SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Check One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2002
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ________________ to ________________
COMMISSION FILE NUMBER 0-16577
CYBEROPTICS CORPORATION
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(Exact name of registrant as specified in its charter)
Minnesota 41-1472057
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
5900 Golden Hills Drive, Minneapolis, Minnesota 55416
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(Address of principal executive offices)
(763) 542-5000
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(Issuer's telephone number)
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 such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES _X_ NO___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
At May 13, 2002, there were 8,143,500 shares of the issuer's Common Stock, no
par value, outstanding.
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CYBEROPTICS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
MARCH 31, 2002 DEC. 31, 2001
(UNAUDITED)
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ASSETS
Cash and cash equivalents $ 10,512 $ 12,323
Marketable securities 6,663 8,407
Accounts receivable, net 2,698 2,740
Inventories 9,658 9,667
Income taxes receivable 3,419 2,076
Other current assets 3,128 3,251
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Total current assets 36,078 38,464
Marketable securities 7,610 7,830
Equipment and leasehold improvements, net 3,196 3,375
Intangible and other assets, net 11,150 11,512
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Total assets $ 58,034 $ 61,181
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LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 1,221 $ 1,787
Accrued expenses 2,998 2,356
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Total current liabilities 4,219 4,143
Commitments and contingencies
Stockholders' equity:
Preferred stock, no par value, 5,000 shares
authorized, none outstanding
Common stock, no par value, 37,500 shares
authorized, 8,135 and 8,124 shares issued
and outstanding, respectively 41,290 41,176
Retained earnings 12,752 15,954
Accumulated other comprehensive loss (227) (92)
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Total stockholders' equity 53,815 57,038
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Total liabilities and stockholders' equity $ 58,034 $ 61,181
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SEE THE ACCOMPANYING NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
CYBEROPTICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
THREE MONTHS ENDED MARCH 31,
2002 2001
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Revenues $ 4,532 $16,663
Cost of revenues 2,933 6,974
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Gross margin 1,599 9,689
Research and development expenses 2,314 2,229
Selling, general and administrative expenses 3,684 5,178
Restructuring and severance costs 847 --
Amortization of intangibles 279 582
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Income (loss) from operations (5,525) 1,700
Interest income and other 223 327
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Income (loss) before income taxes (5,302) 2,027
Income tax (benefit) provision (2,100) 715
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Net income (loss) ($3,202) $ 1,312
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Net income (loss) per share - Basic ($ 0.39) $ 0.16
Net income (loss) per share - Diluted ($ 0.39) $ 0.16
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Weighted average shares outstanding - Basic 8,126 7,962
Weighted average shares outstanding - Diluted 8,126 8,367
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SEE THE ACCOMPANYING NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
CYBEROPTICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
THREE MONTHS ENDED MARCH 31,
2002 2001
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($ 3,202) $ 1,312
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities:
Depreciation and amortization 740 1,183
Provision for doubtful accounts (4) (13)
Provision for losses on inventories 185 177
Amortization of restricted stock 10 10
Changes in operating assets and
liabilities:
Accounts receivable 46 2,417
Inventories (176) (998)
Other current assets 201 340
Accounts payable (566) (739)
Income taxes receivable (1,343) 179
Accrued expenses 642 (1,760)
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Net cash provided (used)
by operating activities (3,467) 2,108
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales and maturities of marketable securities 12,669 13,605
Purchases of marketable securities (10,842) (15,141)
Additions to equipment and leasehold improvements (236) (347)
Additions to patents (39) (67)
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Net cash provided (used) by
investing activities 1,552 (1,950)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 104 22
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Net cash provided by financing activities 104 22
Increase (decrease) in cash and cash equivalents (1,811) 180
Cash and cash equivalents - beginning of period 12,323 13,097
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Cash and cash equivalents - end of period $ 10,512 $ 13,277
==============================================================================================
SEE THE ACCOMPANYING NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
CYBEROPTICS CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
1. INTERIM REPORTING:
The interim consolidated financial statements presented herein as of March 31,
2002, and for the three month periods ended March 31, 2002 and 2001, are
unaudited; however, in the opinion of management, the interim consolidated
financial statements include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of financial position,
results of operations and cash flows for the periods presented.
The results of operations for the three month period ended March 31, 2002, do
not necessarily indicate the results to be expected for the full year. The
interim consolidated financial statements do not include all disclosures
required by accounting principles generally accepted in the United States of
America. These unaudited interim consolidated financial statements should be
read in conjunction with CyberOptics' consolidated financial statements and
notes thereto, contained in CyberOptics' Annual Report on Form 10-K for the year
ended December 31, 2001.
2. ACCOUNTING CHANGES:
In June 2001, the Financial Accounting Standards Board issued FAS 142, Goodwill
and Other Intangible Assets ("FAS 142"). Under FAS 142, goodwill and intangible
assets with indefinite lives are no longer amortized but are reviewed at least
annually for impairment. With respect to goodwill amortization, CyberOptics
adopted FAS 142 effective January 1, 2002. Actual results of operations for the
three months ended March 31, 2002, and pro forma results of operations for the
three months ended March 31, 2001, had CyberOptics applied the non-amortization
provisions of SFAS No. 142 follow (in thousands):
March 31, 2002 March 31, 2001
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Reported net income (loss) ($3,202) $1,312
Add back amortization, net of
tax, for: Goodwill 304
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Adjusted net income (loss) ($3,202) 1,616
BASIC EARNINGS PER SHARE:
Reported net income (loss) ($0.39) $0.16
Add back amortization for
goodwill, net of tax $0.04
Adjusted net income (loss) ($0.39) $0.20
DILUTED EARNINGS PER SHARE:
Reported net income (loss) ($0.39) $0.16
Add back amortization for
goodwill, net of tax $0.04
Adjusted net income (loss) ($0.39) $0.19
At March 31, 2002, CyberOptics had net goodwill of $5.5 million. Pursuant to FAS
142, CyberOptics will complete its test for goodwill impairment during the
second quarter of 2002 and, if impairment is indicated, record such impairment
as a cumulative effect of accounting change effective January 1, 2002.
CyberOptics is currently evaluating the effect that the impairment review may
have on its consolidated results of operation and financial position.
3. CERTAIN BALANCE SHEET COMPONENTS (IN THOUSANDS):
Inventories consisted of the following:
March 31, Dec. 31,
2002 2001
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Raw materials $ 5,501 $4,979
Work in process 792 673
Finished goods 3,365 4,015
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Total inventories $9,658 $9,667
========================
Intangible and other assets include the following:
MARCH 31, DECEMBER 31,
2002 2001
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Gross intangibles:
Developed technology $ 7,275 $ 7,275
Patents and trademarks 1,265 1,226
Customer Base 280 280
Workforce - 560
Other non-current assets 109 183
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8,929 9,524
Accumulated amortization:
Developed technology (2,249) (1,989)
Patents and trademarks (908) (859)
Customer base (100) (82)
Workforce - (130)
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(3,257) (3,060)
Goodwill, net 5,478 5,048
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Total intangibles and other assets, net $ 11,150 $ 11,512
======== ========
In connection with adopting SFAS 142, CyberOptics reassessed the useful lives
and the classification of identifiable intangible assets and determined that,
with the exception of reclassifying workforce into goodwill, they continue to be
appropriate. Estimated aggregate amortization expense based on current
intangibles for the next five years is as follows: $1.3 million in 2002, $1.3
million in 2003, $1.1 million in 2004, $1.0 million in 2005 and $0.6 million in
2006.
4. NET INCOME (LOSS) PER SHARE:
Basic net income per share has been computed using the weighted average number
of shares outstanding. The diluted net income per share includes the effect of
common stock equivalents for each period. The shares used in the basic and
diluted net income per share computation for the three month period ended March
31, 2002 are the same, as additional shares in the denominator would be
anti-dilutive due to CyberOptics' net loss. The number of shares utilized in the
denominator of the diluted net income per share computation has been increased
by 405,000 equivalent shares for the three month period ended March 31, 2001.
Shares for which the option exercise price exceeded the average market price
were 560,000 for the three month period ended March 31, 2002. Shares excluded
due to the option exercise price exceeding the average market price were 334,000
for the three month period ended March 31, 2001.
5. COMPREHENSIVE INCOME (LOSS):
Statement of Financial Accounting Standards No. 130 requires that unrealized
gains and losses on CyberOptics' available-for-sale marketable securities and
certain foreign currency translation adjustments be included as a component of
other comprehensive income.
During the three month periods ended March 31, 2002 and 2001, total
comprehensive income (loss) amounted to ($135,000) and $1,323,000, respectively.
Accumulated other comprehensive income (loss) at March 31, 2002 and December 31,
2001 was ($227,000) and ($92,000), respectively.
6. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES:
CyberOptics 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 March 31, 2002, CyberOptics
had one open swap agreement that was purchased on that date. As a result, there
were no material unrealized gains or losses as of March 31, 2002. During the
three months ended March 31, 2002, CyberOptics recognized a gain of
approximately $35,000 from settlement of a foreign currency swap agreement which
offset the $38,000 translation loss on the underlying inter-company balance.
CyberOptics' 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.
CyberOptics 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.
7. RESTRUCTURING AND SEVERANCE
In January 2002, CyberOptics incurred approximately $847,000 of severance and
costs associated with cost reduction measures. Cost reduction measures included
a workforce reduction, discretionary spending reductions, and the consolidation
of semiconductor product manufacturing in Portland, Oregon. Severance costs were
associated with a workforce reduction of 22 people. Approximately $442,000 of
these costs were paid as of March 31, 2002. Facility exit and severance costs of
approximately $405,000 were accrued as of March 31, 2002, and will be
substantially paid over the next nine months.
8. SUBSEQUENT EVENT
In May 2002, CyberOptics funded a $1.5 million term loan to Avanti Optics
Corporation ("Avanti"). The loan bears interest at three percent above the prime
over its twelve-month term and is secured by all the intellectual property
assets of Avanti. The term loan and any accrued interest will automatically
convert to the type of equity shares Avanti issues at the closing of the next
qualifying equity financing occurring on or before the maturity date of the
loan. The Conversion to equity will be at 80% of the price in that equity round,
and if there is a change of control prior to maturity, CyberOptics will receive
payment of two times the loan balance and accrued interest as payment on the
loan. As consideration for the Loan, CyberOptics received a five year warrant to
purchase the number of shares of Avanti's equity securities as is equal to
$450,000 divided by the price at which the next equity securities of Avanti are
sold, which will be exercisable at the price of that equity round. In addition,
the Company has obtained the exclusive rights to manufacture and distribute
manual and semi-automated equipment for the assembly of surface mountable
optical components being developed by Avanti. Avanti's chief executive officer
is Steven K. Case, Ph. D., who is also the chairman and founder of CyberOptics.
The transaction was approved by the Board of CyberOptics CyberOptics without the
participation of Dr. Case or any other party who had a material interest in
Avanti.
9. RECENT ACCOUNTING DEVELOPMENTS
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 143, "Accounting for Asset
Retirement Obligations" which provides accounting requirements for retirement
obligations associated with tangible long-lived assets. SFAS No. 143 is
effective for fiscal years beginning after June 15, 2002. Management believes
the adoption of SFAS No. 143 will not have a material impact on CyberOptics'
financial position or results of operations.
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 for a subsidiary for which control is likely
to be temporary. CyberOptics adopted the Statement on January 1, 2002. The
adoption of the Statement did not have a material impact on either the finacial
position or operating results of CyberOptics.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is management's discussion and analysis of significant
factors that have affected the results of operations and financial position of
CyberOptics Corporation ("CyberOptics") during the periods included in the
accompanying financial statements or that could have an impact on future
results. This discussion should be read with CyberOptics' Annual Report on Form
10-K for the year ended December 31, 2001 and CyberOptics' interim consolidated
financial statements and associated notes.
The following Management's Discussion and Analysis contains "forward
looking statements" within the meaning of federal securities laws which
represent management's expectations or beliefs relating to future events,
including statements regarding trends in the industries in which CyberOptics
functions, levels of orders, research and development expenses, taxation levels,
the sufficiency of cash to meet operating and capital expenses and the ability
to continue to price foreign transactions in U.S. currency. These and other
forward looking statements made by CyberOptics, must be evaluated in the context
of a number of factors that may affect CyberOptics' financial condition and
results of operations, including the following:
-- The cyclical nature of capital expenditures in the electronics and
semiconductor industry;
-- The affects of world events and economic conditions on CyberOptics and its
customers;
-- The dependence of such operations on orders of one sensor product line from
large OEM's of component placement machines in the surface mount industry;
-- The dependence of such operations on orders from two OEM customers;
-- The significant proportion of CyberOptics' revenue that is derived from
export sales;
-- The dependence of CyberOptics' manufacturing on outside contractors and
suppliers, many of which require significant lead time;
-- The degree to which CyberOptics is successful in protecting its technology
and enforcing its technology rights in the United States and other countries;
-- The dependence of CyberOptics' operations on several key personnel;
-- The ability of CyberOptics to effectively integrate the operations of
acquired companies and product lines;
-- The ability to effectively commercialize significant new products introduced
in 2000 and 2001, and those planned to be introduced in 2002;
-- The speed of changes in technology in the microelectronics manufacturing
industry from which most of CyberOptics' sales are derived;
-- Competition for the functions that CyberOptics' products perform by larger
"vision" companies and by other optical sensor companies, and by large
multinational systems companies, many of which have greater resources and
larger sales and distribution networks than CyberOptics;
-- The ability of CyberOptics to successfully develop acquired in-process
technology into viable products.
The preparation of the financial information contained in this 10-Q
requires CyberOptics' management to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. CyberOptics' management
evaluates these estimates on an ongoing basis, including those related to
allowances for doubtful accounts, for warranty expense, and for obsolete
inventory, the carrying value and any impairment of intangible assets, and the
valuation allowance for deferred tax assets. These critical accounting policies
are discussed in more detail in the Management's Discussion and Analysis of
Financial Condition and Results of Operations contained in CyberOptics' Form
10-K for the year ended December 31, 2001.
RESULTS OF OPERATIONS:
REVENUES
The table below sets forth revenues by product line for the periods
indicated (in thousands):
Three months ended
March 31,
2002 2001
---- ----
OEM Solutions:
Electronic Assembly Sensors (EAS)
Products $ 1,214 $10,512
Semiconductor Products 1,448 2,054
End-User Systems Products 1,870 4,097
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Total $ 4,532 $16,663
Revenues from the EAS sensor products decreased 88% during the three
months ended March 31, 2002, from the three months ended March 31, 2001 and were
approximately flat from the three month period ended December 31, 2001. Revenues
decreased from the 2001 comparable period because of a significant decline in
global markets for electronic assembly equipment, which began in early 2001.
CyberOptics' two largest EAS customers either suspended, or significantly
decreased the rates of their orders beginning in the second half of 2001 and
[although both customers have begun to order product again] CyberOptics expects
that the lower order rates will continue into the second half of 2002. Second
quarter 2002 sales of electronic assembly sensors are expected to increase only
slightly compared to the first quarter of 2002. CyberOptics' two largest EAS
customers accounted for approximately 16% of total revenues for the three months
ended March 31, 2002, and 49% of revenues for the comparable period in 2001.
Semiconductor product revenues decreased 30% during the three months
ended March 31, 2002 from the three months ended March 31, 2001, but increased
18% from the three months ended December 31, 2001. This decrease from the
comparable period in 2001 is primarily due to a weakening demand in the
semiconductor capital equipment market, which began in early 2001 and is
consistent with the decline in the overall electronics market. Beginning in the
first quarter of 2002, demand for products in the semiconductor capital
equipment market has shown modest recovery and is expected to continue to
improve at a modest rate during the balance of 2002.
End-User systems product revenues decreased 54% during the three months
ended March 31, 2002 from the three months ended March 31, 2001, and remained
relatively flat with an increase of 1% compared to three months ended December
31, 2001. This decrease from the comparable period in 2001 is due to a weakening
demand in the electronic assembly market, which began in early 2001 and
continued through the first quarter of 2002. The weakened electronic assembly
market has negatively effected capital spending by electronic manufacturing
services (EMS) customers and other manufacturers of printed circuit boards.
However, the decrease in capital spending for inspection equipment has been less
pronounced than for production equipment. CyberOptics believes that an
increasing use of EMS companies for circuit board assembly, production
difficulties associated with smaller component sizes, and increased production
speeds will drive an investment in inspection equipment . In addition
CyberOptics has introduced several new inspection systems that it believes will
drive future revenues. Consequently, End-User systems revenues are expected to
increase modestly in the second quarter of 2002 compared to the first quarter.
International revenues comprised approximately 56% and 75% of total
revenues during the three month periods ended March 31, 2002 and 2001,
respectively. The international markets in 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
CyberOptics' EAS sensors and End-User systems product lines. Revenues generated
from products used primarily for SMT production (revenues from EAS sensors and
End-User systems) were approximately 68% and 88% of revenues for the three month
periods ended March 31, 2002 and 2001, respectively.
GROSS MARGIN
Gross margin for the three months ended March 31, 2002 decreased as a
percent of revenues to 35% compared to 58% during the same period in 2001. Gross
margin is highly dependent on the level of consolidated revenues over which to
spread the fixed component of cost of sales and the related realization of
manufacturing efficiencies and the product mix of revenues. Revenue levels
during the first quarter of 2002 were 73% lower than in the first quarter of
2001 and although CyberOptics endeavored to reduce fixed costs, the magnitude of
this decline had a significant negative impact on gross margin . Gross margin
was also negatively impacted by , the increase in new-generation End-User
Systems product revenues as a percentage of total sales. End-User system product
gross margins have been negatively impacted by significant price pressure being
experienced on End-User systems products as several equipment suppliers
compete for fewer sales opportunities, and higher production costs associated
with new product introductions. There can be no assurance that selling prices
for End-User system products will fully recover when the electronic assembly
market improves. End-User systems comprised 41% of total Company revenues during
the three month period ending March 31, 2002, compared to 25% of total company
revenues during the comparable period for 2001. CyberOptics expects that low
revenue levels will continue to impact gross margin during the second quarter of
2002.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased 4% to $2.3 million during
the three months ended March 31, 2002 compared to $2.2 million for the three
months ended March 31, 2001. As a percentage of revenue, research and
development expenses increased to 51% during 2002 from 13% during the comparable
period in 2001. Although CyberOptics has reduced research and development as
part of its cost reduction initiatives in 2001 and 2002, it has also made a
conscious decision to continue to fund research and development projects that it
believes are necessary to position CyberOptics to compete when the markets
recover and has therefore not reduced these expenses proportionate to the
decline in its revenues. Unless the current downturn in electronics markets is
prolonged, CyberOptics intends to continue the current level of research and
development expenditure for the next few quarters.
Research and development expenses during the first quarter of 2002 was
primarily focused on continued engineering development of the new high speed
solder paste inspection system, the SE 300, KS series AOI systems, next
generation LaserAlign products, board alignment and on-head linescan cameras,
enhancements to the semiconductor wafer mapping sensor product family, and
continued development of acquired in-process technology.
Customer funded research and development is recognized as a reduction
of research and development expense. During the three months ended March 31,
2002, there was $28,000 of customer funded research and development recognized
as a reduction of research and development expense, compared to $182,000 of
customer funded research and development during the first quarter of 2001. After
considering the effect of customer funded research and development, research and
development spending was relatively unchanged from the first quarter of 2002
compared to the same period in 2001.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased 29% to $3.7
million during the three months ended March 31, 2002 compared to $5.2 million
during the three months ended March 31, 2001. As a percentage of revenue,
selling, general and administrative expenses increased to 81% in the three
months ended March 31, 2002 from 31% in the three months ended March 31, 2001.
Decreased selling, general and administrative expenses in 2002 are primarily the
result of cost reduction measures taken throughout the course of 2001 and early
2002 and reduced sales commissions and other incentive compensation as the
result of lower revenue levels.
RESTRUCTURING AND SEVERANCE COSTS
In January 2002, CyberOptics incurred approximately $847,000 of
severance and costs associated with cost reduction measures. Cost reduction
measures included a workforce reduction, discretionary spending reductions, and
the consolidation of all semiconductor product manufacturing in Portland,
Oregon. Approximately $442,000 of these costs were paid as of March 31, 2002.
Facility exit and severance costs of approximately $405,000 were accrued as of
March 31, 2002.
AMORTIZATION OF GOODWILL AND INTANGIBLE ASSETS
Amortization of intangible assets was approximately $279,000 for the
three months ended March 31, 2002 compared to $582,000 for the three months
ended March 31, 2001 and $649,000 for the three months ended December 31, 2001.
The decrease in amortization for the three month period ending March 31, 2002 is
attributed to the adoption of the goodwill non-amortization provisions of FAS
142. Amortization is primarily attributable to developed technology, patents and
trademarks resulting from CyberOptics' acquisition of technology and other
assets of Kestra and HAMA Laboratories during the second quarter of 1999 and
CyberOptics' acquisition of Imagenation during the fourth quarter of 2000.
Except for the impact of the possible future payment of contingent
consideration, the amounts of which are not yet determinable, amortization of
these intangible assets is expected to approximate $280,000 per quarter over the
remaining life of the intangible assets.
INTEREST AND OTHER
Interest income and other primarily includes interest earned on
investments. Interest income declined for the three months ended March 31, 2002
compared to the same period in 2001 as a result of a lower investment balance
and declining interest rates.
CyberOptics believes that it will be required to reduce the carrying
value of the $1.5 million loan to Avanti described below under "Transactions
with Interested Parties" by its ownership percentage in the cumulative losses of
Avanit and expects to record a pretax charge under "other income" in the quarter
ending June 30, 2002 of approximately $600,000 in connection with the loan.
CyberOptics also believes that it will likely have to reduce the remaining
$900,000 carrying value as Avanti incurs additional losses during its
development stage and the cash balances of Avanti decline below $900,000.
PROVISION FOR INCOME TAXES AND EFFECTIVE INCOME TAX RATE
CyberOptics recorded a tax benefit of $2.1 million for the three month
period ended March 31, 2002. The tax benefit during 2002 reflects the expected
annual effective rate, including the effect of benefits from CyberOptics'foreign
sales corporation and research and development tax credits. CyberOptics has
recorded taxes receivable based on it's ability to carry back current tax losses
for a refund of taxes paid in prior years.
ORDER RATE AND BACKLOG
CyberOptics' orders totaled $4.2 million during the three month period
ended March 31, 2002 compared to $13.5 million during three months ended March
31, 2001. Backlog totaled $2.7 million and $8.6 million at March 31, 2002 and
2001, respectively. The scheduled shipment of the March 31, 2002 backlog is as
follows (in thousands):
2nd Quarter 2002 $ 2,512
3rd Quarter 2002 and after 213
-------
Total backlog $ 2,725
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and marketable securities decreased $3.8
million to $24.8 million as of March 31, 2002 from $28.6 million as of December
31, 2001, primarily due to $3.5 million of cash used by operations.
CyberOptics used $3.5 million of cash in operations during the first
three months of 2002, primarily due to a net loss of $3.2 million, partially
offset by $931,000 of non-cash expenses for depreciation and amortization,
provision for inventory obsolescence and other non-cash items. The cash used by
operations included a $1.3 increase in taxes receivable, a $566,000 decrease in
accounts payable, and a $176,000 increase in inventories. The increase in taxes
receivable were a result of estimated tax losses for the period which are
expected to be collected as a refund from taxes paid in previous years. The
decrease in accounts payable are primarily the result of the continued reduced
activity level of CyberOptics. These items were offset somewhat by an increase
in accrued expenses of $642,000, a decrease in other assets of $201,000 and a
decrease in accounts receivable of $46,000. The increased accrued expenses
include approximately $405,000 of facilities and severance costs accrued
associated with the consolidation of CyberOptics' semiconductor product
manufacturing operations in Oregon and a workforce reduction. The remaining
increase in accrued expenses and decrease of other assets are the result of the
timing of payments and prepaid expenses. During the first quarter of 2001,
CyberOptics generated $2.1 million of cash from operations, primarily due to net
income of $1.3 million, including $1.4 million of non-cash expenses. This
increase was partially offset by a $561,000 net use of cash from changes in
operating assets.
CyberOptics generated $1.5 million of cash from investing activities
during the three months ended March 31, 2002 compared to using $1.9 million
during the three months ended March 31, 2001. The majority of the change in cash
from investing activities is due to changes in the level of investment in
marketable securities resulting from the purchases and maturities of those
securities, which provided $1.8 million of cash in 2002 and used $1.5 million in
2001, net of maturities. CyberOptics used approximately $275,000 and $414,000 of
cash for the purchase of fixed assets, the acquisition of certain technology and
other intangible assets during the three months ended March 31, 2002 and 2001,
respectively.
CyberOptics generated $104,000 of cash from financing activities during
the three months ended March 31, 2002 and $22,000 in the same period during
2001. Cash generated represents cash from stock option exercises.
As of March 31, 2002, CyberOptics had no material commitments. While
there were no material commitments, CyberOptics routinely evaluates investment
opportunities that come to its attention and could make a significant commitment
in the future. Through cost reduction measures implemented during 2001 and early
2002, management believes it has reduced CyberOptics' 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 $24.8 million at March 31, 2002, CyberOptics believes current
working capital will be adequate for anticipated operating needs.
In May 2002, CyberOptics expended $1.5 million by making a term loan to
Avanti Optics Corporation. CyberOptics has no further commitment to fund the
operations of Avanti and does not have any current intention of making any
additional contributions, as loans or equity, to Avanti.
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 may be
repurchased from time to time on the open market through negotiated
transactions. Repurchased shares will be used for employee compensation plans
and other corporate purposes. As of March 31, 2002, the Company has not
repurchased any shares under this authorization.
At March 31, 2002, CyberOptics did not have any relationships with
unconsolidated entities or financial partnerships, such as entities often
referred to as structured finance of special purpose entities, which would have
been established for the purpose of establishing off-balance sheet arrangements
or other contractually narrow or limited purposes. As such, CyberOptics is not
materially exposed to any financing, liquidity, market or credit risk that could
arise if CyberOptics had engaged in such relationships.
OTHER FACTORS
Changes in revenues have resulted primarily from changes in the level
of unit shipments. CyberOptics believes that inflation has not had any
significant effect on operations. Most of CyberOptics' international export
sales are negotiated, invoiced and paid in U.S. dollars. Accordingly, although
currency fluctuations do not have a significant effect CyberOptics' revenue and
income per unit, they can influence the price competitiveness of CyberOptics'
products relative to other technologies and the willingness of existing and
potential customers to purchase products and services.
As a result of acquisition and organic growth, CyberOptics has
operating units located in the UK and Singapore. CyberOptics does not believe
that currency fluctuations will have a material impact on its consolidated
financial statements.
RECENT ACCOUNTING DEVELOPMENTS
In July 2001, the FASB issued Statement of Financial Accounting
Standards No. 141, "Business Combinations", and Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets,"
(Collectively, "the Statements"). The Statements eliminate the
pooling-of-interest method of accounting for business combinations and the
systematic amortization of goodwill and other intangible assets with
indeterminable lives. CyberOptics adopted the provisions of FASB statements No.
141 and No. 142 effective January 1,2002, which eliminated the systematic
amortization of goodwill and other intangible assets with indeterminable lives.
Under the transition rules of FASB statement No. 142, CyberOptics will complete
the first step of the transitional goodwill impairment test by June 30, 2002,
and the second step of the transitional goodwill impairment test no later than
December 31, 2002. While CyberOptics does not currently anticipate an impairment
charge will be required upon completion of the transitional impairment tests
based on preliminary evaluations, a final evaluation has not yet been completed
and an impairment charge may be required upon completion of the impairment
tests. In addition to any potential impairment charge that may be required,
CyberOptics estimates that the 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 for a subsidiary for which
control is likely to be temporary. CyberOptics adopted the Statement on January
1, 2002. The adoption of the Statement did not have a material impact on either
the financial position or operating results of CyberOptics.
TRANSACTIONS WITH INTERESTED PARTIES
On May 1, 2002, CyberOptics loaned $1.5 million to Avanti Optics
Corporation ("Avanti"), a company founded by Steven K. Case, the Chairman,
founder and a significant shareholder of CyberOptics. Erwin Kelen, a director of
CyberOptics, also serves as director of Avanti, is a shareholder in Avanti, and
is a representative of one of the principal venture capital investors in Avanti.
CyberOptics held approximately 12 % of the outstanding capital stock of Avanti
prior to the loan, which it had acquired in consideration of the contribution of
$190,000 cash and intellectual property to Avanti when it was formed. The loan
transaction was approved by the Board of Directors of CyberOptics without the
participation of Dr. Case or Mr. Kelen and only after a determination that the
loan was in the best interests of CyberOptics.
The loan is represented by a convertible promissory note that bears
interest at 3% above the prime rate of interest and is repayable on April 30,
2003, or upon an earlier event of default. The loan is secured by all of the
intellectual property of Avanti (consisting primarily of rights in United States
patents and patent applications in the area of photonics component manufacture).
The loan and any accrued interest will automatically convert to the type of
equity shares Avanti issues at the closing of the next qualifying equity
financing occurring on or before the maturity date of the loan. The conversion
to equity will be at 80% of the price in that equity round, and if there is a
change of control prior to conversion, CyberOptics is entitled to receive twice
the principal and interest then outstanding on the loan.
In consideration of the loan, CyberOptics also received a five-year
warrant to purchase the number of shares of Avanti equity securities as is equal
to $450,000 (30% warrant coverage) divided by the price per share in the next
equity financing of Avanti. The exercise price of the warrant will be equal to
the price in such next equity financing.
The loan was made in part to acquire the exclusive rights to
manufacture and distribute manual and semi-automated equipment for the assembly
of surface mountable optical components that are currently under development by
Avanti. Although there is a high degree of risk involved in the completion of
Avanti's development of this technology, the Board of CyberOptics concluded that
there is substantial potential for these manual and semi-automated assembly
machines.
CyberOptics expects a pretax charge of approximately $600,000 to other
expense in the second quarter of 2002 to record cumulative losses of Avanti
consistent with CyberOptics' ownership percentage under the equity method of
accounting.
PART II. OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON 8-K
A. Exhibits
10.1 Product Licensing and Loan Agreement dated May 1, 2002 between
Avanti Optics Corporation and CyberOptics Corporation.
10.2 Secured Convertible Promissory Note dated May 1, 2002 from
Avanti Optics Corporation as maker to CyberOptics Corporation as holder.
10.3 Warrant of Avanti Optics Corporation dated May 1, 2002.
b. Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March 31, 2002, or
during the period from March 31, 2002 to the date of this quarterly report on
Form 10-Q.
SIGNATURES
Pursuant to the requirements 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
/S/ STEVEN M. QUIST
-------------------
STEVEN M. QUIST, CEO
(PRINCIPAL EXECUTIVE OFFICER AND
DULY AUTHORIZED OFFICER)
/S/ SCOTT LARSON
----------------
SCOTT LARSON, VICE PRESIDENT AND CFO
(PRINCIPAL ACCOUNTING OFFICER AND
DULY AUTHORIZED OFFICER)
Dated: May 14, 2002