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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, 2000.
[ ] 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
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(Exact name of registrant as specified in its charter)
MINNESOTA 41-1472057
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5900 Golden Hills Drive
MINNEAPOLIS, MINNESOTA 55416
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(Address of principal executive offices) (Zip Code)
(763) 542-5000
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(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, 2001, the aggregate market value of the registrant's Common
Stock, no par value, held by non-affiliates of the registrant was $89,114,874
(based on the closing sale price of common stock as of March 27, 2001 as quoted
on the Nasdaq National Market).
As of March 27, 2001, there were 7,966,052 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 18, 2001.
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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. These, and
other forward looking statements made by the Company, must be evaluated in the
context 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 53% of the Company's product sales in 2000 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.
* Approximately 54% of the Company's sales in 2000 were to two OEM
customers, the loss of whom, or reduction of purchases from whom, would
have significantly adverse effects.
* A significant portion of the Company's revenue (approximately 73% of
sales in 2000)is 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 products perform by
larger " machine vision" companies, other optical sensor companies, and
by solutions internally developed by the Company's current or potential
customers.
* 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 2001, 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
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enable the global electronics and semiconductor industries to meet the rigorous
quality demands for printed circuit boards 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 Case, a 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, and the confirmation of proper placement after full
assembly of circuit boards.
The Company's operations during recent years have been most
significantly affected by sales of two families of OEM sensor products for the
SMT industry: the LaserAlign(R) and the Laser Lead Locator. These sensors
contributed over $36.7 million or approximately 57% of the Company's revenue in
2000. The Company has continued to enhance and introduce new versions of the
LaserAlign, the industry standard for high speed alignment of SMT components
during placement by component placement machines, most recently introducing a
multi-nozzle version in 2000.
The Company also offers several system products that inspect solder
paste during the assembly of SMT circuit boards. The laser section microscope
("LSM") is an off-line quality control system distributed directly to SMT
circuit board manufactures. Introduced in 1995, the latest version SE 200(TM)
provides in-line inspection of selected fields of the SMT circuit board and has
contributed significantly to the Company's sales. During 2000, the Company
introduced a new version of its in-line solder paste inspection system, the SE
300(TM), with significantly improved performance. The increased speed and
resolution of the SE 300 facilitates inspection of the entire circuit board for
accurate solder paste volume and placement. The Company anticipates that the SE
300 will contribute significantly to sales during 2001.
In order to expand the breadth of product offerings in the SMT
equipment market the Company acquired Kestra(R) Ltd., a UK company in April 1999
for approximately $11.4 million. Kestra had two automated inspection machines
under development that, when completed, would allow the Company to provide
equipment for inspection of circuit boards before and after the reflow oven.
Neither machine had been completed at the time of acquisition. Although the
Company introduced one of these inspection machines (the KS 100(TM)) in early
2000, a longer than anticipated customer acceptance and sales cycle, together
with refinements required to improve acceptance by circuit board manufacturers,
caused revenues to be delayed until the fourth quarter of 2000. The Company
offers a second version (the KS 50(TM)) of the first machine, which can inspect
boards before and after the reflow oven, with fewer features but with a lower
price, starting in the third quarter of 2000. The Company anticipates that these
products will contribute significantly to sales during 2001.
The Company has expanded its presence in the semiconductor industry
with the acquisition of certain assets of HAMA Laboratories, Inc. and
Imagenation(R) Corporation. Both of these companies had developed, or were
developing, optical process control sensors for use with the robotic equipment
that handles semiconductor wafers during the semiconductor fabrication process.
The Company acquired the assets of HAMA Laboratories, Inc. a California company
in May of 1999 for approximately $7.0 million. HAMA had developed and was
selling laser-based semiconductor wafer mapping and alignment sensors and had
several new products under development. Imagenation Corporation, acquired in
October 2000 for approximately $6 million, was an Oregon company that had
developed and sold frame grabbers used to capture digital image data for use
with vision (camera) based inspection systems. Imagenation was also developing
an optical inspection sensor for semiconductor wafer mapping and alignment that
is complementary to the HAMA line. These acquisitions have allowed the Company
to rapidly increase semiconductor sales from $4.0 million
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or 10% of the Company's overall sales in 1999 to $9.2 million or 14% of overall
sales in 2000.
In addition to the influence of these product introductions and
acquisitions, 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. Following a soft microelectronics
equipment market in 1996, the market recovered in 1997, resulting in increased
sales of the LaserAlign and Laser Lead Locator products. The healthy
microelectronics market continued through the second quarter of 1998.
Nevertheless, by the end of the second quarter of 1998, another softening of the
global electronics market, together with weak economic conditions in Japan and
Asia (the largest markets for the Company's SMT electronic assembly sensor
products) resulted in lower sales compared to the prior year through the second
quarter of 1999. During the third and fourth quarters of 1999, global
microelectronic markets, including those in Japan and Asia, significantly
strengthened resulting in increased levels of shipments into the SMT electronic
assembly market. This more robust market continued into 2000, resulting in
record sales of both the Company's SMT sensor and semiconductor sensor products.
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 high value-added software
that controls the hardware and filters and converts raw data into application
specific information. Software represents a significant portion of the
CyberOptics research and development effort and distinguishes CyberOptics'
intelligent sensors and systems from simpler data-gathering products.
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 group, which has generated
the majority of the Company's sales during the past three 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.
Two sensors, the LaserAlign and the Laser Lead Locator, account for a
majority of the Company's product sales and the vast majority of sales in the
SMT Electronic Assembly Sensors product group. 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 (primarily LaserAlign sensors) to Juki Corporation and
Assembleon N.V., accounted for approximately 24% and 30% of the Company's
revenue in 2000, and approximately 15% and 34% of the Company's revenue in 1999,
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.
LASERALIGN Sensors. 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.
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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 has been 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 53%, 54% and 59% of the Company's revenue in
the years ended December 31, 2000, 1999, 1998, 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. Misaligned,
bent or damaged leads will result in missed connections, open circuits and
ultimately a defective end product.
The Laser Lead Locator ensures the coplanarity of component leads. 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. Components meeting these parameters are placed
on the printed circuit board. Parts falling outside the specified tolerances are
rejected before placement, saving both time and money.
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
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The semiconductor product group emerged in 1999 with the acquisition of
certain assets of HAMA Laboratories, Inc. The Company is building a product
group that supplies sensors to the semiconductor wafer robotic handling
equipment market on an OEM basis. This product group develops, manufactures and
sells sensor products for incorporation into the products of OEM's, primarily in
the semiconductor equipment market. In this product group, the Company works
closely with its OEM customers to integrate sensors into their equipment for
resale. Also included in this product group's revenues are general industrial
measurement system products (which were divested during 2000) and frame grabber
and machine vision subsystem products developed and sold by Imagenation.
Imagenation revenues have been included subsequent to being acquired in October
2000. The Company made a strategic decision to exit the industrial measurement
to focus on the SMT and semiconductor markets. The Company will continue to
manufacture and sell industrial measurement sensors on an OEM basis through the
electronic assembly sensor product group. The Company divested the Cobra laser
profiling system product line in November 1999 and the Vantage laser profiling
product line in March 2000.
WAFER MAPPING AND ALIGNMENT SENSORS. Through HAMA(TM) Sensors Inc., 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 group sells 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 an internally developed software.
SE 200(TM) (FORMERLY CYBERSENTRY 2000). The SE 200 is an in-line system
that measures the solder paste after the first step in 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.
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. The SE 200
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. The SE 200 inspects solder
paste deposits on a selected sampling basis.
Shipments of the SE 200 product accounted for approximately 12%, 18%,
and 16% of the Company's revenue for the years ended December 31, 2000, 1999,
and 1998, respectively.
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SE 300(TM). During early 1997, the Company introduced an improved
version of the SE 200 capable of performing measurement tasks more rapidly.
However, as the SE 200 was still not able to inspect 100% of the circuit board,
the Company began development efforts on the SE 300, which has significantly
greater speed, accuracy and resolution which allows it to measure the smallest
chip scale packages and micro ball array component sites. The in-line SE 300 was
introduced in March 2000, and was made available for sale in the fourth quarter
of 2000.
LSM 300(TM) (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(TM). Initially introduced in 1999, 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. The KS 100 has a significantly higher software component than previous
SMT systems products and operates on a less sophisticated mechanical platform.
Initial revenues were recognized on the KS 100 in the fourth quarter of 2000.
KS 50(TM). During 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.
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 200 and LSM 300 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 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 and semiconductor capital
equipment manufacturers. The Company maintains a foreign development office in
the UK, but has not had sales originating from locations other than the United
States. In 2001, sales of the KS 100 system will be originating in the UK. 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,
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including sales delivered through distributors) by location during the past
three years:
Year Ended December 31,
2000 1999 1998
-------- -------- --------
Asia...................... 37% 30% 44%
Europe.................... 35% 42% 34%
Other (1)................. 1% 5% 4%
(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. The poor economic conditions in Asia
affected the buying patterns of one of the Company's largest single OEM
customers during 1999, as well as several other customers in Japan. Although
most of the products sold by these OEM customers are for re-export to America
and Europe, the significant decrease in capital purchases by their end-user
customers in Asia effected sales and contributed to the relative decrease in
concentration of sales in Asia during 1999. Sales to Asia recovered in 2000.
SALES AND MARKETING
Electronic Assembley sensors and Semiconductor products are sold by
direct sales staff located in Minnesota, California, and Oregon where they sell
to large OEM customers. End user systems has direct sales personnel located in
Minnesotta and throughout the USA, as well as in the UK. End user systems direct
sales personnel call on large national and international accounts, as well as
supervise independent representatives and distributors. The Company also has
agreements with 13 representatives and distributors in North and South America
who focus primarily on products sold to end-users. Most sales to international
end-users of systems are made through 18 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. Product backlog was $11.7
million on December 31, 2000, as compared to $11.4 million at December 31, 1999
and $5.7 million at December 31, 1998. Approximately $11.2 million of the 2000
backlog is deliverable in the first quarter of 2001 with the remaining $0.5
million deliverable in the remainder of 2001. 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
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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 2000 were primarily directed at
developing the SE 300, the KS 100, the latest version of the LaserAlign
technology, new alignment cameras for pick-and-place equipment and enhanced
wafer mapping sensors. During 2001, CyberOptics intends to continue to expend
significant sums on enhancements and upgrades of the SE 300, KS 100, and KS 50
and on various Electronic Assembly Sensor products including another version of
the LaserAlign technology. 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 $9.0 million, $9.2 million, and
$7.0 million for the years ended December 31, 2000, 1999 and 1998, respectively.
These amounts represented 14%, 23% and 19% of revenues, respectively. The
Company anticipates that research and development expenditures will continue at
approximately 15% of revenue in 2001. 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
are assembled in Redwood City, CA., and 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).
Page 9
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., 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.
The Company's semiconductor products face competition in the wafer
mapping and alignment market primarily from manufacturers of through-beam
sensors. Potential competitors in this market include Banner Engineering
Corporation, Omron, Ltd (Japan), Keyence, Ltd (Japan), and systems developed by
OEM's using their own design staff for incorporation in their products. The
Company believes that its sensors compete favorably in this market based on
performance and the unique reflective mode of operations. In addition, as the
next generation of semiconductor wafers become more widely accepted (300
millimeter), changes in the configuration of wafer transport cassettes will make
it more difficult for through-beam sensors to be used for mapping.
The Company's SMT System products compete primarily in the market for
3-D solder paste inspection. The competitor in this market is primarily GSI
Lumonics, Inc. (SVS division). 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 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 100 and KS 50 products face competition from over 40
AOI companies, the most significant being Agilent, Photon Dynamics (CR
Technology Division) 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, 2000, the Company had 275 full-time and 7 part-time
worldwide employees, including 54 in sales and marketing and customer support,
81 in manufacturing, purchasing and production engineering, 104 in research and
development and 43 in finance, administration and information services. Of these
employees, 217 are located at the corporate headquarters in Minneapolis and 65
are located at subsidiary locations (21 in the UK and 15 in California, and 29
in Oregon). To date, the Company has been successful in attracting and retaining
Page 10
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.
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 57 patents (21 US and 36 foreign)
on a number of its technologies, including those used in its Laser Lead Locator,
LaserAlign, DRS 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 89 pending patents, 30 US and 59
foreign. The Company also has 10 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 8 registered trademarks, 4 of
which are foreign. An additional 6 trademarks are pending. The Company also has
several commonlaw 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, and CyberOptics Ltd. (formerly Kestra Ltd.) lease office and
warehouse facilities in California, Oregon, and the UK, respectively. The HAMA
lease expires in September 2004, the Imagenation lease expires in 2002, and the
Cyber Limited lease expires in June 2013.
Page 11
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 1999.
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.
2000 1999
---------------------- ----------------------
Quarter High Low High Low
--------------- --------- --------- --------- ---------
First $29.96 $18.29 $13.87 $ 7.83
Second 47.00 22.25 10.83 7.00
Third 49.19 17.50 12.33 9.83
Fourth 25.36 13.63 18.71 11.37
As of March 27, 2001, the Company estimates that there were 220 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,
although it may pay dividends in the future.
ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR FINANCIAL SUMMARY
CyberOptics Corporation
(In thousands, except per share information)
Year Ended December 31 2000(1) 1999(2) 1998 1997 1996
Revenues $ 64,036 $ 39,627 $ 36,636 $ 35,120 $ 28,062
Income (loss) from Operations 11,369 (5,932) 3,184 4,588 885
Cummulative Effect of Change
In Accounting Principle (135) -- -- -- --
Net Income (loss) 7,089 (5,496) 3,669 4,597 2,180
Net Income (loss) per Share:
Basic 0.91 (0.74) 0.47 0.58 0.26
Diluted 0.84 (0.74) 0.46 0.55 0.25
Cash and Marketable Securities $ 28,285 $ 23,101 $ 38,502 $ 41,027 $ 37,309
Working Capital 34,535 27,900 32,308 36,236 32,395
Total Assets 68,817 51,464 55,177 57,445 50,316
Stockholders' Equity 59,783 46,504 51,433 53,293 47,468
(1) 2000 results include a $0.25 per diluted share, non-recurring 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.
Page 12
(2) 1999 results include a $0.95 per share, net of tax, non-recurring charge for
acquired in-process research and development.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Statements in this management discussion and analysis of financial
condition and results of operations and elsewhere in this Form 10-K that are not
based on historical fact, are forward looking, and involve certain risks and
uncertainties, including but not limited to the factors set forth in exhibit 99
to this Form 10-K.
GENERAL BUSINESS AND STRATEGIC OVERVIEW:
CyberOptics Corporation 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, machine vision and optics technology
combined with advanced 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 during production
processes. The Company generates approximately 86% of its revenues from the
sales and service of sensors and system products used primarily in Surface Mount
Technology (SMT) circuit board production. Consequently, revenues are highly
dependent on the level of capital spending in the global SMT assembly market,
which began to experience a slowdown in early 1998 that lasted through the first
half of 1999. The slowdown in worldwide demand for SMT production equipment was
more pronounced in the Asian markets and had a significant impact on the level
of orders from large OEM customers. During the second half of 1999 and
throughout 2000 the SMT market has significantly strengthened, resulting in
higher revenues and order rates.
During 2000, the Company significantly increased revenues from the
sales of sensors to the semiconductor capital equipment market, as semiconductor
product group revenues grew to approximately 14% of total revenue. This growth
is the result of a strategic initiative to enter the semiconductor capital
equipment market started in 1999 with the acquisition of certain assets of HAMA
Laboratories. During 2000, the company made an additional investment to further
strengthen its position in this market by acquiring Imagenation Corporation in
October 2000. Imagenation, designs and manufactures machine vision components
and subsystems for the semiconductor and general purpose machine vision markets,
and has focused its strategy and new product development on products for the
semiconductor capital equipment market. As of the acquisition date, Imagenation
had two products under development that resulted in a non tax-deductible charge
for in-process research and development of $2.1 million.
RESULTS OF OPERATIONS FOR THE THREE YEARS ENDED DECEMBER 31, 2000
REVENUES
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 service
support, until the service has been performed. The impact of adopting the
provisions of SAB No. 101 was a $135,000 cumulative effect charge, net of tax,
effective January 1, 2000.
Revenues increased 62% to $64.0 million in 2000 from $39.6 million in
1999, and increased 8% in 1999 from $36.6 million in 1998. The following table
sets forth, for the years indicated, revenues by product group:
Page 13
2000 1999 1998
---- ---- ----
OEM Solutions:
Electronic Assembly Sensors $43,415 $26,268 $26,713
Semiconductor Products 9,213 4,037 2,417
SMT Systems 11,408 9,322 7,506
------- ------- -------
Total $64,036 $39,627 $36,636
Revenues from Electronic Assembly Sensors product group increased $17.1
Million or 65% during 2000 compared to 1999, and decreased $445,000 or 2% during
1999 compared to 1998. During 2000, revenues for Electronic Assembly Sensors,
primarily the Company's LaserAlign and Laser Lead Locator sensors, grew
dramatically as recovering demand in Asian markets continued, and markets
throughout the world experienced high levels of growth. During 1999, revenues
from Electronic Assembly Sensors, were negatively impacted in the first part of
the year by slow demand in Asian markets. Although Asian demand strengthened
throughout the second half of 1999, full year revenues were slightly below 1998.
The impact of reduced demand in Asia during 1999 was partially offset by
increased revenues generated in Europe, where revenues increased throughout
1999.
Revenues from the Semiconductor Product Group (including revenues from
Imagenation for semiconductor and other applications and revenues from several
divested product lines used in other industrial measurement applications)
increased 128% or $5.2 million in 2000 compared to 1999, following an increase
of $1.6 million or 67% in 1999 compared to 1998. Post-acquisition revenues from
Imagenation contributed $1.2 million to the 2000 revenue increase, while a full
years revenue from HAMA in the year after acquisition contributed $5.6 million
of the revenue growth. These gains in 2000 were partially offset by the loss of
revenues from Industrial Measurement product lines that were divested in 2000.
The increase in 1999 compared to 1998 was due to $1.8 million in revenue
generated by HAMA since the acquisition in May 1999. HAMA's full year 1999
revenues, only the post acquisition component of which is included in the
Company's consolidated revenues, increased 22% in 1999 compared to 1998. HAMA's
revenues are generated from a line of wafer mapping and alignment sensors used
in the semiconductor fabrication process, and represent the Company's entry into
that market.
SMT systems revenues increased $2.1 million or 22% during 2000 compared
to 1999, following an increase of $1.8 million or 24% during 1999 compared to
1998. SMT systems revenues are generated from sales of the Company's solder
paste inspection systems: the SE 200 (formerly the CyberSentry 2000) and LSM 300
(formerly LSM2), which were introduced in their current versions during the
first half of 1997, the SE300 which was introduced during 2000, and the KS 100
introduced in late 1999. The SE 300 and KS 100 generated initial revenues in the
fourth quarter of 2000. Increased SMT Systems revenues in 2000 and 1999 were the
result of increased demand from electronic manufacturing services (EMS)
companies, which are becoming an increasingly large segment of the worldwide SMT
production market. The Company is continuing to see the demand for inspection
equipment increase as production becomes more difficult due to smaller component
sizes and increased production speeds. SMT systems revenues are expected to
continue to increase in 2001 as the first full year of revenue for the new SE
300, KS 100, and KS 50 products.
International revenue totaled $46.9 million in 2000, $30.6 million in
1999 and $29.9 million in 1998, comprising 73%, 77% and 82% 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 increased to 63% of sales in 2000 from 57% in 1999 and 55%
in 1998. 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 2000, gross margin was positively impacted by
higher revenue levels, by lower warranty costs and by increased revenue from the
semiconductor product group, which has 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. During 1999, gross margin was positively impacted relative to 1998 by
a shift in the OEM sensor revenue mix towards higher margin sensor products and
by a partial year of revenues from the HAMA acquisition.
Page 14
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses decreased 2% to $9.0 million in 2000
compared to $9.2 million in 1999 and $7.1 million in 1998. As a percentage of
revenues, research and development expenses were 14% in 2000, compared to 23%
and 19% in 1999 and 1998, respectively. The decrease in research and development
expenses in 2000 compared to 1999 was primarily the result of approximately
$875,000 of funded development recognized as a reduction in research and
development expenses. This reduction 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
groups. Increased research and development expense in 1999 is due primarily to
the acquisition of Kestra in April 1999 and increased development spending
required to complete new SMT systems products introduced in 2000. Payments to
the Company for customer funded research and development are deferred and
recognized as a reduction of research and development expenses as costs are
incurred. There was no customer funded research and development in 1999 or 1998.
During 2000 and 1999, 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) and
HAMA, enhancements to the semiconductor wafer mapping sensor product family,
completion of the next generation of the LaserAlign products and development of
a board alignment camera. During 2000, research and development expenses also
related to the continued development of the in-process technologies acquired
from Imagenation. During 1999, research and development efforts were primarily
focused on continuing development work on the LaserAlign technology, including
the next generation of LaserAlign products, completion of the new family of
industrial measurement scan stations and sensors and development of additional
future product offerings for solder paste inspection. The Company expects that
research and development expenses will approximate 15 percent of revenues in
future periods and therefore that expenditures for research and development will
expand commensurate with the growth of the Company's operations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased 45% to $15.5
million in 2000 compared to $10.7 million in 1999 and $9.9 million in 1998. As a
percentage of revenue, selling, general and administrative expenses were 24% in
2000 and 27% in 1999 and 1998. The 2000 dollar increase in selling general and
administrative expenses 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. During 1999, the dollar increase in selling general and
administrative expenses was primarily due to additional costs incurred at Kestra
and HAMA, and the costs associated with operating two remote subsidiaries.
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT AND OTHER
On October 24, 2000, the Company acquired Imagenation(R) Corporation
("Imagenation"). At the time of acquisition, Imagenation had two products under
development. The first is a new generation of frame grabber ("Bluebird") that,
if successfully developed, will contain features that greatly exceed the
performance of current products. 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 is not deductible, for income
tax reporting purposes.
Page 15
During the fourth quarter of 2000, the Company made a decision to abandon the
development of the FirstCheck(TM) product line, using technology originally
acquired in 1999. Accordingly, intangible assets with a net book value of
$308,000 were deemed to be 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 is considering additional
product offerings for both pre-oven and post-oven applications in 2001.
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. These factors could impact the product development and
release schedule.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLE ASSETS
Amortization of acquired intangible assets was $1.8 million during
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. Except for the impact of contengent consideration relative to the HAMA and
Imagenation acquisitions, the amount of which is not yet determinable,
amortization of these intangible assets is expected to remain constant at
approximately $2.4 million per year over the remaining life of the intangible
assets and goodwill, which ranges from 4 to 7 years.
Page 16
EFFECTIVE TAX RATE
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.
The Company's effective tax rate was 32% in 1998. Benefits from the
Company's foreign sales corporation and the use of the research and development
tax credit were primarily responsible for reducing the effective tax rate below
the statutory federal rate in 1998.
FINANCIAL INSTRUMENTS
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, at the direction of management, manages the portfolio. The
investment policy dictates that marketable securities consist of U.S. Government
or U.S. Government agency securities with maturities of three years or less and
an average portfolio maturity of not more that 18 months. As of December 31,
2000 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 $160,000. If such a
rate increase occurred, the Company's net income would only be impacted if
securities were sold prior to maturity.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and marketable securities increased $5.2
million to $28.3 million as of December 31, 2000 from $23.1 million as of
December 31, 1999, primarily due to $9.6 million of cash generated by operations
and $4.0 of cash provided by other common stock related financing activities.
These sources of cash were partially offset by $6.0 million of cash used to
acquire businesses and $2.5 million used to purchase fixed assets.
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 generated
$4.9 million of cash from operations during 1999, primarily due to the net loss
of $5.5 million, offset by $9.9 million of non-cash charges for IPR&D,
depreciation and amortization and the provision for inventory obsolescence. The
cash generated from operations also included a decrease of $780,000 in
inventories and a $469,000 increase in accounts payable. These increases in cash
were partially offset by an increase in accounts receivable of $1.1 million. The
decrease in inventories is primarily due to management initiatives to reduce
inventories in 1999. The changes in accounts payable and accounts receivable are
primarily due to increased activity levels during the second half of 1999
related to revenue growth.
Page 17
The Company used $10.7 million of cash for investing activities in
2000 compared to generating $2.0 million in 1999. 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. Cash generated from investing activity in 1999
includes $20.4 million from the change in the level of investment in marketable
securities resulting from purchases and maturities of those securities, which
was mostly offset by the use of $17.2 million of cash to purchase businesses and
technology and $1.3 million used for the purchase of fixed assets and other
intangibles.
The Company generated $4.0 million of cash from financing activities in
2000, and used $1.7 million 1999. During 2000, all of the cash was generated by
stock related transactions, primarily stock option exercises and Employee Stock
Purchase Plan share purchases. During 1999, cash used primarily reflects the
repayment of $2.4 million of debt of Kestra following the acquisition, partially
offset by cash generated from stock option exercises and the issuance of stock
under the Employee Stock Purchase Plan.
The Company has made no material capital commitments, although
management is seeking strategic acquisition candidates that it believes will
provide a higher level of return on assets to stockholders. The Company believes
current working capital and anticipated funds from operations will be adequate
for anticipated operating needs.
OTHER FACTORS
Changes in revenues have resulted primarily from changes in the level
of unit shipments and new product introductions. 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 effect the Company's revenue
and income per unit, they can influence the price competitiveness of the
Company's products relative to other technologies 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 does not believe that currency fluctuations will
have a material impact on its consolidated financial statements
RECENT ACCOUNTING DEVELOPMENTS
In June 1999 the FASB issued Statement of Accounting Standards No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
effective date of FASB Statement No. 133." SFAS No. 137 establishes accounting
and reporting standards for derivative instruments, including derivative
instruments embedded in other contracts, and for hedging activities. SFAS 137,
as amended by SFAS No. 138, is effective for the Company in the first quarter of
the year beginning January 1, 2001. Management believes that the adoption of
SFAS 137 will not have an impact on the Company's operating results.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Included in, and incorporated by reference to, the caption "Financial
Instruments" in Item 7 above.
Page 18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
CYBEROPTICS CORPORATION
(In thousands)
December 31, 2000 1999
- --------------------------------------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 13,097 $ 10,196
Marketable securities 6,650 8,509
Accounts receivable, less allowance for
doubtful accounts of $135 and
$124 in 2000 and 1999, respectively 12,470 7,762
Inventories 9,497 4,997
Other current assets 877 661
Deferred Tax Assets 833 735
- --------------------------------------------------------------------------------------------------------------
Total current assets 43,424 32,860
Marketable securities 8,538 4,396
Equipment and leasehold improvements, net 3,944 2,705
Intangible and other assets, net 12,911 11,143
Deferred Tax Assets -- 360
- --------------------------------------------------------------------------------------------------------------
Total assets $ 68,817 $ 51,464
==============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 3,433 $ 1,886
Income taxes payable 345 879
Accrued expenses 5,111 2,195
- --------------------------------------------------------------------------------------------------------------
Total current liabilities 8,889 4,960
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,
7,952 and 7,527 shares issued and outstanding, respectively 39,714 33,479
Accumulated other comprehensive income (loss) (49) (4)
Retained earnings 20,118 13,029
- --------------------------------------------------------------------------------------------------------------
Total stockholders' equity 59,783 46,504
- --------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 68,817 $ 51,464
==============================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
Page 19
CONSOLIDATED STATEMENTS OF OPERATIONS
CYBEROPTICS CORPORATION
(In thousands, except per share amounts)
Year ended December 31, 2000 1999 1998
- ------------------------------------------------------------------------------------------
Revenues $ 64,036 $ 39,627 $ 36,636
Cost of revenues 23,935 17,143 16,499
- ------------------------------------------------------------------------------------------
Gross margin 40,101 22,484 20,137
Research and development expenses 8,945 9,168 6,991
Selling, general and administrative expenses 15,521 10,737 9,881
Acquired in-process research and development
and other 2,438 7,301 --
Amortization of goodwill and other intangibles 1,828 1,210 81
- ------------------------------------------------------------------------------------------
Income (loss) from operations 11,369 (5,932) 3,184
Interest income and other 1,305 1,499 2,220
- ------------------------------------------------------------------------------------------
Income (loss) before income taxes and
cumulative effect of change in
accounting principle 12,674 (4,433) 5,404
Provision for income taxes 5,450 1,063 1,735
- ------------------------------------------------------------------------------------------
Income (loss) before cumulative effect
of change in accounting principle 7,224 (5,496) 3,669
Cumulative effect of change in accounting
Principle, net of tax (135) -- --
- ------------------------------------------------------------------------------------------
Net income (loss) $ 7,089 $ (5,496) $ 3,669
==========================================================================================
Net income (loss) per share - Basic $ 0.91 $ (0.74) $ 0.47
Net income (loss) per share - Diluted $ 0.84 $ (0.74) $ 0.46
==========================================================================================
Weighted average shares outstanding - Basic 7,777 7,478 7,788
Weighted average shares outstanding - Diluted 8,424 7,478 7,980
==========================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
Page 20
CONSOLIDATED STATEMENTS OF CASH FLOWS
CYBEROPTICS CORPORATION
(In thousands)
Year ended December 31, 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 7,089 $ (5,496) $ 3,669
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 -- --
Cummulative effect of change in accounting principle 135 -- --
Depreciation and amortization 3,335 2,468 1,151
Provision for doubtful accounts 11 10 11
Provision for inventory obsolescence 15 361 455
Deferred income taxes 116 (145) (160)
Amortization of restricted stock 79 39 72
Tax benefit from exercise of stock options 2,165 57 307
Changes in operating assets and liabilities:
Accounts receivable (4,363) (1,067) 1,324
Inventories (4,155) 780 (1,889)
Other current assets (179) (43) (37)
Accounts payable 1,270 469 10
Income taxes payable (673) 290 (72)
Accrued expenses 2,305 170 (346)
- ---------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 9,588 4,934 4,495
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of available for sale
marketable securities 10,762 25,608 34,330
Purchases of available for sale marketable securities (12,647) (5,214) (32,854)
Purchases of businesses and technology,
net of cash acquired (6,009) (17,159) --
Additions to equipment and leasehold improvements (2,535) (1,166) (982)
Additions to patents (249) (87) (130)
- ---------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities (10,678) 1,982 364
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of common stock -- -- (6,830)
Repayment of long-term debt (2,364)
Proceeds from exercise of stock options 3,527 303 419
Proceeds from issuance of common stock
under Employee Stock Purchase Plan 464 345 355
- ---------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 3,991 (1,716) (6,056)
Net increase (decrease) in cash and cash equivalents 2,901 5,200) (1,197)
Cash and cash equivalents - beginning of year 10,196 4,963 6,160
- ---------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents - end of year $ 13,097 $ 10,196 $ 4,963
=====================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
Page 21
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, 1997 8,011 $ 38,412 $ 25 $ 14,856 $ 53,293
Tax benefit from exercise of stock options 307 307
Exercise of stock options
net of shares exchanged as payment
and subsequently retired 104 419 419
Issuance of common stock under
Employee Stock Purchase Plan 45 355 355
Repurchase of common stock (750) (6,830) (6,830)
Amortization of restricted stock 15 72 72
Market value adjustments of marketable securities $ 148 148
Net income 3,669 3,669
---------
Comprehensive income 3,817
- ---------------------------------------------------------------------------------------------------------------------------------
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
=================================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
Page 22
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. Utilizing proprietary laser, optics and machine vision
technology combined with advanced 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 intercompany 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, 2000 and 1999, all marketable securities are classified as
available for sale, with a carrying amount of $15,188 and $12,905, 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, 2000
and 1999 or during the years ended December 31, 2000, 1999 and 1998.
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.
Page 23
INTANGIBLE ASSETS
Intangible assets are being amortized on a straight-line basis over periods
ranging from 4 to 7 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 undiscounted cash flows.
REVENUE RECOGNITION
Revenue 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. 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 $135,000 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 costs are incurred 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 common stock
equivalents are those that result from dilutive common stock options. The
calculation of diluted earnings per common share for 2000 and 1998 includes
624,571 and 309,000 of such common stock equivalents, respectively. The
calculation of diluted loss per common share for 1999 excludes 124,000
equivalent shares because their effect would be anti-dilutive.
Page 24
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 comprehansive income (loss).
RECLASSIFICATIONS
Certain prior-year amounts have been reclassified to conform to the current-year
presentation.
RECENT ACCOUNTING DEVELOPMENTS
In June 1999 the FASB issued Statement of Accounting Standards No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
effective date of FASB Statement No. 133." SFAS No. 137 establishes accounting
and reporting standards for derivative instruments, including derivative
instruments embedded in other contracts, and for hedging activities. SFAS 137
was effective for the Company in the first quarter of the year beginning January
1, 2001. Management believes the adoption of SFAS 137 is not expected to have an
impact on the Company's operating results.
NOTE 2 - OTHER FINANCIAL STATEMENT DATA
INVENTORIES CONSIST OF THE FOLLOWING:
- --------------------------------------------------------------------------------
December 31, 2000 1999
- --------------------------------------------------------------------------------
Raw materials and
purchased parts $ 6,311 $ 3,531
Work in process 1,177 912
Finished goods 2,479 1,009
- --------------------------------------------------------------------------------
9,967 5,452
Allowance for obsolesence (470) (455)
- --------------------------------------------------------------------------------
$ 9,497 $ 4,997
================================================================================
EQUIPMENT AND LEASEHOLD IMPROVEMENTS CONSIST OF THE FOLLOWING:
- --------------------------------------------------------------------------------
December 31, 2000 1999
- --------------------------------------------------------------------------------
Equipment $ 8,135 $ 5,769
Leasehold improvements 1,115 1,029
- --------------------------------------------------------------------------------
9,250 6,798
Accumulated
depreciation and amortization (5,306) (4,093)
- --------------------------------------------------------------------------------
$ 3,944 $ 2,705
================================================================================
Page 25
INTANGIBLE AND OTHER ASSETS CONSIST OF THE FOLLOWING:
- --------------------------------------------------------------------------------
December 31, 2000 1999
- --------------------------------------------------------------------------------
Goodwill $ 9,029 $ 7,331
Acquisition-related Intangibles 6,175 4,564
Capitalized patent costs 946 697
Other 355 302
- --------------------------------------------------------------------------------
16,505 12,894
Accumulated Amortization (3,594) (1,751)
- --------------------------------------------------------------------------------
Total intangible and other
assets, net $12,911 $11,143
================================================================================
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.
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 is $110 as of December
31, 2000, and is included in other assets.
ACCRUED EXPENSES CONSIST OF THE FOLLOWING:
- --------------------------------------------------------------------------------
December 31, 2000 1999
- --------------------------------------------------------------------------------
Wages and benefits $ 3,304 $ 925
Deferred Revenue 506 40
Warranty costs 312 412
Other 989 818
- --------------------------------------------------------------------------------
$ 5,111 $ 2,195
================================================================================
NOTE 3 - ACQUISITIONS
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
================================================================================
Page 26
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, if
successfully developed, will contain 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. Additionally, the complexity of the logic
design required to successfully develop Bluebird is high because the design can
not be completed utilizing commercially available DMA (direct memory access)
controllers and video processing chips. The estimated fair value of the project
Bluebird acquired in-process research and development technology was $280,000.
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 $1,850,000.
These in-process research and development amounts were expensed as a
non-recurring 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 cause
Bluebird frame grabber and the VisionCell projects to fail. 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 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 non-recurring
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, occured on that date (in thousands):
Page 27
- --------------------------------------------------------------------------------
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-recurring, 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.
Page 28
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.
Based on market feedback from current systems, the Company is considering
additional product offerings for both pre-oven and post-oven applications later
in 2001.
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. 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
Direct acquisition costs 169
HAMA liabilities assumed 33
Total Purchase Price 7,197
Estimated fair value of tangible
assets acquired (approximates
recorded book value) 479
- --------------------------------------------------------------------------------
Purchase price in excess of estimated
fair value of tangible assets acquired $ 6,718
================================================================================
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 1,800
- --------------------------------------------------------------------------------
$ 6,718
================================================================================
Valuation of the purchased in-process research and development, current
technology and trademarks was conducted by a nationally recognized independent
third-party appraisal company.
Page 29
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: $82,000
Six-Inch Laser Micrometers: $210,000
Mini Through Beam Micrometers: $55,000
Customizable Kit Micrometers: $424,100
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, occured on that date (in thousands):
- --------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------
Revenue $ 40,422 $ 38,786
Net income (loss) $ 655 $ 301
Net income (loss)
per share - Basic $ 0.09 $ 0.04
Net income (loss)
per share - Diluted $ 0.09 $ 0.04
- --------------------------------------------------------------------------------
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 $308,000 was considered impaired and was
written off as an other non-recurring charge.
Page 30
NOTE 4 - INCOME TAXES
THE PROVISION FOR INCOME TAXES CONSISTS OF THE
FOLLOWING:
- --------------------------------------------------------------------------------
2000 1999 1998
- --------------------------------------------------------------------------------
Current:
Federal $ 4,979 $ 1,454 $ 1,820
State 518 14 75
Deferred (47) (405) (160)
- --------------------------------------------------------------------------------
$ 5,450 $ 1,063 $ 1,735
================================================================================
DEFERRED TAX ASSETS (LIABILITIES) CONSIST OF THE FOLLOWING:
- -----------------------------------------------------------------------
December 31, 2000 1999
- -----------------------------------------------------------------------
Current deferred tax assets (Liabilities):
Inventory allowances $ 354 $ 162
Vacation accrual 147 98
Accounts receivable
allowances 58 41
Warranty accrual 121 144
Other, net 153 290
- ------------------------------------------------------------------------
Total 833 735
- ------------------------------------------------------------------------
Non-current deferred tax assets (liabilities):
Intangible amortization (458) 360
Net operating loss
carryforwards 2,712 1,667
- ------------------------------------------------------------------------
Sub-Total 2,254 2,317
Valuation allowance (2,399) (1,667)
- ------------------------------------------------------------------------
Total (145) 360
- ------------------------------------------------------------------------
Net deferred tax asset $ 688 $ 1,095
========================================================================
The majority of net operating loss carryforwards, $7,996, 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 probable, the valuation allowance
will be reversed. Approximately $4,000 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 $896 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.
Page 31
A RECONCILIATION OF THE STATUTORY RATE TO THE EFFECTIVE INCOME TAX RATE IS AS
FOLLOWS:
- -------------------------------------------------------------------------------
2000 1999 1998
- -------------------------------------------------------------------------------
Federal statutory rate 34.0% (34.0%) 34.0%
Increase (decrease)
resulting from:
State income taxes, net
of federal benefit 2.2 0.5 1.1
FSC benefit, net of
FSC taxes (4.7) (2.1) (3.5)
R&E credit (3.0) (8.2) (4.5)
Foreign rate difference 0.4 7.8
Acquired IPR&D 5.9 44.2
Valuation allowance 10.5
Non-deductible goodwill 8.0 4.8
Other, net 0.7 0.5 5.0
- -------------------------------------------------------------------------------
Effective rate 43.5% 24.0% 32.1%
===============================================================================
Cash payments for income taxes for the years ended December 31, 2000, 1999 and
1998, were approximately $3,759, $1,138 and $1,663 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 three subsidiaries, under operating leases which expire
from September 2004 through June 2013.
Total rent expense for the years ended December 31, 2000, 1999 and 1998, was
approximately, $994, $905 and $810, respectively.
At December 31, 1999, the future minimum lease payments required under
noncancellable operating lease agreements, are as follows:
Year ending December 31,
2001 $ 891
2002 865
2003 745
2004 730
2005 686
Thereafter 850
- ----------------------------------------------
Total $ 4,767
==============================================
NOTE 6 - 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 February 1998, the Company's Board of Directors authorized the repurchase of
up to 750,000 shares of common stock for the purpose of providing the necessary
common stock for the Company's stock option and employee stock purchase plans.
In 1998, all 750,000 shares were repurchased through open market purchases,
block transactions or privately negotiated purchases. In October 1998, the
Company's Board of Directors authorized the repurchase of up to an additional
375,000 shares of common stock. No shares were repurchased under the second
authorization, which expired in October 1999. 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.
Page 32
NOTE 7 - BENEFIT PLANS
STOCK OPTION PLAN
The Company has three stock option plans for which it has reserved 1,534,854
shares of common stock in the aggregate for issuance to employees, directors,
officers and others. In addition, there are 150,000 shares reserved, and
included in the following summaries, for issuance to an executive 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 2000 1999 1998
- --------------------------------------------------------------------------------
Granted 311,634 488,400 352,575
Exercised (401,014) (56,256) (115,580)
Forfeited (112,383) (56,085) (118,127)
December 31:
Outstanding 1,373,540 1,575,303 1.199,244
Exercisable 557,787 619,331 414,501
Weighted average exercise price
per share 2000 1999 1998
- --------------------------------------------------------------------------------
Granted $ 26.11 $ 8.96 $ 11.44
Exercised 10.06 5.40 5.14
Forfeited 11.82 8.28 9.33
December 31:
Outstanding 13.88 10.07 10.23
Exercisable 10.36 9.87 8.53
================================================================================
Stock options outstanding as of December 31, 2000, had a range of exercise
prices of $4.00 to $49.13 and a weighted average remaining contractual life of
approximately 4.2 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 3.83 years
$7.00 to $9.99 447,415 186,030 2.72 years
$10.00 to $19.99 526,625 277,257 5.18 years
$20.00 to $29.99 260,400 13,500 4.82 years
Over $30.00 58,100 0 4.60 years
================================================================================
Page 33
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:
- --------------------------------------------------------------------------------
2000 1999 1998
- --------------------------------------------------------------------------------
Net Income:
As reported $ 7,089 $(5,496) $ 3,669
Pro forma $ 5,706 $(7,249) $ 2,173
Net income per share:
As reported - Basic $ 0.91 $ (0.73) $ 0.47
Pro forma - Basic $ 0.73 $ (0.97) $ 0.28
As reported - Diluted $ 0.84 $ (0.73) $ 0.46
Pro forma - Diluted $ 0.68 $ (0.97) $ 0.27
The weighted-average grant-date fair value of options granted during 2000, 1999
and 1998 was $15.39, $5.06 and $6.45, 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:
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Risk-free interest rates 6.22% 5.27% 6.39%
Expected life 4 years 4 years 4 years
Expected volatility 72.92% 68.47% 63.97%
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, 2000, 309,729 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 2000, 1999 and 1998, the Company provided for matching
contributions totaling $198, $155, and $157, respectively.
Page 34
NOTE 8 - 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
President, evaluates revenue performance based on worldwide revenues of each
major product group and profitability on an enterprise-wide basis due to shared
manufacturing, research and development and administrative services. Revenues by
product group were as follows:
- --------------------------------------------------------------------------------
Year ended December 31, 2000 1999 1998
- --------------------------------------------------------------------------------
OEM Solutions:
Electronic Assembly Sensors $ 43,415 $ 26,268 $ 26,713
Semiconductor Products 9,213 4,037 2,417
SMT systems 11,408 9,322 7,506
- --------------------------------------------------------------------------------
$ 64,036 $ 39,627 $ 36,636
================================================================================
THE FOLLOWING SUMMARIZES CERTAIN SIGNIFICANT CUSTOMER INFORMATION:
Significant Percentage
Customer Revenues of Revenues
- --------------------------------------------------------------------------------
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%
Year ended
December 31, 1998 A $ 9,700 27%
B $10,797 30%
As of December 31, 2000, accounts receivable from significant customers A and B
were $2,310 and $1,716, respectively. As of December 31, 1999, accounts
receivable from significant customers A and B were $2,077 and $2,467,
respectively.
Export sales amounted to 73%, 77% and 82% of revenues for 2000, 1999 and 1998,
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:
- --------------------------------------------------------------------------------
2000 1999 1998
- --------------------------------------------------------------------------------
Americas $ 404 $ 1,888 $ 1,400
Europe 22,847 16,759 12,237
Asia 23,593 11,858 16,169
Other 5 132 117
- --------------------------------------------------------------------------------
$ 46,849 $ 30,637 $ 29,923
================================================================================
Page 35
NOTE 9 - 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 10 - QUARTERLY FINANCIAL INFORMATION
(In thousands, except per share amounts)
2000 (UNAUDITED) MARCH 31(2) JUNE 30(3) SEPT. 30(4) DEC. 31(5)
- --------------------------------------------------------------------------------------------
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
1999 (UNAUDITED) MARCH 31 JUNE 30(6) SEPT. 30 DEC. 31
- --------------------------------------------------------------------------------------------
Revenues $ 7,705 $ 8,811 $ 10,418 $ 12,693
Gross margin 4,168 4,906 6,047 7,364
Income from operations 252 (7,613) 352 1,078
Net income (loss) 552 (7,249) 201 1,000
Net income (loss) per share - Basic (1) 0.07 (0.97) 0.03 0.13
Net income (loss) per share - Diluted (1) 0.07 (0.97) 0.03 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) The results of the first quarter ended March 31, 2000 have been reduced from
the previously reported amount by a $135 net-of-tax charge to earnings for
the cumulative affect of adopting changes required by the Securities and
Exchange Commission Staff Accounting Bulletin No. 101, effective January 1,
2000. Additionally, revenue, gross margin, and income from operations have
all been reduced from previously reported amounts by $11, and net income has
been reduced from the previously reported amount by $7 for the quarterly
effect of adopting SAB No. 101.
(3) The revenue, gross margin, and income from operations for the quarter ended
June 30, 2000 have all been increased from previously reported amounts by
$2, and net income has been increased from the previously reported amount by
$1 for the quarterly effect of adopting SAB No. 101.
(4) The revenue, gross margin, and income from operations for the quarter ended
September 30, 2000 have all been reduced from previously reported amounts by
$5, and net income has been reduced from the previously reported amount by
$3 for the quarterly effect of adopting SAB No. 101.
(5) Includes a $0.25 per diluted share, net of tax, non-recurring charge for
acquired in-process research and development and a $0.03 charge for the
write-off of impaired intangible assets. Additionally, revenue, gross
margin, and income from operations have all been increased from previously
reported amounts by $14, and net income has been increased from the
previously reported numbers by $10 for the quarterly effect of adopting SAB
No. 101.
(6) Includes a $0.95 per share, net of tax, non-recurring charge for acquired
in-process research and development.
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
financial position of CyberOptics Corporation as of December 31, 2000 and 1999,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2000, 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 the opinion.
Page 36
As discussed in Note 1, the Company changed its revenue recognition policy to
conform to the requirements of Staff Accounting Bulletin No. 101.
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
February 2, 2001
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 heading "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 18, 2001
(hereafter, the "Proxy Statement"), is hereby incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information under the heading "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 heading "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 Agreement for the sale and purchase of the entire issued share
capital of Kestra Limited (incorporated by reference to
Exhibit 2.1 to the Company's Current Report on Form 8-K filed
April 21, 1999).
Page 37
2.2 Tax Deed between Michael Bowes, John Tinning, Christopher
Brook Jackson, Manchester Technology Developments, Ltd and
CyberOptics Corporation (incorporated by reference to Exhibit
2.2 to the Company's Current Report on Form 8-K filed April
21, 1999).
2.3 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).
2.4 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
3.2 to the Company's Registration Statement on Form S-18
(Registration No. 33-17628C) (the "Registration Statement")).
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 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.
10.4 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
Page 38
(b) REPORTS ON FORM 8-K
Report on Form 8-K dated November 8, 2000, filed in connection with the
acquisition of Imagenation.
(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 2, 2001
SCHEDULE II
CYBEROPTICS CORPORATION
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
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, 2000 $ 124,188 $ 10,812 $ -- $ 135,000
Year ended December 31, 1999 $ 124,811 $ 10,000 $ 10,623 $ 124,188
Year ended December 31, 1998 $ 125,006 $ 11,470 $ 11,665 $ 124,811
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, 2000 $ 450,000 $ 504,883 $ (484,883) $ 470,000
Year ended December 31, 1999 $ 880,142 $ 361,180 $ (781,322) $ 455,000
Year ended December 31, 1998 $ 675,000 $ 454,753 $ (249,611) $ 880,142
Page 39
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 24, 2001 By /s/ STEVEN M. QUIST
-------------------
Steven M. Quist,
President and CEO
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 President and CEO March 24, 2001
- -------------------------- (Principal Executive Officer)
Steven M. Quist
/s/ STEVEN K. CASE Chairman and Director March 23, 2001
- --------------------------
Steven K. Case
/s/ ALEX B. CIMOCHOWSKI Director March 22, 2001
- --------------------------
Alex B. Cimochowski
/s/ KATHLEEN P. IVERSON Director March 21, 2001
- --------------------------
Kathleen P. Iverson
/s/ MICHAEL M. SELZER, JR. Director March 22, 2001
- --------------------------
Michael M. Selzer, Jr.
/s/ IRENE QUALTERS Director March 23, 2001
- --------------------------
Irene Qualters
/s/ ERWIN KELEN Director March 26, 2001
- --------------------------
Erwin Kelen
/s/ MICHAEL BOWES Director March 28, 2001
- --------------------------
Michael Bowes
/s/ SCOTT LARSON Vice President and CFO March 24, 2001
- -------------------------- (Principal Accounting Officer)
Scott Larson