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, 1996.
[ ] TRANSITION PURSUANT TO SECTION 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from ______ to ______.
COMMISSION FILE NO. (0-16577)
CYBEROPTICS CORPORATION
(Exact name of registrant as specified in its charter)
Minnesota 41-1472057
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5900 Golden Hills Drive
Minneapolis, Minnesota 55416
(Address of principal executive offices) (Zip Code)
(612) 542-5000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act: Common
Stock, no par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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. [X]
As of February 28, 1997, the aggregate market value of the registrant's Common
Stock, no par value, held by nonaffiliates of the registrant was $82,918,000
(based on the closing sale price of common stock as of February 28, 1997 as
quoted on the Nasdaq National Market).
As of February 28, 1997, there were 5,232,831 shares of the registrant's Common
Stock, no par value, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
The Responses to items 5, 6, 7 and 8 herein are incorporated by reference to
certain information in the Company's Annual Report to Shareholders for the year
ended December 31, 1996. 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 8, 1997.
PART I.
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
CyberOptics Corporation (the "Company" or "CyberOptics") designs,
manufactures and markets intelligent, non-contact sensors and integrated systems
that measure the minute characteristics, dimensions and distances required for
process and quality control in the automated assembly of complex manufactured
goods. Utilizing proprietary laser 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 both during and after the
manufacturing process. The Company offers individual sensors that provide data
in one, two or three dimensions, as well as complete, non-contact three
dimensional profiling systems, that allow manufacturers to inspect product
features as small as 0.1 microns.
The Company was founded in 1984 by Dr. Steven Case, a professor
researching and teaching optical engineering at the University of Minnesota, to
commercialize technology for non-contact three-dimensional sensing systems.
During the first year and one-half of its existence, the Company performed
primarily custom contracting work through Dr. Case. In 1985, the Company
received a $1.5 million development grant from the Defense Advanced Research
Projects Agency to develop sensor systems. The Company introduced its first
commercial product, the Point Range Sensor, in 1986 and began producing full
non-contact profiling systems used in general measurement applications, CAD-CAM
and electronics inspection in 1987. The Company continued to expand its line of
products and sensing systems for general applications through 1991.
Since 1992, the Company has made significant investments in the
development of new technology and products designed specifically for
applications in the electronics industry. Designed primarily for applications in
the rapidly growing surface mount technology ("SMT") market, these products
measure screen printed solder paste, align electronic components and measure
electronic component lead coplanarity during automated assembly of circuit
boards. The Company's revenue has been significantly affected by the timing of
the introduction of these products and the acceptance and shipment of versions
of these products by OEM and end user customers.
The results of the Company's operations have been particularly affected
by the market acceptance of several custom sensors manufactured for original
equipment manufacturers ("OEMs") during the past five years. Generating $3.2
million or less than 40% of revenue in 1992, these sensors contributed over
$18.5 million or almost 61% of revenue in 1995. The Company also introduced new
system products, including the CyberSentry system, during this period that
contributed to revenue growth. Overall, the Company's revenue more than tripled
from approximately $8.4 million in 1992 to a high of $30.5 million in 1995 and
its net income increased by a multiple of 14 during this period.
The Company's operations during 1995, in which its revenue doubled and
net income tripled over the previous year, reflected the strength of global
markets in microelectronics in 1995. Operations in 1996 reflect significant
softening in that market and lower levels of capital equipment orders in the
microelectronics industry. Starting in the second fiscal quarter, the level of
orders from several of the Company's significant OEM customers slowed. The
Company's largest OEM customer, which had accounted for 30% of the Company's
revenue in 1995, placed no orders at all in the second half of 1996 as it, and
several other of the Company's customers, worked to digest the large inventory
of products they had purchased in anticipation of a more robust market in 1996.
In response, the Company acted in July 1996 to reduce operating costs,
decreasing employee headcount by approximately 12% and taking other cost
reduction measures that resulted in a charge to earnings of $.02 per share in
the third quarter. The decreased orders, combined with the workforce reduction
costs and costs of ongoing litigation with Yamaha Motor Co., Ltd., caused the
Company to report for its third fiscal quarter its first quarterly loss in over
ten years.
Quarterly results recovered somewhat during the fourth fiscal quarter
of 1996, although not to the record levels of 1995. Orders of custom sensor
products increased, providing early signs of some recovery in the
microelectronics industry. Overall, the Company generated revenue of over $28
million during 1996, representing a decrease from the $30.5 million generated in
1995, but still substantially more than the $15.3 million generated in 1994.
Management believes that much of the revenue growth in 1995 was a result of
timing and over ordering by OEM's in anticipation of a growth rate in the
industry that was not achieved.
Although the Company continues to believe that long-term trends in the
microelectronics industry are positive, it is working to expand and diversify
its mix of business. Although most of the Company's development efforts are for
additional applications in the electronics industry, it is also focusing on
applications in other industries, including systems that may have application in
ball grid array ("BGA") and flip chip inspection in the semiconductor industry
and additional system level products for the general measurement market.
Management believes that, with significant cash available from a public offering
completed in 1995, the Company remains well positioned to take advantage of the
growing need for quality control, particularly in the expanding electronics
industry. The Company moved to a newly constructed 70,000 square foot production
and headquarters facility in May 1996 that provides ample room for expansion of
its operations.
PRODUCTS
CyberOptics has developed intelligent, non-contact sensors and systems
for in-line process control and inspection as well as sensors and scanning
stations for quality control and inspection. The Company's products enable
manufacturers to increase operating efficiencies, product yields and quality in
a variety of industries. Although a majority of the Company's revenue is
generated through sales of its in-line process control products for SMT, the
Company also offers several specialized products for through-hole process
control and more generalized products for inspection and quality control.
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, filters and
converts raw data into application specific information, and automatically
communicates this information to a host processor for ultimate use in process
control. Software represents a significant portion of the CyberOptics research
and development effort and distinguishes CyberOptics' intelligent sensors and
systems from simpler data-gathering products.
In-Line Process Control--SMT:
CYBERSENTRY. The CyberSentry system measures the deposition of solder
paste after the first step of the SMT assembly process. Because of the small
size of the components that must be placed on each pad of solder paste and the
density of component placement on the circuit board, a significant amount of SMT
assembly problems are related to the quality of solder paste deposition.
Misplaced solder paste, excess or inadequate amounts of paste can lead to
improper connections or bridges between leads causing an entire circuit board to
malfunction.
Introduced in a commercial format in the first quarter of 1995, the
CyberSentry 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 measurement devices used in quality control laboratories. The
CyberSentry incorporates a sensor extended on a mechanical robot arm over the
production line that measures the height, area and volume of solder paste pads.
The CyberSentry can be retrofitted and integrated into most SMT production
lines, providing real time process control immediately after a PCB leaves the
screen printer and before component placement commences. During early 1997, the
Company introduced an improved version of the CyberSentry capable of performing
measurement tasks at a more rapid speed.
Sales of the CyberSentry product accounted for approximately 15% and 12%
of the Company's revenue for the years ended December 31, 1996 and December 31,
1995, respectively.
LASERALIGN. After solder paste has been inspected and measured,
extremely small surface mount components are placed on the solder pads by
component placement machines. CyberOptics' LaserAlign sensors are incorporated
into the heads of component placement machines to ensure accurate component
placement at high production speeds. Various high speed component placement
machine types utilize between one and sixteen LaserAlign sensors per machine.
LaserAlign integrates an intelligent sensor, composed of a laser, optics
and detectors with a microprocessor and software for making specific
measurements. LaserAlign quickly and accurately aligns each component as it is
being transported by the pick-and-place arm for surface mount assembly. Using
non-contact technology, LaserAlign facilitates orientation and placement of
components at much higher speeds than can be achieved using conventional process
control systems.
The LaserAlign sensor is sold to original equipment manufacturers for
incorporation into their component placement machines and is offered in several
different configurations to satisfy the requirements of the different machines
on which it is used. Revenue from sales the LaserAlign sensors has been a
principal contributor to the growth of the Company during the past five years
and accounted for 48%, 48% and 25% of the Company's revenue in the years ended
December 31, 1996, 1995 and 1994, 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. 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 a 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.
The Laser Lead Locator, like the LaserAlign, is sold to original
equipment manufacturers for incorporation into their product offerings. Sales of
the Laser Lead Locator constituted 13%, 13% and 16% of the Company's overall
revenues during the years ended December 31, 1996, 1995 and 1994, respectively.
Process Control--Through-Hole:
A substantial number of circuit boards are made with 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, was completed in the third
quarter of 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 May 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 a manufacturer of drilling machines for
incorporation into its products.
Off-Line Inspection Sensors and Systems:
The Company built its commercial business with laser sensors designed to
precisely measure, without contact, the distance to a point on an object. These
sensors have been refined and combined with software and processing capability
and are sold as both single sensors for incorporation into the equipment of
customers and as complete inspection systems for use in the quality control
laboratory and off-line process control.
The Company's off-line sensors and systems are used in a broad array of
applications in a number of different industries. Included among such
applications is the measurement of the score in a beverage can lid, collection
of three-dimensional digital data for use in a CAD-CAM system, measurement of
the thickness of resistive inks applied in the manufacture of hybrid electronic
circuits and measurement of the bend angles of suspension arms for disc drives.
PRS AND CYBERGAGE SENSORS. The Company offers two lines of range sensors
designed to measure distance to a point on a test object. The Point Range Sensor
("PRS"), was the Company's first commercial product and is currently offered in
seven models that provide varying resolutions and are designed for optimal
function at varying standoff distances. The CyberGage sensor is a new series of
range sensors that gather data up to 40 times faster than the PRS product line
and is sold with a video camera view port that allows the user to integrate
laser sensing and video in the same sensor. The Company believes this is the
first product available with both laser sensing and video capabilities.
CYBERSCAN COBRA, CYBERSCAN CX3 AND CYBERSCAN LV. CyberScan stations are
complete height profiling systems capable of producing precise, two- and
three-dimensional analysis of complex surfaces. The CyberScan Cobra is a
portable and highly versatile scanning system that is roughly the size of and
shape of a large clothing iron that incorporates the PRS and proprietary
software. The CX3 and LV are stations that incorporate the Company's PRS or
CyberGage mounted over a computer-controlled mechanical table with a personal
computer and the Company's proprietary software. The CyberScan LV series of
scanning stations, which incorporate the CyberGage sensors and video cameras,
offers a unique quilting feature that allows the user to view and select test
sites over a large area of a test object.
LASER SECTION MICROSCOPE (LSM). The LSM is a low cost instrument for
making height and registration measurement of screen printed solder paste during
the assembly of electronic circuit boards. One of the principal advantages of
the LSM is its ease of use--unskilled operators can make non-contact
measurements with only minimal training. In February 1997, the Company
introduced an updated version of the LSM, the LSM2, that has been completely
redesigned to provide a Windows interface and allow multiple fields of view.
MARKETS AND CUSTOMERS
A majority of the Company's products are currently sold in the
microelectronics market, particularly the portion servicing manufacturers using
SMT. 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, moreover, also employ knowledgeable engineers who
are competent to work with computer-related equipment. The Company's Laser Lead
Locator and LaserAlign products are sold to OEMs serving this market and the
CyberSentry, LSM, CyberGage, and CyberScan systems are most often sold to
manufacturers in this market. In addition, the Company's more generalized
products, including the PRS, CyberGage and CyberScan products, are used in the
general measurement and gauging, precision plastic manufacturing and computer
aided design and manufacturing markets.
The Company sells its products worldwide to many of the leading
manufacturers of electronics and electronic equipment. The Company does not
maintain foreign offices and therefore does not have sales originating from, or
identifiable assets in, geographies other than the United States. The following
table sets forth the percentage of the Company's total sales revenue represented
by total export sales (sales for delivery to countries other than the United
States, including sales delivered through distributors) by location during the
past three years:
Year Ended December 31,
-----------------------------
1994 1995 1996
---- ---- ----
Asia................................. 30% 31% 51%
Europe............................... 26% 35% 18%
Other(1)............................. 1% 1% 1%
(1) Includes export sales in North America, primarily export sales to Canada
and Mexico, which were less than 1% of revenue during the three year
period.
See Note 7 to the Company's Financial Statements contained on Page 19 of its
Annual Report to Shareholders. Substantially 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. To date, the Company has not experienced any significant change in
customer buying patterns due to fluctuating exchange rates.
Sales to three principal customers, Juki Corporation, Philips
Electronics N.V and Panasonic Corporation, leading manufacturers of component
placement machines in the Netherlands and Japan, constituted 28%, 14% and 10%,
respectively, of total sales in 1996. Although no other customer generated more
than 10% of the Company's revenues, sales to the Company's five largest OEM
customers in the aggregate constituted 59% of such sales. The loss of any of
such customers, or a substantial decrease in orders therefrom, could have a
material adverse effect on the Company's results of operations.
SALES AND MARKETING
The Company sells its products through a combination of direct sales
staff and independent distributors. The Company maintains a direct sales staff
at its headquarters in Minneapolis, Minnesota that call on large house accounts
and that sell to OEM customers. The Company also has agreements with nine
stocking distributors in North America who focus primarily on products sold to
end-users. Most sales to international end-users of sensors and systems are made
through 15 representatives and distributors covering Western Europe and the
Pacific Rim.
The Company markets its products through appearances at industry trade
shows, advertising in industry journals and articles published in industry and
technical journals. In addition, the Company's strategic relationships with
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 $4.4
million at December 31, 1996 of which approximately $3.4 million is deliverable
in the first quarter of 1997 and $1 million is deliverable in the second quarter
of 1997. 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
industry. Historically, the Company's quarterly revenue has been largest in the
last quarter of the year. 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 distinguishes its products primarily on the basis of its
unique technology and on the Company's ability to synthesize several different
technical disciplines to address industry needs. CyberOptics was founded by
research scientists and has retained relationships with academic institutions to
ensure that the most current information on technological developments is
obtained. In addition, the Company actively seeks ongoing strategic customer
relationships with leading product innovators in the markets it serves and
actively investigates the needs of, and seeks input from, these customers to
identify opportunities to improve the manufacturing process. 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 provides the outsourced research and development for these customers
through funded 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 has committed and expects to continue to
commit 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 1996 were directed to increasing performance of its LaserAlign and
CyberSentry products for use in process automation in electronics circuit board
assembly, redesign of its Laser Section Microscope, completion of its CyberScan
Cobra product for general measurement and gauging applications, and updating of
its CyberScan products. In addition, a significant amount of research and
development effort, funded by a customer, was expended on developing new
technology for height mapping in the flip chip manufacturing process. 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 $5.9 million, $4.1 million and
$2.7 million for the years ended December 31, 1996, 1995 and 1994, respectively.
These amounts represented 21%, 14% and 18% of revenues, respectively. Research
and development expenses consist primarily of salaries, project materials and
other costs associated with CyberOptics' ongoing product development and
enhancement efforts.
MANUFACTURING
Much of the Company's product manufacturing, consisting primarily of
circuit board manufacturing, component placement and soldering, lens
manufacturing and machined parts production, is contracted with outside vendors.
Company personnel inspect incoming parts, assemble sensor heads, 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.
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 alternative sources for most of
such 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). Currently the Company has approximately 125
remaining detectors used in its PRS that are manufactured by a single supplier
and have been discontinued by such supplier. The Company anticipates that this
supply will be adequate to satisfy customer orders until the design and
production of a replacement sensor is completed.
COMPETITION
Although the Company believes that its products are unique, competitors
offer technologies and systems that are capable of certain 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 have greater
manufacturing and marketing capabilities, and greater financial, technological
and personnel resources. Potential competitors in these markets include Cognex
Corporation, Robotic Visions Systems, Inc., View Engineering, Inc., ICOS
Systems, GmbH and Keyence Incorporated. In addition, the Company may compete
with the internal development efforts of its current and prospective customers.
The Company believes that its sensors offer several advantages over competitive
optical sensors and vision systems in terms of speed, flexibility, cost and ease
of control. The Company's OEM products are typically very specialized in their
applications. The Company believes that its OEM products compete favorably with
other product alternatives based on the speed and accuracy of their performance,
their price and certain technological advantages.
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. There can be no assurances that
the Company would be able to compete with similar products produced by a
competitor.
EMPLOYEES
As of December 31, 1996, the Company had 165 full-time employees
including 29 in sales and marketing and customer support, 61 in manufacturing
and production engineering, 59 in research, development and engineering and 16
in finance, administration and information services at its headquarters in
Minneapolis. To date, the Company has been successful in attracting and
retaining qualified technical personnel, although there can be no assurance that
this success will continue. None of the Company's employees are covered by
collective bargaining agreements or are members of a union.
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 holds nine patents on a number of its technologies,
including those used in its Laser Lead Locator, LaserAlign and PRS. In addition,
the Company protects the proprietary nature of its software primarily through
copyright and license agreements, but also through close integration with its
hardware offerings. 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 some geographic markets, it is the practice of companies to engage in "patent
flooding" by seeking patent protection for multiple functional applications that
are incremental rather than technological advances. Yamaha Motor Company, Ltd.
has filed a number of patent applications in Japan, Europe and other parts of
Asia, and received five patents in the United States that the Company believes
are based on inventions by the Company and the Company is currently seeking to
invalidate or receive an assignment of such United States patents, see "Item 3.
Legal Proceedings" below. Further, certain individuals have claimed United
States patent protection of extremely broad techniques and have notified
customers of the Company that any use of products that employ such techniques
would be infringing and require a license. Although the Company believes that
none of the products purchased by those customers employ such techniques, 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 costly litigation.
GOVERNMENT REGULATION
All of the Company's products which 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
As of September 1, 1995, the Company executed a lease agreement for,
and in May 1996 moved into, a 70,000 square foot mixed office and warehouse
facility built to its specifications in Golden Valley, Minnesota. The lease,
which is on a triple net basis for a ten year term 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 (currently approximately $581,000
per year). The Company, which holds an option to lease adjoining space,
anticipates that the property will be adequate for its needs for the foreseeable
future.
The Company has sublet its former facility, which is under lease to the
Company through October 1999, for the remaining term of the lease. The Company
charged the difference between the sublease rentals and lease payments
($160,000) to expense during 1996.
ITEM 3. LEGAL PROCEEDINGS
In January 1996, the Company filed suit in federal court in Minnesota
against Yamaha Motor Company, Ltd. of Japan for fraud and theft of technology
related to the LaserAlign sensor and its applications. The Company is asking the
federal court to reassign or to invalidate two United States patents that Yamaha
obtained by falsely claiming to be the inventor of CyberOptics' technology, to
award CyberOptics damages for the harm Yamaha's patents have already done, and
to order Yamaha to stop filing additional patents relating to CyberOptics'
inventions. In August 1996, the court dismissed Yamaha's motion to dismiss the
suit and ordered Yamaha to respond to CyberOptic's discovery requests. In early
1997, Yamaha's appeal of the court's ruling was dismissed. Yamaha filed its
answer to CyberOptic's complaint and asserted several counterclaims in March
1997. Although CyberOptics would prefer to settle this dispute amicably, it
intends to vigorously pursue and enforce its intellectual property rights.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of 1996.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information contained under the caption "Common Stock Information"
on page 20 of the Company's 1996 Annual Report to Shareholders (hereafter the
"Annual Report") is hereby incorporated by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information under the caption "Five-Year Financial Summary" on page
20 of the Annual report is hereby incorporated by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information contained in the Annual Report on pages 8 to 10 under
the caption "Management's Discussion and Analysis of Financial Condition and
Results of Operations" is hereby incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements included in the Annual Report on
pages 11 to 19 are hereby incorporated by reference:
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Income for the years ended December
31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1996, 1995 and 1994
Notes to the Consolidated Financial Statements
Report of Independent Accountants.
The supplementary financial information set forth under the caption
Quarterly Financial Information on page 20 of the Annual Report is hereby
incorporated by reference.
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" and "Shares Outstanding" of the Company's definitive proxy
statement for its annual meeting of shareholders to be held May 8, 1997
(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," 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 Schedules: Schedule II, Valuation and Qualifying
Accounts for the years ended December 31, 1996, 1995 and 1994, and the
report of Coopers & Lybrand L.L.P. thereon are attached as Item 14(d).
(a)(3) LIST OF EXHIBITS
Exhibit Number Description
3.1 Articles of Incorporation of Company, as amended (Incorporated
by reference to Exhibit 3.1 of the Company's Registration
Statement on Form S-18 (Registration No. 33-17628C) (the
"Registration Statement")).
3.2 Bylaws of the Company (Incorporated by reference to Exhibit
3.2 to the Registration Statement).
4.1 Restated Stock Option Plan of the Company, as amended
(Incorporated by reference to Exhibit 4.1 of the Company's
Annual Report on Form 10-K for the year ended December 31,
1989).
4.2 CyberOptics Corporation Stock Option Plan for Non-Employee
Directors, as amended (Incorporated by reference to Exhibit
4.2 to the Company's Form 10-K for the year ended December 31,
1994).
4.3 Form of Indemnification Agreement with Directors (Incorporated
by reference to Exhibit 4.2 of the Company's Form 10-K for the
year ended December 31, 1987).
4.4 CyberOptics Corporation Employee Stock Purchase Plan
(Incorporated by reference to Exhibit 4.7 to the Company's
quarterly report on Form 10-Q for the quarter ended September
30, 1992).
10.4 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).
13.0 Pages 8 through 20 of the Company's 1996 Annual Report to
Shareholders.
16.0 Letter regarding change in Independent Accountant
(Incorporated by reference to Exhibit 16.0 of the Company's
Form 8-K filed July 14, 1994.)
23.1 Consent of Coopers & Lybrand L.L.P.
27.0 Financial Data Schedule (For SEC use only)
(b) REPORTS ON FORM 8-K
No reports on Form 8-K have been filed for the quarter ended
December 31, 1996.
(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 incorporated by reference in this Form 10-K from page 19 of the 1996
Annual Report to Stockholders of CyberOptics Corporation. In connection with our
audits of such financial statements, we have also audited the related financial
statement schedule listed in Item 14 of 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.
COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
February 6, 1997
SCHEDULE II
CYBEROPTICS CORPORATION
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Balance at Charged to Balance
Beginning of Costs and at end of
Description Period Expenses Deductions Period
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1996 $ 100,000 $ 8,339 $ 17,227 (1) $ 125,566
Year ended December 31, 1995 $ 50,000 $ 52,283 $ (2,283)(1) $ 100,000
Year ended December 31, 1994 $ 30,000 $ 73,000 $ (53,000)(1) $ 50,000
(1) Write-off of trade accounts receivable, net of bad debt recoveries.
</TABLE>
<TABLE>
<CAPTION>
Balance at Charged to Balance
Beginning of Costs and at end of
Description Period Expenses Deductions Period
<S> <C> <C> <C> <C>
Reserve for Obsolete inventory:
Year ended December 31, 1996 $ 500,000 $ 297,967 $ (323,121) $ 474,846
Year ended December 31, 1995 $ 140,000 $ 465,694 $ (105,694) $ 500,000
Year ended December 31, 1994 $ 140,000 $ 123,676 $ (123,676) $ 140,000
(2) Write-off of obsolete inventory.
<PAGE>
</TABLE>
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 26, 1997 By /s/ STEVEN K. CASE
-----------------
Steven K. Case,
President
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 K. CASE President (Principal March 26, 1997
Steven K. Case Executive Officer)
/s/ALEX B. CIMOCHOWSKI Director March 26, 1997
Alex B. Cimochowski
/s/GEORGE E. KLINE Director March 26, 1997
George E. Kline
/s/STEVEN M. QUIST Director March 26, 1997
Steven M. Quist
/s/P. JUNE MIN Director March 26, 1997
P. June Min
/s/ERWIN KELEN Director March 26, 1997
Erwin Kelen
/s/ JOHN D. BEAGAN Vice President--Operations March 26, 1997
John D. Beagan (acting Principal Financial
Officer)
/s/SCOTT LARSON Controller March 26, 1997
Scott Larson (Principal Accounting
Officer)
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CYBEROPTICS CORPORATION
OVERVIEW
CyberOptics was founded in 1984 by Dr. Steven Case, a tenured professor
researching and teaching optical engineering at the University of Minnesota, to
commercialize technology for non-contact three-dimensional sensing systems. The
Company introduced its first commercial product, the Point Range Sensor, in 1986
and began producing full non-contact profiling systems in 1987. The Company
continued to expand its line of products and measurement systems for general
applications through 1991.
Since 1992, the Company has made significant investments in the development of
new technology and products designed specifically for applications in the
electronics industry. Designed primarily for applications in the rapidly growing
surface mount market, these products measure screen printed solder paste, align
electronic components and measure electronic component lead coplanarity during
automated assembly of circuit boards. The Company's revenues have been
significantly affected by the timing of the introduction of these products, the
acceptance and shipment of versions of these products by OEM and end user
customers, and by the cyclical nature of capital spending and expansion in the
electronics industry.
Partially in response to the cyclicality being experienced in the electronics
market, the Company increased its investment in the development of new products
and the enhancement of existing products used for general measurement
applications during 1996. These products are designed for use in a wide range of
industrial measurement and process control applications.
RESULTS OF OPERATIONS
The table below sets forth, for the years indicated, certain financial data
derived from the Company's statements of income expressed as a percentage of
revenues, and expressed as a percentage change from the previous period's
results.
REVENUES
Revenues decreased 8% to $28.1 million in 1996 from $30.5 million in 1995, which
represented a 100% increase over 1994 revenues of $15.3 million. Changes in
revenue levels during this three-year period are primarily the result of the
level of unit shipments of sensor products to OEM customers. Revenues from
sensor products decreased $3.4 million or 15% during 1996 compared to 1995, and
increased $13 million or 138% during 1995 compared to 1994. The Company's
LaserAlign and Laser Lead Locator sensors contributed $17.2 million in revenues
in 1996 compared to $18.6 million in 1995 and $6.4 million in 1994. During 1996,
revenues decreased in the area of LaserAlign sales to OEM's of high-end,
large-capacity, pick-and-place equipment. This segment of the market represented
the largest growth area for LaserAlign during 1995 and included a single
customer which accounted for 30% of 1995 revenues. This decrease was partially
offset by increased LaserAlign revenues to OEM's of mid-range SMT equipment.
<TABLE>
<CAPTION>
Percentage of Revenues Percentage Increase (Decrease)
1996 1995
1996 1995 1994 to 1995 to 1994
<S> <C> <C> <C> <C> <C>
Revenues 100% 100% 100% (8)% 100%
Gross margin 51 53 57 (11) 85
Research and development
expenses 21 14 18 43 51
Selling, general and
administrative expenses 27 18 25 38 40
Income from operations 3 21 13 (86) 216
Net income 8 16 10 (55) 217
</TABLE>
System revenues increased $500,000 or 7% during 1996 as compared to 1995, and
$2.3 million or 39% during 1995 as compared to 1994. Increased systems revenues
are primarily attributable to increased sales of the CyberSentry product.
Originally planned for release in the spring of 1994, CyberSentry was delayed
until 1995 in order to improve its precision and speed. The Company anticipates
that the majority of 1997 revenue growth will be generated from system sales,
including CyberSentry and other SMT and general measurement systems currently
released or scheduled to be released during 1997.
International revenues totaled $19.6 million in 1996, $20.7 million in 1995 and
$8.6 million in 1994, comprising 70%, 68% and 57% of total revenues,
respectively. Revenues of the Company's products in Western Europe, Japan and
the rest of the Far East have increased significantly during the three-year
period. These international markets account for a significant portion of the
production capability of capital equipment for the manufacture of electronics,
the primary market for the LaserAlign and Laser Lead Locator and CyberSentry
products. Revenues generated from products used primarily for SMT production
were approximately 85%, 80% and 70% of revenues for 1996, 1995 and 1994,
respectively.
COST OF REVENUES
Cost of revenues as a percentage of total revenues for 1996 was 49%, compared to
47% in 1995 and 43% in 1994. The increase in the percentage from 1995 to 1996
was primarily due to reduced revenue levels in 1996 over which to spread the
fixed component of production and production support costs, including additional
costs associated with the Company occupying its new facility since May 1996. In
addition, changes in the revenue mix between customers also had an impact on
cost of revenues in 1996. Increases in the cost of revenues were partially
offset during the second half of 1996 by the impact of a workforce reduction
implemented by the Company in response to lower than planned revenue levels. The
increase in the cost of revenue percentage from 1994 to 1995 was primarily due
to start-up and rework costs for new product lines, additional production costs
to support increased capacity for LaserAlign and volume price reductions given
to certain significant customers. In addition, the Company increased its
reserves for inventory obsolescence and warranty accrual by approximately
$450,000 during 1995.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased 43% to $5.9 million in 1996 compared
to $4.1 million in 1995 and $2.7 million in 1994, reflecting the Company's
commitment to investment in research and development through periods of cyclical
revenues. The increased expenditures in 1996 reflect primarily costs associated
with enhancements made to the CyberSentry, redesigning the Laser Section
Microscope (LSM), completion of the CyberScan Cobra and continuing development
work on the LaserAlign technology. The increase in 1995 research and development
costs primarily reflect costs associated with completion of the original
CyberSentry product, and completion of CyberGage and CyberScan LV. The Company
anticipates that the dollar level of research and development expenses will
remain relatively flat in future periods, which it feels is required to support
the development of new products and continued enhancement of existing product
offerings.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased 38% to $7.5 million in
1996 compared to $5.4 million in 1995 and $3.9 million in 1994. Selling, general
and administrative expenses also increased as a percentage of revenues to 27% in
1996, compared to 18% in 1995 and 25% in 1994. Increased selling, general and
administrative expenses in 1996 both in dollar terms and as a percentage of
revenues are partially due to increased depreciation, rental and overhead
expenses associated with our new facility, and increased marketing costs
required to support new product introductions. In addition, legal expenses
related to the Yamaha patent defense litigation contributed to the increase in
1996. These increases were partially offset by the workforce reduction
implemented in the second half of the year. The decrease in selling, general and
administrative as a percentage of revenues in 1995 compared to 1994 is primarily
the result of increases in the revenue base over this period, enabling the
Company to spread fixed overhead costs over a larger revenue base. To a lesser
extent, changes in the revenue mix toward a greater portion of revenue from OEM
sensor customers and end-user distributors has also contributed to lower costs
relative to revenues.
EFFECTIVE TAX RATE
The Company's effective tax rate was 31%, 32% and 28% in 1996, 1995 and 1994,
respectively. Benefits from the Company's foreign sales corporation and the use
of the research and experimentation tax credit were primarily responsible for
reducing the effective tax rate below the statutory federal rate. The research
and experimentation tax credit was available for only 6 months in both 1996 and
1995, and for the full year in 1994.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and marketable securities decreased to $37.3 million
as of December 31, 1996, from $39.9 million as of December 31, 1995, primarily
as the result of the Company repurchasing common stock and investing in fixed
asset additions for its new operating facility. These uses of cash were
partially offset by funds generated from operations of $5.2 million during 1996.
Marketable securities generally consist of U.S. Government or U.S. Government
backed obligations and state municipal instruments. All marketable securities
have a maturity of three years or less. Working capital increased to $32.4
million as of December 31, 1996, from $28.7 million as of December 31, 1995,
primarily as the result of a greater portion of marketable securities with
maturities of less than one year.
The Company generated $5.2 million from operations during 1996, primarily due to
net income of $2.2 million and a decrease in accounts receivable of $3.5
million. During 1995, the Company used $307,000 in operations primarily to
finance a $5.6 million increase in accounts receivable and a $2.0 million
increase in inventories. The change in the accounts receivable balance is
primarily due to the timing of revenues, as the fourth quarter of 1995 was the
single largest revenue quarter in Company history, resulting in an increased
accounts receivable balance at December 31, 1995.
In June 1996, the Company's Board of Directors authorized the repurchase of up
to 500,000 shares of CyberOptics common stock for the purpose of providing the
necessary common stock for the Company's stock option and employee stock
purchase plans. The shares were repurchased through open market purchases, block
transactions or privately negotiated transactions. As of December 31, 1996, the
Company had repurchased all 500,000 shares at a cost of approximately $6.3
million. In December 1996, the Company's Board of Directors authorized the
repurchase of up to an additional 500,000 shares of CyberOptics common stock. As
of February 25, 1997, the Company has repurchased 41,000 shares, at a cost of
approximately $560,000 under the second authorization.
At the present time, the Company has no material capital commitments. 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 from changes in the level of unit shipments
and new product introductions. The Company believes that inflation has had no
appreciable effect on operations. Substantially all of the Company's export
sales are negotiated, invoiced and paid in U.S. dollars.
Years Ended December 31,
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
CYBEROPTICS CORPORATION
(In thousands, except share amounts)
December 31, 1996 1995
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 3,453 $ 8,718
Marketable securities 21,356 10,146
Accounts receivable, less allowance for doubtful
accounts of $125 and $100, respectively 5,031 8,514
Inventories 3,768 3,874
Other current assets 1,635 1,473
Total current assets 35,243 32,725
Marketable securities 12,500 21,000
Equipment and leasehold improvements, net 2,495 943
Capitalized patent costs, less accumulated amortization
of $315 and $253, respectively 78 72
Total assets $ 50,316 $ 54,740
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 1,191 $ 737
Income taxes payable 233 898
Accrued expenses 1,424 2,368
Total current liabilities 2,848 4,003
Commitments and Contingencies
Stockholders' equity:
Preferred stock, no par value, 5,000,000 shares authorized,
none outstanding
Common stock, no par value 25,000,000 and 10,000,000 shares
authorized, 5,215,731 and 5,612,114 shares issued
and outstanding, respectively 37,308 42,658
Unrealized marketable securities holding loss (99)
Retained earnings 10,259 8,079
Total stockholders' equity 47,468 50,737
Total liabilities and stockholders' equity $ 50,316 $ 54,740
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
CYBEROPTICS CORPORATION
(In thousands, except share amounts)
Year ended December 31, 1996 1995 1994
<S> <C> <C> <C>
Revenues $28,062 $30,518 $15,276
Cost of revenues 13,739 14,485 6,604
Gross margin 14,323 16,033 8,672
Research and development expenses 5,937 4,143 2,749
Selling, general and administrative expenses 7,501 5,433 3,881
Income from operations 885 6,457 2,042
Interest income 2,275 624 72
Income before income taxes 3,160 7,081 2,114
Provision for income taxes 980 2,250 590
Net income $ 2,180 $ 4,831 $ 1,524
Net income per share (primary and
fully diluted) $ 0.38 $ 0.95 $ 0.35
Weighted average common and common
equivalent shares outstanding 5,735 5,104 4,404
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
CYBEROPTICS CORPORATION
(In thousands)
Year ended December 31,
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,180 $ 4,831 $ 1,524
Adjustments to reconcile net income to
net cash provided (used) by operating
activities:
Depreciation and amortization 768 426 295
Provisions for losses on accounts receivable 8 50 73
Provisions for losses on inventories 298 466 124
Deferred income taxes 102 (498) (67)
Changes in operating assets and liabilities:
Accounts receivable 3,475 (5,600) (885)
Inventories (192) (2,005) (703)
Other current assets (264) (635) (24)
Accounts payable 454 165 239
Income taxes payable (665) 686 174
Accrued expenses (944) 1,807 104
Net cash provided (used)
by operating activities 5,220 (307) 854
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities of held to maturity
marketable securities 23,146 1,706 993
Proceeds from sales of available for sale
marketable securities 2,000
Purchases of held to maturity
marketable securities (31,672) (1,733)
Purchases of available for sale
marketable securities (27,955)
Additions to equipment and leasehold
improvements (2,258) (831) (281)
Additions to patents (68) (34) (64)
Net cash used by investing
activities (5,135) (30,831) (1,085)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of common stock (6,283) (235)
Proceeds from issuance of common stock 37,391
Proceeds from exercise of stock options 521 340 19
Proceeds from issuance of common stock
under Employee Stock Purchase Plan 181 148 94
Tax benefit from exercise of stock options 231 549 3
Net cash provided (used) by financing
activities (5,350) 38,428 (119)
Net increase (decrease) in cash and cash equivalents (5,265) 7,290 (350)
Cash and cash equivalents - beginning of year 8,718 1,428 1,778
Cash and cash equivalents - end of year $ 3,453 $ 8,718 $ 1,428
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
<TABLE>
<CAPTION>
CYBEROPTICS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Unrealized
Marketable Total
Common Stock Securities Retained Stockholders'
(In thousands, except share amounts) Shares Amount Holding Loss Earnings Equity
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 4,249,420 $ 4,349 $ 1,724 $ 6,073
Tax benefit from exercise of stock options 3 3
Exercise of stock options
net of shares exchanged as payment
and subsequently retired 8,606 19 19
Issuance of common stock under
Employee Stock Purchase Plan 20,615 94 94
Repurchase of common stock (43,500) (235) (235)
Net income 1,524 1,524
BALANCE, DECEMBER 31, 1994 4,235,141 4,230 3,248 7,478
Tax benefit from exercise of stock options 549 549
Exercise of stock options
net of shares exchanged as payment
and subsequently retired 145,358 340 340
Issuance of common stock under
Employee Stock Purchase Plan 31,615 148 148
Issuance of common stock for cash, net
of offering costs 1,200,000 37,391 37,391
Net income 4,831 4,831
BALANCE, DECEMBER 31, 1995 5,612,114 42,658 8,079 50,737
Tax benefit from exercise of stock options 231 231
Exercise of stock options
net of shares exchanged as payment
and subsequently retired 85,975 521 521
Issuance of common stock under
Employee Stock Purchase Plan 17,642 181 181
Repurchase of common stock (500,000) (6,283) (6,283)
Other $(99) (99)
Net income 2,180 2,180
BALANCE, DECEMBER 31, 1996 5,215,731 $37,308 $(99) $10,259 $47,468
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CYBEROPTICS CORPORATION
(In thousands, except share and per share amounts)
NOTE 1 - BUSINESS DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES
BUSINESS DESCRIPTION
CyberOptics Corporation designs and manufactures intelligent sensors and systems
for high-precision, non-contact dimensional measurement and process control.
Utilizing proprietary laser 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 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 includes the accounts of the Company and
its wholly-owned Foreign Sales Corporation (FSC).
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. The most significant areas
which require the use of management's estimates relate to the determination of
the allowances for obsolete inventories, uncollectible accounts receivable and
accrued warranty costs.
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 were concentrated in one money market account at December 31,
1996 and 1995.
MARKETABLE SECURITIES
Marketable securities generally consist of U.S. Government or U.S. Government
backed obligations and state municipal instruments with a 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.
At December 31, 1995, all of the Company's marketable securities were classified
as held to maturity and, therefore, were carried at amortized cost. During 1996,
as securities matured, new investments were classified as available for sale. At
December 31, 1996, amortized cost of marketable securities classified as held to
maturity was $8,000, and the carrying amount of securities classified as
available for sale was $25,856. Unrealized holding gains and losses were not
significant at December 31, 1996 and 1995.
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. Depreciation and amortization
are recorded using the straight-line method over the estimated useful lives of
the assets or the lease term, ranging from three to ten years. Gains or losses
on dispositions are included in current operations.
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.
REVENUE RECOGNITION
Revenues are recognized upon shipment. Estimated warranty costs are recorded at
the time of sale.
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 capitalized 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. Customer-funded R&D totaled $890 and $444
during 1996 and 1995, respectively, and was not significant in 1994.
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.
NET INCOME PER SHARE
Net income per common and common equivalent share has been computed using the
weighted average shares outstanding plus common stock equivalents for each
period. Common equivalent shares include dilutive stock options using the
treasury stock method.
NOTE 2 - OTHER FINANCIAL STATEMENT DATA
INVENTORIES CONSISTS OF THE FOLLOWING:
December 31, 1996 1995
Raw materials and
purchased parts $ 2,522 $ 3,172
Work in process 736 608
Finished goods 510 94
$ 3,768 $ 3,874
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET CONSIST OF THE FOLLOWING:
December 31, 1996 1995
Equipment $ 3,713 $ 2,435
Leasehold improvements 974
4,687 2,435
Less accumulated
depreciation (2,192) (1,492)
$ 2,495 $ 943
OTHER ACCRUED EXPENSES CONSIST OF THE FOLLOWING:
December 31, 1996 1995
Accrued wages and benefits $ 667 $ 1,352
Deferred R&D reimbursement 166 556
Accrued warranty costs 250 150
Other accrued expenses 341 310
$ 1,424 $ 2,368
NOTE 3 - INCOME TAXES
The provision for income taxes consists of the following:
1996 1995 1994
Current:
Federal $ 872 $ 2,523 $ 64
State 6 225 14
Deferred 102 (498) (67)
$ 980 $ 2,250 $ 590
Deferred tax assets consist of the following:
December 31, 1996 1995 1994
Inventories $ 238 $ 218 $ 4
Vacation accrual 71 67 36
Accounts receivable
allowances 45 37 52
Warranty reserve 90 55 22
Deferred R&D
reimbursement 60 204
Other, net 46 71 3
Net deferred tax asset
included in other
current assets $ 550 $ 652 $ 154
A reconciliation of the statutory rate to the effective income tax rate is as
follows:
1996 1995 1994
Federal statutory rate 34.0% 34.0% 34.0%
Increase (decrease)
resulting from:
State income taxes, net
of federal benefit 0.1 2.1 0.7
FSC benefit, net of
FSC taxes (1.0) (3.2) (1.2)
R&E credit (4.4) (1.5) (8.0)
Other, net 2.3 0.4 2.4
Effective rate 31.0% 31.8% 27.9%
The 1995 and 1996 tax provisions include only 6 months of research and
experimentation tax credits, as the credit expired as of June 30, 1995 and was
not reinstated until July 1, 1996. Cash payments of income taxes for the years
ended December 31, 1996, 1995 and 1994, were approximately $1,491, $1,518 and
$480, respectively.
NOTE 4 - OPERATING LEASES
In May 1996, the Company moved into a new office, ware-house and manufacturing
facility. The new facility is leased 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 facility previously occupied by the Company prior to its moving is leased
under an operating lease that expires in October 1999. The Company has subleased
this facility for the remaining term of the lease. The difference between the
future lease obligation of the Company and the anticipated sublease payments
over the remaining term of the lease of $160 was charged to rental expense
during 1996. Total rental expenses for the years ended December 31, 1996, 1995
and 1994, were approximately, $695, $241 and $255, respectively.
At December 31, 1996, the future minimum lease payments required under lease
agreements, net of $134, $156 and $130 in 1997, 1998 and 1999 of anticipated
sublease payments, are as follows:
Year ending December 31,
1997 $ 581
1998 605
1999 608
2000 564
2001 588
Thereafter 2,598
Total $ 5,544
NOTE 5 - STOCKHOLDERS' EQUITY
In 1996, the stockholders of the Company approved an amendment to the Articles
of Incorporation that increases the number of authorized shares of common stock
from 10,000,000 shares to 25,000,000 shares. In June 1996, the Company's Board
of Directors authorized the repurchase of up to 500,000 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 1996, all 500,000 shares were
repurchased through open market purchases, block transactions or privately
negotiated purchases. In December 1996, the Company's Board of Directors
authorized the repurchase of up to an additional 500,000 shares of common stock.
At December 31, 1996, no shares had been purchased under the second
authorization.
NOTE 6 - BENEFIT PLANS
STOCK OPTION PLANS
The Company has two stock option plans that reserve 939,693 shares of common
stock in the aggregate for issuance to employees, directors, officers and
others. Canceled options are available for future grant under both plans.
Options are granted at an option price per share equal to or greater than fair
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. Options exercised by tendering shares are
shown at the net amount.
In 1996, the Company canceled and reissued, at the then-current market price,
257,800 options to purchase the same number or less shares to those employees
that received stock option grants between May 19, 1995 and August 2, 1996.
The following is a summary of stock option plan activity:
Shares 1996 1995 1994
Granted 590,050 144,150 68,400
Exercised (90,212) (155,452) (12,536)
Canceled (339,443) (4,425) (26,538)
December 31:
Outstanding 638,495 478,100 493,827
Exercisable 181,570 172,239 191,806
Average exercise price
per share 1996 1995 1994
Granted $ 16.58 $ 16.55 $ 5.88
Exercised 6.66 3.88 3.64
Canceled 20.67 5.57 5.48
December 31:
Outstanding 10.35 9.10 5.32
Exercisable $ 5.97 $ 5.89 $ 5.35
Stock options outstanding at December 31, 1996, had a range of exercise prices
of $3.56 to $18.125 and an average remaining contractual life of 4 years.
Options outstanding with an exercise price of less than $10.00 totaled 285,000,
of which 182,000 were exercisable. The remaining 353,000 options outstanding had
a price of greater than $10.00 and are not excercisable as of December 31, 1996.
The weighted average remaining contractual life for each of these groups of
options was three years and five years, respectively.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, a new standard of accounting and
reporting for stock-based compensation plans. The Company has adopted the new
standard in 1996. The Company has continued to measure compensation cost for its
stock incentive and option plans using the intrinsic value method of accounting
it has historically used and, therefore, the new standard has no effect on the
Company's operating results.
Had the Company used the fair value method of accounting for its stock option
and incentive plans beginning in 1995 and charged compensation costs against
income over the vesting period, net income and net income per share for 1996 and
1995 would have been reduced to the following pro forma amounts:
1996 1995
Net Income:
As reported $2,180 $4,831
Pro forma $1,564 $4,635
Net income per share:
As reported $0.38 $0.95
Pro forma $0.27 $0.91
The pro forma information above only includes stock options granted in 1995 and
1996. Compensation expense under the fair value method of accounting will
increase over the next few years as additional stock option grants are
considered. The weighted-average grant-date fair value of options granted during
1996 and 1995 was $10.58 and $10.94, 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:
1996 1995
Risk-free interest rates 5.9% 6.8%
Expected life 4 years 4 years
Expected volatility 57.4% 61.4%
Expected dividends 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, 200,000 shares of common stock have been
reserved for issuance. As of December 31, 1996, 84,318 shares have been issued
under this plan.
401(k) PLAN
The Company has a savings plan pursuant to Section 401(k) of the Internal
Revenue Code ("the Code"), whereby eligible employees may contribute up to 15%
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 1996, 1995 and 1994, the Company provided for matching
contributions totaling $96, $67, and $43, respectively.
NOTE 7 - MAJOR CUSTOMER AND EXPORT SALES
The following summarizes significant customers:
Significant Percentage
Customer Revenues of Revenues
Year ended
December 31, 1996 A $3,855 14%
C $7,863 28%
D $2,834 10%
Year ended
December 31, 1995 A $9,052 30%
C $3,979 13%
Year ended
December 31, 1994 A $2,115 14%
B $1,894 12%
As of December 31, 1996, accounts receivable from significant customers A, C and
D were $567, $1,332, and $400, respectively. As of December 31, 1995, accounts
receivable from significant customers A and C were $2,767 and $1,572,
respectively.
Export sales amounted to 70%, 68% and 57% for 1996, 1995 and 1994, respectively.
Substantially 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:
1996 1995 1994
North America $ 143 $ 117 $ 141
Europe 4,964 10,762 3,895
Asia 14,279 9,596 4,555
Other 169 233 45
$19,555 $20,708 $8,636
NOTE 8 - CONTINGENCIES
In January 1996, the Company filed suit against Yamaha Motor Company, Ltd.
alleging fraud and theft of technology related to the LaserAlign sensor and its
applications. Yamaha has denied the Company's claims and filed counterclaims
against the Company on March 3, 1997 seeking unspecified damages. The Company
intends to protect its intellectual property rights and pursue its remedies.
In addition, in the ordinary course of business, the Company is a defendant in
various 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.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
CyberOptics Corporation
We have audited the accompanying consolidated balance sheets of CyberOptics
Corporation as of December 31, 1996 and 1995, and the related consolidated
statements of income, cash flows and stockholders' equity for each of the three
years in the period ended December 31, 1996. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statments. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of CyberOptics
Corporation as of December 31, 1996 and 1995, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
Minneapolis, Minnesota
February 6, 1997, except for the first paragraph of Note 8, as to
which the date is March 3, 1997
<TABLE>
<CAPTION>
FIVE-YEAR FINANCIAL SUMMARY
(In thousands, except per share amounts)
Year Ended December 31 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Revenues $28,062 $30,518 $15,276 $11,621 $8,425
Income from Operations 885 6,457 2,042 1,080 447
Net Income 2,180 4,831 1,524 943 339
Net Income Per Share 0.38 0.95 0.35 0.22 0.08
Working Capital $32,395 $28,722 $ 6,902 $ 5,548 $4,249
Total Assets 50,316 54,740 8,823 6,901 5,717
Stockholders' Equity 47,468 50,737 7,478 6,073 4,840
</TABLE>
<TABLE>
<CAPTION>
QUARTERLY FINANCIAL INFORMATION
(In thousands, except per share amounts)
QUARTER ENDED MARCH 31 JUNE 30 SEPT. 30 DEC. 31
1996 (unaudited and not reviewed)
<S> <C> <C> <C> <C>
REVENUES $8,513 $7,812 $5,025 $ 6,712
GROSS MARGIN 4,604 3,917 2,380 3,422
INCOME (LOSS) FROM OPERATIONS 1,490 402 (1,102) 95
NET INCOME (LOSS) 1,421 700 (356) 415
NET INCOME (LOSS) PER SHARE 0.24 0.12 (0.06) 0.08
1995 (unaudited and not reviewed)
Revenues $ 4,555 $ 7,240 $ 8,196 $10,527
Gross margin 2,506 3,854 4,375 5,298
Income from operations 681 1,567 1,920 2,289
Net income 497 1,101 1,307 1,926
Net income per share 0.11 0.24 0.27 0.32
</TABLE>
The summation of quarterly net income per share may not equate to the year-end
calculation as quarterly calculations are performed on a discrete basis.
COMMON STOCK INFORMATION
The Company's common stock is traded on the national over-the-counter market,
with prices quoted on the National Association of Securities Dealers Automated
Quotation (Nasdaq) National Market System. 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 System. These prices do
not reflect adjustments for retail markups, markdowns or commissions.
1996 1995
Quarter HIGH LOW High Low
First $40.00 $27.25 $11.38 $ 7.50
Second 28.75 14.25 25.50 11.00
Third 15.75 10.00 35.75 20.88
Fourth 14.63 9.88 39.75 24.00
As of March 17, 1997, the Company had 295 stockholders of record and estimates
that it has approximately 5,300 beneficial owners. The Company has never paid a
cash dividend and does not intend to pay cash dividends in the foreseeable
future.
EXECUTIVE OFFICERS
Steven K. Case, Ph.D.
President
Jeffrey A. Jalkio, Ph.D.
Vice President - Research
Carl D. Moe
Vice President - Sales and Marketing
John D. Beagan
Vice President - Operations and Finance and Administration
William Farmer
Vice President - Product Development
DIRECTORS
Steven K. Case, Ph.D.
President
CyberOptics Corporation
Alex B. Cimochowski
Owner
Four Peaks Technologies, Inc.
George E. Kline
Owner
Venture Management
Steven M. Quist
President
Rosemount Inc.
P. June Min, Ph.D.
Vice Chairman
Anam Industrial Co., Ltd.
Erwin Kelen
Owner
Kelen Ventures
CORPORATE INFORMATION
CORPORATE HEADQUARTERS
CyberOptics Corporation
5900 Golden Hills Drive
Minneapolis, MN 55416
612-542-5000
COUNSEL
Dorsey & Whitney L. L. P.
Minneapolis, Minnesota
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L. L. P.
Minneapolis, Minnesota
ANNUAL MEETING
The annual meeting of stockholders will be held at 3:30 p.m. on May 8, 1997, at
the Minneapolis Marriott City Center, 30 South Seventh Street, Minneapolis,
Minnesota 55402.
REGISTRAR AND STOCK TRANSFER AGENT
Norwest Bank Minnesota, N.A.
Minneapolis, Minnesota
FORM 10-K
The Annual Report on Form 10-K filed with the Securities and Exchange Commission
is available to stockholders at no charge by writing to CyberOptics.
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
CyberOptics Corporation on Form S-8 (File No. 33-21092, 33-41509, 33-41515,
33-50510 and 33-80838) of our reports dated February 6, 1997, except for the
first paragraph of Note 8, as to which the date is March 3, 1997, on our audits
of the consolidated financial statements and financial statement schedule of
CyberOptics Corporation as of December 31, 1996 and 1995, and for each of the
three years in the period ended December 31, 1996, which reports are included or
incorporated by reference in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
March 27, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,453
<SECURITIES> 21,356
<RECEIVABLES> 5,156
<ALLOWANCES> 125
<INVENTORY> 3,768
<CURRENT-ASSETS> 35,243
<PP&E> 4,687
<DEPRECIATION> 2,192
<TOTAL-ASSETS> 50,316
<CURRENT-LIABILITIES> 2,848
<BONDS> 0
0
0
<COMMON> 37,308
<OTHER-SE> 10,160
<TOTAL-LIABILITY-AND-EQUITY> 50,316
<SALES> 28,062
<TOTAL-REVENUES> 28,062
<CGS> 13,739
<TOTAL-COSTS> 13,739
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 8
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,160
<INCOME-TAX> 980
<INCOME-CONTINUING> 2,180
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,180
<EPS-PRIMARY> .38
<EPS-DILUTED> .38
</TABLE>
