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, 1997.
[ ] 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 27, 1998, the aggregate market value of the registrant's Common
Stock, no par value, held by nonaffiliates of the registrant was $133,685,720
(based on the closing sale price of common stock as of February 27, 1998 as
quoted on the Nasdaq National Market).
As of February 27, 1998, there were 5,385,852 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, 1998.
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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 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.
Beginning in 1992, the Company focused development on 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 original equipment
manufacturer ("OEM") and end user customers.
The results of the Company's operations have been particularly affected
by the market acceptance of several sensors manufactured for OEMs during the
past seven years. Generating $3.2 million or less than 40% of revenue in 1992,
these sensors contributed over $21.1 million or almost 61% of revenue in 1997.
The Company has also introduced new system products for the SMT market,
including the CyberSentry system, during this period that contributed to revenue
growth.
The Company's operations during the past three years have been more
heavily influenced by market conditions in worldwide microelectronics markets,
and particularly in the SMT segment of these markets. During the robust
microelectronics market of 1995, the Company's revenue doubled and net income
tripled over the previous year. In 1996, however, a significant softening in
that market and lower levels of capital equipment orders in the microelectronics
industry caused the level of orders to decline, particularly orders in the high
end portion of the market in which revenue from one customer which constituted
30% of sales in 1995 declined to 14% in 1996. Although the Company reduced
operating costs in the summer of 1996 in response to the lower level of orders,
and although electronics markets began to recover in the fourth quarter of 1996,
the decreased orders caused 1996 revenues to decline slightly over 1995.
The recovery of the microelectronics markets that started in the fourth
quarter of 1996 continued into 1997, with order rates showing steady improvement
throughout the year, and showing particularly strong growth in the fourth
quarter. Sales of the Company's principal OEM products, the LaserAlign and Laser
Lead Locator, increased approximately $4 million from 1996 to 1997 as several
new OEM customers fully integrated the products into their
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product lines, and others increased their order rates. The Company was also
successful in increasing sales of its Sentry System for in-line solder paste
inspection by over $1.6 million, introducing a new and higher performance
version of this product in 1997. The Company also increased distribution of the
laser section microscope ("LSM") during 1997, more than doubling sales volumes.
Overall, the increased product sales resulted in record revenues of $35.1
million in 1997. Net income totalled $4.6 million or $.83 per share in 1997, a
111% increase over 1996.
Sales of other sensors and systems products, including products
targeted for the general measurement market, were impacted by a pending change
in the technology on which those products are based. The Company completed
development of its new digital range sensor ("DRS") products in early 1998 and
had beta versions of these products at customer sites in late 1997. This new
range finding technology, and the Vantage systems products into which it is
being incorporated, is expected to contribute more substantially to revenue in
1998.
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, 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 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 printed circuit
board 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 17%, 15%
and 12% of the Company's revenue for the years ended December 31, 1997, 1996 and
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.
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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 OEMs 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 of LaserAlign sensors has been a principal contributor to the
growth of the Company during the past five years and accounted for 43%, 48% and
48% of the Company's revenue in the years ended December 31, 1997, 1996, and
1995, 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 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 OEMs for
incorporation into their product offerings. Sales of the Laser Lead Locator
constituted 17%, 13% and 13% of the Company's overall revenues during the years
ended December 31, 1997, 1996 and 1995, 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.
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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.
RANGE SENSORS. The Company's first commercial product was a range sensor
known as the point range sensor or "PRS." Over its eleven years as a commercial
product, the PRS was refined and sold in seven models with varying resolutions
and working ranges. Several years ago the Company commenced development of
several new range sensors. The first, the CyberGage sensor, was introduced in
1995. The CyberGage incorporates a microprocessor in the sensor head and gathers
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 also developed and introduced in late 1997, a new
generation of sensors, the digital range sensor ("DRS") family, designed to
replace the PRS product line. The Company currently offers three DRS sensors
that provide working ranges that cover an extent equal to the seven sensors
formerly sold in the PRS line and 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. The Company has developed, and intends
to introduce, an instrument controller that will allow users to operate the
sensor without a personal computer.
CYBERSCAN AND VANTAGE. CyberScan and Vantage stations are complete
height profiling systems capable of producing precise, two- and
three-dimensional analysis of complex surfaces. The CyberScan family of products
used a PRS sensor and provided output compatible with DOS operating systems.
Although the Company sold three configurations of the CyberScan products during
1997, including the CyberScan Cobra, the CyberScan CX3 and the CyberScan LV,
because of the pending change in range sensor technology, it did not actively
market the products during the second half of the year. The Company continues to
sell the CyberScan LV, a station that incorporates the CyberGage and a video
camera mounted over a computer-controlled mechanical table with a personal
computer and the Company's proprietary software. The Company has rebuilt and is
also marketing the CyberScan Cobra to operate with the DRS and updated Windows
software. The Company also currently has in beta test at several customer sites
a new version of the CX3 height profiling systems that incorporates its DRS
sensors and Windows 95 screens and that will be sold under the Vantage name. The
Vantage incorporates a novel drive technology, an offset camara that uses
special technology to provide views that appear coaxial with the laser beam and
new software that the Company believes will enhance its marketability.
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, LSMII, DRS, and Vantage systems are, or will be, most often sold to
manufacturers in this market. In addition, the Company's more
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generalized products, including the DRS, Cobra and Vantage 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,
--------------------------
1995 1996 1997
---- ---- ----
Asia............................. 31% 51% 50%
Europe........................... 35% 18% 17%
Other(1)......................... 1% 1% 2%
(1) Includes export sales in North America, primarily export sales to
Canada and Mexico, which were less than 1% of revenue in 1995 and
1996 and approximately 1% in 1997
See Note 7 to the Company's Consolidated Financial Statements contained in Item
8 of this form 10-K. 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 two principal customers, Juki Corporation and Philips
Electronics N.V., leading manufacturers of component placement machines in Japan
and the Netherlands, constituted 22% and 13%, respectively, of total sales in
1997. 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 approximately 53% 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 ten
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 17 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 $8.7
million at December 31, 1997 compared to $4.4 million at December 31, 1996.
Approximately $7.9 million of the 1997 backlog is deliverable in the first
quarter of 1998 and $750,000 is deliverable in the second
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quarter of 1998. 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 1997 were directed to increasing performance of its LaserAlign and
CyberSentry products for use in process automation in electronics circuit board
assembly, development of the DRS product line, and development of the Vantage
system. 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 $6.4 million, $5.9 million and
$4.1 million for the years ended December 31, 1997, 1996 and 1995, respectively.
These amounts represented 18%, 21% and 14% 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
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its products, the Company maintains in inventory, or on scheduled delivery from
suppliers, what it believes to be a sufficient amount of certain components
based on forecasted demand (forecast extends a minimum of 6 months).
COMPETITION
Although the Company believes that its products are unique, competitors
offer technologies and systems that 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, 1997, the Company had 190 full-time employees
including 37 in sales and marketing and customer support, 72 in manufacturing,
purchasing and production engineering, 60 in research, development and
engineering and 21 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 ten United States 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
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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.
The Company has recently settled litigation relating to such practices. See
"Legal Proceedings" below. 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 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
The Company leases 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 (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 (currently
approximately $605,000 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 March 1998, the Company settled litigation it had filed in federal
court in Minnesota against Yamaha Motor Company, Ltd. of Japan and a countersuit
Yamaha had filed against the Company in Japan . As part of the settlement, which
ended a dispute regarding ownership of certain intellectual property, Yamaha
agreed to license certain patent rights to CyberOptics and CyberOptics agreed to
license certain patent rights to Yamaha. The Company believes its relationship
with Yamaha has been repaired and expects Yamaha to be a significant customer
over the next few years.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of 1997.
<PAGE>
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.
1997 1996
--------------- ---------------
Quarter High Low High Low
---- --- ---- ---
First $21.63 $12.75 $40.00 $27.25
Second 19.25 15.63 28.75 14.45
Third 34.13 15.00 15.75 10.00
Fourth 37.63 19.38 14.63 9.88
As of February 27, 1998, there were 245 holders of record of the
Company's common stock and the Company estimates that there were approximately
4,000 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:
(In thousands, except per share amounts)
YEAR ENDED DECEMBER 31 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------
Revenues $35,120 $28,062 $30,518 $15,276 $11,621
Income from operations 4,588 885 6,457 2,042 1,080
Net income 4,597 2,180 4,831 1,524 943
Net income per share--Basic 0.88 0.39 1.04 0.36 0.22
Net income per share--Diluted 0.83 0.38 0.95 0.35 0.22
Working capital $36,236 $32,395 $28,722 $6,902 $5,548
Total assets 57,445 50,316 54,740 8,823 6,901
Stockholders' equity 53,293 47,468 50,737 7,478 6,073
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
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.
RESULTS OF OPERATIONS
The following table sets forth, for the years indicated, certain financial data
derived from the Company's statements of income expressed as a percentage of
revenue, and expressed as a percentage increase from the previous period's
results:
Percentage of Revenues Percentage Change
---------------------- -----------------
Year Ended
Years Ended December 31, December 31.
------------------------ -------------------
1997 1996
1997 1996 1995 to 1996 to 1995
---- ---- ---- -------- -------
Revenues 100% 100% 100% 25% (8)%
Gross margin 55 51 53 36 (11)
Research and development
expenses 18 21 14 7 43
Selling, general and
administrative expenses 24 27 18 14 38
Income from operations 13 3 21 418 (86)
Net income 13 8 16 111 (55)
RESULTS OF OPERATIONS FOR THE THREE YEARS ENDED DECEMBER 31, 1997
Revenues increased 25% to $35.1 million in 1997 from $28.1 million in 1996,
following an 8% decrease in 1996 from 1995 revenues of $30.5 million. Changes in
revenue levels are primarily the result of fluctuations in the level of demand
for our SMT sensor products, primarily LaserAlign and Laser Lead Locator, from
OEM customers and the resulting change in the level of unit shipments. Revenues
from SMT sensor products increased $4.5 million or 25% during 1997 compared to
1996, and decreased $2.8 million or 15% during 1996 compared to 1995. The
Company's LaserAlign and Laser Lead Locator sensors contributed $21.1 million in
revenue in 1997 compared to $17.2 million in 1996 and $18.6 million in 1995.
During 1997, increased revenues from SMT sensors reflect continued improvement
in the global SMT market, the primary market for the Company's products. The
Company has seen the highest growth rates in shipments to OEM customers
manufacturing mid-range capacity pick and place equipment, which has become the
largest segment of the SMT market utilizing the Company's SMT sensors. During
1996, SMT sensor revenues decreased due to a decline in shipments to OEM's of
high-end capacity pick and place equipment, the market segment that represented
the largest growth area for SMT sensor sales during 1995. The decrease in 1996
SMT sensor revenues was partially offset by increased shipments to OEM's of
mid-range capacity equipment. SMT sensor revenues represented 65% of revenues in
1997 and 1996, and 69% of revenues in 1995.
<PAGE>
SMT system revenues increased $2.9 million or 52% during 1997 compared to 1996,
and $500,000 or 11% during 1996 compared to 1995. During 1997, increased SMT
systems revenues are primarily the result of increased shipments of enhanced
versions of the Company's solder paste inspection systems, CyberSentry 2000 and
LSM2, which were introduced in the first half of 1997. To a lesser extent,
increased revenues are due to a higher average selling price on SMT system sales
in 1997 achieved as the result of enhancements made to the systems. CyberSentry
revenues increased 39% during 1997 as compared to 1996, and LSM2 revenues
increased 92% during the same period. These increases are primarily the result
of strong market acceptance of the enhanced versions of these products.
Increased revenues in 1996 are primarily the result of growing revenue levels of
CyberSentry, which was originally released during 1995. SMT systems revenues
represented 24%, 20% and 16% of total revenues during 1997, 1996 and 1995,
respectively.
General measurement systems and sensor products revenues decreased 9% in 1997
compared to 1996, and 19% during 1996 compared to 1995. General measurement
revenues have been declining primarily as the result of product changeovers in
both the systems and sensor product lines. A new family of general measurement
sensors was released during the fourth quarter of 1997, and a new general
measurement system will be introduced during the first half of 1998.
International revenue totaled $24.2 million in 1997, $19.6 million in 1996 and
$20.7 million in 1995, comprising 69%, 70% and 68% of total revenue,
respectively. Sales 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, Laser Lead Locator and CyberSentry products. Revenues
generated from products used primarily for SMT production were approximately
89%, 85% and 80% of revenues for 1997, 1996 and 1995, respectively.
GROSS MARGIN
Gross margin for 1997 was 55%, compared to 51% in 1996 and 53% in 1995. During
1997, gross margin was positively impacted by cost containment measures taken by
the Company, particularly the 12% workforce reduction instituted during the
third quarter of 1996, offset somewhat by increased fixed costs associated with
occupying a new facility since May, 1996. In addition, increased revenue levels
over which to spread the fixed component of production and production support,
along with a shift in the revenue mix towards higher margin sensor and system
products contributed to improved gross margins in 1997. The reduction in gross
margin from 1995 to 1996 was primarily due to reduced revenue levels and
additional costs associated with the Company's new facility. In addition,
changes in the revenue mix between customers also had an impact on gross margin
in 1996. These reductions were partially offset by cost containment measures
instituted by the Company during the second half of 1996.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased 7% to $6.4 million in 1997 compared
to $5.9 million in 1996 and $4.1 million in 1995. As a percentage of revenues,
research and development expenses were 18% in 1997, compared to 21% and 14% in
1996 and 1995, respectively. The increase in research and development expenses
as a percentage of revenues in 1996, reflects the Company's commitment to
investment in research and development through periods of cyclical revenues.
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. During 1997, 1996 and 1995, customer funded research and
development recognized as a reduction of research and development expense
totaled $166,000, $890,000 and $444,000, respectively.
During 1997, research and development expenses were primarily focused on
developing a new sensor and system product for the general measurement market,
completion of the CyberSentry 2000 and the LSM2 and continuing development work
on the LaserAlign and Laser Lead Locator technology. In addition to the product
lines discussed above, 1996 research and development costs focused on completion
of the CyberScan Cobra, which was introduced in late 1996. The Company
anticipates that development expenses will remain stable as a percentage of
revenues in future periods, which it believes is required to support the
development of new products and continued enhancement of existing product
offerings.
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased 14% to $8.5 million in
1997 compared to $7.5 million in 1996 and $5.4 million in 1995. As a percentage
of revenue, selling, general and administrative expenses were 24% in 1997
compared to 27% in 1996 and 18% in 1995. During 1997, the dollar increase in
selling, general and administrative expenses was primarily due to increased
personnel and related costs added to support the sales and service of the
Company's product offerings. The Company has added sales, service and other
support resources primarily to provide support to its end-user systems business,
but also to support a growing OEM revenue base. In addition, resources have been
added to the product marketing department, an area of focus for the Company in
1997, and there are additional fixed costs associated with occupying a new
facility since May 1996. These increases in 1997 were somewhat offset by reduced
legal expenses related to the Yamaha litigation. Increased selling, general and
administrative expenses in 1996 compared to 1995 are primarily the result of
increased facility costs, increased marketing costs associated with new product
introductions and increased legal expenses associated with the Yamaha
litigation, offset by the effects of the workforce reduction implemented in the
third quarter.
EFFECTIVE TAX RATE
The Company's effective tax rate was 32%, 31% and 32% in 1997, 1996 and 1995,
respectively. 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.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and marketable securities increased to $41.0 million
as of December 31, 1997 from $37.3 million as of December 31, 1996, primarily as
the result of $3.6 million in cash generated from operations and $1.1 million in
cash provided by common stock related financing activities. These increases in
cash were partially offset by $1.1 million in fixed asset and patent additions.
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.
The Company generated $3.6 million from operations during 1997, primarily due to
net income of $4.6 million, including $1.4 million of non-cash expenses for
depreciation and amortization and the provision for inventory obsolesence.
Reducing cash from operations were increases in accounts receivable of $2.7
million and inventories of $1.3 million. The increase in accounts receivable is
primarily due to the timing of revenues, as the fourth quarter of 1997 was the
largest revenue quarter in the Company's history. During the fourth quarter of
1997, revenues were $3.8 million higher than the fourth quarter of 1996.
Increased inventory balances are primarily due to the need to support a growing
revenue base and to build inventories for new products being introduced during
the fourth quarter of 1997 and the first half of 1998. During 1996, the Company
generated $5.2 million of cash from operations, primarily due to net income of
$2.2 million, including $1.1 million of non-cash expenses, and a decrease in
accounts receivable of $3.5 million.
The Company used $7.5 million of cash in investing activities in 1997 compared
to $365,000 in 1996. The majority of the use of cash is the result of the timing
of purchases and sales of marketable securities, which provided $2.7 million of
cash in 1996 and used $6.4 million in 1997. The Company used $2.3 million of
cash in 1996 for additional equipment and leasehold improvements, as it moved
into its new office and manufacturing facility, as compared to $1.0 million in
1997.
<PAGE>
The Company generated $1.1 million of cash from financing activities in 1997 and
used $5.4 million of cash in financing activities in 1996. During 1996, the
board of directors of the Company authorized the repurchase of up to 1,000,000
shares of common stock on the open market for the purpose of providing the
necessary common stock for the Company's stock option and employee stock
purchase plans, 541,000 shares of which had been purchased when the
authorization expired in 1997. The majority of the repurchases were completed
during 1996, using $6.3 million of cash. In February 1998, the board of
directors authorized the repurchase of an additional 500,000 shares, at such
times and at such prices as a committee of the board of directors determines.
During the fourth quarter of 1997 and the first half of 1998, the Company is in
the process of purchasing and implementing a new enterprise business system.
Total external cost of implementation is anticipated to be approximately $1.0
million. As of December 31, 1997, the Company has recorded costs of
approximately $315,000 for the new system. Other than discussed above, 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.
RECENT ACCOUNTING DEVELOPMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 131, a new standard for reporting
information about operating or business segments in financial statements. The
new standard will be effective for the Company's annual financial statements in
1998. Management is in the process of evaluating this standard and has not yet
determined its impact on the Company's financial statements.
In June 1997, the FASB issued SFAS No. 130, which establishes standards for
reporting and display of comprehensive income and its components (revenue,
expenses, gains and losses) in a full set of general purpose financial
statements. The Company will adopt SFAS 130 for its year ending December 31,
1998.
The Company capitalizes certain costs of computer software developed or obtained
for internal use. The Company's policy for capitalization of these costs is
consistent with the guidelines included in the American Institute of Certified
Public Accountants recent Statement of Position for accounting for costs of
computer software developed or obtained for internal use.
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
had no appreciable effect on operations. Substantially all of the Company's
international export sales are negotiated, invoiced and paid in U.S. dollars.
Because many of the OEM sensor products the Company manufactures for foreign
consumption are incorporated into products of our OEM customers that are
re-exported to North America and Europe, the Company does not believe that
foreign currency fluctuations have a significant impact on its revenues.
The Company has analyzed the potential affect of the year 2000 issue on both the
system software included in the Company's equipment and on application software
licensed or purchased by the Company and used in its internal operations. The
Company has tested all of the system software included in its products and
determined that it is year 2000 compliant. In addition, the Company has
requested and received documentation from vendors supplying software for its
primary business applications addressing year 2000 compliance. In all cases,
vendor responses indicated that their applications were either currently year
2000 compliant or that they would be compliant by the end of 1998, although the
Company has not independently tested these applications for compliance. Based on
this analysis, the Company does not anticipate a material cost associated with
its systems relative to the year 2000 issue.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
CYBEROPTICS CORPORATION
<TABLE>
<CAPTION>
(In thousands)
December 31, 1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 6,160 $ 8,953
Marketable securities 20,577 15,856
Accounts receivable, less allowance for doubtful accounts of $125 7,697 5,031
Inventories 4,611 3,768
Other current assets 1,343 1,635
- ---------------------------------------------------------------------------------------------------------
Total current assets 40,388 35,243
Marketable securities 14,290 12,500
Equipment and leasehold improvements, net 2,661 2,495
Capitalized patent costs, less accumulated amortization
of $373 and $315, respectively 106 78
- ---------------------------------------------------------------------------------------------------------
Total assets $ 57,445 $ 50,316
=========================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 1,205 $ 1,191
Income taxes payable 661 233
Accrued expenses 2,286 1,424
- ---------------------------------------------------------------------------------------------------------
Total current liabilities 4,152 2,848
Commitments and Contingencies
Stockholders' equity:
Preferred stock, no par value, 5,000 shares authorized, none outstanding
Common stock, no par value, 25,000 authorized,
5,341 and 5,216 shares issued and outstanding, respectively 38,412 37,308
Unrealized marketable securities holding gain (loss) 25 (99)
Retained earnings 14,856 10,259
- ---------------------------------------------------------------------------------------------------------
Total stockholders' equity 53,293 47,468
- ---------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 57,445 $ 50,316
=========================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
CYBEROPTICS CORPORATION
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
Year ended December 31, 1997 1996 1995
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $35,120 $28,062 $30,518
Cost of revenues 15,629 13,739 14,485
- -------------------------------------------------------------------------------------
Gross margin 19,491 14,323 16,033
Research and development expenses 6,371 5,937 4,143
Selling, general and administrative expenses 8,532 7,501 5,433
- -------------------------------------------------------------------------------------
Income from operations 4,588 885 6,457
Interest income 2,166 2,275 624
- -------------------------------------------------------------------------------------
Income before income taxes 6,754 3,160 7,081
Provision for income taxes 2,157 980 2,250
- -------------------------------------------------------------------------------------
Net income $ 4,597 $ 2,180 $ 4,831
=====================================================================================
Net income per share - Basic $ 0.88 $ 0.39 $ 1.04
Net income per share - Diluted $ 0.83 $ 0.38 $ 0.95
=====================================================================================
Weighted average shares outstanding - Basic 5,246 5,528 4,658
Weighted average shares outstanding - Diluted 5,555 5,735 5,104
=====================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
CYBEROPTICS CORPORATION
<TABLE>
<CAPTION>
(In thousands)
Year ended December 31, 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,597 $ 2,180 $ 4,831
Adjustments to reconcile net income to
net cash provided (used) by operating activities:
Depreciation and amortization 917 768 426
Provision for doubtful amounts 12 8 50
Provision for inventory obsolesence 445 298 466
Deferred income taxes 20 102 (498)
Changes in operating assets and liabilities:
Accounts receivable (2,678) 3,475 (5,600)
Inventories (1,288) (192) (2,005)
Other current assets 272 (264) (635)
Accounts payable 14 454 165
Income taxes payable 428 (665) 686
Accrued expenses 862 (944) 1,807
- -------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities 3,601 5,220 (307)
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities of held to maturity marketable securities 8,000 23,146 1,706
Proceeds from sales of available for sale
marketable securities 12,758
Purchases of held to maturity marketable securities (31,672)
Purchases of available for sale marketable securities (27,145) (20,455)
Additions to equipment and leasehold improvements (1,025) (2,258) (831)
Additions to patents (86) (68) (34)
- -------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (7,498) (365) (30,831)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of common stock (561) (6,283)
Proceeds from issuance of common stock 37,391
Proceeds from exercise of stock options 873 521 340
Proceeds from issuance of common stock
under Employee Stock Purchase Plan 285 181 148
Tax benefit from exercise of stock options 507 231 549
- -------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 1,104 (5,350) 38,428
Net increase (decrease) in cash and cash equivalents (2,793) 235 7,290
Cash and cash equivalents - beginning of year 8,953 8,718 1,428
- -------------------------------------------------------------------------------------------------------------
Cash and cash equivalents - end of year $ 6,160 $ 8,953 $ 8,718
=============================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
CYBEROPTICS CORPORATION
<TABLE>
<CAPTION>
Unrealized
Common Stock Marketable Total
--------------------- Securities Retained Stockholders'
(In thousands) Shares Amount Holding Loss Earnings Equity
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 4,235 $ 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 145 340 340
Issuance of common stock under
Employee Stock Purchase Plan 32 148 148
Issuance of common stock for cash, net
of offering costs 1,200 37,391 37,391
Net income 4,831 4,831
- -------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 5,612 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 86 521 521
Issuance of common stock under
Employee Stock Purchase Plan 18 181 181
Repurchase of common stock (500) (6,283) (6,283)
Market value adjustments $ (99) (99)
Net income 2,180 2,180
- -------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 5,216 $ 37,308 $ (99) $ 10,259 $ 47,468
Tax benefit from exercise of stock options 507 507
Exercise of stock options
net of shares exchanged as payment
and subsequently retired 139 873 873
Issuance of common stock under
Employee Stock Purchase Plan 27 285 285
Repurchase of common stock (41) (561) (561)
Market value adjustments $ 124 124
Net income 4,597 4,597
- -------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 5,341 $ 38,412 $ 25 $ 14,856 $ 53,293
===================================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
<PAGE>
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 (the Company) 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 include 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 inventory obsolesence and doubtful accounts 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 Conpany'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.
At December 31, 1996, the Company had marketable securities classified as held
to maturity with an amortized cost of $8,000. As of December 31, 1997 and 1996,
the carrying amount of securities classified as available for sale was $34,867
and $20,356, 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, 1997 and 1996 or during the years
ended December 31, 1997 and 1996.
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 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.
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CYBEROPTICS CORPORATION
(In thousands, except share and per share amounts)
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.
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 $166, $890 and
$444 during 1997, 1996 and 1995, respectively.
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
Effective with year-end 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, a new standard of computing and presenting both
basic and diluted net income per share amounts. Basic net income per share has
been computed using the weighted average number of shares outstanding. The
diluted net income per share includes the effect of common stock equivalents for
each period. All prior periods have been changed to conform with the new
presentation. However, basic and diluted net income per share amounts are
generally consistent with net income per share amounts previously reported.
The number of shares utilized in the denominator of the diluted net income per
share computation has been increased by 309,000, 207,000 and 446,000 shares of
common stock equivalents at December 31, 1997, 1996 and 1995, respectively.
Options to purchase 94,000 and 53,000 shares of common stock at a weighted
average price of $22.63 and $27.50 were outstanding at December 31, 1997 and
1995 but were not included in the computation of diluted net income per share as
the options exercise price was greater than the average market price of the
common shares.
RECLASSIFICATIONS
Certain reclassifications have been made in the 1996 balance sheet and statement
of cash flows to conform to the classifications used in 1997. These
reclassifications had no effect on net income or stockholders' equity.
NOTE 2 - OTHER FINANCIAL STATEMENT DATA
INVENTORIES CONSIST OF THE FOLLOWING:
- -----------------------------------------------------------
December 31, 1997 1996
- -----------------------------------------------------------
Raw materials and
purchased parts $ 3,702 $ 2,997
Work in process 1,106 736
Finished goods 478 510
- -----------------------------------------------------------
5,286 4,243
Allowance for obsolesence (675) (475)
- -----------------------------------------------------------
$ 4,611 $ 3,768
===========================================================
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET
CONSIST OF THE FOLLOWING:
- -----------------------------------------------------------
December 31, 1997 1996
- -----------------------------------------------------------
Equipment $ 3,083 $ 3,713
Leasehold improvements 986 974
In progress 315
- -----------------------------------------------------------
4,384 4,687
Less accumulated
depreciation and amortization (1,723) (2,192)
- -----------------------------------------------------------
$ 2,661 $ 2,495
===========================================================
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CYBEROPTICS CORPORATION
(In thousands, except share and per share amounts)
OTHER ACCRUED EXPENSES CONSIST OF THE FOLLOWING:
- -----------------------------------------------------------
1997 1996
- -----------------------------------------------------------
Wages and benefits $ 1,247 $ 667
Warranty costs 350 250
Other 689 341
Deferred R&D reimbursement 166
- -----------------------------------------------------------
$ 2,286 $ 1,424
===========================================================
NOTE 3 - INCOME TAXES
THE PROVISION FOR INCOME TAXES CONSISTS OF THE
FOLLOWING:
- -----------------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------
Current:
Federal $ 2,061 $ 872 $ 2,523
State 76 6 225
Deferred 20 102 (498)
- -----------------------------------------------------------
$ 2,157 $ 980 $ 2,250
===========================================================
DEFERRED TAX ASSETS CONSIST OF THE FOLLOWING:
- -----------------------------------------------------------
December 31, 1997 1996 1995
- -----------------------------------------------------------
Inventory allowances $ 300 $ 238 $ 218
Vacation accrual 70 71 67
Accounts receivable
allowances 45 45 37
Warranty accrual 126 90 55
Deferred R&D
reimbursement 60 204
Other, net (11) 46 71
- -----------------------------------------------------------
Net deferred tax asset
included in other
current assets $ 530 $ 550 $ 652
===========================================================
A RECONCILIATION OF THE STATUTORY RATE TO THE EFFECTIVE
INCOME TAX RATE IS AS FOLLOWS:
- -----------------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------
Federal statutory rate 34.0% 34.0% 34.0%
Increase (decrease)
resulting from:
State income taxes, net
of federal benefit 1.2 0.1 2.1
FSC benefit, net of
FSC taxes (1.8) (1.0) (3.2)
R&E credit (4.6) (4.4) (1.5)
Other, net 3.1 2.3 0.4
- -----------------------------------------------------------
Effective rate 31.9% 31.0% 31.8%
===========================================================
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, 1997, 1996 and 1995, were approximately $1,033, $1,491 and
$1,518 respectively.
NOTE 4 - OPERATING LEASES
In May 1996, the Company moved into a new office, warehouse 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 expense for the years ended December 31, 1997, 1996
and 1995, were approximately, $659, $695 and $241, respectively.
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CYBEROPTICS CORPORATION
(In thousands, except share and per share amounts)
At December 31, 1997, the future minimum lease payments required under lease
agreements, net of $156 and $130 in 1998 and 1999 of sublease payments, are as
follows:
Year ending December 31,
1998 $ 605
1999 608
2000 564
2001 588
2002 600
Thereafter 1,998
- ------------------------------------
Total $ 4,963
====================================
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, 1997, 41,000 shares had been purchased under the second
authorization, which expired in December 1997.
NOTE 6 - BENEFIT PLANS
STOCK OPTION PLAN
The Company has two stock option plans that reserve 894,298 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 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. 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 1997 1996 1995
- ------------------------------------------------------------------------
Granted 258,900 590,050 144,150
Exercised (142,495) (90,212) (155,452)
Canceled (34,650) (339,443) (4,425)
December 31:
Outstanding 720,250 638,495 478,100
Exercisable 182,162 181,570 172,239
Weighted average exercise price
per share 1997 1996 1995
- ------------------------------------------------------------------------
Granted $ 18.31 $ 16.58 $ 16.55
Exercised 6.67 6.66 3.88
Canceled 14.67 20.67 5.57
December 31:
Outstanding 13.79 10.35 9.10
Exercisable $ 9.54 $ 5.97 $ 5.89
========================================================================
Stock options outstanding at December 31, 1997, had a range of exercise prices
of $3.79 to $25.50 and a weighted average remaining contractual life of
approximately 5 years.
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CYBEROPTICS CORPORATION
(In thousands, except share and per share amounts)
THE FOLLOWING IS A SUMMARY OF OUTSTANDING OPTIONS AS OF DECEMBER 31, 1997:
Weighted
Exercise Options Options Average
Price Outstanding Exercisable Remaining Life
- -----------------------------------------------------------
Less than $10.00 152,855 109,450 4.2 years
$10.00 to $14.99 257,845 44,799 4.0 years
Over $15.00 309,550 27,913 5.6 years
===========================================================
The Company adopted SFAS No. 123, "Accounting for Stock Based Compensation" in
1996. The Company 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 had 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 1997,
1996 and 1995 would have been reduced to the following pro forma amounts:
- -------------------------------------------------------------------
1997 1996 1995
- -------------------------------------------------------------------
Net Income:
As reported $ 4,597 $ 2,180 $ 4,831
Pro forma $ 3,591 $ 1,564 $ 4,635
Net income per share:
As reported - Basic $ 0.88 $ 0.39 $ 1.04
Pro forma - Basic $ 0.68 $ 0.28 $ 0.99
As reported - Diluted $ 0.83 $ 0.38 $ 0.95
Pro forma - Diluted $ 0.65 $ 0.27 $ 0.91
The pro forma information above only includes stock options granted in 1995,
1996 and 1997. 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
1997, 1996 and 1995 was $11.22, $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:
- ---------------------------------------------------------------
1997 1996 1995
- ---------------------------------------------------------------
Risk-free interest rates 6.39% 5.90% 6.80%
Expected life 4 YEARS 4 years 4 years
Expected volatility 63.97% 57.40% 61.40%
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, 200,000 shares of common stock have been
reserved for issuance. As of December 31, 1997, 111,606 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 1997, 1996 and 1995, the Company provided for matching
contributions totaling $144, $96, and $67, respectively.
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CYBEROPTICS CORPORATION
(In thousands, except share and per share amounts)
NOTE 7 - MAJOR CUSTOMER AND EXPORT SALES
THE FOLLOWING SUMMARIZES SIGNIFICANT CUSTOMERS:
Significant Percentage
Customer Revenues of Revenues
- ----------------------------------------------------------
Year ended
December 31, 1997 A $ 4,420 13%
B $ 7,704 22%
C $ 3,246 9%
Year ended
December 31, 1996 A $ 3,855 14%
B $ 7,863 28%
C $ 2,834 10%
Year ended
December 31, 1995 A $ 9,052 30%
B $ 3,979 13%
As of December 31, 1997, accounts receivable from significant customers A, B and
C were $1,484, $952, and $367, respectively. As of December 31, 1996, accounts
receivable from significant customers A, B and C were $567, $1,332 and $400,
respectively.
Export sales amounted to 69%, 70% and 68% of revenues for 1997, 1996 and 1995,
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:
- ----------------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------
North America $ 393 $ 143 $ 117
Europe 5,964 4,964 10,762
Asia 17,504 14,279 9,596
Other 298 169 233
- ----------------------------------------------------------
$ 24,159 $ 19,555 $ 20,708
==========================================================
NOTE 8 - CONTINGENCIES
In January 1996, the Company filed suit against Yamaha Motor Company, Ltd.
(Yamaha) 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.
On March 9, 1998, the Company and Yamaha announced that all disputes between
them had been settled. As a result of the settlement, both parties' lawsuits
will be dismissed. Under the terms of the settlement, Yamaha has granted the
Company a license under certain of its worldwide patents and the Company has
granted Yamaha a license under certain of its worldwide patents.
In the ordinary course of business, the Company is a defendant in other 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.
<PAGE>
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, 1997 and 1996, and the related consolidated
statements of income, cash flows and stockholders' equity for each of the three
years in the period ended December 31, 1997. 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, 1997 and 1996, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
Minneapolis, Minnesota
January 30, 1998, except for the second paragraph of
Note 8, as to which the date is March 9, 1998
Quarterly Financial Information:
(In thousands, except per share amounts)
QUARTER ENDED MAR 31 JUN 30 SEP 30 DEC 31
- --------------------------------------------------------------------------------
1997 (UNAUDITED)
Revenues $7,080 $8,257 $9,249 $10,534
Gross margin 3,706 4,402 5,353 6,030
Income from operations 371 655 1,638 1,924
Net income 589 809 1,487 1,712
Net income per share-Basic 0.11 0.16 0.28 0.32
Net income per share-Diluted 0.11 0.15 0.27 0.30
1996 (UNAUDITED AND NOT REVIEWED)
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-Basic 0.25 0.12 (0.06) 0.08
Net income (loss) per share-Diluted 0.24 0.12 (0.06) 0.08
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.
<PAGE>
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 18, 1998 (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 Schedule: Schedule II, Valuation and Qualifying
Accounts for the years ended December 31, 1997, 1996 and 1995, 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
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")
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 October 30, 1997
(file no 33-39091).
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).
10.4 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).
23.1 Consent of Coopers & Lybrand L.L.P.
27.1 Financial Data Schedule--Restatement of selected 1995 and 1996
data due to SFAS 128 (for electronic filing purposes only).
27.2 Financial Data Schedule--Restatement of selected 1997 data due
to SFAS 128 (for electronic filing purposes only).
27.3 Financial Data Schedule (for electronic filing purposes only).
99.0 Forward Looking Statements--Cautionary Statement
(b) REPORTS ON FORM 8-K
No reports on Form 8-K have been filed for the quarter ended
December 31, 1997.
<PAGE>
(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.
COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
January 30, 1998
<PAGE>
SCHEDULE II
CYBEROPTICS CORPORATION
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<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, 1997 $ 125,566 $ 11,844 $ 12,404 $ 125,006
Year ended December 31, 1996 $ 100,000 $ 8,339 $ 17,227 $ 125,566
Year ended December 31, 1995 $ 50,000 $ 52,283 $ (2,283) $ 100,000
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, 1997 $ 474,846 $ 445,000 $ (244,846) $ 675,000
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
</TABLE>
<PAGE>
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 23, 1998 By /s/ STEVEN M. QUIST
------------------------
Steven M. Quist,
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 Chairman and Director (Principal March 23, 1998
- ------------------------ Executive Officer)
Steven K. Case
/s/ Steven M. Quist Director and President March 23, 1998
- ------------------------
Steven M. Quist
/s/ Alex B. Cimochowski Director March 23, 1998
- ------------------------
Alex B. Cimochowski
/s/ George E. Kline Director March 23, 1998
- ------------------------
George E. Kline
Director March __, 1998
- ------------------------
P. June Min
/s/ Erwin Kelen Director March 18, 1998
- ------------------------
Erwin Kelen
/s/ John D. Beagan Vice President--Operations March 23, 1998
- ------------------------ (acting Principal Financial Officer)
John D. Beagan
/s/ Scott Larson Controller March 23, 1998
- ------------------------ (Principal Accounting Officer)
Scott Larson
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
CYBEROPTICS CORPORATION
ARTICLE 1. NAME
The name of the corporation is "CyberOptics Corporation."
ARTICLE 2. REGISTERED OFFICE
The address of the registered office of the corporation in
Minnesota is 2208 First Bank Place West, Minneapolis, Minnesota 55402.
ARTICLE 3. AUTHORIZED SHARES
The aggregate number of shares of stock which this corporation
is authorized to issue is 30,000,000 of which 25,000,000 shall be common shares
of no par value, and of which 5,000,000 shall be preferred shares of no par
value. The preferred shares may be issued from time to time by the Board of
Directors in one or more series which such designations, relative rights,
preferences, limitations, dividend rates, redemption prices, liquidation prices,
conversion rights, sinking or purchase fund rights and other provisions as the
Board of Directors may establish, fix and determine.
ARTICLE 4. NO CUMULATIVE VOTING
There shall be no cumulative voting of the shareholders of the
corporation.
ARTICLE 5. NO PREEMPTIVE RIGHTS
The shareholders of the corporation shall not have preemptive
rights to subscribe for or acquire securities or rights to purchase securities
of any kind, class, or series of the corporation.
ARTICLE 6. INCORPORATOR
The name and address of the incorporator, who is a natural
person of full age is:
Name Address
---- -------
Irving Weiser 2200 First Bank Place East
Minneapolis, Minnesota 55402
ARTICLE 7. FIRST BOARD OF DIRECTORS
The name and address of the members of the first Board of
Directors are:
Name Address
---- -------
Steven K. Case 2829 Inglewood Avenue
St. Louis Park, Minnesota 55416
Gerald J. Bratter 2208 First Bank Place West
Minneapolis, Minnesota 55402
<PAGE>
ARTICLE 8. WRITTEN ACTION BY DIRECTORS
An action required or permitted to be taken at a meeting of
the Board of Directors of the corporation may be taken by a written action
signed, or counterparts of a written action signed in the aggregate, by all of
the directors unless the action need not be approved by the shareholders of the
corporation, in which case the action may be taken by a written action signed,
or counterparts of a written action signed in the aggregate, by the number of
directors that would be required to take the same action at a meeting of the
Board of Directors of the corporation at which all of the directors were
present.
ARTICLE 9. MONETARY LIABILITY OF DIRECTORS
A director of this corporation shall not be personally liable
to the corporation or its shareholder for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its shareholders; (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (iii) under Sections 302A.559 or 80A.23 of the
Minnesota Statutes; (iv) for any transaction from which the director derived an
improper personal benefit; or (v) for any act or omission occurring prior to the
date when this Article 9 became effective.
Any repeal or modification of the foregoing provisions of this
Article 9 by the shareholders of the corporation shall not adversely affect any
rights or protection of a director of the corporation existing at any time of
such repeal or modification.
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 Nos. 33-21092, 33-41509, 33-41515,
33-50510, 33-80838 and 33-39091) of our reports dated January 30, 1998, except
for the second paragraph of Note 8, as to which the date is March 9, 1998, on
our audits of the consolidated financial statements and financial statement
schedule of CyberOptics Corporation as of December 31, 1997 and 1996, and for
each of the three years in the period ended December 31, 1997, which reports are
included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
March 27, 1998
EXHIBIT 99
FORWARD LOOKING STATEMENTS
CAUTIONARY STATEMENT
Statements regarding the future prospects of the Company must be
evaluated in the context of a number of factors that may materially affect its
financial condition and results of operations. Disclosure of these factors is
intended to permit the Company to take advantage of the safe harbor provisions
of the PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. Most of these factors
have been discussed in prior filings by the Company with the Securities and
Exchange Commission. Although the Company has attempted to list the factors that
it is currently aware may have an impact on its operations, other factors may in
the future prove to be important and the following list should not necessarily
be considered comprehensive.
INDUSTRY CONCENTRATION AND CYCLICALITY. Substantially all of the
Company's revenue is directly or indirectly related to capital expenditures in
the electronics industry. This industry is highly cyclical and has historically
experienced periodic downturns which often have had a severe effect on capital
expenditures. Several of the Company's customers have recently reported that the
market for the capital goods they sell and that incorporate the Company's
sensors has softened and that they may not maintain the same order rate for such
sensors during the next few quarters. For the foreseeable future, the Company's
operations will continue to be dependent on the capital expenditures in this
industry which, in turn, is largely dependent on the market demand for products
containing integrated circuits. Although the Company's products have been, and
continue to be, used in a variety of industries outside the electronics
industry, the Company's current product development and marketing is focused on
electronics and its business and results of operations would be significantly
and adversely affected by a slowdown in this industry.
DEPENDENCE UPON PRINCIPAL OEM CUSTOMERS. For the year ended December
31, 1997, two of the Company's customers, Juki Corporation ("Juki") and Philips
Electronics N.V. ("Philips"), accounted for approximately 35% of the Company's
revenue. In addition, the Company's five principal customers (including Juki and
Philips), in the aggregate, accounted for approximately 53% of the Company's
revenue for such period. Although the Company believes that orders from other
new OEM customers may compensate for a decrease, if any, in orders from existing
OEM customers, it can give no assurances that historical rates of OEM sales will
increase or can be maintained. The loss of, or a significant curtailment of
purchases by, any one or more of these OEM customers would have a material
adverse effect on the Company's results of operations.
DEPENDENCE ON OUTSIDE CONTRACTORS AND SUPPLIERS. The Company currently
contracts with third party assembly houses for a substantial portion of the
purchase and assembly of components of its products. Although the Company
endeavors to inspect and internally test most components prior to final
assembly, reliance on outside contractors reduces its control over quality and
delivery schedules. The failure by one or more of these subcontractors to
deliver quality components in a timely manner could have a material adverse
effect on the Company's results of operations. In addition, a number of the
components used in the Company's products are available from only a single
supplier or from a limited number of suppliers. Some of these components have
relatively long order cycles, in some cases over one year, and the timely
availability of these components to the Company is dependent on the Company's
ability to develop accurate forecasts of customer volume requirements. Any
interruption in or termination of supply of these components, or material change
in the purchase terms, including pricing, of any of these components, or a
reduction in their quality or reliability, could have a material adverse effect
on the Company's business and results of operations. See "Business
- --Manufacturing."
PROPRIETARY TECHNOLOGY AND INTELLECTUAL PROPERTY. The Company relies
heavily on its proprietary hardware designs and software technology. Although
the Company uses a variety of methods to protect its technology, it relies most
heavily on patents and trade secrets. There can be no
<PAGE>
assurance that the steps taken by the Company will be adequate to deter
misappropriation of its technology, that any patents issued to the Company will
not be challenged, invalidated or circumvented, or that the rights granted
thereunder will provide a competitive advantage to the Company. In addition,
there remains the possibility that others will "reverse engineer" the Company's
products in order to determine their method of operation and introduce competing
products or that others will develop competing technology independently. Any
such adverse circumstances could have a material adverse effect on the Company's
results of operations.
As the number of its products increases, the markets in which its
products are sold expands, and the functionality of those products grows and
overlaps with products offered by competitors, the Company believes that it may
become increasingly subject to infringement claims. Although the Company does
not believe any of its products or proprietary rights infringe the rights of
third parties, there can be no assurances that infringement claims will not be
asserted against the Company in the future or that any such claims will not
require the Company to enter into royalty arrangements or result in costly
litigation.
DEPENDENCE ON KEY PERSONNEL. The Company is highly dependent upon the
technical expertise, management and leadership of Dr. Steven K. Case, Chairman
and a director of the Company and Steven M. Quist, President and a director of
the Company, as well as other members of the Company's senior management team,
many of whom would be difficult to replace. Although the Company has a
$5,000,000 key-man insurance policy on Dr. Case and has retained other
experienced and qualified senior managers, it has no such insurance on Mr.
Quist, and the loss of the services Dr. Case, Mr. Quist or other key personnel
could have a material adverse effect on the Company.
TECHNOLOGICAL CHANGE AND NEW PRODUCT DEVELOPMENT. The market for the
Company's products is characterized by rapidly changing technology. Technologies
employed in the circuit board production industry, and particularly the surface
mount portion of this industry, continue to change rapidly and new technology
could cause a portion of the Company's products to become obsolete at any time.
Accordingly, the Company believes that its future success will depend upon its
ability to continue to develop and introduce new products with improved price
and performance. In order to develop such new products successfully, the Company
is dependent upon close relationships with its customers and their willingness
to share information about their requirements and participate in joint
development efforts with the Company. There can be no assurance that the
Company's customers will continue to provide it with timely access to such
information or that the Company will be able to develop and market such new
products successfully and respond effectively to technological changes or new
product announcements by others.
INTERNATIONAL REVENUE. In the years ended December 31, 1997, 1996, and
1995, sales of the Company's products to customers outside the United States
accounted for approximately 69%, 70% and 68%, respectively, of the Company's
revenue. The Company anticipates that international revenue will continue to
account for a significant portion of its revenues. The Company's operating
results are subject to the risks inherent in international sales, including, but
not limited to, various regulatory requirements, political and economic changes
and disruptions, transportation delays, difficulties in staffing and managing
foreign sales operations, and potentially adverse tax consequences. Although the
Company's operation have not been affected by the economic downturn in Asia,
there can be no assurances that such operations would not be adversely affected
by a more severe economic crisis. In addition, fluctuations in exchange rates
may render the Company's products less competitive relative to local product
offerings. There can be no assurance that these factors will not have a material
adverse effect on the Company's future international sales and, consequently, on
the Company's operating results.
COMPETITION. The Company competes with other vendors of optical
sensors, with vendors of machine vision systems, and with the internal
engineering efforts of the Company's current or prospective customers, many of
which may have greater financial and other resources than the
<PAGE>
Company. There can be no assurance that the Company will be able to compete
successfully in the future or that the Company will not be required to incur
significant costs in connection with its engineering research, development,
marketing and customer service efforts to remain competitive. Moreover, the
Company's principal customers operate within the electronics industry, which is
highly competitive and highly dependent upon its suppliers' ability to provide
high quality, cost efficient products. Competitive pressures may result in price
erosion or other factors which will adversely affect the Company's financial
performance.
QUARTERLY FLUCTUATIONS. The Company has experienced quarterly
fluctuations in operating results and anticipates that these fluctuations will
continue. These fluctuations have been caused by various factors, including the
capital procurement practices of its customers and the electronics industry
generally, the timing and acceptance of new product introductions and
enhancements, and the timing of product shipments and marketing. Future
operating results may fluctuate as a result of these and other factors,
including the Company's ability to continue to develop innovative products, the
introduction of new products by the Company's competitors, the Company's product
and customer mix, the level of competition and overall trends in the economy.
POSSIBLE VOLATILITY OF STOCK PRICE. The Company believes that factors
such as the announcement of new products by the Company or its competitors,
market conditions in the electronics and precision measurement industries
generally and quarterly fluctuations in financial results could cause the market
price of the Common Stock to vary substantially. In recent years, the stock
market has experienced price and volume fluctuations that have particularly
affected the market prices for many high technology companies and which often
have been unrelated to the operating performance of such companies. The market
volatility may adversely affect the market price of the Company's Common Stock.
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