SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Check One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT
For the transition period from ___________ to ___________
Commission file number 0-16577
CYBEROPTICS CORPORATION
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(Exact name of registrant as specified in its charter)
Minnesota 41-1472057
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
5900 Golden Hills Drive, Minneapolis, Minnesota 55416
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(Address of principal executive offices)
(612) 542-5000
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(Issuer's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes _X_ No__
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
At November 5, 1999, 5,015,941 shares of the issuer's Common Stock, no par
value, were outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CYBEROPTICS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
SEPT. 30, 1999 DEC. 31, 1998
(Unaudited)
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<S> <C> <C>
ASSETS
Cash and cash equivalents $ 4,881 $ 4,963
Marketable securities 9,714 17,142
Accounts receivable, net 6,828 6,362
Inventories 5,147 6,045
Other current assets 1,809 1,540
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Total current assets 28,379 36,052
Marketable securities 8,195 16,397
Intangible assets, net 11,046
Equipment and leasehold improvements, net 2,661 2,571
Capitalized patent costs, net 135 157
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Total assets $ 50,416 $ 55,177
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LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 2,027 $ 1,215
Income taxes payable 1,166 589
Accrued expenses 1,835 1,940
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Total current liabilities 5,028 3,744
Commitments and contingencies
Stockholders' equity:
Preferred stock, no par value, 5,000 shares
authorized, none outstanding
Common stock, no par value, 25,000 shares
authorized, 5,012 and 4,950 shares issued
and outstanding, respectively 33,364 32,735
Retained earnings 12,029 18,525
Accumulated other comprehensive income (loss) (5) 173
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Total stockholders' equity 45,388 51,433
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Total liabilities and stockholders' equity $ 50,416 $ 55,177
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</TABLE>
SEE THE ACCOMPANYING NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
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<PAGE>
CYBEROPTICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPT. 30,
1999 1998
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<S> <C> <C>
Revenues $ 10,418 $ 7,737
Cost of revenues 4,371 3,660
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Gross margin 6,047 4,077
Research and development expenses 2,543 1,558
Selling, general and administrative expenses 2,727 2,447
Amortization of goodwill and other intangibles 425
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Income from operations 352 72
Interest income 289 532
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Income before income taxes 641 604
Provision for income taxes 440 200
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Net income $ 201 $ 404
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Net income per share - Basic $ 0.04 $ 0.08
Net income per share - Diluted $ 0.04 $ 0.08
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Weighted average shares outstanding - Basic 5,000 5,057
Weighted average shares outstanding - Diluted 5,136 5,125
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<CAPTION>
NINE MONTHS ENDED SEPT. 30,
1999 1998
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Revenues $ 26,934 $ 28,085
Cost of revenues 11,814 12,508
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Gross margin 15,120 15,577
Research and development expenses 6,764 5,346
Selling, general and administrative expenses 7,282 7,499
Acquired in-process research and development 7,301
Amortization of goodwill and other intangibles 783
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Income (loss) from operations (7,010) 2,732
Interest income 1,129 1,722
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Income (loss) before income taxes (5,881) 4,454
Provision for income taxes 615 1,430
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Net income (loss) $ (6,496) $ 3,024
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Net income (loss) per share - Basic $ (1.31) $ 0.57
Net income (loss) per share - Diluted $ (1.31) $ 0.55
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Weighted average shares outstanding - Basic 4,975 5,273
Weighted average shares outstanding - Diluted 4,975 5,461
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</TABLE>
SEE THE ACCOMPANYING NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
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<PAGE>
CYBEROPTICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPT. 30,
1999 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (6,496) $ 3,024
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Acquired in-process research and
development, net of tax benefit 7,038
Depreciation and amortization 1,692 845
Provision for losses on inventories 145 285
Changes in operating assets and liabilities,
excluding impact of acquisitions:
Accounts receivable (123) 574
Inventories 846 (1,763)
Other current assets 64 (68)
Accounts payable 610 350
Income taxes payable 577 (72)
Accrued expenses (190) (204)
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Net cash provided
by operating activities 4,163 2,971
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities of marketable securities 19,636 26,021
Purchases of marketable securities (4,213) (19,415)
Purchases of businesses and technology, net of
cash acquired (17,124) --
Additions to equipment and leasehold improvements (796) (869)
Additions to patents (42) (113)
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Net cash provided (used) by
investing activities (2,539) 5,624
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 253 409
Proceeds from issuance of common stock
under Employee Stock Purchase Plan 345 355
Repurchase of common stock (6,830)
Repayment of long-term-debt (2,364)
Other 60 63
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Net cash used in financing activities (1,706) (6,003)
Increase (decrease) in cash and cash equivalents (82) 2,592
Cash and cash equivalents - beginning of period 4,963 6,160
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Cash and cash equivalents - end of period $ 4,881 $ 8,752
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</TABLE>
SEE THE ACCOMPANYING NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
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<PAGE>
CYBEROPTICS CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
1. INTERIM REPORTING:
The interim consolidated financial statements presented herein as of September
30, 1999, and for the three and nine month periods ended September 30, 1999 and
1998, are unaudited; however, in the opinion of management, the interim
consolidated financial statements include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of financial
position, results of operations and cash flows for the periods presented.
The results of operations for the three and nine month periods ended September
30, 1999, do not necessarily indicate the results to be expected for the full
year. The December 31, 1998, consolidated balance sheet data was derived from
audited consolidated financial statements, but does not include all disclosures
required by generally accepted accounting principles. These unaudited interim
consolidated financial statements should be read in conjunction with the
Company's consolidated financial statements and notes thereto, contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998.
2. PRO-FORMA INFORMATION:
The following table presents unaudited pro forma consolidated results of
operations as if the acquisitions of Kestra Limited (Kestra), acquired on April
6, 1999, and certain assets and liabilities of HAMA Laboratories, Inc. (HAMA),
acquired on May 5, 1999, had occurred as of the beginning of each period. The
unaudited pro forma consolidated results of operations have been adjusted to
eliminate the effect of the non-recurring charges to operations of $7,040,000
(net of tax) for the estimated fair value of the acquired in-process research
and development technology. The pro forma information includes adjustments for
additional amortization of identifiable intangibles and goodwill, the reduction
of historical HAMA compensation expense for executives to reflect contractual
changes to the Company's compensation structure, the reduction of interest
income due to the cash used for the acquisitions and the related tax impacts of
these adjustments. The unaudited pro forma consolidated results of operations
are presented for illustrative purposes only and are not necessarily indicative
of the combined financial results that actually would have resulted had the
acquisitions, in fact, occurred on those dates (In thousands):
Pro Forma
Nine Months Ended
September 30,
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1999 1998
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Revenue $27,729 $29,879
Net income (loss) $ (345) $ 684
Net income (loss) per share - Basic $ (0.07) $ 0.13
Net income (loss) per share - Diluted $ (0.07) $ 0.13
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<PAGE>
3. INVENTORIES (IN THOUSANDS):
September 30, Dec. 31,
1999 1998
(unaudited)
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Raw materials $3,518 $4,427
Work in process 714 1,045
Finished goods 915 573
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Total inventories $5,147 $6,045
======================
4. NET INCOME (LOSS) PER SHARE:
Basic net income per share has been computed using the weighted average number
of shares outstanding. The diluted net income per share includes the effect of
common stock equivalents for each period. The number of shares utilized in the
denominator of the diluted net income per share computation as compared to the
basic net income per share computation has been increased by 188,000 and 68,000
equivalent shares for the nine and three month periods ended September 30, 1998,
and by 136,000 equivalent shares for the three month period ended September 30,
1999. The shares used in the basic and diluted net income per share computation
for the nine month period ended September 30, 1999 are the same as additional
shares in the denominator would be antidilutive due to the Company's net loss
reported for that period. Options to purchase 212,000 and 530,000 shares of
common stock at a weighted average price of $21.00 and $18.00 were outstanding
but not included in the computation of diluted net income per share for the nine
and three month periods ended September 30, 1998 as the exercise price was
greater than the average market price of the common shares for these periods.
For the three month period ended September 30, 1999, options to purchase 326,000
shares of common stock at a weighted average exercise price of $19.80 were
outstanding but not included in the computation of diluted net income per share
as the exercise price was greater than the average market price of the common
shares for the period.
5. COMPREHENSIVE INCOME (LOSS):
Statement of Financial Accounting Standards 130 requires that unrealized gains
and losses on the Company's available-for-sale marketable securities and certain
foreign currency translation adjustments be included as a component of other
comprehensive income (loss).
During the nine months ended September 30, 1999 and 1998, total comprehensive
income (loss) amounted to ($6,674,000) and $3,249,000, respectively. During the
three month periods ended September 30, 1999 and 1998, total comprehensive
income amounted to $237,000 and $613,000, respectively. Accumulated other
comprehensive income (loss) at September 30, 1999 and December 31, 1998 was
($5,000) and $173,000, respectively.
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<PAGE>
6. BUSINESS SEGMENTS (IN THOUSANDS):
The Company's business is organized, managed, and internally reported as four
segments. Management of these segments, with the exception of the Research and
Development segment, are responsible for different product lines and services
and are responsible for managing, on a worldwide basis, revenues as well as
sales and marketing costs. Management does not represent that these segments, if
operated independently, would report the operating income and other financial
information shown below. The table below presents information about revenues and
income from operations for reportable segments for the nine and three month
periods ended September 30, 1999 and 1998, and identifiable assets as of
September 30, 1999 and December 31, 1998.
<TABLE>
<CAPTION>
Industrial
OEM SMT Measurement Research and Corporate Total
Sensors Systems & Semiconductor Development Administration(1) Company
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<S> <C> <C> <C> <C> <C> <C> <C>
Nine Months Ended September 30,
Revenues 1999 $ 17,672 $ 6,469 $ 2,793 $ 26,934
1998 20,224 6,230 1,631 28,085
Income (loss) from
Operations 1999 $ 9,075 $ 1,665 $ 747 $ (6,764) $(11,733) $ (7,010)
1998 10,294 2,107 (288) (5,346) (4,035) 2,732
Three Months Ended September 30,
Revenues 1999 $ 6,565 $ 2,675 $ 1,178 $ 10,418
1998 3,960 3,100 677 7,737
Income from
Operations 1999 $ 3,427 $ 793 $ 464 $ (2,543) $ (1,789) $ 352
1998 1,489 1,413 (25) (1,558) (1,247) 72
Identifiable
Assets(2) 1999 $ 6,180 $ 3,593 $ 2,202 $ 38,441 $ 50,416
1998 7,617 2,644 2,146 42,770 55,177
</TABLE>
(1) Loss from operations consists of unallocated corporate administrative
expenses. The nine months ended September 30, 1999 includes a $7,301
million charge for purchased in-process research and development.
(2) Segment assets include accounts receivable and inventories. Assets included
in Corporate Administration primarily include cash and marketable
securities, equipment and leasehold improvements, capitalized patent costs,
intangible assets, deferred income taxes, accrued interest receivable and
certain prepaid expenses.
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<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CyberOptics Corporation designs and manufactures intelligent sensors and systems
for high-precision, non-contact dimensional measurement and process control.
Utilizing proprietary laser and optics technology combined with advanced
software and electronics, the Company's products enable manufacturers to
increase operating efficiencies, product yields and quality by measuring the
characteristics and placement of components both during and after the
manufacturing process. The Company sells its products worldwide through a
combination of direct sales staff and independent distributors.
The following is management's discussion and analysis of certain significant
factors which have affected the Company's results and financial position during
the periods included in the accompanying financial statements. This discussion
should be read in conjunction with the interim consolidated financial statements
and associated notes.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. The following Management's Discussion
and Analysis contains "forward looking statements" within the meaning of federal
securities laws which represent management's expectations or beliefs relating to
future events, including statements regarding trends in the industries in which
the Company functions, levels of orders, research and development expenses,
taxation levels, the sufficiency of cash to meet operating and capital expenses
and the ability to continue to price foreign transactions in U.S. currency.
These and other forward looking statements made by the Company, must be
evaluated in the context of a number of factors that may affect the Company's
financial condition and results of operations, including the following:
-- The cyclical nature of capital expenditures in the electronics
industry;
-- The dependence of such operations on orders of two sensor product
lines from several large OEM's of component placement machines in the
surface mount industry;
-- The significant proportion of the Company's revenue that is derived
from export sales, including Asia where poor economic conditions have
continued;
-- The dependence of the Company's manufacturing on outside contractors
and suppliers, many of which require significant lead time;
-- The ability of the Company to produce products that do not experience
significant quality errors;
-- The degree to which the Company is successful in protecting its
technology and enforcing its technology rights in the United States
and other countries;
-- The dependence of the Company's operations on several key personnel;
-- The ability of the Company to effectively integrate the operations of
Kestra and HAMA so as to introduce new products on schedule and
effectively market and sell new and existing products.
-- The speed of changes in technology in the microelectronics
manufacturing industry from which most of the Company's sales are
derived;
-- Competition for the functions that the Company's products perform by
larger "vision" companies and by other optical sensor companies;
-- The ability of the Company to successfully develop in-process
technology acquired from Kesta and HAMA into viable products.
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<PAGE>
RESULTS OF OPERATIONS
PERFORMANCE BY BUSINESS SEGMENT
Financial information and other disclosures relating to the Company's four
business segments are provided in this Form 10-Q. In the discussion of results
of operations, certain reclassifications have been made to revenues in order to
include all revenue in segment disclosures. In quarterly filings prior to 1999,
certain revenues, primarily service revenues and sales of miscellaneous
inventory, had not been assigned to a business segment. These reclassifications
had no effect on net income or stockholders' equity.
REVENUES
Revenues decreased 4% to $26.9 million during the nine month period ended
September 30, 1999 compared to $28.1 million for the same period in 1998. For
the third quarter of 1999, revenues increased 35% to $10.4 million from $7.7
million in the third quarter of 1998. Revenues for the nine and three month
periods ended September 30, 1999 include $1.0 million and $644,000,
respectively, of revenues from HAMA since the Company's acquisition on May 5,
1999. Kestra, which was also acquired during the second quarter, is in the
development stage with no revenues. Excluding the effect of acquisitions,
revenues decreased 8% during the nine month period ended September 30, 1999 and
increased 26% in the third quarter of 1999 compared to the same periods in 1998.
The decrease in revenues for the nine months ended September 30, 1999 relative
to the comparable period in 1998 is primarily the result of reduced demand for
surface mount technology (SMT) process control sensors, primarily LaserAlign and
Laser Lead Locator, from original equipment manufacturer (OEM) customers during
the first and second quarters of 1999. Revenues are heavily dependant on the
level of capital spending in the global SMT assembly market, as the Company
generates approximately 90% of its revenues from the sales and service of
sensors and system products used primarily in SMT production. Increased revenues
in the third quarter of 1999 are the result of strong demand for SMT sensors, as
it appears that worldwide demand for SMT capital equipment, which has been
depressed since early 1998, may be in the early stages of a recovery.
The table below sets forth revenues by business segment for the three and nine
month periods ended September 30:
Nine months ended Three months ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
OEM Sensors $ 17,672 $ 20,224 $ 6,565 $ 3,960
SMT Systems 6,469 6,230 2,675 3,100
Industrial Measurement
& Semiconductor 2,793 1,631 1,178 677
------ ------ ------ ------
Total $ 26,934 $ 28,085 $ 10,418 $ 7,737
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<PAGE>
Revenues from the OEM sensor segment decreased 13% to $17.7 million during the
nine months ended September 30, 1999 compared to $20.2 million for the
comparable period in 1998. The decrease is primarily due to a slowdown in
worldwide demand for SMT production equipment. In addition, revenues from the
Company's largest customer in 1998 have decreased in 1999 due to weakness in the
Asian economy and a product transition at this Asian manufacturer. During the
third quarter of 1999, OEM sensor revenues increased 66% relative to the third
quarter of 1998, due primarily to strengthening demand from the Company's two
largest OEM customers. The Company's two largest OEM customers accounted for
approximately 48% of total revenues for the nine months ended September 30,
1999, and 54% of revenues for the comparable period in 1998. These customers
accounted for approximately 49% of revenues for the third quarter of 1999
compared to 45% in the third quarter of 1998.
SMT system segment revenues increased 4% to $6.5 million during the nine month
period ended September 30, 1999 from the comparable period in 1998, and
decreased 14% to $2.7 million for the third quarter of 1999 compared to the same
period in 1998. SMT systems revenues reflect sales of enhanced versions of the
Company's CyberSentry and LSM products. During the first quarter of 1999, the
Company introduced its new automated LSM product, the AutoLSM, which was made
available for shipment in the second quarter of 1999. Increased SMT system
revenue levels during the nine month period ended September 30, 1999 are
primarily the result of strong demand for the CyberSentry product from
electronic manufacturing services (EMS) customers. The decrease in third quarter
1999 SMT systems revenues compared to the same period in 1998, reflects record
revenue levels in 1998 not being achieved.
Industrial measurement and semiconductor segment revenues increased 71% to $2.8
million during the nine month period ended September 30, 1999 from the
comparable period in 1998, and increased 74% to $1.2 million for the third
quarter of 1999 compared to the same period in 1998. Industrial measurement
segment revenues include revenues of HAMA Sensors, Inc. (HSI) from May 5, 1999
(the date of acquisition). Excluding the effect of the HSI revenues, the dollar
level of revenues from the industrial measurement and semiconductor segment have
remained relatively flat over the nine and three month periods ended September
30, 1999 and 1998. There have been new system and sensor products introduced
over the last several quarters, including a new thickness measurement product
for the semiconductor wafer fabrication market introduced during the second
quarter of 1999. Future revenue growth in the industrial measurement and
semiconductor segment will be dependent on market acceptance of these and other
new product offerings, the ability of HSI to continue to grow revenues from its
existing products at historical rates and the Company's ability to complete
development and bring to market products derived from in-process research and
development acquired from HAMA.
International revenues comprised approximately 81% of total revenues during the
nine month periods ended September 30 1999 and 1998, and approximately 77% and
78% of revenues for the third quarter of 1999 and 1998, respectively. Sales of
the Company's products, primarily OEM sensors, in Western Europe, Japan and the
rest of the Far East have continued to represent the majority of the Company's
revenues. 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, CyberSentry and LSM2
products. Revenues generated from products used primarily for SMT production
(revenues from OEM sensors and SMT systems) were approximately 90% and 94% of
revenues for the nine month periods ended September 30, 1999 and 1998, and
approximately 89% and 91% for the third quarter of 1999 and 1998.
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<PAGE>
GROSS MARGIN
Gross margin was unchanged as a percent of total revenues at 56% during the nine
month periods ended September 30, 1999 and 1998. For the third quarter of 1999,
gross margin increased to 58% of total revenues compared to 53% during the
comparable period in 1998. Excluding the gross profit generated by HSI, gross
margin would have been 55% for the nine months ended September 30, 1999 and 57%
for the third quarter of 1999. Gross margin as a percentage of total revenues is
heavily dependent on the level of revenues over which to spread the fixed
component of cost of revenues. During 1999, gross margin has been impacted by
increased warranty costs, offset by a shift in the revenue mix towards higher
margin sensor products.
RESEARCH AND DEVELOPMENT
Research and development expenses increased 27% to $6.8 million during the nine
month period ended September 30, 1999 compared to the same period in 1998. For
the third quarter of 1999, research and development expenses increased 63% to
$2.5 million from the comparable period in 1998. As a percentage of revenue,
research and development expenses have increased to 25% during the nine months
ended September 30, 1999 from 19% during the comparable period in 1998, and for
the third quarter increased to 24% of revenues in 1999 from 20% in the
comparable period of 1998. Research and development expenses, excluding Kestra
and HAMA during the nine months ended September 30, 1999, were primarily focused
on development of new solder paste inspection product offerings, including the
AutoLSM released in the second quarter of 1999, development of the first article
inspection product, development of the next generation of the LaserAlign family
and development of the semiconductor wafer thickness measurement system. In
addition, the Company's research and development expenses related to continued
development of in-process projects acquired from Kestra and HAMA were
approximately $893,000 and $528,000 during the nine and three month periods
ended September 30, 1999. The Company anticipates that research and development
expense levels for the remainder of 1999 will be relatively constant with the
third quarter of 1999, as it continues development of in-process projects
acquired and works to complete development on a number of important new
products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased 3% to $7.3 million during
the nine month period ended September 30, 1999 compared to $7.5 million during
the comparable period in 1998. For the third quarter of 1999, selling, general
and administrative expenses increased 11% to $2.7 million compared to the same
period in 1998. As a percentage of revenue, selling, general and administrative
expenses have remained constant at 27% during the nine month periods ended
September 30, 1999 and 1998, and for the third quarter decreased to 26% in 1999
from 32% in 1998. Selling, general and administrative expenses of Kestra and HSI
were approximately $461,000 and $256,000 for the nine and three month periods
ended September 30, 1999. The dollar decrease in selling, general and
administrative expenses during 1999, excluding the impact of Kestra and HAMA, is
primarily due to reduced legal expenses related to the Yamaha litigation which
was settled during the first quarter of 1998. To a lesser extent, reduced
selling, general and administrative costs are a result of a cost containment
program initiated by the Company in response to lower revenues.
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<PAGE>
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT
On April 6, 1999, the Company completed the acquisition of Kestra. At the time
of the acquisition, Kestra had under development technologies using a
statistical technique, Principal Component Analysis (PCA), for the application
of Automated Optical Inspection (AOI) in the pre-oven and post-over reflow
stages of electronic circuit board production. At the time of acquisition the
Company was uncertain whether the technology being developed for either
application would ultimately meet the technical specifications required for
circuit board production or be commercially acceptable. As a result, the Company
recorded a $6.5 million charge to operations for the estimated fair value of the
acquired in-process research and development. This charge is not deductible for
tax purposes. The Company is continuing development of the acquired in-process
pre-oven and post-reflow technologies and currently believes that its
development efforts are on schedule to meet the anticipated product release
schedule without any significant changes in its research and development costs.
However, these expectations are subject to change, given uncertainties of the
development process and potential changes in market expectations.
On May 5, 1999, the Company acquired substantially all of the operating assets
and assumed certain liabilities of HAMA through HAMA Sensors, Inc., a newly
formed, wholly-owned subsidiary of the Company. At the time of the acquisition,
HAMA had under development technology to develop laser-based proximity sensors
for robotic semiconductor wafer handling, which can potentially be used in a
vacuum environment, and laser micrometers that will potentially determine the
orientation and alignment of semiconductor wafers during the production process
and other potential applications. At the time of acquisition the Company was
uncertain whether the technology being developed for either the proximity
sensors or the laser micrometers would ultimately meet the technical
specifications required for semiconductor wafer handling, or other applications,
or be commercially acceptable. As a result, the Company recorded a $771,000
charge to operations for the estimated fair value of the acquired in-process
research and development. This charge will be deductible in future income tax
reporting periods. The Company is continuing development of the acquired
in-process technologies described above, except for the six-inch laser
micrometer technology for which further development efforts have been put on
hold due to manufacturability issues that have been encountered. Development
efforts have been focused on completion of the vacuum sensor, which is currently
being tested in the field. In addition, development efforts on the other
micrometer projects have been slowed due to limited resources and the need to
address integration issues that have arisen. These factors could impact the
product development and release schedule.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLE ASSETS
Amortization of acquired intangible assets was approximately $783,000 and
$425,000 for the nine and three month periods ended September 30, 1999. The
amortization is attributable to identifiable intangible assets and goodwill
resulting from the Company's acquisition of certain technology and other assets
of Electronic Packaging Company (EPC) during the first quarter of 1999 and the
Company's acquisition of Kestra and HAMA during the second quarter of 1999.
Amortization of these intangible assets is expected to remain constant at
approximately $425,000 per quarter over the remaining life of the intangible
assets and goodwill.
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<PAGE>
PROVISION FOR INCOME TAXES AND EFFECTIVE INCOME TAX RATE
The Company recorded a tax provision of $615,000 and $440,000 for the nine and
three month periods ended September 30, 1999. The tax provision during 1999 has
been adjusted to reflect both the non-deductible acquired in-process research
and development charge resulting from the Kestra acquisition and valuation
allowances established to eliminate the possible future tax benefit of net
operating losses generated by Kestra (due to uncertainty about realization). For
the nine and three months ended September 30, 1998, the Company recorded a tax
provision of $1.4 million and $200,000, respectively. During 1998, benefits from
the Company's foreign sales corporation and the research and experimentation tax
credit were primarily responsible for reducing the tax provision below the
statutory federal level. The Internal Revenue Service has concluded their audit
of the Company's 1995 and 1996 federal tax returns. Tentative results of that
audit would not have a material impact on the financial position, net income or
cash flows of the Company.
ORDER RATE AND BACKLOG
CyberOptics' order rate totaled $29.0 million during the nine month period ended
September 30, 1999 compared to $26.1 million during the same period in 1998. For
the third quarter of 1999, the order rate totaled $13.2 million compared to $9.5
million in 1998. Backlog totaled $7.8 million and $6.7 million at September 30,
1999 and 1998, respectively. The scheduled shipment of the September 30, 1999
backlog is as follows (in thousands):
4th Quarter 1999 $7,220
1st Quarter 2000 and after 598
------
Total backlog $7,818
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and marketable securities decreased $15.7 million to
$22.8 million as of September 30, 1999 from $38.5 million as of December 31,
1998, primarily due to $19.5 million of cash used to acquire businesses and
technology and $838,000 of cash used to purchase fixed assets and other
intangibles. Decreases in cash were partially offset by $4.2 million of cash
provided by operations.
The Company generated $4.2 million of cash from operations during the first nine
months of 1999, primarily due to a net loss of $6.5 million, of which $7.0
million related to non-cash charges for acquired in-process research and
development (net of tax), and $1.8 million related to non-cash expenses for
depreciation and amortization and the provision for inventory obsolescence. The
cash generated from operations also included a decrease of $846,000 in
inventory, an increase of $610,000 in accounts payable and an increase of
$577,000 in income taxes payable. The decrease in inventory is primarily due to
management initiatives in 1999 focused on inventory reduction. The increase in
accounts payable is primarily due to increased activity levels related to
revenue growth, and increased taxes payable are the result of timing of
quarterly tax payments. During 1998, the Company generated $3.0 million of cash
from operations, primarily due to net income of $3.0 million, including $1.1
million of non-cash expenses, offset by a $1.8 million increase in inventory.
-13-
<PAGE>
The Company used $2.5 million of cash in investing activities during the nine
month period ended September 30, 1999 compared to the $5.6 million provided
during the same period in 1998. The primary reason for the use of cash is $17.1
million used to purchase businesses and technology. This use was offset by the
change in cash from investing activities related to changes in the level of
investment in marketable securities resulting from the purchases and maturities
of those securities, which provided $15.4 million of cash in 1999 and $6.6
million in 1998. The Company used approximately $796,000 and $869,000 of cash
for the purchase of fixed assets during the nine months ended September 30, 1999
and 1998, respectively.
The Company used $1.7 million of cash from financing activities during the nine
months ended September 30, 1999 and used $6.0 million in the same period during
1998. During 1999, cash used primarily represents the repayment of $2.4 million
of debt of Kestra following the acquisition, offset by cash generated from stock
option exercises and the issuance of stock under the Employee Stock Purchase
Plan (ESPP). In 1998, $764,000 of cash generated from stock option exercises and
the issuance of stock under the ESPP was offset by $6.8 million of cash used to
repurchase common stock of the Company.
As of September 30, 1999, the Company has no material capital commitments except
for the funding of working capital requirements of Kestra during its product
development and early product introduction period. The Company believes working
capital and anticipated funds from operations will be adequate for anticipated
operating needs.
OTHER FACTORS
Changes in revenues have resulted primarily from changes in the level of unit
shipments and new product introductions. The Company believes that inflation has
not had any significant effect on operations. Substantially all of the Company's
international export sales are negotiated, invoiced and paid in U.S. dollars.
Accordingly, although currency fluctuations do not effect the Company's revenue
and income per unit, they can influence the price competitiveness of the
Company's products relative to other technologies and the willingness of
existing and potential customers to purchase units. In addition, although many
of the OEM sensor products the Company manufactures for foreign consumption are
incorporated into products of our OEM customers that are re-exported worldwide,
the Company's operations have been effected by general economic conditions
associated with currency devaluations in Asia.
YEAR 2000 STATUS
The Securities and Exchange Commission and other regulatory bodies have
identified the potential failure of many computer systems to properly recognize
and process date specific information on and after January 1, 2000 as a
significant risk to companies. The Company has implemented a comprehensive
program to address this issue. The components of the program include: an
assessment of internal systems vulnerability; a close examination of all
production equipment that contains microprocessors; a survey of suppliers to
determine their ability to maintain an uninterrupted supply of goods and
services; and an evaluation of the year 2000 issue on Company products.
-14-
<PAGE>
All internal automated systems have been identified and their Year 2000 risk
assessed. Such systems include the hardware and software in the company-wide
network as well as personal computers located on desks or in labs. All central
hardware compliance has been confirmed. Needed software "patches" have been
installed. All desk mounted computer hardware has been made compliant as needed.
Software patches for common applications have been installed. Production
equipment surveys found 83 separate machines or fixtures with computing
capability. Year 2000 vulnerability was limited and corrected manually where
needed. Software on equipment was individually tested. Where the tests
discovered problems, the need for correction was assessed and necessary changes
made.
The Company is highly dependent on suppliers to continue operations. The most
critical 38 material suppliers were individually surveyed and the risk potential
of each determined. Nine were identified for follow-up. Each of them has
confirmed their systems are compliant. Production orders for circuit boards have
been increased to ensure contract manufacturers will have sufficient electronic
components at year- end should Y2K issues arise. Non-material vendors (e.g.
electricity, banking) have provided statements of compliance.
Several older company products are affected by Year 2000. Methods for customers
to use in evaluating the Year 2000 impact were established and corrective
procedures documented. All customers potentially impacted were notified in
writing and referred to the Year 2000 section of the Company's web site, where
questions were answered and corrective actions outlined. Over 100 of those
accessing the Year 2000 section have registered to get periodic updates on Year
2000 status.
After an initial assessment, recent acquisitions are believed to present minimal
risk due to their size, their limited dependence on automated systems, the
number of products being sold and because all in-process technologies are being
developed with year 2000 compliance considered.
Costs to date have been minimal and the majority of the planned effort has been
completed. Despite a comprehensive review of potential risks, there is no
assurance that problems will not still arise. The Company believes that manual
intervention, the existence of multiple sources for key components, and use of
available inventory will provide adequate time for corrective actions to be
determined and implemented.
-15-
<PAGE>
PART II. OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON 8-K
a. Exhibits
Exhibit 27--Financial Data Schedule (For EDGAR filing only)
b. Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended September
30, 1999, or during the period from September 30, 1999 to the date of
this quarterly report on Form 10-Q.
-16-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CyberOptics Corporation
/s/ Steven M. Quist
-------------------
Steven M. Quist, President
(Principal Executive Officer and
Duly Authorized Officer)
/s/ Richard G. Ballintine
-------------------------
Richard G. Ballintine, Vice President - Finance
(Principal Accounting Officer and
Duly Authorized Officer)
Dated: November 12, 1999
-17-
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