Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
CYBE > SEC Filings for CYBE > Form 10-Q on 9-Nov-2012All Recent SEC Filings

Show all filings for CYBEROPTICS CORP

Form 10-Q for CYBEROPTICS CORP


9-Nov-2012

Quarterly Report


ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CRITICAL ACCOUNTING POLICIES AND ESTIMATES:

The preparation of the financial information contained in this 10-Q requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate these estimates on an ongoing basis, including those related to allowances for doubtful accounts and returns, warranty obligations, inventory valuation, the carrying value and any impairment of intangible assets, income taxes and derivatives and hedging activities. These critical accounting policies are discussed in more detail in the Management's Discussion and Analysis of Financial Condition and Results of Operations contained in our Form 10-K for the year ended December 31, 2011.

FORWARD LOOKING STATEMENTS:

The following management's discussion and analysis contains a number of estimates and predictions that are forward looking rather than based on historical fact. Among other matters, we discuss (i) our level of anticipated revenues, gross margins, expenses, and net income or loss for full year 2012;
(ii) the potential margin improvements resulting from our next-generation products; (iii) the timing of initial revenue and margin improvements from other new products that we have under development, that have been recently introduced or we anticipate introducing in the future; (iv) our beliefs regarding trends in the general economy and its impact on markets for our equipment; (v) the need for a valuation allowance with respect to our deferred tax assets and (vi) the impact of currency fluctuations on our operations. Although we have made these statements based on our experience and best estimate of future events, there may be events or factors that we have not anticipated, and the accuracy of our statements and estimates are subject to a number of risks, including those identified in our Annual Report on Form 10-K for the year ended December 31, 2011.

RESULTS OF OPERATIONS:

General

Our products are sold primarily into the electronics assembly, photovoltaic
(solar) cell manufacturing, semiconductor DRAM and flash memory manufacturing, and semiconductor fabrication capital equipment markets. We sell products in these markets both to original equipment manufacturers of production equipment and to end-user customers that produce circuit boards, solar cells and semiconductor wafers and devices. Historically these markets have been very cyclical, and have experienced periods of rapid growth as worldwide capacity is added to support increased consumer demand for electronic products, and new capital equipment is purchased as a result of technology changes in electronics components, such as miniaturization, and changing production requirements. These periods of growth have historically been followed by periods of excess capacity and reduced capital spending.

Our results in the first nine months of 2012 have been impacted by the absence of solar sensor sales and weakness in surface mount technology (SMT) alignment sensors and stand-alone inspection systems due to a persistently sluggish global economy and weak SMT, semiconductor and solar market conditions. As a result, we have experienced reduced year over year demand for our SMT sensor and system products through the first nine months of 2012. Backlog at September 30, 2012 totaled $2.2 million, compared to $4.3 million at the end of this year's second quarter. We believe this factor, combined with ongoing weakness in the global electronics industry, will result in a sequential decline in fourth quarter sales and most likely a loss for the fourth quarter. Although soft market conditions are expected to continue at least through the first quarter of 2013, we believe our ongoing investments in new and enhanced products will position CyberOptics to take optimum advantage of the next market upturn.

Despite the challenging economic environment, CyberOptics' financial condition remains very strong. Cash and marketable securities were $31.2 million at the end of the third quarter, down modestly from $32.3 million at the end of the second quarter but up from $30.5 million at December 31, 2011. Our sizable cash position is allowing us to maintain our strong commitment to the development of important next-generation products that, we believe, will position us to capture additional share as the electronics market rebounds. Under development are enhanced dual lane and dual illumination solder paste inspection (SPI) systems, as well as enhanced QX tabletop and QX in-line automated optical inspection AOI systems. Development of next-generation alignment sensors for key OEM customers is nearing completion and will be introduced shortly. In addition, we are continuing to evaluate strategic acquisition opportunities as a means for entering new markets with related technologies.

In the third quarter of 2012, we consolidated research and development for our semiconductor products into our Minneapolis headquarters facility. We believe this move, which resulted in a restructuring charge of $217,000, will allow us to accelerate development of our WaferSense products through more efficient access to CyberOptics' sensor engineering talent, while further streamlining our business. This action had no impact on our global sales and service capabilities. Due to the consolidation initiative, we will no longer manage our semiconductor operations as a separate segment, and we will no longer report semiconductor segment information. Sales of our WaferSense product line were up 28% sequentially and 27% year-over-year. Our consolidation initiative will enable WaferSense to remain an important component of our product mix.

Reflecting their confidence in our future as one of the world's leading providers of SMT electronics and semiconductor productivity solutions, our board of directors has authorized a $3.0 million share repurchase program. The common stock will be acquired from time to time in open market transactions, block purchases and other transactions complying with the Securities and Exchange Commission's Rule 10b-18. We intend to adopt a 10b5-1 trading plan to implement the repurchase program.

Revenues

Our revenues decreased by 32% to $11.6 million in the three months ended September 30, 2012 from $17.1 million in the three months ended September 30, 2011 and decreased by 24% to $35.8 million in the nine months ended September 30, 2012 from $47.3 million in the nine months ended September 30, 2011. The following table sets forth revenues by product for the three and nine month periods ended September 30, 2012 and 2011:

                                      Three Months Ended September 30,            Nine Months Ended September 30,
(In thousands)                           2012                  2011                 2012                  2011
OEM Alignment Sensors               $         3,029       $         4,650      $        11,243       $        16,916
Semiconductor Sensors                         1,923                 1,729                5,092                 5,261
SMT Inspection Systems                        6,606                10,709               19,506                25,120
Total                               $        11,558       $        17,088      $        35,841       $        47,297

Sales of OEM alignment sensors declined from the year-earlier periods due to a persistently sluggish global economy and weak SMT, semiconductor and solar market conditions. Sales of SMT alignment sensors decreased by $1.6 million or 35% to $3.0 million in the three months ended September 30, 2012, down from $4.6 million in the three months ended September 30, 2011, and decreased by $5.7 million or 34% to $11.2 million in the nine months ended September 30, 2012, down from $16.9 million in the nine months ended September 30, 2011. Reflecting the continued impact of excess production capacity in the photovoltaic cell market, we recorded no revenue from sales of solar wafer alignment cameras during the three and nine months ended September 30, 2012, or the three months ended September 30, 2011. Sales of solar wafer alignment cameras in the nine months ended September 30, 2011 totaled $2.1 million, with all of the sales occurring in the first six months of the year. We do not anticipate any material strengthening in the solar market until 2013. Fourth quarter sensor sales are forecast to decline on both a sequential quarterly and year-over-year basis as our OEM customers continue to reduce their sensor inventories resulting from weak end customer demand and soft global economic conditions.

Revenues from sales of our semiconductor products increased by $194,000 or 11% to $1.9 million in the three months ended September 30, 2012, from $1.7 million in the three months ended September 30, 2011, and decreased by $169,000 or 3% to $5.1 million in the nine months ended September 30, 2012, from $5.3 million in the nine months ended September 30, 2011. The increase in revenue in the three months ended September 30, 2012 resulted from strong growth in sales of our productivity enhancing WaferSense product line, offset in part by continuing declines in sales of older wafer mapper and frame grabber products. The decrease in revenue for the nine months ended September 30, 2012 was due to continuing declines in sales of older wafer mapper and frame grabber products, offset in part by higher WaferSense sales. Sales of WaferSense products increased $330,000 or 27% to $1.5 million in the three months ended September 30, 2012, from $1.2 million in the three months ended September 30, 2011, and increased $392,000 or 12% to $3.8 million in the nine months ended September 30, 2012, from $3.4 million in the nine months ended September 30, 2011.

Revenue from sales of our stand-alone SMT inspection systems decreased by $4.1 million or 38% to $6.6 million in the three months ended September 30, 2012, down from $10.7 million in the three months ended September 30, 2011, and decreased by $5.6 million or 22% to $19.5 million in the nine months ended September 30, 2012, down from $25.1 million in the nine months ended September 30, 2011. Sales of stand-alone SMT inspection systems decreased in 2012 when compared to the prior year periods, due to the persistently sluggish global economy and weak market conditions.

Sales of AOI systems decreased by $1.4 million or 26% to $4.0 million in the three months ended September 30, 2012, from $5.4 million in the three months ended September 30, 2011, and decreased by $386,000 or 3% to $11.4 million in the nine months ended September 30, 2012, from $11.8 million in the nine months ended September 30, 2011. Although all SMT inspection system sales were impacted by weak market conditions, AOI systems sales benefited from our new QX100 and QX100i AOI tabletop systems which were introduced early in 2012. Revenue from our new AOI tabletop systems totaled $565,000 in the three months ended September 30, 2012 and $1.4 million in the nine months ended September 30, 2012. Our QX family of AOI products offer what we believe are the fastest AOI inspection times currently available. We believe the QX500 will continue to receive favorable market acceptance, particularly with original design manufacturers, where we have an established installed base of SPI systems and where the fast inspection times of the QX500 are required.

Sales of SPI systems declined by $2.6 million or 55% to $2.1 million in the three months ended September 30, 2012, from $4.7 million in the three months ended September 30, 2011, and declined by $5.6 million or 46% to $6.5 million in the nine months ended September 30, 2012, from $12.1 million in the nine months ended September 30, 2011. We believe these sales decreases were due to an overall sluggish global electronics market and increased competition in the SPI market.

We believe that ongoing introduction of new system products addressing different tiers of the market will strengthen our competitive position in the inspection market. Recent examples include our new QX100 and QX100i AOI tabletop systems and a higher-performance SPI system based upon a newly developed dual illumination sensor. We intend to maintain our emphasis on new product development and to work on next-generation products that we believe will position us to capture additional market share.

Export revenue totaled $9.7 million or 84% of total revenue in the three months ended September 30, 2012, compared to $15.0 million or 88% of total revenue in the three months ended September 30, 2011. Export revenue totaled $30.9 million or 86% of total revenue in the nine months ended September 30, 2012, compared to $41.2 million or 87% of total revenue in the nine months ended September 30, 2011. Export revenue as a percentage of total revenue declined in the three and nine months ended September 30, 2012 because sales of inspection systems to large original design manufacturers in China were lower in 2012 when compared to 2011.

Cost of Revenue and Gross Margin

Cost of revenue decreased by $3.1 million or 33% to $6.5 million in the three months ended September 30, 2012 from $9.6 million in the three months ended September 30, 2011 and decreased by $5.7 million or 22% to $20.0 million in the nine months ended September 30, 2012 from $25.7 million in the nine months ended September 30, 2011, due to lower sales volume in 2012 compared to the same periods of 2011.

Gross margin as a percentage of OEM alignment and semiconductor sensor sales was 53% in the three months ended September 30, 2012, and September 30, 2011, and was 47% in the nine months ended September 30, 2012, compared to 52% in the nine months ended September 30, 2011. The decrease in gross margin percentage in the nine months ended September 30, 2012 was due largely to sluggish sales of certain higher margin SMT alignment sensors, including the absence of revenues from solar wafer alignment cameras.

Gross margin as a percentage of stand-alone SMT inspection systems sales was 41% in the three months ended September 30, 2012, compared to 38% in the three months ended September 30, 2011, and was 42% in the nine months ended September 30, 2012, compared to 40% in the nine months ended September 30, 2011. The increase in gross margin percentage in the three and nine months ended September 30, 2012 was due largely to the ongoing shift in our sales mix of stand-alone SMT inspection systems to higher margin QX AOI systems and away from SPI systems. Gross margins on SPI systems have been lower during most of 2012 due to increased competition.

Our markets are highly price competitive, particularly the electronic assembly market, resulting in continual pressure on our gross margins. We compensate for pricing pressure by introducing new products with more features and improved performance and through manufacturing cost reduction programs. For example, our latest stand-alone SMT inspection system products combine a reduction in cost with enhanced performance. Other recently introduced products, including our off-line and integrated in-line QX100 and QX100i AOI tabletop systems, solar wafer alignment camera, WaferSense particle sensor and the 3D SE500 SPI sensors we sell to Viscom AG, have more favorable margins than our existing products.

Operating Expenses

We believe continued investment in research and development of new products, coupled with continued investment in and development of our sales channels is critical to future growth and profitability. Such spending during cyclical downturns has allowed us to generate significant sales during corresponding economic and market recoveries. Accordingly, we historically have maintained research and development and sales and marketing expenses at relatively high levels, even during periods of recession and downturn in our electronic assembly and semiconductor capital equipment markets, as we continue to fund development of important new products, and continue to invest in our sales channels and develop new sales territories.

Research and development expense was $2.1 million in the three months ended September 30, 2012, compared to $1.8 million in the three months ended September 30, 2011. Research and development expense was $6.1 million in the nine months ended September 30, 2012, compared to $5.6 million in the nine months ended September 30, 2011. The increase in research and development expense in the three and nine months ended September 30, 2012 resulted from higher costs for additional wages and benefits due to pay increases and headcount additions, offset in part by lower project development costs for proto-types and contractors. Under development are enhanced dual lane and dual illumination solder paste inspection systems, as well as enhanced QX tabletop and QX in-line AOI systems. Development of next-generation alignment sensors for key OEM customers is nearing completion and will be introduced shortly. We also recently introduced our new WaferSense particle sensor. In the third quarter of 2012, we consolidated our Portland-based research and development for our semiconductor products into our Minneapolis headquarters facility. We believe this move will facilitate more efficient access to our sensor engineering talent, while further streamlining our business.

Selling, general and administrative expense was $3.3 million in the three months ended September 30, 2012, compared to $3.5 million in the three months ended September 30, 2011. Selling, general, and administrative expense was $9.9 million in the nine months ended September 30, 2012, compared to $10.9 million in the nine months ended September 30, 2011. The decrease in selling, general and administrative expense in the three and nine months ended September 30, 2012 was due to a reduction in commissions for third party sales representatives due to the overall decline in sales of stand-alone SMT inspection systems in 2012 when compared to 2011. Incentive compensation and internal sales commissions have been lower in 2012 compared to 2011 due to lower levels of revenue and profitability. Selling, general and administrative expense was reduced by $66,000 in the nine months ended September 30, 2012 and $130,000 in the nine months ended September 30, 2011 due to a reduction in our allowance for doubtful accounts, resulting from partial recovery of a receivable we reserved for in 2009.

We estimate both research and development and selling, general and administrative expense in the fourth quarter will decline by over 10% from the third quarter level mainly due to efficiencies resulting from the Portland-based semiconductor research and development consolidation, a lower level of third party commissions on systems sales and anticipated implementation of other cost containment initiatives.

Goodwill Impairment

We analyzed our goodwill for impairment in the third quarter of 2012 and concluded that there was no impairment. The analysis was triggered by a decline in our stock market capitalization below our net book value for a period of more than 30 days. Factors which could trigger an impairment charge in the future include further significant erosion in industry or economic trends, a significant decline in future estimated cash flows or a significant decline in our stock market capitalization relative to net book value.

Consolidation of Portland Semiconductor operations into Minneapolis headquarters facility

The consolidation of our Portland-based research and development for our semiconductor products into our Minneapolis headquarters facility resulted in a restructuring charge of $217,000 in the third quarter of 2012. We believe the elimination of duplicate expenses and closer coordination with manufacturing should allow us to improve our profitability and be more responsive to customers, and we expect to recover the restructuring charge through cost savings in less than six months. Due to the consolidation initiative, we are no longer managing our semiconductor operations as a separate segment, and we are no longer reporting semiconductor segment information beginning with the third quarter of 2012. We estimate potential annual savings of up to $700,000 from our decision to consolidate semiconductor research and development in Minneapolis.

Interest Income and Other

Interest income and other includes interest earned on investments and gains and losses associated with foreign currency transactions and foreign exchange forward contracts used to hedge against the effects of exchange rate fluctuations on intercompany financing transactions associated with our subsidiaries in the United Kingdom and Singapore. Interest income and other increased in the three months ended September 30, 2012, compared to the same period of 2011, due to larger gains resulting from foreign currency transactions. Interest income and other decreased in the nine months ended September 30, 2012, compared to the same period of 2011, due to smaller gains resulting from foreign currency transactions and lower interest income resulting from lower rates of interest earned on invested funds.

Other income from foreign currency transactions and foreign exchange forward contracts was $89,000 in the three months ended September 30, 2012, compared to other income of $13,000 in the three months ended September 30, 2011. Other income from foreign currency transactions and foreign exchange forward contracts was $31,000 in the nine months ended September 30, 2012 compared to other income of $79,000 in the nine months ended September 30, 2011.

Provision for Income Taxes and Effective Income Tax Rate

We recorded an income tax benefit of $134,000 in the nine months ended September 30, 2012 reflecting an effective tax rate of a negative 39%, compared to income tax expense of $1.3 million in the nine months ended September 30, 2011, reflecting an effective tax rate of 25%. Our income tax benefit and effective tax rate in the nine months ended September 30, 2012, reflects the combination of a loss in the United States tax jurisdiction where tax rates and the resulting tax benefit are high, and the impact of lower overall tax rates in foreign jurisdictions. Fluctuations in the level of income and loss in the United States and foreign jurisdictions will continue to have an impact on the income tax expense or benefit we recognize in any given annual period.

Order Rate and Backlog

Our orders totaled $9.5 million in the three months ended September 30, 2012, compared to $11.7 million in the three months ended June 30, 2012 and $11.8 million in the three months ended September 30, 2011. Backlog totaled $2.2 million at September 30, 2012, $4.3 million at June 30, 2012 and $6.3 million at September 30, 2011. The scheduled shipment (or estimated timing of revenue for systems recognized upon acceptance) for backlog at September 30, 2012 is as follows:

(In thousands)               Backlog
4th Quarter 2012             $  1,651
1st Quarter 2013 and after        564
Total backlog                $  2,215

LIQUIDITY AND CAPITAL RESOURCES

Our cash and cash equivalents decreased by $4.4 million in the nine months ended September 30, 2012, resulting from $5.2 million of new marketable security purchases, net of proceeds from maturities and sales of marketable securities and purchases of fixed asset and capitalized patent costs totaling $1.2 million, offset in part by $1.7 million of cash provided by operating activities. Our cash and cash equivalents fluctuate in part because of maturities of marketable securities, and investment of cash balances in marketable securities, or from other sources of cash, in addition to marketable securities. Accordingly, we believe the combined balances of cash and marketable securities provide a more reliable indication of our available liquidity. Combined balances of cash and marketable securities increased by $700,000 to $31.2 million as of September 30, 2012 from $30.5 million as of December 31, 2011.

Operating activities provided $1.7 million of cash in the nine months ended September 30, 2012. Cash provided by operations included a net loss of $212,000, which included non-cash expenses totaling $1.6 million for depreciation and amortization, provision for doubtful accounts, non-cash gains and losses from foreign currency transactions, available-for-sale securities transactions and stock compensation expenses.

Changes in operating assets and liabilities using cash included increases in inventories of $1.4 million, other assets of $79,000, income taxes receivable of $185,000, and decreases in accrued expenses of $810,000 and advance customer payments of $224,000. Changes in operating assets and liabilities providing cash included decreases in accounts receivable of $2.9 million and increases in accounts payable of $95,000. Inventories have increased as 2012 sales levels have been lower than anticipated. Higher income taxes receivable are due to income tax payments made in 2012 and an increase in estimated refundable income taxes. Accrued expenses and other liabilities decreased due to lower commission and incentive compensation accruals, resulting from lower levels of revenue and profitability in 2012 compared to 2011, and payment of 2011 incentive compensation accruals in the nine months ended September 30, 2012. The decrease in accounts receivable was due to lower sales levels in the third quarter of 2012, compared to the fourth quarter of 2011, and an improvement in the timing of cash collections from customers. The increase in accounts payable resulted from increased material purchases and a conscious effort on our part to extend the timing of vendor payments. These materials will be paid for in the fourth quarter of 2012.

Operating activities provided $5.1 million of cash in the nine months ended September 30, 2011. Cash provided by operations included net income of $3.8 million, which included non-cash expenses totaling $2.2 million for depreciation and amortization, deferred taxes, non-cash gains and losses from foreign currency transactions and stock compensation expenses. Changes in operating assets and liabilities using cash included increases in accounts receivable of $2.4 million, decreases in accounts payable of $1.1 million and decreases in advance customer payments of $168,000. Changes in operating assets and liabilities providing cash included decreases in inventory of $1.9 million, increases in accrued expenses and other liabilities of $536,000 and decreases in income tax refunds and deposits of $214,000. The increase in accounts receivable was due to higher sales levels in the third quarter of 2011, compared to the fourth quarter of 2010. Better sales forecasting and inventory management resulted in lower inventory purchases in the third quarter of 2011 and a corresponding reduction in inventory and accounts payable levels. Accrued expenses and other liabilities increased due to higher warranty, commission and incentive compensation accruals, resulting from higher sales levels and improved operating results. Income tax refunds receivable decreased due to receipt of anticipated refunds and usage to pay for higher income tax expense.

Investing activities used $6.3 million of cash in the nine months ended September 30, 2012 compared to using $2.6 million of cash in the same period last year. Changes in the level of investment in marketable securities, resulting from the purchases, sales and maturities of those securities used $5.2 million of cash in the nine months ended September 30, 2012, compared to using $2.0 million of cash in the same period last year. We used $1.2 million of cash in the nine months ended September 30, 2012 for the purchase of fixed asset and capitalized patent costs, compared to using $602,000 of cash for this purpose in the nine months ended September 30, 2011. Fixed asset additions for 2012 included network storage equipment, office improvements and research and development test equipment.

Financing activities provided $139,000 of cash in the nine months ended September 30, 2012 and $213,000 of cash in the nine months ended September 30, 2011, from the issuance of common stock under our employee stock purchase plan and the exercise of stock options.

At September 30, 2012, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of establishing off-balance sheet arrangements or other contractually narrow or limited purposes.

. . .

  Add CYBE to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for CYBE - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.