10-Q 1 e10-q.txt COGNEX CORPORATION 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended July 2, 2000 or [ ] Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from___________ to _______________ COMMISSION FILE NUMBER 0-17869 COGNEX CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) MASSACHUSETTS 04-2713778 ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) ONE VISION DRIVE NATICK, MASSACHUSETTS 01760-2059 (508) 650-3000 ------------------------------------------- (Address, including zip code, and telephone number, including area code, of principal executive offices) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- As of July 30, 2000, there were 43,306,365 shares of Common Stock, $.002 par value, of the registrant outstanding. Total number of pages: 12 Exhibit index is located on page 11 ================================================================================ 2 INDEX PART I FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statements of Income for the three and six months ended July 2, 2000 and July 4, 1999 Consolidated Balance Sheets at July 2, 2000 and December 31, 1999 Consolidated Statement of Stockholders' Equity for the six months ended July 2, 2000 Consolidated Condensed Statements of Cash Flows for the six months ended July 2, 2000 and July 4, 1999 Notes to Consolidated Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART II OTHER INFORMATION Item 1. Legal Proceedings Item 2. Changes in Securities Item 3. Defaults Upon Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K Signatures 3 PART I: FINANCIAL INFORMATION ITEM 1: FINANCIAL STATEMENTS COGNEX CORPORATION CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts)
THREE MONTHS ENDED SIX MONTHS ENDED ------------------- ------------------- JULY 2, JULY 4, JULY 2, JULY 4, 2000 1999 2000 1999 -------- -------- -------- -------- (UNAUDITED) (UNAUDITED) Revenue ......................................................... $ 62,187 $ 35,271 $116,682 $ 62,756 Cost of revenue ................................................. 16,160 10,942 30,078 19,670 -------- -------- -------- -------- Gross profit .................................................... 46,027 24,329 86,604 43,086 Research, development, and engineering expenses ................. 8,083 6,571 15,366 13,058 Selling, general, and administrative expenses ................... 14,593 10,680 27,170 20,440 Amortization of goodwill ........................................ 553 54 644 109 -------- -------- -------- -------- Operating income ................................................ 22,798 7,024 43,424 9,479 Investment income ............................................... 2,486 1,500 4,307 3,078 Other income .................................................... 243 190 461 351 -------- -------- -------- -------- Income before provision for income taxes ........................ 25,527 8,714 48,192 12,908 Provision for income taxes ...................................... 8,169 2,525 15,422 3,615 -------- -------- -------- -------- Net income ...................................................... $ 17,358 $ 6,189 $ 32,770 $ 9,293 ======== ======== ======== ======== Net income per share: Basic ....................................................... $ 40 $ .15 $ .77 $ .23 ======== ======== ======== ======== Diluted ..................................................... $ 38 $ .14 $ .71 $ .21 ======== ======== ======== ======== Weighted-average common and common equivalent shares outstanding: Basic ....................................................... 43,067 40,681 42,735 40,468 ======== ======== ======== ======== Diluted ..................................................... 46,159 43,836 45,845 43,560 ======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 1 4 COGNEX CORPORATION CONSOLIDATED BALANCE SHEETS (Dollars in thousands)
JULY 2, DECEMBER 31, 2000 1999 ----------- ------------ (UNAUDITED) ASSETS Current assets: Cash and investments.................................................... $ 248,500 $216,947 Accounts receivable, less reserves of $2,577 and $2,836 in 2000 and 1999, respectively................................................... 39,075 28,742 Inventories............................................................. 14,581 10,872 Deferred income taxes................................................... 5,724 6,082 Prepaid expenses and other.............................................. 10,584 6,149 ---------- -------- Total current assets................................................ 318,464 268,792 Property, plant, and equipment, net.......................................... 33,312 31,857 Deferred income taxes........................................................ 7,051 7,051 Other assets................................................................. 23,649 7,122 --------- -------- $ 382,476 $314,822 ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable........................................................ $ 7,536 $ 4,237 Accrued expenses........................................................ 17,873 18,536 Accrued income taxes.................................................... 10,425 7,470 Customer deposits....................................................... 3,097 2,714 Deferred revenue........................................................ 5,352 4,508 -------- -------- Total current liabilities........................................... 44,283 37,465 -------- -------- Other liabilities............................................................ 985 733 Stockholders' equity: Common stock, $.002 par value - Authorized: 140,000,000 shares, issued: 45,649,826 and 44,220,434 shares in 2000 and 1999, respectively................................ 91 88 Additional paid-in capital.............................................. 148,727 122,522 Treasury stock, at cost, 2,365,442 and 2,381,032 shares in 2000 and 1999, respectively................................................... (42,678) (43,550) Retained earnings....................................................... 229,786 197,016 Accumulated other comprehensive income.................................. 1,282 548 -------- -------- Total stockholders' equity.......................................... 337,208 276,624 -------- -------- $382,476 $314,822 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 2 5 COGNEX CORPORATION CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Dollars in thousands)
Accumulated Common Stock Additional Treasury Stock Other Total ------------------- Paid-in -------------------- Retained Comprehensive Comprehensive Stockholders' Shares Par Value Capital Shares Cost Earnings Income Income Equity --------- --------- --------- ---------- -------- --------- ------------ ------------- ------------- Balance at December 31, 1999....................... 44,220,434 $88 $122,522 2,381,032 $(43,550) $197,016 $ 548 $276,624 Issuance of common stock under stock option and stock purchase plans...... 1,429,392 3 16,205 16,208 Tax benefit from exercise of stock options......... 10,000 10,000 Common stock received for payment of stock option exercises................. 2,029 (80) (80) Acquisition of Image Industries, Ltd........... (17,619) 952 952 Comprehensive income: Net income............... 32,770 $32,770 32,770 Unrealized gain on investment, net of tax.. 917 917 917 Foreign currency translation adjustment.. (183) (183) (183) Comprehensive income..... $33,504 ---------- --- -------- --------- -------- -------- ------ ======= -------- Balance at July 2, 2000 (unaudited)................ 45,649,826 $91 $148,727 2,365,442 $(42,678) $229,786 $1,282 $337,208 ========== === ======== ========= ======== ======== ====== ========
The accompanying notes are an integral part of these consolidated financial statements. 3 6 COGNEX CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Dollars in thousands)
SIX MONTHS ENDED ---------------------- JULY 2, JULY 4, 2000 1999 --------- --------- (UNAUDITED) Cash flows from operating activities: Net income .......................................................... $ 32,770 $ 9,293 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ..................................... 5,832 4,449 Tax benefit from exercise of stock options ........................ 10,000 1,470 Change in current assets and current liabilities .................. (12,728) 9,791 Other ............................................................. (1,072) (128) --------- --------- Net cash provided by operating activities ........................... 34,802 24,875 --------- --------- Cash flows from investing activities: Purchase of investments ............................................. (78,458) (61,236) Maturity of investments ............................................. 40,728 39,062 Purchase of property, plant, and equipment .......................... (4,138) (1,551) Cash paid for business and technology acquisitions, net of cash assumed ....................................... (11,932) (864) --------- --------- Net cash used in investing activities ............................... (53,800) (24,589) --------- --------- Cash flows from financing activities: Issuance of common stock under stock option and stock purchase plans 16,128 5,462 --------- --------- Net cash provided by financing activities ........................... 16,128 5,462 --------- --------- Effect of exchange rate changes on cash .................................. 236 295 --------- --------- Net (decrease) increase in cash and cash equivalents ..................... (2,634) 6,043 Cash and cash equivalents at beginning of period ......................... 48,665 27,807 --------- --------- Cash and cash equivalents at end of period ............................... 46,031 33,850 Investments .............................................................. 202,469 151,979 --------- --------- Cash and investments ..................................................... $ 248,500 $ 185,829 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 4 7 COGNEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation As permitted by the rules of the Securities and Exchange Commission applicable to Quarterly Reports on Form 10-Q, these notes are condensed and do not contain all disclosures required by generally accepted accounting principles. Reference should be made to the consolidated financial statements and related notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 1999. In the opinion of the management of Cognex Corporation, the accompanying consolidated unaudited financial statements contain all adjustments (consisting of only normal, recurring adjustments) necessary to present fairly the Company's financial position at July 2, 2000, and the results of operations for the three and six months ended July 2, 2000 and July 4, 1999, and changes in stockholders' equity and cash flows for the periods presented. The results disclosed in the Consolidated Statements of Income for the three and six months ended July 2, 2000 are not necessarily indicative of the results to be expected for the full year. Certain amounts reported in prior periods have been reclassified to be consistent with the current period's presentation. INVENTORIES Inventories consist of the following: (In thousands) JULY 2, DECEMBER 31, 2000 1999 ----------- ------------ (UNAUDITED) Raw materials............................. 2,103 $ 5,451 Work-in-process........................... 3,692 1,987 Finished goods............................ 8,786 3,434 -------- -------- $ 14,581 $ 10,872 ======== ======== 5 8 COGNEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NET INCOME PER SHARE Net income per share is calculated as follows: (In thousands)
THREE MONTHS ENDED SIX MONTHS ENDED ------------------ ---------------- JULY 2, JULY 4, JULY 2, JULY 4, 2000 1999 2000 1999 ------- ------- ------- ------- (UNAUDITED) (UNAUDITED) Net income ............................................. $17,358 $ 6,189 $32,770 $ 9,293 ======= ======= ======= ======= Basic: Weighted-average common shares outstanding ......... 43,067 40,681 42,735 40,468 ======= ======= ======= ======= Net income per common share ........................ $ 40 $ .15 $ .77 $ .23 ======= ======= ======= ======= Diluted: Weighted-average common shares outstanding ......... 43,067 40,681 42,735 40,468 Effect of dilutive securities: Stock options ................................... 3,092 3,155 3,110 3,092 ------- ------- ------- ------- Weighted-average common and common equivalent shares outstanding ..................................... 46,159 43,836 45,845 43,560 ======= ======= ======= ======= Net income per common and common equivalent share .. $ .38 $ .14 $ .71 $ .21 ======= ======= ======= =======
ACQUISITION OF KOMATSU LTD. MACHINE VISION BUSINESS On March 31, 2000, the Company acquired selected assets of the machine vision business of Komatsu Ltd. for $11,200,000 in cash, with the potential for additional cash payments in 2002 of up to $8,000,000 depending upon certain performance criteria. The purchase price was allocated as follows: $297,000 to tangible equipment, to be depreciated in accordance with the Company's depreciation policy; $400,000 to workforce, to be amortized over two years; $2,462,000 to complete technology, to be amortized over five years; and $8,041,000 to goodwill, also to be amortized over five years. The contingent consideration will be recorded as purchase price when paid and will be allocated to goodwill to be amortized over the remaining period of expected benefit. The acquisition was accounted for under the purchase method of accounting. As a result of the proximity of the acquisition date to the end of the quarter, the results of operations of the acquired business were not included in the first quarter. The results of operations of the acquired business were not material compared to the Company's consolidated results of operations, and therefore, pro forma results are not presented. ACQUISITION OF IMAGE INDUSTRIES, LTD. On April 20, 2000, the Company acquired all of the outstanding shares of Image Industries, Ltd. ("Image Industries"), a privately held manufacturer of low-cost machine vision systems located in the United Kingdom. The purchase price of $2,706,000 included $876,000 in cash at closing, $878,000 in cash to be paid out through 2002, and 17,619 shares of Cognex common stock, issued from treasury, with a fair value of $952,000. The purchase price was allocated as follows: $671,000 to tangible 6 9 COGNEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS net assets; $200,000 to workforce, to be amortized over five years; and $1,835,000 to goodwill, also to be amortized over five years. The acquisition was accounted for under the purchase method of accounting. Accordingly, Image Industries' results of operations have been included in the Company's consolidated results of operations since the date of the acquisition. Image Industries' historical results of operations were not material compared to the Company's consolidated results of operations, and therefore, pro forma results are not presented. OTHER ASSETS On June 30, 2000, Cognex Corporation became a Limited Partner in Venrock Associates III, L.P., a venture capital fund. The Company invested $2,500,000 in the partnership and committed to a total investment of up to $25,000,000 over a ten-year period. The investment is recorded in "Other assets" on the Consolidated Balance Sheet and will be accounted for on a cost basis. A director of the Company is affiliated with Venrock Associates III, L.P. 7 10 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Revenue for the three-month and six-month periods ended July 2, 2000 totaled $62,187,000 and $116,682,000, respectively, compared to $35,271,000 and $62,756,000 for the same periods in 1999, representing a 76% increase for the three-month period and an 86% increase for the six-month period. Comparing consecutive quarters, revenue increased 14% over the first quarter of 2000. The increase in revenue for the three-month and six-month periods ended July 2, 2000 over the same periods in 1999 is due to a higher volume of machine vision systems sold to both Original Equipment Manufacturers (OEM) and end-user customers. Sales to OEM customers increased $16,856,000, or 84%, over the three-month period in 1999 and $36,489,000, or 107%, over the six-month period in 1999. Sales to end-user customers increased $10,060,000, or 66%, over the three-month period in 1999 and $17,437,000, or 61%, over the six-month period in 1999. Based on strong order levels in both the OEM and end-user markets experienced in the first half of 2000, the Company anticipates continued revenue growth in the second half of 2000. Gross profit as a percentage of revenue for the three-month and six-month periods ended July 2, 2000 was 74% in both periods, compared to 69% for the same periods in 1999. The increase in the gross margin is due primarily to manufacturing efficiencies that resulted from a significant increase in product sales without a corresponding increase in manufacturing overhead. Research, development, and engineering expenses for the three-month and six-month periods ended July 2, 2000 were $8,083,000 and $15,366,000, respectively, compared to $6,571,000 and $13,058,000 for the same periods in 1999, representing a 23% increase for the three-month period and an 18% increase for the six-month period. The increase in aggregate expenses is due primarily to higher personnel-related costs to support the Company's continued investment in the development of new and existing products. Included in the incremental expenses are the operating costs associated with the acquisitions of the machine vision businesses of Komatsu, Ltd. and Image Industries. Expenses as a percentage of revenue were 13% for both the three-month and six-month periods in 2000, compared to 19% and 21% for the same periods in 1999. The decrease in expenses as a percentage of revenue is a result of revenue increasing at a faster rate than spending. The Company anticipates that aggregate expenses will continue to increase in 2000 due to planned investment in product development. Selling, general, and administrative expenses for the three-month and six-month periods ended July 2, 2000 were $14,593,000 and $27,170,000, respectively, compared to $10,680,000 and $20,440,000 for the same periods in 1999, representing a 37% increase for the three-month period and a 33% increase for the six-month period. The increase in aggregate expenses is due primarily to higher personnel-related costs to support the Company's expanding worldwide operations. Included in the incremental expenses are the operating costs associated with the acquisitions of the machine vision businesses of Komatsu, Ltd. and Image Industries. Expenses as a percentage of revenue were 23% for both the three-month and six-month periods in 2000, compared to 30% and 33% for the same periods in 1999. Expenses as a percentage of revenue decreased as a result of revenue increasing at a faster rate than expenses. The Company anticipates that aggregate expenses will continue to increase in 2000 due to additional resources required to support the anticipated higher level of demand and to further penetrate the end-user market. Amortization of goodwill for the three-month and six-month periods ended July 2, 2000 was $553,000 and $644,000, respectively, compared to $54,000 and $109,000 for the same periods in 1999. The increase in amortization expense is due to goodwill recorded in 2000 associated with the purchase of the machine vision businesses of Komatsu, Ltd. and Image Industries. 8 11 Investment income for the three-month and six-month periods ended July 2, 2000 was $2,486,000 and $4,307,000, respectively, compared to $1,500,000 and $3,078,000 for the same periods in 1999, representing a 66% increase for the three-month period and a 40% increase for the six-month period. The increase in investment income is primarily due to a higher average invested cash balance in 2000. The Company's effective tax rate for both the three-month and six-month periods ended July 2, 2000 was 32%, compared to 29% and 28% for the same periods in 1999. The increase in the effective tax rate is due primarily to the higher operating income in 2000 and the diminishing effect of tax-free investment income. LIQUIDITY AND CAPITAL RESOURCES The Company's cash requirements during the six-month period ended July 2, 2000 were met through cash generated from operations. Cash and investments increased $34,053,000 from December 31, 1999 primarily as a result of $34,802,000 of cash generated from operations and $16,128,000 from the issuance of common stock under stock option and stock purchase plans, offset by $11,932,000 cash paid for business and technology acquisitions. Capital expenditures for the six-month period were $4,138,000 and consisted primarily of expenditures for computer hardware and software. The Company believes that its existing cash and investments balance, together with cash generated from operations, will be sufficient to meet the Company's planned working capital and capital expenditure requirements through 2000, including potential future business acquisitions. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements." SAB No. 101 sets forth guidelines for accounting and disclosures related to revenue recognition. SAB No. 101, as amended by SAB No. 101B, does not require registrants that have not applied this accounting to restate prior financial statements, provided they report a change in accounting principle in accordance with Accounting Principles Board Opinion No. 20, "Accounting Changes," no later than the fourth quarter of the fiscal year beginning after December 15, 1999. The Company is evaluating the accounting and disclosure requirements of SAB No. 101 and will report the effect, if any, in the fourth quarter of 2000. In March 2000, the Financial Accounting Standards Board issued Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation - an interpretation of Accounting Principles Board (APB) Opinion No. 25" (FIN 44). FIN 44 clarifies the application of APB Opinion No. 25 including: the definition of an employee for purposes of applying APB Opinion No. 25, the criteria for determining whether a plan qualifies as a noncompensatory plan, the accounting consequence of various modifications to the terms of previously fixed stock options or awards, and the accounting for an exchange of stock compensation awards in a business combination. FIN 44 is effective July 1, 2000, but certain conclusions in FIN 44 cover specific events that occurred after either December 15, 1998 or January 12, 2000. The Company does not expect the application of FIN 44 to have a material impact on its results of operations or financial position. 9 12 FORWARD-LOOKING STATEMENTS Certain statements made in this report, as well as oral statements made by the Company from time to time, which are prefaced with words such as "expects," "anticipates," "believes," "projects," "intends," "plans," and similar words and other statements of similar sense, are forward-looking statements. These statements are based on the Company's current expectations and estimates as to prospective events and circumstances, which may or may not be in the Company's control and as to which there can be no firm assurances given. These forward-looking statements, like any other forward-looking statements, involve risks and uncertainties that could cause actual results to differ materially from those projected or anticipated. Such risks and uncertainties include (1) the loss of, or a significant curtailment of purchases by, any one or more principal customers; (2) the cyclicality of the semiconductor and electronics industries; (3) the Company's continued ability to achieve significant international revenue; (4) capital spending trends by manufacturing companies; (5) inability to protect the Company's proprietary technology and intellectual property; (6) inability to attract or retain skilled employees; (7) technological obsolescence of current products and the inability to develop new products; (8) inability to respond to competitive technology and pricing pressures; and (9) reliance upon certain sole source suppliers to manufacture or deliver critical components of the Company's products. The foregoing list should not be construed as exhaustive and the Company disclaims any obligation to subsequently revise forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. Further discussions of risk factors are also available in the Company's registration statements filed with the Securities and Exchange Commission. The Company wishes to caution readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. 10 13 PART II: OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None ITEM 2. CHANGES IN SECURITIES None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Annual Meeting of Stockholders of Cognex Corporation held on May 8, 2000, the Stockholders elected Robert J. Shillman to serve as a Director for a term of three years. Jerald Fishman, William Krivsky, Anthony Sun, and Rueben Wasserman continued as Directors after the meeting. In addition, the Stockholders approved a proposal to amend the Articles of Organization of the Company to increase the number of shares of common stock which the Company has the authority to issue from 120,000,000 shares to 140,000,000 shares. The 39,486,671 shares represented at the meeting voted as follows. The election of Robert J. Shillman as Director, 39,139,049 votes for and 347,622 against; the amendment of the Articles of Organization; 37,770,568 votes for, 1,701,416 against, and 14,687 votes abstained. ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit 27 - Financial Data Schedule (electronic filing only) (b) Reports on Form 8-K None 11 14 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. DATE: August 11, 2000 COGNEX CORPORATION /s/ Richard A. Morin ----------------------------------- Richard A. Morin Vice President of Finance, Chief Financial Officer, and Treasurer (duly authorized officer, principal financial and accounting officer) 12 15 August 11, 2000 Securities and Exchange Commission Washington, D.C. 20549 RE: Cognex Corporation Quarterly Report on Form 10-Q Commission File No. 0-17869 Ladies and Gentlemen: Pursuant to Regulation S-T, Cognex Corporation hereby submits for filing its Quarterly Report on Form 10-Q for the quarter ended July 2, 2000. Any questions or correspondence concerning this filing should be addressed to Richard A. Morin at Cognex Corporation (Telephone No. (508) 650-3000). Very truly yours, Richard A. Morin Vice President of Finance, Chief Financial Officer, and Treasurer (duly authorized officer, principal financial and accounting officer)