10-Q 1 b39239cce10-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 April 1, 2001 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 April 29, 2001, there were 43,507,270 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 months ended April 1, 2001 and April 2, 2000 Consolidated Balance Sheets at April 1, 2001 and December 31, 2000 Consolidated Statement of Stockholders' Equity for the three months ended April 1, 2001 Consolidated Condensed Statements of Cash Flows for the three months ended April 1, 2001 and April 2, 2000 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 APRIL 1, APRIL 2, 2001 2000 -------- -------- (UNAUDITED) Revenue ......................................................... $44,206 $54,495 Cost of revenue ................................................. 12,792 13,918 ------- ------- Gross profit .................................................... 31,414 40,577 Research, development, and engineering expenses ................. 8,182 7,283 Selling, general, and administrative expenses ................... 18,438 12,578 Amortization of goodwill ........................................ 777 90 ------- ------- Operating income ................................................ 4,017 20,626 Investment income ............................................... 2,718 1,821 Other income .................................................... 267 218 ------- ------- Income before provision for income taxes ........................ 7,002 22,665 Provision for income taxes ...................................... 2,241 7,253 ------- ------- Net income ...................................................... $ 4,761 $15,412 ======= ======= Net income per common and common-equivalent share: Basic ....................................................... $ .11 $ .36 ======= ======= Diluted ..................................................... $ .11 $ .34 ======= ======= Weighted-average common and common-equivalent shares outstanding: Basic ....................................................... 43,463 42,409 ======= ======= Diluted ..................................................... 44,916 45,645 ======= =======
The accompanying notes are an integral part of these consolidated financial statements. 1 4 COGNEX CORPORATION CONSOLIDATED BALANCE SHEETS (Dollars in thousands)
APRIL 1, DECEMBER 31, 2001 2000 -------- ------------ (UNAUDITED) ASSETS Current assets: Cash and cash equivalents .......................................... $ 42,935 $ 42,925 Short-term investments ............................................. 85,128 85,429 Accounts receivable, less reserves of $2,156 and $2,150 in 2001 and 2000, respectively .............................................. 25,290 47,031 Inventories ........................................................ 34,476 27,664 Deferred income taxes .............................................. 7,645 7,741 Prepaid expenses and other current assets .......................... 10,552 8,950 --------- --------- Total current assets ........................................... 206,026 219,740 Long-term investments ................................................... 157,356 149,386 Property, plant, and equipment, net ..................................... 34,295 34,012 Deferred income taxes ................................................... 6,949 6,903 Other assets ............................................................ 24,273 26,100 --------- --------- $ 428,899 $ 436,141 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable ................................................... $ 5,774 $ 10,127 Accrued expenses ................................................... 17,112 22,953 Accrued income taxes ............................................... 7,591 9,202 Customer deposits .................................................. 3,011 3,074 Deferred revenue ................................................... 6,208 6,471 --------- --------- Total current liabilities ...................................... 39,696 51,827 --------- --------- Other liabilities ....................................................... 332 365 Stockholders' equity: Common stock, $.002 par value - Authorized: 140,000,000 shares, issued: 45,848,979 and 45,787,568 shares in 2001 and 2000, respectively ........................... 92 92 Additional paid-in capital ......................................... 164,637 163,815 Treasury stock, at cost, 2,365,332 shares in 2001 and 2000 ......... (42,675) (42,675) Retained earnings .................................................. 269,925 265,164 Accumulated other comprehensive loss ............................... (3,108) (2,447) --------- --------- Total stockholders' equity ..................................... 388,871 383,949 --------- --------- $ 428,899 $ 436,141 ========= =========
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 LOSS INCOME EQUITY ------ --------- ---------- ------ ---- -------- ------------- ------------- ------------ Balance at December 31, 2000... 45,787,568 $ 92 $ 163,815 2,365,332 $ (42,675) $ 265,164 $ (2,447) $ 383,949 Issuance of common stock under stock option plans ........... 61,411 822 822 Comprehensive income: Net income .... 4,761 4,761 4,761 Unrealized loss on investments, net of tax..... (248) (248) (248) Foreign currency translation adjustment..... (413) (413) (413) ------- Comprehensive income ........ $ 4,100 ---------- ---- --------- --------- --------- --------- -------- ======= --------- Balance at April 1, 2001 (unaudited)....... 45,848,979 $ 92 $ 164,637 2,365,332 $ (42,675) $ 269,925 $ (3,108) $ 388,871 ========== ==== ========= ========= ========= ========= ======== =========
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)
THREE MONTHS ENDED APRIL 1, APRIL 2, 2001 2000 -------- -------- (UNAUDITED) Cash flows from operating activities: Net income ................................................ $ 4,761 $ 15,412 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ........................... 3,369 2,413 Tax benefit from exercise of stock options .............. 6,500 Change in current assets and current liabilities ........ 468 (8,272) Other ................................................... 91 (813) -------- -------- Net cash provided by operating activities ................. 8,689 15,240 -------- -------- Cash flows from investing activities: Purchase of investments ................................... (25,622) (33,512) Maturity of investments ................................... 16,976 24,206 Purchase of property, plant, and equipment ................ (2,397) (1,633) Cash paid for business and technology acquisitions, net of cash acquired ................................... (11,263) -------- -------- Net cash used in investing activities ..................... (11,043) (22,202) -------- -------- Cash flows from financing activities: Issuance of common stock under stock option plans ......... 822 11,069 -------- -------- Net cash provided by financing activities ................. 822 11,069 -------- -------- Effect of exchange rate changes on cash ........................ 1,542 (26) -------- -------- Net increase in cash and cash equivalents ...................... 10 4,081 Cash and cash equivalents at beginning of period ............... 42,925 48,665 -------- -------- Cash and cash equivalents at end of period ..................... $ 42,935 $ 52,746 ======== ========
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, 2000. 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 April 1, 2001, and the results of its operations for the three months ended April 1, 2001 and April 2, 2000, and changes in stockholders' equity and cash flows for the periods presented. The results disclosed in the Consolidated Statements of Income for the three months ended April 1, 2001 are not necessarily indicative of the results to be expected for the full year. INVENTORIES Inventories consist of the following:
(In thousands) APRIL 1, DECEMBER 31, 2001 2000 -------- ------------ (UNAUDITED) Raw materials ......................... $14,064 $14,263 Work-in-process........................ 5,011 5,789 Finished goods ........................ 15,401 7,612 ------- ------- $34,476 $27,664 ======= =======
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 APRIL 1, APRIL 2, 2001 2000 -------- -------- (UNAUDITED) Net income ................................................................. $ 4,761 $15,412 ======= ======= Basic: ------ Weighted-average common shares outstanding ............................. 43,463 42,409 ======= ======= Net income per common share ............................................ $ .11 $ .36 ======= ======= Diluted: -------- Weighted-average common shares outstanding ............................. 43,463 42,409 Effect of dilutive securities: Stock options ....................................................... 1,453 3,236 ------- ------- Weighted-average common and common-equivalent shares outstanding........ 44,916 45,645 ======= ======= Net income per common and common-equivalent share ...................... $ .11 $ .34 ======= =======
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT In June of 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. The Company adopted the provisions of SFAS No. 133 effective January 1, 2001. The impact of adopting SFAS No. 133 was immaterial to the Company. FOREIGN EXCHANGE RISK MANAGEMENT In the quarter ended April 1, 2001, the Company entered into forward exchange contracts to hedge a portion of its probable anticipated, but not firmly committed transactions. The anticipated transactions whose risks were being hedged were the intercompany sales of inventory by the US parent to the foreign subsidiary payable in the foreign subsidiary's local currency. These contracts, which related primarily to the Japanese Yen, generally had a time period of six months. Realized and unrealized gains and losses on forward exchange contracts that do not qualify for hedge accounting are recognized immediately in earnings. As of April 1, 2001, the total loss incurred for this transaction was $354,000 which did not qualify as a hedge. The Company uses forward exchange contracts to hedge firm commitments. The transactions being hedged were net investments in two separate European subsidiaries. Market value gains and losses on forward contracts hedging firm commitments will be recognized when the hedged transaction occurs. 6 9 These contracts, which related primarily to the Euro currency, generally have a maximum term of two years. Forward exchange contracts receive hedge accounting on firmly committed transactions when they are designated as a hedge of the designated currency exposure and are effective in minimizing such exposure. Forward exchange contracts, that qualify for hedge accounting, with notional amounts of $9,700,000 and $6,800,000 to exchange Euros for US dollars were outstanding as of April 1, 2001. For the quarter ended April 1, 2001, the Company recorded a cumulative unrealized gain of $1,354,000, related to these foreign exchange contracts, in other comprehensive income. This amount offsets the foreign exchange impact (the hedged transaction) which resulted in unrealized foreign exchange losses of $1,182,000 for the quarter ended April 1, 2001. The market risk exposure from forward exchange contracts is assessed in light of the underlying currency exposures and is controlled by the initiation of additional or offsetting foreign currency contracts. 7 10 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Revenue for the first quarter of 2001 decreased 19% to $44,206,000 from $54,495,000 for the first quarter of 2000. Comparing consecutive quarters, revenue decreased 33% from the fourth quarter of 2000. As compared to both the first quarter of 2000 and the fourth quarter of 2000, the Company's results were negatively impacted by the worldwide slowdown in capital equipment spending by manufacturers in the semiconductor and electronics industries. Sales to Original Equipment Manufacturers (OEM) customers, most of whom make capital equipment used by manufacturers in the these industries, decreased $7,593,000, or 23%, from the first quarter of 2000 and $17,694,000, or 40%, from the fourth quarter of 2000. Sales to end-user customers decreased $2,696,000, or 13%, from the first quarter of 2000 and $4,184,000, or 19%, from the fourth quarter of 2000, primarily due to lower demand from customers who make electronic products. The Company anticipates that its results for the second quarter of 2001 will continue to be negatively impacted by the worldwide slowdown in capital equipment spending, primarily in the semiconductor and electronics industries. Accordingly, the Company anticipates that its revenue for the second quarter of 2001 will be approximately 10% to 15% lower than that reported in the first quarter of 2001. The Company has limited visibility to customer demand beyond the second quarter of 2001. The Company has implemented a number of cost-containment measures, including a restricted hiring plan and a reduction in discretionary spending, to more closely align expenses to the anticipated lower revenue level. Gross profit as a percentage of revenue for the first quarter of 2001 was 71% compared to 74% and 75% for the first quarter of 2000 and the fourth quarter of 2000, respectively. The decrease in the gross margin was due primarily to the impact of the lower sales volume and fixed manufacturing costs in the first quarter of 2001. The gross margin is expected to continue to decrease in the second quarter of 2001 due to the anticipated lower revenue for that quarter. Research, development, and engineering expenses for the first quarter of 2001 were $8,182,000 compared to $7,283,000 and $9,710,000 for the first quarter of 2000 and the fourth quarter of 2000, respectively. The increase of $899,000, or 12%, from the first quarter of 2000 was due primarily to higher personnel-related costs to support the Company's continued investment in the research and development of new and existing products. Included in the higher personnel-related costs are the expenses associated with the additional employees from the three acquisitions completed during 2000. The decrease of $1,528,000, or 16%, from the fourth quarter of 2000 was due primarily to bonus and recruiting expenses in the fourth quarter of 2000 that did not recur in the first quarter of 2001, as well as costs related to the timing of product development efforts. Expenses as a percentage of revenue were 19% for the first quarter of 2001 compared to 13% and 15% for the first quarter of 2000 and the fourth quarter of 2000, respectively. The increase in expenses as a percentage of revenue was a result of the lower revenue base in 2001. The Company plans to continue its product development efforts, and therefore, anticipates that aggregate expenses for the remainder of 2001 will continue at the level experienced in the first quarter. Selling, general, and administrative expenses for the first quarter of 2001 were $18,438,000 compared to $12,578,000 and $18,602,000 for the first quarter of 2000 and the fourth quarter of 2000, respectively. The increase of $5,860,000, or 47%, from the first quarter of 2000 was due primarily to higher personnel-related costs to support the Company's expanding worldwide operations and grow its end-user business. Included in the higher personnel-related costs are the expenses associated with the additional employees from the three acquisitions completed during 2000. The decrease of $164,000, or 1%, from the fourth quarter of 2000 was due primarily to bonus and recruiting expenses in the fourth 8 11 quarter of 2000 that did not recur in the first quarter of 2001, as well as lower marketing and travel and entertainment costs. Expenses as a percentage of revenue were 42% for the first quarter of 2001 compared to 23% and 28% for the first quarter of 2000 and the fourth quarter of 2000, respectively. The increase in expenses as a percentage of revenue was a result of the lower revenue base in 2001. The Company expects to realize most of the benefits from its cost-containment measures in S,G&A, and therefore, anticipates that aggregate expenses for the remainder of 2001 will be lower than the level experienced in the first quarter. Amortization of goodwill for the first quarter of 2001 was $777,000 compared to $90,000 for the same period in 2000. The increase in amortization expense was due to goodwill associated with the three acquisitions completed during 2000. Investment income for the first quarter of 2001 was $2,718,000 compared to $1,821,000 for the same period in 2000, representing a 49% increase. The increase in investment income was primarily due to higher average interest rates on the Company's portfolio of investments, which consists principally of debt securities, as well as a higher average invested cash balance in 2001. The Company's effective tax rate was 32% for both the first quarter of 2001 and the first quarter of 2000. LIQUIDITY AND CAPITAL RESOURCES The Company's cash requirements during the first quarter of 2001 were met through cash generated from operations. Cash and investments increased $7,679,000 from December 31, 2000 primarily as a result of $8,689,000 of cash generated from operations, partially offset by $2,397,000 of capital expenditures, principally for computer hardware. On December 12, 2000, the Company's Board of Directors authorized the repurchase of up to $100,000,000 of the Company's common stock. As of April 1, 2001, the Company had not repurchased any shares under this program. 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, investing, and financing requirements through 2001, including the Company's stock repurchase program and potential business acquisitions. 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) the capital spending trends by manufacturing companies; (5) the inability to protect the Company's proprietary technology and intellectual property; (6) the inability to attract or retain skilled employees; (7) the technological obsolescence of current products and the inability to develop new products; (8) the inability to respond to competitive technology and pricing pressures; and (9) the 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 None ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits None (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: May 11, 2001 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