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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the period ended September 30, 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 0-3035
COGNITRONICS CORPORATION
(Exact name of registrant as specified in its charter)
NEW YORK 13-1953544
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3 Corporate Drive, Danbury, Connecticut 06810-4130
(Address of principal executive offices) (Zip Code)
(203) 830-3400
Registrant's telephone number, including area code
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, and (2) has been subject to such filing requirements
for at least 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 September 30, 2000.
Common Stock, par value $0.20 per share 5,726,649 shares
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Part I, Item 1.
COGNITRONICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
September 30, December 31,
2000 1999
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(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 5,897 $ 3,992
Marketable securities 9,400 10,000
Accounts receivable, net 4,701 6,752
Inventories 7,771 9,079
Deferred income taxes 988 889
Other current assets 1,419 591
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TOTAL CURRENT ASSETS 30,176 31,303
PROPERTY, PLANT AND EQUIPMENT, NET 1,304 1,370
GOODWILL, NET 734 983
DEFERRED INCOME TAXES 679 685
OTHER ASSETS 706 761
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$33,599 $35,102
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,464 $ 4,312
Accrued compensation and benefits 1,046 1,176
Income taxes payable 590 734
Current maturities of debt 49 49
Other accrued expenses 846 902
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TOTAL CURRENT LIABILITIES 3,995 7,173
LONG-TERM DEBT 54 90
OTHER NON-CURRENT LIABILITIES 2,042 2,110
STOCKHOLDERS' EQUITY
Common Stock, par value $.20 a
share, authorized 20,000,000
shares; issued 5,863,379
and 5,841,153 shares 1,173 1,168
Additional paid-in capital 14,096 14,050
Retained earnings 14,184 10,688
Cumulative other comprehensive income (182) 66
Unearned compensation (372) (243)
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28,899 25,729
Less cost of 136,730 shares in treasury (1,391)
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TOTAL STOCKHOLDERS' EQUITY 27,508 25,729
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$33,599 $35,102
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See Note to Condensed Consolidated Financial Statements.
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COGNITRONICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME (UNAUDITED)
(dollars in thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
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2000 1999 2000 1999
---- ---- ---- ----
NET SALES $8,404 $9,662 $22,766 $25,800
COST AND EXPENSES:
Cost of products sold 3,774 4,102 10,226 11,101
Research and development 595 601 1,784 1,694
Selling, general and
administrative 1,802 1,992 5,405 5,612
Amortization of goodwill 83 83 249 249
Other (income), net (189) (114) (424) (297)
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6,065 6,664 17,240 18,359
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Income before income taxes 2,339 2,998 5,526 7,441
PROVISION FOR INCOME TAXES 834 1,125 2,030 2,773
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NET INCOME 1,505 1,873 3,496 4,668
Currency translation
adjustment (74) 60 (248) (68)
COMPREHENSIVE INCOME $1,431 $1,933 $ 3,248 $ 4,600
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NET INCOME PER SHARE:
Basic $.26 $.33 $.60 $.83
==== ==== ==== ====
Diluted $.25 $.31 $.57 $.78
==== ==== ==== ====
Weighted average number
of outstanding shares:
Basic 5,730,585 5,740,697 5,798,452 5,620,257
========= ========= ========= =========
Diluted 6,111,467 6,115,934 6,168,835 6,004,062
========= ========= ========= =========
See Note to Condensed Consolidated Financial Statements.
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COGNITRONICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)
Nine Months Ended
September 30,
-----------------
2000 1999
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NET CASH PROVIDED BY OPERATIONS $3,868 $2,859
INVESTING ACTIVITIES
Purchases of marketable securities (2,000) (5,800)
Sales of marketable securities 2,600 2,000
Loans to employees (638)
Additions to property, plant and
equipment, net (276) (296)
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NET CASH (USED) BY INVESTING ACTIVITIES (314) (4,096)
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FINANCING ACTIVITIES
Repurchase of 166,880 and
105,750 shares for treasury (1,681) (588)
Principal payment of debt (36) (93)
Shares issued pursuant to employee stock
option plans, 26,376 and 315,202 share s 105 691
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NET CASH (USED) PROVIDED BY
FINANCING ACTIVITIES (1,612) 10
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EFFECT OF EXCHANGE RATE DIFFERENCES (37) (57)
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INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 1,905 (1,284)
CASH AND CASH EQUIVALENTS- BEGINNING
OF PERIOD 3,992 6,991
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CASH AND CASH EQUIVALENTS - END OF PERIOD $5,897 $5,707
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INCOME TAXES PAID $2,272 $3,199
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INTEREST EXPENSE PAID $ 15 $ 29
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See Note to Condensed Consolidated Financial Statements.
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NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2000
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the three-month and nine-month periods ended September 30, 2000 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 2000. The balance sheet at December 31, 1999 has been
derived from the audited financial statements at that date. For further
information, refer to the consolidated financial statements and footnotes
thereto and the quarterly financial data included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1999.
Inventories (in thousands):
September 30, December 31,
2000 1999
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Finished and in process $4,754 $3,947
Materials and purchased parts 3,017 5,132
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$7,771 $9,079
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Other Non-Current Liabilities (in thousands):
September 30, December 31,
2000 1999
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Accrued supplemental pension plan $ 566 $ 593
Accrued deferred compensation 295 305
Accrued pension 559 607
Accrued other post-employment
benefit 809 800
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2,229 2,305
Less current portion 187 195
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$2,042 $2,110
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Common Stock
During the nine months ended September 30, 2000 and September 30, 1999, the
company granted 26,000 and 21,000 shares of common stock under the Restricted
Stock Plan and recorded $236,000 and $189,000 of unearned compensation
expense, respectively.
Income Per Share
In computing basic earnings per share, the dilutive effect of stock options
and restricted stock are excluded; whereas, for dilutive earnings per share,
they are included.
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Operations by Industry Segments and Geographic Areas:
Three Months Ended Nine Months Ended
September 30, September 30,
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2000 1999 2000 1999
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Net Sales
United States:
Unaffiliated Customers
(North America) $6,321 $7,775 $17,022 $20,136
Intercompany transfers 26 55 156
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6,321 7,801 17,077 20,292
Europe 2,083 1,887 5,744 5,664
Intercompany eliminations (26) (55) (156)
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$8,404 $9,662 $22,766 $25,800
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Operating Profit
United States $2,477 $3,339 $ 6,220 $ 8,173
Europe (15) (31) (129) 146
Intercompany eliminations 69 14 27 (31)
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2,531 3,322 6,118 8,288
General Corporate Expense 381 438 1,016 1,144
Other (income), net (189) (114) (424) (297)
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Income before income taxes $2,339 $2,998 $ 5,526 $ 7,441
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Total Assets
United States $29,515 $27,379
Europe 4,121 4,251
Intercompany eliminations (37) (68)
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$33,599 $31,562
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Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net income was $1,505,000 and $3,496,000, respectively, for the three and
nine-month periods ended September 30, 2000 versus $1,873,000 and $4,668,000,
respectively, in the prior year periods.
Consolidated sales for the quarter ended September 30, 2000 decreased $1.3
million (13%) to $8.4 million versus the prior year period. Included in 1999
third quarter sales were shipments by the domestic operations of $2.3 million
to Mexico versus none in 2000. This decrease was offset, in part, by sales
of $.5 million of the Company's CX product line. Sales by the UK
distributorship operations increased by $.2 million due to higher sales of
new products, offset, in part, by a $.3 million (31%) decrease in sales to
its principal customer and by an unfavorable foreign exchange impact.
Consolidated sales for the nine months ended September 30, 2000 decreased
$3 million (12%) from the prior year period. Included in sales for 1999 were
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shipments by the domestic operations of $2.9 million to Mexico versus none
in 2000. The sales of the Company's UK distributorship operations increased
$.1 million from the prior year period; however, sales to its principal
customer decreased $.9 million (26%) due to lower volume and the operation was
also impacted by unfavorable exchange rates. For both the three months and the
nine months ended September 30, 2000 the Company's UK distributorship
operations has experienced significant decreases in sales to its principal
customer. The Company is unable to determine whether this trend will continue.
Gross margin percentage was 55% for the three months and nine months ended
September 30, 2000 and 58% and 57%, respectively, in the comparable 1999
periods. The decreases versus the prior year periods are due to a lower
proportion of sales attributable to the US operations and the unfavorable
impact of foreign exchange on the UK operations.
Research and development expenses increased $90,000 (5%) in the nine-month
period ended September 30, 2000 primarily due to higher headcount and an
increase in wage rates for technical staff.
Selling, general and administrative expenses decreased $.2 million (10%) and
$.2 million (4%), respectively, for the 2000 periods versus the comparable
periods of the prior year as increases in personnel costs in the UK
operations were offset by weakening of the pound against the dollar and lower
commissions and bonuses in the US operations.
Other (income) increased due to higher available cash balances and marketable
securities and higher interest rates.
The Company's effective tax rate was approximately 36% for the quarter ended
September 30, 2000 versus 37% for the other periods presented.
Liquidity and Sources of Capital
Net cash flow from operations for the nine months ended September 30, 2000
was $3.9 million versus $2.9 million in 1999. In the comparison to 1999,
cash flow from operations was favorably impacted by a reduction in accounts
receivable and inventories, offset by a reduction of $2.9 million in accounts
payable. The net cash used for financing activities in 2000 primarily
reflects the repurchase of shares for treasury.
Working capital and the ratio of current assets to current liabilities
increased to $26.2 million and 7.6:1 at September 30, 2000 compared to $24.1
million and 4.4:1 at December 31, 1999. The improvement in 2000 is mainly
due to the results of operation.
During the remainder of 2000, the Company may repurchase up to an additional
227,120 shares of its common stock and anticipates purchasing $.3 million
of equipment and incurring increased research and development expenditures.
Management believes that its cash and cash equivalents, marketable securities
and the cash flow from operations in 2000 will be sufficient to meet these
needs.
Certain Factors That May Affect Future Results
From time to time, information provided by the Company, statements made by
its employees or information included in its filings with the Securities and
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Exchange Commission (including this Form 10-Q) may contain statements which
are not historical facts, so-called "forward-looking statements". These
forward-looking statements are made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. The Company's
actual future results may differ significantly from those stated in any
forward-looking statements. Forward-looking statements involve a number of
risks and uncertainties, including, but not limited to, variability of sales
volume quarter to quarter, product demand, pricing, market acceptance,
litigation, risk of dependence on significant customers, third party
suppliers and intellectual property rights, risks in product and technology
development and other risk factors detailed in this Quarterly Report on Form
10-Q and in the Company's other Securities and Exchange Commission filings.
Item 3. Market Risk
The Company does not use derivative financial instruments. The Company has
Marketable Securities, which are exposed to changes in interest rates. Due
to the term of these securities and/or their variable rate provisions, a
change in interest rates would not have a material impact on their value.
Exchange rate fluctuations will impact the results of operations and the net
assets of the Company's UK distributorship operations. At September 30,
2000, the UK distributorship operations had net assets of $2.2 million.
During the nine months ended September 30, 2000, the UK pound depreciated
11% versus the US dollar. The impact of this rate change was reflected in
the currency translation adjustment. The Company does not hedge this foreign
currency net asset exposure.
PART II
Item 6. Exhibits and reports on Form 8-K
No exhibits or reports on Form 8-K were filed during the current quarter.
SIGNATURE
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.
COGNITRONICS CORPORATION
Registrant
Date: November 13, 2000 By /s/ Garrett Sullivan
Garrett Sullivan, Treasurer
and Chief Financial Officer
