<PAGE> 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 March 31, 1996 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 28, 1996, there were 40,542,365 shares of Common Stock, $.002
par value, of the registrant outstanding.
================================================================================
<PAGE> 2
INDEX
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Statements of Income for the three months ended
March 31, 1996 and April 2, 1995
Consolidated Balance Sheets at March 31, 1996 and December 31, 1995
Consolidated Statement of Stockholders' Equity for the three
months ended March 31, 1996
Consolidated Statements of Cash Flows for the three months
ended March 31, 1996 and April 2, 1995
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
<PAGE> 3
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
COGNEX CORPORATION
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
<CAPTION>
THREE MONTHS ENDED
MARCH 31, APRIL 2,
1996 1995
--------- --------
(UNAUDITED)
<S> <C> <C>
Revenue....................................... $34,887 $19,437
Cost of revenue............................... 9,206 3,952
------- -------
Gross margin.................................. 25,681 15,485
Research, development and engineering
expenses.................................... 4,766 2,716
Selling, general and administrative expenses.. 6,345 5,071
------- -------
Income from operations........................ 14,570 7,698
Other income.................................. 1,011 632
------- -------
Income before provision for income taxes...... 15,581 8,330
Provision for income taxes.................... 4,752 2,457
------- -------
Net income.................................... $10,829 $ 5,873
======= =======
Net income per share.......................... $ .25 $ .14
======= =======
Weighted average common shares outstanding.... 44,057 40,784
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
1
<PAGE> 4
COGNEX CORPORATION
<TABLE>
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................. $ 40,989 $ 23,911
Investments........................................................... 68,264 66,729
Accounts receivable, less reserves of approximately $553 and $709 in
1996 and 1995, respectively........................................ 22,075 24,312
Inventories........................................................... 12,610 12,567
Deferred contract costs............................................... 2,966
Deferred income taxes................................................. 1,933 1,811
Prepaid expenses and other............................................ 5,737 6,463
-------- --------
Total current assets.............................................. 154,574 135,793
-------- --------
Property, plant and equipment, net......................................... 23,818 22,133
Other assets............................................................... 3,976 4,169
Deferred income taxes...................................................... 77
-------- --------
$182,368 $162,172
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................................... $ 1,627 $ 2,775
Accrued expenses...................................................... 8,441 9,333
Accrued income taxes.................................................. 7,430 3,111
Customer deposits..................................................... 1,533 867
Deferred revenue...................................................... 1,301 305
-------- --------
Total current liabilities......................................... 20,332 16,391
-------- --------
Other liabilities.......................................................... 1,920 1,865
Deferred income taxes...................................................... 27
Stockholders' equity:
Common stock, $.002 par value -
Authorized: 120,000,000 shares, issued: 40,483,756 and 39,039,675
shares in 1996 and 1995, respectively.............................. 81 78
Additional paid-in capital............................................ 74,553 71,171
Cumulative translation adjustment..................................... 52 40
Retained earnings..................................................... 86,292 73,516
Treasury stock, at cost, 80,918 shares in 1996 and 1995............... (889) (889)
-------- --------
Total stockholders' equity........................................ 160,089 143,916
-------- --------
$182,368 $162,172
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE> 5
COGNEX CORPORATION
<TABLE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE TREASURY STOCK TOTAL
-------------------- PAID-IN TRANSLATION RETAINED ---------------- STOCKHOLDERS'
SHARES PAR VALUE CAPITAL ADJUSTMENT EARNINGS SHARES COST EQUITY
------ --------- ---------- ----------- -------- ------ ---- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995....... 39,039,675 $78 $71,171 $40 $73,516 80,918 $(889) $143,916
Acquisition of Isys
Controls, Inc. ............... 1,331,927 3 2,469 1,947 4,419
Issuance of stock under stock
option plans.................. 112,154 283 283
Amortization of deferred
compensation.................. 4 4
Tax benefit from the exercise
of stock options.............. 626 626
Translation adjustment.......... 12
Net income...................... 10,829 10,829
---------- --- ------- --- ------- ------ ----- --------
Balance at March 31, 1996
(unaudited)...................... 40,483,756 $81 $74,553 $52 $86,292 80,918 $(889) $160,089
========== === ======= === ======= ====== ===== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE> 6
COGNEX CORPORATION
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<CAPTION>
THREE MONTHS ENDED
MARCH 31, APRIL 2,
1996 1995
--------- --------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income........................................................... $ 10,829 $ 5,873
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization...................................... 1,153 624
Loss on disposition of property, plant and equipment............... 13
Tax benefit from the exercise of stock options..................... 626 920
Deferred income tax provision...................................... (42) (91)
Change in other current assets and current liabilities............. 6,703 (3,276)
-------- --------
Net cash provided by operating activities............................ 19,282 4,050
-------- --------
Cash flows from investing activities:
Purchase of investments.............................................. (11,434) (28,970)
Maturities of investments............................................ 9,899 4,659
Purchase of property, plant and equipment............................ (2,010) (801)
Cash assumed in acquisition of Isys Controls, Inc. .................. 918
Decrease in other assets............................................. 29 116
-------- --------
Net cash used in investing activities................................ (2,598) (24,996)
-------- --------
Cash flows from financing activities:
Issuance of stock under stock option plans........................... 283 761
-------- --------
Net cash provided by financing activities............................ 283 761
-------- --------
Effect of exchange rate changes on cash................................... 111 37
-------- --------
Net increase (decrease) in cash and cash equivalents...................... 17,078 (20,148)
Cash and cash equivalents at beginning of period.......................... 23,911 56,326
-------- --------
Cash and cash equivalents at end of period................................ $ 40,989 $ 36,178
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 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, 1995, as filed with the
Securities and Exchange Commission on March 28, 1996.
In the opinion of the management of Cognex Corporation, the accompanying
consolidated financial statements contain all adjustments (consisting of
only normal, recurring adjustments) necessary to present fairly the
Company's financial position at March 31, 1996 and December 31, 1995, and
the results of its operations and changes in stockholders' equity and cash
flows for the three months ended March 31, 1996 and April 2, 1995.
The results disclosed in the Consolidated Statement of Income for the three
months ended March 31, 1996 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.
Revenue Recognition
-------------------
Revenue from product sales and software licenses is recognized upon
shipment. Revenue from research and development contracts and long-term
vision system construction projects is recognized on the
percentage-of-completion method. Losses on contracts and projects, if any,
are recorded when identified. Deferred contract costs arise from
performance on projects in advance of billings. Deferred revenue and
customer deposits arise from billings in advance of performance and are
recognized as revenue during the period in which performance occurs.
Service and maintenance revenue is recognized as earned.
Net Income Per Share
--------------------
Net income per share is calculated based on the weighted average number of
common and dilutive common equivalent shares outstanding during the period.
Primary and fully diluted net income per share are not materially
different for each of the periods presented. Dilutive common equivalent
shares consist of stock options, calculated using the treasury stock
method.
5
<PAGE> 8
COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INVENTORIES
- - -----------
<TABLE>
Inventories consist of the following:
<CAPTION>
(In thousands) MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
(UNAUDITED)
<S> <C> <C>
Raw materials.......................... $ 6,834 $ 6,340
Work-in-process........................ 2,306 4,468
Finished goods......................... 3,470 1,759
------- -------
$12,610 $12,567
======= =======
</TABLE>
ACQUISITION OF ISYS CONTROLS, INC.
- - ----------------------------------
On February 29, 1996, the Company acquired Isys Controls, Inc. ("Isys"), a
developer of ultra-high performance vision systems that automatically detect and
classify surface flaws and defects on a variety of high value-added materials.
Under the terms of the acquisition, accounted for as a pooling of interests, an
aggregate of 1,078,380 shares of Cognex common stock were exchanged for Isys
common shares, and 253,547 shares of Cognex common stock were exchanged for Isys
restricted common shares, with similar restrictions. An additional 68,042 shares
of Cognex common stock were reserved for issuance upon exercise of Isys options
which as a result of the merger became options for the purchase of Cognex common
stock. The exchange ratio was .1470 of a share of Cognex common stock for each
share of Isys common stock.
The results of operations of Isys for the full quarter are included in the
consolidated financial statements of the Company for the quarter ended March
31, 1996. For all prior periods presented, the financial position and results
of operations of Isys were not material to the previously reported financial
position and results of operations of the Company, and therefore, prior
periods have not been restated.
6
<PAGE> 9
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
In February 1996, the Company acquired Isys Controls, Inc. ("Isys"), a developer
of vision systems for surface inspection. The results of operations of Isys for
the full quarter ended March 31, 1996 are included in the Company's results for
the first quarter of 1996. The results of operations of Isys for the quarter
ended April 2, 1995 were not material to the Company's previously reported
results, and therefore, this prior period has not been restated. Sales of Isys
products amounted to $3,150,000, or 9% of revenue, in the first quarter of 1996.
Sales of these products to customers based in North America and Japan totaled
$1,661,000 and $1,462,000, respectively. Isys products were sold entirely to
the factory floor marketplace.
Revenue for the quarter ended March 31, 1996 increased 79% to $34,887,000 from
$19,437,000 for the quarter ended April 2, 1995. Revenue from international
customers amounted to $19,595,000, or 56% of revenue, in the first quarter of
1996 compared to $11,132,000, or 57% of revenue, in the first quarter of 1995.
Sales to customers based in North America, Japan, and Europe increased
$6,987,000, $6,894,000, and $1,251,000, or 84%, 80%, and 55%, respectively, from
the first quarter of 1995.
The increase in worldwide revenue is due to increased volume generated from
Original Equipment Manufacturer ("OEM") and factory floor customers. Sales to
OEM customers increased $8,551,000, or 56%, from the first quarter of 1995 and
over 15 new OEM customers were added worldwide in the first quarter of 1996. OEM
relationships typically take two to five years to reach significant sales and
volume levels. In addition, sales to factory floor customers increased
$6,899,000, or 168%, from the first quarter of 1995 and grew to 32% of revenue
in the first quarter of 1996 from 21% of revenue in the first quarter of 1995.
Over 45 new factory floor customers were added worldwide in the first quarter of
1996.
The combined sales of the Cognex 2000 and 3000 Series vision systems increased
$2,906,000, yet decreased as a percentage of revenue to 22% for the first
quarter of 1996 from 24% for the first quarter of 1995. Sales of the Cognex 4000
Series vision system increased $2,248,000, yet decreased as a percentage of
revenue to 29% in the first quarter of 1996 from 41% in the first quarter of
1995. The decline in sales as a percentage of revenue of the Cognex 2000, 3000,
and 4000 products reflects customers' continued transition to newer products.
Sales of the Cognex 5000 Series vision system increased $4,072,000 and
represented 26% of revenue in both periods. Checkpoint, the Company's "easy to
use" vision system designed for the factory floor marketplace, increased
$666,000 and represented 5% of revenue in both periods.
Gross margin as a percentage of revenue was 74% for the quarter ended March 31,
1996 compared to 80% for the quarter ended April 2, 1995. Two percent of the
decrease in the gross margin percentage from the first quarter of 1995 is due to
sales of Isys products, which carry lower margins. The additional two percent
decrease in the gross margin percentage is due primarily to price discounts to
some of the Company's larger customers for obtaining certain volume thresholds,
a shift in product mix to lower margin products, and redundant manufacturing
costs incurred during the transition period to full turnkey manufacturing. Some
of these influences may remain in place throughout 1996 and overall gross margin
percentages are expected to be lower than experienced in 1995.
Research, development and engineering expenses increased to $4,766,000 for the
quarter ended March 31, 1996 from $2,716,000 for the quarter ended April 2,
1995. Expenses as a percentage of revenue were 14% in both periods. The increase
in aggregate costs is due primarily to higher personnel-related costs to support
the Company's investment in the research and development of new and existing
products, including the addition of Isys and Acumen engineers to the Company's
talent pool.
7
<PAGE> 10
Selling, general and administrative expenses increased to $6,345,000 for the
quarter ended March 31, 1996 from $5,071,000 for the quarter ended April 2,
1995. Expenses as a percentage of revenue were 18% in the first quarter of 1996
compared to 26% in the first quarter of 1995. The increase in aggregate costs is
due primarily to higher personnel-related costs, both domestically and
internationally, to support the Company's worldwide operations, combined with
costs related to fluctuations in foreign currency exchange rates. In addition,
costs incurred to effect the acquisition of Isys, primarily professional fees,
were expensed in the first quarter of 1996. The decrease in expenses as a
percentage of revenue is due primarily to the growth in revenue outpacing the
growth in selling, general and administrative expenses.
Other income increased to $1,011,000 for the quarter ended March 31, 1996 from
$632,000 for the quarter ended April 2, 1995. The increase in other income is
due primarily to an increase in interest income resulting from an increased
investment base.
The Company's effective tax rate was 30.5% for the quarter ended March 31, 1996
compared to 29.5% for the quarter ended April 2, 1995. The increase in the
effective tax rate is due primarily to the fact that the full research and
experimentation credit was not extended in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements during the quarter ended March 31, 1996 were met
through cash flow generated from operations. Working capital at December 31,
1995 was $134,242,000, an increase of $14,840,000 from the working capital
balance at December 31, 1995. Cash and investments increased $18,613,000 from
December 31, 1995 primarily as a result of $19,282,000 of cash generated from
operations, offset by $2,010,000 of capital expenditures. Cash generated from
operations consist of net income, adjusted primarily for the effects of
depreciation and amortization, the tax benefit from the exercise of stock
options, and changes in current assets and liabilities, most notably decreases
in accounts receivable and increases in accrued income taxes. As a result of the
Company's transition to full turnkey manufacturing, inventory levels are
expected to decline in 1996.
At March 31, 1996, the Company had no outstanding short-term or long-term debt.
The Company has a $1,000,000 unsecured demand line of credit with a bank which
is available through November 15, 1996. There have been no borrowings under the
line of credit.
Capital requirements consist primarily of expenditures for computer hardware and
software equipment, along with expenditures related to the expansion of the
Company's office space to accommodate anticipated growth. Capital expenditures
for the quarter ended March 31, 1996 amounted to $2,010,000, all of which were
funded out of current operations. In 1995, the Company began work on a planned
50,000 square-foot addition to its headquarters building. Future cash
requirements related to the addition are anticipated to approximate $6,000,000
and are expected to be paid out through the first quarter of 1997 with
anticipated funding from cash generated from operations.
In July 1995, the Company acquired Acumen, Inc. for approximately $14,000,000.
The purchase price included $8,452,000 in cash, $1,798,000 of which, at March
31, 1996, remains to be paid out through the year 2000.
The Company believes that the existing cash and investment balances, together
with cash generated from operations, will be sufficient to meet the Company's
planned working capital and capital expenditure requirements through 1996,
including potential business acquisitions.
8
<PAGE> 11
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
Exhibit 11 - Computation of Per Share Earnings
Exhibit 27 - Financial Data Schedule (electronic filing only)
(b) Reports on Form 8-K
On March 15, 1996, the Company filed a Current Report on Form 8-K
for the acquisition of Isys Controls Inc. as follows:
Item 2. Acquisition or Disposition of Assets
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired
Report of Independent Accountants
Consolidated Statements of Income for the quarter ended
December 31, 1995 and 1994 (unaudited) and the year
ended September 30, 1995 and 1994
Consolidated Balance Sheets at December 31,
1995 (unaudited), September 30, 1995, and
September 30, 1994
Consolidated Statements of Stockholders' Equity for the
quarter ended December 31, 1995 (unaudited) and the
year ended September 30, 1995 and 1994
Consolidated Statements of Cash Flows for
the quarter ended December 31, 1995 and 1994
(unaudited) and the year ended September 30, 1995 and
1994
Notes to Consolidated Financial Statements
(b) Pro Forma Financial Information
Introductory Information
Unaudited Pro Forma Statements of Income for the year
ended December 31, 1995, 1994, and 1993
Unaudited Pro Forma Balance Sheet at December 31, 1995
Notes to Unaudited Pro Forma Financial Information
(c) Exhibits
Exhibit 2 - Agreement and Plan of Merger dated as of
February 29, 1996 among Cognex
Corporation, Cognex Software
Development, Inc., Isys Controls, Inc.,
and Richard Rombach
Exhibit 27 - Financial Data Schedules (electronic
filing only)
9
<PAGE> 12
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 13, 1996 COGNEX CORPORATION
/s/ Robert J. Shillman
------------------------------------------------
Robert J. Shillman
President, Chief Executive Officer, and Chairman
(principal executive officer)
/s/ John J. Rogers, Jr.
--------------------------------------------------
John J. Rogers, Jr.
Executive Vice President, Chief Financial Officer,
and Treasurer
(principal financial and accounting officer)
10
<PAGE> 1
EXHIBIT 11
COGNEX CORPORATION
<TABLE>
COMPUTATION OF PER SHARE EARNINGS
Weighted average common and common share equivalents were computed as follows:
<CAPTION>
MARCH 31, APRIL 2,
1996 1995
---------- ----------
(UNAUDITED)
<S> <C> <C>
Weighted average common shares outstanding........ 40,326,678 37,540,984
Weighted average options outstanding.............. 7,167,555 7,796,488
Shares assumed to be purchased.................... (3,437,712) (4,553,874)
---------- ----------
Primary weighted average common and common
equivalent shares outstanding................... 44,056,521 40,783,598
Dilutive effect of weighted average options....... 246,824
---------- ----------
Fully diluted weighted average common and common
equivalent shares outstanding................... 44,056,521 41,030,422
========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF COGNEX CORPORATION FOR THE QUARTER ENDED
MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 40,989,000
<SECURITIES> 68,264,000
<RECEIVABLES> 22,628,000
<ALLOWANCES> 553,000
<INVENTORY> 12,610,000
<CURRENT-ASSETS> 154,574,000
<PP&E> 30,471,000
<DEPRECIATION> 6,653,000
<TOTAL-ASSETS> 182,368,000
<CURRENT-LIABILITIES> 20,332,000
<BONDS> 0
0
0
<COMMON> 81,0000
<OTHER-SE> 160,008,000
<TOTAL-LIABILITY-AND-EQUITY> 182,368,000
<SALES> 34,887,000
<TOTAL-REVENUES> 34,887,000
<CGS> 9,206,000
<TOTAL-COSTS> 9,206,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 15,581,000
<INCOME-TAX> 4,752,000
<INCOME-CONTINUING> 10,829,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,829,000
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
</TABLE>
