<PAGE> 1
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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 JUNE 30, 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 July 28, 1996, there were 40,683,050 shares of Common Stock, $.002
par value, of the registrant outstanding.
Total number of pages: 10
Exhibit index is located on page 8
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<PAGE> 2
INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income for the three and six months
ended June 30, 1996 and July 2, 1995
Consolidated Balance Sheets at June 30, 1996 and December 31,
1995
Consolidated Statement of Stockholders' Equity for the six
months ended June 30, 1996
Consolidated Statements of Cash Flows for the six months
ended June 30, 1996 and July 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 SIX MONTHS ENDED
JUNE 30, JULY 2, JUNE 30, JULY 2,
1996 1995 1996 1995
-------- ------- -------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenue ...................................... $34,949 $23,722 $69,836 $43,159
Cost of revenue .............................. 9,591 5,236 18,797 9,188
------- ------- ------- -------
Gross margin ................................. 25,358 18,486 51,039 33,971
Research, development and engineering
expenses ................................... 4,794 3,073 9,560 5,789
Selling, general and administrative
expenses ................................... 6,874 5,810 13,219 10,881
------- ------- ------- -------
Income from operations ....................... 13,690 9,603 28,260 17,301
Other income ................................. 1,332 668 2,343 1,300
------- ------- ------- -------
Income before provision for income taxes ..... 15,022 10,271 30,603 18,601
Provision for income taxes ................... 4,888 3,030 9,640 5,487
------- ------- ------- -------
Net income ................................... $10,134 $ 7,241 $20,963 $13,114
======= ======= ======= =======
Net income per share ......................... $ .23 $ .18 $ .48 $ .32
======= ======= ======= =======
Weighted average common and common equivalent
shares outstanding ......................... 43,866 41,260 43,966 41,091
======= ======= ======= =======
</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>
JUNE 30, DECEMBER 31,
1996 1995
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................... $ 37,193 $ 23,911
Investments......................................................... 76,818 66,729
Accounts receivable, less reserves of $583 and $709 in 1996 and
1995, respectively............................................... 21,954 24,312
Inventories......................................................... 12,800 12,567
Deferred contract costs............................................. 3,325
Deferred income taxes............................................... 1,809 1,811
Prepaid expenses and other.......................................... 7,289 6,463
-------- --------
Total current assets............................................ 161,188 135,793
-------- --------
Property, plant and equipment, net....................................... 24,705 22,133
Other assets............................................................. 3,898 4,169
Deferred income taxes.................................................... 55 77
-------- --------
$189,846 $162,172
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................... $ 1,923 $ 2,775
Accrued expenses.................................................... 7,745 9,333
Accrued income taxes................................................ 2,561 3,111
Customer deposits................................................... 2,010 867
Deferred revenue.................................................... 797 305
-------- --------
Total current liabilities....................................... 15,036 16,391
-------- --------
Other liabilities........................................................ 1,917 1,865
Stockholders' equity:
Common stock, $.002 par value -
Authorized: 120,000,000 shares, issued: 40,702,578 and
39,039,675 shares in 1996 and 1995, respectively................. 81 78
Additional paid-in capital.......................................... 77,232 71,171
Cumulative translation adjustment................................... 43 40
Retained earnings................................................... 96,426 73,516
Treasury stock, at cost, 80,918 shares in 1996 and 1995............. (889) (889)
-------- --------
Total stockholders' equity...................................... 172,893 143,916
-------- --------
$189,846 $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, stock
purchase, and bonus plans................ 330,976 1,668 1,668
Amortization of deferred compensation...... 11 11
Tax benefit from exercise of stock
options.................................. 1,913 1,913
Translation adjustment..................... 3 3
Net income................................. 20,963 20,963
---------- --- ------- --- ------- ------ ----- --------
Balance at June 30, 1996 (unaudited)......... 40,702,578 $81 $77,232 $43 $96,426 80,918 $(889) $172,893
========== === ======= === ======= ====== ===== ========
</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>
SIX MONTHS ENDED
JUNE 30, JULY 2,
1996 1995
---------- ---------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income ................................................ $ 20,963 $ 13,114
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization ........................... 2,430 1,290
Loss on disposition of property, plant and equipment .... 92
Tax benefit from exercise of stock options .............. 1,913 2,790
Deferred income tax provision ........................... (189)
Change in other current assets and current liabilities .. (602) (10,527)
-------- --------
Net cash provided by operating activities ................. 24,796 6,478
-------- --------
Cash flows from investing activities:
Purchase of investments ................................... (29,387) (45,705)
Maturity and sale of investments .......................... 19,298 11,305
Purchase of property, plant and equipment ................. (4,092) (7,202)
Cash assumed in acquisition of Isys Controls, Inc. ........ 918
(Increase)/decrease in other assets ....................... (77) 153
-------- --------
Net cash used in investing activities ..................... (13,340) (41,449)
-------- --------
Cash flows from financing activities:
Issuance of stock under stock option, stock purchase, and
bonus plans ............................................. 1,668 1,914
-------- --------
Net cash provided by financing activities ................. 1,668 1,914
-------- --------
Effect of exchange rate changes on cash ...................... 158 48
-------- --------
Net increase/(decrease) in cash and cash equivalents ......... 13,282 (33,009)
Cash and cash equivalents at beginning of period ............. 23,911 56,326
-------- --------
Cash and cash equivalents at end of period ................... $ 37,193 $ 23,317
======== ========
</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 June 30, 1996, and
the results of operations for the three and six months ended June 30,
1996, and changes in stockholders' equity and cash flows for the six
months ended June 30, 1996.
The results disclosed in the Consolidated Statement of Income for the
three and six months ended June 30, 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.
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.
INVENTORIES
-----------
<TABLE>
Inventories consist of the following:
<CAPTION>
(In thousands) JUNE 30, DECEMBER 31,
1996 1995
----------- ------------
(UNAUDITED)
<S> <C> <C>
Raw materials............... $ 6,705 $ 6,340
Work-in-process............. 3,800 4,468
Finished goods.............. 2,295 1,759
------- -------
$12,800 $12,567
======= =======
</TABLE>
5
<PAGE> 8
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 machine vision systems for high-speed surface inspection. The
results of operations of Isys for the full six-month period ended June 30,
1996 are included in the Company's results. The results of operations of Isys
for the three-month and six-month periods ended July 2, 1995 were not
material to the Company's previously reported results, and therefore, these
prior periods have not been restated.
Revenue for the three-month and six-month periods ended June 30, 1996
increased 47% and 62% to $34,949,000 and $69,836,000, respectively, over the
comparable periods in 1995. Revenue from domestic customers increased
$5,316,000 or 55% over the three-month period in 1995, and $12,303,000 or 69%
over the six-month period in 1995. Revenue from international customers
amounted to 57% of revenue in the three-month and six-month periods in 1996
compared to 59% and 58% of revenue in the same periods in 1995. Sales to
customers based in Japan increased $3,539,000 or 32% over the three-month
period in 1995, and $10,433,000 or 53% over the six-month period in 1995.
Sales to customers based in Europe increased $1,753,000 or 62% over the
three-month period in 1995, and $3,004,000 or 59% over the six-month period
in 1995.
The increase in worldwide revenue is due primarily to increased volume
generated from Original Equipment Manufacturer ("OEM") and factory floor
customers. Sales to OEM customers increased $4,954,000 or 27% over the
three-month period in 1995, and $13,505,000 or 40% over the six-month period
in 1995. 16 new OEM customers were added worldwide in the second quarter of
1996, bringing the year-to-date total to over 30 new OEM accounts. OEM
relationships typically take one to three years to reach significant sales
and volume levels. In addition, sales to factory floor customers, which
include sales of products resulting from the Company's acquisition of Isys,
increased $6,273,000 or 119% over the three-month period in 1995, and
$13,172,000 or 141% over the six-month period in 1995. 50 new factory floor
customers were added worldwide in the second quarter of 1996, bringing the
year-to-date total to over 95 new factory floor accounts. Sales to factory
floor customers grew to 33% and 32% of revenue in the three-month and
six-month periods in 1996 from 22% of revenue in the comparable periods in
1995.
The increased volume reflects sales of products totaling $6,288,000 or 18% of
revenue in the three-month period ended June 30, 1996, and $11,295,000 or 16%
of revenue in the six-month period ended June 30, 1996 resulting from the
Company's acquisitions of Isys in the first quarter of 1996 and Acumen, Inc.
in the third quarter of 1995.
The revenue growth rate for the first half of 1996 over the prior year is not
expected to be sustained in the second half of 1996 due to market factors
affecting the semiconductor and electronics industries, from which the
Company either directly or indirectly derives a significant amount of its
revenue.
Gross margin was 73% for the three-month and six-month periods ended June 30,
1996 compared to 78% and 79% for the same periods in 1995. The decrease in
gross margin is due primarily to a shift in product mix to lower margin
products including products resulting from the Company's acquisition of Isys,
price discounts to some of the Company's larger customers for attaining
certain volume thresholds, and redundant manufacturing costs incurred during
the transition period to full turnkey manufacturing accompanied by increased
costs associated with reducing excess inventory levels. Most of these
influences may remain in place throughout 1996 and gross margins for the full
year 1996 are expected to be lower than experienced in 1995.
6
<PAGE> 9
Research, development and engineering expenses increased to $4,794,000 and
$9,560,000 for the three-month and six-month periods ended June 30, 1996 from
$3,073,000 and $5,789,000 for the comparable periods in 1995. Expenses as a
percentage of revenue were 14% in both periods in 1996 compared to 13% in
both periods in 1995. 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 engineers to the Company's talent pool resulting from the acquisitions of
Isys and Acumen.
Selling, general and administrative expenses increased to $6,874,000 and
$13,219,000 for the three-month and six-month periods ended June 30, 1996
from $5,810,000 and $10,881,000 for the comparable periods in 1995. Expenses
as a percentage of revenue were 20% and 19% in the three-month and six-month
periods in 1996 compared to 24% and 25% in the same periods in 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. The decrease in expenses as a percentage of revenue
is due primarily to a higher revenue base in 1996.
Other income increased to $1,332,000 and $2,343,000 for the three-month and
six-month periods ended June 30, 1996 from $668,000 and $1,300,000 for the
comparable periods in 1995. The increase in other income is due primarily to
an increase in interest income resulting from a higher investment base in
1996.
The Company's effective tax rate was 32.5% and 31.5% for the three-month and
six-month periods ended June 30, 1996 compared to 29.5% for both periods in
1995. The increase in the effective tax rate is primarily because the
research and experimentation credit was not extended beyond June 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements during the six-month period ended June 30,
1996 were met through cash generated from operations. Working capital at June
30, 1996 was $146,152,000, an increase of $26,750,000 from the working
capital balance at December 31, 1995. Cash and investments increased
$23,371,000 from December 31, 1995 primarily as a result of $24,796,000 of
cash generated from operations, offset by $4,092,000 of capital expenditures.
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 six-month period ended June 30, 1996 amounted to
$4,092,000, 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 $5,000,000 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 for approximately $14,000,000. The
purchase price included $8,452,000 in cash, $1,798,000 of which, at June 30,
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.
7
<PAGE> 10
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 Special Meeting of Stockholders in lieu of the 1996 Annual
Meeting held on April 23, 1996, Robert J. Shillman was elected
director to hold office for three years. Patrick Sansonetti,
Anthony Sun, William Krivsky, 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 authorized shares of common
stock from 60,000,000 shares to 120,000,000 shares. The
Stockholders also approved a proposal to amend the 1993 Stock
Option Plan to increase the number of shares of common stock
reserved for issuance under such plan from 5,000,000 shares to
8,000,000 shares, and to make available 1,000,000 of such shares
for the issuance of stock awards under the plan. Of the
33,727,779 shares represented at the meeting, 33,629,671 votes
were cast in favor of the election of Robert J. Shillman as
director and 98,108 withheld; 31,729,416 votes were cast in favor
of the proposal to amend the Articles of Organization, 1,959,870
votes were cast against, and 38,493 abstained; and 16,993,133
votes were cast in favor of the proposal to amend the 1993 Stock
Option Plan, 11,803,188 votes were cast against, 69,808
abstained, and 4,861,650, no vote.
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 11 - Calculation of Weighted Average Common and
Common Equivalent Shares Outstanding
Exhibit 27 - Financial Data Schedule (electronic filing only)
(b) Reports on Form 8-K
None
8
<PAGE> 11
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 12, 1996 COGNEX CORPORATION
/s/ John J. Rogers, Jr.
-------------------------------------------
John J. Rogers, Jr.
Executive Vice President, Chief Financial
Officer, and Treasurer
(principal financial and accounting officer)
9
<PAGE> 1
EXHIBIT 11
<TABLE>
COGNEX CORPORATION
CALCULATION OF WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT SHARES OUTSTANDING
Weighted average common and common share equivalents were computed as follows:
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JULY 2, JUNE 30, JULY 2,
1996 1995 1996 1995
---------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Weighted average common shares outstanding 40,558,441 37,784,780 40,446,624 37,709,664
Weighted average options outstanding ..... 6,572,834 7,661,964 6,862,869 7,738,794
Shares assumed to be purchased ........... (3,265,072) (4,186,292) (3,343,468) (4,357,560)
---------- ---------- ---------- ----------
Primary weighted average common and
common equivalent shares outstanding ... 43,866,203 41,260,452 43,966,025 41,090,898
Dilutive effect of weighted average shares 532 373,614 531 574,634
---------- ---------- ---------- ----------
Fully diluted weighted average common and
common equivalent shares outstanding ... 43,866,735 41,634,066 43,966,556 41,665,532
========== ========== ========== ==========
</TABLE>
10
<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
JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 37,193,000
<SECURITIES> 76,818,000
<RECEIVABLES> 22,537,000
<ALLOWANCES> 583,000
<INVENTORY> 12,800,000
<CURRENT-ASSETS> 161,188,000
<PP&E> 32,270,000
<DEPRECIATION> 7,565,000
<TOTAL-ASSETS> 189,846,000
<CURRENT-LIABILITIES> 15,036,000
<BONDS> 0
<COMMON> 81,000
0
0
<OTHER-SE> 172,812,000
<TOTAL-LIABILITY-AND-EQUITY> 189,846,000
<SALES> 34,949,000
<TOTAL-REVENUES> 34,949,000
<CGS> 9,591,000
<TOTAL-COSTS> 9,591,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 15,022,000
<INCOME-TAX> 4,888,000
<INCOME-CONTINUING> 10,134,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,134,000
<EPS-PRIMARY> .23
<EPS-DILUTED> .23
</TABLE>
