<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 APRIL 5, 1998 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 May 3, 1998, there were 41,837,347 shares of Common Stock, $.002 par
value, of the registrant outstanding.
Total number of pages: 11
Exhibit index is located on page 10
================================================================================
<PAGE> 2
INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income for the three months ended
April 5, 1998 and March 30, 1997
Consolidated Balance Sheets at April 5, 1998 and December 31, 1997
Consolidated Statement of Stockholders' Equity for the three
months ended April 5, 1998
Consolidated Statements of Cash Flows for the three months ended
April 5, 1998 and March 30, 1997
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
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
APRIL 5, MARCH 30,
1998 1997
------- -------
(UNAUDITED)
<S> <C> <C>
Revenue ...................................................... $40,056 $28,143
Cost of revenue .............................................. 10,927 7,695
------- -------
Gross margin ................................................. 29,129 20,448
Research, development and engineering expenses ............... 6,305 5,179
Selling, general and administrative expenses ................. 9,869 7,419
------- -------
Income from operations ....................................... 12,955 7,850
Investment income ............................................ 1,728 1,333
Other income ................................................. 165 157
------- --------
Income before provision for income taxes ..................... 14,848 9,340
Provision for income taxes ................................... 4,306 2,849
------- -------
Net income ................................................... $10,542 $ 6,491
======= =======
Net income per share:
Basic ...................................................... $ .25 $ .16
======= =======
Diluted .................................................... $ .24 $ .15
======= =======
Weighted-average common and common equivalent shares
outstanding:
Basic ...................................................... 41,800 40,921
======= =======
Diluted .................................................... 44,435 43,945
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
1
<PAGE> 4
COGNEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
APRIL 5, DECEMBER 31,
1998 1997
-------- --------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and investments .......................................... $181,214 $178,014
Accounts receivable, less reserves of $2,031 and $1,940 in 1998
and 1997, respectively ....................................... 33,394 25,095
Revenue in excess of billings ................................. 3,695 3,723
Inventories ................................................... 9,129 7,784
Deferred income taxes ......................................... 3,618 3,453
Prepaid expenses and other .................................... 6,453 5,937
-------- --------
Total current assets ...................................... 237,503 224,006
Property, plant and equipment, net .............................. 33,245 32,995
Other assets .................................................... 4,107 3,462
Deferred income taxes ........................................... 1,414 1,377
-------- --------
$276,269 $261,840
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .............................................. $ 3,565 $ 3,332
Accrued expenses .............................................. 11,938 13,712
Accrued income taxes .......................................... 6,780 2,684
Customer deposits ............................................. 3,200 3,112
Deferred revenue .............................................. 2,040 1,596
-------- --------
Total current liabilities ................................. 27,523 24,436
-------- --------
Other liabilities ............................................... 1,261 1,262
Stockholders' equity:
Common stock, $.002 par value -
Authorized: 120,000,000 shares, issued: 41,966,454 and
41,859,395 shares in 1998 and 1997, respectively ............ 84 84
Additional paid-in capital .................................... 92,000 91,082
Cumulative translation adjustment ............................. 2 44
Retained earnings ............................................. 156,910 146,368
Treasury stock, at cost, 106,020 and 103,139 shares in 1998 and
1997, respectively ........................................... (1,511) (1,436)
-------- --------
Total stockholders' equity ................................ 247,485 236,142
-------- --------
$276,269 $261,840
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
2
<PAGE> 5
COGNEX CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<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, 1997 .......... 41,859,395 $84 $91,082 $ 44 $146,368 103,139 $(1,436) $236,142
Issuance of stock under
stock option plans ................. 107,059 580 580
Tax benefit from exercise of
stock options ...................... 338 338
Common stock received for payment
of stock option exercises .......... 2,881 (75) (75)
Translation adjustment .............. (42) (42)
Net income .......................... 10,542 10,542
---------- --- ------- ---- -------- ------- ------- --------
Balance at April 5, 1998 (unaudited) .. 41,966,454 $84 $92,000 $ 2 $156,910 106,020 $(1,511) $247,485
========== === ======= ==== ======== ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE> 6
COGNEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
APRIL 5, MARCH 30,
1998 1997
-------- --------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income ..................................................... $ 10,542 $ 6,491
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ................................ 2,196 1,717
Tax benefit from exercise of stock options ................... 338 846
Deferred income tax provision ................................ (202) 67
Change in other current assets and current liabilities ....... (7,479) 586
-------- --------
Net cash provided by operating activities ...................... 5,395 9,707
-------- --------
Cash flows from investing activities:
Purchase of investments ........................................ (19,394) (7,433)
Maturities of investments ...................................... 14,307 6,630
Purchase of property, plant and equipment ...................... (2,006) (2,551)
Cash paid related to Mayan acquisition ......................... (432)
Other .......................................................... 3
-------- --------
Net cash used in investing activities .......................... (7,525) (3,351)
-------- --------
Cash flows from financing activities:
Net proceeds from issuance of stock under stock option plans ... 505 649
-------- --------
Net cash provided by financing activities ...................... 505 649
-------- --------
Effect of exchange rate changes on cash .......................... 177 386
-------- --------
Net (decrease)/increase in cash and cash equivalents ............. (1,448) 7,391
Cash and cash equivalents at beginning of period ................. 38,198 48,423
-------- --------
Cash and cash equivalents at end of period ....................... 36,750 55,814
Investments ...................................................... 144,464 86,020
-------- --------
Cash and investments ............................................. $181,214 $141,834
======== ========
</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, 1997, as filed with the
Securities and Exchange Commission on March 27, 1998.
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 April 5, 1998, and the results of
operations and changes in stockholders' equity and cash flows for the three
months ended April 5, 1998.
The results disclosed in the Consolidated Statements of Income for the
three months ended April 5, 1998 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:
<TABLE>
<CAPTION>
(In thousands) APRIL 5, DECEMBER 31,
1998 1997
--------- ------------
(UNAUDITED)
<S> <C> <C>
Raw materials............................... $4,401 $4,425
Work-in-process............................. 1,562 1,355
Finished goods.............................. 3,166 2,004
------ ------
$9,129 $7,784
====== ======
</TABLE>
5
<PAGE> 8
COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NET INCOME PER SHARE
Net income per share is calculated as follows:
<TABLE>
<CAPTION>
(In thousands) THREE MONTHS ENDED
APRIL 5, MARCH 30,
1998 1997
-------- ---------
(UNAUDITED)
<S> <C> <C>
Net income ....................................................... $10,542 $ 6,491
======= =======
BASIC:
Weighted-average common shares outstanding ..................... 41,800 40,921
======= =======
Net income per common share .................................... $ .25 $ .16
======= =======
DILUTED:
Weighted-average common shares outstanding ..................... 41,800 40,921
Effect of dilutive securities:
Stock options ................................................ 2,635 3,024
------- -------
Weighted-average common and common equivalent shares
outstanding .................................................. 44,435 43,945
======= =======
Net income per common and common equivalent share .............. $ .24 $ .15
======= =======
</TABLE>
COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting Standard (SFAS) No.
130, "Reporting Comprehensive Income," effective January 1, 1998. This statement
requires that all items recognized under accounting standards as components of
comprehensive income be shown in an annual financial statement that is displayed
with the same prominence as other annual financial statements. This statement
also requires that an entity classify items of other comprehensive income by
their nature in an annual financial statement. Items of other comprehensive
income include foreign currency translation adjustments. Comprehensive income
totaled $10,500,000 for the three months ended April 5, 1998 and $6,517,000 for
the three months ended March 30, 1997.
SUBSEQUENT EVENT
On April 21, 1998, the Company's Board of Directors authorized the repurchase of
up to $20,000,000 of the Company's common stock from time to time in the open
market or in private transactions. Such repurchase will be at management's
discretion depending upon acceptable price levels and the availability of
shares. Funds for the repurchase of shares will come from the Company's existing
cash and investment balances along with cash generated from operations.
6
<PAGE> 9
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Revenue for the first quarter of 1998 increased 42% over the first quarter of
1997, yet decreased 15% from the fourth quarter of 1997. Historically, the
Company's revenue has fluctuated with the capital spending trends of its core
Original Equipment Manufacturer (OEM) customers serving the semiconductor and
electronics industries. The increase in revenue over the first quarter of 1997
is due primarily to increased volume from these core OEM customers. Sales to all
OEM customers increased $7,595,000, or 42%, over the first quarter of 1997 and
represented 64% of revenue in both quarters. Additionally, sales to factory
floor customers increased $4,318,000, or 43%, over the first quarter of 1997 due
primarily to increased volume resulting from additional sales and marketing
resources serving customers in this market, as well as sales of Fine-Line
products which the Company acquired from Mayan Automation, Inc. in a purchase
transaction on July 31, 1997. The decrease in revenue from the fourth quarter of
1997 is due primarily to reduced volume from the Company's core OEM customers.
Sales to all OEM customers decreased $6,765,000, or 21%, from the fourth quarter
of 1997, while sales to factory floor customers remained fairly consistent with
the prior quarter. Revenue from the Company's core OEM customers is anticipated
to remain relatively flat over the next few quarters in comparison to the prior
year's results.
Gross margin as a percentage of revenue for the quarter ended April 5, 1998 was
73%, which is consistent with the gross margin percentage for the comparable
period in 1997.
Research, development and engineering expenses for the quarter ended April 5,
1998 increased 22% to $6,305,000 from $5,179,000 for the quarter ended March 30,
1997. The increase in aggregate expenses is due primarily to higher
personnel-related costs to support the Company's continued investment in the
research and development of new and existing products. Expenses as a percentage
of revenue were 16% for the first quarter of 1998 compared to 18% for the first
quarter of 1997. The decrease in expenses as a percentage of revenue is due
primarily to a lower revenue base in the first quarter of 1997. The Company
intends to continue to invest in product development and hire additional
resources, and therefore, the level of research, development and engineering
expenses as a percentage of revenue may increase in the second quarter of 1998.
Selling, general and administrative expenses for the quarter ended April 5, 1998
increased 33% to $9,869,000 from $7,419,000 for the quarter ended March 30,
1997. The increase in aggregate expenses is due primarily to higher
personnel-related costs, both domestically and internationally, to support the
Company's expanding worldwide operations. Expenses as a percentage of revenue
were 25% for the first quarter of 1998 compared to 26% for the first quarter of
1997. The Company intends to continue to invest in sales and marketing resources
to further penetrate the factory floor market, and therefore, the level of
selling, general and administrative expenses as a percentage of revenue may
increase slightly in the second quarter of 1998.
Investment income for the quarter ended April 5, 1998 increased 30% to
$1,728,000 from $1,333,000 for the comparable period in 1997. The increase in
investment income is due primarily to an increase in the Company's invested cash
balance during the first quarter of 1998, as well as slightly higher returns on
invested balances.
The Company's effective tax rate was 29.0% for the quarter ended April 5, 1998
compared to 30.5% for the quarter ended March 30, 1997. The decrease in the
effective tax rate is primarily attributable to a higher tax benefit associated
with the Company's foreign sales corporation.
7
<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements during the quarter ended April 5, 1998 were met
through cash generated from operations. Cash and investments increased
$3,200,000 from December 31, 1997 primarily as a result of $5,395,000 of cash
generated from operations, offset by $2,006,000 of capital expenditures. Cash
generated from operations consists of net income, adjusted primarily for
non-cash charges and changes in current assets and current liabilities, most
notably an increase in accounts receivable.
Capital expenditures for the quarter ended April 5, 1998 totaled $2,006,000 and
consisted primarily of expenditures for computer hardware and software, as well
as expenditures for furniture and fixtures primarily related to the occupancy of
the 50,000 square-foot expansion of the Company's corporate headquarters.
On July 31, 1997, the Company acquired selected assets and assumed selected
liabilities of Mayan Automation, Inc. for $4,800,000 in cash, $1,350,000 of
which, at April 5, 1998, remained to be paid through the year 1999. Of the
$1,350,000 of future cash payments, $900,000 represents payments contingent upon
the attainment of certain performance milestones.
Based on a recent assessment, the Company has determined that its internal
computer systems are capable of processing transactions relating to the year
2000 and beyond. The Company has also implemented a year 2000 testing and
remediation plan with respect to its products and, to the best of its knowledge,
the Company does not have any material exposure to contingencies related to year
2000 issues for its products. Additionally, the Company has initiated formal
communications with its significant suppliers to determine the extent to which
the Company is vulnerable to those third parties' failures to remediate their
own year 2000 issues. Although the Company is only in the preliminary stages of
assessing the impact of year 2000 issues and no assurances can be given, the
Company does not believe that year 2000 expenses will have a material impact on
its business.
The Company believes that the 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 1998,
including the Company's treasury stock repurchase program and potential business
acquisitions.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which is
effective for fiscal years beginning after December 15, 1997. This statement
supersedes SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise." SFAS No. 131 requires companies to report selected segment
information quarterly and entity-wide disclosures about products and services,
major customers, and the material countries in which the entity holds assets and
reports revenue. For the year ended December 31, 1998, the Company will adopt
the provisions of this statement, which include the reclassification of prior
periods presented, unless impracticable, for comparative purposes. The Company
is currently evaluating the impact that this statement will have on its
financial statements; however, because the statement requires only additional
disclosure, the Company does not expect the statement to have a material impact
on its financial position or results of operations.
8
<PAGE> 11
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," 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 industry; (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.
9
<PAGE> 12
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 27 - Financial Data Schedule (electronic filing only)
(b) Reports on Form 8-K
None
10
<PAGE> 13
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 15, 1998 COGNEX CORPORATION
/s/ John J. Rogers, Jr.
--------------------------------------
John J. Rogers, Jr.
Executive Vice President, Chief
Financial Officer, and Treasurer
(duly authorized officer, principal
financial and accounting officer)
11
<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
APRIL 5, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED
FINANCIAL STATEMENTS.
</LEGEND>
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> APR-05-1998
<EXCHANGE-RATE> 1
<CASH> 36,750,000
<SECURITIES> 144,464,000
<RECEIVABLES> 35,425,000
<ALLOWANCES> 2,031,000
<INVENTORY> 9,129,000
<CURRENT-ASSETS> 237,503,000
<PP&E> 47,740,000
<DEPRECIATION> 14,495,000
<TOTAL-ASSETS> 276,269,000
<CURRENT-LIABILITIES> 27,523,000
<BONDS> 0
0
0
<COMMON> 84,000
<OTHER-SE> 247,401,000
<TOTAL-LIABILITY-AND-EQUITY> 276,269,000
<SALES> 40,056,000
<TOTAL-REVENUES> 40,056,000
<CGS> 10,927,000
<TOTAL-COSTS> 10,927,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 14,848,000
<INCOME-TAX> 4,306,000
<INCOME-CONTINUING> 10,542,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,542,000
<EPS-PRIMARY> .25
<EPS-DILUTED> .24
</TABLE>
