<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 2, 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 0-17869
COGNEX CORPORATION
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
MASSACHUSETTS 04-2713778
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
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 30, 2000, there were 42,962,851 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 2, 2000 and April 4, 1999
Consolidated Balance Sheets at April 2, 2000 and December
31, 1999
Consolidated Statement of Stockholders' Equity for the three
months ended April 2, 2000
Consolidated Statements of Cash Flows for the three months
ended April 2, 2000 and April 4, 1999
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 2, APRIL 4,
2000 1999
-------- --------
(UNAUDITED)
<S> <C> <C>
Revenue...................................................................... $54,495 $27,485
Cost of revenue.............................................................. 13,918 8,728
------- -------
Gross profit................................................................. 40,577 18,757
Research, development, and engineering expenses.............................. 7,312 6,534
Selling, general, and administrative expenses................................ 12,639 9,768
------- -------
Operating income............................................................. 20,626 2,455
Investment income............................................................ 1,821 1,578
Other income................................................................. 218 161
------- -------
Income before provision for income taxes..................................... 22,665 4,194
Provision for income taxes................................................... 7,253 1,090
------- -------
Net income................................................................... $15,412 $ 3,104
======= =======
Net income per common and common-equivalent share:
Basic.................................................................... $ .36 $ .08
======= =======
Diluted.................................................................. $ .34 $ .07
======= =======
Weighted-average common and common-equivalent shares outstanding:
Basic.................................................................... 42,409 40,307
======= =======
Diluted.................................................................. 45,645 43,371
======= =======
</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 2, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and investments.................................................... $229,809 $216,947
Accounts receivable, less reserves of $2,569 and $2,836 in 2000
and 1999, respectively................................................ 32,217 28,742
Inventories............................................................. 12,526 10,872
Deferred income taxes................................................... 6,082 6,082
Prepaid expenses and other.............................................. 8,597 6,149
-------- --------
Total current assets................................................ 289,231 268,792
Property, plant, and equipment, net.......................................... 32,165 31,857
Deferred income taxes........................................................ 7,051 7,051
Other assets................................................................. 19,204 7,122
-------- --------
$347,651 $314,822
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................ $ 5,469 $ 4,237
Accrued expenses........................................................ 15,315 18,536
Accrued income taxes.................................................... 8,260 7,470
Customer deposits....................................................... 3,115 2,714
Deferred revenue........................................................ 4,947 4,508
-------- --------
Total current liabilities........................................... 37,106 37,465
-------- --------
Other liabilities............................................................ 719 733
Stockholders' equity:
Common stock, $.002 par value -
Authorized: 120,000,000 shares, issued: 45,236,454 and
44,220,434 shares in 2000 and 1999, respectively...................... 90 88
Additional paid-in capital.............................................. 140,172 122,522
Treasury stock, at cost, 2,383,106 and 2,381,032 shares in 2000
and 1999, respectively................................................ (43,633) (43,550)
Retained earnings....................................................... 212,428 197,016
Accumulated other comprehensive income.................................. 769 548
-------- --------
Total stockholders' equity.......................................... 309,826 276,624
-------- --------
$347,651 $314,822
======== ========
</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>
ACCUMULATED
COMMON STOCK ADDITIONAL TREASURY STOCK OTHER TOTAL
----------------- PAID-IN ------------------- RETAINED COMPREHENSIVE COMPREHENSIVE STOCKHOLDERS'
SHARES PAR VALUE CAPITAL SHARES COST EARNINGS INCOME INCOME EQUITY
--------- --------- ---------- ------------------- -------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December
31, 1999.................. 44,220,434 $ 88 $122,522 2,381,032 $(43,550) $197,016 $548 $276,624
Issuance of common stock
under stock option plans.. 1,016,020 2 11,150 11,152
Tax benefit from exercise
of stock options.......... 6,500 6,500
Common stock received for
payment of stock option
exercises................. 2,074 (83) (83)
Comprehensive income:
Net income............... 15,412 $15,412 15,412
Unrealized gain on
investment, net of tax.. 310 310 310
Foreign currency
translation adjustment.. (89) (89) (89)
-------
Comprehensive income..... $15,633
---------- ---- -------- ---------- -------- -------- ---- ======= --------
Balance at April 2, 2000
(unaudited)................ 45,236,454 $ 90 $140,172 2,383,106 $(43,633) $212,428 $769 $309,826
========== ==== ======== ========== ======== ======== ==== ========
</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 2, APRIL 4,
2000 1999
-------- --------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income.............................................................. $ 15,412 $ 3,104
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization......................................... 2,413 2,256
Tax benefit from exercise of stock options............................ 6,500 300
Change in current assets and current liabilities...................... (8,272) 8,115
Other................................................................. (813) (191)
-------- --------
Net cash provided by operating activities............................... 15,240 13,584
-------- --------
Cash flows from investing activities:
Purchase of investments................................................. (33,512) (28,412)
Maturity of investments................................................. 24,206 19,409
Purchase of property, plant, and equipment.............................. (1,633) (717)
Cash paid for business and technology acquisitions...................... (11,263) (789)
-------- --------
Net cash used in investing activities................................... (22,202) (10,509)
-------- --------
Cash flows from financing activities:
Issuance of common stock under stock option plans....................... 11,069 2,047
-------- --------
Net cash provided by financing activities............................... 11,069 2,047
-------- --------
Effect of exchange rate changes on cash...................................... (26) 351
-------- --------
Net increase in cash and cash equivalents.................................... 4,081 5,473
Cash and cash equivalents at beginning of period............................. 48,665 27,807
-------- --------
Cash and cash equivalents at end of period................................... 52,746 33,280
Investments.................................................................. 177,063 139,251
-------- --------
Cash and investments......................................................... $229,809 $172,531
======== ========
</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,
1999.
In the opinion of the management of Cognex Corporation, the
accompanying consolidated unaudited financial statements contain all
adjustments (consisting of only normal, recurring adjustments)
necessary to present fairly the Company's financial position at April
2, 2000, and the results of operations and changes in stockholders'
equity and cash flows for the three months then ended.
The results disclosed in the Consolidated Statements of Income for the
three months ended April 2, 2000 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 2, December 31,
2000 1999
-------- ------------
<S> <C> <C>
Raw materials.................................. $ 6,054 $ 5,451
Work-in-process................................ 2,662 1,987
Finished goods................................. 3,810 3,434
------- -------
$12,526 $10,872
======= =======
</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 2, APRIL 4,
2000 1999
-------- --------
<S> <C> <C>
Net income................................................................. $ 15,412 $ 3,104
======== =======
BASIC:
Weighted-average common shares outstanding............................. 42,409 40,307
======== =======
Net income per common share............................................ $ .36 $ .08
======== =======
DILUTED:
Weighted-average common shares outstanding............................. 42,409 40,307
Effect of dilutive securities:
Stock options....................................................... 3,236 3,064
-------- -------
Weighted-average common and common-equivalent shares outstanding....... 45,645 43,371
======== =======
Net income per common and common-equivalent share...................... $ .34 $ .07
======== =======
</TABLE>
ACQUISITION OF KOMATSU LTD. MACHINE VISION BUSINESS
On March 31, 2000, the Company acquired selected assets of the machine vision
business of Komatsu Ltd. for $11,200,000 in cash, with the potential for
additional cash payments in 2002 totaling up to $8,000,000 depending upon
certain performance criteria. The purchase price was allocated as follows:
$297,000 to tangible equipment, to be depreciated in accordance with the
Company's depreciation policy; $400,000 to workforce, to be amortized over
two years; $2,462,000 to complete technology, to be amortized over five
years; and $8,041,000 to goodwill, also to be amortized over five years. The
contingent consideration will be recorded as purchase price when paid and
will be allocated to goodwill to be amortized over the remaining period of
expected benefit.
The acquisition was accounted for under the purchase method of accounting. As
a result of the proximity of the acquisition date to the end of the quarter,
the results of operations of the acquired business were not included in the
first quarter. The results of operations of the acquired business were not
material compared to the Company's consolidated results of operations, and
therefore, pro forma results are not presented.
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 2000 was $54,495,000, compared to
$27,485,000 for the first quarter of 1999. The increase of $27,010,000, or
98%, is due to a higher volume of machine vision systems sold to both
Original Equipment Manufacturers (OEM) and end-user customers. The Company's
results in the first quarter of 1999 were negatively impacted by a worldwide
slowdown in capital spending by manufacturers in the semiconductor and
electronics industries. Sales to OEM customers, most of whom make capital
equipment used by manufacturers in these industries, increased $19,633,000,
or 141%, over the first quarter of 1999. Sales to end-user customers
increased over the prior year by $7,377,000, or 55%, as a result of increased
volume from customers in general manufacturing and surface inspection
industries.
Geographically, the most significant increase in revenue over the first
quarter of 1999 came from Japan, where most of the Company's OEM customers
are located. Sales to customers located in Japan increased $13,880,000, or
144%, over the prior year. Sales to customers located in the United States
and Europe increased $8,883,000, or 94%, and $2,935,000, or 37%,
respectively, over the first quarter of 1999.
Based on strong order levels in both the OEM and end-user markets experienced
during the first quarter of 2000, the Company anticipates sequential revenue
growth to continue for the remainder of 2000.
The gross margin for the first quarter of 2000 was 74%, compared to 68% for
the first quarter in 1999. The increase in the gross margin is due primarily
to manufacturing efficiencies that resulted from a significant increase in
product sales without a corresponding increase in manufacturing overhead.
Research, development, and engineering expenses for the first quarter of 2000
were $7,312,000, compared to $6,534,000 for the first quarter of 1999. The
increase of $778,000, or 12%, is due primarily to higher personnel-related
costs to support the Company's continued investment in the development of new
and existing products. Expenses as a percentage of revenue declined from 24%
in 1999 to 13% in 2000 as a result of revenue increasing at a faster rate
than spending. The Company anticipates that aggregate expenses will continue
to increase in 2000 due to planned continuing investment in product
development.
Selling, general, and administrative expenses for the first quarter of 2000
were $12,639,000, compared to $9,768,000 for the first quarter in 1999. The
increase of $2,871,000, or 29%, is due primarily to higher personnel-related
costs to support the Company's expanding worldwide operations. Expenses as a
percentage of revenue declined from 36% in 1999 to 23% in 2000 as a result of
revenue increasing at a faster rate than spending. The Company anticipates
that aggregate expenses will continue to increase in 2000 due to additional
resources required to support the anticipated higher level of demand and to
further penetrate the end-user market.
Investment income for the first quarter of 2000 was $1,821,000, compared to
$1,578,000 for the first quarter in 1999. The increase of $243,000, or 15%,
is due primarily to a higher average invested cash balance in 2000.
The Company's effective tax rate for the first quarter of 2000 was 32%,
compared to 26% for the first quarter of 1999. The increase in the effective
tax rate is due primarily to the higher operating income in 2000 and the
diminishing effect of tax-free investment income.
7
<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements during the first quarter of 2000 were met
through cash generated from operations. Cash and investments increased
$12,862,000 from December 31, 1999 primarily as a result of $15,240,000 of
cash generated from operations and $11,069,000 of proceeds from the issuance
of common stock under stock option plans, offset by $11,200,000 of cash paid
for the machine vision business of Komatsu Ltd. Capital expenditures for the
first quarter of 2000 totaled $1,633,000 and consisted primarily of
expenditures for computer hardware and software, as well as expenditures for
furniture and leasehold improvements to expand the company's facilities in
Japan.
The Company believes that its existing cash and investments balance, together
with cash generated from operations, will be sufficient to meet the Company's
planned working capital and capital expenditure requirements through 2000,
including existing and potential future business acquisitions.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101 sets forth guidelines for accounting and disclosures
related to revenue recognition. SAB No. 101 does not require registrants that
have not applied this accounting to restate prior financial statements,
provided they report a change in accounting principle in accordance with
Accounting Principles Board Opinion No. 20, "Accounting Changes," no later
than the second quarter of the fiscal year beginning after December 15, 1999.
The Company does not expect the application of SAB No. 101 to have a material
impact on its results of operations or financial position.
In March 2000, the Financial Accounting Standards Board issued Interpretation
No. 44, "Accounting for Certain Transactions Involving Stock Compensation -
an interpretation of Accounting Principles Board (APB) Opinion No. 25" (FIN
44). FIN 44 clarifies the application of APB Opinion No. 25 including: the
definition of an employee for purposes of applying APB Opinion No. 25, the
criteria for determining whether a plan qualifies as a noncompensatory plan,
the accounting consequence of various modifications to the terms of
previously fixed stock options or awards, and the accounting for an exchange
of stock compensation awards in a business combination. FIN 44 is effective
July 1, 2000, but certain conclusions in FIN 44 cover specific events that
occurred after either December 15, 1998 or January 12, 2000. The Company does
not expect the application of FIN 44 to have a material impact on its results
of operations or financial position.
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," "projects," "intends," "plans," and
similar words and other statements of similar sense, are forward-looking
statements. These statements are based on the Company's current expectations
and estimates as to prospective events and circumstances, which may or may
not be in the Company's control and as to which there can be no firm
assurances given. These forward-looking statements, like any other
forward-looking statements, involve risks and uncertainties that could cause
actual results to differ materially from those projected or anticipated. Such
risks and uncertainties include (1) the loss of, or a significant curtailment
of purchases by, any one or more principal customers; (2) the cyclicality of
the semiconductor and electronics industries; (3) the Company's continued
ability to achieve significant international revenue; (4) 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 12, 2000 COGNEX CORPORATION
/s/ Richard A. Morin
--------------------------------------------
Richard A. Morin
Vice President of Finance, Chief Financial
Officer, and Treasurer
(principal financial and accounting officer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS LEGEND CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
CONSOLIDATED FINANCIAL STATEMENTS OF COGNEX CORPORATION FOR THE QUARTER ENDED
APRIL 2, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B)
CONSOLIDATED FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> DEC-31-1999
<PERIOD-END> APR-02-2000
<CASH> 52,746,000
<SECURITIES> 177,063,000
<RECEIVABLES> 34,786,000
<ALLOWANCES> 2,569,000
<INVENTORY> 12,526,000
<CURRENT-ASSETS> 289,231,000
<PP&E> 58,932,000
<DEPRECIATION> 26,767,000
<TOTAL-ASSETS> 347,651,000
<CURRENT-LIABILITIES> 37,106,000
<BONDS> 0
0
0
<COMMON> 90,000
<OTHER-SE> 309,736,000
<TOTAL-LIABILITY-AND-EQUITY> 347,651,000
<SALES> 54,495,000
<TOTAL-REVENUES> 54,495,000
<CGS> 13,918,000
<TOTAL-COSTS> 13,918,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 22,665,000
<INCOME-TAX> 7,253,000
<INCOME-CONTINUING> 15,412,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,412,000
<EPS-BASIC> 0.36
<EPS-DILUTED> 0.34
</TABLE>
