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 April 1, 2001 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 29, 2001, there were 43,507,270 shares of Common Stock, $.002
par value, of the registrant outstanding.
Total number of pages: 12
Exhibit index is located on page 11
================================================================================
2
INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income for the three months ended April 1,
2001 and April 2, 2000
Consolidated Balance Sheets at April 1, 2001 and December 31, 2000
Consolidated Statement of Stockholders' Equity for the three months
ended April 1, 2001
Consolidated Condensed Statements of Cash Flows for the three months
ended April 1, 2001 and April 2, 2000
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
3
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
COGNEX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
THREE MONTHS ENDED
APRIL 1, APRIL 2,
2001 2000
-------- --------
(UNAUDITED)
Revenue ......................................................... $44,206 $54,495
Cost of revenue ................................................. 12,792 13,918
------- -------
Gross profit .................................................... 31,414 40,577
Research, development, and engineering expenses ................. 8,182 7,283
Selling, general, and administrative expenses ................... 18,438 12,578
Amortization of goodwill ........................................ 777 90
------- -------
Operating income ................................................ 4,017 20,626
Investment income ............................................... 2,718 1,821
Other income .................................................... 267 218
------- -------
Income before provision for income taxes ........................ 7,002 22,665
Provision for income taxes ...................................... 2,241 7,253
------- -------
Net income ...................................................... $ 4,761 $15,412
======= =======
Net income per common and common-equivalent share:
Basic ....................................................... $ .11 $ .36
======= =======
Diluted ..................................................... $ .11 $ .34
======= =======
Weighted-average common and common-equivalent shares outstanding:
Basic ....................................................... 43,463 42,409
======= =======
Diluted ..................................................... 44,916 45,645
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
1
4
COGNEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
APRIL 1, DECEMBER 31,
2001 2000
-------- ------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents .......................................... $ 42,935 $ 42,925
Short-term investments ............................................. 85,128 85,429
Accounts receivable, less reserves of $2,156 and $2,150 in 2001 and
2000, respectively .............................................. 25,290 47,031
Inventories ........................................................ 34,476 27,664
Deferred income taxes .............................................. 7,645 7,741
Prepaid expenses and other current assets .......................... 10,552 8,950
--------- ---------
Total current assets ........................................... 206,026 219,740
Long-term investments ................................................... 157,356 149,386
Property, plant, and equipment, net ..................................... 34,295 34,012
Deferred income taxes ................................................... 6,949 6,903
Other assets ............................................................ 24,273 26,100
--------- ---------
$ 428,899 $ 436,141
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................... $ 5,774 $ 10,127
Accrued expenses ................................................... 17,112 22,953
Accrued income taxes ............................................... 7,591 9,202
Customer deposits .................................................. 3,011 3,074
Deferred revenue ................................................... 6,208 6,471
--------- ---------
Total current liabilities ...................................... 39,696 51,827
--------- ---------
Other liabilities ....................................................... 332 365
Stockholders' equity:
Common stock, $.002 par value -
Authorized: 140,000,000 shares, issued: 45,848,979 and 45,787,568
shares in 2001 and 2000, respectively ........................... 92 92
Additional paid-in capital ......................................... 164,637 163,815
Treasury stock, at cost, 2,365,332 shares in 2001 and 2000 ......... (42,675) (42,675)
Retained earnings .................................................. 269,925 265,164
Accumulated other comprehensive loss ............................... (3,108) (2,447)
--------- ---------
Total stockholders' equity ..................................... 388,871 383,949
--------- ---------
$ 428,899 $ 436,141
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
2
5
COGNEX CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars in Thousands)
ACCUMULATED
COMMON STOCK ADDITIONAL TREASURY STOCK OTHER TOTAL
------------------- PAID-IN ----------------- RETAINED COMPREHENSIVE COMPREHENSIVE STOCKHOLDERS'
SHARES PAR VALUE CAPITAL SHARES COST EARNINGS LOSS INCOME EQUITY
------ --------- ---------- ------ ---- -------- ------------- ------------- ------------
Balance at
December 31, 2000... 45,787,568 $ 92 $ 163,815 2,365,332 $ (42,675) $ 265,164 $ (2,447) $ 383,949
Issuance of common
stock under
stock option
plans ........... 61,411 822 822
Comprehensive
income:
Net income .... 4,761 4,761 4,761
Unrealized loss
on investments,
net of tax..... (248) (248) (248)
Foreign currency
translation
adjustment..... (413) (413) (413)
-------
Comprehensive
income ........ $ 4,100
---------- ---- --------- --------- --------- --------- -------- ======= ---------
Balance at
April 1, 2001
(unaudited)....... 45,848,979 $ 92 $ 164,637 2,365,332 $ (42,675) $ 269,925 $ (3,108) $ 388,871
========== ==== ========= ========= ========= ========= ======== =========
The accompanying notes are an integral part of these consolidated financial
statements.
3
6
COGNEX CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
THREE MONTHS ENDED
APRIL 1, APRIL 2,
2001 2000
-------- --------
(UNAUDITED)
Cash flows from operating activities:
Net income ................................................ $ 4,761 $ 15,412
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ........................... 3,369 2,413
Tax benefit from exercise of stock options .............. 6,500
Change in current assets and current liabilities ........ 468 (8,272)
Other ................................................... 91 (813)
-------- --------
Net cash provided by operating activities ................. 8,689 15,240
-------- --------
Cash flows from investing activities:
Purchase of investments ................................... (25,622) (33,512)
Maturity of investments ................................... 16,976 24,206
Purchase of property, plant, and equipment ................ (2,397) (1,633)
Cash paid for business and technology acquisitions,
net of cash acquired ................................... (11,263)
-------- --------
Net cash used in investing activities ..................... (11,043) (22,202)
-------- --------
Cash flows from financing activities:
Issuance of common stock under stock option plans ......... 822 11,069
-------- --------
Net cash provided by financing activities ................. 822 11,069
-------- --------
Effect of exchange rate changes on cash ........................ 1,542 (26)
-------- --------
Net increase in cash and cash equivalents ...................... 10 4,081
Cash and cash equivalents at beginning of period ............... 42,925 48,665
-------- --------
Cash and cash equivalents at end of period ..................... $ 42,935 $ 52,746
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
4
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, 2000.
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 1, 2001, and the results
of its operations for the three months ended April 1, 2001 and April 2,
2000, and changes in stockholders' equity and cash flows for the periods
presented.
The results disclosed in the Consolidated Statements of Income for the
three months ended April 1, 2001 are not necessarily indicative of the
results to be expected for the full year.
INVENTORIES
Inventories consist of the following:
(In thousands) APRIL 1, DECEMBER 31,
2001 2000
-------- ------------
(UNAUDITED)
Raw materials ......................... $14,064 $14,263
Work-in-process........................ 5,011 5,789
Finished goods ........................ 15,401 7,612
------- -------
$34,476 $27,664
======= =======
5
8
COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NET INCOME PER SHARE
Net income per share is calculated as follows:
(In thousands) THREE MONTHS ENDED
APRIL 1, APRIL 2,
2001 2000
-------- --------
(UNAUDITED)
Net income ................................................................. $ 4,761 $15,412
======= =======
Basic:
------
Weighted-average common shares outstanding ............................. 43,463 42,409
======= =======
Net income per common share ............................................ $ .11 $ .36
======= =======
Diluted:
--------
Weighted-average common shares outstanding ............................. 43,463 42,409
Effect of dilutive securities:
Stock options ....................................................... 1,453 3,236
------- -------
Weighted-average common and common-equivalent shares outstanding........ 44,916 45,645
======= =======
Net income per common and common-equivalent share ...................... $ .11 $ .34
======= =======
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
In June of 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in
the fair value of derivatives are recorded each period in current earnings or
other comprehensive income, depending on whether a derivative is designated as
part of a hedge transaction and, if it is, the type of hedge transaction. The
Company adopted the provisions of SFAS No. 133 effective January 1, 2001. The
impact of adopting SFAS No. 133 was immaterial to the Company.
FOREIGN EXCHANGE RISK MANAGEMENT
In the quarter ended April 1, 2001, the Company entered into forward exchange
contracts to hedge a portion of its probable anticipated, but not firmly
committed transactions. The anticipated transactions whose risks were being
hedged were the intercompany sales of inventory by the US parent to the foreign
subsidiary payable in the foreign subsidiary's local currency. These contracts,
which related primarily to the Japanese Yen, generally had a time period of six
months. Realized and unrealized gains and losses on forward exchange contracts
that do not qualify for hedge accounting are recognized immediately in
earnings. As of April 1, 2001, the total loss incurred for this transaction was
$354,000 which did not qualify as a hedge.
The Company uses forward exchange contracts to hedge firm commitments. The
transactions being hedged were net investments in two separate European
subsidiaries. Market value gains and losses on forward contracts hedging firm
commitments will be recognized when the hedged transaction occurs.
6
9
These contracts, which related primarily to the Euro currency, generally have a
maximum term of two years. Forward exchange contracts receive hedge accounting
on firmly committed transactions when they are designated as a hedge of the
designated currency exposure and are effective in minimizing such exposure.
Forward exchange contracts, that qualify for hedge accounting, with notional
amounts of $9,700,000 and $6,800,000 to exchange Euros for US dollars were
outstanding as of April 1, 2001. For the quarter ended April 1, 2001, the
Company recorded a cumulative unrealized gain of $1,354,000, related to these
foreign exchange contracts, in other comprehensive income. This amount offsets
the foreign exchange impact (the hedged transaction) which resulted in
unrealized foreign exchange losses of $1,182,000 for the quarter ended April 1,
2001.
The market risk exposure from forward exchange contracts is assessed in light
of the underlying currency exposures and is controlled by the initiation of
additional or offsetting foreign currency contracts.
7
10
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Revenue for the first quarter of 2001 decreased 19% to $44,206,000 from
$54,495,000 for the first quarter of 2000. Comparing consecutive quarters,
revenue decreased 33% from the fourth quarter of 2000. As compared to both
the first quarter of 2000 and the fourth quarter of 2000, the Company's
results were negatively impacted by the worldwide slowdown in capital
equipment spending by manufacturers in the semiconductor and electronics
industries. Sales to Original Equipment Manufacturers (OEM) customers, most
of whom make capital equipment used by manufacturers in the these
industries, decreased $7,593,000, or 23%, from the first quarter of 2000
and $17,694,000, or 40%, from the fourth quarter of 2000. Sales to end-user
customers decreased $2,696,000, or 13%, from the first quarter of 2000 and
$4,184,000, or 19%, from the fourth quarter of 2000, primarily due to lower
demand from customers who make electronic products.
The Company anticipates that its results for the second quarter of 2001
will continue to be negatively impacted by the worldwide slowdown in
capital equipment spending, primarily in the semiconductor and electronics
industries. Accordingly, the Company anticipates that its revenue for the
second quarter of 2001 will be approximately 10% to 15% lower than that
reported in the first quarter of 2001. The Company has limited visibility
to customer demand beyond the second quarter of 2001. The Company has
implemented a number of cost-containment measures, including a restricted
hiring plan and a reduction in discretionary spending, to more closely
align expenses to the anticipated lower revenue level.
Gross profit as a percentage of revenue for the first quarter of 2001 was
71% compared to 74% and 75% for the first quarter of 2000 and the fourth
quarter of 2000, respectively. The decrease in the gross margin was due
primarily to the impact of the lower sales volume and fixed manufacturing
costs in the first quarter of 2001. The gross margin is expected to
continue to decrease in the second quarter of 2001 due to the anticipated
lower revenue for that quarter.
Research, development, and engineering expenses for the first quarter of
2001 were $8,182,000 compared to $7,283,000 and $9,710,000 for the first
quarter of 2000 and the fourth quarter of 2000, respectively. The increase
of $899,000, or 12%, from the first quarter of 2000 was due primarily to
higher personnel-related costs to support the Company's continued
investment in the research and development of new and existing products.
Included in the higher personnel-related costs are the expenses associated
with the additional employees from the three acquisitions completed during
2000. The decrease of $1,528,000, or 16%, from the fourth quarter of 2000
was due primarily to bonus and recruiting expenses in the fourth quarter of
2000 that did not recur in the first quarter of 2001, as well as costs
related to the timing of product development efforts. Expenses as a
percentage of revenue were 19% for the first quarter of 2001 compared to
13% and 15% for the first quarter of 2000 and the fourth quarter of 2000,
respectively. The increase in expenses as a percentage of revenue was a
result of the lower revenue base in 2001. The Company plans to continue its
product development efforts, and therefore, anticipates that aggregate
expenses for the remainder of 2001 will continue at the level experienced
in the first quarter.
Selling, general, and administrative expenses for the first quarter of 2001
were $18,438,000 compared to $12,578,000 and $18,602,000 for the first
quarter of 2000 and the fourth quarter of 2000, respectively. The increase
of $5,860,000, or 47%, from the first quarter of 2000 was due primarily to
higher personnel-related costs to support the Company's expanding worldwide
operations and grow its end-user business. Included in the higher
personnel-related costs are the expenses associated with the additional
employees from the three acquisitions completed during 2000. The decrease
of $164,000, or 1%, from the fourth quarter of 2000 was due primarily to
bonus and recruiting expenses in the fourth
8
11
quarter of 2000 that did not recur in the first quarter of 2001, as well as
lower marketing and travel and entertainment costs. Expenses as a
percentage of revenue were 42% for the first quarter of 2001 compared to
23% and 28% for the first quarter of 2000 and the fourth quarter of 2000,
respectively. The increase in expenses as a percentage of revenue was a
result of the lower revenue base in 2001. The Company expects to realize
most of the benefits from its cost-containment measures in S,G&A, and
therefore, anticipates that aggregate expenses for the remainder of 2001
will be lower than the level experienced in the first quarter.
Amortization of goodwill for the first quarter of 2001 was $777,000
compared to $90,000 for the same period in 2000. The increase in
amortization expense was due to goodwill associated with the three
acquisitions completed during 2000.
Investment income for the first quarter of 2001 was $2,718,000 compared to
$1,821,000 for the same period in 2000, representing a 49% increase. The
increase in investment income was primarily due to higher average interest
rates on the Company's portfolio of investments, which consists principally
of debt securities, as well as a higher average invested cash balance in
2001.
The Company's effective tax rate was 32% for both the first quarter of 2001
and the first quarter of 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements during the first quarter of 2001 were met
through cash generated from operations. Cash and investments increased
$7,679,000 from December 31, 2000 primarily as a result of $8,689,000 of
cash generated from operations, partially offset by $2,397,000 of capital
expenditures, principally for computer hardware.
On December 12, 2000, the Company's Board of Directors authorized the
repurchase of up to $100,000,000 of the Company's common stock. As of April
1, 2001, the Company had not repurchased any shares under this program.
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, investing, and financing
requirements through 2001, including the Company's stock repurchase program
and potential business acquisitions.
9
12
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) the capital spending trends by manufacturing
companies; (5) the inability to protect the Company's proprietary
technology and intellectual property; (6) the inability to attract or
retain skilled employees; (7) the technological obsolescence of current
products and the inability to develop new products; (8) the inability to
respond to competitive technology and pricing pressures; and (9) the
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.
10
13
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
None
(b) Reports on Form 8-K
None
11
14
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 11, 2001 COGNEX CORPORATION
/s/ Richard A. Morin
--------------------------------
Richard A. Morin
Vice President of Finance, Chief Financial
Officer, and Treasurer
(duly authorized officer, principal financial
and accounting officer)
12