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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
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Exchange Act of 1934 for the quarterly period ended SEPTEMBER 29, 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
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COGNEX CORPORATION
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(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2713778
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE VISION DRIVE
NATICK, MASSACHUSETTS 01760-2059
(508) 650-3000
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(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
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As of October 27, 1996, there were 40,770,858 shares of Common Stock, $.002
par value, of the registrant outstanding.
Total number of pages: 12
Exhibit index is located on page 10
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INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income for the three and nine months
ended September 29, 1996 and October 1, 1995
Consolidated Balance Sheets at September 29, 1996 and December 31,
1995
Consolidated Statement of Stockholders' Equity for the nine months
ended September 29, 1996
Consolidated Statements of Cash Flows for the nine months ended
September 29, 1996 and October 1, 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
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PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
COGNEX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 29, OCTOBER 1, SEPTEMBER 29, OCTOBER 1,
1996 1995 1996 1995
------------- ---------- -------------- ----------
(UNAUDITED) (UNAUDITED)
Revenue .......................................... $26,540 $29,784 $96,376 $72,943
Cost of revenue .................................. 12,297 6,535 31,094 15,723
------- ------- ------- -------
Gross margin ..................................... 14,243 23,249 65,282 57,220
Research, development and engineering expenses ... 4,978 3,495 14,538 9,284
Selling, general and administrative expenses ..... 6,352 6,335 19,571 17,216
Charge for acquired in-process technology ........ 10,189 10,189
------- ------- ------- -------
Income from operations ........................... 2,913 3,230 31,173 20,531
Other income ..................................... 1,314 598 3,657 1,898
------- ------- ------- -------
Income before provision for income taxes ......... 4,227 3,828 34,830 22,429
Provision for income taxes ....................... 983 4,461 10,623 9,948
------- ------- ------- -------
Net income/(loss) ................................ $ 3,244 $ (633) $24,207 $12,481
======= ======= ======= =======
Net income/(loss) per share ...................... $ .08 $ (.02) $ .55 $ .30
======= ======= ======= =======
Weighted average common and common
equivalent shares outstanding ................. 43,203 38,192 43,854 41,576
======= ======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
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COGNEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
SEPTEMBER 29, DECEMBER 31,
1996 1995
------------- ------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents ................................ $ 44,420 $ 23,911
Investments .............................................. 81,395 66,729
Accounts receivable, less reserves of $928 and
$709 in 1996 and 1995, respectively ................... 16,908 24,312
Inventories .............................................. 8,251 12,567
Deferred contract costs .................................. 3,471
Deferred income taxes .................................... 3,526 1,811
Prepaid expenses and other ............................... 4,902 6,463
-------- --------
Total current assets .................................. 162,873 135,793
-------- --------
Property, plant and equipment, net .......................... 26,260 22,133
Other assets ................................................ 3,748 4,169
Deferred income taxes ....................................... 55 77
-------- --------
$192,936 $162,172
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ......................................... $ 1,617 $ 2,775
Accrued expenses ......................................... 7,759 9,333
Accrued income taxes ..................................... 2,530 3,111
Customer deposits ........................................ 2,353 867
Deferred revenue ......................................... 981 305
-------- --------
Total current liabilities ............................. 15,240 16,391
-------- --------
Other liabilities ........................................... 1,646 1,865
Stockholders' equity:
Common stock, $.002 par value -
Authorized: 120,000,000 shares, issued:
40,845,776 and 39,039,675 shares in 1996 and
1995, respectively .................................... 82 78
Additional paid-in capital ............................... 77,140 71,171
Cumulative translation adjustment ........................ 47 40
Retained earnings ........................................ 99,670 73,516
Treasury stock, at cost, 80,918 shares in 1996 and 1995 .. (889) (889)
-------- --------
Total stockholders' equity ............................ 176,050 143,916
-------- --------
$192,936 $162,172
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
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COGNEX CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
COMMON STOCK ADDITIONAL CUMULATIVE TREASURY STOCK TOTAL
--------------------- PAID-IN TRANSLATION RETAINED ---------------- STOCKHOLDERS'
SHARES PAR VALUE CAPITAL ADJUSTMENT EARNINGS SHARES COST EQUITY
---------- --------- ---------- ----------- -------- ------ ----- ------------
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 . 474,174 1 2,028 2,029
Amortization of deferred
compensation .............. 15 15
Tax benefit from exercise
of stock options .......... 1,457 1,457
Translation adjustment ...... 7 7
Net income .................. 24,207 24,207
---------- --- ------- --- ------- ------ ----- --------
Balance at September 29,
1996 (unaudited) ............ 40,845,776 $82 $77,140 $47 $99,670 80,918 $(889) $176,050
========== === ======= === ======= ====== ===== ========
The accompanying notes are an integral part of these consolidated financial
statements.
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COGNEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
NINE MONTHS ENDED
SEPTEMBER 29, OCTOBER 1,
1996 1995
------------- ----------
(UNAUDITED)
Cash flows from operating activities:
Net income ................................................ $ 24,207 $ 12,481
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ........................... 3,737 2,206
Loss on disposition of property, plant and equipment .... 97 56
Provision for inventory obsolescence .................... 3,380
Charge for acquired in-process technology ............... 10,189
Tax benefit from exercise of stock options .............. 1,457 6,317
Deferred income tax provision ........................... (1,717) (49)
Change in other current assets and current liabilities .. 9,028 (15,776)
-------- --------
Net cash provided by operating activities ................. 40,189 15,424
-------- --------
Cash flows from investing activities:
Purchase of investments ................................... (46,256) (60,919)
Maturity and sale of investments .......................... 31,590 23,131
Purchase of property, plant and equipment ................. (6,842) (8,436)
Cash payments related to acquisition of Acumen, Inc.,
net of cash assumed in 1995 ............................. (1,277) (6,146)
Cash assumed in acquisition of Isys Controls, Inc. ........ 918
Other ..................................................... (30) (46)
-------- --------
Net cash used in investing activities ..................... (21,897) (52,416)
-------- --------
Cash flows from financing activities:
Issuance of stock under stock option, stock
purchase, and bonus plans ............................... 2,029 3,301
-------- --------
Net cash provided by financing activities ................. 2,029 3,301
-------- --------
Effect of exchange rate changes on cash ...................... 188 104
-------- --------
Net increase/(decrease) in cash and cash equivalents ......... 20,509 (33,587)
Cash and cash equivalents at beginning of period ............. 23,911 56,326
-------- --------
Cash and cash equivalents at end of period ................... $ 44,420 $ 22,739
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
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COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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Basis of Presentation
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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 necessary to
present fairly the Company's financial position at September 29, 1996,
and the results of operations for the three and nine months ended
September 29, 1996, and changes in stockholders' equity and cash flows
for the nine months ended September 29, 1996.
The results disclosed in the Consolidated Statements of Income for the
three and nine months ended September 29, 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/(Loss) 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. Net loss per share is calculated based on the weighted average
number of common shares outstanding during the period. Common equivalent
shares of 3,892,794 have not been included in the loss period, as such
amounts would be antidilutive.
INVENTORIES
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Inventories consist of the following:
(In thousands)
SEPTEMBER 29, DECEMBER 31,
1996 1995
------------- ------------
(UNAUDITED)
Raw materials...................................... $4,407 $ 6,340
Work-in-process.................................... 2,228 4,468
Finished goods..................................... 1,616 1,759
------ -------
$8,251 $12,567
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COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INVENTORIES (continued)
- - -----------------------
In the third quarter of 1996, the Company recorded a $4,231,000 inventory
charge to "Cost of Goods Sold." The charge is due primarily to the slowdown in
the semiconductor and electronics industries and reflects anticipated costs
associated with excess inventories resulting from reduced production plans
caused by the slowdown and product transition plans over the next year.
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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
acquisition was accounted for as a pooling of interests transaction. The
results of operations of Isys for the full nine-month period ended September
29, 1996 are included in the Company's results. The results of operations of
Isys for the three-month and nine-month periods ended October 1, 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 nine-month periods ended September 29, 1996
totaled $26,540,000 and $96,376,000, respectively, compared to $29,784,000 and
$72,943,000 for the same periods in 1995, representing an 11% decrease for the
three-month period and a 32% increase for the nine-month period. Sales to
customers based in the United States, which grew to 49% and 45% of revenue in
the three-month and nine-month periods in 1996 compared to 41% of revenue in
the same periods in 1995, increased $841,000 or 7% over the three-month period
in 1995 and increased $13,144,000 or 44% over the nine-month period in 1995.
Sales to customers based in Japan decreased $4,670,000 or 34% over the
three-month period in 1995 and increased $5,763,000 or 17% over the nine-month
period in 1995. Sales to customers based in Europe increased $457,000 or 13%
over the three-month period in 1995 and increased $3,461,000 or 41% over the
nine-month period in 1995.
The decrease in worldwide revenue for the three-month period ended September
29, 1996 over the comparable period in 1995 is due primarily to decreased
volume from Original Equipment Manufacturer ("OEM") customers serving the
semiconductor and electronics industries and located principally in the United
States and Japan. Sales to OEM customers decreased $5,388,000 or 24% over the
three-month period in 1995. The decreased volume from OEM customers was
partially offset by increased volume from factory floor customers. Sales to
factory floor customers increased $2,144,000 or 28% over the three-month
period in 1995 and grew to 36% of revenue in the third quarter of 1996 from
25% of revenue in the third quarter of 1995.
The increase in worldwide revenue for the nine-month period ended September
29, 1996 over the comparable period in 1995 is due primarily to increased
volume during the first half of 1996 from OEM customers and increased volume
during the full nine-month period in 1996 from factory floor customers. Sales
to OEM customers increased $8,117,000 or 14% over the nine-month period in
1995. Sales to factory floor customers increased $15,316,000 or 91% over the
nine-month period in 1995 and grew to 33% of revenue in the first nine months
of 1996 from 23% of revenue in the first nine months of 1995.
The increased volume reflects sales of products totaling $3,020,000 or 11% of
revenue and $9,446,000 or 10% of revenue in the three-month and nine-month
periods ended September 29, 1996, respectively, resulting from the Company's
acquisition of Isys in the first quarter of 1996.
The declining revenue growth rate experienced in the third quarter of 1996
over the prior year is expected to continue over the next several quarters due
to the slowdown in the semiconductor and electronics industries, from which
the Company either directly or indirectly derives a significant amount of its
revenue.
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Gross margin for the three-month and nine-month periods ended September 29,
1996 was 54% and 68%, respectively, compared to 78% for the same periods in
1995. Gross margin for the third quarter of 1996 included a $4,231,000
inventory charge to "Cost of Goods Sold" which reduced the margin by
16% points for the quarter and 4% points for the year-to-date. The charge is
due primarily to the slowdown in the semiconductor and electronics industries
and reflects anticipated costs associated with excess inventories resulting
from reduced production plans caused by the slowdown and product transition
plans over the next year.
Excluding the inventory charge, gross margin for the three-month and
nine-month periods ended September 29, 1996 was 70% and 72%, respectively,
compared to 78% for the same periods in 1995. The decrease in gross margin
excluding the inventory charge 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, underabsorbed manufacturing costs
resulting from reduced production plans, and increased warranty reserves.
Gross margins for the remainder of 1996 are expected to increase slightly from
the third quarter's results, excluding the inventory charge.
Research, development and engineering expenses for the three-month and
nine-month periods ended September 29, 1996 totaled $4,978,000 and
$14,538,000, respectively, compared to $3,495,000 and $9,284,000 for the same
periods in 1995, representing a 42% increase for the three-month period and
57% increase for the nine-month period. Expenses as a percentage of revenue
were 19% and 15% in the three-month and nine-month periods in 1996 compared to
12% and 13% in the same periods in 1995. The increase in aggregate expenses is
due primarily to higher personnel-related costs to support the Company's
investment in the research and development of new and existing products, in
addition to costs associated with the discontinuance of a joint technology
project with a manufacturer of specialized optics. The increase in expenses as
a percentage of revenue is due primarily to the declining revenue base.
Selling, general and administrative expenses for the three-month and
nine-month periods ended September 29, 1996 totaled $6,352,000 and
$19,571,000, respectively, compared to $6,335,000 and $17,216,000 for the same
periods in 1995, representing no percentage increase for the three-month
period and a 14% increase for the nine-month period. Expenses as a percentage
of revenue were 24% and 20% in the three-month and nine-month periods in 1996
compared to 21% and 24% in the same periods in 1995. The increase in aggregate
expenses is due primarily to higher personnel-related costs, both domestically
and internationally, to support the Company's worldwide operations, in
addition to increased bad debt reserves. Quarter-on-quarter, the increased
expenses were offset by lower foreign exchange losses in the third
quarter of 1996.
In July 1995, the Company acquired Acumen, Inc. ("Acumen"), a developer of
machine vision systems for semiconductor wafer identification, for
approximately $14,000,000. The acquisition was accounted for as a purchase
transaction. $10,189,000 of the purchase price was allocated to in-process
technology which was expensed in the third quarter of 1995.
Other income for the three-month and nine-month periods ended September 29,
1996 totaled $1,314,000 and $3,657,000, respectively, compared to $598,000 and
$1,898,000 for the same periods in 1995, representing an 120% increase in the
three-month period and a 93% increase in the nine-month period. The increase
in other income is due primarily to an increase in interest income resulting
from a higher investment base in 1996.
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The Company's effective tax rate for the three-month and nine-month periods
ended September 29, 1996 was 23.3% and 30.5%, respectively, compared to 31.8%
and 30.5% for the same periods in 1995, excluding the impact of a $10,189,000
charge for acquired in-process technology in the third quarter of 1995 which
had no associated tax benefit. The effective tax rate of 23.3% for the third
quarter of 1996 reflects an adjustment to bring the year-to-date effective tax
rate to 30.5% due primarily to the reinstatement of the federal research and
experimentation credit.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company's cash requirements during the nine-month period ended September
29, 1996 were met through cash generated from operations. Working capital at
September 29, 1996 was $147,633,000, an increase of $28,231,000 from the
working capital balance at December 31, 1995. Cash and investments increased
$35,175,000 from December 31, 1995 primarily as a result of $40,189,000 of
cash generated from operations, offset by $6,842,000 of capital expenditures.
Cash generated from operations consists of net income, adjusted primarily for
the effects of depreciation and amortization, increased inventory obsolescence
reserves, and changes in current assets and current liabilities, most notably
a decrease in accounts receivable.
Capital expenditures for the nine-month period ended September 29, 1996
totaled $6,842,000, all of which were funded from cash generated from
operations. Capital requirements consist primarily of expenditures for
computer hardware and software equipment, along with expenditures related to a
50,000 square-foot expansion of the Company's corporate headquarters. Future
cash requirements related to the expansion are anticipated to approximate
$3,000,000, the majority of which is expected to be paid out through the first
quarter of 1997 with anticipated funding from cash generated from operations.
However, since the Company's planned hiring over the next several quarters is
substantially less than anticipated when construction commenced, occupancy of
this additional space, along with the related operating costs, will be delayed
until the additional space is needed, which is anticipated to be late 1997 or
early 1998.
In July 1995, the Company acquired Acumen for approximately $14,000,000. The
purchase price included $8,452,000 in cash, $755,000 of which, at September
29, 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.
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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
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
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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: November 8, 1996 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)
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