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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 SEPTEMBER 28, 1997
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 October 26, 1997 there were 41,662,675 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 28, 1997 and September 29, 1996
Consolidated Balance Sheets at September 28, 1997 and December 31,
1996
Consolidated Statement of Stockholders' Equity for the nine months
ended September 28, 1997
Consolidated Statements of Cash Flows for the nine months ended
September 28, 1997 and September 29, 1996
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 28, SEPTEMBER 29, SEPTEMBER 28, SEPTEMBER 29,
1997 1996 1997 1996
------------- ------------ ------------- ------------
(UNAUDITED) (UNAUDITED)
Revenue................................................... $ 43,936 $26,540 $108,350 $96,376
Cost of revenue........................................... 11,460 12,297 29,095 31,094
-------- ------- -------- -------
Gross margin.............................................. 32,476 14,243 79,255 65,282
Research, development and engineering expenses............ 5,717 4,978 16,242 14,538
Selling, general and administrative expenses.............. 9,668 6,352 26,003 19,571
Charge for acquired in-process technology................. 3,115 3,115
-------- ------- -------- -------
Income from operations.................................... 13,976 2,913 33,895 31,173
Investment and other income............................... 1,768 1,314 4,674 3,657
-------- ------- -------- -------
Income before provision for income taxes.................. 15,744 4,227 38,569 34,830
Provision for income taxes................................ 4,803 983 11,765 10,623
-------- ------- -------- -------
Net income................................................ $ 10,941 $ 3,244 $ 26,804 $24,207
======== ======= ======== =======
Net income per share...................................... $ .24 $ .08 $ .60 $ .55
======== ======= ======== =======
Weighted-average common and common equivalent shares
outstanding........................................... 45,149 43,203 44,632 43,854
======== ======= ======== =======
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 28, DECEMBER 31,
1997 1996
------------- ------------
(UNAUDITED)
ASSETS
Current assets:
Cash and investments................................................... $154,043 $134,000
Accounts receivable, less reserves of $1,618 and $968 in 1997 and 1996,
respectively ....................................................... 31,562 18,809
Revenue in excess of billings ......................................... 2,605 3,379
Inventories ........................................................... 8,158 7,013
Prepaid expenses and other ............................................ 11,440 6,187
-------- --------
Total current assets .............................................. 207,808 169,388
-------- --------
Property, plant and equipment, net ......................................... 31,847 28,331
Other assets ............................................................... 3,667 3,534
-------- --------
$243,322 $201,253
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ...................................................... $ 4,013 $ 3,652
Accrued expenses ...................................................... 13,460 7,007
Accrued income taxes .................................................. 185 2,029
Customer deposits ..................................................... 3,097 2,596
Deferred revenue ...................................................... 1,477 1,287
-------- --------
Total current liabilities ......................................... 22,232 16,571
-------- --------
Other liabilities .......................................................... 1,396 1,993
Stockholders' equity:
Common stock, $.002 par value -
Authorized: 120,000,000 shares, issued: 41,731,231 and 40,914,166
shares in 1997 and 1996, respectively .............................. 83 82
Additional paid-in capital ............................................ 88,094 77,569
Cumulative translation adjustment ..................................... 82 95
Retained earnings ..................................................... 132,636 105,832
Treasury stock, at cost, 94,467 and 80,918 shares in 1997 and 1996,
respectively ....................................................... (1,201) (889)
-------- --------
Total stockholders' equity ........................................ 219,694 182,689
-------- --------
$243,322 $201,253
======== ========
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, 1996........ 40,914,166 $82 $77,569 $ 95 $105,832 80,918 $ (889) $182,689
Issuance of stock under stock
option and stock purchase plans.. 817,065 1 4,585 4,586
Tax benefit from exercise of
stock options.................... 5,940 5,940
Common stock received for payment
of stock option exercises........ 13,549 (312) (312)
Translation adjustment............ (13) (13)
Net income........................ 26,804 26,804
---------- --- ------- ---- -------- ------- ------- --------
Balance at September 28, 1997
(unaudited)........................ 41,731,231 $83 $88,094 $ 82 $132,636 94,467 $(1,201) $219,694
========== === ======= ==== ======== ======= ======= ========
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 28, SEPTEMBER 29,
1997 1996
------------- -------------
(UNAUDITED)
Cash flows from operating activities:
Net income .............................................................. $ 26,804 $ 24,207
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization ......................................... 4,349 3,737
Charge for acquired in-process technology ............................. 3,115
Inventory provision ................................................... 4,231
Tax benefit from exercise of stock options ............................ 5,940 1,457
Other ................................................................. (13,240) 6,557
-------- --------
Net cash provided by operating activities ............................... 26,968 40,189
-------- --------
Cash flows from investing activities:
Investments, net ........................................................ (29,866) (14,666)
Purchase of property, plant and equipment ............................... (8,248) (6,842)
Cash paid related to acquisition of Mayan Automation, Inc., net of $51
cash assumed .......................................................... (2,862)
Cash paid related to acquisition of Acumen, Inc. ........................ (137) (1,277)
Cash assumed in acquisition of Isys Controls, Inc. ...................... 918
Other ................................................................... 30 (30)
-------- --------
Net cash used in investing activities ................................... (41,083) (21,897)
-------- --------
Cash flows from financing activities:
Issuance of stock under stock option, stock purchase, and
bonus plans ........................................................... 4,112 2,029
-------- --------
Net cash provided by financing activities ............................... 4,112 2,029
-------- --------
Effect of exchange rate changes on cash ...................................... 180 188
-------- --------
Net (decrease)/increase in cash and cash equivalents ......................... (9,823) 20,509
Cash and cash equivalents at beginning of period ............................. 48,423 23,911
-------- --------
Cash and cash equivalents at end of period ................................... 38,600 44,420
Investments .................................................................. 115,443 81,395
-------- --------
Cash and investments ......................................................... $154,043 $125,815
======== ========
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
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, 1996, as filed with
the Securities and Exchange Commission on March 24, 1997.
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 28, 1997, and
the results of operations for the three and nine months ended
September 28, 1997, and changes in stockholders' equity and cash flows for
the nine months ended September 29, 1997.
The results disclosed in the Consolidated Statements of Income for the
three and nine months ended September 28, 1997 are not necessarily
indicative of the results to be expected for the full year.
Certain amounts reported in prior periods have been reclassified to be
consistent with the current period's presentation.
NET INCOME PER SHARE
Net income per share is calculated based on the weighted-average number of
common and dilutive common equivalent shares outstanding during the
period. Primary and fully diluted net income per share are not materially
different for each of the periods presented. Dilutive common equivalent
shares consist of stock options, calculated using the treasury stock
method.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard (SFAS) No. 128, "Earnings per
Share," which is effective for fiscal years ending after December 15,
1997, including restatement of all prior period earnings per share (EPS)
data presented. SFAS No. 128 requires the presentation of basic and
diluted EPS. Basic EPS, which replaces primary EPS, excludes dilution and
is computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if securities
or other contracts to issue common stock were exercised or converted into
common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity. Diluted EPS is computed similarly to fully
diluted EPS under existing rules. The Company will adopt SFAS No. 128 for
the fiscal year ending December 31, 1997. If the Company had adopted this
statement for the three-month and nine-month periods ended September 28,
1997, the Company's EPS would have been as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 28, SEPTEMBER 29, SEPTEMBER 28, SEPTEMBER 29,
1997 1996 1997 1996
------------- ------------- ------------- -------------
(UNAUDITED) (UNAUDITED)
Earnings per share:
Basic.................... $.26 $.08 $.65 $.60
Diluted.................. $.24 $.08 $.60 $.55
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COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INVENTORIES
Inventories consist of the following:
(In thousands) SEPTEMBER 28, DECEMBER 31,
1997 1996
------------- -------------
(UNAUDITED)
Raw materials.................................................. $2,760 $3,861
Work-in-process................................................ 3,672 1,710
Finished goods................................................. 1,726 1,442
------ ------
$8,158 $7,013
====== ======
In the third quarter of 1996, the Company recorded a $4,231,000 inventory
charge to "Cost of Goods Sold." The charge was due primarily to the slowdown
in the semiconductor and electronics industries and reflected costs associated
with excess inventories resulting from reduced production plans caused by the
slowdown and product transition plans.
ACQUISITION OF MAYAN AUTOMATION, INC.
On July 31, 1997, the Company acquired selected assets and assumed selected
liabilities of Mayan Automation, Inc. ("Mayan"), a developer of low-cost
machine vision systems used for surface inspection, for $4,800,000 in cash, of
which $1,800,000 will be paid out through the year 1999. Of the $1,800,000 of
future cash payments, $900,000 represents contingent consideration which will
be paid based upon the attainment of certain performance milestones. The
acquisition was accounted for under the purchase method of accounting.
Accordingly, Mayan's results of operations have been included in the Company's
consolidated results of operations since the date of acquisition. Mayan's
historical results of operations were not material compared to the Company's
consolidated results of operations, and therefore, pro forma results are
not presented.
The purchase price was allocated among the identifiable assets of Mayan. After
allocating the purchase price to the net tangible assets, acquired technology
was valued using a risk-adjusted cash flow model, under which future cash flows
were discounted taking into account risks related to existing markets, the
technology's life expectancy, future target markets and potential changes
thereto, and the competitive outlook for the technology. This analysis resulted
in an allocation of $400,000 to complete technology, to be amortized over five
years, and $3,115,000 to in-process technology which had not reached
technological feasibility and had no alternative future use, and accordingly,
was expensed immediately. Up to an additional $900,000 of 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.
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
On July 31, 1997, the Company acquired selected assets and assumed selected
liabilities of Mayan Automation Inc. ("Mayan"), a developer of low-cost machine
vision systems used for surface inspection, for $4,800,000 (see Notes to
Consolidated Financial Statements). The acquisition was accounted for under the
purchase method of accounting, and therefore, Mayan's results of operations
since the acquisition date have been included in the Company's consolidated
results of operations for the quarter ended September 28, 1997. Of the total
purchase price, $3,115,000 was allocated to in-process technology which was
expensed in the third quarter of 1997. Mayan's results of operations were not
material compared to the Company's consolidated results of operations for the
quarter ended September 28, 1997.
Revenue for the quarter ended September 28, 1997 increased 66% to $43,936,000
from $26,540,000 for the quarter ended September 29, 1996. This substantial
increase in revenue for the third quarter of 1997 over the third quarter of 1996
indicates a recovery from the slowdown in the semiconductor and electronics
industries which had previously impacted the Company's business. The increase is
due primarily to increased volume from Original Equipment Manufacturer ("OEM")
customers serving these two industries. Sales to OEM customers increased
$13,456,000, or 80%, over the three-month period in 1996 and grew to 69% of
revenue in the third quarter of 1997 from 64% of revenue in the third quarter of
1996. Additionally, revenue to factory floor customers increased $3,940,000, or
41%, over the three-month period in 1996, due primarily to increased volume
resulting from a larger customer base driven by increased sales and marketing
resources serving customers in this market. Comparing consecutive quarters,
revenue increased 21% over the second quarter of 1997. Sequential revenue growth
over the next several quarters is not anticipated to continue at the same rate
that occurred during the third quarter of 1997, as the strong rebound in the
semiconductor and electronics industries is expected to moderate somewhat.
Revenue for the nine-month period ended September 28, 1997 increased 12% to
$108,350,000 from $96,376,000 for the same period in 1996. The increase in
revenue for the nine-month period ended September 28, 1997 over the comparable
period in 1996 is due primarily to increased volume from OEM customers serving
the electronics industry, for which business began to pickup during the second
half of 1996, approximately two quarters earlier than the semiconductor industry
pickup. Sales to OEM customers increased $9,676,000, or 15%, over the nine-month
period in 1996. Additionally, sales to factory floor customers increased
$2,298,000, or 7%, over the nine-month period in 1996.
Gross margin as a percentage of revenue for the three-month and nine-month
periods ended September 28, 1997 was 74% and 73%, respectively, compared to 54%
and 68% for the same periods in 1996. 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 percentage points for the quarter and 4 percentage points
year-to-date. The charge was primarily due to the slowdown in the semiconductor
and electronics industries and reflected costs associated with excess
inventories resulting from reduced production plans caused by the slowdown and
product transition plans. The improvement in gross margin in 1997 over the
comparable periods in 1996, excluding the third quarter 1996 inventory charge,
is due primarily to the Company's ability to significantly increase the number
of machine vision systems manufactured with only small increases in
manufacturing overhead expenses, thereby improving the absorption rate of
overhead expenses. Gross margin as a percentage of revenue for the remainder of
1997 is expected to be consistent with the results experienced year-to-date.
Research, development and engineering expenses for the three-month and
nine-month periods ended September 28, 1997 totaled $5,717,000 and $16,242,000,
respectively, compared to $4,978,000 and
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$14,538,000 for the same periods in 1996, representing a 15% increase for the
three-month period and a 12% increase for the nine-month period. 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. Expenses as a percentage of revenue were 13% and 15% in the
three-month and nine-month periods in 1997, compared to 19% and 15% for the same
periods in 1996. The decrease in expenses as a percentage of revenue for the
three-month period results from demand from OEM customers increasing revenue at
a rate that outpaced the increase in expenses associated with the addition of
new engineers. Research, development and engineering expenses as a percentage of
revenue for the remainder of 1997 are expected to be consistent with the results
that have been experienced throughout 1997.
Selling, general and administrative expenses for the three-month and nine-month
periods ended September 28, 1997 totaled $9,668,000 and $26,003,000,
respectively, compared to $6,352,000 and $19,571,000 for the same periods in
1996, representing a 52% increase for the three-month period and a 33% increase
for the nine-month period. The increase in aggregate expenses is due primarily
to a 40% increase in sales, general and administrative personnel, both
domestically and internationally, to support the Company's expanding worldwide
operations, as well as the reinstatement of company bonuses that had been
eliminated as part of an effort to control costs during 1996 in light of the
temporary downturn in the semiconductor and electronics industries. Expenses as
a percentage of revenue were 22% and 24%, respectively, in the three-month and
nine-month periods in 1997, compared to 24% and 20% in the same periods in 1996.
While aggregate expenses are expected to continue to increase as additional
resources are committed to further penetrate the factory floor market, the level
of expenses as a percentage of revenue for the remainder of 1997 is expected to
remain consistent with the results that have been experienced throughout 1997,
due to anticipated revenue growth.
Investment income for the three-month and nine-month periods ended September 28,
1997 totaled $1,573,000 and $4,150,000, respectively, compared to $1,196,000 and
$3,154,000 for the same periods in 1996, representing a 32% increase for the
three-month and nine-month periods. The increase in investment income is due
primarily to a higher investment base in 1997.
The Company's effective tax rate for the three-month and nine-month periods
ended September 28, 1997 was 30.5% compared to 23.3% and 30.5% for the same
periods in 1996. 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 28,
1997 were met through cash generated from operations. Cash and investments
increased $20,043,000 from December 31, 1996 primarily as a result of
$26,968,000 of cash generated from operations and $4,112,000 of cash received
from the exercise of stock options, partially offset by $8,248,000 of capital
expenditures. Cash generated from operations consists of net income, adjusted
primarily for the effects of depreciation and amortization and changes in
current assets and current liabilities, most notably an increase in accounts
receivable which is due to the significant growth in revenue.
Capital expenditures for the nine-month period ended September 28, 1997 totaled
$8,248,000 and consisted primarily of expenditures related to the implementation
of new business systems and expenditures for computer hardware, as well as the
cash purchase of land adjacent to the Company's corporate headquarters, which is
anticipated to be used for future expansion.
On July 31, 1997, the Company acquired selected assets and assumed selected
liabilities of Mayan Automation, Inc. for $4,800,000 in cash, $1,800,000 of
which, at September 28, 1997, remained to be
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paid out through the year 1999. Of the $1,800,000 of future cash payments,
$900,000 represents contingent consideration that will be paid based upon the
attainment of certain performance milestones.
On October 6, 1997, the Company made an offer to acquire Applied Intelligent
Systems, Inc. (AISI), a privately held machine vision company, in a
stock-for-stock exchange. On November 3, 1997 the Company withdrew this offer.
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 1997,
including potential business acquisitions.
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) capital spending trends by
manufacturing companies; (2) the cyclicality of the semiconductor industry; (3)
the Company's continued ability to achieve significant international revenue;
(4) the loss of, or a significant curtailment of purchases by, any one or more
principal customers; (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.
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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
None
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 7, 1997 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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