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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, 2003 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 incorporation or organization)   (I.R.S. Employer 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  [  ]

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act)

         
Yes  [X]     No  [  ]

     As of October 26, 2003, there were 43,791,169 shares of Common Stock, $.002 par value, of the registrant outstanding.

 

TABLE OF CONTENTS

PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 4: CONTROLS AND PROCEDURES
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
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
EX-31.1 SECT. 302 CERTIFICATION OF C.E.O.
EX-31.2 SECT. 302 CERTIFICATION OF C.F.O.
EX-32.1 SECT. 906 CERTIFICATION OF C.E.O.
EX-32.2 SECT. 906 CERTIFICATION OF C.F.O.

Table of Contents

INDEX

         
PART I
   FINANCIAL INFORMATION
Item 1.
   Financial Statements
 
  
Consolidated Statements of Operations for the three-month and nine-month periods ended September 28, 2003 and September 29, 2002
  
 
  
Consolidated Balance Sheets at September 28, 2003 and December 31, 2002
  
 
  
Consolidated Statement of Stockholders’ Equity for the nine-month period ended September 28, 2003
 
  
Consolidated Condensed Statements of Cash Flows for the nine-month periods ended September 28, 2003 and September 29, 2002
  
 
  
Notes to Consolidated Financial Statements
Item 2.
  
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.
   Quantitative and Qualitative Disclosures About Market Risk
Item 4.
   Controls and Procedures
PART II
   OTHER INFORMATION
Item 1.
   Legal Proceedings
Item 2.
   Changes in Securities and Use of Proceeds
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

 

Table of Contents

PART I: FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

COGNEX CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)

                                     
        Three Months Ended   Nine Months Ended
        September 28,   September 29,   September 28,   September 29,
        2003   2002   2003   2002
       
 
 
 
        (unaudited)   (unaudited)
Revenue
                                
 
Product
   $ 33,965     $ 27,268     $ 93,604     $ 66,930  
 
Service
     4,739       4,559       14,610       13,348  
 
 
    
     
     
     
 
 
     38,704       31,827       108,214       80,278  
Cost of revenue
                                
 
Product
     10,139       8,219       28,004       20,330  
 
Service
     3,051       2,846       8,901       8,528  
 
 
    
     
     
     
 
 
     13,190       11,065       36,905       28,858  
Gross margin
                                
 
Product
     23,826       19,049       65,600       46,600  
 
Service
     1,688       1,713       5,709       4,820  
 
 
    
     
     
     
 
 
     25,514       20,762       71,309       51,420  
Research, development, and engineering expenses
     6,246       6,714       18,492       19,564  
Selling, general, and administrative expenses
     13,761       15,551       40,954       42,973  
 
 
    
     
     
     
 
Operating income (loss)
     5,507       (1,503 )     11,863       (11,117 )
Foreign currency gain (loss)
     828       109       (963 )     273  
Investment and other income
     1,145       2,626       4,054       1,224  
 
 
    
     
     
     
 
Income (loss) before provision (benefit) for income taxes
     7,480       1,232       14,954       (9,620 )
Income tax provision (benefit)
     2,342       451       4,717       (3,169 )
 
 
    
     
     
     
 
Net income (loss)
   $ 5,138     $ 781     $ 10,237     $ (6,451 )
 
 
    
     
     
     
 
Net income (loss) per common and common-equivalent share:
                                
   
Basic
   $ .12     $ .02     $ .24     $ (.15 )
 
 
    
     
     
     
 
   
Diluted
   $ .11     $ .02     $ .23     $ (.15 )
 
 
    
     
     
     
 
Weighted-average common and common-equivalent shares outstanding:
                                
   
Basic
     43,153       43,309       42,947       43,817  
 
 
    
     
     
     
 
   
Diluted
     44,890       43,751       44,120       43,817  
 
 
    
     
     
     
 
Cash dividends per common share
   $ .06     $ —     $ .06     $ —  
 
 
    
     
     
     
 

The accompanying notes are an integral part of these consolidated financial
statements.

1

Table of Contents

COGNEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)

                     
        September 28,   December 31,
        2003   2002
       
 
        (unaudited)        
ASSETS
                
Current assets:
                
 
Cash and cash equivalents
   $ 58,991     $ 60,864  
 
Short-term investments
     66,709       75,769  
 
Accounts receivable, less reserves of $2,360 and $2,207 in 2003 and 2002, respectively
     28,899       18,981  
 
Inventories
     15,152       18,952  
 
Deferred income taxes
     9,623       9,969  
 
Prepaid expenses and other current assets
     11,631       9,256  
 
 
    
     
 
   
Total current assets
     191,005       193,791  
Long-term investments
     172,671       139,352  
Property, plant, and equipment, net
     25,083       27,405  
Deferred income taxes
     19,208       16,608  
Intangible assets, net
     5,517       919  
Goodwill, net
     5,376       3,742  
Other assets
     3,775       3,686  
 
 
    
     
 
 
   $ 422,635     $ 385,503  
 
 
    
     
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
                
Current liabilities:
                
 
Accounts payable
   $ 4,142     $ 3,496  
 
Accrued expenses
     26,640       19,972  
 
Customer deposits
     4,900       3,659  
 
Deferred revenue
     6,864       3,856  
 
 
    
     
 
   
Total current liabilities
     42,546       30,983  
Commitments (Notes 3, 7, 8, and 9)
                
Stockholders’ equity:
                
 
Common stock, $.002 par value – Authorized: 140,000 shares, issued: 47,931 and 46,877 shares in 2003 and 2002, respectively
     96       94  
 
Additional paid-in capital
     205,136       184,595  
 
Treasury stock, at cost, 4,249 and 4,253 shares in 2003 and 2002, respectively
     (72,446 )     (72,311 )
 
Retained earnings
     255,640       248,010  
 
Accumulated other comprehensive loss
     (8,337 )     (5,868 )
 
 
    
     
 
   
Total stockholders’ equity
     380,089       354,520  
 
 
    
     
 
 
   $ 422,635     $ 385,503  
 
 
    
     
 

The accompanying notes are an integral part of these consolidated financial
statements.

2

Table of Contents

COGNEX CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(In thousands)

                                             
        Common Stock   Additional   Treasury Stock
       
  Paid-in  
        Shares   Par Value   Capital   Shares   Cost
       
 
 
 
 
Balance at December 31, 2002
     46,877     $ 94     $ 184,595       4,249     $ (72,311 )
 
Issuance of stock under stock option, stock purchase, and other plans
     1,054       2       17,311       4       (135 )
 
Tax benefit from exercise of stock options
                     3,230                  
 
Payment of dividends
                                        
 
Comprehensive income:
                                        
   
Net income
                                        
   
Losses on foreign intercompany loans, net of gains on cross currency swaps, net of tax of $276
                                        
   
Foreign currency translation adjustment
                                        
   
Comprehensive income
                                        
 
    
     
     
     
     
 
Balance at September 28, 2003 (unaudited)
     47,931     $ 96     $ 205,136       4,253     $ (72,446 )
 
    
     
     
     
     
 

[Additional columns below]

[Continued from above table, first column(s) repeated]
                                     
                Accumulated                
                Other           Total
        Retained   Comprehensive   Comprehensive   Stockholders’
        Earnings   Loss   Income   Equity
       
 
 
 
Balance at December 31, 2002
   $ 248,010     $ (5,868 )           $ 354,520  
 
Issuance of stock under stock option, stock purchase, and other plans
                             17,178  
 
Tax benefit from exercise of stock options
                             3,230  
 
Payment of dividends
     (2,607 )                     (2,607 )
 
Comprehensive income:
                                
   
Net income
     10,237             $ 10,237       10,237  
   
Losses on foreign intercompany loans, net of gains on cross currency swaps, net of tax of $276
             (470 )     (470 )     (470 )
   
Foreign currency translation adjustment
             (1,999 )     (1,999 )     (1,999 )
 
                    
         
   
Comprehensive income
                   $ 7,768          
 
    
     
     
     
 
Balance at September 28, 2003 (unaudited)
   $ 255,640     $ (8,337 )           $ 380,089  
 
    
     
             
 

The accompanying notes are an integral part of these consolidated financial statements.

3

Table of Contents

COGNEX CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)

                     
        Nine Months Ended
        September 28,   September 29,
        2003   2002
       
 
        (unaudited)
Cash flows from operating activities:
                
 
Net income (loss)
   $ 10,237     $ (6,451 )
 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
                
   
Depreciation and amortization
     7,530       7,153  
   
Tax benefit from exercise of stock options
     3,230       1,686  
   
Loss on sale of equity securities
     —       6,184  
   
Deferred income tax benefit
     (1,749 )     (611 )
   
Change in current assets and current liabilities
     (64 )     (2,012 )
   
Other
     812       618  
 
 
    
     
 
 
Net cash provided by operating activities
     19,996       6,567  
Cash flows from investing activities:
                
 
Purchase of investments
     (131,119 )     (66,489 )
 
Maturity and sale of investments
     103,395       102,010  
 
Purchase of property, plant, and equipment
     (1,570 )     (1,628 )
 
Cash paid for business acquisitions
     (7,630 )     (349 )
 
 
    
     
 
 
Net cash provided by (used in) investing activities
     (36,924 )     33,544  
Cash flows from financing activities:
                
 
Repurchase of common stock
     —       (26,425 )
 
Payment of dividends
     (2,607 )     —  
 
Issuance of stock under stock option, stock purchase, and other plans
     17,178       5,538  
 
 
    
     
 
 
Net cash provided by (used in) financing activities
     14,571       (20,887 )
Effect of foreign exchange rate changes on cash
     484       (3,776 )
 
 
    
     
 
Net increase (decrease) in cash and cash equivalents
     (1,873 )     15,448  
Cash and cash equivalents at beginning of period