e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark
One)
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þ
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Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the quarterly period ended October 2, 2011 or
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o
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Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the transition period from
to
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Commission File Number
001-34218
COGNEX CORPORATION
(Exact name of registrant as specified in its charter)
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Massachusetts
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04-2713778
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(State or other jurisdiction of
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(I.R.S. Employer
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incorporation or organization)
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Identification No.)
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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
þ
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes
þ
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act (Check one):
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Large accelerated filer
þ
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Accelerated filer
o
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Non-accelerated filer
o
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Smaller reporting company
o
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
o
No
þ
As of October 2, 2011, there were 42,074,893 shares of Common Stock, $.002 par value, of the
registrant outstanding.
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
COGNEX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
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Three-months Ended
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Nine-months Ended
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October 2,
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October 3,
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October 2,
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October 3,
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2011
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2010
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2011
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2010
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(unaudited)
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(unaudited)
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Revenue
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Product
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$
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74,165
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$
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69,288
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$
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220,608
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$
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190,968
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Service
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5,920
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5,705
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17,264
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14,803
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80,085
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74,993
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237,872
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205,771
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Cost of revenue
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Product
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15,705
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15,537
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47,258
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44,362
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Service
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3,248
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3,376
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9,457
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9,209
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18,953
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18,913
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56,715
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53,571
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Gross margin
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Product
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58,460
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53,751
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173,350
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146,606
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Service
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2,672
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2,329
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7,807
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5,594
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61,132
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56,080
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181,157
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152,200
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Research, development, and engineering
expenses
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10,608
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7,961
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30,596
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24,140
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Selling, general, and administrative expenses
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28,135
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25,857
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86,762
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75,217
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Restructuring charges
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—
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(13
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—
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75
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Operating income
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22,389
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22,275
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63,799
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52,768
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Foreign currency gain (loss)
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(231
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)
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102
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(80
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(71
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Investment income
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917
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384
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2,219
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949
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Other expense
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(156
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(129
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(509
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(531
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Income before income tax expense
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22,919
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22,632
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65,429
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53,115
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Income tax expense
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4,882
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4,487
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14,659
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11,498
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Net income
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$
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18,037
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$
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18,145
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$
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50,770
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$
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41,617
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Earnings per weighted-average common and
common-equivalent share:
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Basic
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$
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0.43
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$
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0.46
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$
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1.22
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$
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1.05
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Diluted
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$
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0.42
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$
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0.45
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$
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1.19
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$
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1.05
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Weighted-average common and
common-equivalent shares outstanding:
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Basic
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42,128
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39,729
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41,765
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39,693
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Diluted
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42,976
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39,917
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42,682
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39,792
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Cash dividends per common share
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$
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0.09
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$
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0.06
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$
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0.26
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$
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0.17
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The accompanying notes are an integral part of these consolidated financial statements.
1
COGNEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
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October 2,
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December 31,
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2011
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2010
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(unaudited)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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30,175
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$
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33,203
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Short-term investments
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142,409
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147,823
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Accounts receivable, less reserves of
$1,190 and $1,235 in 2011 and 2010,
respectively
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45,827
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45,901
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Inventories
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28,595
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22,717
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Deferred income taxes
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6,498
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6,302
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Prepaid expenses and other current assets
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20,835
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23,059
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Total current assets
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274,339
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279,005
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Long-term investments
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173,521
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102,055
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Property, plant, and equipment, net
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30,869
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29,596
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Deferred income taxes
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15,814
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15,555
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Intangible assets, net
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19,969
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23,130
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Goodwill
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82,277
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82,204
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Other assets
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1,718
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1,559
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$
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598,507
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$
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533,104
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LIABILITIES AND SHAREHOLDERS’ EQUITY
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Current liabilities:
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Accounts payable
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$
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7,388
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$
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7,153
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Accrued expenses
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30,296
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29,346
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Accrued income taxes
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2,006
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7,771
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Deferred revenue and customer deposits
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13,165
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10,162
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Total current liabilities
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52,855
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54,432
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Reserve for income taxes
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4,291
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5,361
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Commitments and contingencies (Note 8)
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Shareholders’ equity:
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Common stock, $.002 par value —
Authorized: 140,000 shares, issued: 42,075 and 41,065 shares in 2011 and
2010, respectively
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84
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82
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Additional paid-in capital
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129,845
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102,620
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Retained earnings
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419,699
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379,826
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Accumulated other comprehensive loss, net of tax
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(8,267
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)
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(9,217
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)
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Total shareholders’ equity
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541,361
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473,311
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$
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598,507
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$
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533,104
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The accompanying notes are an integral part of these consolidated financial statements.
2
COGNEX CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
(In thousands)
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Accumulated
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Additional
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Other
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Total
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Common Stock
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Paid-in
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Retained
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Comprehensive
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Comprehensive
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Shareholders’
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Shares
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Par Value
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Capital
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Earnings
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Loss
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Income
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Equity
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Balance as of December 31, 2010
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41,065
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$
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82
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$
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102,620
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$
|
379,826
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$
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(9,217
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)
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$
|
473,311
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Issuance of common stock under stock
option plans
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1,347
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3
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27,834
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—
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—
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27,837
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Stock-based compensation expense
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—
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|
—
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5,829
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|
—
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—
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5,829
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Excess tax benefit from stock option
exercises
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—
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—
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3,624
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—
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—
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3,624
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Reduction of tax benefit for
research and development credits as
a result of stock option accounting
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—
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—
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(63
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)
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(63
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)
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Repurchase of common stock
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(337
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(1
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(9,999
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)
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(10,000
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)
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Payment of dividends
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—
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|
—
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|
|
—
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(10,897
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)
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—
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|
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|
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(10,897
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)
|
|
Comprehensive income:
|
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|
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Net income
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|
—
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|
|
—
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|
|
|
—
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50,770
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—
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$
|
50,770
|
|
|
|
50,770
|
|
|
Net unrealized gain on
available-for-sale investments,
net of tax of $62
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
48
|
|
|
|
48
|
|
|
|
48
|
|
|
Foreign currency translation
adjustment, net of tax of $26
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
902
|
|
|
|
902
|
|
|
|
902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
51,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of October 2, 2011 (unaudited)
|
|
|
42,075
|
|
|
$
|
84
|
|
|
$
|
129,845
|
|
|
$
|
419,699
|
|
|
$
|
(8,267
|
)
|
|
|
|
|
|
$
|
541,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
3
COGNEX CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine-months Ended
|
|
|
|
|
October 2,
|
|
|
October 3,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
(unaudited)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
50,770
|
|
|
$
|
41,617
|
|
|
Adjustments to reconcile net income to net cash
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
5,829
|
|
|
|
1,672
|
|
|
Depreciation of property, plant, and equipment
|
|
|
4,082
|
|
|
|
3,441
|
|
|
Amortization of intangible assets
|
|
|
3,181
|
|
|
|
3,788
|
|
|
Amortization of premiums/discounts on investments
|
|
|
4,675
|
|
|
|
1,972
|
|
|
Tax effect of stock option exercises
|
|
|
(3,624
|
)
|
|
|
(81
|
)
|
|
Change in deferred income taxes
|
|
|
(359
|
)
|
|
|
(2,397
|
)
|
|
Change in operating assets and liabilities
|
|
|
(2,184
|
)
|
|
|
(3,264
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
62,370
|
|
|
|
46,748
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Purchases of investments
|
|
|
(288,045
|
)
|
|
|
(178,080
|
)
|
|
Maturities and sale of investments
|
|
|
217,495
|
|
|
|
58,676
|
|
|
Purchases of property, plant, and equipment
|
|
|
(5,545
|
)
|
|
|
(3,307
|
)
|
|
Cash received related to disposition
|
|
|
—
|
|
|
|
315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(76,095
|
)
|
|
|
(122,396
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Issuance of common stock under stock option plans
|
|
|
27,837
|
|
|
|
7,324
|
|
|
Stock option buyback
|
|
|
—
|
|
|
|
(83
|
)
|
|
Repurchase of common stock
|
|
|
(10,000
|
)
|
|
|
—
|
|
|
Payment of dividends
|
|
|
(10,897
|
)
|
|
|
(6,747
|
)
|
|
Tax effect of stock option exercises
|
|
|
3,624
|
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
10,564
|
|
|
|
575
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign exchange rate changes on cash
|
|
|
133
|
|
|
|
(6,545
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(3,028
|
)
|
|
|
(81,618
|
)
|
|
Cash and cash equivalents at beginning of period
|
|
|
33,203
|
|
|
|
119,831
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
30,175
|
|
|
$
|
38,213
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
4
COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1: Summary of Significant Accounting Policies
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 (GAAP). 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, 2010.
In the opinion of the management of Cognex Corporation (the “Company”), the accompanying
consolidated unaudited financial statements contain all adjustments, consisting of normal,
recurring adjustments necessary to present fairly the Company’s financial position as of October 2,
2011, and the results of its operations for the three-month and nine-month periods ended October 2,
2011 and October 3, 2010, and changes in shareholders’ equity and cash flows for the periods
presented.
The results disclosed in the Consolidated Statements of Operations for the three-month and
nine-month periods ended October 2, 2011 are not necessarily indicative of the results to be
expected for the full year.
NOTE 2: New Pronouncements
Accounting Standards Update (ASU) 2011-04, “Fair Value Measurements: Amendments to Achieve
Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs”
The amendments in this ASU change certain aspects of the fair value measurement guidance in
Accounting Standards Codification (ASC) 820, “Fair Value Measurement” in order to make U.S. GAAP
and international standards more consistent. These changes include the application of the concepts
of highest and best use and valuation premise, introduction of an option to measure groups of
offsetting assets and liabilities on a net basis, incorporation of certain premiums and discounts
in fair value measurements, and measurement of the fair value of certain instruments classified in
shareholders’ equity. In addition, the amended guidance includes new fair value disclosure
requirements, including, among other things, information about valuation techniques and
unobservable inputs used in Level 3 fair value measurements and a narrative description of Level 3
measurements’ sensitivity to changes in unobservable inputs. ASU 2011-04 must be applied
prospectively and is effective for the first quarter of 2012. Management is in the process of
evaluating the impact of this ASU.
Accounting Standards Update (ASU) 2011-05, “Comprehensive Income”
The amendments in this ASU revise the manner in which companies present comprehensive income in
their financial statements in order to make U.S. GAAP and international standards more consistent.
This ASU requires companies to report the components of comprehensive income in either a continuous
statement of comprehensive income or in two separate but consecutive statements. In the
two-statement approach, the first statement would present the components of net income, similar to
the Company’s current Consolidated Statements of Operations, while the second statement would
include the components of other comprehensive income (OCI), as well as a cumulative total for
comprehensive income. This ASU does not change the items that must be reported in OCI. ASU
2011-05 must be applied retrospectively. On October 21, 2011, the Financial Accounting Standards
Board (FASB) proposed a deferral of the requirement to present reclassifications of OCI on the face
of the income statement. Management is awaiting the FASB’s final decision and will evaluate the
impact of this ASU at that time.
Accounting Standards Update (ASU) 2011-08, “Testing Goodwill For Impairment”
In the third quarter of 2011, the Financial Accounting Standards Board (FASB) issued an ASU aimed
at simplifying entities’ annual goodwill impairment test. The revised standard is intended to
reduce the cost and complexity of the annual goodwill impairment test by providing entities an
option to perform a qualitative assessment to determine whether further impairment testing is
necessary. The revised standard is effective for annual and interim goodwill impairment tests
performed for fiscal years beginning after December 15, 2011; however, early adoption is allowed.
Management has elected to adopt this standard early and will apply the provisions of this ASU to
its 2011 annual analysis of goodwill.
5
COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 3: Fair Value Measurements
Financial Assets and Liabilities that are Measured at Fair Value on a Recurring Basis
The following table summarizes the financial assets and liabilities measured at fair value on a
recurring basis as of October 2, 2011 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
Active Markets
|
|
Significant Other
|
|
|
|
for Identical
|
|
Observable
|
|
|
|
Assets (Level 1)
|
|
Inputs (Level 2)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
Money market instruments
|
|
$
|
2,137
|
|
|
$
|
—
|
|
|
Municipal bonds
|
|
|
—
|
|
|
|
120,209
|
|
|
Corporate bonds
|
|
|
—
|
|
|
|
125,329
|
|
|
Agency bonds
|
|
|
—
|
|
|
|
45,170
|
|
|
Sovereign bonds
|
|
|
—
|
|
|
|
12,971
|
|
|
Covered bonds
|
|
|
—
|
|
|
|
6,318
|
|
|
Currency forward contracts
|
|
|
13
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Currency forward contracts
|
|
|
370
|
|
|
|
—
|
|
The majority of the Company’s investments are reported at fair value based upon model-driven
valuations in which all significant inputs are observable or can be derived from or corroborated by
observable market data for substantially the full term of the asset, and are therefore classified
as Level 2 investments. These investments are priced daily by a large, third-party pricing
service. The service maintains regular contact with market makers, brokers, dealers, and analysts
to gather information on market movement, direction, trends, and other specific data. They use
this information to structure yield curves for various types of debt securities and arrive at the
current day’s valuations. The Company’s money market instruments are reported at fair value based
upon the daily market price for identical assets in active markets, and are therefore classified as
Level 1. The Company did not record an other-than-temporary impairment of investments in the
nine-month period ended October 2, 2011. Further discussion of management’s analysis related to an
other-than-temporary impairment is included in Note 4.
The Company’s forward contracts are reported at fair value based upon quoted U.S. Dollar foreign
currency exchange rates, and are therefore classified as Level 1.
Financial Assets that are Measured at Fair Value on a Non-recurring Basis
The Company has an interest in a limited partnership, which is accounted for using the cost method
and is measured at fair value on a non-recurring basis. The fair value of the Company’s limited
partnership interest is based upon valuations of the partnership’s investments as determined by the
General Partner. Publicly-traded investments in active markets are reported at the market closing
price less a discount, as appropriate, to reflect restricted marketability. Fair value for private
investments for which observable market prices in active markets do not exist is based upon the
best information available including the value of a recent financing, reference to observable
valuation measures for comparable companies (such as revenue multiples), public or private
transactions (such as the sale of a comparable company), and valuations for publicly-traded
comparable companies. The amount determined to be fair value also incorporates the General
Partner’s own judgment and close familiarity with the business activities of each portfolio
company. Management monitors the carrying value of this investment compared to its fair value to
determine if an other-than-temporary impairment has occurred. If a decline in fair value is
considered to be other-than-temporary, an impairment charge would be recorded to reduce the
carrying value of the asset to its fair value. The portfolio consists of securities of public and
private companies, and consequently, inputs used in the fair value calculation are classified as
Level 3. The Company did not record an other-than-temporary impairment of this asset in the
nine-month period ended October 2, 2011 as there was no indication of impairment during this
period.
6
COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Non-financial Assets that are Measured at Fair Value on a Non-recurring Basis
Non-financial assets such as goodwill, intangible assets, and property, plant, and equipment are
measured at fair value only when an impairment loss is recognized. The Company did not record an
impairment charge related to these assets during the nine-month period ended October 2, 2011.
NOTE 4: Cash, Cash Equivalents, and Investments
Cash, cash equivalents, and investments consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
October 2,
|
|
|
December 31,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Cash
|
|
$
|
28,038
|
|
|
$
|
26,650
|
|
|
Money market instruments
|
|
|
2,137
|
|
|
|
6,553
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
30,175
|
|
|
|
33,203
|
|
|
|
|
|
|
|
|
|
|
Treasury bills
|
|
|
—
|
|
|
|
2,494
|
|
|
Municipal bonds
|
|
|
49,626
|
|
|
|
75,457
|
|
|
Corporate bonds
|
|
|
60,123
|
|
|
|
34,543
|
|
|
Agency bonds
|
|
|
31,276
|
|
|
|
15,979
|
|
|
Sovereign bonds
|
|
|
—
|
|
|
|
19,350
|
|
|
Covered bonds
|
|
|
1,384
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
|
142,409
|
|
|
|
147,823
|
|
|
|
|
|
|
|
|
|
|
Municipal bonds
|
|
|
70,583
|
|
|
|
34,794
|
|
|
Corporate bonds
|
|
|
65,206
|
|
|
|
36,762
|
|
|
Agency bonds
|
|
|
13,894
|
|
|
|
21,025
|
|
|
Sovereign bonds
|
|
|
12,971
|
|
|
|
—
|
|
|
Covered bonds
|
|
|
4,934
|
|
|
|
3,541
|
|
|
Limited partnership interest (accounted for using cost method)
|
|
|
5,933
|
|
|
|
5,933
|
|
|
|
|
|
|
|
|
|
|
Long-term investments
|
|
|
173,521
|
|
|
|
102,055
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
346,105
|
|
|
$
|
283,081
|
|
|
|
|
|
|
|
|
|
The Company’s portfolio consists of treasury bills, municipal bonds, corporate bonds, agency bonds,
sovereign bonds, and covered bonds. Treasury bills consist of debt securities issued by the U.S.
government; municipal bonds consist of debt securities issued by state and local government
entities; corporate bonds consist of debt securities issued by both international and domestic
companies; agency bonds consist of domestic or foreign obligations of government agencies and
government sponsored enterprises that have government backing; sovereign bonds consist of direct
debt issued by international governments (Germany as of October 2, 2011); and covered bonds consist
of debt securities backed by governments, mortgages, or public sector loans.
The following table summarizes the Company’s available-for-sale investments as of October 2, 2011
(in thousands):
7
COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Short-term:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal bonds
|
|
$
|
49,575
|
|
|
$
|
57
|
|
|
$
|
(6
|
)
|
|
$
|
49,626
|
|
|
Corporate bonds
|
|
|
60,879
|
|
|
|
9
|
|
|
|
(765
|
)
|
|
|
60,123
|
|
|
Agency bonds
|
|
|
31,289
|
|
|
|
15
|
|
|
|
(28
|
)
|
|
|
31,276
|
|
|
Covered bonds
|
|
|
1,384
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal bonds
|
|
|
70,413
|
|
|
|
227
|
|
|
|
(57
|
)
|
|
|
70,583
|
|
|
Corporate bonds
|
|
|
65,143
|
|
|
|
162
|
|
|
|
(99
|
)
|
|
|
65,206
|
|
|
Agency bonds
|
|
|
13,878
|
|
|
|
27
|
|
|
|
(11
|
)
|
|
|
13,894
|
|
|
Sovereign bonds
|
|
|
12,768
|
|
|
|
203
|
|
|
|
—
|
|
|
|
12,971
|
|
|
Covered bonds
|
|
|
4,919
|
|
|
|
15
|
|
|
|
—
|
|
|
|
4,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
310,248
|
|
|
$
|
715
|
|
|
$
|
(966
|
)
|
|
$
|
309,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables summarize the Company’s gross unrealized losses and fair value for
available-for-sale investments in an unrealized loss position as of October 2, 2011, aggregated by
investment category and the length of time that individual securities have been in a continuous
unrealized loss position (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Loss Position For:
|
|
|
|
|
|
|
|
Less than 12 Months
|
|
|
12 Months or Greater
|
|
|
Total
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Municipal bonds
|
|
$
|
31,230
|
|
|
$
|
(62
|
)
|
|
$
|
704
|
|
|
$
|
(1
|
)
|
|
$
|
31,934
|
|
|
$
|
(63
|
)
|
|
Corporate bonds
|
|
|
56,169
|
|
|
|
(839
|
)
|
|
|
18,630
|
|
|
|
(25
|
)
|
|
|
74,799
|
|
|
|
(864
|
)
|
|
Agency bonds
|
|
|
19,663
|
|
|
|
(30
|
)
|
|
|
8,608
|
|
|
|
(9
|
)
|
|
|
28,271
|
|
|
|
(39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
107,062
|
|
|
$
|
(931
|
)
|
|
$
|
27,942
|
|
|
$
|
(35
|
)
|
|
$
|
135,004
|
|
|
$
|
(966
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of October 2, 2011, the Company did not identify an other-than-temporary impairment on these
investments. In its evaluation, management considered the types of securities, the credit rating
of the securities, the length of time the securities have been in a loss position, the size of the
loss position, our intent and ability to hold the securities to expected recovery of value, and
other meaningful information. The Company does not intend to sell, and is unlikely to be required
to sell, any of these securities before its effective maturity or market price recovery. The
Company recorded gross realized gains and gross realized losses on the sale of debt securities
totaling $47,000 and $28,000, respectively, in the three-month period ended October 2, 2011, and
$78,000 and $45,000, respectively, in the nine-month period ending October 2, 2011.
The following table presents the effective maturity dates of the Company’s available-for-sale
investments as of October 2, 2011 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
<1 Year
|
|
|
1-2 Years
|
|
|
2-3 Years
|
|
|
3-4 Years
|
|
|
4-5 Years
|
|
|
Total
|
|
|
Municipal bonds
|
|
$
|
49,626
|
|
|
$
|
27,175
|
|
|
$
|
19,999
|
|
|
$
|
14,585
|
|
|
$
|
8,824
|
|
|
$
|
120,209
|
|
|
Corporate bonds
|
|
|
60,123
|
|
|
|
36,032
|
|
|
|
24,312
|
|
|
|
1,221
|
|
|
|
3,641
|
|
|
|
125,329
|
|
|
Agency bonds
|
|
|
31,276
|
|
|
|
11,499
|
|
|
|
2,395
|
|
|
|
—
|
|
|
|
—
|
|
|
|
45,170
|
|
|
Sovereign bonds
|
|
|
—
|
|
|
|
4,220
|
|
|
|
6,986
|
|
|
|
—
|
|
|
|
1,765
|
|
|
|
12,971
|
|
|
Covered bonds
|
|
|
1,384
|
|
|
|
4,934
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
142,409
|
|
|
$
|
83,860
|
|
|
$
|
53,692
|
|
|
$
|
15,806
|
|
|
$
|
14,230
|
|
|
$
|
309,997
|
|
In June 2000, the Company became a Limited Partner in Venrock Associates III, L.P. (Venrock), a
venture capital fund. A Director of the Company was a General Partner of Venrock Associates
through December 31, 2009. The Company has committed to a total investment in the limited
partnership of up to $20,500,000, with an expiration date of December 31, 2013. As of October 2,
2011, the Company contributed $19,886,000 to the partnership. The remaining commitment of $614,000
can be called by Venrock at any time before December 31, 2013. Distributions are received and
contributions are requested at the discretion of Venrock’s management. No contributions were made
and no distributions were received during the nine-month period in 2011.
8
COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Inventories consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
October 2,
|
|
|
December 31,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Raw materials
|
|
$
|
18,902
|
|
|
$
|
14,791
|
|
|
Work-in-process
|
|
|
3,212
|
|
|
|
2,051
|
|
|
Finished goods
|
|
|
6,481
|
|
|
|
5,875
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
28,595
|
|
|
$
|
22,717
|
|
|
|
|
|
|
|
|
|
NOTE 6: Intangible Assets and Goodwill
The change in the carrying value of goodwill during the nine-month period ended October 2, 2011
($73,000) is wholly attributable to fluctuations in foreign currency exchange rates, as a portion
of this asset is recorded on the books of the Company’s Irish subsidiary.
The Company evaluates the possible impairment of goodwill and other intangible assets whenever
events or circumstances indicate that the carrying value of these assets may not be recoverable.
No triggering event occurred in the nine-month period ended October 2, 2011 that would indicate a
potential impairment of goodwill or other intangible assets. However, the Company continues to
monitor market conditions, and changes in market conditions could result in an impairment of
goodwill or other intangible assets in a future period.
NOTE 7: Warranty Obligations
The Company warrants its hardware products to be free from defects in material and workmanship for
periods primarily ranging from six months to two years from the time of sale based upon the product
being purchased and the terms of the customer arrangement. Warranty obligations are evaluated and
recorded at the time of sale since it is probable that customers will make claims under warranties
related to products that have been sold and the amount of these claims can be reasonably estimated
based upon historical costs to fulfill claims. Obligations may also be recorded subsequent to the
time of sale whenever specific events or circumstances impacting product quality become known that
would not have been taken into account using historical data. Warranty obligations are included in
“Accrued expenses” on the Consolidated Balance Sheets.
The changes in the warranty obligations were as follows (in thousands):
|
|
|
|
|
|
|
Balance as of December 31, 2010
|
|
$
|
1,985
|
|
|
Provisions for warranties issued during the period
|
|
|
1,342
|
|
|
Fulfillment of warranty obligations
|
|
|
(1,236
|
)
|
|
Foreign exchange rate changes
|
|
|
19
|
|
|
|
|
|
|
|
Balance as of October 2, 2011
|
|
$
|
2,110
|
|
|
|
|
|
|
In May 2008, the Company filed a complaint against MvTec Software GmbH, MvTec LLC, and Fuji America
Corporation in the United States District Court for the District of Massachusetts alleging
infringement of certain patents owned by the Company. In April 2009 and again in June 2009,
Defendant MvTec Software GmbH filed re-examination requests of the patents-at-issue with the United
States Patent and Trademark Office. This matter is ongoing.
9
COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
In May 2009, the Company pre-filed a complaint with the United States International Trade
Commission (ITC) pursuant to Section 337 of the Tariff Act of 1930, as amended, 19 U.S.C. §1337,
against MvTec Software GmbH, MvTec LLC, Fuji America, and several other respondents alleging unfair
methods of competition and unfair acts in the unlawful importation into the United States, sale for
importation, or sale within the United States after importation. By this filing, the Company
requested the ITC to investigate the Company’s
contention that certain machine vision software, machine vision systems, and products containing
the same infringe, and respondents directly infringe and/or actively induce and/or contribute to
the infringement in the United States, of one or more of the Company’s U.S. patents. In July 2009,
the ITC issued an order that it would institute an investigation based upon the Company’s
assertions. In September 2009, the Company reached a settlement with two of the respondents, and
in December 2009, the Company reached a settlement with five additional respondents. In March
2010, the Company reached a settlement with respondent Fuji Machine Manufacturing Co., Ltd. and its
subsidiary Fuji America Corporation. These settlements did not have a material impact on the
Company’s financial results. An ITC hearing was held in May 2010. In July 2010, the
Administrative Law Judge issued an initial determination finding two of the Company’s patents
invalid and that respondents did not infringe the patents-at-issue. In September 2010, the
Commission issued a notice that it would review the initial determination of the Administrative Law
Judge. The ITC issued its Final Determination in November 2010 in which it determined to
modify-in-part and affirm-in-part the Administrative Law Judge’s determination, and terminate the
investigation with a finding of no violation of Section 337 of the Tariff Act of 1930 (as amended
19 U.S.C. §1337). The Company has filed an appeal of the decision with the United States Court of
Appeals for the Federal Circuit. This matter is ongoing.
The Company cannot predict the outcome of the above-referenced pending matters and an adverse
resolution of these lawsuits could have a material adverse effect on the Company’s financial
position, liquidity, results of operations, and/or indemnification obligations. In addition,
various other claims and legal proceedings generally incidental to the normal course of business
are pending or threatened on behalf of or against the Company. While we cannot predict the outcome
of these incidental matters, we believe that any liability arising from them will not have a
material adverse effect on our financial position, liquidity, or results of operations.
NOTE 9: Indemnification Provisions
Except as limited by Massachusetts law, the by-laws of the Company require it to indemnify certain
current or former directors, officers, and employees of the Company against expenses incurred by
them in connection with each proceeding in which he or she is involved as a result of serving or
having served in certain capacities. Indemnification is not available with respect to a proceeding
as to which it has been adjudicated that the person did not act in good faith in the reasonable
belief that the action was in the best interests of the Company. The maximum potential amount of
future payments the Company could be required to make under these provisions is unlimited. The
Company has never incurred significant costs related to these indemnification provisions. As a
result, the Company believes the estimated fair value of these provisions is minimal.
In the ordinary course of business, the Company may accept standard limited indemnification
provisions in connection with the sale of its products, whereby it indemnifies its customers for
certain direct damages incurred in connection with third-party patent or other intellectual
property infringement claims with respect to the use of the Company’s products. The term of these
indemnification provisions generally coincides with the customer’s use of the Company’s products.
The maximum potential amount of future payments the Company could be required to make under these
provisions is generally subject to fixed monetary limits. The Company has never incurred
significant costs to defend lawsuits or settle claims related to these indemnification provisions.
As a result, the Company believes the estimated fair value of these provisions is minimal.
In the ordinary course of business, the Company also accepts limited indemnification provisions
from time to time, whereby it indemnifies customers for certain direct damages incurred in
connection with bodily injury and property damage arising from the installation of the Company’s
products. The term of these indemnification provisions generally coincides with the period of
installation. The maximum potential amount of future payments the Company could be required to
make under these provisions is generally limited and is likely recoverable under the Company’s
insurance policies. As a result of this coverage, and the fact that the
10
COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Company has never incurred
significant costs to defend lawsuits or settle claims related to these indemnification provisions,
the Company believes the estimated fair value of these provisions is minimal.
NOTE 10: Derivative Instruments
The Company is exposed to certain risks relating to its ongoing business operations including
foreign currency exchange rate risk and interest rate risk. The Company does not currently manage
its interest rate risk with derivative instruments; however, foreign currency exchange rate risk is
currently mitigated with
derivative instruments. The Company uses derivative instruments to provide an economic hedge
against its transactional currency/functional currency exchange rate exposures. Forward contracts
on currencies are entered into to manage the transactional currency/functional currency exposure of
the Company’s Irish subsidiary’s accounts receivable denominated in U.S. dollars and intercompany
receivables denominated in Japanese Yen. These forward contracts are used to minimize foreign
currency gains or losses, as the gains or losses on these contracts are intended to offset the
losses or gains on the underlying exposures.
These forward contracts do not qualify for hedge accounting. Both the underlying exposure and the
forward contracts are recorded at fair value on the Consolidated Balance Sheets and changes in fair
value are reported as “Foreign currency gain (loss)” on the Consolidated Statements of Operations.
The Company recorded a net foreign currency loss of $231,000 in the three-month period ended
October 2, 2011 and a net foreign currency gain of $102,000 in the three-month period ended October
3, 2010. The Company recorded net foreign currency losses of $80,000 and $71,000 in the nine-month
periods ended October 2, 2011 and October 3, 2010, respectively.
As of October 2, 2011, the Company had the following outstanding forward contracts that were
entered into to mitigate foreign currency exchange rate risk:
|
|
|
|
|
Currency
|
|
Amount
|
|
Japanese Yen/Euro
|
|
350,000,000 Japanese Yen
|
|
U.S. Dollar/Euro
|
|
11,310,000 U.S. Dollars
|
Information regarding the fair value of the forward contracts outstanding as of October 2, 2011 and
December 31, 2010 was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
|
|
Balance
|
|
Fair Value
|
|
Balance
|
|
Fair Value
|
|
|
|
Sheet
|
|
October 2,
|
|
December 31,
|
|
Sheet
|
|
October 2,
|
|
December 31,
|
|
|
|
Location
|
|
2011
|
|
2010
|
|
Location
|
|
2011
|
|
2010
|
|
Currency
forward contracts
|
|
Prepaid expenses
and other current
assets
|
|
$
|
13
|
|
|
$
|
83
|
|
|
Accrued
expenses
|
|
$
|
370
|
|
|
$
|
125
|
|
Information regarding the effect of the forward contracts, net of the underlying exposure, on
the Consolidated Statements of Operations for the three-month and nine-month periods ended October
2, 2011 and October 3, 2010 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of
|
|
Amount of Loss
|
|
Location of
|
|
Amount of Gain (Loss)
|
|
|
|
Loss
|
|
Recognized in Income on
|
|
Gain (Loss)
|
|
Recognized in Income on
|
|
|
|
Recognized
|
|
Derivatives
|
|
Recognized
|
|
Derivatives
|
|
|
|
in Income
|
|
Three-months ended
|
|
in Income
|
|
Nine-months ended
|
|
|
|
on
|
|
October 2,
|
|
October 3,
|
|
on
|
|
October 2,
|
|
October 3,
|
|
|
|
Derivatives
|
|
2011
|
|
2010
|
|
Derivatives
|
|
2011
|
|
2010
|
|
Currency
forward contracts
|
|
Foreign currency loss
|
|
$ (171)
|
|
$
|
(88
|
)
|
|
Foreign currency loss
|
|
$ (43)
|
|
$
|
185
|
|
11
COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 11: Stock-Based Compensation Expense
The Company’s share-based payments that result in compensation expense consist solely of stock
option grants. As of October 2, 2011, the Company had 7,013,112 shares available for grant under
two stock option plans: the 2001 General Stock Option Plan (5,519,627) and the 2007 Stock Option
and Incentive Plan (1,493,485). Each of these plans expires ten years from the date the plan was
approved. The 2001 General Stock Option Plan will expire in December of 2011, unless the Company’s
shareholders approve an amendment and restatement of the plan which would extend the plan until
September of 2021. Generally, stock options are granted with an exercise price equal to the market
value of the Company’s common stock at the grant date, vest over four years based upon continuous
service, and expire ten years from the grant date.
The following table summarizes the Company’s stock option activity for the nine-month period ended
October 2, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
|
Shares
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Value
|
|
|
|
|
(in thousands)
|
|
|
Price
|
|
|
Term (in years)
|
|
|
(in thousands)
|
|
|
Outstanding as of December 31, 2010
|
|
|
4,318
|
|
|
$
|
20.05
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
986
|
|
|
|
30.43
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,351
|
)
|
|
|
20.70
|
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(67
|
)
|
|
|
21.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of October 2, 2011
|
|
|
3,886
|
|
|
$
|
22.46
|
|
|
|
7.2
|
|
|
$
|
21,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of October 2, 2011
|
|
|
1,305
|
|
|
$
|
20.39
|
|
|
|
4.9
|
|
|
$
|
8,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair values of stock options granted in each period presented were estimated using the
following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-months Ended
|
|
Nine-months Ended
|
|
|
|
October 2,
|
|
October 3,
|
|
October 2,
|
|
October 3,
|
|
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
|
Risk-free rate
|
|
|
3.6
|
%
|
|
|
3.2
|
%
|
|
|
3.6
|
%
|
|
|
3.4
|
%
|
|
Expected dividend yield
|
|
|
1.0
|
%
|
|
|
1.4
|
%
|
|
|
1.0
|
%
|
|
|
1.3
|
%
|
|
Expected volatility
|
|
|
42
|
%
|
|
|
44
|
%
|
|
|
42
|
%
|
|
|
44
|
%
|
|
Expected term (in years)
|
|
|
5.2
|
|
|
|
5.3
|
|
|
|
5.4
|
|
|
|
5.3
|
|
Risk-free rate
The risk-free rate was based upon a treasury instrument whose term was consistent with the
contractual term of the option.
Expected
dividend yield
The current dividend yield was calculated by annualizing the cash dividend declared by the
Company’s Board of Directors for the current quarter and dividing that result by the closing stock
price on the grant date. The current dividend yield was then adjusted to reflect the Company’s
expectations relative to future dividend declarations.
Expected
volatility
The expected volatility was based upon a combination of historical volatility of the Company’s
common stock over the contractual term of the option and implied volatility for traded options of
the Company’s stock.
Expected
term
The expected term was derived from the binomial lattice model from the impact of events that
trigger exercises over time.
The weighted-average grant-date fair values of stock options granted during the three-month periods
ended October 2, 2011 and October 3, 2010 were $11.89 and $6.89, respectively. The
weighted-average grant-
12
COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
date fair values of stock options granted during the nine-month periods
ended October 2, 2011 and October 3, 2010 were $11.78 and $7.10, respectively.
The Company stratifies its employee population into two groups: one consisting of senior management
and another consisting of all other employees. The Company currently expects that approximately
66% of its stock options granted to senior management and 68% of its options granted to all other
employees will actually vest. Therefore, the Company currently applies an estimated forfeiture
rate of 13% to all unvested options for senior management and a rate of 14% for all other
employees. The Company revised its estimated forfeiture rates in the first quarter of 2011, and
the cumulative effect of this change resulted in a reduction in compensation expense of
approximately $80,000.
The total stock-based compensation expense and the related income tax benefit recognized for the
three-month period ended October 2, 2011 were $1,520,000 and $502,000, respectively, and for the
three-month period ended October 3, 2010 were $1,278,000 and $421,000, respectively. The total
stock-based compensation expense and the related income tax benefit recognized for the nine-month
period ended October 2, 2011 were $5,829,000 and $1,947,000, respectively, and for the nine-month
period ended October 3, 2010 were $1,672,000 and $552,000, respectively. No compensation expense
was capitalized as of October 2, 2011 or December 31, 2010.
The following table details the stock-based compensation expense by caption for each period
presented on the Consolidated Statements of Operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-months Ended
|
|
|
Nine-months Ended
|
|
|
|
|
October 2,
|
|
|
October 3,
|
|
|
October 2,
|
|
|
October 3,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
Product cost of revenue
|
|
$
|
80
|
|
|
$
|
63
|
|
|
$
|
350
|
|
|
$
|
135
|
|
|
Service cost of revenue
|
|
|
27
|
|
|
|
32
|
|
|
|
136
|
|
|
|
44
|
|
|
Research, development, and engineering
|
|
|
394
|
|
|
|
346
|
|
|
|
1,732
|
|
|
|
680
|
|
|
Selling, general, and administrative
|
|
|
1,019
|
|
|
|
837
|
|
|
|
3,611
|
|
|
|
813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,520
|
|
|
$
|
1,278
|
|
|
$
|
5,829
|
|
|
$
|
1,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic values of stock options exercised for the three-month periods ended
October 2, 2011 and October 3, 2010 were $5,254,000 and $2,004,000, respectively. The total
intrinsic values of stock options exercised for the nine-month periods ended October 2, 2011 and
October 3, 2010 were $17,808,000 and $2,055,000, respectively.
The total fair values of stock options vested for the three-month periods ended October 2, 2011 and
October 3, 2010 were $469,000 and $557,000, respectively. The total fair values of stock options
vested for the nine-month periods ended October 2, 2011 and October 3, 2010 were $9,846,000 and
$12,790,000, respectively. As of October 2, 2011, total unrecognized compensation expense related to non-vested stock options
was $8,789,000, which is expected to be recognized over a weighted-average period of 1.6 years.
NOTE 12: Stock Repurchase Program
In April 2008, the Company’s Board of Directors authorized the repurchase of up to $50,000,000 of
the Company’s common stock. As of October 2, 2011, the Company had repurchased a total of
1,375,875 shares at a cost of $30,000,000 under this program, including 337,078 shares at a cost of
$10,000,000 during the third quarter of 2011. The Company may repurchase shares under this program
in future periods depending upon a variety of factors, including, among other things, stock price
levels, share availability, and cash reserve requirements.
A reconciliation of the United States federal statutory corporate tax rate to the Company’s
effective tax rate was as follows:
13
COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-months Ended
|
|
|
Nine-months Ended
|
|
|
|
|
October 2,
|
|
|
October 3,
|
|
|
October 2,
|
|
|
October 3,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
Income tax at federal statutory rate
|
|
|
35
|
%
|
|
|
35
|
%
|
|
|
35
|
%
|
|
|
35
|
%
|
|
State income taxes, net of federal benefit
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
Foreign tax rate differential
|
|
|
(13
|
)
|
|
|
(13
|
)
|
|
|
(13
|
)
|
|
|
(13
|
)
|
|
Discrete tax events
|
|
|
(2
|
)
|
|
|
(3
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
|
21
|
%
|
|
|
20
|
%
|
|
|
22
|
%
|
|
|
22
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company’s effective tax rates were provisions of 21% and 22% for the three-month and
nine-month periods ended in 2011, respectively, compared to provisions of 20% and 22% for the same
periods in 2010.
The Company’s effective tax rate for the third quarter of 2011 included a decrease in tax expense
of $808,000 due to the expiration of the statutes of limitations for certain reserves for income
tax uncertainties, along with a decrease in tax expense of $155,000 resulting from the Company’s
settlement of its Advanced Pricing Agreement between Japan and Ireland. These reductions in tax
expense were partially offset by the final true-up of the prior year’s tax accrual upon filing the
actual tax returns, which increased tax expense by $574,000. In addition, a deferred tax asset and
a related valuation allowance of $2,457,000 were recognized for incremental foreign tax credits in
the United States generated in 2010. These credits may be utilized in a future period and would be
reversed if appropriate at that time. These discrete tax events decreased the effective tax rate
from a provision of 23% to a provision of 21% for the three-month period in 2011 and decreased the
effective tax rate from a provision of 23% to a provision of 22% for the nine-month period in 2011.
The Company’s effective tax rate for the third quarter of 2010 included a decrease in tax expense
of $462,000 due to the settlement of the Competent Authority tax case with Japan, a decrease in tax
expense of $151,000 for the final true-up of the prior year’s tax accrual upon filing the actual
tax returns, and a decrease in tax expense of $105,000 upon the expiration of statutes of
limitations for certain reserves for income tax uncertainties. These discrete tax events decreased
the effective tax rate from a provision of 23% to a provision of 20% for the three-month period in
2010 and decreased the effective tax rate from a provision of 23% to a provision of 22% for the
nine-month period in 2010.
Excluding these discrete tax events, the Company’s effective tax rate remained a provision of 23%
of the Company’s pretax income for both 2011 and 2010.
During the nine-month period ended October 2, 2011, excluding the impact of discrete events, the
Company recorded a $478,000 increase in liabilities, net of deferred tax benefit, for uncertain tax
positions that were recorded as income tax expense, of which $179,000 was recorded in the
three-month period ended October 2, 2011. Estimated interest and penalties included in these
amounts totaled $61,000 for the nine-month period ended October 2, 2011, of which $20,000 was
recorded in the three-month period ended October 2, 2011.
The Company’s reserve for income taxes, including gross interest and penalties of $1,158,000, was
$4,849,000 as of October 2, 2011, of which $558,000 are classified as current and $4,291,000 are
classified as non-current. If the Company’s tax positions were sustained or the statutes of
limitations related to certain positions expired, these reserves would be released and income tax
expense would be reduced in a future period, less $147,000 that would be recorded through
Additional Paid in Capital. As a result of the expiration of certain statutes of limitations,
there is a potential that a portion of these reserves could be released, which would decrease
income tax expense by approximately $250,000 to $500,000 over the next twelve months.
The Company has defined its major tax jurisdictions as the United States, Ireland, and Japan, and
within the United States, Massachusetts and California. The tax years 2007 through 2010 remain
open to examination by various taxing authorities in the jurisdictions in which the Company
operates.
14
COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 14: Weighted-Average Shares
Weighted-average shares were calculated as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-months Ended
|
|
|
Nine-months Ended
|
|
|
|
|
October 2,
|
|
|
October 3,
|
|
|
October 2,
|
|
|
October 3,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
Basic weighted-average common
shares outstanding
|
|
|
42,128
|
|
|
|
39,729
|
|
|
|
41,765
|
|
|
|
39,693
|
|
|
Effect of dilutive stock options
|
|
|
848
|
|
|
|
188
|
|
|
|
917
|
|
|
|
99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common and
common-equivalent shares outstanding
|
|
|
42,976
|
|
|
|
39,917
|
|
|
|
42,682
|
|
|
|
39,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options to purchase 1,007,991 and 821,035 shares of common stock, on a weighted-average
basis, were outstanding during the three-month and nine-month periods ended October 2, 2011,
respectively, and 3,665,742 and 3,441,414 for the same periods in 2010, but were not included in
the calculation of dilutive net income per share because they were anti-dilutive.
NOTE 15: Segment Information
The Company has two reportable segments: the Modular Vision Systems Division (MVSD) and the Surface
Inspection Systems Division (SISD). MVSD develops, manufactures, and markets modular vision
systems that are used to control the manufacture of discrete items by locating, identifying,
inspecting, and measuring them during the manufacturing process. SISD develops, manufactures, and
markets surface inspection vision systems that are used to inspect surfaces of materials processed
in a continuous fashion, such as metals, papers, non-wovens, plastics, and glass, to ensure there
are no flaws or defects on the surfaces. Segments are determined based upon the way that senior
management organizes its business for making operating decisions and assessing performance. The
Company evaluates segment performance based upon income or loss from operations, excluding
stock-based compensation expense.
The following table summarizes information about the Company’s segments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-months Ended
|
|
|
|
|
|
|
|
|
|
Reconciling
|
|
|
|
October 2, 2011
|
|
MVSD
|
|
SISD
|
|
Items
|
|
Consolidated
|
|
Product revenue
|
|
$
|
66,404
|
|
|
$
|
7,761
|
|
|
$
|
—
|
|
|
$
|
74,165
|
|
|
Service revenue
|
|
|
1,771
|
|
|
|
4,149
|
|
|
|
—
|
|
|
|
5,920
|
|
|
Operating income
|
|
|
23,422
|
|
|
|
2,891
|
|
|
|
(3,924
|
)
|
|
|
22,389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine-months Ended
|
|
|
|
|
|
|
|
|
|
Reconciling
|
|
|
|
October 2, 2011
|
|
MVSD
|
|
SISD
|
|
Items
|
|
Consolidated
|
|
Product revenue
|
|
$
|
200,163
|
|
|
$
|
20,445
|
|
|
$
|
—
|
|
|
$
|
220,608
|
|
|
Service revenue
|
|
|
5,574
|
|
|
|
11,690
|
|
|
|
—
|
|
|
|
17,264
|
|
|
Operating income
|
|
|
72,036
|
|
|
|
5,910
|
|
|
|
(14,147
|
)
|
|
|
63,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-months Ended
|
|
|
|
|
|
|
|
|
|
Reconciling
|
|
|
|
October 3, 2010
|
|
MVSD
|
|
SISD
|
|
Items
|
|
Consolidated
|
|
Product revenue
|
|
$
|
61,454
|
|
|
$
|
7,834
|
|
|
$
|
—
|
|
|
$
|
69,288
|
|
|
Service revenue
|
|
|
1,618
|
|
|
|
4,087
|
|
|
|
—
|
|
|
|
5,705
|
|
|
Operating income
|
|
|
24,651
|
|
|
|
2,290
|
|
|
|
(4,666
|
)
|
|
|
22,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine-months Ended
|
|
|
|
|
|
|
|
|
|
Reconciling
|
|
|
|
October 3, 2010
|
|
MVSD
|
|
SISD
|
|
Items
|
|
Consolidated
|
|
Product revenue
|
|
$
|
170,459
|
|
|
$
|
20,509
|
|
|
$
|
—
|
|
|
$
|
190,968
|
|
|
Service revenue
|
|
|
4,768
|
|
|
|
10,035
|
|
|
|
—
|
|
|
|
14,803
|
|
|
Operating income
|
|
|
63,035
|
|
|
|
3,292
|
|
|
|
(13,559
|
)
|
|
|
52,768
|
|
15
COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Reconciling items consist of stock-based compensation expense and unallocated corporate expenses,
which primarily include corporate headquarters costs, professional fees, and patent infringement
litigation. Additional asset information by segment is not produced internally for use by the
chief operating decision maker, and therefore, is not presented. Additional asset information is
not provided because cash and investments are commingled and the divisions share assets and
resources in a number of locations around the world.
NOTE
16: Subsequent Events
On November 1, 2011, the Company’s Board of Directors declared a cash dividend of $0.10 per share.
The dividend is payable on December 16, 2011 to all shareholders of record at the close of business
on December 2, 2011.
In addition, on November 1, 2011, the
Company’s Board of Directors authorized the repurchase of up to
$80,000,000 of Cognex common
stock in open market transactions to help reduce share dilution associated with equity incentive plans.
This new authorization will commence once the Company completes the existing $50,000,000 repurchase program,
of which approximately $20,000,000 remains available.
16
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
Certain statements made in this report, as well as oral statements made by the Company from time to
time, constitute forward-looking statements within the meaning of Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Readers
can identify these forward-looking statements by our use of the words “expects,” “anticipates,”
“estimates,” “believes,” “projects,” “intends,” “plans,” “will,” “may,” “shall,” “could,” “should,”
and similar words and other statements of a similar sense. These statements are based upon our
current estimates and expectations as to prospective events and circumstances, which may or may not
be in our control and as to which there can be no firm assurances given. These forward-looking
statements, which include statements regarding business and market trends, future financial
performance, customer order rates, and growth and strategic plans, involve known and unknown risks
and uncertainties that could cause actual results to differ materially from those projected. Such
risks and uncertainties include: (1) current and future conditions in the global economy; (2) the
cyclicality of the semiconductor and electronics industries; (3) the inability to penetrate new
markets; (4) the inability to achieve significant international revenue; (5) fluctuations in
foreign currency exchange rates; (6) the loss of a large customer; (7) the inability to attract and
retain skilled employees; (8) the reliance upon key suppliers to manufacture and deliver critical
components for our products; (9) the failure to effectively manage product transitions or
accurately forecast customer demand; (10) the inability to design and manufacture high-quality
products; (11) the technological obsolescence of current products and the inability to develop new
products; (12) the failure to properly manage the distribution of products and services; (13) the
inability to protect our proprietary technology and intellectual property; (14) our involvement in
time-consuming and costly litigation; (15) the impact of competitive pressures; (16) the challenges
in integrating and achieving expected results from acquired businesses; (17) potential impairment
charges with respect to our investments or for acquired intangible assets or goodwill; and (18)
exposure to additional tax liabilities. The foregoing list should not be construed as exhaustive
and we encourage readers to refer to the detailed discussion of risk factors included in Part I -
Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010, as
well as Part II- Item 1A of this report. The Company cautions readers not to place undue reliance
upon any such forward-looking statements, which speak only as of the date made. The Company
disclaims any obligation to subsequently revise forward-looking statements to reflect the
occurrence of anticipated or unanticipated events or circumstances after the date such statements
are made.
Executive Overview
Cognex Corporation is a leading worldwide provider of machine vision products that capture and
analyze visual information in order to automate tasks, primarily in manufacturing processes, where
vision is required. Our Modular Vision Systems Division (MVSD) specializes in machine vision
systems that are used to automate the manufacturing of discrete items, while our Surface Inspection
Systems Division (SISD) specializes in machine vision systems that are used to inspect the surfaces
of materials processed in a continuous fashion.
In addition to product revenue derived from the sale of machine vision systems, the Company also
generates revenue by providing maintenance and support, training, consulting, and installation
services to its customers. Our customers can be classified into three primary markets: factory
automation, semiconductor and electronics capital equipment, and surface inspection.
|
|
•
|
|
Factory automation customers purchase Cognex vision products and incorporate them into
their manufacturing processes. Virtually every manufacturer can achieve better quality and
manufacturing efficiency by using machine vision, and therefore, this segment includes a
broad base of customers across a variety of industries, including automotive, consumer
electronics, food and beverage, health and beauty, medical devices, packaging,
pharmaceutical, and solar. The factory automation market also includes customers who purchase Cognex vision products
for use outside of the assembly process, such as using ID products in logistics automation
for package sorting and distribution. Sales to factory automation customers represented
approximately 74% of total revenue in the third quarter of 2011.
|
17
|
|
•
|
|
Semiconductor and electronics capital equipment manufacturers purchase Cognex vision
products and integrate them into the automation equipment that they manufacture and then
sell to their customers to either make semiconductor chips or assemble printed circuit
boards. Demand from these capital equipment manufacturers has historically been highly
cyclical, with periods of investment followed by downturn. Sales to semiconductor and
electronics capital equipment manufacturers represented approximately 11% of total revenue
in the third quarter of 2011.
|
|
|
|
|
•
|
|
Surface inspection customers are manufacturers of materials processed in a continuous
fashion, such as metals, paper, non-wovens, plastics, and glass. These customers need
sophisticated machine vision to detect and classify defects on the surfaces of those
materials as they are being processed at high speeds. Surface inspection sales represented
approximately 15% of total revenue in the third quarter of 2011.
|
Revenue for the third quarter of 2011 totaled $80,085,000, representing a 7% increase from the
third quarter of 2010. Gross margin was 76% of revenue in the third quarter of 2011, compared to
75% of revenue in the same period of 2010. Operating expenses increased by $4,938,000 over the
prior year’s third quarter due primarily to expenses associated with increased headcount in
strategic areas and the unfavorable impact of changes in foreign currency exchange rates. The
Company generated an operating profit of $22,389,000, or 28% of revenue, in the third quarter of
2011, compared to an operating profit of $22,275,000, or 30% of revenue, in the third quarter of
2010.
Results of Operations
Revenue
Revenue increased by $5,092,000, or 7%, over the equivalent three-month period in 2010 and
increased by $32,101,000, or 16%, over the equivalent nine-month period in 2010. Increases in both
periods were primarily due to higher sales to customers in the factory automation market.
Factory Automation
Sales to manufacturing customers in the factory automation area, which are included in the
Company’s MVSD segment, represented 74% and 73% of total revenue for the three-month and nine-month
periods in 2011, respectively, compared to 65% and 68% for the same periods in 2010. Sales to
these customers increased by $10,858,000, or 22%, for the three-month period and increased by
$33,244,000, or 24%, for the nine-month period. A weaker U.S. Dollar in 2011 compared to the prior
year contributed to the higher revenue, as sales denominated in foreign currencies were translated
to U.S. Dollars. Excluding the impact of foreign exchange rate changes on revenue, sales to
factory automation customers increased by $7,704,000, or 16%, for the three-month period and
increased by $27,369,000, or 20%, for the nine-month period. The largest dollar increases were
experienced in the Americas and Europe, where the Company has a broad base of factory automation
customers, and the largest percentage increase was experienced in Asia, where the Company has
expanded its sales and support infrastructure, particularly in China, in order to access more of
the machine vision market in this high-potential growth region. Revenue in Japan was lower for
both the three-month and nine-month periods as business levels in 2011 have been negatively
impacted by the earthquake that hit this region earlier in the year, as well as lower demand from
electronics customers.
On a sequential basis, sales to factory automation customers decreased by $2,237,000, or 4%, from
the second quarter of 2011. The Company typically experiences a sequential revenue decline in the
third quarter due to lower demand during the summer months, particularly in Europe. However, this
third quarter, sales to factory automation customers in Europe and the Americas were relatively
flat from the second quarter. The sequential decrease came from a decline in factory automation
revenue in Asia and Japan, primarily from customers that serve the electronics industry. We expect
revenue for the factory automation market to increase for the fourth quarter compared to the third
quarter of 2011.
18
Semiconductor and Electronics Capital Equipment
Sales to customers who make automation equipment for the semiconductor and electronics industries,
which are included in the Company’s MVSD segment, represented 11% and 14% of total revenue for the
three-month and nine-month periods in 2011, respectively, compared to 19% and 17% for the same
periods in 2010. Sales to these customers decreased by $5,755,000, or 39%, for the three-month
period and decreased by $2,734,000, or 8%, for the nine-month period. Revenue for this market has
declined sequentially in each quarter of 2011. The semiconductor and electronics capital equipment
market has historically been highly cyclical and management has limited visibility regarding future
order levels from these customers.
Surface Inspection
Sales to surface inspection customers, which comprise the Company’s SISD segment, represented 15%
and 13% of total revenue for the three-month and nine-month periods in 2011, respectively, compared
to 16% and 15% for the same periods in 2010. Revenue from these customers was relatively flat for
the three-month period and increased by $1,591,000, or 5%, for the nine-month period due to higher
service revenue from customer installations, training, and support. The revenue reported each
quarter can vary depending upon the timing of customer orders, system deliveries, and
installations, as well as the impact of revenue deferrals.
Product Revenue
Product revenue increased by $4,877,000, or 7%, for the three-month period and increased by
$29,640,000, or 16%, for the nine-month period due primarily to a higher volume of vision systems
sold to customers in the factory automation market. The impact of the higher volume was partially
offset by lower MVSD average selling prices, as the Company introduced new products at lower price
points.
Service Revenue
Service revenue, which is derived from the sale of maintenance and support, training, consulting,
and installation services, increased by $215,000, or 4%, for the three-month period and $2,461,000,
or 17%, for the nine-month period due to higher revenue from MVSD consulting services. In the
nine-month period, this increase was also attributed to higher revenue from SISD installation,
training, and support services. Service revenue was relatively consistent as a percentage of total
revenue at 7% for both the three-month and nine-month periods in 2011, as compared to 8% and 7%
for the same periods in 2010.
Gross Margin
Gross margin as a percentage of revenue was 76% for both the three-month and nine-month periods in
2011, respectively, compared to 75% and 74% for the same periods in 2010. This increase was
primarily due to higher SISD margins, as well as a greater percentage of total revenue from the
sale of modular vision systems, which have higher margins than the sale of surface inspection
systems. In the nine-month period, this increase was also attributed to higher MVSD margins.
MVSD Margin
MVSD gross margin as a percentage of revenue was 80% for both the three-month and nine-month
periods in 2011, respectively, compared to 80% and 79% for the same periods in 2010. The increase
in MVSD margin for the nine-month period was primarily due to certain manufacturing efficiencies
achieved from higher revenue levels, as fixed manufacturing costs were spread over a higher revenue
base.
SISD Margin
SISD gross margin as a percentage of revenue was 53% and 51% for the three-month and nine-month
periods in 2011, respectively, compared to 46% and 44% for the same periods in 2010. The increase
in SISD margin was due to improved product margins resulting from low-cost sourcing initiatives and
higher average selling prices, as well as improved installation service margins.
19
Product Margin
Product gross margin as a percentage of revenue was 79% for both the three-month and nine-month
periods in 2011, respectively, compared to 78% and 77% for the same periods in 2010. This increase
was primarily due to higher SISD product margins as described above, as well as a higher percentage
of total revenue from the sale of modular vision systems, which have higher margins than the sale
of surface inspection systems. In the nine-month period, this increase was also attributed to
higher MVSD product margins as described above.
Service Margin
Service gross margin as a percentage of revenue was 45% for both the three-month and nine-month
periods in 2011, respectively, compared to 41% and 38% for the same periods in 2010. This increase
was primarily due to improved margins from SISD installation services.
Operating Expenses
Research, Development, and Engineering Expenses
Research, development, and engineering (RD&E) expenses increased by $2,647,000, or 33%, over the
equivalent three-month period in 2010 and increased by $6,456,000, or 27%, over the equivalent
nine-month period in 2010. MVSD RD&E expenses increased by $2,531,000, or 35%, for the three-month
period and increased by $6,563,000, or 30%, for the nine-month period, while SISD RD&E expenses
increased by $116,000, or 16%, for the three-month period and decreased by $107,000, or 4%, for the
nine-month period.
The table below details the $2,531,000 and $6,563,000 net increase in MVSD RD&E for the three-month
and nine-month periods, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month
|
|
|
Nine-Month
|
|
|
|
|
Period
|
|
|
Period
|
|
|
MVSD RD&E expenses in 2010
|
|
$
|
7,216
|
|
|
$
|
21,610
|
|
|
Personnel-related costs
|
|
|
1,104
|
|
|
|
3,258
|
|
|
Stock-based compensation expense
|
|
|
52
|
|
|
|
1,052
|
|
|
Outsourced engineering services
|
|
|
352
|
|
|
|
601
|
|
|
Foreign currency exchange rate changes
|
|
|
339
|
|
|
|
488
|
|
|
Patent-related costs
|
|
|
124
|
|
|
|
367
|
|
|
Company bonus accruals
|
|
|
241
|
|
|
|
319
|
|
|
Other
|
|
|
319
|
|
|
|
478
|
|
|
|
|
|
|
|
|
|
|
MVSD RD&E expenses in 2011
|
|
$
|
9,747
|
|
|
$
|
28,173
|
|
|
|
|
|
|
|
|
|
Over the past year, the Company has increased RD&E headcount in strategic areas, resulting in
higher personnel-related costs. The Company also recorded increased stock-based compensation
expense due to a higher valuation of stock options granted in the first quarter of 2011, higher
costs from outsourced engineering services, higher costs to patent new technology, and increased
company bonus accruals. In addition, a weaker U.S. Dollar in 2011 compared to the prior year
resulted in higher RD&E costs when expenses of the Company’s foreign operations were translated to
U.S. Dollars.
The increase in SISD RD&E expenses for the three-month period was due to both increased company
bonus accruals ($64,000) and higher costs from outsourced engineering services ($57,000). The
decrease in SISD RD&E expenses for the nine-month period was primarily due to a change in personnel
mix, resulting in lower personnel-related costs ($144,000).
RD&E expenses as a percentage of revenue were 13% for both the three-month and nine-month periods
in 2011 compared to 11% and 12% for the same periods in 2010. We believe that a continued commitment to RD&E activities
is essential in order to maintain or achieve product leadership with
our existing products and to provide innovative new product offerings, and therefore, we expect to
continue to make RD&E investments in the future in strategic areas, such as the ID products
business. In addition, we consider our ability to accelerate time to market for new products to be
critical to our revenue growth. Although we target our RD&E spending to be between 10% and 15% of
revenue, this percentage is impacted by revenue levels.
20
Selling, General, and Administrative Expenses
Selling, general, and administrative (SG&A) expenses increased by $2,278,000, or 9%, over the
equivalent three-month period in 2010 and increased by $11,545,000, or 15%, over the equivalent
nine-month period in 2010. MVSD SG&A expenses increased by $3,126,000, or 16%, for the three-month
period and increased by $13,759,000, or 25%, for the nine-month period, while SISD SG&A expenses
increased by $108,000, or 4%, for the three-month period and increased by $474,000, or 6%, for the
nine-month period. Corporate expenses that are not allocated to either division decreased by
$956,000, or 25%, for the three-month period and decreased by $2,688,000, or 21%, for the
nine-month period.
The table below details the $3,126,000 and $13,759,000 net increase in MVSD SG&A for the
three-month and nine-month periods, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month
|
|
|
Nine-Month
|
|
|
|
|
Period
|
|
|
Period
|
|
|
MVSD SG&A expenses in 2010
|
|
$
|
19,496
|
|
|
$
|
54,697
|
|
|
Personnel-related costs
|
|
|
2,842
|
|
|
|
7,912
|
|
|
Foreign currency exchange rate changes
|
|
|
1,555
|
|
|
|
3,371
|
|
|
Stock-based compensation expense
|
|
|
197
|
|
|
|
1,803
|
|
|
Marketing and promotional expenses
|
|
|
358
|
|
|
|
1,741
|
|
|
Sales commissions
|
|
|
(1,783
|
)
|
|
|
(2,615
|
)
|
|
Other
|
|
|
(43
|
)
|
|
|
1,547
|
|
|
|
|
|
|
|
|
|
|
MVSD SG&A expenses in 2011
|
|
$
|
22,622
|
|
|
$
|
68,456
|
|
|
|
|
|
|
|
|
|
Over the past year, the Company has increased SG&A headcount in strategic areas, resulting in
higher personnel-related costs, such as salaries, fringe benefits, commissions, and travel
expenses. The Company also recorded increased stock-based compensation expense due to a higher
valuation of stock options granted in the first quarter of 2011, higher spending on marketing and
promotional activities intended to grow factory automation revenue, and the unfavorable impact of
changes in foreign currency exchange rates. Offsetting these increases was lower sales
commissions, as fewer sales employees are exceeding their bookings quotas compared to the prior
year.
The increase in SISD SG&A expense was primarily due to the unfavorable impact of changes in foreign
currency exchange rates ($143,000 for the three-month period and $318,000 for the nine-month
period).
The decrease in corporate expenses was due to lower legal fees primarily related to patent
infringement actions ($861,000 for the three-month period and $3,568,000 for the nine-month
period). In the nine-month period, these savings were partially offset by increased stock-based
compensation expense due to a higher valuation of stock options ($876,000).
Nonoperating Income (Expense)
The Company recorded foreign currency losses of $231,000 and $80,000 for the three-month and
nine-month periods in 2011, respectively, compared to a gain of $102,000 and a loss of $71,000 for
the same periods in 2010. The foreign currency gains and losses in each period resulted primarily
from the revaluation and settlement of accounts receivable and intercompany balances that are
reported in one currency and collected in another. Although the foreign currency exposure of
accounts receivable is largely mitigated through the use of forward contracts, this program depends
upon forecasts of sales and collections, and therefore, gains or losses on the underlying
receivables may not perfectly offset losses or gains on the contracts.
Investment income increased by $533,000, or 139%, and $1,270,000, or 134%, for the three-month and
nine-month periods, respectively. For the three-month period, the increase was primarily due to
improving yields on the Company’s portfolio of debt securities. For the nine-month period, the
increase was due to improving yields, as well as an increase in funds available for investment.
The Company recorded other expense of $156,000 and $509,000 for the three-month and nine-month
periods in 2011, respectively, compared to expense of $129,000 and $531,000 for the same periods in
2010. Other income (expense) includes rental income, net of associated expenses, from leasing
buildings adjacent to the Company’s corporate headquarters. A portion of this space is currently
unoccupied.
21
Income Tax Expense
The Company’s effective tax rates were provisions of 21% and 22% for the three-month and nine-month
periods in 2011, respectively, compared to provisions of 20% and 22% for the same periods in 2010.
The Company’s effective tax rate for the third quarter of 2011 included a decrease in tax expense
of $808,000 due to the expiration of statutes of limitations for certain reserves for income tax
uncertainties, along with a decrease in tax expense of $155,000 resulting from the Company’s
settlement of its Advanced Pricing Agreement between Japan and Ireland. These reductions in tax
expense were partially offset by the final true-up of the prior year’s tax accrual upon filing the
actual tax returns, which increased tax expense by $574,000. In addition, a deferred tax asset and
a related valuation allowance of $2,457,000 were recognized for incremental foreign tax credits in
the United States generated in 2010. These credits may be utilized in a future period and would be
reversed if appropriate at that time. These discrete tax events decreased the effective tax rate
from a provision of 23% to a provision of 21% for the three-month period in 2011 and decreased the
effective tax rate from a provision of 23% to a provision of 22% for the nine-month period in 2011.
The Company’s effective tax rate for the third quarter of 2010 included a decrease in tax expense
of $462,000 due to the settlement of the Competent Authority tax case with Japan, a decrease in tax
expense of $151,000 for the final true-up of the prior year’s tax accrual upon filing the actual
tax returns, and a decrease in tax expense of $105,000 upon the expiration of statutes of
limitations for certain reserves for income tax uncertainties. These discrete tax events decreased
the effective tax rate from a provision of 23% to a provision of 20% for the three-month period in
2010 and decreased the effective tax rate from a provision of 23% to a provision of 22% for the
nine-month period in 2010.
Excluding these discrete tax events, the Company’s effective tax rate remained a provision of 23%
of the Company’s pretax income for both 2011 and 2010.
Liquidity and Capital Resources
The Company has historically been able to generate positive cash flow from operations, which has
funded its operating activities and other cash requirements and has resulted in an accumulated
cash, cash equivalent, and investment balance of $346,105,000 as of October 2, 2011. The Company
has established guidelines relative to credit ratings, diversification, and maturities of its
investments that maintain liquidity.
The Company’s cash requirements during the nine-month period in 2011 were met with its existing
cash balances, cash from investment maturities, positive cash flows from operations, and proceeds
from stock option exercises. Cash requirements primarily consisted of operating activities,
purchases of investments, the payment of dividends, the repurchase of common stock, and capital
expenditures. Capital expenditures for the nine-month period in 2011 totaled $5,545,000 and
consisted primarily of expenditures for computer hardware, computer software, and manufacturing
test equipment for new product introductions.
In June 2000, the Company became a Limited Partner in Venrock Associates III, L.P. (Venrock), a
venture capital fund. The Company has committed to a total investment in the limited partnership
of up to $20,500,000, with the commitment period expiring on December 31, 2013. The Company does
not have the right to withdraw from the partnership prior to December 31, 2013. As of October 2,
2011, the Company had contributed $19,886,000 to the partnership. No contributions were made and
no distributions were received during the nine-month period in 2011. The remaining commitment of
$614,000 can be called by Venrock in any period through December 31, 2013.
Beginning in the third quarter of 2003, the Company’s Board of Directors has declared and paid a
cash dividend in each quarter, including dividends of $0.08 per share in the first quarter of 2011
and $0.09 per share in both the second and third quarters of 2011 that amounted to $10,897,000 for
the nine-month period in 2011. On November 1, 2011, the Company’s Board of Directors declared a
cash dividend of $0.10 per share payable in the fourth quarter of 2011. Future dividends will be declared at the
discretion of the Company’s Board of Directors and will depend upon such factors as the Board deems
relevant including, among other things, the Company’s ability to generate positive cash flows from
operations.
22
In April 2008, the Company’s Board of Directors authorized the repurchase of up to $50,000,000 of
the Company’s common stock, primarily as a means to reduce the dilutive effect of employee stock
options. As of October 2, 2011, the Company had repurchased 1,375,875 shares at a cost of
$30,000,000 under this program. The Company purchased 337,078 shares at a cost of $10,000,000
during the third quarter of 2011. The Company did not purchase any shares under this program
during the first half of 2011. The Company may repurchase shares under this program in future
periods depending upon a variety of factors, including, among other things, stock price levels,
share availability, and cash reserve requirements.
The Company believes that its existing cash, cash equivalents, and investments balances, together
with cash flow from operations, will be sufficient to meet its operating, investing, and financing
activities for the next twelve months. As of October 2, 2011, the Company had approximately
$340,172,000 in either cash or investments that could be converted into cash. In addition, Cognex
has no long-term debt and does not anticipate needing debt financing in the near future. We
believe that our strong cash position has put us in a relatively good position with respect to our
longer-term liquidity needs.
New Pronouncements
Accounting Standards Update (ASU) 2011-04, “Fair Value Measurements: Amendments to Achieve
Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs”
The amendments in this ASU change certain aspects of the fair value measurement guidance in
Accounting Standards Codification (ASC) 820, “Fair Value Measurement” in order to make U.S. GAAP
and international standards more consistent. These changes include the application of the concepts
of highest and best use and valuation premise, introduction of an option to measure groups of
offsetting assets and liabilities on a net basis, incorporation of certain premiums and discounts
in fair value measurements, and measurement of the fair value of certain instruments classified in
shareholders’ equity. In addition, the amended guidance includes new fair value disclosure
requirements, including, among other things, information about valuation techniques and
unobservable inputs used in Level 3 fair value measurements and a narrative description of Level 3
measurements’ sensitivity to changes in unobservable inputs. ASU 2011-04 must be applied
prospectively and is effective for the first quarter of 2012. Management is in the process of
evaluating the impact of this ASU.
Accounting Standards Update (ASU) 2011-05, “Comprehensive Income”
The amendments in this ASU revise the manner in which companies present comprehensive income in
their financial statements in order to make U.S. GAAP and international standards more consistent.
This ASU requires companies to report the components of comprehensive income in either a continuous
statement of comprehensive income or in two separate but consecutive statements. In the
two-statement approach, the first statement would present the components of net income, similar to
the Company’s current Consolidated Statements of Operations, while the second statement would
include the components of other comprehensive income (OCI), as well as a cumulative total for
comprehensive income. This ASU does not change the items that must be reported in OCI. ASU
2011-05 must be applied retrospectively. On October 21, 2011, the Financial Accounting Standards
Board (FASB) proposed a deferral of the requirement to present reclassifications of OCI on the face
of the income statement. Management is awaiting the FASB’s final decision and will evaluate the
impact of this ASU at that time.
Accounting Standards Update (ASU) 2011-08, “Testing Goodwill For Impairment”
In the third quarter of 2011, the Financial Accounting Standards Board (FASB) issued an ASU aimed
at simplifying entities’ annual goodwill impairment test. The revised standard is intended to
reduce the cost and complexity of the annual goodwill impairment test by providing entities an
option to perform a qualitative assessment to determine whether further impairment testing is
necessary. The revised standard is effective for annual and interim goodwill impairment tests
performed in 2012; however, early adoption is allowed. Management has elected to adopt this standard early and will apply the
provisions of this ASU to its 2011 annual analysis of goodwill.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes to the Company’s exposures to market risk since December 31,
2010.
23
ITEM 4: CONTROLS AND PROCEDURES
As required by Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934, the Company has
evaluated, with the participation of management, including the Chief Executive Officer and the
Chief Financial Officer, the effectiveness of its disclosure controls and procedures (as defined in
such rules) as of the end of the period covered by this report. Based on such evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that such disclosure controls and
procedures were effective as of that date. From time to time, the Company reviews its disclosure
controls and procedures, and may from time to time make changes aimed at enhancing their
effectiveness and to ensure that the Company’s systems evolve with its business. There was no
change in the Company’s internal control over financial reporting that occurred during the
three-month period ended October 2, 2011 that has materially affected, or is reasonably likely to
materially affect, the Company’s internal control over financial reporting.
24
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In May 2008, the Company filed a complaint against MvTec Software GmbH, MvTec
LLC, and Fuji America Corporation in the United States District Court for the
District of Massachusetts alleging infringement of certain patents owned by the
Company. In April 2009 and again in June 2009, Defendant MvTec Software GmbH filed
re-examination requests of the patents-at-issue with the United States Patent and
Trademark Office. This matter is ongoing.
In May 2009, the Company pre-filed a complaint with the United States International
Trade Commission (ITC) pursuant to Section 337 of the Tariff Act of 1930, as
amended, 19 U.S.C. §1337, against MvTec Software GmbH, MvTec LLC, Fuji America, and
several other respondents alleging unfair methods of competition and unfair acts in
the unlawful importation into the United States, sale for importation, or sale
within the United States after importation. By this filing, the Company requested
the ITC to investigate the Company’s contention that certain machine vision
software, machine vision systems, and products containing the same infringe, and
respondents directly infringe and/or actively induce and/or contribute to the
infringement in the United States, of one or more of the Company’s U.S. patents. In
July 2009, the ITC issued an order that it would institute an investigation based
upon the Company’s assertions. In September 2009, the Company reached a settlement
with two of the respondents, and in December 2009, the Company reached a settlement
with five additional respondents. In March 2010, the Company reached a settlement
with respondent Fuji Machine Manufacturing Co., Ltd. and its subsidiary Fuji America
Corporation. These settlements did not have a material impact on the Company’s
financial results. An ITC hearing was held in May 2010. In July 2010, the
Administrative Law Judge issued an initial determination finding two of the
Company’s patents invalid and that respondents did not infringe the
patents-at-issue. In September 2010, the Commission issued a notice that it would
review the initial determination of the Administrative Law Judge. The ITC issued
its Final Determination in November 2010 in which it determined to modify-in-part
and affirm-in-part the Administrative Law Judge’s determination, and terminate the
investigation with a finding of no violation of Section 337 of the Tariff Act of
1930 (as amended 19 U.S.C. §1337). The Company has filed an appeal of the decision
with the United States Court of Appeals for the Federal Circuit. This matter is
ongoing.
The Company cannot predict the outcome of the above-referenced pending matters and
an adverse resolution of these lawsuits could have a material adverse effect on the
Company’s financial position, liquidity, results of operations, and/or
indemnification obligations. In addition, various other claims and legal
proceedings generally incidental to the normal course of business are pending or
threatened on behalf of or against the Company. While we cannot predict the outcome
of these incidental matters, we believe that any liability arising from them will
not have a material adverse effect on our financial position, liquidity, or results
of operations.
For a complete list of factors that could affect the Company’s business, results of
operations, and financial condition, see the risk factors discussion provided in
Part I — Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2010. The language below has been added to an existing risk
factor previously included on Form 10-K to address the current risks associated with
international sales.
Economic, political, and other risks associated with international sales and
operations could adversely affect our business and operating results.
On March 11, 2011, a large earthquake hit the northeast region of Japan. While the
majority of our customers located in Japan are outside of the affected areas,
certain customers requested that orders totaling approximately $800,000, originally
scheduled for March shipment, be pushed to April. The remaining orders that were on
the backlog at the time of
25
the earthquake, and any new orders, were fulfilled from
our Cork, Ireland distribution center. Our Koriyama, Japan distribution center
suspended shipments for approximately five weeks, but began shipping product again
in April. Cognex does not manufacture in Japan.
Our key suppliers located in Japan are up and running, subject to power outages.
Cognex has a policy of maintaining strategic inventory reserves of critical
components. We have taken action to secure additional supply of
Japanese-manufactured critical parts, such as imagers. For this reason, we do not
expect significant supply disruption as a result of the earthquake. There is
uncertainty, however, regarding how demand from our customers will be impacted going
forward, as the aftermath of this disaster continues to unfold through layers of the
supply chain. A decrease in demand for our products and services, or the
postponement or cancellation of orders from our customers, could negatively impact
our business and operating results.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table sets forth information with respect to purchases by the Company
of shares of its Common Stock during the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar Value of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares that
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number
|
|
|
May Yet Be
|
|
|
|
|
Total
|
|
|
|
|
|
|
of Shares Purchased as
|
|
|
Purchased
|
|
|
|
|
Number of
|
|
|
|
|
|
|
Part of Publicly
|
|
|
Under the
|
|
|
|
|
Shares
|
|
|
Average Price
|
|
|
Announced Plans or
|
|
|
Plans or
|
|
|
|
|
Purchased
|
|
|
Paid per Share
|
|
|
Programs (1)
|
|
|
Programs
|
|
|
July 4- July 31, 2011
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
30,000,000
|
|
|
August 1- August 28, 2011
|
|
|
161,390
|
|
|
$
|
29.96
|
|
|
|
161,390
|
|
|
$
|
25,165,335
|
|
|
August 29 - October 2, 2011
|
|
|
175,688
|
|
|
$
|
29.40
|
|
|
|
175,688
|
|
|
$
|
20,000,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
337,078
|
|
|
$
|
29.66
|
|
|
|
337,078
|
|
|
$
|
20,000,631
|
|
|
|
|
|
|
(1)
|
|
In April 2008, the Company’s Board of Directors authorized the
repurchase of up to $50,000,000 of the Company’s common stock.
|
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. REMOVED AND RESERVED
ITEM 5. OTHER INFORMATION
None
|
|
31.1
|
|
— Certification of Chief Executive Officer pursuant to Rule
13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934*
|
|
|
|
|
31.2
|
|
— Certification of Chief Financial Officer pursuant to Rule
13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934*
|
|
|
|
|
32.1
|
|
— Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
|
|
|
|
|
32.2
|
|
— Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
|
26
|
|
101
|
|
— xBRL (Extensible Business Reporting Language)
|
|
|
|
|
|
|
The following materials from Cognex Corporation’s Quarterly Report on Form
10-Q for the period ended October 2, 2011, formatted in xBRL: (i)
Consolidated Statements of Operations for the three-month and nine-month
periods ended October 2, 2011 and October 3, 2010; (ii) Consolidated Balance
Sheets as of October 2, 2011 and December 31, 2010; (iii) Consolidated
Statement of Shareholders’ Equity and Comprehensive Income for the
nine-month period ended October 2, 2011; (iv) Consolidated Condensed
Statements of Cash Flows for the nine-month periods ended October 2, 2011
and October 3, 2010; and (v) Notes to Consolidated Financial Statements.
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*
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Filed herewith
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**
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Furnished herewith
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***
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Pursuant to Rule 406T of Regulation S-T, the xBRL related information in Exhibit 101 to this
Quarterly Report on Form 10-Q is furnished and not filed for purposes of Sections 11 and 12 of the
Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.
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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.
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Date: November 1, 2011
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COGNEX CORPORATION
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By:
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/s/ Robert J. Willett
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Robert J. Willett
President and Chief Executive Officer
(duly authorized officer, principal executive officer)
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By:
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/s/ Richard A. Morin
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Richard A. Morin
Executive Vice President of Finance and Chief
Financial Officer
(duly authorized officer, principal financial and
accounting officer)
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