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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (Fee Required) for the fiscal year ended December 31, 1994
or -----------------
___ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required) for the transition period from _________
to _________
COMMISSION FILE NUMBER 0-17869
COGNEX CORPORATION
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(Exact name of registrant as specified in its charter)
Massachusetts 04-2713778
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Vision Drive
Natick, Massachusetts 01760
(508) 650-3000
(Address, including zip code, and telephone number, including area code, of
principal executive offices)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
Aggregate market value of voting stock held by non-affiliates
as of February 26, 1995: $396,823,545
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$.002 par value common stock outstanding as of
February 26, 1995: 18,762,471 shares
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Documents incorporated by reference:
Specifically identified information in the Annual Report to Stockholders for
the year ended December 31, 1994, is incorporated by reference into Parts I and
II hereof.
Specifically identified information in the definitive Proxy Statement for the
Special Meeting in Lieu of the 1995 Annual Meeting of Stockholders to be held
on April 25, 1995, is incorporated by reference into Part III hereof.
A list of Exhibits to this Annual Report on Form 10-K is located on page 19.
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COGNEX CORPORATION ANNUAL REPORT ON
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1994
INDEX
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PART I
ITEM 1. BUSINESS
ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 4A. EXECUTIVE OFFICERS AND OTHER MEMBERS OF THE MANAGEMENT TEAM OF THE REGISTRANT
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
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PART I
ITEM 1. BUSINESS
GENERAL
Cognex Corporation ("Cognex" or the "Company," each of which term
includes, unless the context indicates otherwise, Cognex Corporation and its
subsidiaries) was incorporated in Massachusetts in 1981. Its principal
executive offices are located at One Vision Drive, Natick, Massachusetts
01760 and its telephone number is (508) 650-3000.
The Company designs, develops, manufactures, and markets a family of
machine vision systems - or computers that can "see." Cognex machine vision
systems, which consist of hardware and software designed specifically for
industrial machine vision, are used to replace human vision in a wide range
of manufacturing processes. When connected to a video camera, a Cognex
machine vision system captures an image of each object in the manufacturing
process and uses sophisticated image analysis software to extract information
from that image. For example, a machine vision system can locate an object,
read alphanumeric characters, measure dimensions, or detect flaws. Cognex
machine vision systems are used in a variety of industries including the
electronics, semiconductor, automotive, pharmaceutical, and graphic arts
industries for applications in which human vision is inadequate due to
fatigue, visual acuity or speed, or in instances where substantial cost
savings are obtained through the reduction of direct labor and improved
product quality.
The Company's business strategy is to develop and sell standard products -
proprietary vision software together with vision hardware (vision engines) -
which require minimal customization and support by the Company. The Company
primarily markets to sophisticated customers such as original equipment
manufacturers (OEMs) who have the ability to configure their own vision
solutions using the software tools and hardware platforms provided by the
Company. This strategy has permitted the Company to focus its engineering
resources on expanding its own product line and on developing proprietary
vision technology.
The strategy of selling standard products in high volume without extensive
support by the Company requires a close match between the product's
useability and functionality and the customer's capabilities and needs.
Cognex's traditional products are "building blocks," both software and
hardware, from which its customers can construct a vision solution. Although
the Company's traditional products require that the customer have detailed
expertise in computer programming, the customer need not have in-depth
knowledge of image processing or image analysis since the Company's vision
software products provide that expert knowledge in the form of subroutines.
The Company's primary customers, OEMs in the electronics and semiconductor
industries, are principally located in Japan and North America. In 1994,
sales outside of the United States accounted for approximately 62% of the
Company's revenue.
In March 1994, the Company introduced a new vision system, known as
Checkpoint. The Company is marketing Checkpoint directly to end-users and
system integrators, which represents an expansion beyond its traditional OEM
customer base. The Checkpoint machine vision system is designed for the
end-user marketplace, providing an "easy-to-use" interface that allows
factory engineers in a wide range of industries to implement machine vision
solutions for the production floor. The Company believes that Checkpoint
allows end-users without detailed experience in computer programming or
knowledge of image processing or image analysis to construct a vision
solution.
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INDUSTRY BACKGROUND
A machine vision system is a computer-based image analysis machine which
replaces human vision for tasks in which human vision is inadequate due to
fatigue, visual acuity or speed, or in instances where substantial cost
savings are obtained through the reduction of direct labor and improved
product quality. Today, many types of manufacturing equipment require machine
vision because of the increasing demands for speed and accuracy in
manufacturing processes.
A machine vision system consists of pattern recognition software and
high-speed computer hardware which is specially designed to run the software
in real-time. In most machine vision applications, a camera captures an
image of the object to be inspected and sends that image to the machine
vision computer. The machine vision system then uses the sophisticated
software and special- purpose hardware to analyze the image of the object and
derive some answer, such as whether an aspirin bottle contains the correct
printed information. Once the machine vision system has determined the
answer, it can output these results to a monitor for review by the operator
or it can use these results to control other equipment. For instance, if the
label on an aspirin bottle does not pass inspection, the machine vision
system can signal a diverter to send that bottle down a reject conveyor.
Machine vision systems can provide four types of answers:
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QUESTION DESCRIPTION EXAMPLE
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GUIDANCE
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Where is it? Determining the exact physical Determining the position of a printed
location of an object. circuit board so that a robot can
automatically be guided to insert
electronic components.
IDENTIFICATION
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What is it? Identifying an object by analyzing Identifying the serial number on an
its shape or by reading a serial automotive airbag so that it can
number on it. be tracked and processed correctly
through manufacturing.
INSPECTION
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How good is it? Inspecting an object for flaws or Inspecting the quality of printing on
defects. pharmaceutical labels and packages.
GAUGING
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What size is it? Determining the dimensions Determining the diameter of a
of an object. bearing prior to final assembly.
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[Diagram of how a machine vision system works:
The diagram depicts a machine vision system capturing images of aspirin
bottle labels to be inspected, analyzing those images, and determining
whether the labels contain the correct printed information. The results are
displayed on a monitor for review by an operator and the aspirin bottle is
diverted to a reject bin if the label does not pass inspection.]
MARKETS, CUSTOMERS, AND APPLICATIONS
The Company's current products are designed for factory automation because
the Company believes that this market currently offers the greatest
opportunity for selling standard products in high volume. Within the factory
automation marketplace, the Company has historically focused primarily on
those customers who must have machine vision because of the increasing
complexity of their products or manufacturing methods.
The Company currently markets primarily to OEMs principally located in
Japan and North America who supply automation equipment to the electronics
and semiconductor industries. The value of automation is high in these
industries because the products produced, such as semiconductor chips, hybrid
circuits, and printed circuit boards, have high unit costs and are
manufactured at speeds too high for effective human intervention. Moreover,
the trend in these industries toward smaller devices with higher circuit
densities and finer circuit paths require manufacturing and testing equipment
capable of extremely accurate alignment and motion control which can only be
achieved by using machine vision. Customers in these industries, moreover,
also employ knowledgeable engineers who are competent to work with
computer-related equipment.
In addition to selling traditional machine vision systems to OEMs, the
Company's products are also sold to sophisticated system integrators and
advanced manufacturing engineers serving the automotive, pharmaceutical, and
graphic arts industries. Current users of the Company's traditional products
typically have extensive programming experience, therefore, programmable
Cognex products are able to effectively meet their needs and requirements.
In March 1994, the Company introduced a new vision system, known as
Checkpoint, and began early shipments in April 1994 to a limited number of
customers. In August 1994, the Company released Version 1.2 of Checkpoint
and is currently shipping this release to existing and certain additional
customers. The Company markets Checkpoint directly to end-users and system
integrators such as manufacturers of medical devices, batteries, power tools,
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disposable consumer goods, and electronic components, which represents an
expansion beyond its traditional OEM customer base. The Checkpoint machine
vision system is designed for the end-user marketplace, providing an
"easy-to-use" interface that allows factory engineers in a wide range of
industries to implement machine vision solutions for the production floor.
The Company believes that Checkpoint allows end-users to construct a vision
solution without detailed experience in computer programming or knowledge of
image processing or image analysis.
TRADITIONAL MACHINE VISION PRODUCTS
Cognex machine vision systems are comprised of both machine vision
software and machine vision hardware. The Company's products are "building
blocks" of software and hardware that have been designed to give customers
the flexibility to easily configure complete vision solutions without
requiring extensive in-house expertise in image processing or analysis.
Cognex offers a library of vision software tools, as well as a family of
board-level vision hardware that ranges in performance and platform. The
customer first chooses the most appropriate software tools from the vision
software library and then selects the best vision hardware on which to run
the software. All Cognex vision hardware is functionally and software
compatible across product lines. Because of the Company's product strategy,
its customers are given the flexibility to configure their own vision
solutions to a broad range of complex vision problems without detailed
support from Cognex.
When purchasing products from the Company, the customer pays for each
vision engine as well as a license fee per engine for each software tool used
in the vision solution. Because the Company's products are modular, the
customer licenses only the software tools required and chooses the vision
hardware with the price and performance that best meets the application
needs. The typical Cognex machine vision solution, including hardware and
software, ranges from $7,500 to $20,000 and the Company estimates that an
aggregate of approximately 24,000 Cognex machine vision systems had been
sold as of December 31, 1994.
SOFTWARE PRODUCTS
The complete software package which is required to solve a customer's
vision problem is built from three different levels of software provided by
the Company: system software, image processing software, and image analysis
software. By writing simple C routines which interconnect various Cognex
software modules from each of these three levels, the Company's customers
"build" their own unique software solutions to address their particular
vision problems. A description of the three different levels of software is
as follows:
System Software. The system software level provides the utilities needed
to program and operate the vision system. The system software includes
software for acquiring, storing, and displaying images, as well as Cognex's
proprietary incremental C compiler with a C run-time library, interface
software for communicating with other devices, and software for controlling
high-speed transmission of data into and out of the vision system.
Image Processing Software. The image processing level contains software
which manipulates images (usually before they are analyzed by subsequent
image analysis routines). These tools can be used to simplify raw video
images or alter images to increase processing speed and image storage
capacity. Image processing can correct rotation, scale, and aspect ratio of
an image in order to compensate for non-uniform optics, uncertainty in part
positioning, or mechanical constraints that require awkward viewing angles.
In addition, the image processing functions provide several methods for
reducing the effects of video noise, such as averaging images together or
spatially filtering a single image.
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Image Analysis Software. The image analysis level embodies Cognex's most
important and valuable technology. These software tools extract information
from either raw or processed images and make decisions regarding items in
those images. By providing this high level of software, Cognex has made
machine vision solutions available to a broader range of customers. Examples
of image analysis software tools include Search for locating patterns, Golden
Template Comparison (GTC) for locating defects, and Optical Character
Recognition for reading characters.
Application Software. Cognex also offers Application Software products
which are "packaged" software products designed to solve targeted problems
without any customization by the Company or its customers. These software
tools combine a series of system software, image processing software, and
image analysis software tools to solve specific problems. For example, the
Fiducial Finder tool locates fiducial, or alignment, marks on printed circuit
boards and the PQI tool quickly and accurately inspects print produced by
laser, pad, or offset printing equipment.
HARDWARE PRODUCTS
The Company supplies a family of machine vision hardware with a wide range
of price and performance levels. Customers select the Cognex vision hardware
which best matches the requirements of each application. A description of
the family of machine vision hardware products is as follows:
Standard Machine Vision Platforms. Cognex offers a variety of standard,
programmable machine vision platforms on which to run the Cognex software
tools. The Cognex 2000 and 3000 Series, consisting of the 2000, 3100, and
3400, are proprietary, single-board vision systems that provide a range of
performance levels for solving complex gauging, guidance, inspection, and
identification tasks. The Cognex 4000 Series are a group of VMEbus-based,
board-level vision systems that plug directly into a VME backplane. This
family includes the low-end Cognex 4100 and 4200, as well as the high-end
Cognex 4400. The Cognex 5000 Series are the first complete machine vision
systems designed to plug into any ISA/ATbus personal computer. All of these
vision systems are software compatible, allowing customers to readily upgrade
to higher performance systems or to change platforms as application needs
change.
Application-Specific Products. The Company also offers a family of
application-specific hardware products that are designed to solve specific
tasks. The Cognex 1500 Simple Alignment System is an easy-to-use, low-cost
vision system suitable for such tasks as aligning printed circuit boards
prior to screen printing, drilling, or epoxy dispensing. The Cognex 1600
Character Recognition System is an easy-to-use system designed to read even
the most degraded serial numbers from semiconductor wafers with near 100%
accuracy. Both of these vision systems offer simple menu interfaces that
allow customers to quickly and accurately configure the systems to solve
tasks without the need for C programming.
Custom Vision Chips. To boost the processing power of its boards, Cognex
has developed three custom vision chips: VC-1, VC-2, and VC-3. These chips,
which can be purchased with most of Cognex's standard machine vision
platforms, provide the processing power of multiple boards or chip sets. The
chips enhance the price/performance of Cognex's products and currently
provide a significant competitive advantage to the Company. The patented
VC-1 chip is an application-specific integrated circuit designed to run image
processing and image analysis algorithms at high speeds. The VC-2 chip
performs image processing functions that are optimized for machine vision
tasks, which enables the Company's vision systems to address a new class of
flaw and defect detection applications. The VC-3 chip, introduced during the
second half of 1994, takes advantage of advances in semiconductor technology
to greatly speed up existing VC-1 functions in addition to adding several new
image analysis capabilities.
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CHECKPOINT
In March 1994, the Company introduced a new vision system, known as
Checkpoint, and began early shipments in April 1994 to a limited number of
customers. In August 1994, the Company released Version 1.2 of Checkpoint
and is currently shipping this release to existing and certain additional
customers. The Company markets Checkpoint directly to end-users and system
integrators, which represents an expansion beyond its traditional OEM
customer base. The Checkpoint machine vision system is designed for the
end-user marketplace and combines the Company's proven vision technology with
a new and unique graphical user interface. The Company believes that
Checkpoint allows factory floor engineers in a wide range of industries to
design machine vision solutions for the production floor, even if such
engineers have little programming or machine vision experience. However, the
deployment of Checkpoint on the factory floor requires the services of
trained system integrators to mechanically and electrically integrate
Checkpoint into manufacturing lines. As of December 31, 1994, the Company
had received orders for Checkpoint from approximately 78 customers, who
collectively have ordered approximately 167 units.
A Checkpoint unit includes pre-packaged existing software (system
software, image processing software, and image analysis software), standard
hardware (Checkpoint Model 400 vision processor), and Microsoft Windows-based
application development software. Engineers using Checkpoint create a vision
program based upon a personal computer (PC) running Checkpoint's Windows-
based application builder. The PC communicates with the Checkpoint vision
system over a serial line at development time. Then, at run-time, the vision
system is deployed as a stand-alone unit on the factory floor utilizing a
custom graphic operator interface created by the developer with Checkpoint.
The library of vision tools available with Checkpoint enables users to
solve a wide range of inspection, gauging, and assembly verification
problems. Checkpoint's gray-scale vision tools provide advanced object
location and inspection technology and are accessed at development time via
PC menus in a Microsoft Windows environment or vision system icons.
Checkpoint's vision tools are supported by Cognex's most powerful vision
hardware platforms including Cognex's proprietary vision coprocessors.
Manufacturing engineers utilize pull-down menus and dialog boxes in
Checkpoint's Windows graphic user interface to create customized vision
applications. This "point and click" programming environment directs
engineers to construct vision routines in a new way. A developer combines
Checkpoint's high-level vision, I/O, and operator interface tools with
conventional programming elements such as English-language variables,
expressions, and statements. This enables the developer to focus on tasks
associated with solving the overall vision application, freeing the developer
from the memorized detail and mechanical complexity of traditional vision
system programming.
SALES AND SERVICE
The Company's business strategy is to develop and sell standard products -
proprietary vision software together with vision hardware (vision engines) -
which require minimal customization and support by the Company. The Company
primarily markets to sophisticated customers such as OEMs who have the
ability to use the Company's traditional products to configure their own
vision solutions using the software tools and hardware platforms provided by
the Company. The strategy of selling standard products in high volume
without extensive support by the Company requires a close match between the
product's useability and functionality and the customer's capabilities and
needs.
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The Company employs direct sales personnel for all accounts in North
America and Japan, and sells through a direct sales force and through
distributors in Europe. The Company's distributors do not have any rights of
return and payment for products is due upon delivery. Distributors generally
have non-exclusive distribution rights and there may be more than one
distributor per territory.
The Company markets its products in North America through a direct sales
force operating out of its Natick, Massachusetts headquarters, its Regional
Technology Center in Mountain View, California, and its sales office in
Illinois. The Company markets its products in Japan through a direct sales
force operating out of its wholly-owned subsidiary, Cognex K.K. The Company
also has sales offices in Wiesbaden, Germany; Rueil, France; and
Hertfordshire, England, where the Company sells through a direct sales force
and through distributors. In January 1995, the Company opened a sales office
in Singapore, where the Company sells through a direct sales force and
through distributors to customers located in the Pacific Rim. At December
31, 1994, the Company's direct sales and service force consisted of 59
professionals, including sales and application engineers. A significant
portion of the Company's sales and service personnel have engineering or
science degrees. Sales engineers call directly on targeted accounts and
coordinate the activity of the application engineers. They focus on
potential customers that represent potential volume purchases and long-term
relationships. Opportunities that represent single unit sales or turnkey
system requirements are qualified by the sales engineer and turned over to an
independent system integrator or OEM that uses the Company's products.
The Company is currently marketing Checkpoint through a direct sales force
in the United States, focusing primarily on large manufacturing companies
with prior machine vision experience. As Checkpoint becomes more widely
accepted, the Company anticipates establishing worldwide distribution
channels of system integrators and distributors for Checkpoint distribution.
The Checkpoint system is sold with training provided by the Company and a one
year warranty. In addition, the Company offers an optional support plan,
known as "AE On-Line," to Checkpoint customers that incorporates a multimedia
product to allow remote access and problem-solving capability from Cognex's
support staff. The Company also has an organization to support the
anticipated needs of the end-user market. This group, Customer
Satisfaction, is responsible for education and training, technical support
including AE On-Line, and vision application consulting. The deployment of
Checkpoint on the factory floor requires the services of trained system
integrators to mechanically and electrically integrate Checkpoint into
manufacturing lines. The limited number of system integrators worldwide who
are experienced with deploying machine vision systems currently affects, and
is expected to continue to affect for the foreseeable future, the rate of
deployment of Checkpoint.
International sales accounted for approximately 62%, 60%, and 49% of
revenue in 1994, 1993, and 1992, respectively. One international customer
based in Japan, Fuji America Corporation, accounted for 20%, 24%, and 14% of
the Company's business in 1994, 1993, and 1992, respectively. Information
with respect to significant customers and export sales may be found in the
Notes to the Consolidated Financial Statements, appearing on page 29 of the
Annual Report to Stockholders for the year ended December 31, 1994, which is
Exhibit 13 hereto, and is incorporated herein by reference. Although
international sales may from time to time be subject to federal technology
export regulations, the Company to date has not suffered delays or
prohibitions in sales to any of its foreign customers.
The Company sells its products to customers that have entered or are
expected to enter into volume discount purchase contracts with the Company.
These contracts are typically for one year and have associated delivery
schedules. No orders are booked for delivery beyond six months.
The Company provides software update service and hardware maintenance on
both a contract and a time and material basis. Software updates are provided
via floppy disks and
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hardware maintenance is provided by exchanging printed circuit boards.
Programming application services can be contracted with the Company for
projects on a time and materials basis only when doing so enhances the sale of
the Company's standard products. Training courses are provided by the Company
in Natick, Massachusetts; Mountain View, California; and Tokyo, Japan, as well
as at the customer site when required. These courses provide the user with
both lecture and laboratory sessions covering the use of Cognex products.
RESEARCH, DEVELOPMENT AND ENGINEERING
The Company engages in research, development and engineering ("R, D & E")
to enhance its existing products and to develop new products to meet market
opportunities. The R, D & E organization consists of software engineering,
research and development, hardware engineering, and the custom products
development and advanced end-user vision systems groups. Software
engineering is responsible for product development of image processing and
image analysis tools, as well as the maintenance, quality assurance, and
documentation of vision software products. The research and development
group focuses its energies on enhanced vision technology capabilities.
Hardware engineering is involved in the development of hardware products,
primarily the new vision engines and vision chips. The custom products
development group is engaged in the software development of
application-specific products. These are software products for the wire
bonder, surface mount device, and pick and place applications. The advanced
end-user vision systems group develops Checkpoint, the new vision product.
The Company's primary emphasis is on the development of new vision
software capabilities and vision hardware platforms. At December 31, 1994,
the Company employed 75 professionals in R, D & E, most of whom are software
developers. The Company's R, D & E expenses were $9,933,000, $6,205,000, and
$5,622,000 in 1994, 1993, and 1992, respectively.
COMPETITION
The Company competes with other vendors of machine vision systems, the
internal engineering efforts of the Company's current or prospective
customers, and the manufacturers of image processing systems. Some or all of
these competitors may have greater financial and other resources than the
Company. The Company considers itself to be one of the leading machine
vision companies in the world. However, reliable estimates of the machine
vision market and the number of competitors are almost nonexistent, primarily
because of definitional confusion and a tendency toward double-counting of
sales. The principal competitive factors affecting the choice of a machine
vision system include product functionality and performance (e.g. speed,
accuracy, and reliability) under "real-world" operating conditions,
flexibility, programmability, and the availability of application support
from the supplier. More recently, ease-of-use has become a competitive
factor and product price has become a more significant factor with respect to
the simpler guidance and gauging applications.
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MANUFACTURING
The Company's manufacturing consists of final assembly, burn-in, final
test, quality control, and shipment of systems and board-level products.
Major components such as semiconductors, raw boards, and passive components
are purchased by the Company and shipped to third parties for assembly and
initial testing. Certain subassemblies are assembled in-house. Materials
such as electronics components and sheet metal parts are purchased,
inspected, and warehoused by the Company utilizing its own purchasing agents,
materials personnel, and quality control inspectors. Some of the electronic
components are tested and burned in before assembly. The Company puts
together kits of components at its warehouse and supplies them to the third
party contractor for assembly. In some cases, components are stored and
kitted by the supplier and sent directly to the third party contractor. The
third party contractor assembles and performs initial testing of the product,
using fixtures and programs owned by the Company, and returns the product to
the Company for quality inspection, burn-in, and final testing. The Company
packages and ships its products to customers from its manufacturing facility
in Needham, Massachusetts. Certain components purchased by the Company are
presently available from a single source.
BACKLOG
The Company's backlog at December 31, 1994 was approximately $16,827,000,
compared to $12,214,000 at December 31, 1993. Backlog reflects purchase
orders for products scheduled for shipment within six months. The level of
backlog at any particular date is not necessarily indicative of the future
operating performance of the Company. Delivery schedules may be extended and
orders may be canceled at any time subject to certain cancellation penalties.
PATENTS AND LICENSES
Since the Company relies on the technical expertise, creativity, and
know-how of its personnel, trade secret protection, as well as patent and
copyright protection, are used to safeguard its competitive position. In
addition, the Company makes use of non-disclosure agreements with customers,
consultants, suppliers, and employees. The Company attempts to protect its
intellectual property by restricting access to its proprietary information by
a combination of technical and internal security measures. However, there
can be no assurance that any of the above measures will be adequate to
protect the proprietary technology of the Company.
The Company has been granted the following United States patents:
#4,728,195 "Method for Imaging Printed Circuit Board Component Leads," issued
March 1988; #4,972,359 "Digital Image Processing System" (VC-1 vision chip),
issued November 1990; #5,367,439 "System for Frontal Illumination," issued
November 1994; and #5,371,690 "Method and Apparatus for Inspection of Surface
Mounted Devices," issued December 1994. In addition, over twenty patent
applications are pending in the United States Patent Office, over ten of
which were filed in 1994 as part of an ongoing patent protection program.
Additionally, the first of a series of international patent filings was
recently completed. The pending patent applications cover a range of
technology, including hardware and software.
The Company's software products are generally licensed to customers
pursuant to a license agreement that restricts the use of the products to the
customer's purposes on a designated Cognex machine vision engine. The
Company has made portions of the source code available to certain customers
and OEMs under very limited circumstances and for restricted
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uses. If source code is released to a customer or re-licenser, the customer
or re-licenser is required by contract to maintain its confidentiality and,
in general, to use the source code solely for internal purposes or for
maintenance. Effective patent, copyright, and trade secret protection may be
unavailable in certain foreign countries.
Some users of the Company's products have received notice of patent
infringement from Technivision Corporation and Jerome H. Lemelson alleging
that their use of the Company's products infringe certain patents issued to
Mr. Lemelson. Certain of these users have notified the Company that, in the
event it is subsequently determined that their use of the Company's products
infringes any of Mr. Lemelson's patents, they may seek indemnification from
the Company for damages or expenses resulting from this matter. Certain of
the users of the Company's products currently are engaged in litigation with
Mr. Lemelson/Technivision involving certain of these patents and the validity
of those patents has been placed in issue. Although the Company has not been
named in this litigation, it entered into a joint defense agreement with a
named party therein, which has recently entered into a settlement agreement
with Mr. Lemelson for reasons unknown to the Company. The Company is not a
party to that settlement and has no indemnification claims, nor obligations
for such, with respect to the settlement. Certain products sold by the
Company, as well as products of others, were identified in connection with
this litigation as part of an allegedly infringing use.
Litigation with respect to the Company's products at issue has been stayed
for purposes of case management. Accordingly, any decision on the merits of
this case regarding the Company's products is expected to be delayed at least
until the litigation with respect to the products of others is settled or
adjudicated. As a result, the Company's participation in this litigation may
be required in the future. The Company may incur significant costs with
respect to such participation, or if it is required to indemnify any
purchasers or users of the Company's products for damages or expenses
resulting from the litigation. The Company cannot predict the outcome of
this or any similar litigation which may arise in the future, or the effect
of such litigation on the operating results of the Company. The Company does
not believe its products infringe any valid and enforceable claims of Mr.
Lemelson's patents.
EMPLOYEES
At December 31, 1994, the Company employed 220 persons, including 80 in
sales, marketing and support activities; 75 in research, development and
engineering; 29 in manufacturing and quality assurance; and 36 in management,
administration and finance. Of those employees, 149 were based in the
Company's Natick, Massachusetts facility; 28 in the Needham, Massachusetts
facility; 8 in the Mountain View, California sales office; 1 in the Illinois
office; 24 in the Tokyo, Japan office; 3 in the Wiesbaden, Germany office; 4
in the Rueil, France office; and 3 in the Hertfordshire, England office.
None of the Company's employees are represented by a labor union and the
Company has experienced no work stoppages. The Company believes that its
employee relations are good.
ITEM 2: PROPERTIES
In 1994, the Company purchased and renovated a 100,000 square foot
building located in Natick, Massachusetts. The Company's corporate
headquarters, principal administrative, sales and marketing, research and
development, and support personnel are located in this facility. In
addition, the Company leases a facility in Needham, Massachusetts for its
manufacturing operations. It also leases sales offices in the United States
in California and Illinois, as well as in Tokyo, Japan; Wiesbaden, Germany;
Rueil, France; and Hertfordshire, England.
10
<PAGE> 13
ITEM 3: LEGAL PROCEEDINGS
To the Company's knowledge, there are no pending legal proceedings, other
than as described in "Business - Patents and Licenses," which are material to
the Company to which it is a party or to which any of its property is
subject. From time to time, however, the Company may be subject to various
claims and lawsuits by customers and competitors arising in the normal course
of business, including suits charging patent infringement.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted during the fourth quarter of the year
ended December 31, 1994 to a vote of security holders through solicitation of
proxies or otherwise.
ITEM 4A: EXECUTIVE OFFICERS AND OTHER MEMBERS OF THE MANAGEMENT TEAM OF THE
REGISTRANT
The executive officers of the Company, the age of each, and the period
during which he has served in his present office are as follows:
<TABLE>
<CAPTION>
NAME AGE OFFICE
---- --- ------
<S> <C> <C>
Robert J. Shillman 48 President, Chief Executive Officer, and Chairman
of the Board of Directors
Patrick A. Alias 49 Executive Vice President of Sales and Marketing
Richard B. Snyder 51 Executive Vice President of Operations
John J. Rogers, Jr. 37 Vice President, Chief Financial Officer, and
Treasurer
</TABLE>
Mr. Shillman, founder of the Company, has served as its President, Chief
Executive Officer, and Chairman since its organization in 1981.
Mr. Alias joined the Company in 1991 as Executive Vice President of Sales
and Marketing. From 1990 to 1991, he served as President of Gimeor SA, a
manufacturer of CAD/CAM software. From 1988 to 1990, he served as Executive
Vice President of Sales and Marketing for Polygen Corporation, a manufacturer
of molecular design software.
Mr. Snyder joined the Company in 1991 as Executive Vice President of
Operations. From 1981 to 1991, he held various positions within Prime
Computer, including President and General Manager, Computer Systems Business
Unit, Vice President Engineering, Vice President Systems Marketing and
Development, and Vice President Software Development. The Computer Systems
Business Unit of Prime Computer manufactures minicomputers and CAD/CAM
systems.
Mr. Rogers joined the Company in 1991 as Director of Finance and
Administration and was appointed Vice President of Finance and Administration
and Treasurer in 1993, and Chief Financial Officer in 1994. From 1989 to
1991, he served as Senior Manager of Financial Control and Analysis for the
Waters Division of Millipore Corporation, a manufacturer of liquid
chromatography equipment. Mr. Rogers is a certified public accountant.
Executive officers are elected annually by the Board of Directors. There
are no family relationships among the directors and the executive officers of
the Company.
11
<PAGE> 14
OTHER MEMBERS OF THE MANAGEMENT TEAM
<TABLE>
<CAPTION>
NAME AGE OFFICE
---- --- ------
<S> <C> <C>
Marilyn Matz 41 Vice President of Software Engineering
Kris Nelson 47 Vice President of North American Sales
Hironobu Ohgusu 55 President of Cognex K.K.
Henk Schalke 49 Vice President of Engineering
David Schatz 37 Vice President of Corporate Development
William Silver 41 Vice President of Research and Development
</TABLE>
Messrs Schatz and Silver, and Ms. Matz have been employed by the Company
in their present or other capacities for no less than the past five years.
Mr. Nelson joined the Company in 1990 as Director of North American Sales
and was appointed Vice President of North American Sales in 1993. From 1988
to 1990, he served as Vice President of Sales and Marketing for the Poly-Flex
Circuits Division of Cookson America Inc., a manufacturer of polymer thin
film circuit assemblies.
Mr. Ohgusu joined the Company in 1992 as President of Cognex K.K., the
Company's Japanese subsidiary. From 1989 to 1992, he served as President and
CEO of Lonrho International Networks, Ltd., a manufacturer of computer
diagnostic software.
Mr. Schalke joined the Company in 1991 as Vice President of Engineering.
From 1988 to 1990, he served as Vice President and General Manager for the
Small Systems product line of Concurrent Computer Corporation, a
manufacturer of real-time computer systems.
12
<PAGE> 15
PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
Certain information with respect to this item may be found in the section
captioned "Selected Quarterly Financial Data," appearing on page 32, and the
section captioned "General Information," appearing on page 33 of the Annual
Report to Stockholders for the year ended December 31, 1994, which is Exhibit
13 hereto, and is incorporated herein by reference.
The Company has never declared or paid cash dividends on shares of common
stock. The Company currently intends to retain all of its earnings to
finance the development and expansion of its business and therefore does not
intend to declare or pay cash dividends on its common stock in the
foreseeable future. Any future declaration and payment of dividends will be
subject to the discretion of the Board of Directors of the Company, will be
subject to applicable law, and will depend upon the Company's results of
operations, earnings, financial condition, contractual limitations, cash
requirements, future prospects, and other factors deemed relevant by the
Company's Board of Directors.
ITEM 6: SELECTED FINANCIAL DATA
Information with respect to this item may be found in the section captioned
"Five-Year Summary of Selected Financial Data," appearing on page 31 of the
Annual Report to Stockholders for the year ended December 31, 1994, which is
Exhibit 13 hereto, and is incorporated herein by reference.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Information with respect to this item may be found in the section
captioned "Management's Discussion and Analysis of Financial Condition and
Results of Operations," appearing on pages 12 through 16 of the Annual Report
to Stockholders for the year ended December 31, 1994, which is Exhibit 13
hereto, and is incorporated herein by reference.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information with respect to this item, which includes the financial
statements and related notes thereto, auditor's report, and supplementary
data, may be found on pages 17 through 32 of the Annual Report to
Stockholders for the year ended December 31, 1994, which is Exhibit 13
hereto, and is incorporated herein by reference.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in or disagreements with accountants on accounting
or financial disclosure during 1994 or 1993.
13
<PAGE> 16
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to Directors of the Company may be found in
the section captioned "Election of Directors," appearing in the definitive
Proxy Statement for the Special Meeting in Lieu of the 1995 Annual Meeting of
Stockholders to be held on April 25, 1995. Such information is incorporated
herein by reference. Information with respect to Executive Officers of the
Company may be found in the section captioned "Executive Officers and Other
Members of the Management Team of the Registrant" in Part I of this Annual
Report on Form 10-K.
ITEM 11: EXECUTIVE COMPENSATION
Information with respect to this item may be found in the sections
captioned "Information Concerning the Board of Directors,"
"Compensation/Stock Option Committee Report on Executive Compensation,"
"Comparison of Five Year Cumulative Total Returns Performance Graph for
Cognex Corporation," and "Executive Compensation," appearing in the
definitive Proxy Statement for the Special Meeting in Lieu of the 1995 Annual
Meeting of Stockholders to be held on April 25, 1995. Such information is
incorporated herein by reference.
ITEM 12: SECURITY OWNERSHIP AND CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to this item may be found in the sections
captioned "Principal Holders of Voting Securities" and "Security Ownership of
Directors and Officers," appearing in the definitive Proxy Statement for the
Special Meeting in Lieu of the 1995 Annual Meeting of Stockholders to be held
on April 25, 1995. Such information is incorporated herein by reference.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
14
<PAGE> 17
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
The following consolidated financial statements of Cognex
Corporation and the independent accountants' report relating thereto
are included in the Company's Annual Report to Stockholders for the
year ended December 31, 1994, which is Exhibit 13 hereto, and is
incorporated herein by reference:
Report of Independent Accountants for the years ended December
31, 1994, 1993 and 1992
Consolidated Statements of Income for the years ended December 31,
1994, 1993 and 1992
Consolidated Balance Sheets at December 31, 1994 and 1993
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1994, 1993 and 1992
Consolidated Statements of Cash Flows for the years ended December
31, 1994, 1993 and 1992
Notes to Consolidated Financial Statements
(2) Supplemental Schedules
Included at the end of this report are the following:
Report of Independent Accountants on the Financial Statement
Schedule
Schedule II - Valuation and Qualifying Accounts
Other schedules are omitted because of the absence of conditions
under which they are required or because the required information
is given in the financial statements or notes thereto.
(3) Listing of Exhibits
The Exhibits filed as part of this Annual Report on Form 10-K are
listed in the Exhibit Index on page 19, immediately preceding such
Exhibits.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of the year
ended December 31, 1994.
15
<PAGE> 18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Cognex Corporation
/s/ Robert J. Shillman
------------------------------
Robert J. Shillman, President
March 27, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Robert J. Shillman President, Chief Executive Officer, March 27, 1995
---------------------- and Chairman of the Board of Directors
Robert J. Shillman (principal executive officer)
/s/ John J. Rogers, Jr. Vice President, Chief Financial March 27, 1995
----------------------- Officer, and Treasurer
John J. Rogers, Jr. (principal financial and accounting
officer)
/s/ William Krivsky Director March 27, 1995
-------------------
William Krivsky
/s/ Patrick Sansonetti Director March 27, 1995
----------------------
Patrick Sansonetti
/s/ Anthony Sun Director March 27, 1995
---------------
Anthony Sun
/s/ Rueben Wasserman Director March 27, 1995
--------------------
Rueben Wasserman
</TABLE>
16
<PAGE> 19
REPORT OF INDEPENDENT ACCOUNTANTS
ON THE FINANCIAL STATEMENT SCHEDULES
To the Board of Directors and Stockholders of Cognex Corporation:
Our report on the consolidated financial statements of Cognex Corporation has
been incorporated by reference in this Form 10-K from page 30 of the 1994 Annual
Report to Stockholders of Cognex Corporation. In connection with our audits of
such financial statements, we have also audited the related financial statement
schedules for each of the three years in the period ended December 31, 1994
listed in Item 14(a) of this Form 10-K.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
January 23, 1995
17
<PAGE> 20
<TABLE>
SCHEDULE II
COGNEX CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
<CAPTION>
Additions
---------
Balance at Charged to Charged to Balance at
Beginning of Costs and Other End of
Description Period Expenses Accounts Deductions Period
---------------------------------- ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts
1994 $597 $159 -- $ (72) (A) $684
1993 322 435 -- (160) (A) 597
1992 432 53 -- (163) (A) 322
Reserve for Inventory Obsolescence
1994 $251 $360 -- $ (12) (B) $599
1993 151 128 -- (28) (B) 251
1992 132 90 -- (71) (B) 151
<FN>
(A) Specific write-offs
(B) Specific dispositions
</TABLE>
18
<PAGE> 21
EXHIBIT INDEX
EXHIBIT NUMBER
- --------------
3A Articles of Organization of the Company effective January 8,
1981, as amended June 8, 1982, August 19, 1983, May 15, 1984,
April 17, 1985, November 4, 1986, and January 21, 1987
(incorporated by reference to Exhibit 3A to the Registration
Statement Form S-1 [Registration No. 33-29020]).
3B Restated Articles of Organization of the Company effective June
28, 1989 (incorporated by reference to Exhibit 3C to the
Registration Statement Form S-1 [Registration No. 33-29020]).
3C By-laws of the Company as amended February 9, 1990 (filed as
Exhibit 3C to the Company's Annual Report on Form 10-K for
the year ended December 31, 1990).
4 Specimen Certificate for Shares of Common Stock (incorporated by
reference to Exhibit 4 to the Registration Statement Form S-1
[Registration No. 33-29020]).
10A Lease of property located at 150 Gould Street, Needham Heights,
MA dated December 16, 1988 between the Company and Renco
Investment Associates (incorporated by reference to Exhibit 10F
to the Registration Statement Form S-1 [Registration No.
33-29020]).
10B Cognex Corporation Employee Stock Purchase Plan (incorporated by
reference to Exhibit 4A to Amendment No. 1 to the Registration
Statement Form S-8 [Registration No. 33-32815]).
10C Cognex Corporation 1984 Stock Option Plan, as amended
(incorporated by reference to Exhibit 4B to Amendment No. 2 to
the Registration Statement Form S-8 [Registration No. 33-31657]).
10D Amendment to the lease of property located at 150 Gould Street,
Needham Heights, MA dated May 15, 1991 between the Company and
Renco Investment Associates (filed as Exhibit 10H to the
Company's Annual Report on Form 10-K for the year ended December
31, 1991).
10E Cognex Corporation 1992 Stock Option Plan (filed as Exhibit 10I
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1992).
10F Cognex Corporation 1993 Director's Stock Option Plan (filed as
Exhibit 10J to the Company's Annual Report on Form 10-K for the
year ended December 31, 1993).
10G Cognex Corporation 1993 Employee Stock Option Plan (filed as
Exhibit 10K to the Company's Annual Report on Form 10-K for
the year ended December 31, 1993).
10H Purchase and Sale Agreement with respect to the Natick Executive
Park facility dated October 20, 1993 (filed as Exhibit 10L to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1993).
11 Statement re computation of per share earnings *
13 Annual Report to Stockholders for the year ended December 31,
1994 (which is not deemed to be "filed" except to the extent that
portions thereof are expressly incorporated by reference in this
Annual Report on Form 10-K) *
21 Subsidiaries of the registrant *
23 Consent of Coopers & Lybrand L.L.P. *
27 Financial Data Schedule *
* Filed herewith
19
<PAGE> 1
<TABLE>
EXHIBIT 11
COGNEX CORPORATION
COMPUTATION OF PER SHARE EARNINGS
Weighted average common and common share equivalents were computed as follows (a):
<CAPTION>
DECEMBER 31,
--------------------------------------------------------
1994 1993 1992
----------- ---------- -----------
<S> <C> <C> <C>
Weighted average common shares outstanding . . . . 17,279,778 16,816,226 16,805,964
Weighted average options outstanding . . . . . . . 3,810,792 2,288,760 1,241,456
Shares assumed to be purchased . . . . . . . . . . (2,515,783) (1,270,995) (641,488)
----------- ---------- -----------
Primary weighted average common and common
share equivalents outstanding . . . . . . . . . 18,574,787 17,833,991 17,405,932
Dilutive effect of weighted average options. . . . 387,460 2,870 36,730
----------- ---------- -----------
Fully diluted weighted average common and
common share equivalents outstanding. . . . . . 18,962,247 17,836,861 17,442,662
=========== ========== ===========
<FN>
(a) Adjusted for the two-for-one stock split effective September 30, 1993.
</TABLE>
20
<PAGE> 1
EXHIBIT 13
CHAPTER 3 - FINANCIAL STATEMENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SUMMARY
All of the Company's geographic areas contributed to a 44% increase in revenue
and net income for the year ended December 31, 1994 over the year ended
December 31, 1993. International sales continued to be a significant portion
of the Company's business, representing 62% and 60% of revenue in 1994 and
1993, respectively. In 1994, Japanese revenue increased $8.8 million, or 40%,
over the prior year, and represented 50% of worldwide revenue. Revenue from
Europe represented 11% of worldwide revenue in 1994, compared to 8% in 1993.
Domestic revenue increased $6.6 million, or 38%, in 1994 over the prior year.
The Cognex 5000 Series vision system, introduced in the first half of 1993,
grew to 23% of the Company's revenue in 1994, from 9% in 1993.
The Company's financial position remained strong at December 31, 1994, with
working capital increasing 72% from the prior year. During 1994, the Company
purchased, renovated, and furnished its 100,000 square foot corporate
headquarters for approximately $11.1 million. The facility was occupied in
September 1994. In December 1994, the Company completed a second public stock
offering of 1,429,608 shares of common stock.
In March 1994, the Company introduced its new "easy-to-use" vision system,
known as Checkpoint, and began early shipments in April 1994 to a limited
number of customers. In August 1994, the Company released Version 1.2 of
Checkpoint and is currently shipping this release to existing and certain
additional customers.
<TABLE>
The following table sets forth certain consolidated financial data as a
percentage of revenue for the years ended December 31, 1994, 1993, and 1992:
<CAPTION>
YEAR ENDED DECEMBER 31,
1994 1993 1992(1)
<S> <C> <C> <C>
Revenue 100% 100% 100%
Cost of revenue 22 24 23
Gross margin 78 76 77
Research, development and engineering expenses 16 14 20
Selling, general and administrative expenses 27 28 33
Income from operations 35 34 24
Interest income 2 3 5
Income before provision for income taxes 37 37 29
Provision for income taxes 11 11 8
Net income 26% 26% 21%
<FN>
(1) Cost of revenue includes estimated costs in excess of revenue on certain
research and development contracts representing three percentage points, and
selling, general and administrative expenses include lease termination costs
representing one percentage point.
</TABLE>
12
<PAGE> 2
FINANCIAL STATEMENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993:
Revenue for the year ended December 31, 1994 increased 44% to $62,484,000 from
$43,371,000 for the year ended December 31, 1993. International revenue
amounted to $38,451,000 in 1994, compared to $25,927,000 in 1993, an increase
of 48%. Domestic revenue increased 38% for the year ended December 31, 1994
over the prior year. The increase in worldwide revenue is due primarily to the
growth of the Company's existing customer base in Japan and the United States,
as well as an expanded customer base in Europe. Much of the increased business
in Japan results from those customers who export their products, which
incorporate Cognex machine vision, to countries in the Pacific Rim, Europe, and
the United States. One customer, based in Japan, represented 20% and 24% of
revenue for the years ended December 31, 1994 and December 31, 1993,
respectively. In addition, over 40 new Original Equipment Manufacturer (OEM)
customers and over 65 new end-user customers were added worldwide in 1994. No
significant revenues from these new customers are expected until late 1995 or
1996.
The combined sales of the Cognex 2000 and 3000 Series vision systems increased
$1,603,000, yet decreased as a percentage of revenue to 27% for the year ended
December 31, 1994 from 35% for the year ended December 31, 1993 as a result of
the increase in revenue associated with newer products. Sales of the Cognex
4000 Series vision system increased $5,772,000 over the prior year, yet
declined as a percentage of revenue to 44% from 50%. Sales of the Cognex 5000
Series vision system represented 23% of revenue in 1994 and 9% of revenue in
1993. Revenue from the 5000 products for the year ended December 31, 1994
increased $10,229,000 over the year ended December 31, 1993.
Gross margin for the year ended December 31, 1994 increased to $48,600,000, or
78% of revenue, from $33,091,000, or 76% of revenue, for the year ended
December 31, 1993. The gross margin percentage for the year ended December 31,
1993 reflects a reduction of three percentage points due to certain research
and development contracts that were entered into in 1992 and completed in 1993.
Gross margin, excluding the impact in 1993 of the research and development
contracts, declined to 78% for the year ended December 31, 1994 from 79% for
the year ended December 31, 1993. This change is primarily due to higher
product sales discounts for volume shipments to certain customers in 1994 and
the shift in product sales as a percentage of revenue from the 2000 and 3000
Series vision systems to the 5000 Series vision systems which carry lower unit
margins.
Research, development and engineering expenses increased to $9,933,000 for the
year ended December 31, 1994 from $6,205,000 for the year ended December 31,
1993. Research, development and engineering expenses as a percentage of
revenue were 16% in 1994, compared to 14% in 1993. In 1993, a portion of
aggregate research, development and engineering costs were incurred to support
research and
13
<PAGE> 3
FINANCIAL STATEMENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
development contracts that were completed by December 31, 1993. These costs
were classified as "Cost of revenue." No such contract activities were in
place in 1994. Aggregate costs increased 19% for the year ended December 31,
1994 over the year ended December 31, 1993. The increase in aggregate costs is
due primarily to higher personnel costs to support the Company's investment in
the research and development of new and existing products.
Selling, general and administrative expenses increased to $16,847,000 for the
year ended December 31, 1994 from $12,183,000 for the year ended December 31,
1993. Selling, general and administrative expenses as a percentage of revenue
decreased to 27% in 1994 from 28% in 1993. The increase in absolute dollars is
primarily due to higher personnel costs, both domestically and internationally,
to support the Company's increased revenue and customer base, combined with
promotional costs related to the introduction of new products. In addition,
strengthening foreign currencies during 1994, primarily in Japan and France,
added to the cost of the Company's foreign operations.
Interest income increased to $1,462,000 for the year ended December 31, 1994
from $1,316,000 for the year ended December 31, 1993. The increase in interest
income is due primarily to an increased investment base.
The Company's effective tax rate for the year ended December 31, 1994 was 31%,
compared to 30% for the year ended December 31, 1993. The increase in the
effective tax rate is primarily due to the higher federal statutory rate.
YEAR ENDED DECEMBER 31, 1993 COMPARED TO YEAR ENDED DECEMBER 31, 1992:
Revenue for the year ended December 31, 1993 increased 51% to $43,371,000 from
$28,642,000 for the year ended December 31, 1992. The increase in 1993 is due
primarily to increased revenue from the Company's existing Japanese customer
base. Many of these Japanese customers experienced growth in 1993 through
export sales of their products, which incorporate Cognex machine vision, to
countries in the Pacific Rim, Europe, and the United States. Revenue from
Japan amounted to $22,133,000 in 1993, compared to $11,458,000 in 1992, an
increase of 93%. One customer, based in Japan, represented 24% and 14% of
revenue for the years ended December 31, 1993 and December 31, 1992,
respectively. In addition, over 40 new OEM customers were added worldwide in
1993. No significant revenues from these new OEM customers are expected until
late 1994 or 1995. Revenue from the Cognex 4000 Series vision system increased
165% over the prior year, and represented 50% of revenue for the year ended
December 31, 1993. Revenue from the Cognex 5000 Series vision system, the
Company's PC plug-in machine vision system introduced in the first half of
1993, represented 9% of revenue in 1993. Revenue outside of the United States
accounted for 60% and 49% of revenue for the years ended December 31, 1993 and
December 31, 1992, respectively.
14
<PAGE> 4
FINANCIAL STATEMENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Gross margin for the years ended December 31, 1993 and December 31, 1992 was
$33,091,000 and $22,154,000, or 76% and 77% of revenue, respectively. The
gross margin percentage for each year reflects a reduction of three percentage
points due to certain research and development contracts entered into during
1992. Gross margin decreased one percentage point from 1992 to 1993, resulting
primarily from a decrease in product gross margin. Product gross margin for
the year ended December 31, 1993 decreased slightly to 81% from 82% for the
year ended December 31, 1992. The decline in product gross margin is primarily
due to a shift in product sales from the 2000 and 3000 Series vision systems to
the 4100, 4200 and 5000 Series vision systems which carry lower unit margins.
Combined sales of the 2000/ 3000 products decreased 13%, as the 4000/5000
products increased 212% for the year ended December 31, 1993, compared to the
year ended December 31, 1992.
Research, development and engineering expenses increased to $6,205,000 for the
year ended December 31, 1993 from $5,622,000 for the year ended December 31,
1992. The increase in expenses is due primarily to an increase in engineering
personnel and higher levels of depreciation due to purchases of computer
equipment to support the Company's investment in the research and development
of new and existing products. As a percentage of revenue, research,
development and engineering expenses decreased to 14% for the year ended
December 31, 1993, compared to 20% for the corresponding period in 1992. The
decrease in expenses as a percentage of revenue is due primarily to increased
revenue in 1993.
A portion of aggregate research, development and engineering costs are incurred
to support research and development contracts. These costs are classified as
"Cost of revenue." On an aggregate basis, research, development and
engineering costs increased to $8,335,000 from $5,959,000 for the years ended
December 31, 1993 and December 31, 1992, respectively. In addition to the
increase in engineering personnel and depreciation of computer equipment noted
above, the increase in aggregate costs is due to utilization of outside
consultants, outside design services, and purchase of material supplies to
support the research and development contracts. During 1993, the Company also
spent a significant portion of its research, development and engineering
efforts on developing Checkpoint, the Company's new "easy-to-use" vision
system. More than 25% of the aggregate research, development and engineering
costs for 1993 were attributable to the Checkpoint project, and at December 31,
1993, there were approximately fifteen engineers working on the Checkpoint
project.
Selling, general and administrative expenses increased to $12,183,000 from
$9,565,000 for the years ended December 31, 1993 and December 31, 1992,
respectively. Selling, general and administrative expenses as a percentage of
revenue decreased to 28% in 1993 from 33% in 1992. The increase in absolute
dollars is primarily due to higher personnel costs, both domestically and
internationally, to support the Company's increased operations. In addition,
the strengthening Japanese yen during 1993 added to the cost of the Company's
Japanese operations.
15
<PAGE> 5
FINANCIAL STATEMENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Interest income decreased to $1,316,000 for the year ended December 31, 1993
from $1,437,000 for the year ended December 31, 1992. The decrease in interest
income is due primarily to lower interest rates.
The Company's effective tax rate for the year ended December 31, 1993 increased
to 30%, compared to 28% for the year ended December 31, 1992. The increase in
the effective tax rate is primarily due to the diminishing effect of tax exempt
interest and tax credits on the effective tax rate as profit before taxes
increases.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital and other cash requirements during the year ended
December 31, 1994 were met through cash flow generated from operations. Working
capital at December 31, 1994 was $88,512,000, an increase of $36,907,000 from
the working capital balance at December 31, 1993. Cash and investments
increased $36,899,000 from December 31, 1993 as a result of cash generated from
operations and the net proceeds from a second public stock offering of the
Company's common stock, offset by the purchase, renovation, and furnishing, for
cash, of the Company's new corporate headquarters.
At December 31, 1994, the Company had no outstanding short-term or long-term
debt. The Company has a $1,000,000 unsecured demand line of credit with a
bank, which is available through August 15, 1995. There have been no
borrowings under the line of credit.
Capital expenditures consist primarily of computer hardware and software
equipment, along with renovations and furnishings related to the Company's new
corporate headquarters. Capital expenditures in the year ended December 31,
1994 were $13,119,000, all of which were funded out of current operations. The
Company moved into its new corporate headquarters in September 1994. Cash
requirements for the purchase, renovation, and furnishings related to the new
corporate headquarters totaled approximately $11,100,000, substantially all of
which had been paid as of December 31, 1994.
The Company believes that the existing cash and investment balances, together
with cash generated from operations, will be sufficient to meet the Company's
working capital and capital expenditure requirements through 1995.
16
<PAGE> 6
FINANCIAL STATEMENTS
<TABLE>
COGNEX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
YEAR ENDED DECEMBER 31,
(Dollars in thousands, except per share amounts) 1994 1993 1992
<S> <C> <C> <C>
Revenue $62,484 $43,371 $28,642
Cost of revenue 13,884 10,280 6,488
Gross margin 48,600 33,091 22,154
Research, development and engineering expenses 9,933 6,205 5,622
Selling, general and administrative expenses 16,847 12,183 9,565
Income from operations 21,820 14,703 6,967
Interest income 1,462 1,316 1,437
Income before provision for income taxes 23,282 16,019 8,404
Provision for income taxes 7,210 4,871 2,311
Net income $16,072 $11,148 $ 6,093
Net income per share $ .87 $ .63 $ .35
Weighted average common shares outstanding 18,575 17,834 17,406
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
17
<PAGE> 7
FINANCIAL STATEMENTS
<TABLE>
COGNEX CORPORATION
CONSOLIDATED BALANCE SHEETS
<CAPTION>
DECEMBER 31,
(Dollars in thousands) 1994 1993
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 56,326 $21,833
Investments 25,169 22,763
Accounts receivable, less reserves of $684
and $597 in 1994 and 1993, respectively 9,151 7,358
Inventories 4,439 2,981
Deferred income taxes 1,463 1,019
Prepaid expenses and other 1,195 1,400
Total current assets 97,743 57,354
Property, plant and equipment, net 14,503 3,104
Other assets 593 352
$112,839 $60,810
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,284 $ 442
Accrued expenses 5,135 3,591
Accrued income taxes 1,674 953
Customer deposits 744 677
Deferred revenue 394 86
Total current liabilities 9,231 5,749
Stockholders' equity:
Common stock, $.002 par value -
Authorized: 25,000,000 shares, issued: 18,751,935
and 17,012,705 shares in 1994 and 1993, respectively 38 34
Additional paid-in capital 53,633 20,887
Cumulative translation adjustment (53) 30
Retained earnings 50,482 34,410
Treasury stock, at cost, 30,878 and 20,946 shares
in 1994 and 1993, respectively (492) (300)
Total stockholders' equity 103,608 55,061
$112,839 $60,810
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
18
<PAGE> 8
FINANCIAL STATEMENTS
<TABLE>
COGNEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
YEAR ENDED DECEMBER 31,
(Dollars in thousands) 1994 1993 1992
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $16,072 $11,148 $6,093
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,754 1,272 924
Tax benefit from exercise of stock options 1,192 1,152 605
Changes in current assets and current liabilities:
Accounts receivable (1,785) (3,884) 679
Inventories (1,458) (1,341) (556)
Deferred income taxes (444) 70 (272)
Prepaid expenses and other 225 (121) (513)
Accounts payable 833 172 (36)
Accrued expenses 1,508 643 319
Accrued income taxes 707 (159) (100)
Customer deposits 67 (1,353) 348
Deferred revenue 308 (443) 271
Net cash provided by operating
activities 18,979 7,156 7,762
Cash flows from investing activities:
Purchase of investments (19,504) (17,966) (24,181)
Maturities of investments 17,098 18,300 21,099
Purchase of property, plant
and equipment (13,119) (1,765) (1,488)
(Increase) decrease in other
assets (199) 82 (175)
Net cash used in investing
activities (15,724) (1,349) (4,745)
Cash flows from financing activities:
Net proceeds from second public
offering of common stock 29,837
Proceeds from issuance of
stock under stock option and
stock purchase plans 1,529 1,621 429
Repurchase of common stock (2,472)
Net cash provided by (used in)
investing activities 31,366 1,621 (2,043)
Effect of exchange rate changes
on cash (128) (18)
Net increase in cash and cash
equivalents 34,493 7,410 974
Cash and cash equivalents at
beginning of year 21,833 14,423 13,449
Cash and cash equivalents at
end of year $56,326 $21,833 $14,423
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
19
<PAGE> 9
FINANCIAL STATEMENTS
<TABLE>
COGNEX CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>
ADDITIONAL CUMULATIVE TOTAL
COMMON STOCK PAID-IN TRANSLATION RETAINED TREASURY STOCK STOCKHOLDERS'
(Dollars in thousands) SHARES AMOUNT CAPITAL ADJUSTMENT EARNINGS SHARES AMOUNT EQUITY
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1991 8,441,556 $17 $19,269 $ (1) $17,169 $ 36,454
Issuance of stock under stock option
and stock purchase plans 100,253 429 429
Tax benefit from exercise of stock options 605 605
Repurchase of common stock 227,100 $(2,472) (2,472)
Retirement of treasury stock (227,100) (2,472) (227,100) 2,472
Translation adjustment 1 1
Net income 6,093 6,093
Balance at December 31, 1992 8,314,709 17 17,831 23,262 41,110
Issuance of stock under stock option
and stock purchase plans 209,262 1,921 1,921
Tax benefit from exercise of stock options 1,152 1,152
Common stock received for payment of
stock option exercises 20,946 (300) (300)
Stock issued to effect stock split 8,488,734 17 (17)
Translation adjustment 30 30
Net income 11,148 11,148
Balance at December 31, 1993 17,012,705 34 20,887 30 34,410 20,946 (300) 55,061
Second public offering of common stock,
net of offering costs of $299 1,429,608 3 29,834 29,837
Issuance of stock under stock option
and stock purchase plans 309,622 1 1,720 1,721
Tax benefit from exercise of stock options 1,192 1,192
Common stock received for payment of
stock option exercises 9,932 (192) (192)
Translation adjustment (83) (83)
Net income 16,072 16,072
Balance at December 31, 1994 18,751,935 $38 $53,633 $(53) $50,482 30,878 $ (492) $103,608
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
20 21
<PAGE> 10
FINANCIAL STATEMENTS
COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements reflect the application of
certain accounting policies described in this and other notes to the
consolidated financial statements.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Cognex
Corporation and its subsidiaries (the "Company"), all of which are
wholly-owned. All intercompany accounts and transactions have been eliminated.
Certain amounts reported in prior years have been reclassified to be consistent
with the current year's presentation.
FOREIGN CURRENCY TRANSLATION
The financial statements of the Company's foreign subsidiaries, where the
local currency is the functional currency, are translated using exchange rates
in effect at the end of the year for assets and liabilities and average
exchange rates during the year for results of operations. The resulting
foreign currency translation adjustments are reported as a separate component
of stockholders' equity.
The Company enters into transactions denominated in foreign currencies and
includes the exchange gain or loss arising from such transactions in current
operations. In certain instances, the Company enters into forward exchange
contracts to hedge specific commitments against foreign currency fluctuations.
The forward exchange contracts are for periods consistent with its committed
exposure and require the Company to exchange foreign currencies for U.S.
dollars at maturity, at rates agreed to at the inception of the contracts. The
Company had approximately $1,269,000 and $1,400,000 of foreign exchange
contracts outstanding, all of which were in Japanese yen, at December 31, 1994
and 1993, respectively.
REVENUE RECOGNITION
Revenue from product sales and software licenses is recognized upon shipment.
Revenue for research and development contracts is recognized on the
percentage-of-completion method. Losses on contracts, if any, are provided for
in the period in which the loss is determined. Deferred revenue and customer
deposits arise from billings in advance of performance and are recognized as
revenue during the period in which performance occurs. Service and maintenance
revenue is recognized as earned.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense when incurred until
technological feasibility has been established for the product. Thereafter,
all software production costs are capitalized until the product is available
for general release to customers. The Company has not capitalized any software
costs to date.
22
<PAGE> 11
FINANCIAL STATEMENTS
COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATIONS OF CREDIT RISK
A significant portion of the Company's sales and receivables are from customers
in the electronics and semiconductor industries. The Company performs ongoing
credit evaluations of its customers and maintains allowances for potential
credit losses. To date, the Company has not experienced any significant losses
related to the collection of accounts receivable.
CASH EQUIVALENTS AND INVESTMENTS
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. Investments are those
with maturities in excess of three months and are stated at amortized cost,
which approximates fair value. The Company invests its excess cash in
commercial paper and debt instruments of U.S. and state government entities.
The Company has established guidelines relative to credit ratings,
diversification, and maturities that maintain safety and liquidity. The
Company has not experienced any losses on its cash equivalents and investments.
Effective January 1, 1994, the Company adopted the provisions of Statement of
Financial Accounting Standard (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." The adoption of SFAS No. 115 had
no effect on the Company's financial position or results of operations.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined on
the first-in, first-out basis.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and depreciated using the
straight-line method over the assets' estimated useful lives. The building's
useful life is 39 years, building improvements' useful lives are ten years, and
the useful lives of computer hardware, computer software, and furniture and
fixtures range from two to five years. Leasehold improvements are amortized
over the shorter of the estimated useful lives or the remaining terms of the
leases. Maintenance and repairs are charged to expense when incurred;
additions and improvements are capitalized. Upon retirement or sale, the cost
of the assets are disposed of and the related accumulated depreciation is
removed from the accounts, with any resulting gain or loss included in the
determination of net income.
INCOME TAXES
The Company accounts for income taxes according to Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." Under the
liability method specified by SFAS No. 109, a deferred tax asset or liability
is determined based on the differences between the financial statement and tax
basis of assets and liabilities as measured by the enacted tax rates which will
be in effect when these differences reverse. Tax credits are recorded as a
reduction in income taxes when utilized.
23
<PAGE> 12
FINANCIAL STATEMENTS
CONGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET INCOME PER SHARE
Net income per share is calculated based upon the weighted average number of
common and dilutive common equivalent shares outstanding during the period.
Primary and fully diluted earnings per share are not materially different for
each of the years presented. Dilutive common equivalent shares consist of
stock options, calculated using the treasury stock method.
INVESTMENTS
At December 31, 1994, all of the Company's investments were determined to be
"available for sale" and fair value was not materially different from amortized
cost. Municipal obligations at December 31, 1994 amounted to $25,169,000, of
which $18,318,000 have a contractual maturity of one year or less and
$6,851,000 have a contractual maturity greater than one year. The municipal
obligations with contractual maturities greater than one year are classified as
current assets because the Company has the option to liquidate these
investments in the short-term.
<TABLE>
INVENTORIES
Inventories consist of the following:
<CAPTION>
DECEMBER 31,
(In thousands) 1994 1993
<S> <C> <C>
Raw materials $2,476 $1,580
Work-in-process 1,604 1,137
Finished goods 359 264
$4,439 $2,981
</TABLE>
<TABLE>
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<CAPTION>
DECEMBER 31,
(In thousands) 1994 1993
<S> <C> <C>
Land $ 800
Building 7,836
Building improvements 1,107
Computer hardware and software 8,772 $ 6,526
Furniture and fixtures 1,298 317
Leasehold improvements 250 242
20,063 7,085
Less: accumulated depreciation and amortization (5,560) (3,981)
$14,503 $ 3,104
</TABLE>
24
<PAGE> 13
FINANCIAL STATEMENTS
COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
ACCRUED EXPENSES
Accrued expenses consist of the following:
<CAPTION>
DECEMBER 31,
(In thousands) 1994 1993
<S> <C> <C>
Bonus $1,730 $1,253
Payroll and related costs 1,180 760
Warranty 796 255
Professional fees 764 644
Lease termination costs 344
Other 665 335
$5,135 $3,591
</TABLE>
LINE OF CREDIT
At December 31, 1994, the Company had a line of credit with a bank providing
for borrowings up to $1,000,000 through August 15, 1995. Borrowings under the
line bear interest at the prime rate (8.5% at December 31, 1994) and are
unsecured. There have been no borrowings under the line of credit.
<TABLE>
INCOME TAXES
The provision for income taxes in the accompanying consolidated statements of
income consists of the following:
<CAPTION>
DECEMBER 31,
(In thousands) 1994 1993 1992
<S> <C> <C> <C>
Current:
Federal $6,960 $3,935 $2,041
State 452 704 369
Foreign 243 162 173
7,655 4,801 2,583
Deferred:
Federal (365) 15 (37)
State (80) 55 (235)
$7,210 $4,871 $2,311
</TABLE>
25
<PAGE> 14
FINANCIAL STATEMENTS
COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
INCOME TAXES (CONTINUED)
A reconciliation of the provision for income taxes at the federal statutory rate is as follows:
<CAPTION>
DECEMBER 31,
(In thousands) 1994 1993 1992
<S> <C> <C> <C>
Provision for income taxes at
federal statutory rate 35% 34% 34%
State income taxes, net of federal benefit 2 2 4
Excess foreign tax rates 1 2
Foreign Sales Corporation benefit (3) (3) (3)
Tax-exempt investment income (2) (2) (5)
Tax credit utilization (1) (2) (4)
Provision for income taxes 31% 30% 28%
</TABLE>
<TABLE>
The components of the net deferred tax asset in the accompanying consolidated
balance sheets are as follows:
<CAPTION>
DECEMBER 31,
(In thousands) 1994 1993
<S> <C> <C>
Deferred tax asset $1,579 $1,093
Deferred tax liability (116) (74)
$1,463 $1,019
</TABLE>
The Company believes that it is more likely than not that the net deferred tax
asset will be recognized; therefore, no valuation allowance is considered
necessary at December 31, 1994 and 1993.
<TABLE>
Deferred income taxes reflect the tax impact of temporary differences
(primarily reserves) between the amount of assets and liabilities for financial
reporting purposes and such amounts as measured by tax laws and regulations.
The tax effects of the principal items making up the net deferred tax asset are
as follows:
<CAPTION>
DECEMBER 31,
(In thousands) 1994 1993
<S> <C> <C>
Vacation, bad debt and other $ 970 $ 566
Inventory, warranty and other 633 301
Depreciation (100) (4)
Lease termination costs 132
Other deferred tax assets and liabilities (40) 24
$1,463 $1,019
</TABLE>
26
<PAGE> 15
FINANCIAL STATEMENTS
COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
LEASES
The Company conducts some of its operations in leased facilities. These lease
agreements expire at various dates through 2002 and are accounted for as
operating leases. Annual rent expense approximated $1,378,000 in 1994,
$1,440,000 in 1993, and $1,115,000 in 1992. Future minimum lease commitments
under these agreements are as follows at December 31, 1994 (in thousands):
<CAPTION>
YEAR AMOUNT
<S> <C> <C>
1995 $ 818
1996 504
1997 98
1998 47
1999 47
Thereafter 142
$1,656
</TABLE>
STOCKHOLDERS' EQUITY
COMMON AND PREFERRED STOCK
On August 30, 1993, the Company announced a two-for-one stock split, effected
in the form of a stock dividend, payable September 30, 1993 to stockholders of
record at the close of business September 13, 1993. Accordingly, $17,000
representing the par value of the additional shares issued was transferred from
additional paid-in capital to common stock. These financial statements and
related notes have been retroactively adjusted, as appropriate, to reflect the
two-for-one stock split. In December 1994, the Company completed a second
public stock offering of 1,429,608 shares of common stock.
The Company has 400,000 shares of authorized but unissued $.01 par value
preferred stock.
STOCK OPTION PLANS
At December 31, 1994, the Company had 7,836,000 shares approved by the Board of
Directors and stockholders for grant under the following stock option plans:
the 1992 plan, 176,000; the 1993 Director plan, 160,000; and the 1993 plan,
2,500,000. The 1984 plan, which expired on April 18, 1994, had 5,000,000
shares approved and granted. During 1994, there were no additions or
amendments to these plans. All options granted in 1994, 1993, and 1992 were at
fair market value on the dates of grant except for the 1993 Director plan and
certain other grants in December 1993, in which options were granted above the
fair market value. Options vest over various periods, not exceeding six and
one quarter years and expire no later than fifteen years from the date of
grant.
27
<PAGE> 16
FINANCIAL STATEMENTS
COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
STOCKHOLDERS EQUITY (CONTINUED)
Information concerning stock options for the three years ending December 31, 1994 is as follows:
<CAPTION>
OPTION PRICE
NUMBER OF SHARES PER SHARE
<S> <C> <C> <C>
Outstanding at December 31, 1991 1,709,810 $ .40 - 14.66
Options granted 1,940,200 5.25 - 13.91
Options exercised (150,754) .40 - 4.88
Options cancelled (1,229,950) 1.00 - 14.66
Outstanding at December 31, 1992 2,269,306 .46 - 14.03
Options granted 2,114,300 9.38 - 16.25
Options exercised (367,290) .46 - 13.25
Options cancelled (107,500) 3.69 - 14.13
Outstanding at December 31, 1993 3,908,816 1.00 - 16.25
Options granted 394,050 13.38 - 25.63
Options exercised (293,550) 1.00 - 15.97
Options cancelled (67,900) 6.00 - 19.25
Outstanding at December 31, 1994 3,941,416 $ 1.00 - 25.63
</TABLE>
There were 892,602 exercisable options at December 31, 1994.
EMPLOYEE STOCK PURCHASE PLAN
Under the Company's Employee Stock Purchase Plan, all employees who have
completed at least six months of continuous service in the employ of the
Company may purchase common stock semi-annually at the lower of 85% of fair
market value of the stock at the beginning or end of the six-month payment
period, through accumulation of payroll deductions. Employees are required to
hold stock purchased through the Employee Stock Purchase Plan for a period of
one year from the date of exercise. Common stock reserved for future sales
totaled 116,179 shares at December 31, 1994. There were 8,025 shares sold at
$11.69 per share in June 1994, and 7,815 shares sold at $12.01 per share in
December 1994.
28
<PAGE> 17
FINANCIAL STATEMENTS
CONGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EMPLOYEE SAVINGS PLAN
The Company's Employee Savings Plan (the 401(k) Plan), a defined
contribution plan, is available to all employees who have attained age 21.
Eligible employees may contribute from 1% to 15% of their salary on a pre-tax
basis. Employer contributions are at the discretion of management. The
Company made no contributions to the 401(k) Plan in 1993 and 1992. In December
1994, the Company approved a $150,000 contribution to the 401(k) Plan to be
distributed in February 1995 to employees of the Company as of December 31,
1994.
SUPPLEMENTAL STATEMENTS OF CASH FLOWS INFORMATION
Cash paid for income taxes approximated $5,844,000 in 1994, $3,570,000 in 1993,
and $2,473,000 in 1992.
In 1994, the Company retired certain fully-amortized leasehold improvements
amounting to $211,000 in connection with leases which expired during the year.
In 1994 and 1993, the Company received common stock as payment for stock option
exercises totaling $192,000 and $300,000, respectively.
SIGNIFICANT CUSTOMERS AND EXPORT SALES
During the years ended December 31, 1994, 1993, and 1992, one customer
accounted for $12,655,000, $10,340,000, and $3,911,000, or 20%, 24%, and 14%,
respectively, of revenue.
<TABLE>
The following summarizes export sales:
<CAPTION>
DECEMBER 31,
(In thousands) 1994 1993 1992
<S> <C> <C> <C>
United States $24,033 $17,444 $14,545
Export:
Japan 30,919 22,133 11,458
Europe 7,011 3,325 2,417
All other 521 469 222
$62,484 $43,371 $28,642
</TABLE>
29
<PAGE> 18
FINANCIAL STATEMENTS
COGNEX CORPORATION
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF COGNEX CORPORATION:
We have audited the accompanying consolidated balance sheets of Cognex
Corporation as of December 31, 1994 and 1993 and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1994. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Cognex
Corporation as of December 31, 1994 and 1993 and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1994, in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
January 23, 1995
30
<PAGE> 19
CHAPTER 4 - SELECTED FINANCIAL DATA
<TABLE>
COGNEX CORPORATION
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
<CAPTION>
YEAR ENDED DECEMBER 31,
(In thousands, except per share amounts) 1994 1993 1992(1) 1991 1990
<S> <C> <C> <C> <C> <C>
Statements of Income Data:
Revenue $62,484 $43,371 $28,642 $31,548 $23,558
Cost of revenue 13,884 10,280 6,488 5,879 4,287
Gross margin 48,600 33,091 22,154 25,669 19,271
Research, development and
engineering expenses 9,933 6,205 5,622 4,362 3,779
Selling, general and
administrative expenses 16,847 12,183 9,565 8,694 6,768
Income from operations 21,820 14,703 6,967 12,613 8,724
Interest income 1,462 1,316 1,437 1,399 1,263
Income before provision for
income taxes 23,282 16,019 8,404 14,012 9,987
Provision for income taxes 7,210 4,871 2,311 4,520 3,466
Net income $16,072 $11,148 $ 6,093 $ 9,492 $ 6,521
Net income per share (2) $ .87 $ .63 $ .35 $ .54 $ .38
Weighted average common
shares outstanding (2) 18,575 17,834 17,406 17,647 17,239
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
(In thousands) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital $ 88,512 $51,605 $38,123 $34,206 $21,907
Total assets 112,839 60,810 47,987 42,529 28,181
Long-term obligations - - - - -
Stockholders' equity 103,608 55,061 41,110 36,454 23,836
<FN>
(1) Cost of revenue includes $719,000 of estimated costs in excess of revenue on
certain research and development contracts, and selling, general and
administrative expenses include lease termination costs of $344,000.
(2) Adjusted for the 2-for-1 stock split effective September 30, 1993.
</TABLE>
31
<PAGE> 20
SELECTED FINANCIAL DATA
<TABLE>
COGNEX CORPORATION
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<CAPTION>
QUARTER ENDED
APRIL 3, JULY 3, OCTOBER 2, DECEMBER 31,
(In thousands, except per share amounts) 1994 1994 1994 1994
<S> <C> <C> <C> <C>
Revenue $12,838 $14,950 $16,592 $18,104
Gross margin 10,028 11,616 12,761 14,195
Income from operations 4,240 4,995 5,875 6,710
Net income 3,197 3,680 4,290 4,905
Net income per share(1) .17 .20 .23 .26
Common stock prices:(1)
High 28 22 1/4 22 1/4 27 3/8
Low 13 1/2 11 3/4 13 3/4 16 1/2
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
APRIL 4, JULY 4, OCTOBER 3, DECEMBER 31,
(In thousands, except per share amounts) 1993 1993 1993 1993
<S> <C> <C> <C> <C>
Revenue $ 8,842 $10,405 $11,846 $12,278
Gross margin 6,587 8,011 9,031 9,462
Income from operations 2,631 3,373 4,159 4,540
Net income 2,149 2,571 3,055 3,373
Net income per share(1) .12 .14 .17 .19
Common stock prices:(1)
High 13 1/8 14 3/8 17 5/8 17
Low 9 1/4 10 5/8 13 7/8 11
<FN>
(1) Adjusted for the 2-for-1 stock split effective September 30, 1993.
</TABLE>
32
<PAGE> 21
CHAPTER 5 - COMPANY INFORMATION
GENERAL INFORMATION
TRANSFER AGENT
The First National Bank of Boston
Boston, Massachusetts
GENERAL COUNSEL
Hutchins, Wheeler & Dittmar
Boston, Massachusetts
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
Boston, Massachusetts
FORM 10-K
A copy of the annual report filed with the Securities and Exchange Commission
on Form 10-K is available to stockholders, without charge, upon written request
to:
Department of Investor Relations
Cognex Corporation
One Vision Drive
Natick, Massachusetts 01760
The Company's common stock is traded on The NASDAQ System Market, under the
symbol CGNX. As of February 3, 1995, there were approximately 4,500 registered
and non-registered holders of the Company's common stock.
No dividends on the Company's common stock were paid during 1994 and 1993.
33
<PAGE> 1
<TABLE>
EXHIBIT 21
COGNEX CORPORATION
SUBSIDIARIES OF THE REGISTRANT
The registrant has the following subsidiaries, the financial statements of which are all included in the
consolidated financial statements of the registrant:
<CAPTION>
NAME OF STATE/COUNTRY OF PERCENT
SUBSIDIARY INCORPORATION OWNERSHIP
- ---------------------- ----------------------- ---------
<S> <C> <C>
Cognex K.K. Japan 100%
Cognex Technology and Investment
Corporation California 100
Cognex Foreign Sales Corporation U.S. Virgin Islands 100
Cognex International, Inc. Delaware 100
Cognex Germany, Inc. Massachusetts 100
</TABLE>
21
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statements of Cognex Corporation on Form S-8 (File Nos. 33-31657, 33-32815,
33-36263, 33-72636, 33-72638, 33-81150 and 33-81152) of our reports dated
January 23, 1995, on our audits of the consolidated financial statements and
financial statement schedule of Cognex Corporation as of December 31, 1994 and
1993, and for each of the three years in the period ended December 31, 1994,
which reports are incorporated by reference or included in this Annual Report
on Form 10-K.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
March 22, 1995
22
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF COGNEX CORPORATION FOR THE YEAR ENDED DECEMBER 31, 1994
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<EXCHANGE-RATE> 1
<CASH> 56,326,000
<SECURITIES> 25,169,000
<RECEIVABLES> 9,835,000
<ALLOWANCES> 684,000
<INVENTORY> 4,439,000
<CURRENT-ASSETS> 97,743,000
<PP&E> 20,063,000
<DEPRECIATION> 5,560,000
<TOTAL-ASSETS> 112,839,000
<CURRENT-LIABILITIES> 9,231,000
<BONDS> 0
<COMMON> 38,000
0
0
<OTHER-SE> 103,570,000
<TOTAL-LIABILITY-AND-EQUITY> 112,839,000
<SALES> 62,484,000
<TOTAL-REVENUES> 62,484,000
<CGS> 13,884,000
<TOTAL-COSTS> 13,884,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 23,282,000
<INCOME-TAX> 7,210,000
<INCOME-CONTINUING> 16,072,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,072,000
<EPS-PRIMARY> .87
<EPS-DILUTED> .87
</TABLE>
