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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,
1995 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
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2713778
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE VISION DRIVE
NATICK, MASSACHUSETTS 01760-2059
(508) 650-3000
(Address, including zip code, and telephone number,
including area code, of principal executive offices)
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. [ ]
Aggregate market value of voting stock held by non-affiliates
as of February 25, 1996: $773,120,191
$.002 par value common stock outstanding as of February 25, 1996:
38,965,807 shares
Documents incorporated by reference:
Specifically identified information in the Annual Report to Stockholders for the
year ended December 31, 1995, 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 1996 Annual Meeting of Stockholders to be held on
April 23, 1996, 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, 1995
INDEX
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 software and hardware 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, consumer products, automotive, pharmaceutical, and general
manufacturing 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) and system integrators who have the ability to configure
their own vision solutions using the software tools and hardware platforms
provided by the Company. The Company also markets "easy-to-use" machine vision
systems to system integrators and end users (the "factory floor") which
represents an expansion beyond its traditional OEM customer base. These machine
vision systems designed for the factory floor marketplace provide an
"easy-to-use" interface that allows system integrators and end users in a wide
range of industries to implement vision solutions for the factory floor. This
strategy has permitted the Company to focus its engineering resources on
expanding its own product line and 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 usability
and functionality and the customer's capabilities and needs. The Company'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 porgramming, 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. In addition, the
Company believes that its "easy-to-use" products allow system integratores and
end users without detailed experience in computer programming or knowledge of
image processing or image analysis to construct a vision solution.
The Company's primary customers, OEMs in the electronics and semiconductor
industries, are principally located in Japan and North America. Sales to
international customers represented approximately 59%, 62%, and 60% of revenue
in 1995, 1994, and 1993, respectively. The Company sells through a direct sales
force, consisting of approximately 30 people at December 31, 1995, and through
distributors to service its OEM and factory floor customers. In addition to its
headquarters in Natick, Massachusetts, the Company has sales offices in the
United States, Europe, and the Far East.
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RECENT DEVELOPMENTS
In February 1996, the Company acquired Isys Controls, Inc., an Alameda,
California-based developer of ultra-high performance vision systems that
automatically detect and classify surface flaws and defects on a variety of high
value-added materials. In July 1995, the Company acquired Acumen, Inc., a
Portland, Oregon-based developer of machine vision systems for semiconductor
wafer identification. Information with respect to the acquisitions of Isys
Controls Inc. and Acumen, Inc. may be found in the Notes to Consolidated
Financial Statements, appearing on pages 31 and 32 of the Annual Report to
Stockholders for the year ended December 31, 1995, which is Exhibit 13 hereto,
and is incorporated herein by reference.
These acquisitions provide the company with an expansion beyond its
traditional base of general-purpose machine vision systems. The potential market
for machine vision is comprised of a number of market niches defined by
application requirements, industry, and cost/performance. The Company's business
strategy includes selective expansion into other industrial machine vision
applications. The recent acquisitions of Isys Controls, Inc. and Acumen, Inc.
gives Cognex an immediate and strong presence in the niche markets for surface
inspection and semiconductor wafer identification.
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. 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. Machine vision systems can provide four
types of answers:
<TABLE>
<CAPTION>
QUESTION DESCRIPTION EXAMPLE
- - -------- ----------- -------
<S> <C> <C>
GUIDANCE
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
electrical components.
IDENTIFICATION
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
How good is it? Inspecting an object for flaws or Inspecting the quality of printing on
defects. pharmaceutical labels and packaging.
GAUGING
What size is it? Determining the dimensions Determining the diameter of a
of an object. bearing prior to final assembly.
</TABLE>
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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
fast for effective human intervention. In addition, 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, employ knowledgeable
engineers who are competent to work with computer-related equipment.
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 and system
integrators who have the ability to configure their own vision solutions using
the software tools and hardware platforms provided by the Company. The Company
also markets "easy-to-use" machine vision systems to system integrators and end
users which represents an expansion beyond its traditional OEM customer base.
These machine vision systems designed for the factory floor marketplace provide
an "easy-to-use" interface that allows system integrators and end users in a
wide range of industries to implement vision solutions for the factory floor.
This strategy has permitted the Company to focus its engineering resources on
expanding its own product line and developing proprietary vision technology.
In addition to selling traditional machine vision systems to OEMs, the
Company's products are also sold to system integrators and end users serving the
consumer products, automotive, pharmaceutical, and general manufacturing
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.
The strategy of selling standard products in high volume without extensive
support by the Company requires a close match between the product's usability
and functionality and the customer's capabilities and needs. The Company'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. In addition, the
Company believes that its "easy-to-use" products allow system integrators and
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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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 image analysis. The Company 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 the Company.
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's needs. The typical
Cognex machine vision system, including software and hardware, ranges from
$7,500 to $20,000 and the Company estimates that an aggregate of approximately
38,000 Cognex machine vision systems had been sold as of December 31, 1995.
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. 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 machine 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 machine 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.
Image Analysis Software. The image analysis level embodies the Company'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, the Company has made 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 (OCR) for reading
characters.
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. The
Company also offers application-specific 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.
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HARDWARE PRODUCTS
The Company supplies a family of 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
vision hardware products is as follows:
Standard Machine Vision Platforms. The Company offers a variety of standard,
programmable machine vision platforms on which to run the Cognex software tools.
The Cognex 3000 Series, consisting of the 3100 and 3400, are proprietary,
single-board machine 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 machine 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 machine vision systems are
software compatible, allowing customers to readily upgrade to higher performance
systems or to change platforms as application needs change.
Application-Specific Hardware 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
machine vision system suitable for such tasks as aligning printed circuit boards
prior to screen printing, drilling, or epoxy dispensing. The Cognex
acuReader/OCR is a machine vision system designed to read even the most degraded
serial numbers from semiconductor wafers with near 100% accuracy. Both of these
machine 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, the
Company has developed the VC-2 and VC-3 custom vision chips. 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 VC-2 chip performs image processing
functions that are optimized for machine vision tasks which enables the
Company's machine vision systems to address a new class of flaw and defect
detection applications. The VC-3 chip is an application-specific integrated
circuit designed to run image processing and image analysis algorithms at high
speeds. In addition, the Company's Acumen division has developed a set of vision
chips used for pattern recognition in the acuReader/OCR.
CHECKPOINT
In 1994, the Company introduced a new machine vision system known as
Checkpoint. The Company markets Checkpoint to system integrators and end users
which represents an expansion beyond its traditional OEM customer base.
Checkpoint is designed for the factory floor marketplace and combines the
Company's proven vision technology with a new and unique graphical user
interface. The Company believes that Checkpoint allows system integrators and
end users in a wide range of industries to design vision solutions for the
factory 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.
A Checkpoint system includes pre-packaged existing software (system
software, image processing software, and image analysis software), standard
hardware (Checkpoint Model 400 and 800 vision processors), 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
system over a serial line at development time. Then, at run-time, the system is
deployed as a stand-alone unit on the factory floor utilizing a custom graphic
operator interface created by the developer with Checkpoint.
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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 the Company'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 machine 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 and system integrators
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 usability and functionality and the customer's capabilities and
needs.
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 and Southeast Asia. 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 offices in
Illinois, Minnesota, New Jersey, and Florida. 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 France, Germany,
England, Italy, Singapore, and Korea where the Company sells through a direct
sales force and through distributors. At December 31, 1995, the Company's direct
sales and service force consisted of 80 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.
Sales to international customers represented approximately 59%, 62%, and 60%
of revenue in 1995, 1994, and 1993, respectively. One international customer
based in Japan, Fuji America Corporation, accounted for approximately 16%, 20%,
and 24% of revenue in 1995, 1994, and 1993, respectively. Information with
respect to significant customers and export sales may be found in the Notes to
the Consolidated Financial Statements, appearing on page 30 of the Annual Report
to Stockholders for the year ended December 31, 1995, 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.
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The Company sells its products to customers that have entered or are
expected to enter into volume discount 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 services and hardware maintenance on
both a contract and a time and material basis. Software updates are provided via
floppy disks and hardware maintenance is provided by exchanging printed circuit
boards. Programming application services for projects can be contracted with the
Company on a time and material 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 and functionality to
meet market opportunities. The R, D & E organization consists of software
engineering, research and development, hardware engineering, advanced products
development, and custom products development. Software engineering is
responsible for the development of image processing and image analysis tools, as
well as the maintenance, quality assurance, and documentation of vision software
products. The advanced end-user vision systems group, within the software group,
develops Checkpoint. The research and development group focuses its energies on
enhanced vision technology capabilities. Hardware engineering is responsible for
the development of hardware products, primarily vision engines and vision chips.
The advanced products development group is engaged in the development of the
Placement Guidance Products and the VisionPro product line. The custom products
development group is responsible for the development of application products
used in wire bonders and other custom applications. The Company's Acumen
division is responsible for the development of application-specific products for
the semiconductor industry.
At December 31, 1995, the Company employed 104 professionals in R, D & E,
most of whom are software developers. The Company's R, D & E expenses were
approximately $13,190,000, $9,933,000, and $6,205,000 in 1995, 1994, and 1993,
respectively.
MANUFACTURING
The Company's current manufacturing process 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 electronic components and sheet metal parts are purchased and
stocked by the Company utilizing its own personnel. Some of the electronic
components are tested and burned in before assembly. The Company puts together
kits of components 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 final assembly and test.
The Company packages and ships its products to customers from its Natick,
Massachusetts headquarters. Certain components purchased by the Company are
presently available from a single source.
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In 1995, the Company began the transition to a turnkey manufacturing
operation whereby the majority of component purchasing, subassembly, final
assembly, and testing is performed under agreement by a third-party contractor.
The Company expects that the contractor will become the sole manufacturer of
substantially all of the Company's products when the transition is complete in
early 1997.
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. In
addition, certain application-specific machine vision products are being
introduced as low-cost, software-only solutions by various companies and the
Company does not currently have a significant product offering that effectively
competes with respect to price against these new software-only systems. 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.
BACKLOG
At December 31, 1995 the Company's backlog was approximately $27,655,000,
compared to $16,827,000 at December 31, 1994. 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, it utilizes patent, copyright, and trade secret
protection 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'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 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.
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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
these patents has been placed in issue. Although the Company has not been named
in this litigation, it has 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.
In June 1995, a Magistrate Judge filed a recommendation that summary
judgment be entered in favor of one of the Company's users engaged in litigation
with Mr. Lemelson/Technivision. If this recommendation is accepted by the
applicable District Court, the summary judgment would entirely dispose of all
the actions in favor of the user. Until further notice by the Court, action
regarding this litigation is stayed. 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, 1995, the Company employed 307 persons, including 119 in
sales, marketing and support activities; 104 in research, development and
engineering; 36 in manufacturing and quality assurance; and 48 in management,
administration and finance. 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, development and
engineering, manufacturing and quality assurance, and support personnel are
located in this facility. In addition, the Company leases sales offices in the
United States in California, Illinois, and Oregon, as well as in Japan, France,
Germany, England, Italy, Singapore, and Korea.
In June 1995, the Company purchased an 83,000 square-foot office building
adjacent to its corporate headquarters. The building is currently occupied with
tenants who have lease commitments that expire at various dates through the year
2000. The Company will oversee these lease commitments until it is ready to take
occupancy.
9
<PAGE> 12
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, 1995 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 following table sets forth the names, ages, and titles of the Company's
executive officers at December 31, 1995:
<TABLE>
<CAPTION>
NAME AGE TITLE
- - ---- --- -----
<S> <C> <C>
Robert J. Shillman 49 President, Chief Executive Officer, and Chairman of
the Board of Directors
Patrick A. Alias 50 Executive Vice President of Sales and Marketing
John J. Rogers, Jr. 37 Executive Vice President, Chief Financial Officer, and
Treasurer
Richard B. Snyder 52 Executive Vice President of Operations
</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.
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, Chief Financial Officer in 1994, and Executive Vice
President of Finance and Administration in 1995. 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.
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.
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.
10
<PAGE> 13
OTHER MEMBERS OF THE MANAGEMENT TEAM
<TABLE>
<CAPTION>
NAME AGE TITLE
- - ---- --- -----
<S> <C> <C>
Marilyn Matz 42 Vice President of Software Engineering
E. John McGarry 39 Vice President of Development: Application Specific
Accelerated Products, President and Chief Technical
Officer of Acumen
Kris Nelson 48 Vice President of North American Sales
Hironobu Ohgusu 56 President of Cognex K.K.
Henk Schalke 50 Vice President of Engineering
David Schatz 38 Vice President of Corporate Development
William Silver 41 Vice President of Research and Development
</TABLE>
Ms. Matz and Messrs Nelson, Schatz, and Silver have been employed by the
Company in their present or other capacities for no less than the past five
years.
Mr. McGarry joined the Company in 1995 when the company he founded in 1991,
Acumen, Inc., was acquired by Cognex. From 1991 to 1995, he served as President
of Acumen, Inc., a developer of machine vision systems for semiconductor wafer
identification.
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.
11
<PAGE> 14
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 35, and the
section captioned "Company Information," appearing on page 36 of the Annual
Report to Stockholders for the year ended December 31, 1995, 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 34 of the
Annual Report to Stockholders for the year ended December 31, 1995, 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, 1995, 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 consolidated
financial statements and notes thereto, report of independent accountants, and
supplementary data, may be found on pages 17 through 35 of the Annual Report to
Stockholders for the year ended December 31, 1995, 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 1995 or 1994.
12
<PAGE> 15
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 1996 Annual Meeting of
Stockholders to be held on April 23, 1996. 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 1996 Annual Meeting of Stockholders to be held on April
23, 1996. 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 1996 Annual Meeting of Stockholders to be held on April
23, 1996. Such information is incorporated herein by reference.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
13
<PAGE> 16
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 report of independent accountants relating
thereto are included in the Company's Annual Report to
Stockholders for the year ended December 31, 1995, which is
Exhibit 13 hereto, and is incorporated herein by reference:
Report of Independent Accountants for the years ended December
31, 1995, 1994 and 1993
Consolidated Statements of Income for the years ended December
31, 1995, 1994 and 1993
Consolidated Balance Sheets at December 31, 1995 and 1994
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
(2) Financial Statement Schedule
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 consolidated financial statements or notes
thereto.
(3) 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.
14
<PAGE> 17
(b) Reports on Form 8-K
On October 4, 1995, the Company filed a Current Report on Form 8-K for
the acquisition of Acumen, Inc. as follows:
Item 2. Acquisition or Disposition of Assets
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired
Report of Independent Accountants
Statements of Income for the three months ended June 30,
1995 (unaudited) and the twelve months ended March 25,
1995
Balance Sheets as of June 30, 1995 (unaudited) and March
25, 1995
Statements of Stockholders' Equity for the three months
ended June 30, 1995 (unaudited) and the twelve months
ended March 25, 1995
Statements of Cash Flows for the three months ended June
30, 1995 (unaudited) and the twelve months ended March
25, 1995
Notes to Financial Statements
(b) Pro Forma Financial Information
Introductory Information
Unaudited Pro Forma Statement of Income for the six months
ended July 2, 1995
Unaudited Pro Forma Statement of Income for the twelve
months ended December 31, 1994
Unaudited Pro Forma Balance Sheet as of July 2, 1995
Notes to Unaudited Pro Forma Financial Information
(c) Exhibits
Exhibit 2 - Stock Purchase Agreement dated as of
July 21, 1995 among Acumen, Inc., the
Shareholders of Acumen Inc., and Cognex
Corporation
Exhibit 27 - Financial Data Schedules (electronic
filing only)
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 28, 1996
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 28, 1996
- - ----------------------- and Chairman of the Board of Directors
Robert J. Shillman (principal executive officer)
/s/ John J. Rogers, Jr. Executive Vice President, Chief Financial March 28, 1996
- - ----------------------- Officer, and Treasurer
John J. Rogers, Jr. (principal financial and accounting officer)
/s/ William Krivsky Director March 28, 1996
- - -----------------------
William Krivsky
/s/ Patrick Sansonetti Director March 28, 1996
- - -----------------------
Patrick Sansonetti
/s/ Anthony Sun Director March 28, 1996
- - -----------------------
Anthony Sun
/s/ Rueben Wasserman Director March 28, 1996
- - -----------------------
Rueben Wasserman
</TABLE>
16
<PAGE> 19
REPORT OF INDEPENDENT ACCOUNTANTS
ON THE FINANCIAL STATEMENT SCHEDULE
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 33 of the 1995
Annual Report to Stockholders of Cognex Corporation. In connection with our
audits of such financial statements, we have also audited the related financial
statement schedule for each of the three years in the period ended December 31,
1995 listed in Item 14(a) of this Form 10-K.
In our opinion, the financial statement schedule 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.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
January 26, 1996
17
<PAGE> 20
SCHEDULE II
COGNEX CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
<TABLE>
<CAPTION>
ADDITIONS
-----------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- - ---------------------------------- ------------ ---------- ---------- ---------- ----------
<C> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts
1995 $684 $ 25 -- -- $709
1994 597 159 -- $ (72) (A) 684
1993 322 435 -- (160) (A) 597
Reserve for Inventory Obsolescence
1995 $599 -- -- $ (58) (B) $541
1994 251 $360 -- (12) (B) 599
1993 151 128 -- (28) (B) 251
</TABLE>
(A) Specific write-offs
(B) Specific dispositions
18
<PAGE> 21
EXHIBIT INDEX
EXHIBIT NUMBER
- - --------------
2A Stock Purchase Agreement dated as of July 21, 1995 among
Acumen, Inc., the Shareholders of Acumen, Inc., and Cognex
Corporation (incorporated by reference to Exhibit 2 to the
Current Report on Form 8-K filed on October 4, 1995)
2B Agreement and Plan of Merger dated as of February 29, 1996
among Cognex Corporation, Cognex Software Development, Inc.,
Isys Controls, Inc., and Richard Rombach (incorporated by
reference to Exhibit 2 to the Current Report on Form 8-K
filed on March 15, 1996)
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 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]).
10B 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]).
10C 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).
10D 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).
10E 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).
10F Purchase and Sale Agreement with respect to the Natick
Executive Park facility dated as of October 20, 1993 (filed
as Exhibit 10L to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993).
10G Purchase and Sale Agreement with respect to the Natick
Executive Park facility dated as of June 30, 1995 *
11 Statement re computation of per share earnings *
13 Annual Report to Stockholders for the year ended December 31,
1995 (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
EXHIBIT 10G
BUILDING
PURCHASE AND SALE AGREEMENT
Dated as of June 30, 1995
Arturo J. Gutierrez and Helen T. Sellew, as they are Trustees of Natick
Executive Park Trust No. 2 under Declaration of Trust dated October 17, 1981 and
recorded with Middlesex South District Deeds in Book 14474, at Page 129 with an
address of c/o The Gutierrez Company, One Wall Street, Burlington, Massachusetts
01803 (the "Seller") agrees to SELL and Vision Drive, Inc., a Delaware
corporation, having an address c/o Cognex Corporation, One Vision Drive, Natick,
Massachusetts 01760 (the "Buyer") agrees to BUY, upon the terms hereinafter set
forth, the improved premises located in Natick, Middlesex County, Massachusetts,
all as more particularly described in Exhibit A attached hereto, together with
the buildings and improvements located thereon, including without limitation:
the building (the "Building"), together with all rights, privileges and
easements appurtenant to the premises, including, without limitation, all
minerals, oil or gas on or under such premises, development rights, air rights,
water rights and any easements, rights of way or other interests in, on, or
under any land, highway, alley, street or right of way abutting or adjoining
such premises, and the fixtures and articles of personal property that are
attached, appurtenant to, or used in connection with the said premises,
including without limitation any and all windows, doors, furnaces, heaters,
heating equipment, and fixtures appurtenant thereto, hot water heaters,
partitions, plumbing and bathroom fixtures, electric and other lighting
fixtures, security and alarm system, fences, gates, generators, ventilators and
any intangible property now or hereafter owned by Seller and used in the
ownership or operation of the premises including, without limitation, any
permits, licenses, approvals, guaranties, warranties, contracts, lease
agreements, utility contracts or other rights relating to the ownership, use or
operation of the premises to the extent applicable to the premises. (The
aforesaid premises and real property to be sold by Seller, including the
Building, are herein collectively called, together with all appurtenant
easements and real property rights, the "Premises").
1. Title. The Premises are to be conveyed by good and sufficient
quitclaim deed (the "Deed") running to Buyer or to the nominee designated by the
Buyer by written notice to the Seller as herein provided. The Deed shall convey
a good and clear record and marketable title to the Premises, insurable at
standard rates and free from encumbrances and encroachments from or on the
Premises, except:
(i) existing building, zoning, health, environmental and similar land
use laws, rules and regulations; and
(ii) easements, restrictions, covenants, encumbrances and other matters
of record more particularly described in Exhibit B; and
(iii) unpaid sewer and water bills and real estate taxes, penalties,
interest, demand
1
<PAGE> 2
and other charges as of the date of closing; and
(iv) the first mortgage held by Teachers' Insurance and Annuity
Association of America dated August 11, 1982 and recorded with said Deeds in
Book 14694, Page 436 (the "Mortgage"), with an unpaid principal balance as of
the date hereof of approximately $7,566,826.00.
The items set forth in (i), (ii), (iii) and (iv) shall be collectively,
the "Permitted Encumbrances."
2. Purchase Price. Buyer shall pay Seller the sum of FIFTY THOUSAND
DOLLARS ($50,000.00)(the "Purchase Price") for Seller's interest in the
Premises. The Purchase Price shall be paid by certified or bank check or wire
transfer at the time of delivery of the Deed.
3. Time of Closing; Delivery of Deed. The Deed is to be delivered at
10:00 a.m., on the date designated by Buyer by not less than two (2) business
days notice to Seller, which date shall not be earlier than June 10, 1995 or
later than August 10, 1995. Such time, as the same may be extended pursuant to
Paragraph 5 hereof, hereinafter is referred to as the "Time of Closing." It is
agreed that time is of the essence of this Agreement.
4. Condition of the Premises. Full possession of the Premises, (i) free
of all tenants and occupants except for tenants under the leases referred to in
Exhibit C attached hereto (collectively, the "Leases"); (ii) including such
personal property as Seller may leave on the Premises; (iii) in broom-clean
condition and (iv) as represented and warranted by Seller in Paragraph 16 hereby
is to be delivered at the Time of Closing, the Premises to be then in the same
condition they are in now, reasonable wear and tear and casualty excepted.
Notwithstanding Buyer's right to inspect the Premises as set forth in Paragraph
18 hereof, Buyer and its agents shall be entitled to an inspection of the
Premises prior to the Time of Closing in order to determine whether the
condition thereof complies with the terms of this Paragraph 4.
5. Extension to Perfect Title or Make Premises Conform. If, at the Time
of Closing, Seller shall be unable to give title or to make conveyance, or to
deliver possession of the Premises all as herein stipulated, then Seller shall
use reasonable efforts to remove all encumbrances, if any, which secure the
payment of money including, but not limited to, attachments, liens, and
mortgages (other than the Mortgage), and shall use best efforts to remove all
other defects in title and to deliver possession as provided herein, and the
Time of
2
<PAGE> 3
Closing shall be extended for one period of thirty (30) days or such shorter
time as needed for Seller to so perform. In the exercise of the removal of such
other defects pursuant to this Paragraph, Seller shall not be required to expend
more than an aggregate total of THREE THOUSAND DOLLARS ($3,000).
If, at the expiration of the extended time, Seller shall have failed so
to remove any encumbrances or defects in title or deliver possession of the
Premises as the case may be, all as herein agreed, then any payments made under
this Agreement shall be refunded forthwith and all other obligations of the
parties hereto other than those arising under Paragraph 18 shall cease and this
Agreement shall be void and without recourse to the parties hereto; provided
that Buyer shall have the election, at either the original or extended Time of
Closing, to accept such title as the Seller can deliver to the Premises in their
then condition and to pay therefor the Purchase Price without deduction, in
which case the Seller shall convey such title. If the Premises shall have been
damaged by fire or casualty, then the Buyer shall have the right either (a) to
terminate this Agreement by written notice to the Seller and Seller shall
promptly return any deposit to the Buyer and this Agreement shall be rendered
null and void; or (b) to receive from Seller, on delivery of the Deed, all
amounts recovered or recoverable on account of such insurance less any amounts
reasonably expended by Seller for partial restoration, subject to the rights of
the holder of the Mortgage.
6. Acceptance of the Deed. The acceptance of the Deed shall be deemed
to be a full performance and discharge of every agreement and obligation herein
contained or expressed, except as otherwise expressly set forth herein.
7. Use of Purchase Money to Clear Title. To enable Seller to make the
conveyance as herein provided, Seller may at the Time of Closing use the
purchase money or any portion thereof, subject to the limitation in Paragraph 5
hereof, to clear the title of any or all encumbrances or interests other than
the Permitted Encumbrances, provided that all instruments so procured are
recorded simultaneously with the delivery of the Deed, or reasonably soon
thereafter.
8. Insurance.
Until the Closing, the Seller shall maintain insurance on the Premises as
follows:
Type of Insurance ) Amount of Coverage
)
(a) Fire ) $7.5 Million
)
(b) Extended Coverage ) As presently insured
)
(c) Liability ) $1 Million (per occurrence)
) $2 Million (aggregate)
3
<PAGE> 4
9. Adjustments. Rents shall be credited to Buyer for the period after
the Closing Date, subject to prior rights of the holder of the Mortgage, and the
amount of such credit shall be shall be apportioned as of the Time of Closing.
10. Broker. Buyer and Seller hereby mutually represent and warrant that
they have dealt with no broker or agent in connection with this transaction or
the Premises, and each party covenants and agrees to defend, indemnify and hold
harmless the other party from and against any and all damages, claims, losses
and liabilities, including attorney's reasonable fees, incurred by the other,
arising out of or resulting from the failure of this representation and
warranty. This representation and warranty shall survive the Time of Closing, or
if the closing does not occur, the termination of this Agreement.
11. Deposits and Liquidated Damages. All deposits made hereunder shall
be held by Hinckley, Allen and Snyder ("Escrow Agent"), in escrow and shall be
duly accounted for at the Time of Closing. All deposits shall be placed in a
non-interest bearing account.
Buyer and Seller each respectively indemnify and hold harmless Escrow
Agent from all liability, cost or damage, including attorneys' reasonable fees,
Escrow Agent sustains as a result of service as escrow agent hereunder, and
agrees that Escrow Agent shall only be liable to Buyer or Seller in the event of
gross negligence or willful misconduct.
If Buyer shall fail to fulfill Buyer's obligations hereunder, all
deposits made hereunder by Buyer shall be retained by Seller as its full and
liquidated damages in lieu of all the rights and remedies which Seller may have
against Buyer in law or in equity for such failure, other than for Buyer's
obligations under Paragraphs 10 and 18 of this Agreement, the amount of such
deposits being agreed to by the parties hereto as a reasonable forecast of the
damages that would be sustained by Seller in such an event. Nothing herein shall
prevent Escrow Agent from fully representing Seller in connection with the
transaction described herein.
12. Notice. All notices required or permitted to be given hereunder
shall be in writing and delivered by hand or mailed postage prepaid, by
registered or certified mail, or sent by Federal Express, addressed in the case
of Buyer to the address set forth above with a simultaneous copy to Michael H.
Glazer, P.C., Goodwin, Procter & Hoar, Exchange Place, Boston, Massachusetts
02109 and in the case of Seller, to the address set forth above with a
simultaneous copy to Alan P. Gottlieb, Esq., Hinckley, Allen and Snyder, One
Financial Center, Boston, Massachusetts 02111, or in the case of either party or
their counsel to such other address as shall be designated by written notice
given to the other party. Notices shall be effective on the earlier of (a) the
date when delivered, (b) two business days after the date when so mailed or sent
or (c) the date received in case of Federal Express.
13. OMITTED.
4
<PAGE> 5
14. Delivery of Documents. At the Time of Closing, Seller shall deliver
the following documents, satisfactory in form and substance to Buyer and Buyer's
counsel, properly executed and acknowledged as required:
(i) The Deed; and
(ii) An assignment and assumption of leases in the form attached
hereto as Exhibit D (the "Assignment"); and
(iii) A counterpart of a Designation of Person Responsible for Tax
Reporting under Code Paragraph 6045 (the "6045 Designation") in the form
attached and marked Exhibit 6045; and
(iv) The affidavit required under Code Paragraph 1445(b)(2)
described in Paragraph 16(ii) below; and
(v) A certificate from Seller that all warranties and
representations set forth in Paragraph 16 are true and correct in all material
respects as of the Time of Closing; and
(vi) A persons in possession and mechanics lien indemnity addressed
to Buyer's title insurer on such terms and conditions as such title insurer may
reasonably require in order to delete the standard title insurance exceptions
for parties in possession and mechanics liens exceptions; and
(vii) The originals of all Leases; and
(viii) Any plans and/or specifications relating to the Building or
the Premises in Seller's possession, without representation or warranty as to
the accuracy or completeness thereof.
(b) The Buyer shall deliver:
(i) The balance of the Purchase Price, adjusted as herein provided;
and
(ii) Counterpart copies of the Assignment; and
(iii) Executed counterpart copies of the 6045 Designation.
15. Offer to Purchase. Any memoranda or prior offer, letter or
agreements executed by the parties hereto in connection with the purchase and
sale of the Premises as contemplated hereunder are hereby superseded and shall
have no further force and effect.
5
<PAGE> 6
16. Representations and Warranties of Seller.
(a) Seller hereby represents and warrants to Buyer as of the date of
this Agreement and as of the Time of Closing as follows:
(i) Any contract or agreement, including, without limitation,
equipment leases or service or maintenance contracts or similar
agreements, or brokerage, leasing or similar agreements with respect to
the Property other than the Leases and the Permitted Encumbrances
(collectively, the "Contracts") shall be terminated as of the Time of
Closing unless otherwise agreed by the parties. Neither Seller nor, to
the best of Seller's knowledge, any other party to any Contract is in
default thereunder and, to the best of Seller's knowledge, there exists
no state of facts which, with notice and/or the passage of time, would
ripen into a default under any such Contract.
(ii) Seller is not a "foreign person" as defined by the Internal
Revenue Code of 1986, as amended (the "Code"), Paragraph 1445. The
United States Taxpayer Identification Number of Seller is 04-2752438,
and Seller shall execute and deliver to Buyer at the Closing an
affidavit or certificate in compliance with Code Paragraph 1445(b)(2)
and the applicable regulations thereunder.
(iii) The execution, delivery and performance of this Agreement and
the transactions contemplated hereby will not cause or result in a
breach of any of the terms and conditions of, or constitute a default
under, any mortgage, note, bond, debenture, indenture, agreement,
contract, license or other instrument, obligation or understanding
(whether written or otherwise) to which the Seller is now a party other
than the Mortgage.
(iv) Seller is a nominee trust created under the laws of the
Commonwealth of Massachusetts and the Trustees thereof shall have all
necessary power and authority to enter into and carry out its
obligations under this Agreement. Seller is and at the Time of Closing
shall be a trust duly and validly organized and existing under the laws
of the Commonwealth of Massachusetts. This Agreement and the other
agreements and all documents that are to be executed by Seller and
delivered to Buyer at the Closing are or at the Time of Closing will be
duly authorized, executed and delivered by Seller and all consents
required under Seller's organizational documents or by law shall have
been obtained.
(v) Except as noted below, there is no existing or, to the best of
Seller's knowledge, threatened legal action of any kind involving
Seller or the Premises, which if determined adversely to the Premises
or Seller would have a material adverse effect on the Premises or would
interfere with Seller's ability to consummate the transactions
contemplated by this Agreement. Buyer acknowledges that it has been
notified that Teachers' Insurance and Annuity Association of America
("Teachers") has put Seller
6
<PAGE> 7
into default and has begun foreclosure of the Mortgage and other
security documents which Teachers holds as security for payment of a
loan from Teachers to Seller.
(vi) Seller has delivered to Buyer a true and complete copy of the
Leases and all extensions, renewals and amendments thereto. The Leases
are in full force and effect and Seller is not in default thereunder,
except that (x) the Leases have not been approved by Teachers, and (y),
McDonough & Scully, a tenant in the Building, is currently in default
under its Lease. No brokerage commission or compensation are payable in
respect of these leases, except for commissions due (x) on the
SystemSoft lease or (y) in the event of an extension or expansion by
Aspect Medical as set forth on Exhibit E.
For purposes of clauses (v), the term "knowledge" shall mean the actual
knowledge of Arthur J. Gutierrez or Keith Taylor or George Place only. No claim
on account of any breach of any of the foregoing warranties and representations
shall be made later than six (6) months from the Time of Closing and any such
claim must be in writing, shall state in reasonable detail the nature of the
claim and shall be delivered in the manner in which notices are to be given
under the Agreement.
Notwithstanding anything to the contrary contained herein, in no event
shall Seller's liability for any breach of any warranty or representation exceed
$40,000 in the aggregate and only as to an amount in excess of $5,000 for any
occurrence.
(b) Seller shall not lease, voluntarily convey or otherwise voluntarily
transfer Seller's interest, or any portion thereof, in the Premises prior to the
Time of Closing and Seller shall not contract or consent to do any of the
foregoing, other than in case of foreclosure of the Mortgage, without prior
written approval of Buyer.
(c) Subject to the last paragraph in Paragraph 16(a) and Paragraph 25,
Seller shall indemnify and defend Buyer against and hold Buyer harmless from any
and all losses, costs, damages, liabilities and expenses (including without
limitation attorneys' fees and court costs) arising out of any breach by Seller
of its representations and warranties hereunder or as a result of any claim
against Buyer based on Seller not having paid all amounts due under any
Contract.
(d) All representations and warranties by the Seller are intended to be
and shall remain true and correct as of the Time of Closing, shall be deemed
material and shall survive the execution and delivery of this Agreement and the
Deed for six (6) months.
17. Buyer hereby represents and warrants to Seller as follows:
(i) The execution, delivery and performance of this Agreement and
the transactions contemplated hereby will not cause or result in a
breach of any of the
7
<PAGE> 8
terms and conditions of, or constitute a default under, any mortgage,
note, bond, debenture, indenture, agreement, contract, license or other
instrument, obligation or understanding (whether written or otherwise)
to which Buyer is now a party;
(ii) Buyer is a corporation duly organized, validly existing and in
good standing under the laws of the Commonwealth of Massachusetts, with
full power and authority to enter into and carry out all of its
obligations under this Agreement. The execution of this Agreement by
Buyer has been duly authorized by all appropriate votes of the Board of
Directors of Buyer and, if necessary, the shareholders of Buyer.
18. Contingency Period
(a) Buyer undertakes to inspect the Premises and make such further
investigations as it deems necessary or appropriate during the period (the
"Contingency Period") from the date of this Agreement to August 8, 1995 to
determine whether Buyer is or is not satisfied, in Buyer's sole discretion, with
the following listed matters (collectively the "Contingencies"):
(i) the physical condition of the Premises;
(ii) the Premises' compliance with all building, land use,
environmental, safety, zoning and other applicable codes, regulations,
rules and laws of the Town of Natick, the Commonwealth of
Massachusetts, or the United States of America;
(iii) the availability of satisfactory permits, licenses and approvals
for Buyer's intended use of the Premises, including without limitation,
the existence of access and egress to and from the Premises via public
ways or by valid easements over the land of others which easements are
affirmatively insured by Buyer's title company;
(iv) the availability of utilities required for Buyer's intended use
and operation of the Premises; and
(v) the state of record title to the Premises as of June 5, 1995.
(b) During the Contingency Period, Seller will afford Buyer and/or its
agents access at any time to the Premises and will make available to Buyer and
its agents such further information concerning the Premises as is requested by
Buyer to complete its investigation concerning the Contingencies at no cost to
Seller; provided that:
(i) Each and all of such entries and examinations shall be at Buyer's
sole risk and expense, Buyer agreeing to indemnify and save
Seller harmless from and against any and all claims, cost, loss,
damage, liability or expense arising out of or in connection with
any work performed by or on behalf of Buyer pursuant to the
provisions hereof or any such entry by Buyer or anyone authorized
by,
8
<PAGE> 9
representing or purporting to be representing Buyer, Buyer shall
not, however, have any liability for any condition or state of
facts discovered in respect of the Premises as long as Buyer
promptly notifies Seller of the same and otherwise exercises
reasonable care in the manner in which Buyer or its agents or its
contractors exercise Buyer's rights of entry under this Paragraph
18;
(ii) All of the aforesaid activities and any activities undertaken
pursuant to subparagraph (iii) next below shall be undertaken in
such a manner as to reduce to an absolute minimum the
interference with the conduct of business by Seller and tenants
and other occupants of the Premises; and
(iii) Buyer shall repair and/or restore any damage or disturbance to
the Premises caused by Buyer in performing any of said activities
promptly after the completion of them or, if this Agreement shall
sooner terminate, promptly upon such termination.
Any claims for recovery pursuant to the provisions of this
subparagraph 18(b) must be made within six (6) months of
termination of this Agreement and any such claim must be in
writing, shall state in reasonable detail the nature of the claim
and shall be delivered in the manner in which notices are to be
given under this Agreement.
(c) On or before the expiration of the Contingency Period, Buyer shall
notify Seller in writing whether or not Buyer is satisfied as to the
Contingencies. If, prior to the expiration of the Contingency Period, Buyer
notifies Seller in writing that it is dissatisfied with the Contingencies, as
Buyer may determine in its sole discretion, then Buyer shall thereby terminate
this Agreement, all deposits made hereunder shall be returned to Buyer, and
except as provided in Paragraphs 10 and 18(b), there shall be no further
liability hereunder by either party against the other.
19. Payments under Leases. Seller shall forward any and all amounts
paid pursuant to the Leases which are received by Seller on or after the Time of
Closing immediately to Buyer.
20. OMITTED
21. OMITTED
22. OMITTED
23. Construction of Agreement. This instrument is to be construed as a
Massachusetts contract, is to take effect as a sealed instrument, sets forth the
entire contract
9
<PAGE> 10
between the parties, is binding upon and inures to the benefit of the parties
hereto and their respective heirs, devisee, executors, administrators,
successors and assigns, and may be cancelled, modified or amended only by a
written instrument executed by both the Seller and the Buyer. The captions and
marginal notes are used only as a matter of convenience and are not to be
considered a part of this agreement or to be used in determining the intent of
the parties to it.
24. MCA Practice Standards. Any matter or practice arising under or
relating to this Agreement which is the subject of a practice standard of the
Massachusetts Conveyancers Association shall be governed by such standard to the
extent applicable.
25. No Personal Liability. If the Seller or the Buyer executes this
Agreement in a representative or fiduciary capacity only the principal or the
estate represented shall be bound, and neither the Seller or Buyer so executing,
nor any shareholder or beneficiary of any trust, shall be personally liable for
any obligation, express or implied, hereunder.
26. OMITTED
This Agreement may be signed in one or more counterparts each of which
shall have the effect of an original instrument when counterparts have been
signed by all of the parties hereto.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the day and year first set forth above.
BUYER:
VISION DRIVE, INC.
By: /s/ Robert J. Shillman
------------------------------
Its duly authorized: President
-------------
10
<PAGE> 11
SELLER:
/s/ Arturo J. Gutierrez
----------------------------------
Arturo J. Gutierrez
/s/ Helen T. Sellew
----------------------------------
Helen T. Sellew
Each as Trustee of Natick Executive Park
Trust No. 2 and not individually
11
<PAGE> 12
EXHIBIT A
Those certain premises in Natick, Middlesex County, Massachusetts, being
located on the northerly side of Worcester Street (Route 9) and being Lot 2A as
shown on a certain plan of land entitled "Natick Executive Park - Lot Line
Adjustment; Lots 1A, 2, 4, 6, & 7" dated September 8, 1993, revised December 3,
1993, prepared by The Gutierrez Company, based on a survey by MacCarthy &
Sullivan Engineering Inc., (the "Plan") recorded as Plan 71 of 1994 in Book
24219, Page 453. Together with all rights and easements appurtenant thereto,
insofar as the same are in force and applicable.
<PAGE> 13
EXHIBIT B -- SCHEDULE OF ENCUMBRANCES
1. Rights or claims of the following tenants in possession under unrecorded
leases:
(a) North American Society for Pacing Electrophysiology
(b) McDonough & Scully, Inc.
(c) NEC Business Communication Systems (East), Inc.
2. Such state of facts as is shown on survey entitled, "Natick Executive Park"
prepared by the Gutierrez Company dated September 8, 1993 and recorded
as Plan No. 71 of 1994 in Book 24129, Page 453.
3. Terms and provisions of takings by the Commonwealth of Massachusetts for
Route 9 and conveyances to the Commonwealth recorded in Book 5607, Page 1;
Book 5713, Page 440; Book 5699, Page 370 and Book 5670, Page 244.
4. Rights and easements granted to New England Telephone and Telegraph Company
by instrument dated July 29, 1981, recorded in Book 14370, Page 324.
5. Rights of the Town of Natick and others under Municipal Easement No. I
dated November 19, 1981 granted by George P. Sellew, Jr., and Helen T.
Sellew, Trustees of 721 Worcester Street Trust to the Town of Natick
recorded in Book 14474, Page 122, as shown on survey entitled "Plan
of Land in Natick, Mass. Owned by Natick Executive Park Trust No. 2"
Scale 1" equals 40' dated June 25, 1982 made by MacCarthy & Sullivan
Engineering, Inc.
6. Rights of the Town of Natick and others under Municipal Easement No. II
dated November 17, 1981 granted by George P. Sellew, Jr. and Arturo J.
Gutierrez, Trustees of Natick Executive Park Trust No. 1 to the Town
of Natick recorded on November 24, 1981 in Book 14474, Page 126.
NOTE: The rights described in Permitted Exceptions No. 3, 4 and 6 affect
only certain appurtenant rights benefitting the real property described
in Exhibit A.
7. Rights and easements of said Trustees of Natick Executive Park Trust No. 1
and Trustees of 721 Worcester Street Trust as set forth in Mutual Grant of
Easements dated March 31, 1982 by and among Trustees of Natick Executive
Park Trust No. 1, said Trustees of Natick Executive Park Trust No. 2 and
Trustees of 721 Worcester Street Trust recorded in Book 14584, Page 229.
8. Rights and easements of the Trustees of 721 Worcester Street Trust as set
forth in Grant of Easements No. II dated June 18, 1982 by and among the
Trustees of Natick Executive Park Trust No. 2 and the Trustees of 721
Worcester Street Trust, recorded on August 12, 1982 as Instrument No. 111.
<PAGE> 14
9. Mortgage Deed recorded on April 14, 1982 with said Deeds in Book 14584,
Page 253.
NOTE: Permitted encumbrance No. 9 affects only certain appurtenant rights
benefitting the real property described in Exhibit A.
10. Grant of Drainage Easement from Arturo J. Gutierrez and Helen T.
Sellew, Trustees of Natick Executive Park Trust No. 2 to Helen T.
Sellew and Arturo J. Gutierrez, Trustees of Natick Executive Park
Trust No. 3 dated January 10, 1994 and recorded January 31, 1994 as
Instrument No. 406.
11. Grant of Parking Easement from Arturo J. Gutierrez and Helen T. Sellew,
Trustees of Natick Executive Park Trust No. 2 to Cognex Corporation dated
January 10, 1994 and recorded on January 31, 1994 as Instrument No. 407.
12. Grant of Easement and Maintenance Agreement by and among Cognex
Corporation; Natick Executive Park Retail Limited Partnership; Arturo J.
Gutierrez and Helen T. Sellew, Trustees of Natick Executive Park Trust
No. 2; Arturo J. Gutierrez and Helen T. Sellew, Trustees of Natick
Executive Park Trust No. 3 and Helen T. Sellew, Trustee of 721
Worcester Street dated January 10, 1994 and recorded in Book 24219,
Page 524, as affected by Amendment to Grant of Easement and Maintenance
Agreement dated March 29, 1995, recorded in Book 25292, Page 298.
13. Mortgage Deed from George P. Sellew, Jr., and Arturo J. Gutierrez,
Trustees of Natick Executive Park Trust No. 2 and George P. Sellew, Jr.,
and Arturo J. Gutierrez, Trustees of Natick Executive Park Trust No. 1,
to Teachers Insurance and Annuity Association of America ("TIAA") dated
August 11, 1982 and recorded in Book 14694, Page 436, as modified by
First Supplement to Mortgage Deed by and among George P. Sellew, Jr.,
Arturo J. Gutierrez and John A. Cataldo, Trustees of Natick Executive
Park Trust No. 2 and George P. Sellew, Jr., Arturo J. Gutierrez and
John A. Cataldo, Trustees of Natick Executive Park Trust No. 1 and
TIAA dated October 12, 1983 and recorded in Book 15283, Page 484 and
further modified by Second Supplement to Mortgage Deed between Trustees
of Natick Executive Park Trust No. 2 and TIAA dated February 14, 1989
and recorded in Book 19660, Page 26 and further amended by Mortgage
Spreader and Modification Agreement by and between Trustees of Natick
Executive Park Trust No. 2 and TIAA dated January 10, 1994 and recorded
January 31, 1994 as Instrument No. 394.
14. Assignment of Leases and Rents from Trustees of Natick Executive Park
Trust No. 2 to TIAA recorded on August 12, 1982 in Book 14694, Page 473.
15. U.C.C. Financing Statement naming George P. Sellew, Jr., and Arturo J.
Gutierrez, Trustees as Debtors and TIAA as Secured Party recorded
August 12, 1982 in Book 14694, Page 479 as affected by U.C.C.-3
Financing Statement recorded January 31, 1994 as Instrument No. 414.
<PAGE> 15
16. Assignment of Lessor's Interest in Lease(s) from Trustees of Natick
Executive Park Trust No. 2 to TIAA recorded February 22, 1989 in
Book 19660, Page 39.
17. U.C.C. Financing Statement naming Helen T. Sellew and Arturo J. Gutierrez,
Trustees as Debtors and TIAA as Secured Party recorded March 24, 1994 in
Book 24386, Page 534.
18. Lease to Aspect Medical Systems, Inc., dated September 8, 1994, Notice of
which was recorded October 11, 1994 in Book 24921, Page 476.
19. Notice of Foreclosure recorded in Book 25195, Page 443.
<PAGE> 1
EXHIBIT 11
COGNEX CORPORATION
COMPUTATION OF PER SHARE EARNINGS
Weighted average common and common share equivalents were computed as follows
(a):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Weighted average common shares outstanding ... 38,175,461 34,559,556 33,632,452
Weighted average options outstanding ......... 7,448,296 7,621,584 4,577,520
Shares assumed to be purchased ............... (3,672,012) (5,031,566) (2,541,990)
---------- ---------- ----------
Primary weighted average common and common
equivalent shares outstanding ............... 41,951,745 37,149,574 35,667,982
Dilutive effect of weighted average options .. 656,725 774,920 5,740
---------- ---------- ----------
Fully diluted weighted average common and
common equivalent shares outstanding ........ 42,608,470 37,924,494 35,673,722
========== ========== ==========
</TABLE>
(a) Adjusted for the two-for-one stock splits effective December 18, 1995 and
September 30, 1993.
<PAGE> 1
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SUMMARY
All of the Company's major geographic areas grew in excess of 55% to contribute
to a 67% increase in worldwide revenue for the year ended December 31, 1995 over
the year ended December 31, 1994. Net income, excluding the impact of a charge
for acquired in-process technology in the third quarter of 1995, increased 107%
over the prior year. Sales to international customers continued to be a
significant portion of the Company's business, representing 59% of revenue in
1995 and increasing 61% over the prior year. Sales to domestic customers
increased 77% over the prior year.
The Company's financial position remained strong at December 31, 1995, with
working capital growing to $119,402,000, an increase of $30,783,000 from the
working capital balance at December 31, 1994. In 1995, the Company purchased an
83,000 square-foot building adjacent to its corporate headquarters and began
work on a planned 50,000 square-foot addition to its existing headquarters
building to accommodate anticipated growth. Also in 1995, the Company acquired
Acumen, Inc., a developer of machine vision systems for semiconductor wafer
identification.
On February 29, 1996, the Company acquired Isys Controls, Inc., a developer of
ultra-high performance systems that automatically detect and classify surface
flaws and defects on a variety of high value-added materials. Under the terms of
the acquisition, to be accounted for as a pooling of interests, the Company
exchanged 1.4 million common shares for all of the outstanding common stock of
Isys. Isys' historical financial position and results of operations are not
significant compared to the Company's financial position and results of
operations.
<TABLE>
The following table sets forth certain consolidated financial data as a
percentage of revenue for the years ended December 31, 1995, 1994, and 1993:
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993
----------------------
<S> <C> <C> <C>
Revenue 100% 100% 100%
Cost of revenue 22 22 24
---------------------
Gross margin 78 78 76
Research, development and engineering expenses 13 16 14
Selling, general and administrative expenses 23 27 28
Charge for acquired in-process technology(1) 9 -- --
---------------------
Income from operations 33 35 34
Interest income 3 2 3
---------------------
Income before provision for income taxes 36 37 37
Provision for income taxes 14 11 11
---------------------
Net income 22% 26% 26%
---------------------
<FN>
(1) Charge from the write-off of acquired in-process technology in connection
with the acquisition of Acumen, Inc.
</TABLE>
12
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994:
Revenue for the year ended December 31, 1995 increased 67% to $104,543,000 from
$62,484,000 for the year ended December 31, 1994. Contributing to the revenue
increase, each of the Company's major geographic areas, the United States,
Japan, and Europe, grew in excess of 55% from the prior year. Revenue from
international customers amounted to $61,924,000 in 1995, compared to $38,451,000
in 1994, an increase of 61%. Revenue from domestic customers increased 77% over
the prior year.
The increase in worldwide revenue is due primarily to increased volume generated
from Original Equipment Manufacturer (OEM) customers. Sales to OEM customers
increased $29,792,000, or 60%, from the prior year and over 50 new OEM customers
were added worldwide in 1995. OEM relationships typically take two to five years
to reach significant sales and volume levels. In addition, sales to factory
floor customers increased $12,267,000, or 96%, from the prior year and grew to
24% of revenue in 1995 from 20% of revenue in 1994. Over 140 new factory floor
customers were added worldwide in 1995.
The combined sales of the Cognex 2000 and 3000 Series vision systems increased
$5,450,000, yet decreased as a percentage of revenue to 21% for the year ended
December 31, 1995 from 27% for the year ended December 31, 1994. Sales of the
Cognex 4000 Series vision system increased $12,580,000, yet decreased as a
percentage of revenue to 38% in 1995 from 44% in 1994. Sales of the Cognex 5000
Series vision system increased $14,720,000 and grew to 28% of revenue in 1995
from 23% of revenue in 1994. The decline in sales as a percentage of revenue of
the Cognex 2000, 3000, and 4000 products and the increase in sales as a
percentage of revenue of the Cognex 5000 products reflects the transition to
newer products. Checkpoint, the Company's "easy-to-use" vision system designed
for the factory floor marketplace which was introduced in 1994, grew to 5% of
the Company's revenue in 1995.
Gross margin as a percentage of revenue was consistent for the year ended
December 31, 1995 compared to the year ended December 31, 1994, representing 78%
of revenue in both years.
Research, development and engineering expenses increased to $13,190,000 for the
year ended December 31, 1995 from $9,933,000 for the year ended December 31,
1994. Expenses as a percentage of revenue were 13% in 1995 compared to 16% in
1994. The increase in aggregate costs is due primarily to higher
personnel-related costs to support the Company's investment in the research and
development of new and existing products. In 1995, the number of employees
engaged in research, development and engineering activities increased by 39%
over the prior year. The decrease in expenses as a percentage of revenue is due
to revenue growth outpacing the investment in research and development.
Selling, general and administrative expenses increased to $23,973,000 for the
year ended December 31, 1995 from $16,847,000 for the year ended December 31,
1994. Expenses as a percentage of revenue were 23% in 1995 compared to 27% in
1994. The increase in aggregate costs is due primarily to higher
personnel-related costs, both domestically and internationally, to support the
Company's worldwide sales
13
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
effort, in addition to costs related to fluctuations in foreign currency
exchange rates. In 1995, the number of employees engaged in sales, marketing,
and support activities increased by 36% over the prior year.
As discussed in the Notes to Consolidated Financial Statements, on July 21,
1995, the Company acquired Acumen, Inc. for approximately $14,000,000.
$10,189,000 of the purchase price was allocated to in-process technology, which
was charged to expense in the third quarter of 1995. This charge is not
deductible for tax purposes. The Company expects to invest considerable
additional development efforts related to the in-process technology to add
functionality, increase hardware performance, and conform and integrate the
technology to the Company's product standards. These expenditures are expected
to be paid out through 1996 with anticipated funding from cash flow generated
from operations and are not expected to significantly impact the planned level
of research and development expenditures.
Interest income increased to $2,965,000 for the year ended December 31, 1995
from $1,462,000 for the year ended December 31, 1994. 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, 1995 was 39%,
compared to 31% for the year ended December 31, 1994. The increase in the
effective tax rate is due primarily to the impact of a $10,189,000 charge for
acquired in-process technology which had no associated tax benefit.
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. Revenue from international
customers amounted to $38,451,000 in 1994, compared to $25,927,000 in 1993, an
increase of 48%. Revenue from domestic customers increased 38% 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 factory
floor 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.
14
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements during the year ended December 31, 1995 were met
through cash flow generated from operations. Working capital at December 31,
1995 was $119,402,000, an increase of $30,783,000 from the working capital
balance at December 31, 1994. Cash and investments increased
15
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
$9,145,000 from December 31, 1994 primarily as a result of $21,835,000 of cash
generated from operations and $4,430,000 of proceeds from the issuance of stock
under stock option and stock purchase plans, offset by $10,503,000 of capital
expenditures and $6,654,000 in cash paid as part of the cost to acquire Acumen,
Inc. Cash generated from operations includes net income adjusted primarily for
the effects of the charge for acquired in-process technology, the tax benefit
from the exercise of stock options, and depreciation and amortization, offset by
increases in current assets, primarily accounts receivable and inventories.
As discussed in the Notes to Consolidated Financial Statements, the Company is
transitioning to a third-party contractor for the majority of its manufacturing
operations. As a result, the Company's inventory levels may decline in 1996. At
December 31, 1995, the Company had unconditional obligations to purchase
approximately $2,317,000 of inventory from the third-party contractor within 60
days.
At December 31, 1995, 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 November 15, 1996. There have been no borrowings
under the line of credit.
Capital requirements consist primarily of expenditures for computer hardware and
software equipment, along with expenditures related to the expansion of the
Company's office space to accommodate anticipated growth. Capital expenditures
for the year ended December 31, 1995 amounted to $10,503,000, all of which were
funded out of current operations. Included in these capital expenditures was the
purchase of an 83,000 square-foot office building adjacent to the Company's
corporate headquarters for $5,300,000 in cash. The building is occupied with
tenants who have lease commitments that expire at various dates through the year
2000. The Company will oversee these lease commitments until it is ready to take
occupancy. Also in 1995, the Company began work on a planned 50,000 square-foot
addition to its headquarters building. Future cash requirements related to the
addition are anticipated to approximate between $5,000,000 and $6,000,000 and
are expected to be paid out through the first quarter of 1997 with anticipated
funding from cash generated from operations.
On July 21, 1995, the Company acquired Acumen, Inc. for approximately
$14,000,000. The purchase price includes $8,452,000 in cash, $6,654,000 of which
was paid out in 1995, with the remaining balance to be paid out through the year
2000.
The Company believes that the existing cash and investment balances, together
with cash generated from operations, will be sufficient to meet the Company's
planned working capital and capital expenditure requirements through 1996,
including potential business acquisitions.
In November 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) No. 123, "Accounting for Stock-Based
Compensation." The Company intends to adopt the disclosure requirements of
SFASNo. 123 for the year ended December 31, 1996; therefore, the adoption will
have no impact on the Company's financial position or results of operations.
16
<PAGE> 6
COGNEX CORPORATION - CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(Dollars in thousands, except per share amounts) 1995 1994 1993
- - ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $104,543 $ 62,484 $ 43,371
Cost of revenue 22,543 13,884 10,280
------------------------------
Gross margin 82,000 48,600 33,091
Research, development and engineering expenses 13,190 9,933 6,205
Selling, general and administrative expenses 23,973 16,847 12,183
Charge for acquired in-process technology 10,189
------------------------------
Income from operations 34,648 21,820 14,703
Interest income 2,965 1,462 1,316
------------------------------
Income before provision for income taxes 37,613 23,282 16,019
Provision for income taxes 14,579 7,210 4,871
------------------------------
Net income $ 23,034 $ 16,072 $ 11,148
==============================
Net income per common and common equivalent share:
Primary $ .55 $ .43 $ .31
==============================
Fully diluted $ .54 $ .42 $ .31
==============================
Weighted average common and common equivalent
shares outstanding:
Primary 41,952 37,150 35,668
==============================
Fully diluted 42,608 37,924 35,674
==============================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
17
<PAGE> 7
COGNEX CORPORATION - CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
(Dollars in thousands) 1995 1994
- - -----------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 23,911 $ 56,326
Investments 66,729 25,169
Accounts receivable, less reserves of $709
and $684 in 1995 and 1994, respectively 24,312 9,082
Inventories 12,567 4,439
Deferred income taxes 1,811 1,570
Prepaid expenses and other 6,463 1,264
--------------------
Total current assets 135,793 97,850
--------------------
Property, plant and equipment, net 22,133 14,503
Other assets 4,169 593
Deferred income taxes 77
--------------------
$162,172 $112,946
====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,775 $ 1,284
Accrued expenses 9,333 5,135
Accrued income taxes 3,111 1,674
Customer deposits 867 744
Deferred revenue 305 394
--------------------
Total current liabilities 16,391 9,231
--------------------
Other liabilities 1,865
Deferred income taxes 107
Commitments (see Notes to Consolidated Financial Statements)
Stockholders' equity:
Common stock, $.002 par value -
Authorized: 120,000,000 shares, issued: 39,039,675
and 37,503,870 shares in 1995 and 1994, respectively 78 38
Additional paid-in capital 71,171 53,633
Cumulative translation adjustment 40 (53)
Retained earnings 73,516 50,482
Treasury stock, at cost, 80,918 and 61,756 shares
in 1995 and 1994, respectively (889) (492)
--------------------
Total stockholders' equity 143,916 103,608
--------------------
$162,172 $112,946
====================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
18
<PAGE> 8
COGNEX CORPORATION - CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(Dollars in thousands) 1995 1994 1993
- - -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $23,034 $16,072 $11,148
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation of property, plant and equipment 2,845 1,754 1,272
Amortization of intangible assets 355
Loss on disposition of property, plant and equipment 56
Charge for acquired in-process technology 10,189
Tax benefit from exercise of stock options 8,581 1,192 1,152
Deferred income tax provision (1,326) (444) 70
Changes in other current assets and current liabilities:
Accounts receivable (14,705) (1,986) (3,635)
Inventories (7,678) (1,458) (1,341)
Prepaid expenses and other (5,189) 426 (370)
Accounts payable 1,361 833 172
Accrued expenses 2,867 1,508 643
Accrued income taxes 1,411 707 (159)
Customer deposits 123 67 (1,353)
Deferred revenue (89) 308 (443)
--------------------------
Net cash provided by operating activities 21,835 18,979 7,156
--------------------------
Cash flows from investing activities:
Purchase of investments (75,758) (19,504) (17,966)
Maturities of investments 34,198 17,098 18,300
Purchase of property, plant and equipment (10,503) (13,119) (1,765)
Purchase of Acumen, Inc., net of $200 cash acquired (6,454)
(Increase) decrease in other assets (294) (199) 82
--------------------------
Net cash used in investing activities (58,811)( 15,724) (1,349)
--------------------------
Cash flows from financing activities:
Net proceeds from secondary public offering of
common stock 29,837
Proceeds from issuance of stock under stock option
and stock purchase plans 4,430 1,529 1,621
--------------------------
Net cash provided by financing activities 4,430 31,366 1,621
--------------------------
Effect of exchange rate changes on cash 131 (128) (18)
--------------------------
Net increase (decrease) in cash and cash equivalents (32,415) 34,493 7,410
Cash and cash equivalents at beginning of year 56,326 21,833 14,423
---------------------------
Cash and cash equivalents at end of year $23,911 $56,326 $21,833
==========================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
19
<PAGE> 9
COGNEX CORPORATION - CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE TREASURY STOCK TOTAL
----------------- PAID-IN TRANSLATION RETAINED -------------- STOCKHOLDERS'
(Dollars in thousands) SHARES PAR VALUE CAPITAL ADJUSTMENT EARNINGS SHARES COST EQUITY
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
=================================================================================
Secondary 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
=================================================================================
Common stock issued to acquire Acumen, Inc. 96,140 4,170 4,170
Issuance of stock under stock option
and stock purchase plans 683,079 1 4,826 4,827
Tax benefit from exercise of stock options 8,581 8,581
Common stock received for payment of
stock option exercises 9,581 (397) (397)
Stock issued to effect stock split 19,508,521 39 (39) 40,459
Translation adjustment 93 93
Net income 23,034 23,034
---------------------------------------------------------------------------------
Balance at December 31, 1995 39,039,675 $78 $71,171 $40 $73,516 80,918 $(889) $143,916
=================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
20-21
<PAGE> 10
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.
NATURE OF OPERATIONS
Cognex Corporation (the "Company") designs, develops, and markets machine vision
systems, or computers that can "see." The Company's products are used to
automate a wide range of manufacturing processes where vision is required. The
Company's primary customers, Original Equipment Manufacturers (OEMs) in the
electronics and semiconductor industries, are principally located in Japan and
North America.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the balance sheet
date and the reported amounts of revenues and expenses during the year. Actual
results could differ from those estimates.
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.
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.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined on the
first-in, first-out basis.
22
<PAGE> 11
COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. Buildings' useful
lives are 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.
INTANGIBLE ASSETS
Intangible assets are stated at cost and amortized using the straight-line
method over the assets' estimated useful lives which range from five to eight
years. The Company will evaluate the possible impairment of long-lived assets,
including intangible assets, whenever events or circumstances indicate that the
carrying value of the assets may not be recoverable.
WARRANTY OBLIGATIONS
The Company provides its Checkpoint systems with a one-year warranty from the
date of shipment and all other systems with a 90-day warranty from the date of
shipment. Estimated warranty obligations are evaluated and provided at the time
of sale.
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 for internally-developed products are charged to
expense when incurred until technological feasibility has been established for
the product. Thereafter, all software costs are capitalized until the product is
available for general release to customers. The cost of purchased software is
capitalized for products determined to have reached technological feasibility,
otherwise the cost is charged to expense. Capitalized software costs are
amortized using the straight-line method over the economic life of the product,
typically three to five years, or based upon the anticipated revenues of the
product.
23
<PAGE> 12
COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
NET INCOME PER SHARE
Primary and fully diluted net income per share are calculated based on the
weighted average number of common and dilutive common equivalent shares
outstanding during the year. Dilutive common equivalent shares consist of stock
options, calculated using the treasury stock method.
FINANCIAL INSTRUMENTS
FAIR VALUE
The Company's financial instruments consist primarily of cash and cash
equivalents, investments, trade receivables, trade payables, and forward
exchange contracts. The carrying amounts of cash and cash equivalents,
investments, trade receivables, and trade payables approximates fair value due
to the short maturity of these instruments. Based on year-end exchange rates and
the various maturity dates of the forward exchange contracts, the Company
estimates the aggregate contract value to be representative of the fair values
of these instruments at December 31, 1995 and 1994.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations of
credit risk consist primarily of cash and cash equivalents, investments, and
trade receivables.
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 significant losses on its
cash equivalents and investments.
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. The Company has not experienced any significant losses related to
the collection of accounts receivable.
24
<PAGE> 13
COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL INSTRUMENTS (CONTINUED)
OFF-BALANCE SHEET RISK
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 $1,079,000 and $1,269,000 of foreign exchange contracts
outstanding, all of which were in Japanese yen, at December 31, 1995 and 1994,
respectively.
INVESTMENTS
At December 31, 1995 and 1994, investments available for sale consisted
primarily of municipal obligations stated at amortized cost which approximates
fair value. Municipal obligations at December 31, 1995 amounted to $66,729,000,
of which $34,635,000 have a contractual maturity of one year or less and
$32,094,000 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 options to liquidate these investments in
the short term without penalty.
INVENTORIES
<TABLE>
Inventories consist of the following:
<CAPTION>
DECEMBER 31,
(In thousands) 1995 1994
============================================================
<S> <C> <C>
Raw materials $ 6,340 $2,476
Work-in-process 4,468 1,604
Finished goods 1,759 359
------------------
$12,567 $4,439
==================
</TABLE>
PROPERTY, PLANT AND EQUIPMENT
<TABLE>
Property, plant and equipment consist of the following:
<CAPTION>
DECEMBER 31,
(In thousands) 1995 1994
=============================================================
<S> <C> <C>
Land $ 1,150 $ 800
Building 12,963 7,836
Building improvements 1,842 1,107
Construction-in-process 183
Computer hardware and software 9,556 8,772
Furniture and fixtures 1,544 1,298
Leasehold improvements 250 250
--------------------
27,488 20,063
Less: accumulated depreciation (5,355) (5,560)
--------------------
$22,133 $14,503
====================
</TABLE>
25
<PAGE> 14
COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ACCRUED EXPENSES
<TABLE>
Accrued expenses consist of the following:
<CAPTION>
DECEMBER 31,
(In thousands) 1995 1994
=============================================================
<S> <C> <C>
Bonus $2,477 $1,730
Payroll and related costs 1,932 1,180
Warranty 1,311 796
Accrued acquisition costs 1,260
Professional fees 868 764
Other 1,485 665
-------------------
$9,333 $5,135
===================
</TABLE>
INCOME TAXES
<TABLE>
The provision for income taxes consists of the following:
<CAPTION>
YEAR ENDED DECEMBER 31,
(In thousands) 1995 1994 1993
===========================================================================
<S> <C> <C> <C>
Current:
Federal $14,083 $6,960 $3,935
State 1,572 452 704
Foreign 249 243 162
----------------------------------
15,904 7,655 4,801
Deferred:
Federal (28) (365) 15
State (1,297) (80) 55
----------------------------------
$14,579 $7,210 $4,871
==================================
</TABLE>
<TABLE>
A reconciliation of the provision for income taxes at the federal statutory rate
is as follows:
<CAPTION>
YEAR ENDED DECEMBER 31,
(In thousands) 1995 1994 1993
======================================================================================
<S> <C> <C> <C>
Provision for income taxes at federal statutory rate 35% 35% 34%
Non-deductible charge for acquired in-process technology 9
State income taxes, net of federal benefit 2 2 2
Foreign Sales Corporation benefit (4) (3) (3)
Tax-exempt investment income (2) (2) (2)
Tax credit utilization (1) (1) (2)
Excess foreign tax rates 1
------------------------
Provision for income taxes 39% 31% 30%
========================
</TABLE>
26
<PAGE> 15
COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INCOME TAXES (CONTINUED)
<TABLE>
Deferred income taxes reflect the tax impact of temporary differences 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 deferred income taxes are as follows:
<CAPTION>
DECEMBER 31,
(In thousands) 1995 1994
==========================================================================
<S> <C> <C>
Current deferred tax assets (liabilities):
Vacation, bad debt and other $ 797 $ 970
Inventory and warranty 795 633
Other 219 (33)
------------------
Total net current deferred tax asset $1,811 $1,570
=================
Noncurrent deferred tax assets (liabilities):
State net operating loss and credit carryforwards $1,292
Acquired complete technology (900)
Depreciation (315) $(107)
-----------------
Total net noncurrent deferred tax asset (liability) $ 77 $(107)
=================
</TABLE>
The Company believes that it is more likely than not that the deferred tax
assets above will be recognized; therefore, no valuation allowance is considered
necessary at December 31, 1995 and 1994. The Company's net operating loss
carryforward of $681,000 will expire in five years, while the credit
carryforwards of $611,000 are available indefinitely.
LINE OF CREDIT
At December 31, 1995, the Company had a line of credit with a bank providing for
borrowings up to $1,000,000 through November 15, 1996. Borrowings under the line
bear interest at the prime rate (8.5% at December 31, 1995) and are unsecured.
There have been no borrowings under the line of credit.
LEASES
<TABLE>
The Company conducts some of its operations in leased facilities. These lease
agreements expire at various dates through the year 2002 and are accounted for
as operating leases. Annual rent expense approximated $996,000 in 1995,
$1,378,000 in 1994, and $1,440,000 in 1993. Future minimum rental payments under
these agreements are as follows at December 31, 1995 (in thousands):
<CAPTION>
Year Amount
==================================================
<S> <C>
1996 $ 825
1997 424
1998 99
1999 52
2000 51
Thereafter 103
------
$1,554
======
</TABLE>
27
<PAGE> 16
COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LEASES (CONTINUED)
<TABLE>
In 1995, the Company purchased an 83,000 square-foot office building adjacent to
its corporate headquarters. The building is currently occupied with tenants who
have lease agreements that expire at various dates through the year 2000. Future
minimum rental receipts under noncancelable lease agreements are as follows at
December 31, 1995 (in thousands):
<CAPTION>
Year Amount
==================================================
<S> <C>
1996 $1,270
1997 1,140
1998 773
1999 746
2000 126
------
$4,055
======
</TABLE>
COMMITMENTS
In 1995, the Company began the transition to a turnkey manufacturing operation
whereby the majority of component purchasing, subassembly, final assembly, and
testing is performed under agreement by a third-party contractor. The Company
expects that the contractor will become the sole manufacturer of substantially
all of the Company's products when the transition is complete. At December 31,
1995, the Company had unconditional obligations to purchase approximately
$2,317,000 of inventory from the third-p arty contractor within 60 days. These
purchase commitments relate to expected sales in 1996.
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. On November 14, 1995, the Company
announced a two-for-one stock split, effected in the form of a stock dividend,
payable December 18, 1995 to stockholders of record at the close of business
December 1, 1995. Accordingly, $39,000 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 be en
retroactively adjusted, as appropriate, to reflect these two-for-one stock
splits.
In December 1994, the Company completed a secondary public offering for the sale
of 2,859,216 shares of common stock. The Company has 400,000 shares of
authorized but unissued $.01 par value preferred stock.
28
<PAGE> 17
COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTION PLANS
At December 31, 1995, the Company had 15,672,000 shares approved by the Board of
Directors and stockholders for grant under the following stock option plans: the
1992 Director plan, 352,000; the 1993 Director plan, 320,000; and the 1993 plan,
5,000,000. The 1984 plan, which expired on April 18, 1994, had 10,000,000 shares
approved and granted. During 1995, there were no additions or amendments to
these plans. All options granted in 1995, 1994, and 1993 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.
<TABLE>
Information concerning stock options for the three years ended December 31, 1995
is as follows:
<CAPTION>
OPTION
NUMBER OF SHARES PRICE PER SHARE
================================================================================================
<S> <C> <C> <C>
Outstanding at December 31, 1992 4,538,612 $ .23 - $ 7.02
1993 Activity:
Options granted 4,228,600 4.69 - 8.13
Options exercised (734,580) .23 - 6.63
Options cancelled (215,000) 1.85 - 7.07
-----------------------------------
Outstanding at December 31, 1993 7,817,632 .50 - 8.13
===================================
1994 Activity:
Options granted 788,100 6.69 - 12.82
Options exercised (587,100) .50 - 7.99
Options cancelled (135,800) 3.00 - 9.63
-----------------------------------
Outstanding at December 31, 1994 7,882,832 .50 - 12.82
===================================
1995 Activity:
Options granted 1,468,874 2.07 - 34.13
Options exercised (1,312,392) .50 - 12.50
Options cancelled (339,488) 2.84 - 22.31
-----------------------------------
Outstanding at December 31, 1995 7,699,826 $ .50 - $34.13
===================================
</TABLE>
There were 1,389,164 exercisable options at December 31, 1995.
In November 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) No. 123, "Accounting for Stock-Based
Compensation." The Company intends to adopt the disclosure requirements of
SFAS No. 123 for the year ended December 31, 1996; therefore, the adoption will
have no impact on the Company's financial position or results of operations.
29
<PAGE> 18
COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STOCKHOLDERS' EQUITY (CONTINUED)
EMPLOYEE STOCK PURCHASE PLAN
Under the Company's Employee Stock Purchase Plan (ESPP), all employees who
have completed six months of continuous employment with 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 ESPP for a period of one year from the date of exercise.
Common stock reserved for future sales totaled 513,185 shares at December 31,
1995. There were 9,300 shares sold at $11.27 per share in June 1995
and 6,833 shares sold at $16.89 per share in December 1995.
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 and vest after five years of
continuous employment with the Company. The Company made no contributions to the
401(k) Plan in 1993. In December 1994, the Company approved a $150,000
contribution to the 401(k) Plan which was distributed in February 1995 to all
full-time employees in the employ of the Company at December 31, 1994. In
December 1995, the Company approved a $200,000 contribution to the 401(k) Plan
to be distributed in February 1996 to all full-time employees in the employ of
the Company at December 31, 1995.
SIGNIFICANT CUSTOMERS AND EXPORT SALES
During the years ended December 31, 1995, 1994, and 1993, one customer accounted
for approximately $17,237,000, $12,655,000, and $10,340,000, or 16%, 20%, and
24%, respectively, of revenue.
<TABLE>
The following summarizes export sales:
<CAPTION>
YEAR ENDED DECEMBER 31,
(In thousands) 1995 1994 1993
===========================================================================
<S> <C> <C> <C>
United States $42,619 $24,033 $17,444
Export:
Japan 48,466 30,919 22,133
Europe 12,243 7,011 3,325
All other 1,215 521 469
--------------------------------
$104,543 $62,484 $43,371
================================
</TABLE>
30
<PAGE> 19
COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STOCKHOLDERS' EQUITY (CONTINUED)
ACQUISITION OF ACUMEN, INC.
On July 21, 1995, the Company acquired all of the outstanding shares of Acumen,
Inc., a privately-held developer of machine vision systems for semiconductor
wafer identification. The purchase price of $13,950,000 includes $8,452,000 in
cash, 96,140 shares of Cognex stock with a fair value of $4,170,000, and stock
options valued at $1,328,000 million. At December 31, 1995, $3,125,000 of the
purchase price remained to be paid out in cash or in stock options that vest
through the year 2001. The acquisition is accounted for under the purchase
method of accounting. Accordingly, Acumen's results of operations have been
included in the Company's consolidated results of operations since the date of
acquisition.
The purchase price was allocated among the identifiable assets of Acumen. After
allocating the purchase price to the net tangible assets and to deferred
compensation costs, which are amortized over eight years, acquired technology
was valued using a risk-adjusted cash flow model, under which future expected
cash flows were discounted taking into account risks related to existing
markets, the technology's life expectancy, future target markets and potential
changes thereto, and the competitive outlook for the technology. This analysis
resulted in an allocation of $2,369,000 to completed technology, to be amortized
over five years, and $10,189,000 to in-process technology which had not reached
technological feasibility and had no alternative future use, and accordingly,
was charged to expense. Goodwill associated with the purchase is being amortized
over five years. At December 31, 1995, unamortized costs associated with the
complete technology amounted to $2,132,000.
<TABLE>
The following summarized, pro forma results of operations assume the acquisition
took place at the beginning of the respective periods and exclude the
$10,189,000 charge for acquired in-process technology.
<CAPTION>
YEAR ENDED DECEMBER 31,
(In thousands, except per share amounts) 1995 1994
============================================================================
<S> <C> <C>
Revenue $107,572 $65,125
Net income 33,694 15,846
Net income per share .80 .42
</TABLE>
SUPPLEMENTAL STATEMENT OF CASH FLOWS DISCLOSURE
Cash paid for income taxes approximated $7,982,000 in 1995, $5,844,000 in 1994,
and $3,570,000 in 1993.
In 1995, the Company retired certain fully-depreciated property, plant and
equipment amounting to $3,049,000. In 1994, the Company retired certain
fully-amortized leasehold improvements amounting to $211,000 in connection with
leases which expired during the year.
Common stock received as payment for stock option exercises approximated
$397,000 in 1995, $192,000 in 1994, and $300,000 in 1993.
31
<PAGE> 20
COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUPPLEMENTAL STATEMENT OF CASH FLOWS DISCLOSURE (CONTINUED)
<TABLE>
In 1995, the Company paid $6,454,000 in cash, net of cash acquired, as part of
the cost to acquire Acumen, Inc. as follows (in thousands):
<CAPTION>
<S> <C>
Fair value of tangible assets acquired $ 1,026
Liabilities assumed (1,122)
Acquired technology 12,558
Goodwill and other intangible assets 1,288
Issuance of stock and stock options (5,498)
Other liabilities (1,798)
-------
Cash paid to acquire Acumen, Inc. $(6,454)
=======
</TABLE>
SUBSEQUENT EVENT
On February 29, 1996, the Company acquired Isys Controls, Inc., a developer of
ultra-high performance systems that automatically detect and classify surface
flaws and defects on a variety of high value-added materials. Under the terms of
the acquisition, to be accounted for as a pooling of interests, the Company
exchanged 1.4 million common shares for all of the outstanding common stock of
Isys.
The impact of Isys on the revenue, net income, and net income per share of the
combined entity for each of the three years in the period ended December 31,
1995 is not material, and therefore, pro forma information has not been
disclosed.
32
<PAGE> 21
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, 1995 and 1994 and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1995. 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
at December 31, 1995 and 1994 and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1995, in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Boston, Massachusetts
January 26, 1996, except as to the information in the
Subsequent Event note for which the date is February 29, 1996
33
<PAGE> 22
COGNEX CORPORATION -- FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(In thousands, except per share amounts) 1995 1994 1993 1992(1) 1991
=================================================================================================
<S> <C> <C> <C> <C> <C>
Statements of Income Data:
Revenue $104,543 $ 62,484 $43,371 $28,642 $31,548
Cost of revenue 22,543 13,884 10,280 6,488 5,879
---------------------------------------------------
Gross margin 82,000 48,600 33,091 22,154 25,669
Research, development and
engineering expenses 13,190 9,933 6,205 5,622 4,362
Selling, general and
administrative expenses 23,973 16,847 12,183 9,565 8,694
Charge for acquired
in-process technology 10,189
---------------------------------------------------
Income from operations 34,648 21,820 14,703 6,967 12,613
Interest income 2,965 1,462 1,316 1,437 1,399
---------------------------------------------------
Income before provision for
income taxes 37,613 23,282 16,019 8,404 14,012
Provision for income taxes 14,579 7,210 4,871 2,311 4,520
---------------------------------------------------
Net income $23,034 $ 16,072 $11,148 $ 6,093 $ 9,492
===================================================
Net income per share(2) $ .55 $ .43 $ .31 $ .18 $ .27
===================================================
Weighted average common
shares outstanding(2) 41,952 37,150 35,668 34,812 35,294
===================================================
DECEMBER 31,
(In thousands) 1995 1994 1993 1992(1) 1991
=================================================================================================
Balance Sheet Data:
Working capital $119,402 $ 88,619 $51,605 $38,123 $34,206
Total assets 162,172 112,946 60,810 47,987 42,529
Long-term debt -- -- -- -- --
Stockholders' equity 143,916 103,608 55,061 41,110 36,454
<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 splits effective December 18, 1995, September 30, 1993, and February 14, 1992.
</TABLE>
34
<PAGE> 23
COGNEX CORPORATION -- SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
APRIL 2, JULY 2, OCTOBER 1, DECEMBER 31,
(In thousands, except per share amounts) 1995 1995 1995 1995
======================================================================================================
<S> <C> <C> <C> <C>
Revenue $19,437 $23,722 $29,784 $31,600
Gross margin 15,485 18,486 23,249 24,780
Charge for acquired
in-process technology -- -- 10,189 --
Income from operations 7,698 9,603 3,230 14,117
Net income 5,873 7,241 (633) 10,553
Net income per share(1) .14 .18 (.02) .25
Common stock prices:(1)
High 14 3/4 20 1/4 27 5/8 38 1/2
Low 10 1/2 13 1/4 18 1/4 19 1/4
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) .09 .10 .12 .13
Common stock prices:(1)
High 14 11 1/8 11 1/8 13 11/16
Low 6 3/4 5 7/8 6 7/8 8 1/4
<FN>
(1) Adjusted for the 2-for-1 stock split effective December 18, 1995.
</TABLE>
35
<PAGE> 24
COGNEX CORPORATION -- COMPANY INFORMATION
TRANSFER AGENT
The First National Bank of Boston c/o Boston EquiServe, L.P. -- Boston,
Massachusetts
Telephone (617) 575-3100
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 Stock Market, under the
symbol CGNX. As of February 16, 1996, there were approximately 18,000 registered
and non-registered holders of the Company's common stock.
No dividends on the Company's common stock were paid during 1995 and 1994.
36
<PAGE> 1
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:
<TABLE>
<CAPTION>
NAME OF STATE/COUNTRY OF PERCENT
SUBSIDIARY INCORPORATION OWNERSHIP
---------- ---------------- ---------
<S> <C> <C>
Cognex Technology and Investment
Corporation California 100%
Cognex Foreign Sales Corporation U.S. Virgin Islands 100
Cognex K.K. Japan 100
Cognex International, Inc. Delaware 100
Cognex Germany, Inc. Massachusetts 100
Cognex Singapore, Inc. Delaware 100
Cognex Korea, Inc. Delaware 100
Vision Drive, Inc. Delaware 100
VDI Mortgage Corporation Delaware 100
Vision Max, Inc. Delaware 100
Cognex/Acumen, Inc. Delaware 100
</TABLE>
<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 26, 1996, except as to the information in the Subsequent Event note for
which the date is February 29, 1996, on our audits of the consolidated financial
statements and financial statement schedule of Cognex Corporation as of December
31, 1995 and 1994, and for each of the three years in the period ended December
31, 1995, which reports are incorporated by reference or included in this Annual
Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 26, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF COGNEX CORPORATION FOR THE YEAR ENDED
DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 23,911,000
<SECURITIES> 66,729,000
<RECEIVABLES> 25,021,000
<ALLOWANCES> 709,000
<INVENTORY> 12,567,000
<CURRENT-ASSETS> 135,793,000
<PP&E> 27,488,000
<DEPRECIATION> 5,355,000
<TOTAL-ASSETS> 162,172,000
<CURRENT-LIABILITIES> 16,391,000
<BONDS> 0
0
0
<COMMON> 78,000
<OTHER-SE> 143,838,000
<TOTAL-LIABILITY-AND-EQUITY> 162,172,000
<SALES> 104,543,000
<TOTAL-REVENUES> 104,543,000
<CGS> 22,543,000
<TOTAL-COSTS> 22,543,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 37,613,000
<INCOME-TAX> 14,579,000
<INCOME-CONTINUING> 23,034,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,034,000
<EPS-PRIMARY> .55
<EPS-DILUTED> .54
</TABLE>
